Here are the major brands that have pulled ads from Facebook


Since an advertising boycott of Facebook Inc. was organized in mid-June, a veritable Who’s Who of major brands have either added their names to the #StopHateForProfit campaign or otherwise pulled their ads.

Facebook makes almost all of its revenue via advertising. Still, analysts are expecting the company to take a less-than-5% revenue hit due the boycott. The social-media giant has more than 8 million paying advertisers, Rohit Kulkarni, executive director at MKM Partners, noted this week in a note to clients.

Civil rights groups have called on large advertisers to pause their Facebook advertising for the month of July, to protest what they say is the company’s inability to properly rein in racist and violent content and misinformation.

Facebook shares
FB,
+2.91%

are down 2.4% over the past month, but are up nearly 11% year to date, compared to the S&P 500’s
SPX,
+1.54%

4% decline this year.

Of the nearly 300 companies worldwide that have joined the ad boycott, some of the most prominent include:

Adidas AG
ADDDF,
+2.06%

*

Arc’teryx

Ben & Jerry’s Homemade Holdings Inc.

Beam Suntory Inc.

Birchbox

Blue Bottle Coffee Inc.

Blue Shield of California

Chobani

Clorox*
CLX,
+0.82%

Coca-Cola Co.
KO,
+0.72%

Dashlane

Denny’s Corp.
DENN,
-1.27%

Diageo plc
DGEAF,
+2.68%

Eddie Bauer LLC

Eileen Fisher

Ford Motor Co.
F,
+1.16%

Hershey Co.
HSY,
+1.57%

Honda Motor Co.
HMC,
-0.07%

HP Inc.
HPQ,
+1.75%

JanSport

Levi Strauss & Co.
LEVI,
+1.20%

Magnolia Pictures

Massachusetts Mutual Life Insurance Co.

Microsoft Corp.
MSFT,
+2.55%

Patagonia Inc.

Patreon

Pfizer Inc.
PFE,
+0.18%

Puma SE
PMMAF,
+2.02%

The North Face

Recreational Equipment Inc.

SAP
SAP,
+1.13%

Starbucks Corp.
SBUX,
+0.15%

Upwork Inc.
UPWK,
+1.40%

Unilever
UL,
-0.70%

Vans

Verizon Communications Inc.
VZ,
+0.80%

Vertex Pharmaceuticals Inc.
VRTX,
+1.79%

* Pulled ads, but have not formally joined the campaign.



Original source link

Eastside Distilling, Inc. (EAST) CEO Lawrence Firestone on Q4 2019 Results – Earnings Call Transcript


Eastside Distilling, Inc. (NASDAQ:EAST) Q4 2019 Earnings Conference Call March 30, 2020 5:00 PM ET

Company Participants

Robert Blum – Lytham Partners

Lawrence Firestone – CEO

Robert Manfredonia – President

Conference Call Participants

David Bain – ROTH Capital

Jim McIlree – Bradley Woods

Harold Weber – Aegis Capital

Operator

Good afternoon, and welcome to the Eastside Distilling Reports Fourth Quarter and Fiscal Year 2019 Financial Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, that this event is being recorded.

I would now like to turn the conference over to Robert Blum with Lytham Partners. Please go ahead.

Robert Blum

Thanks so much, Eric. Good afternoon and thank you to everyone for joining us on today’s call to discuss Eastside Distilling’s financial results for the quarter and fiscal year ended December 31, 2019. Apologize for getting started just a moment late here, just waiting on the SEC to — for the filing to close, [indiscernible]. As the operator indicated, my name is Robert Blum with Lytham Partners, and I will be your moderator for today’s call. Earlier Eastside issued their fourth quarter and fiscal year 2019 results in a press release and the 10-K has been filed.

Joining us on today’s to discuss these results are Mr. Lawrence Firestone, the company’s Chief Executive Officer; Mr. Robert Manfredonia, Eastside’s President; and Mr. Stuart Schreiner, the company’s Interim Chief Financial Officer.

Following their remarks, we will open the call to your questions. Before we begin with prepared remarks, we submit for the record the following statements. Certain matters discussed on this conference call by the management of Eastside Distilling may be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and such forward-looking statements are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements describe future expectations, plans, results, or strategies and are generally preceded by words such as may, future, plan or planned, will or should, expected, anticipates, draft, eventually or projected. Listeners are cautioned that such statements are subject to a multitude of risks and uncertainties that could cause future circumstances , events or results to differ materially from those projected in the forward-looking statements.

Such matters involve risks and uncertainties and may cause actual results to differ materially, includes, but are not limited to the company’s acceptance and the company’s products in the market, success in obtaining new customers, success in product development, ability to execute it’s business model and strategic plans, success in integrating acquired entities and assets, ability to obtain capital, ability to continue as a growing concern, and all the risks and related information described from time-to-time in the company’s filings with the Securities and Exchange Commission, including the financial statements and the latest information pertaining to the company’s Annual Reports on Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission today.

Now, I’d like to turn the call over to Lawrence Firestone. Larry, please proceed.

Lawrence Firestone

Thank you, Robert, and thank you everyone for joining us this afternoon. First of all, we hope everyone on the call and your families are safe and healthy, and steering clear of the coronavirus. We are certainly operating in unprecedented times and the world has changed drastically since we spoke at the end of January. As you’ll see from the press release, results for the fourth quarter and year ended 2019 were in line with our preliminary report we provided back on January 30, which marked a tremendous growth and record revenues, as well as case volumes for the year in 2019 for Eastside.

For 2019, gross sales were $17 million compared with $7.2 million in 2018, an increase of 136%. The increase was attributable to organic growth in the company’s Redneck Riviera product which grew to approximately 27,200 cases in 2019 compared to roughly 15,000 cases in 2018, as we expanded our points of distribution at a record pace. Full year results from Craft Canning and Bottling, which we acquired in January of 2019, as well as late third and fourth quarter contributions from the Azunia Tequila brand, which we acquired in September of 2019.

For the fourth quarter, gross sales were $4.3 million compared to $2.4 million in the fourth quarter of 2018, an increase of 79%. As we described back in January because we were a recasting our 2020 forecast to bend the curve and put some leverage in our P&L, our off-premise programs represented late and planned shipments of the Redneck Riviera set for December 2019 were pushed to January which negatively impacted the fourth quarter results. However, the fourth quarter and even at the time of our conference call that we had in January, it seems like a lifetime ago as the COVID-19 situation moved in and has impacted our business every day since then.

