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RBC Confab: What the Big Guys Think

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With everyone suffering a collective case of economic heartburn, it might not have been the best time to discuss health and wellness. But there they were last week at the RBC Capital Markets Consumer Conference: John Mackey, chair and CEO of Whole Foods Market; Chairman Michael Funk, CEO Steve Spinner and CFO Mark Shamber, all of United Natural Foods; Irwin Simon, chair and CEO of Hain Celestial; and CEO Steve Bromley of SunOpta.

This was the same week that witnessed the Dow fall more than 800 points on the week and Washington seized by a sense of anger and skepticism not seen since the days of Watergate. The mood at the RBC event was definitely thoughtful, but relatively upbeat as each company's principal reported that sales were holding up, and that demand for whole health foods and services seems so far to be resisting the pull of larger economic forces. Here are the take-aways from RBC:

WFMI: CEO John Mackey reaffirmed his confidence in Whole Foods operating model, noting that the company's strategy is fundamentally sound. He acknowledged the impact of the economy (along with other factors, including competition and cannibalization) on comps, but believes the long-term direction of the economy and Whole Foods Market is up. The company is focused on highlighting its price/value proposition to the consumer and is somewhat encouraged by some signs of changing perceptions in the media. The company did not offer an update on business trends, but did remind investors that same-store sales comparisons are significantly easier in 2H09. Other issues to monitor include the ongoing FTC battle over the Wild Oats merger and the potential threat of unionization in the event of a Democratic administration.

UNFI: UNFI was possibly the most upbeat of our companies at the conference. The company continues to see good overall sales trends (bulk commodities and basic foods have seen an uptick). Millbrook [Distribution Services, acquired in Oct. 2007] remains a work-in-progress, but management is comfortable with the dilution assumptions included in guidance.

HAIN: Sales and consumption trends remain strong. Management sees benefit from increased "at-home" food consumption and believes the company's strong balance sheet will be an important asset in the current environment. The company also anticipates a lesser impact from commodity inflation and sees potential for meaningful SG&A savings from acquisitions completed in FY-08.

STKL: We did not get the sense that the company has seen any material changes in demand since its fiscal Q2 earnings release. Business momentum remains solid in the Grains & Foods, Distribution and Minerals divisions. The company continues to make efforts to turn around the berry operations. Berry inventory should be back to normal by year-end, and the company anticipates a return to profitability (albeit not back to historical peak margins) in 2009. Finally, the company is working to improve the Ingredients segment margins by optimizing its pricing.

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