Company Reports

JDE Peet's reported second-half fiscal 2023 results with 4.3% group organic growth, above the company-compiled consensus of 3.7%. Within this, organic growth in Europe, which is the group's most profitable segment, was up 7.9% (volume/mix of 5.2% and 2.6% in price), continuing its expected improvement from a disappointing first half. LARMEA and Peet's performed well, with organic sales growth up 4.7% and 3.9%, respectively, and positive volumes. On the other hand, APAC organic sales growth of 2.1% was driven by price (up 4.9%), with volume declines dragging performance. Adjusted EBIT was down to EUR 1.128 billion from EUR 1.227 billion last year, primarily due to Latin America, Russia, Middle East, Eastern Europe and Africa, or LARMEA's, underperformance amid a high base of comparison, transactional foreign exchange impact, and the brand transition in Russia. Management introduced guidance for fiscal 2024 with organic sales growth at the lower end of the medium-term range of 3%-5% (versus 3.6% in our model), mid-single-digit organic adjusted EBIT growth, excluding Russia's performance, versus 5% growth in our model and free cash flow above the level of fiscal 2023 (EUR 523 million in fiscal 2022). We expect to trim our EUR 30.5 per share fair value estimate for JDE Peet's, largely reflecting cautious organic growth and free cash flow guidance for fiscal 2024 as well as ongoing uncertainty on Russian business.

JDE Peet's reported first-half fiscal 2023 results with 3.5% group organic growth, slightly below company-compiled consensus of 3.8%. Within this, organic growth in Europe, the group's most profitable segment, was the negative surprise of 0.3% versus 2% for consensus, while Larmea and JDE Peet's came in higher than expectations at 10% and 8.6% respectively, partially offsetting underperformance in Europe. Adjusted EBIT was down 7.9% (including foreign-exchange and scope-change effects) slightly better than the negative 9.3% anticipated by consensus. Management confirmed top-line guidance for fiscal 2023 with organic sales growth at the high end of its medium-term range of 3%-5%, but downgraded organic adjusted EBIT growth to the following range: a low-single-digit or low-single-digit decline to an increase (from low-single-digit growth before) compared with 4.6% organic growth and negative 2% EBIT growth in our updated model. From a regional perspective, Europe's underperformance was driven by continued weakness in volumes/mix down 8.6% versus down 12.7% in second-half 2022. This was a result of the lasting effects of second-half 2022 delistings in Europe including Germany, France, and the U.K. during price negotiations (the firm aggressively hiked prices ahead of peers). The firm now believes it will take more time to rebuild lost distribution, but expects products to be back on the shelves at the end of second-quarter 2023. JDE Peet’s is currently discontinuing international brands in the Russian market due to the war in Ukraine. Rebranding the Jacobs brand in Russia resulted in an impairment of EUR 185 million in first-half 2023.

With its advantageous exposure to the coffee and tea markets and alignment with current consumer trends, JDE Peet's enjoys an edge over many of its competitors that are working to optimise their brand portfolios. We believe the company can continue to be one of the drivers of the ongoing consolidation of the coffee sector while delivering solid returns, thanks to its established supply chain position, brand strength, and durable cost advantage.

With its advantageous exposure to the coffee and tea markets and alignment with current consumer trends, JDE Peet's enjoys an edge over many of its competitors that are working to optimise their brand portfolios. We believe the company can continue to be one of the drivers of the ongoing consolidation of the coffee sector while delivering solid returns, thanks to its established supply chain position, brand strength, and durable cost advantage.

