Chicago, IL – November 21, 2024 – Today, Zacks Equity Research discusses Anheuser-Busch InBev BUD, Constellation Brands Inc. STZ, Molson Coors TAP, The Boston Beer Company Inc. SAM and The Duckhorn Portfolio NAPA.
Industry: Alcoholic Beverages
Link: https://www.zacks.com/commentary/2372530/5-beverages---alcohol-stocks-holding-strong-amid-industry-challenges
Players in the Zacks Beverages – Alcohol industry are grappling with inflation and rising costs for commodities and logistics, leading to increased operational expenses from heightened advertising and marketing spend. These elevated costs are likely to persist and may squeeze the profit margins of alcohol producers.
Despite these challenges, the industry is benefiting from the demand for premium, high-quality products and innovative spirits. Strong momentum in spirits and ready-to-drink (RTD) cocktails is driving growth. Investments in product innovation, premiumization and technology platforms position companies like Anheuser-Busch InBev, Constellation Brands Inc., Molson Coors, The Boston Beer Company Inc. and The Duckhorn Portfolio for continued success.
The Zacks Beverages – Alcohol industry mainly comprises producers, importers, exporters, marketers and sellers of alcoholic beverages like beer, craft beer, ciders, wine, rum, whiskey, liqueurs, vodka, tequila, champagnes, brandy, amaretto, RTD cocktails and malt. Some industry players also produce and sell non-alcoholic beverages like carbonated soft drinks, sparkling waters, bottled water, energy drinks, powdered and natural juices, and RTD teas.
The companies sell products through wholesalers and retailers like supermarkets, warehouse clubs, grocery stores, convenience stores, package stores, drug stores and other retail outlets. The industry participants also sell beer directly to consumers in cans and bottles at restaurants, pubs, bars and liquor stores. Some brewers operate brewpubs or taste rooms at breweries, offering consumers the freshest beer.
Elevated Costs: Players in the alcohol industry have been enduring pressures from the ongoing impacts of inflationary labor, transportation and commodity costs. The industry players have been experiencing elevated ingredient and other input costs. Fluctuating prices of raw materials, such as grains and fruits, have been the key deterrents.
Additionally, elevated expenses for shipping and freight, labor, trucking, fuel, co-packing fees, and secondary packaging materials have been leading to increased costs of sales and higher operating costs. These have been resulting in adverse gross and operating margins for beverage companies.
Apart from elevated input and packaging costs, players in the alcohol industry are anticipated to witness higher advertising and promotional expenses, as well as SG&A expenses, further threatening profitability. Rising brand investments, particularly in media, advertising, production and local marketing, and increased freight to distributors due to higher volumes are resulting in elevated advertising, promotional and selling expenses.
Growing external costs, increased compensation expenses and higher discretionary spending are expected to drive SG&A deleverage. Most industry players expect the trend to continue in the near term, impacting profitability to some extent.
E-Commerce Development & Pricing Gains: Alcohol companies are capitalizing on growth of e-commerce and market recovery, leading to increased volumes. Investments in online and e-commerce platforms have become more significant, with companies adopting advanced technologies to enhance customer engagement.
The expansion of digital capabilities and market recovery position alcohol companies well for growth. Price increases and supply productivity savings are helping counteract cost inflation. Strong marketing strategies and effective commercial execution are also driving sales for alcohol beverage companies.
Premiumization & Product Diversification: Premiumization has been driving growth in the alcohol sector as consumers seek new and refreshing tastes. Beverage companies are expanding their product lines to capture more sales, with a notable increase in demand for premium and high-end products. The market is evolving, with a rise in craft spirits, low-alcohol and non-alcoholic options.
This transformation has led companies to explore beyond traditional categories like beer, whiskey, spirits and wine. Popular trends now include RTD spirits, such as canned wine and cocktails, hard seltzers, cider, and flavored malt beverages. To align with consumer preferences, companies are focusing on innovation and new product offerings.
The Zacks Beverages – Alcohol industry is a 17-stock group within the broader Zacks Consumer Staples sector. The industry currently carries a Zacks Industry Rank #222, placing it at the bottom 11% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates dull near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group’s earnings growth potential.
Before we present a few stocks that you may want to consider for your portfolio, let us take a look at the industry’s recent stock-market performance and valuation picture.
The Zacks Beverages – Alcohol industry has underperformed the broader sector and the S&P 500 in the past year.
The stocks in the industry have collectively declined 14% in the past year, while the Zacks Consumer Staples sector has risen 5.5%. Meanwhile, the Zacks S&P 500 composite has rallied 30%.
Based on the forward 12-month price-to-earnings (P/E) ratio, commonly used for valuing Consumer Staples stocks, the industry is currently trading at 16.07X compared with the S&P 500’s 22.22X and the sector’s 17.27X.
Over the last five years, the industry traded as high as 26.83X, as low as 16.07X and at the median of 21.01X.
