This week on BRIIDGE Recaps
13 JUNE 2024
Navigating Turbulence: Challenges in the Beverages-Wineries & Distilleries Industry
As the Beverages-Wineries & Distilleries industry continues to experience significant declines, the consumer defensive sector holds steady.
Led in part by Diago Plc [-19.35%], MGP Ingredients Inc. [-27.44%], and Brown-Forman Corporation [-32.25%], the industry lags by 20% and 40%, respectively, the reference sector [Consumer defensive] and the broader market(S&P500) on a 12-month horizon
Are the idiosyncratic risks perceived by investors likely to persist in the medium to long term ?
Fig 1: Performance 1YR Horizon
BRIIDGE Shortcut: TS Reference Index
Fig 2: Sales Growth [1YR Rolling]
BRIIDGE Shortcut: BRIIDGE FA | BRIIDGE CUSTOM FA
Despite similar, albeit declining sales growth figures and higher margins, investors continue to favor alternative industries over Beverages-Wineries & Distilleries in the consumer defensive sector.
Macroeconomic factors such as supply chain disruptions, changing consumer preferences, and high interest rates have been cited as contributing factors.
A better explanation for this industry's change of fortune can be traced back to shifts in consumption patterns (at-home versus on-premises) following COVID-19 restrictions, sustained inflation (rising cost of living), and a flurry of newcomers armed with effective social media strategies.
Ever since, providing guidance has become difficult, resulting in frequent misses. From 2021 onwards, the growth rate has shrunk at a faster pace than the reference sector (Consumer Defensive).
Fig 3: Operating Margin [1YR Rolling]
BRIIDGE Shortcut: BRIIDGE FA | BRIIDGE CUSTOM FA
Fig 4: Free-Cash-Flow To Sales [1YR Rolling]
BRIIDGE Shortcut: BRIIDGE FA | BRIIDGE CUSTOM FA
While free cash flow (FCF) has remained positive and stable for the sector, the beverage industry’s FCF turned negative for the four quarters ending Q1 2024.
Further margin contraction is evident from the relative delta of gross profit and operating margins, as well as dividend yield. With low valuation levels, the question remains whether the industry is a value trap.
Analysis In Graphs:
Fig 5: Net Income Margin [1YR Rolling]
BRIIDGE Shortcut: BRIIDGE FA | BRIIDGE CUSTOM FA
Fig 6: Performance [1YR]
BRIIDGE Shortcut: TS Reference Index
Fig 7: Dividend Yield
BRIIDGE Shortcut: BRIIDGE FA | BRIIDGE CUSTOM FA
Fig 8: Net Debt To Ebitda [1YR Rolling]
BRIIDGE Shortcut: BRIIDGE FA | BRIIDGE CUSTOM FA