Consumer Staples Themes & Thesis Updates
We are hosting a themes and thesis update for the companies on our long and short idealist. Our call will be at 2 PM EST on Thursday, April 22.
The Hedgeye Macro Team continues to call for Quad 2 in Q2. Consumer Staples stocks underperform in Quad 2. Using the Quads as a backup, we will go through the sub-sectors and our best long and short ideas within.
- 2021 will be like no other year for the consumer staples sector in differentiating the cyclical from the secular. There are numerous investment opportunities because the market is doing a poor job at discerning where the companies belong.
- Our position monitor going forward will only have longs and shorts in ranked order. With that change, we will be making numerous changes to the ranked order of our best long and short ideas.
- We will dig into numerous sub-sectors, including grocery, beer, vertical farming, and plant-based beverages.
- We will explore many headwinds and tailwinds for our covered companies and how that may drive earnings upside or shortfalls.
- We will explain why not every easy comparison is a long and why not every difficult comparison is a short.
Sacre Bleu for French wines (NAPA)
France’s winemakers are currently experiencing challenging weather conditions for their grape crop. In France’s primary wine-growing areas, a frost has impacted 80% of the vineyards. The European Committee of Wine Companies said the frost could cause a yield loss ranging from 25-50% in some regions. The impacted areas have spread across the Rhone Valley, Bordeaux, Burgundy, Champagne, Provence, and the Loire Valley. The French Prime Minister Jean Castex said the vineyards had not faced such devastation since 1991. Exports of French wine and spirits fell 18% in 2020 to the U.S. in part due to the tariffs. A dramatic shift in the weather was especially challenging for the vineyards. Temperatures in the Champagne region went from 80 degrees to 22 degrees in less than a week. The national federation of agricultural holders’ union believes that at least a third of French wine production will be lost. France is the #2 wine supplier to the U.S. at ~$4B with ~12% share by volume and ~30% by value. French wines are the undisputed leader in the top-end segment of the U.S. wine market. Italian wines would likely be the biggest beneficiary from a drop in French supply, but higher-end U.S. wines could also benefit.
2020 beer package mix (BUD)
According to the “Package Mix Report” compiled by the National Beer Wholesalers Association’s Department of Industry Affairs, kegs declined 43.7% in 2020. Aluminum can package increased 10.7% as more consumers shifted to at-home consumption. Glass bottles declined 4.4% overall while import glass bottles increased 4.2%. The overall package mix was 27.7% bottles, 66.5% cans, and 5.8% draft in 2020. In comparison, in 2019, the mix was 29.2% bottles, 60.4% cans, and 10.4% draft. Total production increased 0.6% to 204.8M barrels, the industry’s largest output since 2017.
