Last private results (VWE)
Vintage Wine Estates reported its FQ3 results for the three months ended March 31, its last quarter as a private company. Sales grew 2.9% YOY. Wholesale revenue declined 10% compared to a 7% decrease in the previous quarter. Wholesale case volumes normalized from a strong ship-in during the onset of the pandemic. DTC revenue grew 33.5%, accelerating from 21.4% sequentially. DTC growth was driven by telemarketing and e-commerce sales, partially offset by less lower-priced products. B2B revenue grew 0.8% after two consecutive quarters of 50%+ growth. Lower private label sales offset growth in custom product sales. The weakness in on-premise and the shift to DTC continued in Q3. Case volumes declined 13.8% with the shift in segment mix in the quarter.
Gross margins contracted 20bps YOY to 61.1%, with the channel shift nearly offsetting higher supply channel costs. SG&A grew 21% YOY with additional merger expenses. The profitability in each segment improved, offset by an increase in corporate/other expenses. Adjusted EBITDA of $6.4M was flat due to additional merger expenses.
Management reaffirmed its guidance for the year of $220M in net revenue and $46M of adjusted EBITDA. That implies revenue of $56M and adj. EBITDA of $16M in Q4 excluding acquisitions. VWE closed on the acquisition of Kunde for $60M after the quarter. Management has cash on the balance sheet of $117M and net debt of $128M to seek acquisitions. We expect management to be active in M&A in its first year.
Mexican beer imports hold steady (STZ)
Alcohol import and export results were reported through April 2021, as seen in the chart below. Total beverage alcohol imports declined by 1% by value over the last 12 months and grew by 5% over the last three months. 35% of all imported beverage alcohol came from Mexico over the last 12 months. Total imports from Mexico were up 39.5% for the month and are up 8.7% YTD. Total beverage alcohol exports declined by 4% by value over the last three months. 25% of all exported beverage alcohol went to Canada.
Imported beer grew 5% by volume and 6% by value over the last 12 months. Over the last three months, imports grew by 5% by volume and grew 8% by value. 73% of imported beer by value comes from Mexico. Constellation Brands represents a majority of Mexican beer imports and 60% of imported beer. The latest three months indicate growth in price/mix.
Imported packaged spirits by volume grew 10% in the last three months and grew 7% by value. Imported packaged wine volumes grew 12% and grew 10% by value over the last three months. As a result, exported packaged wine over the last three months grew 16% by volume and 21% by value.
Drought monitor (AVO)
According to the Drought Monitor, another dry week with above-average temperatures has worsened the severe drought in the Western U.S. All California, Oregon, Utah, and Nevada are in drought conditions. 88% of the Western U.S. is in a drought as of this week. The drought has caused water shortages and has raised concerns for this year’s wildfire season. The following chart shows that the country experiencing “exceptional drought” is the most severe since 2011. California is the largest agricultural producing state and the largest grower of fresh produce. California as a whole is suffering the worst drought since 2014, which was the driest year on record since record-keeping began in 1885. Several agricultural products will be impacted by California's importance. Tree crops are particularly vulnerable to drought, with citrus, avocado, and almond trees expected to be impacted.