Let me spend some time walking you through the impact to our business from the Coronavirus and the initiatives we’re putting in place to mitigate the impact to the extent possible and provide some view into the first quarter and beyond. As you may recall from our conference call in January, the delayed placements of our Redneck Riviera line up from Q4 that were expected to roll over into January occurred as expected as we started Q1 ahead of our original plan, which was for approximately 6,300 cases of Redneck Riviera Whiskey. We shipped over 3,000 cases of Redneck Riviera in January, which is typically the lowest month of the first quarter with momentum building towards the end of the quarter. We had authorizations for continued growth in place from our off-premise customers such as Costco and others and based on what’s shipped in January, we anticipated potentially 10,000 cases of Redneck Riviera to be sold in the quarter. This would have been a record quarter for this brand. As the coronavirus took root mid-February, we experienced a downward shift in the trend that we saw in January.

Turning to Azunia; we anticipated approximately 5,400 cases to be sold during the first quarter and anticipated increase of more than 50% over the prior year’s first quarter. And this, as we looked at, at the rest of our spirits business what we call our legacy brands such as Burnside Bourbon, HueHue Coffee Rum, and Portland Potato Vodka, and others, we were anticipating another approximate 6,200 cases to be sold during the quarter. We are well on our way to having a record first quarter with what would have been an estimated 22,000 cases sold in a single quarter. Most importantly in the long-term initiatives we had in place to transforming Eastside Distilling from a company with one primary gateway product Redneck Riviera Whiskey to a House of Brands that leverages our national distribution capabilities was firmly on-track. However, once February hit and the mandates and impacts from COVID-19 began to occur, purchasing from our customers has meaningfully slowed.

Let’s spend a minute talking about what changed and perhaps more importantly, the steps that we’re taking to mitigate the impact. First, our business while spirits businesses are on the essentials list, which kept our employees classified as essential workforce, many of the on-premise locations, in other words, bars and restaurants have largely been closed, and those that are open include carry out only. Further, there has been a significant shift within the off-premise locations as consumers are focusing on the major brands and pulling the larger 1.75 liter bottles off the shelf instead of the smaller 750s where we play on the national platform. Pardon me.

We only saw 1.57 liters of our Portland Potato Vodka, which is experiencing an uplift in the current environment. The surge in spirits sales that has been reported by the media, as you might expect to have a halo effect for Eastside in the bulk shopping is going to different segment of the market with major established brands that produce 1.75 liters. Further, the market data suggests that the bellwether [ph] brands are the ones most favorably impacted as opposed to the earlier staged brands that are growing in the market. I relate this shift in buying practice like a flight for safety almost as the customers really want to buy in bulk and limit their visits to the store. A negative driver for us is also the fact that our planned in-store tastings at the major change coupled with the more insertions that we had planned on have been shut down as retailers that cancelled these opportunities to taste our brands.

Additionally, we had targeted the commencement of the Burnside Bourbon and HueHue Coffee Rum national launch, which have been delayed as retailers have postponed or canceled new store roll outs in the near-term. Extending these impacts is the fact that the consumer shopping for spirits has also been shifting to online purchases where we do not currently have a strong presence. However, our marketing team is kicking that effort into high gear and we will have all of our products including the Oregon brands available online in Q2. We will look to expand our online channels as we list our brands on retailer’s spirits sites and connect them with our distributors throughout the year.

One bright spot, Craft Canning is experiencing strong demand from the craft beer and wine industry as the brewers and wineries have batches that they have produced, the need to get them in the bottles and cans, between workforce issues at our customer sites and the closure of the on-premise businesses, in other words the taps are closed and this has created demand for our mobile canning business. Our business model for mobile canning is to send our team of two people in a box truck including a canning line and inventory to set up at the customer site. Then we can produce their product at their site and this eliminates the need for transporter shifting. So as we currently estimate the Q1 impact from COVID, we believe we will see a shortfall of between 6,500 and 7,000 cases over a suite of branded products.

Overall, pardon me — overall, we believe the first quarter gross sales will be between $3.7 million and $4.2 million, which is a negative impact of more than $1 million in gross sales from our original Q1 expectations. The important question now is what are we doing to mitigate the changing landscape and immediate impediments to our business. Crisis breeds creativity and oftentimes when there is a tectonic shift in circumstances, we get a chance to look at our business from a different angle and develop solutions that were not evident before. First, we have enacted a series of initiatives to improve sell-through including offering promotional discounts on Redneck Riviera Whiskey and Azunia Tequila. Many of you have seen emails or online promotions for this, and while the data is very early, the analytics are very encouraging as we pull the consumer eyes towards our brands.

Second, as I mentioned, we are adding online sales capabilities, Redneck Riviera Whiskey is currently available for online purchases and we anticipate Azunia and our legacy brands will be available online very soon.

Third, with the on-premise restaurant and bar closures throughout much of the country and in all of the major markets where we play, we have been reallocating our resources to support the efforts of our off-premise independent stores and wholesalers by creating several programs aimed to energize the local marketplace. Robert will record on this further.

Fourth, and although unrelated to COVID-19, we were already working on lowering our cost structure as we implemented our previously planned initiative to shut down our unprofitable retail operations by the end of March, which is now complete. Along with this initiative, which included 18 retail employees, we resized our production operation and reduced nine employees in production. In total, since joining the company, we have reduced our workforce from 138 people down to 89.

Fifth, we are targeting other areas where we can deliver efficiencies and lower cost of operations. Now, while these programs are in their infancy, we will be driving them hard to accelerate the impact at Eastside. Among many areas where we are focused and following our top priorities, we want to capture what I call money in the bottle, which is to say, we need to drive our cost of goods sold down to the lowest level possible. We currently operate at a blended gross margin in the mid-30s and we need to be closer to other spirit industry brands, which are closer to 50% or even greater, which is one area that creates an opportunity to produce the marketing dollars to support the growth of our brands long-term, part of that includes reducing our fixed costs such as the closure of our Hillsboro production facility.

