MGP Ingredients, a major player in the American whiskey and spirits industry, has announced plans to reduce whiskey production in 2025. This decision, revealed in their third-quarter 2024 report, comes as the company navigates weakening demand in the American whiskey sector and higher inventory levels across the industry.
The company operates several American whiskey and bourbon distilleries and brands including Limestone Branch Distillery, Lux Row Distillers, and Penelope Bourbon.
MGP Ingredients’ Strategic Shift in Production
In response to these market shifts, MGP Ingredients intends to lower its “net aging whiskey put away,” effectively scaling back the quantity of whiskey produced and stored for aging. This move is aimed at aligning production with current demand, which has shown signs of softening after years of growth in the American whiskey category. As such, it looks as if MGP might move away from contract distilling for the next fiscal year to focus on core brands.
MGP’s CEO and President, David Bratcher, highlighted that while near-term impacts may challenge the Distilling Solutions segment, the reduction will help bolster MGP’s competitive positioning in the market over time.
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“We are pleased with our progress towards becoming a premier branded spirits company,” said Bratcher. “Though further inventory tightening is a headwind in the near term, we expect our continued investments behind our brands portfolio to deliver attractive organic growth. In addition, we expect our Ingredient Solutions segment to have a stronger 2025 despite current transitory headwinds.”
Financial Performance Amid Challenges
MGP’s recent financial performance underscores the challenges driving this production adjustment. In Q3 2024, sales decreased by 24% year-over-year, settling at $161.5 million. This drop reflects reduced sales across all three primary operating segments: Distilling Solutions, Branded Spirits, and Ingredient Solutions.
Despite the decline in revenue, net income saw an 82% increase, reaching $23.9 million, thanks largely to cost structure improvements and a strong performance in premium products within Branded Spirits. This shift has helped enhance profit margins, even as total revenue and volume declined. Adjusted net income fell 5%, however, pointing to a complex financial landscape that demonstrates the necessity for a strategic production shift.
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Distilling Solutions
MGP’s Distilling Solutions, its largest segment, experienced a 36% reduction in sales. This decline reflects reduced demand for brown spirits, including aged and new distillates. Branded Spirits, representing MGP’s premium and mid-priced offerings, fell by 6%, although premium-plus products showed a modest 1% gain, indicating consumer preference for high-end products within a tighter market.
Long-Term Outlook and Strategy
Despite current headwinds, MGP Ingredients remains optimistic about its long-term growth strategy. CEO David Bratcher emphasized the company’s continued investment in building a premium portfolio, with the belief that future demand will rebalance as the market adjusts to current inventory levels.
“While current market dynamics will likely have an even greater impact on our Distilling Solutions segment sales and profitability in 2025, we believe that these actions will strengthen the long-term competitive positioning of our brown goods business,” he said. “Over the longer term, we remain confident in our Distilling Solutions business as our whiskey inventories remain an important part of the still expanding American whiskey category.”
Other spirits companies such as Diageo and Moët Hennessy saw similarly lackluster financial results this quarter, with the slump in demand perhaps being down to inflation and global trading tensions.
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