August 11, 2020
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🎙“Either you deal with what is the reality, or you can be sure that the reality is going to deal with you.” - See who said it and why it matters at the bottom.
1 big thing: The hard seltzer wars
Competition in the hard seltzer market is heating up in the closing weeks of summer, as big companies like Constellation Brands, AB InBev and Molson Coors have entered the market and Coca-Cola is poised to join the fray in 2021.
Why it matters: The coronavirus pandemic has increased alcohol sales overall and hard seltzers are exploding in popularity and look to have staying power, boasting record high sales in recent weeks.
What's happening: At the beginning of 2018, 10 hard seltzer brands were on the market, analysts at market research firm Nielsen write.
- "That number rose to 26 brands by the beginning of 2019, and more than 65 brands are now fighting for consumers’ attention and purchase."
The state of play: Coors' Vizzy, Constellation's Corona Seltzer and AB inBev's Bud Light Seltzer have begun taking increasing share from market leaders White Claw (845 basis points of volume share year over year) and Truly (280 basis points).
- However, investors are betting that even as Big Bev moves in, the hard seltzer market is primed to be a fast-growing pie.
- Coca-Cola announced it is releasing Topo Chico Hard Seltzer in Latin America later this year before unrolling it in the United States.
By the numbers: During the four weeks ending July 11, the hard seltzer category recorded all-time high retail sales of $413 million, Bank of America Global Research notes.
- At its summer peak last year, hard seltzer accounted for 5.4% of beer category dollars, according to Nielsen.
- In the four weeks ending July 11, hard seltzers captured 10.1% of total beer/flavored malt beverage/cider retail sales.
- Previously thought of as a summer-only alcoholic beverage, Nielsen reports that in colder months, hard seltzer still held 5% of the beer retail sales category.
- Hard seltzer dollar sales were already up nearly 500% from 2018 to 2019.
The intrigue: Hard seltzer has "proven to be the most resilient segment within the entire alcoholic beverage industry, which has felt the sting of sudden bar, restaurant and on-premise tasting room closings amid the COVID-19 pandemic," per Nielsen.
- Since the week ending March 21, each week’s off-premise U.S. dollar sales of hard seltzer has exceeded the week of July 4, 2019, which was previously the highest individual week of sales.
- The week ending June 13, 2020, represented the fourth consecutive week during which hard seltzer drove more than $100 million in retail off-premise dollar sales, and the 10th consecutive week during which annual retail hard seltzer dollar sales increased by at least $50 million.
Bonus chart: Doing it for the 'gram
Hard seltzer continues to grow in popularity, boosted by social media, with this year's July 4th holiday driving new sales records.
- BofA notes that the number of Instagram posts mentioning hard seltzer increased 16% in July from the prior month and were 39% higher in comparison to July 2019, indicating additional share gains this summer.
- "There is a solid relationship between the volume of Instagram posts mentioning hard seltzer and total retail sales of the category as consumers' Instagram posts are usually linked to direct consumption."
My thought bubble: Despite impressive sales, hard seltzer still tastes like alcoholic pond water 🤮.
2. Catch up quick
Health specialists warn that even under the most optimistic scenario a coronavirus vaccine is not likely to become widely available to Americans until the spring or summer of 2021 at the earliest. (Bloomberg)
Chinese companies are rushing forward plans to raise more than $5 billion in IPOs in New York ahead of possible new U.S. rules on Chinese listings. (Nikkei)
“No matter how the international situation changes, the most important thing is to get our own things done and to firmly deepen financial reform and opening-up,” said Yi Gang, governor of the People’s Bank of China. (SCMP)
3. JOLTS report shows far fewer jobs added in June
The June reading of the Labor Department's Job Openings and Labor Turnover Survey showed substantially less jobs were added in June than the department's nonfarm payrolls report.
By the numbers: The JOLTS report showed 6.70 million hires, down by 503,000 from the month before, and there were 4.76 million separations, up 522,000 from May.
- In total, there were 1.94 million more hires than separations in June, less than half of the 4.79 million increase shown in June's payrolls report.
Why it matters: JOLTS is a more comprehensive analysis of the labor market than the more popular and timely monthly jobs report.
- JOLTS counts jobs for the entire month, rather than just the period near the 12th day of the month, meaning it picks up new hiring and separations in the second half of the month.
Between the lines: The June Quit Rate was 1.9%, up three-tenths from the month before, but still below the 2.3% rate that was the recent norm.
- That difference between the number of quits in February and June was 838,000, illustrating a declining confidence among the labor force.
- The report also found 5.89 million job openings in June, up for the second month in a row from 5.37 million in May.
4. Historic beats have earnings paced to be worst in 11 years, not 12
S&P 500 companies' earnings in the second quarter have been historically good and also historically bad.
What's happening: Earnings are still on pace to be awful, but they are handily beating even more awful expectations from analysts.
On one side: With 439 companies, or 90%, having reported, Q2 earnings per share have beaten expectations by a record 17%, with an all-time-high 59% of companies beating on both EPS and sales, according to an analysis by Bank of America.
- FAANG earnings beat by close to 50%, contributing 25% of the overall S&P beat.
- 83% of S&P 500 companies have reported a positive EPS surprise for Q2 to date, the highest percentage since FactSet began tracking this metric in 2008.
On the other side: S&P 500 EPS is on pace to decline by 28.7% year to date for the first half of the year, the largest first half decrease since FactSet began tracking annual bottom-up EPS estimates in 1996.
- Earnings for Q2 are on pace to decline 33.8%, which would mark the largest year-over-year decline in earnings since Q1 2009 (-35.4%).
- Earnings had been on pace for the worst quarter since Q4 2008 when earnings fell by 69%.
The S&P's forward 12-month P/E ratio also remains historically stretched at 22.3, well above the 5-year average (17.0) and the 10-year average (15.3) for the index.
5. Nikola stock rises 22%, valuation now $17 billion
Axios' Ben Geman writes: The EV truck startup Nikola Motors' stock surged 22% Monday and the company now has a market capitalization of $17 billion. That's pretty, pretty good considering they have basically no revenue yet.
Driving the news: The bump came after Monday's announcement that the waste management company Republic Services has ordered at least 2,500 electric garbage trucks, with deliveries slated to start in 2023.
Why it matters: Corporate fleet purchases are likely to be a big part of the pathway for EVs. As Nikola CEO Trevor Milton put it: "The refuse market is one of the most stable markets in the industry and provides long-term shareholder value."
The big picture: Other companies are also targeting fleet customers right out of the gate. Fleets make sense for several kinds of EVs, not just heavy trucks, because of predictable routes and centralized charging locations.
How it works: Nikola said the garbage trucks will be based on the drivetrain of the Nikola Tre electric semi truck, which is supposed to begin production late next year.
- The vehicles for Republic Services will have a range of 150-miles per charge, Nikola said. The order is for 2,500 units but could expand to 5,000.
Thanks for reading!
Quote: “Either you deal with what is the reality, or you can be sure that the reality is going to deal with you.”
Why it matters: On Aug. 11, 1921, celebrated author Alex Haley — who wrote the universally acclaimed book "Roots: The Saga of an American Family" and was co-author of "The Autobiography of Malcolm X" — was born in Ithaca, New York.
- The TV miniseries based on "Roots" aired to a record-breaking audience of 130 million viewers in 1977.