The Great Bourbon Boom Shakeout Could Be Coming Next Year

(Bloomberg) -- As competition and sales of whiskey in the United States and internationally ramp up heading into next year despite tariff concerns in the European Union, 2019 may split winners and losers for the market, SunTrust analysts say.

MGP Ingredients Inc., the maker of Tanner’s Creek Bourbon, is set for an “explosive” 2019 as sales of both aged and unaged whiskeys are primed to accelerate, while Jack Daniel’s maker Brown-Forman Corp. may remain under pressure, SunTrust Robinson Humphrey analyst William Chappell writes in notes to clients. MGP management believes “that overall demand is as strong as ever,” he noted, while comments from Brown-Forman management at an investor event left him more cautious.

Million-dollar bottles of whiskey are on the rise, with sales to match -- further cementing the category as an asset class and collectible worthy of specialized insurance. Even though the super-premium and premium Whiskey and Tequila segments have been outperforming other spirits, Goldman Sachs analyst Judy Hong writes, stock prices have failed to keep up. Atchison, Kansas-based MGP shares fell 6 percent on Thursday to close at the lowest level since August 2017, while Brown-Forman also sits near a more than 12-month low.

Liquor tastes are changing, and Brown-Forman may be positioned to take advantage of growing boom in sales overseas for American whiskey, Hong noted after the company’s investor event. While sales internationally have grown to be more than 50 percent of the company’s business, both developed and emerging markets remain underpenetrated, she wrote.

MGP management’s commentary may also spur some optimism for shares as investors shift their focus toward whiskey products that will come of age in 2019 after being stored four years prior. However, for Brown-Forman, excitement may be more tempered given heightened competition in the U.S. and worries over tariffs in the European Union, Chappell added.

Suntory Holdings Inc. has been lowering the price of its Jim Beam brand in the U.S., which has boosted sales, while Brown-Forman is seeing a price-to-mix benefit for brands such as Woodford Reserve and Old Forester, he noted. The same cannot be said for the Jack Daniel’s brand in the U.S., though management indicated the Tennessee whiskey is well positioned to benefit internationally, Chappell wrote.

Hong too, has concerns around Jack Daniel’s, writing that she sees “continued risk” in pricing competition persisting. European competitors in Diageo and Pernod Ricard are increasing their investments and Hong expects near-term margin pressure from both competition and tariffs. That said, neutral-rated Brown-Forman operates mostly within the faster growing premium and super-premium American whiskey, malt Scotch and Irish Whiskey segments as opposed to blended Scotch and Canadian Whiskey segments, which should allow it to reach its mid-single-digits sales growth targets, she added.

To contact the reporter on this story: Bailey Lipschultz in New York at blipschultz@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Brad Olesen, Sebastian Silva

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