Continued Mexican shipments momentum, and big gain from Germany, offset tuff overall import comp in Nov (+17% last yr) to drive 100K-bbl, 4% increase for the month, reports Beer Inst economist Michael Uhrich based on Commerce Dept data.  Mexican shipments up 169K bbls, 11% in Nov; German shipments doubled.  For 11 mos, imports up just below 2 mil bbls, 6.9%.  Mexican shipments posted massive 2.5-mil-bbl, 14% gain Jan-Nov.  German shipments jumped 170K bbls, 30%.  And Irish shipments up 154K bbls, 20%.  But almost 900K bbls of that collective increase offset by yr-to-date shipments declines from Netherlands (-7%), Belgium (-8%), Canada (-19%) and UK, (-27%).  Lots riding on final mo, and not just for import total.  Dec imports in 2015 surged remarkable 550K bbls, 29%, almost 1/3 of entire import gain that yr.  What happened in Dec 2016 will impact both import trend and total US shipments trend for the yr.  We’ll know in a month.   

Constellation Brands Beer Division kept on motoring along at a very rapid pace in qtr thru Nov.  Organic depletions grew 10.7% Sep-Nov, just a bit below 9-mo pace of 11.6%.  Organic shipments grew 5.3 mil cases, 10.3% in qtr.  Total Constellation Brands shipments up 24.8 mil cases, 14.1% for 9 mos, including 4 mil cases of Ballast Point (all incremental).  About 1 mil cases of Ballast Point shipped in latest qtr.  

Passed 18 Mil Bbls for 12 Mos ; Oper Income Near $1.5 Bil For 12 mos Dec-Nov Constellation shipped over 18 mil bbls for 12 mos, Dec 2015-Nov 2016.  Gained 2.3 mil bbls, 14.5%.  That’s impressive.  What’s more, beer revenues jumped over a half bil for 9 mos.  Up $522 mil, 19% to $3.3 bil.  About $120 mil of those revs came from Ballast Point, adding about 4% to trend.  For 12 mos, beer revs at $4.1 bil, up $667 mil.  With growth like that, no wonder that Constellation Brands Beer Division has become an earnings machine too. Oper income nearly $1.5 bil in last 12 mos.  Up $275 mil, 23%.   

“Our beer business delivered double digit sales and profit growth” in qtr, said ceo Rob Sands, “gained significant market share of the high end of the U.S. beer category, as the #1 contributor to growth, with our key brands growing across all market channels.”  Many on street had initially expected Constellation slowdown in back half of fiscal yr, but it hasn’t happened so far.  

Trade and Tax Changes Added to Potential Risk Factors; “Overdone” Concerns, Sez WSJ Columnist  Constellation barely said anything about potential changes to tariffs or international trade agreements under President Trump. It did add such concerns to a long list of risk factors for first time  (it’s #14).  Here’s how this “risk and uncertainty” is phrased: “Changes to international trade agreements and tariffs, accounting rules and tax laws, and other factors which could impact the company’s reported financial position, results of operations or effective tax rate.”  Constellation stock dropped 15% from Oct high to Dec low, “its biggest slump since the financial crisis,” said Wall St Jnl columnist, based on “concerns that President-elect Donald Trump will tighten cross-border trade…. Yet as with most knee-jerk reactions in financial markets, it looks overdone.”  This topic is sure to come up on conference call later this morn.  

This one on our radar screen of upcoming deals much earlier in 2016, but we didn’t report closing a couple mos back.  Best of Beers in Hickory, North Carolina (about 1.5 mil cases) merged with much bigger R.H. Barringer of Greensboro, with interesting twist.  Best of Beers prexy Randy Truitt will retain minority stake in Barringer subsidiary (believed to be about 25%), still be equity manager and his son will continue as general manager. Total Barringer now 12+ mil cases.  

AB named Marcelo “Mika” Michaelis sales veep in region 7, replacing Bary Benun, who had been there just 2 yrs.  Region 7 is mostly Calif, but also Ariz, NV and HI. (Calif and Ariz especially have been trouble spots for AB.)  Mika worked closely with sales veep Alex Medicis.  He  “has been working to drive top line growth in the U.S., overseeing pricing, promotions and mix enhancement initiatives, as well as visibility, and controls of net revenue, share, promotions and PromOpti,” Alex wrote distribs.  Bary “will be transitioning to special projects,” reporting to Alex.  Ain’t just sales veep slot that’s changing.  SoCal indy distribs also got new sales director last mo, Madeline Bury, who has mechanical engineering degree from Stanford.  

Between 2010 and 2015, AB off over 1 mil bbls, 11% in Calif, and it continued down in 2016.  Down 342,000 bbls, 14% in Ariz 2010-2015 as well.  More modest decline in Nev and AB actually up slightly in HI 2010-2015.  But this region has proved tough nut to crack.  

