Beverage companies are off to a rocky start in 2023, as Wall Street turns weary of falling hard seltzer sales.
In a note to clients, analysts at Evercore ISI found traditional hard seltzer sales dropped 10.4% over the last four weeks, with sales of Boston Beer Company's (SAM) Truly down 19.5% alone.
On Wednesday, Jefferies analyst Kevin Grundy downgraded shares of Boston Beer from Hold to Underperform, lowering its price target 17% from $331.00.
The "hard seltzer category has yet to ‘bottom’ suggesting risk to Street estimates," Grundy said. “Recovery in SAM shares [is] largely tethered to malt-based seltzer category and Truly brand top-line stabilization."
In Boston Beer Company's third-quarter 2021 earnings results, CEO and President Dave Burwick first acknowledged the slowdown in sales.
"The unexpected rapid slowdown of hard seltzer category growth this summer significantly impacted our business...Despite the slowdown in category growth, we expect hard seltzers...will remain a very important segment of the beer market in the future," Burwick said.
It was a different story in the the third-quarter of 2022 though, when Burwick attempted to take the attention off of declining Truly sales that dragged down earnings overall. "We launched Truly Vodka Seltzer earlier this month and we are continuing to execute on our plans to support the base Truly business," Burwick briefly said in the release, jumping quickly to the portfolio at-large.
Compared to a year ago, shares of Boston Beer Company are down nearly 38%.
Per Evercore ISI checks, the recent drop in Truly sales came from a 16.4% decline in its Core Truly brand and a 22.3% drop in its Innovation brands, which includes newer takes such as lemonade (down 32.3%), punch (down 27.2%), and iced tea (down 71.3%).
Truly Vodka Seltzer, which debuted in October 2022 with a $10 million dollar ad campaign, shares less than 0.5% of market share, making it “surprising to see no material share gain again this period vs. the prior 2 weeks," Evercore ISI wrote.
Meanwhile, the brand that kicked off the seltzer craze, White Claw, is up 4.4%, per Evercore ISI. Anheuser-Busch's Bud Light Seltzer (BUD) took a turn down 32.5%.
Seltzer was supposed to save beer
And even amid these problems, beer continues to have its struggles re-gaining market share among drinkers.
Wells Fargo downgraded shares of Molson Coors Beverage to Underweight and lowered its price target to $45.00, down from $52.00. Analyst Chris Carey cited “significant earnings risk” going into 2023 due to “weak” volumes overall and inflation impact that will “linger well into the year," despite taking a second round of pricing in the fourth-quarter.
Carey wrote: “The fact that volumes remain under pressure just as TAP took significant pricing in Q4...and with costs already managed tight in 2022 given headwinds impacting the company over the last year...we don't see sufficient offsets to these headwinds and think the 'release valve' on this model is lower earnings (as opposed to positive 'release valves' like more pricing, more savings, etc.).”
Molson Coors CFO Tracey Joubert nodded to inflation impact in a recent call with analysts.
"As expected, inflationary pressures continued to be a headwind in the quester ... The two biggest drivers were cost inflation and mix. Cost inflation comprised more than two-thirds of the increase and included higher input materials, transportation and energy costs."
There is some optimism from Wall Street, however, with shares of Molson Coors up 8.4% year-over-year, even amid recession worries.
Jefferies' Grundy maintained a Buy rating and increased the price target for Molson Coors, up 10% to $69.00, calling it a "recession-resistant portfolio with limited FX exposure."
Grundy noted Coors will likely benefit from a "trade down" environment where more cost-conscious consumers seek more affordable options.
Grundy increased competitor Constellation Brands' (STZ) price target too, by 3%, to $320.00. He said both beer stocks "offer good relative value and defensive product portfolios."
Ready-to-drink category sees 33.6% growth: Evercore ISI Research
From canned seltzers to canned co*cktails, the ready-to-drink category seems to be giving a bit of a boost to Boston Beer Company and Anheuser-Busch, with overall growth in the category up 33.6% in the last four weeks.
Boston Beer’s Twisted Tea is up 28.4%, and Anheuser-Busch’s Cutwater is up 35.6%, while sales of Molson Coors’ Simply Spike, a collaboration with Cola-Cola, have flattened out, according to Evercore's checks.
—
Brooke DiPalma is a reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.
Follow Yahoo Finance on Twitter, Instagram, YouTube, Facebook, Flipboard, and LinkedIn.
Read the latest financial and business news from Yahoo Finance
Download the Yahoo Finance app for Apple or Android
Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, LinkedIn, and YouTube
