Beverage sector breakdown: Soda looks to pop energy drink M&A and the latest beer buzz - Seeking Alpha

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The beverage sector heads into the second half with a number of headwinds in the mix. Consumer discretionary spending worries and the threat of pricing being pulled back in a recessionary backdrop have investors scrambling to find safe ground.

Soda: The first half saw mixed returns among beverage leaders Coca-Cola (KO) -5.3%, PepsiCo (NASDAQ:PEP) +2.5%, and Keurig Dr Pepper (KDP) -12.3% as some of the big rush by investors into staples stocks in 2022 went in reverse. The returns were more impressive with bottlers Coca-Cola FEMSA (KOF) +25%, Coca-Cola Consolidated (COKE) +25%, and Coca-Cola Europacific Partners (CCEP), with pricing benefits and margin gains leading to strong earnings reports. Looking ahead, giants Coca-Cola (KO) and PepsiCo (PEP) are anticipated by many analysts to break out of their mini-slump due to their agility in managing around input cost inflation, ability to leverage global scale, and use of revenue growth management muscle in sourcing commodities. A key story to watch in the second half will be the potential declaration by the World Health Organization of aspartame as "possibly carcinogenic" to humans. Coca-Cola (KO) could take a bigger short-term revenue hit than PepsiCo (PEP) due to its aspartame exposure, but both beverage giants are seen as having the production scale to adjust to any aspartame determination.

Energy drink buzz: Celsius Holdings (CELH) was the biggest market share gainer in the energy drink sector for the first half of the year, with Bang and Zoa Energy giving up the most ground. Of note, Monster Beverage (MNST) edged out Red Bull to end the first half as the market share leader and is closing in on a deal for Bang out of bankruptcy. While it could be a close call, Cowen analyst Vivian Azer thinks the Bang acquisition could just fall below the FTC threshold for blocking a merger based on the most recent Nielsen trends. Second-half development to watch include if Celsius Holdings (CELH) announces international growth plans and if other energy drink brands are swallowed up by bigger players.

Sluggish beer sales: The sharp drop in Bud Light sales has dominated the headlines in the beer sector and may have partially masked what have been sluggish sales growth across the industry as a whole. The combined beer/FMB/hard cider category saw just 1.6% sales growth for the last 12-week tracking period to fall well short of the growth being generated by the soda, energy drinks, wine, and spirits categories. The monthly Nielsen numbers have not improved for Anheuser-Busch InBev (BUD) since the Bud Light controversy, but on a wider scale, even craft brewers are not seeing the post-pandemic growth numbers that were anticipated. Younger consumers, who were once locked in as beer drinkers, are noted to now drift between beer, seltzer, mixed cocktails, and wine. For the first half of the year, Anheuser-Busch InBev (BUD) held a 40.1% U.S. beer market share vs. 21.4% for Constellation Brands (STZ), 20.2% for Molson Coors (TAP), 4.4% for Heineken (OTCQX:HEINY) and 0.5% for Boston Beer (SAM). In terms of share prices, Anheuser-Busch (BUD) fell 5.5% while Constellation Brands (STZ) moved up 6.2% and Molson Coors (TAP) soared 28%. Boston Beer (SAM) lagged with a first half drop of 6.4%. Looking to the second half, analysts anticipate the lines to continue to blur between alcohol and non-alcohol with brands such as PepsiCo's (PEP) Mountain Dew, Topo Chico, Fresca, Jack and Coke looking to break through with new products and innovation aimed at younger consumers in particular.