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4 Alcohol Industry Stocks to Navigate Industry Challenges
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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 (BUD - Free Report) , Constellation Brands Inc. (STZ - Free Report) , Molson Coors (TAP - Free Report) and The Duckhorn Portfolio (NAPA - Free Report) for continued success.
About the Industry
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.
What's Shaping the Future of Beverages - Alcohol Industry
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 costs, 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.
Zacks Industry Rank Indicates Dull Prospects
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 #228. The rank places it at the bottom 9% 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.
Industry Underperforms S&P 500
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 12.4% in the past year and the Zacks Consumer Staples sector has risen 8%. Meanwhile, the Zacks S&P 500 composite has rallied 23.5%.
One-Year Price Performance
Beverages - Alcohol Industry's Valuation
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 17.15X compared with the S&P 500’s 21.17X and the sector’s 18.39X.
Over the last five years, the industry traded as high as 26.82X, as low as 16.20X and at the median of 21.23X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
4 Alcohol Beverages Stocks to Keep a Close Eye on
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 four 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, it is a global brewing company with more than 500 iconic brands. BUD’s leading position in the majority of its markets and a strong global footprint lend the advantage of economies of scale and growing its multi-country brands globally. AB InBev has been gaining from continued consumer demand for its brand portfolio. Also, strong business momentum, owing to relentless execution, investment in its brands and accelerated digital transformation have been the key drivers. The premiumization of the beer industry has been a significant growth opportunity for BUD.
AB InBev is steadfastly growing its Beyond Beer portfolio, including products like RTD beverages such as canned wine and canned cocktails, hard seltzers, cider and flavored malt beverages. The company remains focused on expanding its Beyond Beer portfolio, which has also been aiding the top line. The Zacks Consensus Estimate for AB InBev’s 2024 sales and earnings suggests growth of 2.2% and 10.5% from the year-ago period’s reported figure. The consensus mark for the company’s 2024 earnings has been unchanged in the past 30 days. BUD has gained 11.7% in the past year.
Price and Consensus: BUD
Constellation Brands: The Victor, NY-based third-largest beer company and a leading, high-end wine company in the United States has been benefiting from the constant focus on brand building and initiatives to include the latest products. STZ is poised to benefit from its premiumization strategy, driven by the continued strength in the Modelo and Corona Brand Families, as well as growth in the Power Brands. The beer segment has been gaining from premiumization, driven by growth in the traditional beer and flavors category, including seltzers, flavored beer, RTD spirits and flavored malt beverages. The company has been making investments to fuel growth of its power brands through innovation, capitalizing on priority and consumer trends, with successful product introductions. STZ is also on track to invest in the next phase of capacity expansion in Mexico.
Constellation Brands’ digital business has been gaining from platforms like Instacart, Drizly and other retailer online sites, as consumers look for the convenience offered by the channels, which is likely to continue. The Zacks Consensus Estimate for STZ’s fiscal 2024 earnings per share has moved up by a penny in the past seven days. The consensus estimate for fiscal 2024 sales and earnings suggests growth of 6.1% and 12.3%, respectively, from the year-ago period’s reported figures. The STZ stock has lost 4.8% in the past year.
Price and Consensus: STZ
Molson Coors: The stock of this Chicago, IL-based leading beverage company has declined 10.2% 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 consensus estimate for Molson Coors’ 2024 EPS has moved up 3.4% in the past 30 days. The consensus estimate for 2024 sales and earnings suggests growth of 0.5% and 5.9%, respectively, from the year-ago period’s reported figures.
Price and Consensus: TAP
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 declines of 0.3% and 14.9%, 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 declined 48.1% in the past year.
Price and Consensus: NAPA
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4 Alcohol Industry Stocks to Navigate 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 (BUD - Free Report) , Constellation Brands Inc. (STZ - Free Report) , Molson Coors (TAP - Free Report) and The Duckhorn Portfolio (NAPA - Free Report) for continued success.
About the Industry
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.
What's Shaping the Future of Beverages - Alcohol Industry
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 costs, 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.
Zacks Industry Rank Indicates Dull Prospects
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 #228. The rank places it at the bottom 9% 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.
Industry Underperforms S&P 500
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 12.4% in the past year and the Zacks Consumer Staples sector has risen 8%. Meanwhile, the Zacks S&P 500 composite has rallied 23.5%.
One-Year Price Performance
Beverages - Alcohol Industry's Valuation
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 17.15X compared with the S&P 500’s 21.17X and the sector’s 18.39X.
Over the last five years, the industry traded as high as 26.82X, as low as 16.20X and at the median of 21.23X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
4 Alcohol Beverages Stocks to Keep a Close Eye on
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 four 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, it is a global brewing company with more than 500 iconic brands. BUD’s leading position in the majority of its markets and a strong global footprint lend the advantage of economies of scale and growing its multi-country brands globally. AB InBev has been gaining from continued consumer demand for its brand portfolio. Also, strong business momentum, owing to relentless execution, investment in its brands and accelerated digital transformation have been the key drivers. The premiumization of the beer industry has been a significant growth opportunity for BUD.
AB InBev is steadfastly growing its Beyond Beer portfolio, including products like RTD beverages such as canned wine and canned cocktails, hard seltzers, cider and flavored malt beverages. The company remains focused on expanding its Beyond Beer portfolio, which has also been aiding the top line. The Zacks Consensus Estimate for AB InBev’s 2024 sales and earnings suggests growth of 2.2% and 10.5% from the year-ago period’s reported figure. The consensus mark for the company’s 2024 earnings has been unchanged in the past 30 days. BUD has gained 11.7% in the past year.
Price and Consensus: BUD
Constellation Brands: The Victor, NY-based third-largest beer company and a leading, high-end wine company in the United States has been benefiting from the constant focus on brand building and initiatives to include the latest products. STZ is poised to benefit from its premiumization strategy, driven by the continued strength in the Modelo and Corona Brand Families, as well as growth in the Power Brands. The beer segment has been gaining from premiumization, driven by growth in the traditional beer and flavors category, including seltzers, flavored beer, RTD spirits and flavored malt beverages. The company has been making investments to fuel growth of its power brands through innovation, capitalizing on priority and consumer trends, with successful product introductions. STZ is also on track to invest in the next phase of capacity expansion in Mexico.
Constellation Brands’ digital business has been gaining from platforms like Instacart, Drizly and other retailer online sites, as consumers look for the convenience offered by the channels, which is likely to continue. The Zacks Consensus Estimate for STZ’s fiscal 2024 earnings per share has moved up by a penny in the past seven days. The consensus estimate for fiscal 2024 sales and earnings suggests growth of 6.1% and 12.3%, respectively, from the year-ago period’s reported figures. The STZ stock has lost 4.8% in the past year.
Price and Consensus: STZ
Molson Coors: The stock of this Chicago, IL-based leading beverage company has declined 10.2% 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 consensus estimate for Molson Coors’ 2024 EPS has moved up 3.4% in the past 30 days. The consensus estimate for 2024 sales and earnings suggests growth of 0.5% and 5.9%, respectively, from the year-ago period’s reported figures.
Price and Consensus: TAP
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 declines of 0.3% and 14.9%, 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 declined 48.1% in the past year.
Price and Consensus: NAPA