NOTE TO EDITORS: The Following is an Investment Opinion Issued by Spruce Point Capital Management
Provides Market Data Showing MGPI's Material Contracted Distillery Customer, Diageo, Experienced Slowing Growth and Declining Market Share With its Bulleit Whiskey Brand
Believes That MGPI's Three Stage Transformation to a Branded Spirits Company is Failing Following its Merger With Luxco, Given Many of the Merger's Purported Benefits Have not Materialized 18 Months Post-Closing
Raises Concerns That MGPI is Making Revisions to its SEC Filings That Point to Historic Inventory and Cash Flow Misstatements
Notes That MGPI's Earnings Quality is Deteriorating With GAAP Net Income and Operating Cash Flows Rapidly Diverging
Believes That Economic Pressures are Impacting Consumer Liquor Choices as the Shift Away From Premium to Value Brands Intensifies, Which is a Trend MGPI Has Recently Dismissed That We Believe Will Harm its Financial Performance
Sees 35% to 55% Downside Risk to MGPI's Share Price and Urges Investors to Visit www.SprucePointCap.com and Follow @SprucePointCap on Twitter for the Latest on $MGPI
Spruce Point Capital Management, LLC ("Spruce Point" or "we" or "us"), a New York-based investment management firm that focuses on forensic research and short-selling, today issued a detailed report entitled "Over A Barrel" that outlines why we believe shares of MGP Ingredients, Inc. MGPI ("MGPI" or the "Company") face up to 35% to 55% downside risk, or $45.70 – $66.00 per share. Download or view the report by visiting www.SprucePointCap.com and follow us on Twitter @SprucePointCap for additional information and important updates.
Spruce Point Report Overview
Based in Atchison, Kansas, MGP Ingredients ("MGPI") is a producer and supplier of distilled and branded spirits, and food ingredients such as starches and proteins. MGPI has long promised investors it would diversify away from commodity ingredient solutions into a leading distiller of whiskies, bourbons, and premium spirits. Stage one of its multi-year transformation involved improving the operations of its aged Lawrenceburg facility, while optimizing its product and customer mix. Stage two involved producing, storing, and leveraging the value of its aged whiskey. Finally, in stage three, MGPI purported it would become a branded platform of spirits.
In Spruce Point's original report from 2017, we argued that MGPI's grand ambitions would fail as whiskey supply caught up with demand, and the category would be become saturated much like the craft and premium vodka market had become years earlier.1 In 2019, MGPI cut its long-term expectations for the distillery business, its CEO and CFO both departed, it exited a Joint Venture where we found problematic financial reporting, and has retracted freight cost disclosures tied to revenue recognition where we identified inconsistent reporting.2
Now under new management, we present new industry data showing that in 2021 Bulleit, a key brand contract-distilled by MGPI for its material customer Diageo, has been slowing and losing market share. We believe this may have hastened MGPI's decision to complete a $445 million merger with Luxco Inc. ("Luxco"), a branded spirits distributor on April 1, 2021. Spruce Point's forensic research findings suggest there are many valid reasons why MGPI's final Stage Three transformation is failing:
Please note that the items summarized in this press release are expanded upon and supported with data, public filings and records, and images in Spruce Point's full report. As a reminder, our full report, along with its investment disclaimers, can be downloaded and viewed at www.SprucePointCap.com.
As disclosed, Spruce Point has a short position in MGP Ingredients, Inc. and owns derivative securities that stand to net benefit if its share price falls.
About Spruce Point
Spruce Point Capital Management, LLC is a forensic fundamentally-oriented investment manager that focuses on short-selling, value and special situation investment opportunities. Spruce Point Capital Management, LLC is a member of the Financial Industry Regulatory Authority, CRD number 288248.
1 Spruce Point Report, "Intoxicated By The Moonshine", January 12, 2017.
2 CEO Gus Griffin Retirement Notice (May 2020) and CFO Tom Piggot Resignation Notice (March 2019).
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