The next area is looking both, inside and outside for cost of goods sold reductions. Now, as we look at our production facility and where we want to take our brands, which is volumes far north of where they are today we’ve hired a Director of Program Management to drive an outsourcing program for Redneck Riviera Whiskey as this is at a volume level that we believe would be attractive to major spirits co-packers that will deliver our case product on a turnkey basis and eliminate what we believe would be significant cost from each bottle, and increase our gross margins on that product. One small example would be the cost that we pay to ship raw barreled [ph] whiskey from MGPI in Indiana to Portland, and then back to the East Coast. If we can save $1 per bottle on a 30,000 case brand like Redneck Riviera Whiskey, that’s a $180,000 annually.

Additionally, as we look for a turnkey relationship, we will likely sell the co-packer by raw material inventory at the time of closing the contract which will significantly streamline our business. Outsourcing will also position the Redneck Riviera brand well for when the brand sells in the future as we will already have garnered the economic benefits for each side which we believe will allow for the premium sales price at the time of the brand sale. We are in the midst of a restructuring our overhead and our — and are looking for all opportunities to reduce our SG&A. The challenge is part of our workforce, for example, the on-premise sales team is in a holding pattern waiting for the market to come back, then will be a burden on the P&L and cash flow without the revenue loss. So while the on-premise business is shutdown, we’re evaluating our on-premise programs and we’ll be changing or eliminating some of those programs that have negative gross margins.

We are still focusing on driving the business to EBITDA breakeven and potentially given the market conditions in some of our initiatives we were lower at breakeven point and even get there at a lower level. We believe we’re driving the right strategy, and the impact from COVID would past, hopefully sooner, rather than later. We further believe in the long-term outlook for Eastside remains strong as we have a solid portfolio of products. We are on pace for a record — we were on pace for a record first quarter through the first month of Q1, and Robert and team have been absolute rock stars getting new insertions for our brands throughout 2018 and 2019, now setting up for 2020.

Now with the new insertions on hold, we are laser focused on rate of sale in the trade which we need for long-term growth of our brands. It will be a bumpy road in the short-term but we feel our strategy is a solid foundation to build Eastside back from when the world reverses the shutdown and starts to reopen for business, and we certainly hope this happens soon.

The obvious question is our liquidity and working capital availability and our ability to withstand the near-term storm. We’re in the fortunate position unlike other companies to have a number of options in this regard and many of which I cannot address in detail, but will do so when we have those finalized. As many of you are aware, we closed two critical working capital facilities over the last few months. In December 2019 we closed an accounts receivable factoring agreement with ENGS Commercial Capital with a total capacity of upto $2 million. The agreement allows us to borrow upto 85% of the eligible accounts receivable, subject to various terms and conditions outlined in the agreement.

Then in January of 2020, we closed a new credit facility of upto $8 million with Live Oak Bank backed by the company’s raw spirits inventory; this funded the pay-off and replaced two existing inventory facilities with KFK in the short-term two QLA facility totaling 5 million capacity, and in addition to the increased availability of approximately $2.6 million, the new credit facility offered some advantages to Eastside including a reduction in the interest rate. These working capital facilities were major achievements for us, as we will continue to leverage our asset base to help fund the growth in our operations as opposed to turning to the capital markets for the first stop for funding. In addition to the ENGS-Live Oak lines, our logistics part of Park Street also provides an AR factoring facility for the spirit sales that run through their house. So as we move product into the market, we have access to cash earlier than the 30-day terms that we invoiced at.

In addition to the lines of credit that we mentioned, we have significant inventory in-house which is also a source of cash, and especially for the Redneck Riviera product. So when we sell Redneck Riviera products, since we already own the inventory, raises cash flow. Lastly, when we complete the contract for outsourcing production, we will look to the sale of our raw materials to that supplier for cash. Based on our success of our collections at the end of March, we estimate that we will end Q1 with between $800,000 and $1 million in cash which we will manage very carefully as we move forward.

In addition to our cash on hand, we are looking at all other aspects in the business that are sources of cash, nothing is off the table right now. We all understand that the government has authorized $2 trillion in relief funds and $300 billion of that is designated for small businesses which East Side is one of many. Live Oak Bank has already contacted us as a potential solution to be our lending source given that they hold the collateral in our inventory to potentially connect us to those funds. As this was all approved late last week, the situation is unfolding rapidly, but not in place yet. We’ll work closely with Live Oak Bank as their security and our inventory gives them an advantage, if we can work with them. Once we determine our borrowing capacity, where — we’ll also look at other lenders as well. We’ll look at our brands as a source of capital as well; the good news is we have knobs to turn on the P&L and I’m sure in assets that we can monetize as we go through this global situation.

Finally, let me state that while we’re lower changing our internal works to optimize our model we remain committed to our strategy as we run the business to reverse period and beyond. As we have stated, our objective is to become the leading mid-tier spirits company that acquires, develops, markets and sells these premium branded spirits on a national level, and once they become proven and sustaining brands sell them to the larger Tier 1 spirit houses in the industry. Even though we have not sold the brand yet, we believe that there is tremendous value and quality in the brands that we have in-house and are developing. And as we stated last fall, we have begun the process of validating that and looking at all options, including those that would unlock value from our portfolio of brands and allow us to step up investment in key areas to accelerate growth.

While it’s difficult to see from the outside, particularly given our stock performance of recent, as the world has moved away from Microcaps we see a company in the midst of a large scale transformation that will leave a more profitable, faster growing company in the future, and one we believe that the market will appropriately value.

Now, let me turn the call over to Robert to add some additional color. Robert?

Robert Manfredonia

Okay. Thanks, Larry, and good afternoon, everyone. While I normally go through a series of market data points, I will adjust because of the realities of the market and the significant changes over the last month plus instead. I will focus on details from Larry’s overview and I will elaborate on the market and how we are adapting to the significant changes.

As Larry indicated, we started off with a very strong January, in fact, we were significantly over the original forecast for the month. As an example, the Redneck Riviera new distribution for public Florida was set on the shelf and provided an initial list. We expect it, the usual off-premise cadence of gradual monthly growth to continue through the quarter. Unfortunately, our expectations and many other early stage brands were interrupted with market circumstances. Redneck Riviera also was further challenged by a large program cancellation with Costco Louisiana, this further exasperated the volume challenge. Fortunately, in regards to Costco, we have a Southeast regional program, committed to before the fourth quarter.

Moving to Azunia, shipments were impacted by the market disruption as well. This is inclusive of in months March shipments and case deliveries for April business; this is inclusive of existing sell-through business replenishments and new incremental business schedule for a March release. This market condition also had a slight offsets of early delivery opportunities for [indiscernible] program Nationwide, generally, the first quarter cadence are very linear in the on-premise. Azunia’s current volume is driven by the on-premise delivering 78% of the total volume.

