Glanbia: Slow Start to the Year, but Guidance Increased Amid Improved Input Cost Visibility

No-moat Glanbia GLB reported a 2.6% like-for-like decline in revenue growth in its first-quarter trading update, driven primarily by a significant volume decline in the nutritional solutions segment. Despite this underwhelming performance, management upgraded slightly full-year 2023 adjusted EPS growth guidance to 7%-11% from 5%-10% previously. This was motivated by improved input cost visibility for the full year (especially in regard to whey), with the group now expecting the performance nutrition segment to deliver an EBITA margin in the range of 12.5%-13.5% (compared with guidance of above 12.5% previously). The EBITA margin outlook for the nutritional solutions segment is unchanged at 12%-13%. The updated guidance aligns with our 2023 forecast and we therefore reconfirm our fair value estimate of EUR 13. Shares appear fairly valued at current levels.

Revenue for the nutritional solutions segment decreased by 16.4% on a like-for-like basis in the period (1.0% from price, negative 17.4% from volume) driven primarily by a destocking trend among its customers, especially those in North America. Given a slight decline in consumption in some key areas (such as vitamins and minerals) and a relative lack of supply chain issues recently, customers have been feeling comfortable with lower stock levels. Management expects this trend to normalize in the second half, which should result in low-single-digit volume decline for the segment by year-end.

The performance nutrition segment posted like-for-like revenue growth of 4.6% (14.1% from price, negative 9.5% from volume). The brand Optimum Nutrition (60% of sales in the quarter) continued to deliver strong performance with like-for-like revenue growth of 21% and positive volume development. As expected, the SlimFast brand (12% of sales in the quarter) continues to be a significant drag on the segment’s performance, with the brand delivering a 28.3% like-for-like decline in revenue growth for the period..