None of the stocks in the Zacks Beverages – Alcohol space currently sports a Zacks Rank #1 (Strong Buy) or a Zacks Rank #2 (Buy). However, we have selected five stocks with a Zacks Rank #3 (Hold) to watch from the same industry. You can see the complete list of today’s Zacks #1 Rank stocks here.
Let us have a look at the companies.
Anheuser-Busch InBev: Also known as AB InBev, the company is a global brewing leader with a portfolio of more than 500 iconic brands. BUD’s strong market presence and global footprint provide economies of scale and support growth of multi-country brands. The company continues to benefit from robust consumer demand, strategic investments and a focus on digital transformation. Premiumization in the beer industry has also been a key growth driver.
AB InBev is steadfastly expanding its Beyond Beer portfolio, including RTD beverages like canned wine, cocktails, hard seltzers, cider and flavored malt beverages, further contributing to revenue growth. The Zacks Consensus Estimate for AB InBev’s 2024 sales and earnings suggests growth of 2.2% and 12.5% from the year-ago period’s reported figure. The consensus mark for the company’s 2024 earnings has moved up by a penny in the past seven days. BUD has declined 9.6% in the past year.
Constellation Brands: Based in Victor, NY, this is the third-largest beer company and a leading high-end wine producer in the United States, driven by a focus on brand building and innovation. STZ continues to benefit from its premiumization strategy, with strong performance from the Modelo and Corona brand families, and growth in its Power Brands.
The beer segment has seen robust gains in premium offerings, including traditional beer, flavored varieties, seltzers, RTD spirits and flavored malt beverages. Investments in innovation and consumer trends have fueled the success of product launches while the company advances plans for capacity expansion in Mexico.
Constellation Brands' digital business has also thrived on platforms like Instacart, Drizly and other retailer websites, catering to consumers' preference for convenience — a trend expected to persist. The Zacks Consensus Estimate for STZ’s fiscal 2024 earnings per share has been unchanged in the past 30 days. The consensus estimate for fiscal 2024 sales and earnings suggests growth of 4.5% and 12.5%, respectively, from the year-ago period’s reported figures. The STZ stock has risen 2.6% in the past year.
Molson Coors: The stock of this Chicago, IL-based leading beverage company has risen 2% in the past year. TAP is on track with its revitalization plan, focused on achieving sustainable top-line growth by streamlining its organization and reinvesting resources into its brands and capabilities. Investments, partnerships and product launches, which are part of its revitalization plan, have been aiding the company.
Molson Coors has been committed to increasing its market share through innovation and premiumization. Intending to accelerate portfolio premiumization, TAP has been aggressively growing its above-premium portfolio in the past few years. The Zacks Consensus Estimate for Molson Coors’ 2024 EPS has moved up by a penny in the past 30 days. The consensus estimate for 2024 earnings suggests growth of 6.5% from the year-ago period’s reported figure.
Boston Beer: The company is the largest premium craft brewer in the United States, boasting a strong portfolio of globally recognized brands. It produces beer, malt beverages and cider at its breweries and through contracts. Its emphasis on pricing, product innovation, non-beer category growth and brand development is expected to enhance the operational performance and market position. SAM is driving growth in its Beyond Beer segment, which is outpacing the traditional beer market, a trend projected to continue for years.
SAM has been committed to a three-point growth strategy — revitalizing the Samuel Adams and Angry Orchard brands, implementing cost-saving measures, and fostering long-term innovation. Savings from efficiency initiatives are reinvested in brand development to fuel growth. The Zacks Consensus Estimate for Boston Beer’s 2024 earnings suggests growth of 39.1% from the year-ago period’s reported figure. The consensus mark for the company’s 2024 earnings has moved up 2.6% in the past 30 days. SAM has declined 7.6% in the past year.
Duckhorn: The company, formerly known as Mallard Intermediate, Inc., produces and sells wines in North America. Duckhorn’s brand equity, diversified omni-channel platform and highly flexible supply chain position it to capitalize on the heightened interest and demand for high-quality wine. These have also been aiding NAPA’s sales and volume growth.
The Saint Helena, CA-based company sells wines to distributors. NAPA also sells the same directly to retail accounts and consumers. The Zacks Consensus Estimate for Duckhorn’s fiscal 2024 sales and earnings suggests growth of 20.5% and 5%, respectively, from the year-ago period’s reported figures. The consensus mark for fiscal 2024 earnings has been unchanged in the past 30 days. NAPA has risen 9.6% in the past year.
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Molson Coors Beverage Company (TAP) : Free Stock Analysis Report
Constellation Brands Inc (STZ) : Free Stock Analysis Report
Anheuser-Busch InBev SA/NV (BUD) : Free Stock Analysis Report
The Boston Beer Company, Inc. (SAM) : Free Stock Analysis Report
The Duckhorn Portfolio, Inc. (NAPA) : Free Stock Analysis Report
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