Regarding new Azunia business, the team has spent a considerable amount of time in the first quarter adjusting our wholesaler network in the East and the Central region, the transitions we’re focused on 15 wholesalers; highlights include the transition to RNDC Florida, the favorable news, the initial order equaled the entire 2019 first quarter shipments. Michigan, Wisconsin, and Alabama will carry Azunia to scale-up [ph] for the first time ever, all existing states with brand availability that transitioned provided aggressive initial orders inclusive of New Jersey, the initial opening order was 7 times higher than the entire shipments last year. Illinois opening order was double the entire 2019 shipments for last year, and Tennessee and Georgia’s opening POs were 3 times higher than the entire 2019 shipments.

Lastly, New York City, Azunia is scheduled to be released in May and we agreed to 2020 case commitment from the new wholesaler is in excess of 1,800 9L cases; to put that in perspective, last year Azunia sold four cases in New York City. We’re extremely excited about the immense opportunity in New York City to further develop the brand within the high profile metropolitan area. We’re also extremely encouraged by the overall wholesale response and the position reflected in the initial orders.

Burnside and HueHue national rollout; as I mentioned in January, both Burnside and HueHue were set to enter select national markets including California, Washington, Texas, Florida, Arizona, Tennessee, and Illinois by the end of the first quarter; this did not occur from most states outside of California as retailers adjusted to the impact of the virus. Worth noting, the process before market release is the wholesaler kick-off meetings inclusive of brand education. All wholesaler new brand launches are on hold until the market normalizes, the favorable news all wholesalers are excited and will represent the brands. Worth noting, wholesalers are very selective with accepting brands and most decline with the initial presentation, and many brands have to move to Tier 2 wholesalers for distribution representation.

Larry spent a lot of time talking through some of the marketing and sales initiatives we are driving to combat the impact of the virus, I will add some additional points. Within marketing, we had several new March programs already launched inclusive of the following; Azunia text-to-win a trip to the distillery, also a $4 instant rebate were legal, messaging is focused on our database and social media platforms inclusive of Instagram, Facebook, and Twitter. Azunia Black has a separate marketing program aligned to social media platforms with a higher value instant rebate coupon.

Oregon brands are supported with the by local campaign driven by geo-targeted digital coupons, and Redneck Riviera is driving geo-targeted video ads to high density distribution areas, specifically in Florida, Northern and Southern California, and Northern and Southern Illinois; this is a John Rich video driving back to the point of purchase supported by a downloaded coupon of buy one save $3, or buy two and save $8. We’ve increased our direct digital marketing and couponing outreach through delivery services like Instacart and Drizly. Drizly model is focused more on the off-trade general market; in simple terms, they work for retailers and our delivery service where the consumer can receive products where legal within a few hours if the product is available in the local area. For Instacart, their model is focused on corporate retail that provides the delivery service for a nominal charge to the customer, we do not incur any of the cost to retailer supports this.

We track all of these initiatives through Facebook or Google Analytics along with wholesaler depletion reports and Nielsen transaction data focused on 30-day versus previous 30-day reviews. All of the electronic couponing will be followed in April with paper in-store coupons to ensure we’re capturing all potential purchase opportunities. Once the off-premise environment normalizes, we will start in-account nationwide product samplings where legal. While we are remaining adaptors an instituting a number of programs aligned to the current market conditions, it’s important to note that we are continuing to focus on executing the long-term initiatives that we are ultimately going to support the high valued growth across our national platform.

For the long-term, we are now and have been presenting new authorization presentations with the grocery class trade focused on Azunia Reposado and select presentations for HueHue Coffee Rum. Redneck Riviera continued growth in part is driven by the new class of trade entry, in the next couple of months Redneck Riviera 750 milliliter will enter Rite Aid in California and Michigan by the end of June, unless market conditions cause a further delay and Walgreens Florida will be added in the month of August. This is the first entrants into the drug class of trade for a mandated shelf position with full distribution in all stores in all three states.

In closing, while the current environment is certainly challenging to our business, we will continue to execute our plan where available, force correct based upon market conditions, as needed; and most importantly, be prepared for the normalization of business when the market does adjust. I am confident we are in a favorable position to come out on the other side, once the market does normalized.

With that, I will turn it back to Larry.

Lawrence Firestone

Okay. I was on mute, I apologize. Thank you, Robert. As mentioned on the call, at the beginning Stuart Schreiner, our new Interim Chief Financial Officer has joined us on the call today. And I have worked with Stuart previously, and he joined at a critical time to help Eastside with leadership in the finance area.

His first point of attack has been in the cash flow of the company, this is so critical for growing the company for now and especially in these times. Because he recently joined, he has been getting his hands dirty inside the finance and control side, and I’m going to give him the pass on discussing the normal quarterly analysis that I’ve already summarized today. Now, I’m confident that Stuart’s hands-on approach with the process and continuous improvement will add tremendous value to Eastside going forward, and he is certainly well versed in solving problems for companies that are transitioning on the stage of investment to that are cash flow positive.

As a company, we’ve become more nimble and are completely focused on creating value. So just a shout out to our Eastside team, Robert and his team are working hard every day on the customer facing side of the company. Stu and his team are working with the cash flow and financial models, and Kevin Quinn and Mel Heim [ph] are working to outsource Redneck Riviera Whiskey production and to improve our gross margins on that brand in mining all of our brands for cost reduction. Todd Garrett and his team are driving hard capitalizing on the opportunities for Craft Canning and not just during the crisis. We’ve gelled with the team over the last four months and come up literally every day as all of us are working to lower overhead and breakeven point to get Eastside to the point where we can run the business organically on our own cash flow.

We would also like to thank John Rich as well for all of his efforts to promote the Redneck Riviera brand. I had the pleasure to watch John in action at a private concert, and the Redneck Riviera bar on stage was awesome. But more importantly, his commitment to our armed forces is moving. Thank you, John.

Now clearly, the COVID-19 has raised the bar on our team and near-term impact on our business. But we believe this will quickly pass and we will drive to regain the strong footing by which we started the year off with. There is plenty of work to do, but I believe we have a great team to get us there. Robert and Stu and I are all remote, so as you ask your questions we will call on each other to answer, which is certainly a change from all being in the same room.

So with that said, we’ll go ahead and open up the call for questions.

