Shares of the contract distiller MGP Ingredients suffered a spill in the last year from the Kansas-based company’s misplaced bet on aging its own whiskey, instead of just making alcohol under contract for other spirit marketers.
By last week, the stock (ticker: MGPI) had sunk to $23 from a height of $89 in April 2019.
On Friday, MGP stock popped 7%, to a $24.34, after the company announced that it was joining the national effort to produce more hand sanitizer and disinfectant products to ward off the coronavirus that causes Covid-19.
“MGP employees are working around the clock to support the needs of companies that produce these vital products,” the company said in a statement.
The company was founded in 1941 as a “grain belt” distillery, and it produced industrial alcohol for World War II. Making spirits to recipe for customers like Diageo (DGEAF), MGP grew profits steadily over the last decade. American bourbon whiskey was reviving in popularity and small craft distillers popped up across the landscape.
MGP decided to set aside some of its output to age, with the hope of selling that inventory at higher prices to craft customers who would finish and retail the stuff. But the company misjudged the market, and in recent quarters it reported that it hadn’t gotten the prices it had hoped for its aged spirits. Sales fell 4% in 2019, to $363 million, while operating income fell 6%, to $46 million.
Like most beverage distillers, however, MGP has maintained a good business in selling industrial alcohol made from the waste products of its primary production. Some of that output has been a longtime ingredient of sanitizers.
With store shelves now empty of sanitizer product, amid the pandemic panic, MGP now has a new source of demand.
“While we’ve always produced a significant amount of the alcohol needed for these products,” the company said, “we have ramped up production at our Kansas and Indiana facilities during this critical time.”
It’s not alone. Much of the liquor industry’s output sells through bars and restaurants that the Covid-19 has shuttered. Pubs face ruin. London-based Diageo has warned that the coronavirus will hit its profits.
So producers large and small are trying to repurpose some of their alcohol for sanitizing and disinfecting. The American Craft Spirits Association said that 75% of its small distillery members are now making alcohol for disinfecting use, following recipes provided by the federal government.
MGP says its industrial alcohol ramp-up is a return to its World War II roots.
Write to Bill Alpert at william.alpert@barrons.com
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