Best idea long (TAP)
EVENT DETAILS:
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We are hosting our Molson Coors Black Book presentation today at 2 PM. We see 30% upside from the combination of higher than expected revenue and EPS estimates and a modest valuation. The thesis for our call:
Beer Distributors Index (BUD)
The National Beer Wholesalers Association’s (NBWA) Beer Purchasers Index (BPI) upticked to 52 in May from 49 in April. The BPI is a diffusion index where a reading above 50 denotes expansion in volumes while below 50 indicates contraction.
There were only two categories of beer in expansion territory. Imports were 75, up from 66 in April and 4 above the prior year. Below premium ticked up from 49 in April to 50 in May, up 10 points YOY. Craft beer remained in contraction at 39, but improved from 33 in April. Premium lights were 49, up one point from April and one point YOY. Premium regular was 43, improving from 32 in April. The at-risk inventory reading increased from 55 in April to 61 in May.
Much of the at-risk inventory increase is AB InBev products as the company struggles to slow down production while demand has dropped.
Craft Divested (STZ)
Constellation Brands has made the strategic decision to divest its Craft & Specialty beer business. Constellation Brands is selling the Funky Buddha Brewery and Four Corners Brewing brands back to the original founders. In the past three years, Funky Buddha production decreased by 14% in 2022, increased by 15% in 2021, and decreased by 10% in 2020. In Q4 Constellation Brands recorded a $66.5M impairment for its craft beer division. The company paid >$100M for Funky Buddha in 2017. Four Corners was valued at $10M in 2021, but last year Constellation Brands took a $6M impairment charge. Production at Four Corners has been in steep decline after a 52% decrease in 2022 and a 34% decrease in 2021. Constellation Brands continues to pare down its portfolio after selling off low-priced wine brands and Ballast Point. Constellation Brands has had poor capital discipline when it came to acquisitions in the past. Since the super voting share class has been merged there is reason to believe management will be more focused on the Mexican beer brand business.
CA Liquor law (DEO)
California State Bill 277, which would allow beer and wine retailers to sell low ABV spirits beverages, was unanimously passed in the state Senate. The bill will now be re-referred to the committee on appropriations and then moved to the Assembly for consideration. Currently, retailers in California need a separate license to carry spirits-based RTDs. As a result, more than 28,000 locations in California sell beer and wine-based RTDs compared to 14,000 locations that sell spirits-based RTDs. Spirits-based RTDs have momentum in beverage alcohol currently. Reducing the tax penalty as well as increasing the number of retail locations is a focus of the spirits industry.
