Is this Bourbon’s Canary in a coal mine moment?
I think it’s supposed to go the other way forever. Probably.
Several days ago MGPI revised its earnings forecast downward due to changing market conditions and increased competition affecting sales projections. The stock immediately took an elephant sized dump. They’re down roughly 30pts on the year already, with a steep drop in the last week.
David Bratcher, CEO and president of MGP Ingredients, said-
"We are disappointed with our third quarter results and fourth quarter outlook. Soft alcohol spirits category trends and elevated industry-wide whiskey inventories are putting greater than expected pressure on our brown goods business with a larger impact on our smaller, craft customer base. We expect these industry headwinds to persist at least through the rest of the year and will share details about our 2025 outlook with our fourth quarter 2024 earnings release."
MGPI announced that sales are expected to decline 24% from the year ago quarter to $161.5 million.
Distilling solutions segment sales are expected to decline 36%.
Brown goods sales decline of 22%
Branded spirits segments to decline 6%
Premium sales up 1%
Net income is expected to increase 82%
Adjusted net income to decline 5%
Some things to pay close attention to-
“Elevated” industry-wide whiskey inventories….. This might just be the proverbial canary in the coal mine right here. Aged stocks are increasing across the industry. This could mean a couple of things.
1- No, it won’t get you allocated stuff on the shelves for MSRP. The demand for allocated has not decreased. Try finding Weller red in a store.
2- It will not be the end of the premium LTE’s. This category will likely continue to grow. You may have noticed that MGPI’s premium sales are actually up 1%. This segment of the industry at large is growing. It more than anything is paying the bills.
3- It will benefit us consumers long term, and we’re already seeing it. We will start to see older stocks blended into some shelf staples. It’s already happening with some Willett standards, Beam Black label 7yr., Knob Creek 7/10 rye, and even Turkey is doing some older stuff in their new anniversary 101 release and the recently announced Turkey 101 8yr..
4- This isn’t unique to MGPI, Diageo and several others have had a tough year as well.
5- Smaller NDP’s are probably going to feel this squeeze. We’ve already had a few brands drop out (Bradshaw?).
6- Continued contraction/aquisition is not only likely, but probable.
7- I doubt we will return to the era of colorful decanters to sell aged whiskey, but, we will likely continue to see increased use of boxes/tubes/etc..
8- Market capitalization is not always reflective of the health of a business, but the decline in sales is something that cannot continue for long.
9- When times are tough, publicly traded companies often need to resort to cost reductions (labor) to appease investors. They need to show that they have a plan for the future, but will be fiscally responsible RIGHT GOT DAMNED NOW. The sad thing is that there are real human people behind these companies that may not have a job soon. It’s good to remember that when rooting for the bust of the bourbon boom.
It’s going to be a very interesting year to come.
- Mickey Pinstripe