MGP Ingredients Is Not Broken It’s Just Hungover: A Short Piece for Seeking Alpha
Brought to you by Quinn Millegan & The Woodworth Contrarian Fund
svera/E+ via Getty Images
This will be our first full article published in Seeking Alpha - take a look here (republished below as well) and please vote at the bottom of the Seeking Alpha article that our analysis was compelling! We were impressed with the thorough nature of the publication process through Seeking Alpha and look forward to future research articles.
For an even deeper dive into why the market is pricing MGPI for permanent decline when cyclical recovery is lurking in plain sight, take a look at our full research article from earlier this month here.
Thesis
MGPI's chart looks like it got pushed down a flight of stairs.
Our day job is buying companies that have obviously messed something up.
Sometimes they mis-time a cycle. Sometimes they overpay for deals. Sometimes they tell the truth about a problem before everyone else does and get punished for it. In our experience, that is where you find value - not in companies that glide along a perfect PowerPoint line, but in ones that make real mistakes and have the balance sheet to survive them.
MGPI is one of those.
In late 2023 and early 2024, this was a spirits and ingredients roll up with premium brands, nice margins, and a balance sheet that did not keep anyone up at night. In 2021 it agreed to acquire Luxco in a deal valued at $475M (enterprise value), then in 2023 it added Penelope Bourbon for $105.0M upfront plus an earnout through 2025. Then the brown-goods cycle cracked, big customers stopped buying bulk whiskey to clear out warehouses, craft distilleries started going bust, and management had to admit that the price they paid for some brands was worth much less at today's discount rate, as reflected in the $73.8M goodwill impairment tied to higher discount rates and lower peer multiples since the 2021 Luxco deal. Cue the goodwill impairment, guidance cuts, and a 70% plus share price collapse.
The market has responded the way it always responds to messy cyclical stories: assume permanent damage, assign a "just make it go away" multiple, and move on.
We do not think that is the right read. What we see is:
A cyclical whiskey inventory correction, not "whiskey is over."
A branded portfolio that still sits in the right categories (bourbon, tequila, premium plus) and is growing where it matters.
A specialty ingredient business that is quietly doing its job.
A balance sheet that can ride out a few ugly years.
If you believe brown goods demand stabilizes and MGPI keeps pushing its mix toward branded spirits and warehouse service, the current price gives you multiple ways to win: earnings recovery, multiple re rating, and a non zero chance someone decides they would rather buy the whole platform than compete with it.
Company Overview
MGP Ingredients is a U.S. distilled spirits and specialty ingredients company headquartered in Kansas. Think of it as three businesses sharing the same corporate liver:
Distilling Solutions - bulk beverage alcohol (whiskey, neutral grain spirits, etc.), industrial alcohol, barrel maturation, and warehousing. This is the "brown goods bakery" that sells semi finished whiskey to other people's brands.
Branded Spirits - the Luxco and Penelope portfolios (Rebel, Ezra Brooks, Yellowstone, El Mayor, Penelope Bourbon, etc.), where MGPI captures more of the value chain by putting its own labels on the bottles.
Ingredient Solutions - specialty wheat proteins and starches that end up in food, beverage, and "better for you" products.
Historically, Distilling plus Branded Spirits drove most of the story. Ingredient Solutions is smaller, but it is the stable kid in the family photo who does not cause drama and quietly brings home a paycheck.
Business & Segment Analysis
Distilling Solutions: Brown Goods Hangover, Not a Funeral
This is where the damage shows.
Customers over ordered barrels when everything whiskey adjacent could be sold at a premium. Then demand cooled, interest rates went up, and warehouses started to look less like "aging assets" and more like "expensive wood full of tied up working capital." The rational response: stop buying new bulk whiskey for a while and let the barrels you already have catch up.
That is exactly what MGPI's big customers did. Bulk brown goods volumes dropped hard. Segment sales fell sharply. Margins compressed. The stock paid the price.
In Q3 2025, Distilling Solutions segment sales fell 43% to $40.9 million, driven by a 50% decline in brown goods sales; segment gross margin declined to 34.7% from 39.8%.
