Lower avocado prices cause a miss for Calavo Growers (CVGW)
Calavo Growers reported Q4 EPS of $.34, missing consensus of $.64. Revenue was 9% below consensus estimates.
Avocado volumes were up 3% YOY while prices were 22% lower. Management said both California and Mexico had strong production combined with the lower demand from foodservice pressured prices and margins. Wholesale prices are the lowest level of the past five years, as seen in the following chart. Despite the lower wholesale prices, retail prices have not reflected the large supplies. Consumers do not purchase the same crop size or quality of the product that foodservice does. Management guided Q1 revenue 15% below consensus estimates as the supply and demand environment is expected to remain the same.
Mission Produce went public in October despite the poor track record for single crop equities. Even if the crop has secular demand, growth price swings can reduce the stock to a commodity price tracker. Mission Produce has international customers, which can buffet the price pressure in the U.S. to some extent.
Craft beer tax cut to be made permanent (SAM)
The stimulus bill includes language to make the temporary federal excise tax cuts that small brewers and importers have benefited from over the past three years permanent. The excise tax rate was halved from $7 per barrel for domestic brewers producing less than 2M barrels per year. The tax rate will remain $16 per barrel on the first 6M barrels for larger brewers and importers and $18 per barrel above that. The small 8,300 craft brewers will collectively save $80M annually. Wineries and craft spirits are also included in the lower excise taxes. Distillers currently pay $2.70 a proof gallon instead of the former $13.50 on the first 100,000 gallons. Wineries producing 30,000 gallons or less are currently paying $2,100 per year instead of $5,100. For wineries producing more than 2M gallons (840,000 cases), the excise tax is $1.68M instead of $2.14M.
Boston Beer produced 5.3M barrels last year. The growth of Truly this year puts it over 6M barrels of annual production.
Are Americans drinking more? (BUD)
According to a report in the journal, JAMA American adults are drinking 14% more often during the pandemic. The study’s participants were aged 30-80, so it does not offer younger adults insight. There has been some debate about whether Americans are drinking more during the pandemic. Due to the difference in price in the off-premise and on-premise channels, the calculation is not straight forward for quantity. Nielsen calculated that off-premise beer category volumes would need to increase 22% to offset the loss of on-premise sales, as seen in the following chart. However, that is based on the assumption that on-premise sales are down 90% - which is considerably worse than what has happened. Brewers’ tax deferrals ended in June, so the July excise tax figures provide the first volume statistics for beer production and shipments. According to Nielsen, off-premise beer category sales were up nearly 15% in July, but on-premise sales were down by half.
The Treasury Department reported that total taxable production increased 4.2% YOY in July. Keg production was down 45%. Bottles and cans production increased by 7.8%. Brewers shipped 3.4% more barrels domestically in July than the prior year. Production and shipment do not equate directly to consumption, but with a couple of months of figures, the volume picture should be clear. That will help projections for alcohol consumption in the post-COVID-19 period.
