JDE Peet's Second Half Ahead With Cautious Guidance on Profit; Shares Up 16% Still Offer Value

JDE Peet's reported fiscal 2021 results with organic growth up 6.1% and up 7.9% in the second half of the year, ahead of company-compiled consensus (4.6% and 5%, respectively) and our estimates (up 4.5% in our model) driven by in-home market momentum (up 5%, e-commerce up 28%) and particularly the away-from-home market, which grew 11.5%. Within this, volume was up 3.5% (versus 3.1% in our model) with price contributing a positive 2.5%, 100 basis points ahead of our estimates and consensus as JDE Peet's "took the lead on pricing in the majority of markets." Despite an expected heavier reinvestment in marketing and growth capabilities, underlying EBIT came in higher at EUR 1.3 billion (versus EUR 1.28 billion in our model), supported primarily by increased gross profit, partially offset by increased investment in marketing. Management introduced guidance for "double-digit" organic sales growth in fiscal 2022 but "stable level of gross profit compared to last year" (about 3.5% lower than our estimates) as well as free cash flow of over EUR 1 billion (EUR 1.1 billion in our model). Although guidance did not include color on below the gross profit line expenses (marketing), with our fiscal 2022 adjusted EBIT forecast 2.9% higher than current year's, we see little scope for meaningful EBIT downgrades. Medium- to long-term targets remain unchanged (3% to 5% organic sales growth, mid-single-digit organic adjusted EBIT and 70% cash conversion). Therefore, we don't expect to materially change our EUR 36.5 fair value estimate. Shares trade in 4-star territory despite being up 16% intraday.