Diageo plc DEO is acquiring Aviation Gin LLC and Davos Brands LLC, popularly known as Davos Brands, in a deal worth $610 million. Post the acquisition, the company will pay $335 million and the remaining will be paid depending on the performance of Aviation American Gin over the next ten years. Also, Ryan Reynolds, a co-owner of the brand, will retain his ownership. According to sources, this transaction is anticipated to be completed by the end of 2020, subject to customary closing conditions.
This move is in sync with the company’s plans to expand its super-premium gin segment across the United States with the addition of Astral Tequila, Sombra Mezcal and TYKU Sake to its already strong portfolio. Notably, Aviation American Gin has been one of the fastest-growing brands in the said category, with 40% segment growth in the United States.
Earlier in 2018, Diaego had bought a minority stake in Aviation American Gin. This marks the company’s second buyout of a brand linked to Hollywood celebrities. Prior to this, management had acquired the maker of Smirnoff vodka and Johnnie Walker Scotch whiskey in 2017, which was co-founded by George Clooney.
This step comes amid the ongoing coronavirus pandemic, which has led to bar and restaurant closures and drab demand for spirits. Although the easing of lockdown in various states has led to a gradual recovery in on-trade volumes and restrictions on travel retail continue, which is likely to mar results in the near term.
Nonetheless, the company expects organic net revenues to witness sequential gains in the first and second quarters of fiscal 2021 as the on-trade channel reopens and consumer demand begins to recover. However, it continues to anticipate significant COVID-19-related impacts and margin dilution against the robust performance in the first half of fiscal 2020. Driven by the significant uncertainty over the pace and the shape of the recovery dueto the pandemic, the company did not provide specific guidance for fiscal 2021.
All said, we hope that this buyout will expand the base and bolster sales in the near future, which will in turn provide some cushion to this Zacks Rank #5 (Strong Sell) stock that has declined 1.6% in the past three months against the industry’s growth of 11.8%.
Don’t Miss This Better-Ranked Beverage Stock
The Boston Beer Company, Inc. SAM delivered anearnings surprise of 26.1%, on average, in the trailing four quarters. It currently flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Monster Beverage Company MNST has an expected long-term earnings growth rate of 12% and currently aZacks Rank #1.
National Beverage Corp. FIZZ, with a Zacks Rank #1 at present, delivered an earnings surprise of 22.9% in the last reported quarter.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Diageo plc (DEO) : Free Stock Analysis Report
Monster Beverage Corporation (MNST) : Free Stock Analysis Report
National Beverage Corp. (FIZZ) : Free Stock Analysis Report
The Boston Beer Company, Inc. (SAM) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research