STZ FQ4 Preview
Constellation Brands will report FQ4 results on April 8th. The Factset consensus EPS estimate is $1.57, while we are modeling $1.60. Management expected distributor inventories to be replenished by the end of the quarter, but it will extend into Q1 in regions based on our distributor call. The wine and spirits division is expected to see a revenue declined of 28% due to the sale of the low-priced wine brands and weak on-premise trends. The beer division is expected to see revenue increase 17% as shipments refill low distributor inventories outpacing depletion. Canopy’s losses have already been disclosed to be $37M in the quarter.
The improved in-stock levels drove an acceleration in depletions in FQ3 and FQ4. The business's depletion trends indicate upside, but several incremental headwinds will limit the upside. Management previously indicated additional headcount at the Obregon brewery, a more modest rollout of price increases, additional shipping costs, and a higher tax rate will all be headwinds for Q4. The most meaningful headwind will be the delay in marketing spend during the pandemic, which shifted major media campaigns to the 2H. Investing some upside for F22 when the difference in comparisons between the first and second half of the year will be extreme makes a lot of sense. The company has easy comparisons for the next two quarters as it laps the Mexican production shutdown. Intra-quarter will also be an extreme contrast between the stockpiling in March and the Mexican production shutdown, which started in early April and was felt a month later.
The roller coaster comparisons will put a lot of Thursday’s focus on management’s F22 guidance, which will include Obregon’s capacity expansion and an unknown on-premise recovery rate. Management may take the opportunity to keep expectations in check for F22 with the swing in YOY comparisons during the year. Management will probably sound much more animated about the business's momentum and new product innovation coming in hard seltzer. Constellation Brands is on our Best Idea Long list.
Grocery sales down less than feared so far (KR)
CPG demand in grocery stores decreased 9% YOY in the week ended March 28, comparing against +28% last year, as seen in the chart below. CPG demand is down an average of 26% in the first three weeks of comparing to the beginning of the pandemic. CPG demand is down much less than expectations against the +65% average for the first three weeks of the pandemic last year.
Produce demand decreased 3% YOY, indicating only a slight decrease in at-home meal consumption. Produce demand was up 12% in the same week a year ago. Beverage alcohol demand was down 8% YOY for the week, improving from -22% in the week prior. Kroger’s SSS are expected to be down HSD% in Q1.
It is important to remember many aspects of where meals are consumed are not back to pre-pandemic levels. Only 20% of the country is fully vaccinated at this point, and even those who are have not shown a quick resumption of pre-pandemic behavior. That will take time. The slower return to previous meal consumption could drag out the negative SSS beyond five quarters.
Craft brewing’s 2020 (SAM)
According to the Brewers Association, the craft brewing trade group, production at craft brewers declined 9% in 2020. The first year of decline saw the production of 23.1M barrels drop below 2016 levels. Craft’s share of the beer market declined to 12.3%, down from 13.6% in 2019 in volume and 23.6% in dollar share. The overall beer category grew 1% in 2020. The beer category, not including FMBs and hard seltzers, saw a 3% decline in production to 186.1M barrels. The retail dollar value of craft beer was $22.2B in 2020, down 22% from 2019. Draft sales of beer declined more than 40% in 2020. Despite the decline in sales and the restrictions to on-premise consumption, the number of craft breweries grew 10.3% in 2020 to 8,764. There were 716 openings and 346 closings. The number of closings in 2020 was similar to the number in 2019. Boston Beer is no longer considered a craft brewer by the trade group due to Truly's growth.
