Wednesday, November 10, 2010

Reed's (Nasdaq:REED): Beverage Industry Superstar

It is simple to overlook consumer stocks and frankly the beverage space is very difficult. I have been following REED’s for more than 4 yrs and I have not seen the company in better shape. I'm also a huge fan of Chris Reed; he is what a CEO should be..a passionate, enthusiastic leader and unyieldingly driven to harness his niche.

Let’s review the call. The revenue is coming from the Private Label portion of sales versus branded products, and I recall listening to moronic analysts on previous calls talking about why this low margin portion of the business would never lead to success. Reed’s has positioned themselves (with the slick operating plant in California) to take this PL biz and develop relationships that can expand top line and sprinkle a few dollars over to the marketing side and avoid begging Wall Street for capital at a huge discount to current share prices.

I want to ask previous analyst's what they think about the PL business now - and - if they thought this would be the result. I can say the smartest thing Chris Reed did was NOT listen to those analysts and yielded only to his vision for his company….just like the old days when he was brewing Ginger Beer in his dorm room. I’m sure those around him thought he was a nut case then, as many have along the way. He is crazy alright, crazy like a fox.

Also, I want to tell you that the only part of the conference call that matters is the Q&A. In the REED Q&A there were 2 good questions (other than mine of course and we will get to that). The analyst question revolved around inventory and channel fill. Analysts are concerned about this because they don’t want inventory sitting around as a wasting asset, inventory control is critical to margin, and Reed explained the internal strategy (in process) examining every nook and cranny of margin across all product lines.

The most important part of the call was near the end when CR was asked about the ‘end game” and Reed said something very interesting. He said that they have..." standing offers on the table from competitors anytime they choose to sell their business...".

Understand that REED's own's this niche and competition is in a buy versus build dilemma in this category. Reed’s owns growing shelf space and important real estate in the distribution channel and any competitor who buys them recognizes this would be immediately accretive. That is a great end game!!

Finally, I want to cover questions related to utilizing advertising and Social Media and the company plan here. Reed’s is in the hiring process for an internal hire for Social Media, but I can tell you CR is not convinced that it is the right time to spend money on SM versus traditional media. I believe his instincts are correct as SM is still fragmented and Reed’s has had recent success using traditional media.

I realized after asking this question and listening to this answer that Chris Reed’s instincts have been right for his company all along and surely correct right now, and the only real end game for Reed’s is the satisfaction of the swig of a perfect Ginger Brew…analyst’s take note.

Disclosure: Steve Kanaval does not own shares of Reed's.

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