1st BATCH OF FILES AVAILABLE NOW!

In recent qtrs BellRing Brands brass has pooh-poohed wave of new protein plays, assuring questioning analysts that they're negligible part of business that mainly won't survive for long in punishing segment that rewards big brands like its own Premier Protein. That tone changed abruptly this week with release of co's Q2 report, which showed growth whacked in part by intense promo activity in crowded sector, along with shoppers' greater price sensitivity, particularly in crucial club channel. "The category remains strong with ready-to-drink shakes up 8%, but the impact of increased competition was more pronounced than we anticipated at the start of the year," acknowledged CEO Darcy Davenport on investor call this morning. Among other ominous signs, while household penetration of protein shakes has continued to grow, fiscal Q2 witnessed the first decline in shakes consumed per household in 5 years. The results sent shares skidding 40% in trading so far today as shocked investors headed for the exits of what had been viewed as a smoother-running protein operator than faltering rival Simply Good Foods, the marketer of Atkins, Quest and OWYN protein brands. BRBR's outlook is not being helped by set of unpredicted headwinds including surging transportation costs thanks to Iran war and rising costs of nonfat dry milk that are crucial for RTD shakes. Now BellRing itself is racing into coupla of those surging categories that it suddenly views as "underserved," with a 42 g performance line dubbed Premier Protein Ultimate and, more surprisingly, its own Premier Protein Sparkling Soda, both due this summer. They'll put BellRing into "two of the most attractive and underserved" segments of performance protein and refreshing protein, as Davenport put it. (Again, these weren't publicly deemed to be underserved even a quarter ago.) Premier Protein Ultimate is 42 g shake line offered in multipacks and single-serves that will break across mass, ecomm and select grocery retailers. Crucially, it also gives co a horse in c-store channel. Premier Protein Sparkling Soda will offer 15 g protein in vibrantly hued cans in 4 fruit flavors. Line's "very clean label" will contain only 5 ingredients, CEO emphasized, noting that it will make BellRing the first scaled protein player to enter segment. That launch should bring in younger consumer to brand even as it expands range of occasions served to afternoon and mid-day snacking. Unidentified "significant mass retailer" is key launch partner, along with "many other" food/drug/mass banners and ecomm, backed by social media campaign.It's not like the numbers paint an apocalyptic picture. Sales managed to stay in positive territory, +1.8%, to $598.7 mil. Premier Protein net sales edged up similar 1.7% on 11.3% volume gain offset by 9.6% price/mix decrease. ItsRTD shakes rose 2.3% on 11.7% volume, -9.4% price/mix. More endemic Dymatize brand suffered 1.9% sales decrease on -6.8% volume, partly offset by +4.9% price/mix. Consumption outside club stores continued to be strong, rising in teens. But gross margin narrowed to 27% from 32.3%, hit by higher input costs including Trump tariffs, "unfavorable price/mix" and higher freight costs stemming from Iran war. Input costs had already been hit with hike in whey protein used in powdered products but newer rise in nonfat dry milk used in the shakes came as more of a surprise. Operating profit dropped 31% to $66 mil as co invested more in ads and promos to protect share and dealt with those rising inputs. "We're not satisfied with our current performance," Darcy emphasized to listeners this morning. "We're acting with urgency to position the company for improved performance."For 6 mos sales are up 1.3% to $1.2 bil. Operating profit is off 31% to $144.5 mil. For full year, BRBR now is predicting sales ranging from flat to up 2%, a far cry from the double-digit growth that investors have come to expect from robust protein category.Today's q&a marked first time Davenport hadn't taken essentially dismissive view of new wave of protein players that have jammed into segment in recent years. Citing "something like 40 new competitors over the past 18 months," she acknowledged that "as the #1 player we're going to get affected by that . . . We're largely holding share, and gaining share outside club, though it's costing us more than expected." And she did acknowledge that things are changing in category. For one, those insurgent brands are more beverage-focused than nutrition-focused and "bring in new consumers, which is good for the category" and "we're closely monitoring to see whether we should launch innovation in those specific categories . . . We will compete in some of the areas we think are incremental and interesting."Her worldview hasn't completely changed. She's still expecting a shakeout that will reward established brands that boast high household penetration, aided and unaided awareness, scientific cred and robust production networks. Indeed, that winnowing may already be occurring. "The group we saw a year ago is different than the one we see now," she observed. "A couple are doing well and will make it, but there will be a lot of churn in that group." As inevitable shakeout proceeds, "it will be brands with strong repeats that ultimately win, and we'll be one of those." But she allowed "there can be multiple winners." For now, it's painful period because those insurgent brands "are not acting very rationally" with intensity of promos.On call this morning, one analyst seemed skeptical that BRBR brass wouldn't have seen this coming at time it issued last full-year guidance in Feb. Or were execs just holding out? Not at all, Davenport insisted. She cited "new information we had since our February guidance," including the acceleration in protein costs, an unanticipated inventory charge discovered in late Mar and an Iran war that "none of us predicted." Not least, competitive intensity ratcheted up starting in Feb/Mar, with some insurgents on promo 60% of the time. As noted, Davenport does not believe that will prove sustainable for them.

BellRing Brands Shares Tumble as Q2 Growth Gets Whacked by Insurgents' Promos, Consumer Cutbacks; Jumping into Protein Soda This Summer; Also Adding 42 G Performance Line

Publishing Info