Long Island Iced Tea Corp. Ready-to-Drink Beverage Market
Long Island Iced Tea Corp. Ready-to-Drink Beverage Market

Long Island Iced Tea Corp. (NASDAQ: LTEA): An Emerging Player In The Ready-To-Drink Beverage Market

A Legendary Beginning

It was a hot August day on Westhampton Beach, in 1974. All of us young Wall Street types were doing our weekend thing. The humidity was oppressive until Julie handed me something she called a Long Island Ice Tea. It was so amazing I had several more. The rest is kind of a blur. Over the next three decades Long Island Ice Tea became an iconic drink. 

Amazingly the name was never trademarked until Julian Davidson and another New Zealander Mark Hotchin got involved a couple of years ago and changed everything. Long Island Ice Tea is now available in a beautifully packaged non-alcoholic version.

Long Island Iced Tea Corp. Bevnet.com

Long Island Iced Tea Corp. Bevnet.com

Last August shortly after receiving the trademark rights, the company used a reverse merger public offering to raise $6.9 million and qualified for listing on Nasdaq. Less than a year later, the company has a public market value of approximately $36 million.

Current revenues are just under $6 million and profits can’t be expected while this company builds its business infrastructure. But when a public company gets a market value of more the 5 times its sales base, that raises some green flags.

Big Market Size/Smart Pricing Strategy

Ready-to-drink teas are the fourth largest non-alcoholic beverage category in the world totaling some $55 billion and growing about 6% annually. The US alone is about $5.3 billion according to LTEA information. That spells global opportunity. Naturally places like China and Japan are major markets.

The beverage market is changing. Coke, Pepsi and other sugar filled carbonated drinks are loosing favor with young health conscious consumers. Tea based products are taking over and that is why analysts are projecting US consumption will grow by 10% in each of the next five years.

There are plenty of products competing for consumer attention but none have the special cache of Long Island Ice Tea. Without spending so much as a dime on advertising, brand recognition is already widespread. Management states it simply; brand recognition is our key asset.

Management has wisely chosen to price it product below the premium brands at $1.00-$1.20 for the 20 oz. size. Competitors like Tazo, Honest and Gold Peak go for $1.49-$1.69 but offer about 20% fewer ounces.

Offering a value proposition can only take the company so far unless they get distribution in the big supermarkets and convenience stores. In this regard, LTEA has a good start with the big eastern chain Food Lion.

Striking Quickly

Expanding the distribution for its main brand is priority number one. In recent weeks the company has announced three important distribution agreements.

  • On July 19th Long Island Iced Tea Corp. formed a partnership with Stellare New Zealand Limited, part of the Stellare Group, in order to distribute its products in New Zealand, Polynesia, Micronesia, and Melanesia.
  • On July 27th the company announced a partnership with Swartz & Sons Distributors, Inc. to distribute Long Island Iced Tea Corp. brands in Virginia, Maryland, Washington D.C., Delaware and Pennsylvania. Swartz & Sons services over 5000 customers.
  • On August 3rd the company announced its flagship brand had been approved for distribution in Sobeys Inc., one of only two national grocery retailers in Canada. It serves Canadians with approximately 1,500 stores in all 10 provinces.

Adding products to the flagship brand is also taking shape. In January Long Island Iced Tea Corp. completed the stock acquisition of Alo Juice Company. The acquisition provides two immediate benefits. It adds the category of health drinks to LTEA creating the first in a planned portfolio of products and that could include an alcoholic version of Long Island Iced Tea.

FinViz.com 2017-08-15

FinViz.com 2017-08-15

The second benefit could be providing LTEA access to Alo’s core markets in the Caribbean and Latin American. If things go right combined revenues in 2017 might hit the upper end of management projections of $9.5 million. Not bad work for a company that basically did not exist two years ago.

Management: A Veteran Team

Lots of startup companies these days are loaded with fresh faces with loads of drive but limited experience. Not so with LTEA. The baby of the bunch is VP of National Sales & Marketing, John Caramele; he was with Arizona Beverages for 10 solid years. CFO Richard Allen spent over 10 years in senior roles with Snapple and Cadbury Schweppes. Then there is COO Peter Dydensborg with more the 30 years in distribution roles with big grocery names like Kellogg’s, The Keebler Company, Coca Cola and Phoenix Beverages.

Is There Value Here? 

Will Long Island Iced Corp. continue the distribution expansion and brand diversification process or choose, as so many others have, to eventually sell out to a large corporate buyer. Stay connected.

Part of the value question is the company’s ability to awaken investor awareness. At the moment, there is no recognized analyst coverage according to Yahoo Finance. At the same time, the mere mention of the company’s name elicits recognition virtually everywhere. Over the last year the shares have traded roughly in the 4-7 range and is now at the lower end.

Disclosure: James Waggoner does not contain any positions in LTEA and does not intend to initiate a position within the near future.

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James Waggoner

James Waggoner comes from a New York Wall Street career that covered more than 30 years. During that time he served as CEO of Sands Brothers Asset Management and Sands Brothers Ltd. He was the founder of The Kensington Group in 1988, an arbitrage hedge fund that produced IRR’s of 24.2% over a 10-year period. For the prior decade, James was an analyst and investment banker with Bear Stearns Cos. Inc. Institutional Investor Magazine recognized him on multiple occasions as one of the top analysts in his field. His international financial background includes VP of SoGen-Swiss International Corp. in Paris France where he advised major US financial institutions on corporate and global economic issues. James earned a degree in Finance and Economics from The Ohio State University.