Looking at “soft” trends across bev biz, including beer, Consumer Edge analyst Brett Cooper identified 10 key themes for 2017.  In general, he sees continued pressure, especially on big-brand producers, as consumer choice continues to shift to “better quality,” fragmentation and higher-priced products. Among his beer-specific themes that caught our attention: 1) combo of more portfolio “pruning” and M&A to “deliver a product portfolio that is more aligned with consumer interests”; 2) more “targeted innovation” to “minimize boom-splat” cycle; 3) more focus on pricing, i.e. “in the US, sub-premium beer price aggressiveness will get the attention of investors as it limits overall revenue/HL realization”; 4) alternative delivery (think Drizly) and other digital options will “increase in importance with companies overinvesting up front to benefit down the road.”  

Finally, Brett believes that as alc bev demand “stagnant,” it’s “natural” for alc bev companies to look more and more to non-alcs.  He notes brewers’ increased emphasis on non-alc beer, even as he has “some reservations about” ultimate size of non-alc beer mkt. Key driver of interest in non-alcs: “increasing concern among larger brewers that they are becoming less important to their distributors,” as share of gross profit migrates to high-end suppliers.  Monster was “meaningful” profits for some AB distribs, Brett points out as example.  Via brewer-owned brands or distribution deals, non-alcs can provide economic benefits and increased influence with distribs, he believes.  Indeed, Brett points to Dept of Justice review of ABI-SAB deal as “essentially requiring more of a carrot vs stick approach” vis a vis brewer-distrib relations.  Non-alcs and “profits that they represent could be part of the carrot for brewers.”  Non-alc veggie malt bevs, anyone?  

Amidst ongoing anecdotal reports that Dec a “brutal” month for many, here’s more data to back that up.  But once again, Christmas period this year “misaligned” with last yr, notes Nielsen (last yr’s 4 week period thru 12/26), making it tuff to compare, as with almost every holiday in 2016.  Still, total beer biz down 3.5% for 4 weeks thru Dec 24 in Nielsen All-Outlet.  Total volume gain for full yr thru Dec 24 now down to 0.4%.  Biz softening.  It was 0.8% at end of Oct.  Then too, marked short-term share shifts.  Economy beers, while down 2.8% for 4 weeks, gained share of volume for first time in memory. Up 0.2.  Improved relative performance no doubt driven by lower avg price.  Avg price of subpremium beers down 12 cents, 0.7% per case.  High-end volume actually declined 0.9% for 4 weeks.  Above premium brands still gained share, 0.9 of volume, 1.2 of $$. But much less than usual.  Hard to know how much of this is anomaly related to calendar effects, but it ain’t pretty.

Almost exactly one year ago, OH judge asked members of Vontz and Miller families, owners of huge OH distrib Heidelberg, to “resolve your differences and take advantage of the unique franchise that has been bequeathed to you.”  Recall, Al Vontz III (50% owner of Heidelberg) sued his sister Carol Miller (owner of remaining 50%) and other members of Miller family who are running the distrib, over ownership, control and financial issues.  That resolution did not happen.  But a trial did.  And so did an appeal.  Appeals Ct just ruled last week: “The record amply supports the trial court’s conclusion that Miller had caused irreparable harm to Vontz by suppressing his voting rights, and that injunctive relief was warranted to prevent further oppression.”  But Appeals Ct judges also found some errors in specific language of trial court’s order and sent case back for those to be changed.  Not clear exactly if and how the trial court will actually resolve the dispute.  But the dispute will go into its 3d full yr.  Al sued back in Dec 2014, but disagreements go back to 2010 when his concerns about corporate governance started, after he had loaned the company $17 mil, according to Appeals Ct order.

Among other things, Al wanted co to schedule shareholder mtgs to elect new directors to support his 50% ownership position (Millers dominate the board).  Recall, he also made charges that Millers paid themselves “excessive sums” and “other improper expenses,” despite “lackluster” performance.  But Carol refused to attend any mtg; no mtg ever scheduled or held.  And lawsuit dragged on.  Appeals Ct upheld trial court’s finding that Al was treated unfairly and “unable to exercise his voting power due to a freeze-out by Miller.”  But trial court went too far with specific language directing board to schedule a shareholder mtg, requiring Miller to attend, describing what would constitute quorum and requiring Al get “equal representation” on board.  So Appeals Ct ruled trial court “should have cured the irreparable harm resulting from Miller’s manipulation of the regulations to suppress Vontz’s voting rights,” but trial court erred in its specific requirements.  Yet Appeals Ct did not, as far as we can tell, specifically say how to cure the harm.  So case goes back for further review. And possibly yet another appeal depending on outcome.

