Monde Nissin and the lockdown effect

Monde Nissin's [MONDE 16.52 2.82%] Q2/21 net loss of P2.2 billion, down 170% from Q2/20 profit of P3.1 billion, and down 100% from Q1/21 profit of P2.2 billion. In its press release, MONDE said that while net sales increased modestly by about 1.2%, it's increased spending on “new product development and higher advertising and promotion spent for brand building” caused core EBITDA to actually fall 14.5% to P7.2 billion for the first half of 2021.

The company’s food and beverage business saw sales grow 1.7% y/y, but the majority of the growth came in MONDE’s international markets; sales in the Philippines actually fell 1.3% y/y, and MONDE blames this on the extra sales it rang up in 2020 due to “Taal relief” buying and COVID pantry-stocking. Sales for MONDE’s alternative meat business, the Quorn brand, fell slightly (0.6%). MONDE attributes the softening of the market for Quorn in the US and the UK to the relaxing of pandemic restrictions that allowed people to eat outside the home (and presumably ditch their home-cooked Quorn meals).

MONDE said that it increased prices in June to “partly recover rising commodity input costs”, and has made headway on several long-term growth initiatives. Speaking to the second half of 2021, MONDE’s CEO said that the price increases should help take away some of the pressure on MONDE’s margins, but that he is “mindful of the difficult circumstances” that consumers are going through now due to the return to ECQ. He also said that he expects Quorn to demonstrate “much faster growth” in the final two quarters of the year and that he thinks overall revenue growth for the year could come in at the “mid-single-digit” level.

MB BOTTOM-LINE

I have to admit that I was surprised by the softness of these numbers, and a little torn on how I feel about MONDE using COVID lockdowns as both a reason (previous quarters numbers were inflated by lockdown buying) and an excuse (future sales limited by consumers going back into lockdown). Maybe I’m not interpreting the CEO’s takes as he intended, but it sure seems to me like they’re trying to have it both ways.

My initial take was that lockdowns were good for MONDE, so with that, I’d assume that a return to the strictest-level lockdown would be a blessing for MONDE and its stockholders. Now I’m not so sure what to think about it. I’m also a little underwhelmed by Quorn’s sales and by the dismissal of the drop in sales which MONDE attributes, basically, to people regaining their nutritional freedom (and not selected to eat Quorn as much). Unless MONDE’s take is that we will be jumping in and out of lockdowns on the regular for the foreseeable future, it seems unsatisfying to see management end its analysis of the Quorn sales drop where it did. Yes, MONDE has invested to develop new Quorn SKUs and has dropped cash on better marketing for the alternative meat product, but to what end? '

If I were an investor, I’d like to see the company investing hyper-aggressively in areas that would increase as life returns to normal and restrictions are lifted. It’s increased Quorn production capacity (which is good), but it feels like Quorn is losing the battle for consumers’ hearts and minds. Alternative meat is a big business and it is only going to get bigger, but the trajectory of growth here doesn’t feel like it’s achieving escape velocity. Beyond Meat, revenues are projected to have grown 20-35% in Q2. Sure, Beyond Meat is still throwing off losses, but that kind of market share growth is what Quorn is up against.

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