Posted on | July 13, 2012
Written by | BevNetwork
Input: 11th UBS proprietary wholesaler survey
Given that the US is the biggest profit pool for international spirits companies (36% of EBIT) but has low visibility due to the Three Tier System, we publish our 11th US spirits wholesaler survey to provide an independent industry health check.
Output: new survey highs on consumers trading up and pricing outlook
62% of wholesalers surveyed are more optimistic on their business now than three months ago (off the all time survey high of 74% in Mar 12). 76% of wholesalers see volumes trending better than three months ago, and 86% expect volumes to increase y/y in the next quarter (91% in Mar 12 survey). Wholesalers see the proportion of consumers purchasing higher priced spirits y/y rising to 57% – a new survey high. 81% of wholesalers see less or stable promo activity, and the proportion expecting actual price increases y/y in the next quarter has increased to 81% (another survey high) from 38% in Dec 11. We believe the even stronger expectation on price increases explains the marginally less bullish volume outlook.
Supports view of strong 2012 growth; we raise our market growth forecast
Our survey supports the view that US spirits growth accelerates in 2012. The industry is seeing a return to price/mix growth with premiumisation and more favourable pricing outlook very encouraging. UBSe +3.5% vol growth and +2% price/mix to drive +5.5% market sales growth in 12E (from +4.5% previously).
Recommendation: Prefer Spirits over Brewers
Diageo, Brown-Forman and Constellation Brands are rated Buy. We raise our price targets for Diageo (from 1700p to 1850p) and BFB (from $98 to $104). On BFB, we are raising our FY14 volume estimate to 6% (EPS to $4.52 from $4.40) and applied multiple from 22x to 23x.