JDE Peet's reported fiscal 2022 results in line with preliminary fiscal 2022 results released at the company's strategic update on Jan. 24. Organic sales growth was up 11.3%, behind company-compiled consensus (at 13%), but broadly in line with our full-year estimate (11.8% in our model) and adjusted EBIT was 6% lower versus 4% lower in our model and 3% lower for consensus. Performance was largely in line with guidance given earlier in the year (double-digit organic sales growth in fiscal 2022, but a stable level of gross profit compared with last year as well as free cash flow of over EUR 1 billion versus EUR 1.36 billion realised). Medium- to long-term targets of 3%-5% organic sales growth, mid-single-digit organic adjusted EBIT, and 70% cash conversion are unchanged. Management confirmed guidance for fiscal 2023 with organic sales growth at the high end of its medium-term range of 3%-5% and low-single-digit organic adjusted EBIT growth compared with 4% organic growth and 5% EBIT growth in our model. Therefore, we don't expect to materially alter our EUR 36.50 fair value estimate. JDE Peet's is one of our top picks in European consumer packaged goods, with shares trading in 4-star territory.

JDE Peet's provided an update on its strategic roadmap and released preliminary fiscal 2022 results that included organic sales growth up 11.3%, behind company-compiled consensus (at 13%) but broadly in line with our full-year estimate (11.8% in our model) and adjusted EBIT lower 6% versus 4% lower in our model and 3% lower for consensus. Given that gross profit increased by 3.3%, SG&A was the main driver of the lower-than-expected EBIT number, which is encouraging (as the company continues to invest behind its brands). JDE Peet's will publish its fiscal 2022 financial statements on Feb. 22. Performance was largely in line (if not better) than guidance given earlier into the year ("double-digit" organic sales growth in fiscal 2022 but a "stable level of gross profit compared to last year" as well as free cash flow of over EUR 1 billion). Medium- to long-term targets of 3%-5% organic sales growth, mid-single-digit organic adjusted EBIT, and 70% cash conversion are unchanged. Management introduced fresh guidance for fiscal 2023 with organic sales growth at the high end of its medium-term range of 3%-5% and low-single-digit organic adjusted EBIT growth compared with 4% organic growth and 5% EBIT growth in our model. Therefore, we don't expect to materially alter our EUR 36.50 fair value estimate. JDE Peet's is one of our top picks in European consumer packaged goods, with the shares trading in 4-star territory.

JDE Peet's reported first-half results that included organic sales growth up 15.7%, ahead of company-compiled consensus (12.3%) and our full-year estimate (12.7% in our model), driven by price hikes at 15.9% and a stable volume/mix performance (down 0.2%), reflecting low elasticity of demand and brand strength. Management reiterated guidance for "double-digit" organic sales growth in fiscal 2022 but a "stable level of gross profit compared to last year" (about 1.5% up in our model) as well as free cash flow of over EUR 1 billion (EUR 1.07 billion in our model). Medium- to long-term targets of 3%-5% organic sales growth, mid-single-digit organic adjusted EBIT, and 70% cash conversion are unchanged. Therefore, we don't expect to change our EUR 36.50 fair value estimate materially. JDE Peet's is our top pick in European consumer packaged goods with the shares trading in 4-star territory despite being up about 10% intraday.

With its advantageous exposure to the coffee and tea markets and its alignment with current consumer trends, JDE Peet enjoys an edge over many of its competitors who are currently working to optimize their brand portfolios. We believe the company can continue to be one of the driving factors behind the ongoing consolidation of the coffee sector while delivering substantial returns given its established supply chain position, brand strength, and a maintainable cost advantage.

We don't expect to change our fair value estimates for our European food value chain coverage list due to the recent Russia-Ukraine conflict.

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.

JDE Peet’s advantaged exposure in coffee and tea is in sync with the latest consumer trends and gives the company a head start on many of its peers that are still striving to optimize their brand portfolio. Given its entrenched supply chain position, brand strength, and a durable cost edge, we believe the firm can continue to be one of the leading forces behind the coffee industry’s consolidation while generating healthy returns.

