Sovos Brands’ Double-Digit Volume Makes Money, Industry Slumps

Sovos Brands achieved double-digit volume growth last year, offsetting price-driven unit declines among many of its US food peers.

While US grocery manufacturers have raised prices in several waves to combat headwinds of cost inflation, volumes have tended to decline, albeit with a boost in top-line revenue. Even so, the general trend of thought has been that elasticities have held up compared to historical levels.

Sovos Brands, the Italian supplier of sauces and ready meals, saw volumes increase 10.8% in the year to December 31, despite price increases of 8.7%. That was below the “low double-digit” cost inflation the company experienced over the 12 months, prompting another round of price increases in February.

Alluding to the possibility of a US recession, Sovos Brands CFO Chris Hall, during an analyst call yesterday (March 8) with Chairman and CEO Todd Lachman, suggested that the relationship between the price and volume could change in the course of the new financial year. .

“We expect our growth to be balanced between volume and price, with prices subduing throughout the year as we outperform last year’s stock. We also assume elasticities will normalize given the potential for macroeconomic challenges to materialize,” Hall told analysts during a discussion of 2022 results.

On a positive note, inflation appears to be easing for Sovos Brands, as Hall said he sees cost pressures “moderating through 2023,” adding that “right now, we’re more in the mid-range of a digit”.

Sovos Brands has been built through mergers and acquisitions, but the Colorado-based company announced the sale in January of Birch Benders, a provider of pancake and waffle mixes.

The company will now focus on investing in and driving sales of its Rao’s, Michael Angelo’s and Noosa Yogurt brands.

Chief Executive Lachman said yesterday that he aims to boost sales at Rao’s to US$1bn. The brand features Italian sauces, pastas, frozen entrees, and soups. Rao’s sales rose 34.9% last year on an organic basis to $580 million and a new range of frozen pizzas with the brand’s sauces are expected to launch to retailers in 2023.

Rao’s accounted for more than half of the company’s total revenue of $878.4 million, an increase of 19.5% on an organic basis.

“Our continued efforts to create a more focused portfolio allow us to direct more resources and investment toward our most significant value creation opportunities, markedly accelerating Rao’s net sales to $1 billion and beyond,” said Lachman.

The gap between volume growth and prices was more pronounced in the last quarter of last year: 16% versus 12.4%. “The combination of our pricing and productivity efforts in 2022 will provide a tailwind as we enter the first half of 2023,” said Chief Financial Officer Hall.

For the new year, Sovos Brands has set sales guidance in a range of $900-$925 million, representing 10% to 13% organic impression.

Lachman said of the 2022 volume-price ratio: “Importantly, our top-of-the-line performance was primarily driven by volume rather than price, which sets us apart from most of our packaged food peers.”

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James D. Brown
James D. Brown
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