Key point: this is inventory management, not contracts evaporating or plants sitting idle forever. Management has been explicit: contracts are intact; customers paused or slowed purchases while they rebalance inventory. In capital cycle language, this is the un-fun part of the cycle where supply finally reacts to years of optimism.
MGPI's response has been grown up:
Protect price and mix instead of chasing every barrel sale down the staircase.
Use warehouse services and industrial alcohol to keep cash flow alive.
Recalibrate capex to projects that matter on the other side of the downturn.
It does not make the P & L pretty, but it does keep the business intact for when customers come back to the bar.
Branded Spirits: Impaired Goodwill ≠ Dead Brands
Branded Spirits is the supposed "growth engine" that just got slapped with a big non cash charge. Cue the gasp.
Branded Spirits segment sales were $60.7 million in Q3 2025 (down 3% year over year) and segment gross margin was 53.0%.
The goodwill impairment is an accounting way of saying: "At today's discount rate and today's sector multiples, the price we paid for these assets in a different market looks aggressive." It does not mean Penelope, Rebel, Yellowstone, or El Mayor stopped existing, stopped selling, or stopped being worth anything.
The core logic of owning brands is still sound:
Bourbon and tequila remain the interesting parts of the spirits aisle.
MGPI can increasingly fill those bottles with its own liquid instead of just wholesaling barrels to everyone else.
Brand gross margins are structurally higher than bulk whiskey margins.
Growth has slowed versus the glory days, but the premium plus portions of the portfolio are still moving in the right direction. In other words: this is not a "we bought a dying vodka brand in 2010" story.
The open question is how aggressively management leans into brand investment during the downcycle. Spend too little and you starve the portfolio. Spend too much and you stress the income statement. So far, they are threading the needle reasonably well.
Ingredient Solutions: The Boring Business the Market Is Ignoring
If Distilling is the roller coaster and Branded Spirits is the marketing deck, Ingredient Solutions is the boring industrial business that just works.
Ingredient Solutions sales increased 9% to $29.3 million in Q3 2025, driven by higher wheat protein volumes and new domestic customer conversions.
Specialty wheat proteins and starches may not be sexy, but the end markets (functional foods, plant based, clean label) are not going away. The segment has had its own hiccups - equipment issues, some margin pressure - but revenue and contribution have been far more stable than brown goods.
From an investor standpoint, this matters in two ways:
It helps cover corporate overhead when the spirits side is sulking.
It gives the sum of the parts story more weight than "distiller plus some nice labels."
The market mostly values MGPI like a distressed whiskey producer. Ingredient Solutions is basically getting a zero dollar sticker slapped on it.
Gen Z, "Not Drinking," and Why the Story Is Mostly About Money
One of the loudest bear narratives around spirits right now is "Gen Z does not drink." You can find plenty of stats to support the surface level version of that story: Gen Z participates more in Dry January, is more open to mocktails and no or low alcohol products, and drinks less per capita than older cohorts.
If you stop there, the conclusion is simple: younger drinkers are a structural headwind for alcohol, full stop.
The deeper data are more nuanced. Recent industry work from IWSR and others shows that younger legal drinking age consumers are actually re-engaging with alcohol, with participation among Gen Z adults climbing back into the low 70% range after a dip in 2023. Nielsen and CGA both highlight Gen Z as a key driver of premiumization in beverage alcohol - they are more likely to reach for a good cocktail, a natural wine, or a higher quality spirit, and less likely to pound cheap domestic beer.
In other words, they are not a monastic sober order. They are drinking differently - fewer occasions, better stuff, more intent behind it.
Then there is the money side. Rabobank's read of Bureau of Labor Statistics data shows that households headed by people under 30 spend only about 0.74% of their income on alcohol, a big step down from historical norms. At the same time, younger adults are getting hammered by the basics: one analysis finds Gen Z is paying roughly 31% more for housing and much more for car and health insurance than Millennials did at the same age, even after adjusting for inflation.
So you have a generation that:
Does drink - just in a more premium and selective way.
Has less free cash flow after rent, insurance, and everything else.