Question-and-Answer Session

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from David Bain of Roth Capital. Please go ahead with your question.

David Bain

Great, thank you and thanks for some of the additional transparency in the press release with cases [ph] and revenue by driver. I guess first, Larry, you mentioned you lower the breakeven point. Just looking at 2020 trying to expect it next with our on-premise and off-premise now, and you’re Canning, and then the other margin efforts you sought to; could you point us to kind of where top line needs to be for a breakeven on a quarterly basis?

Lawrence Firestone

Yes. It’s still a moving target, David. So I’m going to pass on that for right now because we have — we’re still pieces in the middle of the business. As we mentioned, the on-premise team is really kind of on the sidelines right now, so as we work through that we’ll come back to you with that number. But it’s — certainly we’re moving the headcount down and closing the retail operations and those kind of things, it is really moving in the right direction. But I’m not yet to the point where I’m ready to guide to a breakeven point.

David Bain

Okay, I understand. That’s fair. And then just given, as you know is historical on-premise mix and I understand the plan has always been a tactical that kind of built national off-premise chain. But obviously the urgency here are probably even a little bit higher, and Robby there is acceptance data points at [indiscernible]. I guess just a couple of questions as we head into resets; I mean broadly, has timing of resets changed? I understand the form factor is more popular as you mentioned for the 1.75 versus 750’s, but can we adjust to match the current environment we’re current path are not long? But what has been the response from distribution hosts to kind of the sales effort at this point? And what you’re doing outside of kind of the forward incentives you mentioned? And how those are being accepted at this point?

Robert Manfredonia

Yes, thanks David. The first thing I want to reiterate is the wholesaler confidence that we have, the numbers that I quoted with new distribution points are not the norm, it’s usually a wait and see that take very little product inventory and then based upon the market reaction then they incrementally start to taking more inventory, that hasn’t been the case. So there is a position from New York City to Florida to Illinois and many other states where a lot of our wholesaler partners are very bullish on the brand itself. It starts with that and their confidence because we need their support with retailer presentations.

We are presenting for the — what they call the fall, pull and plug, which is a September timed period of time, usually the — most of the distribution changes are done in the spring. We missed a large portion of that with acquiring the brand in mid-September, so we’re going to go through the mid-year and we are presenting Reposado for the most part to most of the chains across the country and the reception has been fantastic. A lot of the chains are starting to trade up from Longo [ph] to Reposado; we have a product that’s organic and they’re very excited about it. We will say it’s a smaller consideration period, so there is less — there’s less changes that are made overall. But we will continue to fill in what we call the general market, the independents where there isn’t that hardline consideration period, but the early response has been fantastic and even to the point of brands like HueHue, there are selected retailers that are intrigued by the brand like Publix in Florida, in South Florida, that we have an opportunity to be very selective on where the brands go. So, we have the right brands to go into high growth categories, we’re positioned in the right price segmentations which is above premium and luxury, and that’s where we want to stay. So that’s really the model and now we’re moving things through the model itself.

David Bain

Okay, all right, great. And I guess, I just want to — are you looking at — for divestment potential opportunities are cashing in us in some of the growth you’ve created for certain brands. I know there is the opportunity to combine with environment and needs. But when you look at the portfolio, are there certain broad strategies you can consider, like a matrix you look at — when you look to potential brand incubation, that period being finalized with anytime?

Lawrence Firestone

You broke up a little bit at the beginning there. But I think the question was…

David Bain

I’m just asking about divestments.

Lawrence Firestone

Go ahead, go ahead again.

David Bain

Okay. So divestment opportunities and what you’re looking at on year-end as to considerations to pull the trigger, should you be approached on certain brands or market certain brands outside of financial considerations? Or is there something of a matrix you look at within the portfolios? I mean, I’m just trying to understand…

Lawrence Firestone

Yes, that’s a great question. The brands that hit the national platform, we — well, straight up, Robert and I are working on that. So what is the — what’s the exact model that we want to get to, and that’s a work in progress. I mentioned the gross margin target is being a piece of that and I think the way I look at it is, as a trailer hedged to one of the Tier 1s; what would they like to buy? They would probably much rather buy a brand that’s performing in the margin level that they’re used to and that has — in the national platform, wide distribution that’s sticky that can — that they can easily import into their lineup and take it to the next level. So metrically, I don’t have that yet David, but for the local brands or the brands that are more predominant in Oregon in the Northwest, Robert and I have talked about some of those brands and whether they have — what kind of growth opportunities they have, have peaked, and what kind of margin opportunities they have as well. So we’re just getting started on digging into cost of goods sold and those kind of things because I feel like there is quite a bit there, with the 30% — mid-30s kind of gross margin. So, it’s really going to come down to taking it apart and kind of taking the brand engine apart and seeing what we need to do when we put it back together.

David Bain

Great. Well, it sounds like things are extremely strong before and look forward to getting back there. Thanks so much.

Lawrence Firestone

Likewise.

Operator

Our next question comes from Jim McIlree of Bradley Woods. Please go ahead.

Jim McIlree

Yes, thanks and good evening. Just a couple of questions. How much was on-premise sales in the quarter? And then of the inventory balance at year-end, how much of that was whiskey?

Lawrence Firestone

On-premise sales, I’ll let Robert answer that from probably — maybe just a percentage of the business. But the whiskey, the raw barrels of whiskey; I want to say — at cost, it’s probably in the $6 million to $7 million range and the strange thing there Jim is, is — when we borrow from Live Oak, they lend against market value; so there is a spread there between our cost and our market.

Jim McIlree

Got it. And the on-premise sales or you’re saying just a small percentage?

Robert Manfredonia

Well, it just depends upon the brand itself. So Redneck Riviera is a 11% on-premise brand from a volume standpoint.

Jim McIlree

Okay.

Robert Manfredonia

The Azunia brand is 78% of the volume, it’s provided by the on-premise. The Oregon market alone — the on-premise is 12% of the market.

Lawrence Firestone

Okay, so that’s in part what we’re all dealing with, right. Not only us, but it’s part of it. And it’s also — I think it’s worth adding, wholesalers have taking sort of a position within this crisis of really focusing on the very well developed brands, that’s what they’re bringing in additional inventory with the smaller brands, the mid-sized brands even; they are playing inventory levels very, very tight at this point in time, that’s part of this challenge that we’re facing in the near-term. That will loosen up very quickly, we’re already having planning sessions with them for the month of May and June, so we have our plans in place for the reopening of the market.

