Split-off announced (KVUE)
JNJ announced the split-off exchange offer terms for Kenvue. Johnson & Johnson (JNJ) shareholders will be able to select some, all, or none of the Kenvue shares for exchange. Johnson & Johnson currently owns 89.6% of Kenvue and will split-off at least 80.1% of the shares. Kenvue shares will be offered at a 7% discount. The exchange is causing arbs to short Kenvue and go long Johnson & Johnson, so there’s some near-term pressure on Kenvue shares. A spin-off would have distributed between 0.6-0.7 shares of Kenvue per JNJ share.
There are several benefits including a large buyback of Johnson & Johnson shares paid by Kenvue shares and the exchange being tax-free. Kenvue will benefit from having a shareholder base that wants to own its shares rather than distributing the shares broadly to all JNJ shareholders. Johnson & Johnson has taken the approach to do what is in the best interest of JNJ and Kenvue shareholders in the long run, rather than taking advantage of Kenvue to improve the financial condition of JNJ. We expect Kenvue to be actively looking for acquisitions and considering divestitures to enhance the company’s growth rate.
1H Craft beer sales underwhelm (SAM)
Total beer sales increased 2.2% in the first half of the year in the off-premise channel but decelerated to +1% in the most recent 13 weeks. FMB sales were the strongest category with growth of 20.1%, gaining 1.4 share points to 9.3%. Imported beer gained 1.3 share points to 23%. Hard seltzers were the weakest with a decline of 17.8%. Domestic premium beer lost 0.6 points to 25.4% and domestic super-premium lost 0.2 points to 10%. Craft beer sales decreased by 0.3% in the first half of the year. There has been a pickup recently with the last 13 weeks seeing sales increase 0.9%. Convenience stores are the strongest channel for craft beer with sales growth of 7.5% led by FMB growth of 24.6%.
Boston Beer reports Q2 results on Thursday. Embedded in consensus expectations is that Q2 results will be the end of the sales declines and margin contractions with Q3 seeing growth and expansion. Truly is underperforming the hard seltzer category which remains in decline. With craft beer also not seeing growth, Boston Beer relies on Twisted Tea for growth.
Logistical challenges (ZVIA)
Zevia preannounced weaker sales in Q2 as a result of logistical challenges. Zevia is guiding Q2 revenue to $42M from prior guidance of $48M-$51M. Management said demand remained strong following a price increase in Q2 while the new brand design rolled out, but the company encountered fulfillment challenges. COO Quincy Troupe also resigned. In many cases, logistical constraints would be viewed as one-time. In Zevia’s case, the market will not give the company a pass. It’s just two years too late.