As distrib Craft Brewers Guild (CBG) continues to challenge in court the $2.6 mil fine it paid for alleged pay-to-play practices in Boston in story that broke back in Oct 2014, Mass Alc Bev Control Comm (ABCC) last week cleared 3 retailers that received payments, reports Boston Globe.  But ABCC did nail one retailer in same scheme.  What’s the difference?  Although it had invoices and checks detailing payments to all of ’em, ABCC could not link all payments to the actual retailers, but rather to their parent companies.  And since those parent co’s did not hold the licenses, charges hadda be dropped.  Recall, ABCC had cleared one retailer last yr on same basis.  But single retailer charged by ABCC last week (Jerry Remy’s) was subsidiary that actually held license. It got 18-day suspension, knocked back to 3 days if it stays clean for 2 yrs.  And it can seek to pay fine instead and/or challenge penalty in court, just as CBG has.

ABCC also left door open to further charges.  Commission sez it “never authorized” ownership groups to manage the retailers and “directed investigators to determine whether those relationships were illegal,” Globe reports.  Retailer attys want ABCC to “clarify the rules,” just as CBG did originally when charges levied.  Importantly, ABCC cleared up one question many observers had about pay-to-play in MA.  Retailer attys argued that MA law only barred distribs/brewers from offering payments, that nothing bars retailers from accepting or demanding them.  But “commissioners called that a ‘convoluted’ reading of the rule and insisted the pay-to-play ban applies to bars and restaurants,” sez Globe.

Pay-to-Play Neither “Scummy” Nor “Sleazy,” Retailers Say  Recall, like these retailers, CBG argued that this practice, tho still largely seen as negative and publicly attacked as unfair by craft brewers, is not illegal in MA.  But retailer attys went a step further.  They defended practice as way to help new products get to market.  Atty for cleared retailers said: “Some products, no one would see them if the supplier and wholesaler weren’t supporting them.  For a consumer to think it’s scummy or sleazy – it’s the exact opposite.  You’re getting more products and much better products for a better price.”  Atty for the charged retailer agreed: “My client was offered a rebate that was available to everybody, and he took advantage of it.  The customers end up getting the benefit of that.  I don’t think there’s anything remotely wrong with it.”   With MA ABCC clearly holding an opposite view, and TTB stating “this sort of pay to play activity is incompatible with fair competition and will be actively investigated” by the Bureau, it will be interesting to see how this plays out in MA court and elsewhere.      

John Fleming, 46, ceo of Superior Beverage, MillerCoors’s largest distrib in OH, flew his new plane with his family and friends

on a short hop from Columbus to Cleveland to go to a Cavaliers game on Friday night. On the return trip, their

plane disappeared shortly after takeoff. The plane has still not been recovered and officials fear the worst. This

unspeakable tragedy quickly became a national and international news story as the Coast Guard and others

scrambled to recover the plane carrying six passengers, amidst initially difficult weather conditions. Yesterday,

conditions improved and 7 vessels and 4 dive teams continued the search. “The operations so far has recovered

more than 120 pieces of debris, which authorities say ‘are consistent with what would be found on a Cessna 525

Citation,’” reported Youngstown’s Vindicator this morn.

We’ve received numerous texts and phone calls attesting to John’s great character and capabilities. John

recently became a member of MillerCoors distributor council. Superior is one of the best performing MC

distribs in entire US, said an MC source. John’s uncle, John Antonucci, is the owner of Superior Bev and

described John as a man of “great character and integrity.” Our thoughts go out to all the family, friends and

employees during this extraordinarily difficult time.

Major brewers’ stocks, both in US and globally, did not shine in 2016 like they did in 2015 and 2014. Constellation grew 7.6% last year following gains of 45% and 39.5% previous 2 yrs. And don’t forget STZ shares doubled in 2013. Molson Coors slowed to 3.6% gain in 2016 following gains of 26% and 33% previous 2 yrs. Anheuser-Busch InBev shares fell 15.6% in US in 2016 on NYSE and down 12% (in euros) on Brussels exchange. Following 30% decline in 2015, Boston Beer shares fell another 16% in 2016. Much smaller Craft Brew Alliance rebounded nicely as shares doubled to $16.90 in 2016 following double-digit declines previous 2 yrs. Heineken momentum of past several years halted in 2016 with 16% stock drop. Heineken had gained 33.6%, 20% and 18.4% prior 3 years. Diageo posted its best performance in several yrs as stock gained 13.7% in 2016. Major soft drink co’s, often mentioned as possible targets of ABI, underperformed in 2016 compared to Dow Jones Avg (+13.4%) and S&P 500 (+9.5%). Coca-Cola stock price dipped 3.5% last year following gains of around 2% in both 2015 and 2014. In first full calendar year with Coca-Cola bottlers, Monster Energy stock slipped 10.7% in 2016, down from +37.5% in 2015, +59.9% in 2014. PepsiCo stock increased 4.7% last yr, slower than 2015 (+ 5.7%) and 2014 (+14%).