The US Federal Reserve continued with its steep tightening agenda for monetary policy in the United States on Wednesday, raising the policy rate by 75 basis points to 150-175 bps. (1)
As the Fed ratches up its clear agenda to stamp out inflationary pressure in the world’s biggest economy, pundits have increasingly been sounding the recession alarm. (2)
In fact, Bank of America’s monthly Fund Manager Survey (which came out Tuesday evening of this week) showed an all-time low in investor optimism on global growth potential among large money managers, with expectations of corporate profits falling to its lowest levels since September 2008, when Lehman went under. (3)
In other words, folks in the know are in the basement in terms of sentiment, with the real economy in focus.
That should push investors toward a focus on recession-proof names, including consumer staples, alcohol, tobacco, and gambling, which tend to hold up during tough economic periods.
Given the pandemic reopening process, which is pushing rising business for bars and pubs, alcohol may have an extra tailwind during this period. As such, stocks in the alcohol space may have multiple reasons to outperform over the near term. (4)
We take a look at a few of the most interesting names in the alcohol and spirits space below.
Boston Beer Co. (NYSE:SAM) engages in the production of alcoholic beverages. Its brands include Truly Hard Seltzer, Twisted Tea, Samuel Adams, Angry Orchard, Hard Cider and Dogfish Head Craft Brewery.
Boston Beer produces alcohol beverages, including hard seltzer, malt beverages, and hard cider at company-owned breweries and its cidery, and under contract arrangements at other brewery locations.
Boston Beer Co. (NYSE:SAM) recently announced the Canadian debut of ‘TeaPot’, a new line of cannabis-infused iced tea beverages. Developed and formulated alongside Boston Beer’s cannabis subsidiary BBCCC Inc., and Windsor-based Peak Processing Solutions (“Peak”), TeaPot is BBC’s first infused beverage offering which will be available in select Canadian provinces commencing July 2022.
“We congratulate our partners at The Boston Beer Company on the exciting launch of TeaPot – a unique iced tea crafted with natural flavours and infused with our most distinguished cultivars that we expect will land as the best cannabis-infused beverages in Canada,” said George Scorsis, CEO and Executive Chairman, Entourage. “The BBC team has a storied history and pedigree for producing some of the most beloved craft beverages in North America and we’re thrilled to be introducing yet another consumption method for the canna-curious consumer and growing self-care market. Together, our consumer-savvy, quality-driven approach to product development has made for a complementary collaboration alongside Peak, our processing and bottling partner, ensuring every beverage is prepared with the highest care and excellence. TeaPot will be an instant hit this summer as it debuts in select provinces starting in July, with eventual nationwide distribution expected throughout the year.” (5)
While this is a clear factor, it has been incorporated into a trading tape characterized by a pretty dominant offer, which hasn’t been the type of action SAM shareholders really want to see. In total, over the past five days, shares of the stock have dropped by roughly -10% on above average trading volume. All in all, not a particularly friendly tape, but one that may ultimately present some new opportunities. Over the past month, shares of the stock have suffered from clear selling pressure, dropping by roughly -16%.
Boston Beer Co. (NYSE:SAM) managed to rope in revenues totaling $430.1M in overall sales during the company’s most recently reported quarterly financial data — a figure that represents a rate of top line growth of -21.1%, as compared to year-ago data in comparable terms. In addition, the company is battling some balance sheet hurdles, with cash levels struggling to keep up with current liabilities ($15.8M against $245.5M, respectively). (6)
1812 Brewing Co. Inc. (OTC US:KEGS) bills itself as an operator of and investor in companies in the craft beer industry. The company expanded its production capacity significantly over recent quarters after moving its original equipment and making additions to its capacity, driving an 83% expansion in production potential. It also took advantage of underpricing in the industry during the pandemic to acquire a second brewing system that was more than 4.2x larger than its original system and added additional fermentation tanks, driving its capacity another 1,000% higher.
From 2005 to 2021 the Craft Beer industry grew by more than 300%. The Craft Beer industry continues to grow faster than the economy with growth anticipated to outpace US economic growth by 100% over the next five years. The beer industry writ-large is extremely recession-resistant, as per capita alcohol consumption rarely abates and has even increased during difficult economic times. The Craft Beer industry is highly fragmented, with over 8,000 craft breweries nation-wide. Any players looking to consolidate the industry will have that opportunity. (7)
1812 Brewing Co. Inc. (OTC US:KEGS) just put out an interesting shareholder update: “I am pleased to address shareholders at this critical time to take inventory of our progress and accomplishments to date, as well as look forward towards what we hope to accomplish. KEGS is an operator of and investor in companies in the craft beer industry. The Company seeks to build a nation-wide network of craft breweries to develop and foster respective brand growth at the local, regional, and national level. KEGS looks to build a network wherein certain economies of scale can be shared across it such as production, distribution expansion, inter-member contract brewing, new product development, sharing of best brewery practices and scale logistics and transportation. The network is to be built through investment by 1812 Brewing Company while maintaining the members’ respective local and regional uniqueness, brand autonomy and direct involvement with its consumers. The Company seeks to be an “incubator” of growth for its holdings in the industry.” (8)
Key catalysts include: KEGS recently acquired a high speed bottle labeling and filling station that is now producing at a rate of 1,500 bottles per hour. The company expects productivity to increase by another 100%, with progress dialing into the equipment’s maximum output that is progressing well. According to its release, continued progress will be the key to releasing other bottled products in its portfolio.
