Beer - Where to Be in 2024 (BUD, SAM, STZ, TAP)
We are hosting our Beer Industry Outlook call today at 2 PM ET.
We are presenting our 2024 Consumer Staples themes black book on the Beer Industry on Tuesday. We think updating our positioning in our 2024 outlook and 2023 review of the beer sector is important. 2023 was a year of muted stock price returns for the brewers but a dynamic year for market share changes.
We are making several rating changes in conjunction with our Beer Industry 2024 outlook.
Constellation Brands is now a Best Long Idea. Management chose not to offset input cost pressures with price increases like the rest of the industry after seeing volume elasticity response. The company’s capacity expansions enabled it to fulfill additional demand growth from the Bud Light share losses. The company’s margin outlook improves as input cost pressures recede. The company’s Mexican beer imports are once again the only growth story in the U.S. beer market. Looking out to the Spring shelf resets, management expects to be the major beneficiary of switches.
Molson Coors moves to the Long Bias list. Expectations for lapping the Bud Light share gains are modest. Coupled with an undemanding valuation, the shares have upside leverage to positive developments. Management used the share gain windfall to de-leverage the balance sheet, increase marketing spend, and make incremental investments. What management can not do is turn the industry’s declining sales trends for light beer.
AB InBev is now a Best Idea Short. Consensus expectations for 2024 assume 2023 simply did not happen, but the company competes in a category facing secular decline. The company’s valuation also looks past the challenges of 2023. Aggressive price increases endanger the company’s growth formula. 2024 has easy comparisons, but its U.S. brands require more investment. Shelf space losses are a key risk in the U.S. in the spring which will require management’s focus and margins to offset. A strike at U.S. plants, slower growth in Central and South America, and the threat of economic contagion in China raise the risk profile for 2024.
Boston Beer is now a Short Bias Idea. The company’s growth is wholly dependent upon Twisted Tea which has successfully defended its subcategory from competitive entrants to date. The only beer subcategory more secularly challenged than craft beer is hard seltzer. We expect another challenging year for the company outside the Twisted Tea business. We are seeking more conviction in the timing of a slowdown for Twisted Tea.
Event Details:
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Our updated position monitor:
Store brand openness (PRGO)
According to 84.51°, a Kroger-owned data analytics company, the OTC healthcare category is one in which consumers are most willing to switch to store labels. Consumers said they recognized that the quality is similar, and the variety, size, and selection meet their needs. Perrigo is the leading store label OTC manufacturer. Elevated inflation and price increases by the branded manufacturers are tailwinds for share gains. Reducing some SKUs and low-selling products is a new strategy for the company that will drive higher margins.
