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Duckhorn CEO on M&A: going to be disciplined, not aggressive

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Alex Ryan, Duckhorn Portfolio’s President, CEO and Chairman, discusses the company’s latest quarterly results, the state of the wine industry and Duckhorn’s strategy when it comes to mergers and acquisitions.

Video Transcript

BRIAN SOZZI: Winemaker Duckhorn is fresh off posting better-than-expected quarterly earnings. The company cited strong sales for higher-end wines and a recovery in demand for wines consumed out of one's home during the pandemic Shares of Duckhorn are up 30% since their closing price on the company's March 18 IPO day.

Alex Ryan is Duckhorn's President, CEO, and Chairman and joins us now. Alex, good to see you on this morning here. So take us through your portfolio a bit. What is growing faster, that $15 bottle of wine that I consumed in college or that more expensive $200 stuff that, you know, I could probably afford right now?

ALEX RYAN: Oh, that's a great question, Brian. Thank you for having me. Kind of that whole set right now, what we call attainable luxury, anything from about $20 to $150 to $200. That's the exciting part of luxury right now. We're seeing our consumers, we're seeing wine enthusiasts around the world really get involved with that aspect of the luxury wine business. And it's proven really successful for us, and we're quite excited about it.

JULIE HYMAN: Alex, out of Cal State Fresno, you joined the company right from there, and you've been there ever since, I believe, what, in 2000 or so? So you've seen the company through this whole journey, right? And I'm just curious how you're thinking about it as it enters its next phase as a public company, what your sort of overarching goal is. Is it building a bigger portfolio? Is it growing the wines that you have? What's top of mind for you?

ALEX RYAN: Oh, you know, it's been a lifelong career for me, as you pointed out. I think becoming a better winemaker is my ultimate goal. Our customers want us to continue to provide experiences, great wines, innovation.

And now with the public platform, we're really able to touch the world with more of our wines. So this is a dream come true. And it's really exciting. And I got 400 people backing me here at the winery making sure the world has the wines it wants from Duckhorn portfolio.

BRIAN SOZZI: Right. Talk to us a little bit about product innovation. I would imagine-- one of your competitors, Constellation Brands, said this week they are launching wine hard seltzers. To me, I thought that was a wine cooler. Where are you going in terms of product innovation?

ALEX RYAN: We are a luxury tier-branded wine company. And most of our wines we put in bottle the traditional way and distribute around the world. So we like to innovate kind of within our luxury segment. We make a few wine seltzers, and it's a small adjacency to what we're doing.

We are primarily focused on classic luxury varietals traditionally distributed in that traditional classic wine sense. Innovation falls into small vineyard blocks or slightly different flavors of wines, maybe a different brand within our overall portfolio. And innovation could also take the shape of an M&A acquisition here at the company. So we will remain a luxury-branded wine company in the innovation side and a little more conservative.

JULIE HYMAN: Alex, how acquisitive do you guys plan to be?

ALEX RYAN: I'm sorry? I'm sorry, Julie. I missed that.

JULIE HYMAN: How acquisitive, how many acquisitions do you think you'll be making, or how aggressively are you going to be pursuing that strategy?

ALEX RYAN: We're not going to be aggressive. We're going to be really disciplined. I think acquisitions in the luxury space need to really resonate with the consumer. It's really, really important.

It's not more for the sake of more. It's more to have a reason and a place to be in the luxury space. So I don't have an answer on numbers of acquisitions. But we're actively looking and interested in those great wineries out there that might like to partner with us.

BRIAN SOZZI: Alex, you did talk a little bit about, on the earnings call, a recent slowdown in demand. What do you attribute that to? And how severe is that slowdown?

ALEX RYAN: I don't think it's really severe. What I was getting to a little bit is, look, we're not out of the pandemic yet. I think that we are going to get out of the pandemic, and people are going to go back to more normalized wine consuming patterns.

But the Delta variant-- let's just be honest, the Delta variant kind of shook some people in different regions, especially as they reentered restaurants and dining out. So I think it was a temporary little blip. But I believe, over the next year or so, we're going to get back to fun wine-consuming times with our friends.

JULIE HYMAN: Alex, finally, I want to ask you about where your wines are made. The ticker is NAPA, which gives a little clue. And in addition to being synonymous with California wine, unfortunately it's also more recently become synonymous with some of the challenges of climate and fires in California. How much of a risk is that for you guys? How much of a worry is that for you?

ALEX RYAN: We're in a Mediterranean climate, so fires have been part of our history here in California for a long time. That said, without jumping course here, climate change is real, and we all have to do our part there. But as it relates to our winery and our winemaking facilities, we're really, really well diversified. Both our vineyard locations and our winery locations are diversified throughout California and in the state of Washington to a point where I think that we've really been able to navigate around massive risk there as it relates to our wines and/or our facilities.

So we're very comfortable that a strategic complement of diversification in our production assets has given us an opportunity to smartly work around the risks and the continued risk of wildfires. And safe to say, this particular year has been good for wine country. 2021 is a great vintage. And the fires in California, which you read about, didn't really affect wine country. So we as vintners this year looking for a awesome vintage to share with you next year.

BRIAN SOZZI: Alex Ryan, Duckhorn President, CEO, and Chairman. Cheers to a good quarter. We'll check back with you soon.