KEGS will also aggressively pursue restructuring the Notes of KEGS’ two largest convertible note holders. Management is committed to eliminating these Notes. As stated previously, KEGS is seeking a major acquisition or series of acquisitions. To help accomplish this, KEGS engaged Tully & Holland, a highly regarded Mergers and Acquisitions investment bank specializing in advising consumer products companies such as breweries.
KEGS has also begun early-stage discussions with a number of breweries – both small and large – for potential acquisition and/or investment. Management hopes to consummate a transaction in the coming weeks. That could be huge news for the stock.
1812 Brewing Co. Inc. (OTC US:KEGS) Chairman and CEO, Tom Scozzafava, continued on to state, “Our desire is to up-list KEGS to NASDAQ. The most likely scenario under which this would happen is through the acquisition of a significantly larger microbrewery and a simultaneous NASDAQ up-listing. We will aggressively pursue this strategy.”
Constellation Brands Inc. (NYSE:STZ) engages in the production, marketing, and distribution of beer, wine, and spirits. It operates through its Beer, Wine and Spirits, and Corporate Operations and Other, and Canopy segments.
The Beer segment includes imported and craft beer brands. The Wine and Spirits segment sells wine brands across all categories-table wine, sparkling wine, and dessert wine-and across all price points. The Corporate Operations and Other segment comprise costs of executive management, corporate development, corporate finance, human resources, internal audit, investor relations, legal, public relations, and information technology. The Canopy segment consists of canopy equity method Investments.
Constellation Brands Inc. (NYSE:STZ) recently announced that Joseph Suarez will assume leadership of the company’s investor relations function effective July 1, 2022. Suarez will serve as a member of the company’s corporate communications and finance leadership teams and will have oversight responsibility for all aspects of Constellation’s investor relations strategy development and execution. Patty Yahn-Urlaub, who has served as Constellation’s investor relations lead for the past 15 years, will retire on July 22, 2022, and will work closely with Suarez over the coming weeks to ensure a seamless transition of responsibilities.
“On behalf of our entire Constellation Brands family and all those who had the pleasure of working with her, I want to thank Patty for her contributions to our company and our investment community over the years, and wish her the absolute best in her retirement,” said Mike McGrew, Executive Vice President and Chief Communications, CSR & Diversity Officer at Constellation Brands. “We look forward to the continued success of our investor relations function under Joseph’s leadership. Joseph brings a well-rounded set of leadership experiences in commercial operations, governance, finance, and investor relations to this role. His strategic orientation and understanding of capital markets will serve both our company and investors well in the years to come.” (9)
While shares have been sinking with the market, STZ has a track record that includes a number of dramatic bounces. In addition, the company has seen a growing influx of trading interest.
Constellation Brands Inc. (NYSE:STZ) has a significant war chest ($199.4M) of cash on the books, which must be weighed relative to about $2.7B in total current liabilities. One should also note that debt has been growing over recent quarters. STZ is pulling in trailing 12-month revenues of $8.8B. In addition, the company is seeing major top-line growth, with y/y quarterly revenues growing at 7.7%. (10)
Other key names in the alcohol space include Anheuser-Busch InBev S.A. ADR (NYSE:BUD), Molson Coors Beverage Co. (NYSE:TAP), Diageo PLC ADR (NYSE:DEO), Ambev S.A. ADR (NYSE:ABEV), and Heineken N.V. ADR (OTC US:HEINY).
References:
- https://www.cnbc.com/2022/06/15/fed-hikes-its-benchmark-interest-rate-by-three-quarters-of-a-point-the-biggest-increase-since-1994.html
- https://www.forbes.com/sites/jonathanponciano/2022/06/15/fed-authorizes-biggest-interest-rate-hike-in-28-years-as-experts-worry-its-fight-against-inflation-will-spark-recession/
- https://www.bloomberg.com/news/articles/2022-06-14/stagflation-fears-surge-and-sentiment-is-dire-in-bofa-survey
- https://www.nasdaq.com/articles/3-beer-stocks-that-provide-shareholders-with-recession-proof-dividends
- https://finance.yahoo.com/news/entourage-health-announces-canadian-debut-114000940.html
- https://www.marketwatch.com/investing/stock/sam?mod=search_symbol
- https://www.globenewswire.com/Tracker?data=MAHUoZhLpRNz_k5jWSe0ddxkT4wHZnv290m5aOod8tNxGMxGS4tqygZvLEgFpMWDhVYo-dgYJXS2u1vFIJfxooWJYyExwCaxwCntZjXTIcFSAmgUWddY4OLd3T8AT5VrFDI8CaAnqNB8du-bFQWNYR1EN9sl9PVGyQhLEUq1Wev1SGIsObzX9daLWuKHSVYbut7TsB1vIKSE-ByCMB0QnA4wX9PP1eMoJ-VoLcdp9ENDiSw5ogR0_-tGbzJ2rQdf
- https://www.otcmarkets.com/stock/KEGS/news/1812-Brewing-Company-Inc-Releases-Shareholder-Update?id=361384
- https://finance.yahoo.com/news/constellation-brands-announces-joseph-suarez-213000717.html
- https://www.marketwatch.com/investing/stock/stz?mod=search_symbol
