How real is the thirst for beverage stocks? 🥤
👥 @KungFuInvestor & MKM Partners’ Bill Kirk break down how the beverage industry is being impacted by inflation pressures and highlight some of the top picks in the space w/ @NPetallides:
📊 $PEP $STZ $TAP https://t.co/3dml2wMC9l
— TD Ameritrade Network (@TDANetwork) March 25, 2022
- 4Q2021: +7% net pricing and +5% volume = 12% organic sales growth; higher prices isn't hurting demand
- long term target of 4-6% organic sales growth
- They have weathered record commodity costs before – crude oil was higher in 2008 and sugar prices were 70% higher in 2011. This isn’t Pepsi’s first rodeo and management is confident they can work through this challenging inflationary period.
- They believe they will come in at 6% organic sales growth in 2022; Frito Lay – opportunities to capture new occasion and expand to adjacencies across salty snacks
- Concerns of rising inflation due to Ukraine-Russia conflict; Pepsi 4% of sales in Russia, which contributed strong growth in 2021
- 4Q: increased dividend by 7% and announced $10B share repurchase program through 2026
Constellation Brands (STZ)
- “In order to mitigate some of these cost headwinds, we intend to take incremental price that will be staggered throughout the first half of CY2022.” – Constellation Brands 1/6/22
- Agreement with KO to launch a new line of FRESCA Mixed spirit-based RTD cocktail
- Market is pricing in potential dilutive acquisition of Monster Beverage. This doesn't make a lot of sense because there isn't much overlap to create significant cost synergies. It would make more sense to do a similar partnership like the deal with KO. Constellation has the strongest distribution network – it has a lot of value.
- Management sees beer net sales growth of 10-11% in 2022; EPS growth of +8.6% at the midpoint of their range
- Margins are being hurt by increased capital investments in Mexico of $5B over the next 4 years; but it shows management’s confidence in the growth of the business.
- Modelo is the #2 beer brand and has largely avoided brand extensions. They are now rolling out brand extensions like Ranch Water (spiked sparkling water), Modelo Chelada
Are beverage companies well positioned to handle inflation? How are you making adjustments with your shopping?
By Chris Wang
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