While New Age Beverages (NBEV) keeps announcing impressive distribution agreements for their health and wellness drink line, the stock has failed to rally. The beverage company failed miserably to hit 2018 targets and a relatively large at-the-market offering has investors rightfully concerned that the press releases are more fluff than reality.
Another Distribution Deal
At the beginning of April, New Age announced an expanded distribution deal with Walmart for the Marley brand. The Marley brand is set to begin selling CBD-infused drinks, but the retail giant is initially going to sell three flavors of organic yerba mate under the Marly Mate name.
The deal followed a Northeast distribution expansion with Hudson News to greater than 15,000 outlets. This deal announced in early April before Walmart supposedly includes distribution of the entire New Age brand portfolio in 11 states in the Northeast.
If these 2 deals weren’t enough, New Age announced a national expansion of its Bucha Live Kombucha brand drinks at participating 7-Eleven stores. The convenience store chain has 11,800 stores in North America while the press release failed to detail the exact store rollout plans. The plan includes selling a new three-pack of the healthy drink option for $5.99.
Large Offering
On April 30, New Age filed a prospective to sell $100 million worth of common stock. The company only has a market cap of $400 million now so an offering estimated at ~18 million shares would provide for massive dilution in the 20% range.
The market is clearly concerned that the management team is issuing all these impressive sounding distribution agreements and rushing out a stock offering before ever reporting on the financial impacts of these deals. If these deals were boosting sales from the forecasted $320 million level, the beverage company would be wise to not rush out an offering until the stock rallies.
The company ended 2018 with a $42 million cash balance and recently signed an expanded credit agreement. The only reason to need more cash is massive inventory needs in which maybe New Age shouldn’t take on so many deals all at once.
New Age plans to release first-quarter results tomorrow, so the CEO will get another chance to prove he can deliver on results versus promoting a great sounding story in order to sell shares. The company missed on quarterly earnings estimates in every quarter of 2018.
New Age provided an updated forecast for Q1 at $60 million. Analysts are up at $78 million for Q2 in order to top $310 million estimates for 2019. These 3 big distribution deals along with CBD products should provide a strong boost to these revenue estimates or the market fears are indeed valid.
Takeaway
The key investor takeaway is that the market is apparently highly skeptical of the distribution deals announced by New Age. The company gets an opportunity to provide an update on Q1 results and provide Q2 guidance based on adding Walmart, 7-Eleven and Hudson News as distribution partners.
The stock trades around $5.25 for a fully diluted valuation of around $500 million after the offering. Another miss would be very hurtful to shareholders after the company rushes out a planned $100 million offering where the cash isn’t needed without much higher sales targets for 2019.
Sometimes the best way to play these stocks is from the sidelines until the management team proves they are worth the investment.
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Disclosure: The author has no positions in New Age Beverages stock.
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