Brown Forman shares react to distributor stocking levels (BF.B)
Brown-Forman shares increased 10% after reporting FQ1 EPS results topped consensus expectations of $.30 by $.10. Brown-Forman reported an FQ1 sales decline of 2% and underlying net sales growth of 3% after adjusting for a 5% change in distributor inventory levels. When the company reported, FQ4 distributors were reacting to the drop in sales from the stockpiling surge in March. The US grew 9%, Developed International markets increased 12%, Emerging markets decreased 3%, and Travel Retail fell 63%. In the US, the company is seeing consumers spend for everyday luxuries and the long-term trend of spirits taking share from beer and wine. The company is not seeing trading down in the developed markets. The company's core Tennessee Whiskey volumes were flattish in the US with off-premise growth offset by on-premise declines of ~60% and travel declines. Management is not planning for the on-premise business will not be fully recovered by fiscal year-end, putting the company's off-premise sales strength in perspective. Gross margins contracted 320bps due to higher agave input costs and an unfavorable mix. Advertising spend fell 34% as the Kentucky Derby was delayed, but should accelerate in FQ2. On-premise trends have leveled out in June and July in the US but have picked up some in International markets. The company's long-term growth prospects are attractive. Still, the valuation does not reflect current or medium-term projections as much as it does the strength of its brands, international growth opportunities, and long-term market share trends.
Beer category sales steady (STZ)
Total off-premise alcohol beverage sales increased 18% for the week ended August 22. Wine sales grew 17.4%, and spirits grew 26.2%. Off-premise beer category sales grew 15.4% for the week, as seen in the chart below. Core beer sales, excluding hard seltzer and FMBs, increased by 9.8%. Hard seltzer sales grew 113% vs. 123% the prior week, representing a 10.2% share of the beer category. The top three growth hard seltzer packages for the latest four-week period are White Claw variety pack 2, Truly Hard Seltzer Lemonade mix pack, and Corona Hard Seltzer variety pack. Craft beer grew 14.1%, super premiums grew 21.8%, and Mexican imports grew 12.8% (up from 11.2% the prior week). Inventory levels of Mexican imports have been improving each week since the resumption of production in Mexico.
Small craft breweries hurt the most (SAM)
At the brewery, sales account for half of the small breweries'' volume and sales are down 65%. Those breweries that produce fewer than 1,000 barrels annually comprise 75% of craft breweries. Sales of kegs into the on-premise channel are down 95%, as seen in the following chart. The on-premise channel accounts for 44% of small breweries volume. Packaged beer sold into the off-premise channel comprises only 6% of the small breweries'' sales, but those sales are up 10-15%. Total sales for small breweries are down 70-75%. For all craft brewers during the pandemic total off-premise channel sales increased 15.4% while local craft sales were up 13.6%. The number of breweries adding delivery has grown 31% to help offset the sales declines. Breweries offering delivery through third-party services have only increased by 4%.
