National BankIn the past week, National Bank have downgraded just about every stock within their coverage so in retrospect, this is very positive. GLTA
While it continues to face significant headwinds from cost input inflation, National Bank Financial analyst Vishal Shreedhar expects to see continue sales momentum from Premium Brands Holdings Corp. when it reports second-quarter results on Aug. 5, predicting “solid” gains in foodservice as COVID-19 restrictions eased.
“Furthermore, we believe that price increases and organic volume growth will support sales,” he said in a note released Friday. “Heightened inflationary costs will drive price increases further; however, we suspect that PBH will not be fully caught up with inflation, resulting in some margin pressure.”
Mr. Shreedhar is forecasting quarterly EBITDA of $132-million, up 17 per cent year-over-year and above the consensus estimate on the Street of $128-million. He said the gains reelect “solid organic growth, pricing increases, contribution from acquisitions, and a lower SG&A rate.”
“We expect continued cost input inflation in Q2/22,” he added. “While our review of beef/pork commodity prices suggested decreasing year-over-year trends in Q2/22, we believe that the premium cuts that PBH purchased have deviated from these indices and experienced inflation year-over-year. Our view is that PBH will continue to mitigate inflationary pressure through price increases, although there will be a lag (as seen in prior quarters), creating pressure on margins. We anticipate that the growth cadence will improve through the year, as price increases fully take effect, and PBH potentially closes on new acquisitions.”
With the results, Mr. Shreedhar anticipates the focus of investors is likely to be on “evolving” consumer behaviour, noting: “Recall last quarter that management indicated solid quarter-to-date sales trends; we estimate that early Q2/22 sales (first 4 weeks) were up by more than 20 per cent year-over-year. We anticipate continued solid sales performance through the quarter, supported by price increases and organic volume growth. That said, we also acknowledge potential signs of tapering consumer demand, in light of pervasive inflation and reduced featuring.”
After minor reductions to his 2022 and 2023 forecasts, Mr. Shreedhar cut his target for Premium Brands shares by $1 to $136, keeping an “outperform” rating. The average on the Street is $137.78.