Jim McIlree

Got it. All right, very good. Thank you. Good luck with everything.

Robert Manfredonia

Thank you.

Operator

Our next question comes from Harold Weber of Aegis Capital. Please go ahead with your question.

Harold Weber

Yes, hi, good afternoon. Can you hear me?

Lawrence Firestone

Good afternoon. Yes, yes, we can hear you.

Harold Weber

I’ve got a question, a couple of questions. First, on a basic level. There has been all kinds of talk about distillers converting some of their production to making alcohol to distribute for sanitizing purposes. Have you guys have been involved in that at all? Do you have any…

Lawrence Firestone

We have not, we have not. You know, we run a small production shop and frankly, Robert and I and the rest of the team that I mentioned, have been working so hard to construct or reconstruct or transform — transition the business in so many different ways for us to the stop drop, enroll and cut in a new sanitizer product; we would be up against [Technical Difficulty].

Harold Weber

Okay. So just to value, if you have idle capacity and/or production, if you don’t have, that’s okay too. Is — what should I say good public relations thing, so being a good corporate citizen and stuff like that but if you’re saying that it doesn’t make sense then, okay. And I’d like to get an idea if you’ve been working on — we were talking about doing something in regard to enhancing our corporate branding image. Have you been doing something in regards to that?

Lawrence Firestone

Yes. So we have our marketing team is — probably not along the lines that you want to hear Harold, but our team and I have been trained on this. If you look at the Tier 1 peers in the industry, most of the — if not all of the brands — each of the brand stands on their own and they roll upto a corporate parent. So, other than maybe like a Seagrams, you wouldn’t really know who owns, for example, Jose Cuervo or Bushmill’s Whiskey or just go on down the brands. So, the — what you’ve been asking for is Eastside name on the bottle of everything and that is…

Harold Weber

Not exactly. I’m just — I’m trying to get it to raise the corporate identity of Eastside with some type of a better branding logo showing the brands that we own. I am not saying we have to put Eastside in every bottle, I don’t really care about. I’m trying to get the image of Eastside as a premium brand company, raised.

Lawrence Firestone

Yes. And that I would say we’re starting our press release campaign, you’ve seen that’s hit the newswire now, on a pretty consistent basis. That attaches Eastside to the specific brands and our marketing team is actually working on the brand sites. And as I mentioned earlier in the call, they are working on the brand sides so that there is a buy now and every brand side, we have some buy now that don’t quite work well. So we’ve got to get that fixed so that people who are on our brand sites can buy our brands and that’s kind of my primary focus right now. I hate to have a customer that wants to drink our liquids and can get them.

Harold Weber

Absolutely, you want to certainly — anybody who wants it should be able to get fulfilled.

Lawrence Firestone

Yes.

Harold Weber

Any progress or any further developments in regards to the outlandish products?

Lawrence Firestone

Outlandish, we have — we’ve pulled back from that when the — it was an Oregon-only product for us. And when the Liquor Board in Oregon pulled back from the ability to mix CBD with spirits, that made that business for us extremely small. So we’re putting our horses behind the mainstream spirits business that we’re running.

Harold Weber

That’s fine, that’s fine. And when that changes, we can go back to ramping that up is — if the demand is there, right?

Lawrence Firestone

If it’s there, yes.

Harold Weber

Okay. And [indiscernible] was saying, it’s something in regard — some kind of branding identity, a logo some — when you send that email, do you send that — it just puts you to sleep. Something these companies they have vibrant; they have colors, they have picture, they have a theme, they have something. I don’t really care what you — look at the bottles, we have all kinds of bottles with nice stuff on them, maybe put [indiscernible] on the label or on the corporate logo with something; something.

Lawrence Firestone

Yes. We’ve got a great branding house in Sandstrom Partners and they really work on the brand level, but I — so I think that’s really where our money is going in, and when we talked about deploying our resources, it’s really — it’s really at the brand level.

Harold Weber

How do you see the other products getting rolled out? I suppose at some point have you gotten any feedback from the distributors about some of the other things?

Robert Manfredonia

Yes. I’ll take that. So as I mentioned, we have all of the markets that we identified are — have accepted all of the brands, some we have shipped in, they’ve landed in the warehouses, some we have — POs that are waiting, that they are waiting for the market conditions to change. But we’ve have already have confirmed POs, if not product in the systems, we have kick-off dates that have been pushed back a little bit. But there is a process to kicking off a brand, it just makes sense, right. You have to — before you’re launching into a market, you have to sit down with the teams that are representing the brands, explain what the brand is about and make sure that they are fully equipped to go out and appropriately represent the brands. So, all the states that we put forth has been the launch dates are engaged, they’ve accepted all of the brands, we have either POs in hand or we have products in the warehouses, we’re just waiting for the market conditions to adjust and we’re ready to go; we’re ready to go and they are too.

And I did mention that we, like many other company’s presents our brands to them for representation and most get declined, so above and beyond acceptance, and the size of the initial orders and the financial commitment, we’re extremely excited about the position that you’re taking with our brands. So I expect big things to be happening again once things normalize.

Harold Weber

Okay. So basically, we’re ready to ship and as soon as they say we are ready to come to take [ph], is that basically right?

Robert Manfredonia

That is correct. They are ready to go and once we can go through the process of kicking off, the product will be in. Prior to that, we will do our meetings and we will start going out aggressively into the market with a targeted plan. That is correct.

Harold Weber

And how long would you anticipate it taking to roll out to many of these distributors?

Robert Manfredonia

I would say Well, I think…

Lawrence Firestone

Once everybody is back to — is somewhat back to normal, let’s say.

Robert Manfredonia

Right, right. So let’s just say Harold, if it seems normalized and everything in the market — on-premise is open, we can get in a room with people in the month of May, then the products will be launched in May. If that’s June, then that will be June. There’ll be no delay or lag time once everything normalizes with the market back to the wholesaler.

Harold Weber

Okay, that sounds good. We’re waiting to hear about it, only to see it; waiting to see them in the stores.

Robert Manfredonia

Well, we’re excited too. For our New York City, we couldn’t be more excited about the opportunity that — not just for Azunia, but for HueHue and Burnside and Redneck in the city, but also the suburbia markets within the Boroughs. The reaction of the wholesaler was as our expectations, so that is something that we can really build our brains off of. So there is a lot to come with that. We’re excited about it.