JDE Peet's reported half-year 2021 results with organic growth up 4.2% (up 4.4% for company-compiled consensus), driven by in-home market momentum (up 4.9%, e-commerce up 30%), and particularly the single-serve and bean markets, which grew double digits. Within this, volume was up 3.7% with price contributing a positive 0.4%. Despite an expected heavier reinvestment in marketing and growth capabilities, underlying profit growth was higher at 13.5%, supported primarily by increased gross profit and lower interest expenses. Adjusted EBIT was also ahead at EUR 636 million (versus EUR 610 million for company-compiled consensus, or 4.2% higher). Management reiterated guidance for organic sales growth of 3%-5% in fiscal 2021 and low-single-digit adjusted EBIT growth due to an expected normalization of the advertising and promotion budget from about 5% of sales in 2020 to more than 6% going forward. JDE Peet’s had previously reduced its longer-term EBIT growth target to the midsingle digits from 5%-8%. Although we expect to reduce our EUR 39 fair value estimate by a mid-single-digit percentage after refreshing our model to account for the lower guidance and first-half results, we believe the shares offer value at current levels, trading at about a 17% discount to our fair value estimate.

JDE Peet’s advantaged exposure in coffee and tea is in sync with the latest consumer trends and gives the company a head start on many of its peers that are still striving to optimize their brand portfolio. Given its entrenched supply chain position, brand strength, and a durable cost edge, we believe the firm can continue to be one of the leading forces behind the coffee industry’s consolidation while generating healthy returns.

JDE Peet's reported 2020 results with organic growth down 0.2% (up 0.3% in our model), driven by weakness in out-of-home sales, which were down about 30%. This was offset by strong in-home top-line growth (8.2% and 9.8% in the first and second halves, respectively). Volume continued to be negative in the second half with price contributing a positive 1.8%. Despite negative volume growth, adjusted EBIT growth was higher at 6.2%, but this was driven primarily by a reduction in advertising and promotion expenses, which we do not perceive as sustainable. Management guided for organic sales growth of 3%-5% in fiscal 2021 but cut its adjusted EBIT growth target to the low single digits due to an expected normalization of the advertising and promotion budget from about 5% of sales in 2020 to more than 6% going forward. JDE Peet’s reduced its longer-term EBIT growth target to the midsingle digits from 5%-8% while keeping unchanged its 3%-5% organic sales growth aspiration. Given the new guidance, we expect to reduce our fair value estimate by a mid-single-digit percentage.

JDE Peet's reported half-year results with organic growth down 1.1% (versus up 0.5% for company-compiled consensus and up 0.3% in our model for the full year). Despite negative volume growth, adjusted EBIT margin came in higher at 19.8% (versus 18.6% for consensus and 18.2% in our model for the full year) but this was driven primarily by a reduction in advertising and promotion expenses, which we do not perceive as sustainable in future. Management guided for positive organic growth in fiscal 2020 and adjusted EBIT growth within the midterm target range of 5%-8% (versus 1.4% growth for consensus and 1.3 % decline in our model). We do not anticipate changing our EUR 39 fair value estimate for JDE Peet's despite the profit beat and upbeat full-year guidance as this relies on lower marketing and promotional expenses, which we expect will normalise as the coronavirus situation evolves in future quarters.

We initiate coverage of JDE Peet’s with a EUR 39 fair value estimate and a narrow economic moat rating. Our valuation implies 2021 multiples of 23 times earnings and enterprise value/adjusted EBITDA of about 15, at the high end of our European packaged food coverage, a function of JDE Peet’s exposure in coffee and tea (and overindexation on high-growth subcategories within), categories with above-average growth potential in the global food and beverage industry. We think JDE Peet’s commands a narrow moat, supported by its entrenched position in the supply chain, well-known global, regional, and local brand names, and a cost advantage.

JDE Peet’s advantaged exposure in coffee and tea is in sync with the latest consumer trends and gives the company a head start on many of its peers that are still striving to optimize their brand portfolio. Given its entrenched supply chain position, brand strength, and a durable cost edge, we believe the firm can continue to be one of the leading forces behind the coffee industry’s consolidation while generating healthy returns.