Harold Weber

Okay, great. Hopefully we’ll be able to ramp up sooner rather than later. Good luck.

Robert Manfredonia

We agree.

Lawrence Firestone

We totally agree.

Operator

Our next question comes from David Bain of ROTH Capital. Please go ahead.

David Bain

Only one quick follow-up. It was on the online expansion — distribution. Obviously, that’s a huge market but sometimes we hear how competitive it can be. Can you kind of lay out what the strategy could look like, the platforms that you’ll be utilizing to try and penetrate sales from that method?

Lawrence Firestone

Do you want to take that one, Robert?

Robert Manfredonia

Yes, absolutely. Well, I meant — I mentioned, David that we are utilizing delivery services of Instacart and Drizly, right; their models are — and what we’re going after is we’re focused on when — when consumers approach Drizzly or Instacart, our brands pop-up, it’s part of the geo-targeting we’re doing with. And that’s part of the plan. The secondary piece of it is, that we are utilizing our databases and our social media platforms of engagement, right, with direct messaging through a John Rich video, as an example, or through something with the brand like Azunia or even products within Oregon. So — and we have different tactics that we’re doing, we’re sending messaging and then we’re trying to focus on high density opportunities with distribution. And then, we provide them sort of the support of a coupon, right. You know, you can download coupon for $3 on a one bottle buy or buy two and you save $8. So we’re trying to use a variety of different tactics and through the digital space to get people to be aware of our products.

Georgiou Santi [ph], our Senior Vice President, he’s doing a good job, a really good job in expanding what’s going on with this approach, and we have a lot more to come. So this was always part of where we want it to go. Obviously, it’s being further accelerated because of the conditions and we are receiving a lot of data back through just Google Analytics and Facebook Analytics, and we’re starting to see sales coming through through the online space. So it’s going to be something that we’re going to continue to advance and develop, these brands speak well online, and we have the ability to do it. So that’s where we’re going to be driving as we move forward.

David Bain

Okay, that’s helpful. I understand. Thank you so much.

Robert Manfredonia

Sure. Thank you, David.

Operator

This concludes our question-and-answer session. I would now like to turn the conference back over to Mr. Firestone for any closing remarks.

Lawrence Firestone

Thank you, operator and thanks again to everyone for joining us on the call today. I look forward to speaking with you all on our earnings call in May, if not before as we strive to keep you updated on our progress. Please stay safe and healthy, and have a good evening. Thank you.

Operator

Thank you for attending today’s presentation. The conference has now concluded. You may now disconnect.





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From vodka and gin to hand sanitizer: global distilleries rush to the rescue amid the coronavirus crisis


It was early last Monday morning when Melissa Hanesworth came up with the idea that Pernod Ricard should make hand sanitizer.

As vice president of North America Manufacturing at the $34 billion French drinks group, Hanesworth knew the company was well placed to help meet the world’s urgent need for the potentially lifesaving product, which has been in scarce supply as the coronavirus crisis escalates.

Surely, Hanesworth thought, Pernod

RI, +2.90%

  could use its dozens of distilleries located across the globe to produce industrial quantities of the hand gel. She took the idea to the company’s regional boss Ann Mukherjee, who immediately gave it the green light.

Less than 24 hours later, the maker of Jameson Whiskey and Absolut Vodka had received all the government approvals it needed, and by the end of the week the first batch of its hand sanitizers were rolling off production lines in Fort Smith, Arkansas.

“It was incredible how fast we were able to get this done,” Mukherjee told MarketWatch in a telephone interview. “The trick to making hand sanitizer is that you have to denature it so people don’t consume it, which is the opposite of what we do.”

Pernod is one of several of the world’s biggest distillers who are racing to make hand sanitizer, which has become increasingly rare due to a massive surge in demand, to help governments battle the novel coronavirus. As of Monday, 354,677 people world-wide have now tested positive for the virus, according to the latest data from Johns Hopkins University tracker.

The Alcohol and Tobacco Tax and Trade Bureau said last week that it was waiving provisions of internal revenue law to authorize production of ethanol-based hand sanitizers by permitted distillers “to address the demand for such products during this emergency.”

The French drinks maker already had vast quantities of ethanol — the basic ingredient needed to hand sanitizers readily available — but it had to externally source other key ingredients, including glycerin and hydrogen peroxide, which it doesn’t usually use.

“Even sourcing the PET [polyethylene terephthalate] plastic containers to bottle the hand sanitizer in hasn’t been easy,” Mukherjee said.

Once they had gathered the ingredients, however, Pernod’s expertise as master blenders kicked in and after training some of its existing teams, they were able to skilfully mix the contents to make the hand gel.

The company followed the World Health Organizations’s recipe for high quality hand sanitizer. To be effective at killing germs, alcohol-based hand sanitizers should have an alcohol concentration of between 60-95%, according to the Centers for Disease and Control Prevention.

Mukherjee credits the The White House Coronavirus Task Force with helping Pernod overcome regulatory hurdles and obtain the necessary clearance to make the product in record time. “We are truly grateful that we were able to work with the task force and the U.S. government. We needed a quick turnaround across multiple bodies to do this”

President Donald Trump praised Pernod’s efforts at a press briefing on March 21. “They went out and repurposed their alcohol production capabilities in Arkansas, Kentucky, Texas, and West Virginia to make hand sanitizer. That’s a big difference. And they have been unbelievable,” he said.

This week, Pernod Ricard should produce 4,500 gallons of hand sanitizer in the U.S., with weekly production rising to at least 5,700 gallons by the end of March. Mukherjee said the quantities that it will be producing are completely being dictated by the government. “They give us the demand signals they are looking for based on need across the country.”

The company’s other global subsidiaries are also helping ramp up production. In France, Pernod will donate 70,000 liters of pure alcohol, which is the equivalent of 1.8 million individual 50 milliliter bottles, to Laboratoire Cooper, the country’s leading supplier of hydroalcoholic gels to pharmacies. This is alongside the additional initiatives in Ireland, Spain and Sweden.

Although Pernod won’t make any profits from its side gig, it will might provide workers with a morale boost, given the fact that it is facing hard times, like the rest of the corporate world. On Tuesday, the French group drastically cut its guidance for the year ending June 30, as the spread of the virus hit its business more severely than it had initially anticipated. Shares in Pernod were trading 3.41% higher at 9:30 a.m. GMT.

Diageo

DGE, +1.94%,

whose brands include Guinness beer, Smirnoff vodka and Johnnie Walker whiskey, said it would supply two million liters of alcohol to make hand sanitizer to help overcome shortages in health-care systems. It said the alcohol will help to make eight million 250ml bottles, and priority will be given to frontline health professionals battling the spread of the disease.

“Healthcare workers are at the forefront of fighting this pandemic and we are determined to do what we can to help protect them,” said Ivan Menezes, Diageo Chief Executive. “This is the quickest and most effective way for us to meet the surging demand for hand sanitizer around the world.”

Belgium-headquartered Anheuser-Busch InBev

BUD, +5.10%

 is producing 50,000 liters of ready-to-use disinfectant alcohol, using the surplus alcohol from its alcohol-free beers, including Jupiler 0.0 and Beck’s Blue, for European hospitals. A further 26,000 bottles of hand sanitizers have also been produced from the alcohol removed from alcohol-free beers, and these will be given out to pharmacies and frontline workers across Europe.

Some smaller, U.K.-based artisanal brewers and spirits makers have also stepped up to the challenge. BrewDog has started bottling its first batch of hand gel ‘Punk Sanisiter’ and was due to deliver it to Aberdeen Royal Infirmary’s Intensive Care Unit in Scotland on Monday afternoon.



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This European company isn’t sugarcoating its coronavirus problem


Pernod Ricard, the maker of Jameson whiskey and Absolut vodka, cut its annual profit growth outlook for 2019-2020 on Thursday, as it said China’s coronavirus epidemic was likely to have a “severe” impact on its third-quarter performance.

The French spirits maker, which generates 10% of its global sales in China, said it couldn’t predict the “duration and extent of the impact,” but stressed it remained confident on overall strategy.

“In our view Pernod Ricard deserves credit for attempting to quantify the impact, which few other companies we follow have done,” said James Edwardes Jones, analyst at RBC Capital Markets.

He added: “We don’t believe that this should weigh heavily on the shares, albeit China is an important market for Pernod Ricard (we estimate 14% of sales and 20% of EBIT [earnings before interest and taxes]) if the lack of reaction for others in the sector is any guide.”

Shares in Pernod

RI, +3.80%

 closed up 3.8% on Thursday.

Pernod’s warning came as the European Union cautioned on Thursday that the coronavirus outbreak had emerged as a “new downside risk” for the eurozone’s growth prospects.

In its winter 2019 economic forecast, the European Commission said: “The longer it lasts, however, the higher the likelihood of knock-on effects on economic sentiment and global financing conditions.”

Paolo Gentiloni, European Commissioner for the Economy, added: “We still face significant policy uncertainty, which casts a shadow over manufacturing. As for the coronavirus, it is too soon to evaluate the extent of its negative economic impact.”

Pernod, the world’s second-biggest spirits group after the U.K.’s Diageo

DGE, -0.87%,

said operating profit from recurring operations would grow between 2% to 4% this year, down from the 5% to 7% it previously predicted, because of the impact of the coronavirus outbreak.

The French spirits maker reported a net profit of €1.03 billion ($1.12 billion), up 1% from a year earlier, while profit from recurring operations was €1.78 billion, up 4.3% on an organic basis. Sales reached €5.47 billion in the six months to Dec. 31, a 5.6% gain on the year earlier, and 2.7% higher on an organic basis.

The company came under pressure to boost its margins and improve its corporate governance in December 2018, after U.S. activist investor Elliot Management built a 2.5% stake in the company.



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Distilling Refinery Data: Early Read On Coronavirus Oil Impact – SPDR S&P Oil & Gas Exploration & Production ETF (NYSEARCA:XOP)


We’ve been tracking refinery margins for a while, and there’s always an interplay between the input costs (i.e., crude prices) and product prices (i.e., gasoline, diesel, jet fuel, etc.). Refiners make the difference between the two and in complex refineries, can dial up or down the production of certain products. So while difficult to pinpoint exactly, it’s helpful to understand what is broadly happening.

In the past month, the coronavirus has severely impacted the crude market and driven it into bear territory on fears of demand destruction. The prevailing narrative is that the Chinese economy is frozen, and fossil fuel demand has fallen off a cliff. Demand for transportation fuel in particular has been materially affected as travel restrictions inside and outside of China have been imposed in an effort to curtail movement inside/outside of the country and contain the spread of the virus.

As we previously noted, JPMorgan (NYSE:JPM) estimated oil demand in China will decline by 500Kbpd in Q1 2020. In its latest STEO, the EIA estimates total liquids consumption in Asia will decline by ~500K bpd from February to April, so roughly in line with JPMorgan’s estimates.

So logically, we’d anticipate product demand to be weak in China and product prices to weaken. Then either products would need to be pushed out of China (i.e., exported) or inventories would balloon. If they are exported, the product prices regionally should in turn decline, and net/net refinery margins regionally and globally should fall despite the fall in crude prices. Since the demand destruction isn’t small, the price cascade should accelerate.

Yet in China, Arab Medium cracking margins averaged minus $1.84/b last week. Negative yes, but an improvement from the week prior when margins fell to near minus $4/b.

Outside of China? This is what we’re seeing.

(The left side is refinery margins on a quarterly basis and the right side is refinery margins on a weekly basis).

Interestingly, refinery margins have rebounded in the past few weeks outside of the US. In the US, the trend is similar…

Now we are the first to admit that we still don’t know the total impact of the coronavirus, particularly as China is just restarting its economic engine after a protracted shut-down. Will the number of confirmed cases increase dramatically given the mass movement of people as they re-enter the workforce? How long will the quarantine of tens of millions continue, and how long will it take for the manufacturing sector and consumer sentiment to recover? Those are obviously unanswered and currently unanswerable questions. So far… dare we say, it seems to be recovering, or at the very least, the number of confirmed cases appears to be falling.

What is noticeable amongst the murky data is that refinery margins are recovering outside of China, which means product demand outside of China is perhaps stronger than the current narrative would have you believe. We’ll continue to monitor this, but if the coronavirus is contained in short order, we’d anticipate refiners inside and outside of China will quickly reverse their throughput cuts and accelerate their crude purchases to take advantage of the healthier margins currently on offer. Ultimately, this would quickly push WTI and Brent pricing higher following the recent sell-off.

As always, we welcome your comments. If you would like to read more of our articles, please be sure to hit the “Follow” button above.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.





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