Is, understandably, more careful about where each discretionary dollar goes.
That does not scream "permanent collapse in alcohol demand." It screams "every young cohort in history is broke, this one just has higher fixed costs and nicer cocktails."
For MGPI, that matters. A world where Gen Z has fewer but better drinking occasions is not great for bottom shelf volume beer, but it is not obviously terrible for premium brown goods and branded cocktails. The risk is real - a structurally lower share of wallet for alcohol - but the idea that the next 30 years of drinkers simply will not touch whiskey is not supported by the data.
A Look at Financials
The income statement and the cash flow statement are currently telling two slightly different stories.
For Q3 2025, consolidated sales were $130.9 million, down from $161.5 million a year ago, and year-to-date sales were $398.1 million versus $522.8 million. Year-to-date operating cash flow was $92.4 million through September 30, 2025.
On the income statement:
Revenue fell in the mid teens percent range as bulk whiskey volumes rolled over.
GAAP net income fell much more sharply thanks to the goodwill impairment in Branded Spirits plus lower distilling margins.
Guidance for the next year bakes in more pain: sales down again, EBITDA roughly cut in half from the prior year. The company’s updated FY2025 guidance is Sales $525-535M; Adj. EBITDA $110-115M.
If you stop there, it looks ugly. That is what most screens do.
On the cash flow statement and balance sheet:
Gross margins, while pressured, stayed respectable thanks to price and mix and the contribution from branded spirits and warehousing.
Operating cash flow held up much better than GAAP earnings, helped by working capital management and disciplined capex.
Debt sits at a level that is unexciting in the best possible way: leverage in the low single digit turns of EBITDA, plenty of available credit, no obvious covenant drama.
The asset side of the balance sheet is real: distilleries, warehouses, barrel inventory, and identifiable intangibles (brands, customer relationships) that are at least plausibly salable.
So yes, earnings got punched in the face. But this is not a "we are one bad quarter away from a restructuring" situation. It is a "we are in the ugly middle of a capital cycle, but the cash registers are still ringing" situation.
Valuation
At current prices, MGPI is trading as if the whiskey hangover never ends and the brands are permanently damaged goods.
Very rough framework:
Take a conservative view of mid cycle: assume revenue somewhere around the last "normal-ish" year (Use 2024 as the ‘normal-ish’ reference point - total company sales were $703.6 million) and haircut EBITDA to reflect slower growth and some permanent loss of craft distillery demand. You end up in a $160-170 million mid cycle EBITDA range.
Slap an 8-9 times multiple on that. That is a discount to global spirits majors (who deserve higher), but fair for a mid cap with decent brands, industrial exposure, and a choppy recent history. That yields something like $1.3-1.5 billion of enterprise value.
Subtract net debt (net debt was $255.3 million at September 30, 2025) and other obligations, and you are left with an equity value that points toward the low to mid $50s per share (shares outstanding were 21,294,315 as of October 24, 2025) without needing blue sky assumptions.
Now check that against the balance sheet:
On a book value excluding goodwill basis, you are buying the tangible assets plus the identifiable intangibles (brands, customer lists, etc.) for just under par.
In plain English: the market is treating MGPI as if the distilleries, warehouses, and brands are barely worth what the accountants say, with almost zero credit for future earnings power.
That is not "dirt cheap," but it is the sort of setup where you do not need heroics: if EBITDA simply limps back to mid cycle and the market stops demanding a distress discount, you get a solid double over a few years.
Tangible Book, Brand IP, And Why We Care
We care about price to book here, but only after stripping out goodwill.
Based on the company filings we walked through in detail:
Total equity sits around $856.5 million.
Goodwill - the pure acquisition premium that has no salvage value - is about $247.8 million.
That leaves roughly $608.7 million of book value excluding goodwill.
Inside that $608.7 million, you roughly have:
Around $245 million of tangible fixed assets - the distilleries, warehouses, and equipment.
Around $97 million of working capital.
About $266 million of brand IP and related intangibles - Penelope, El Mayor, Ezra Brooks, Rebel, customer relationships, and other assets that can actually be sold or licensed if needed.
On a per share basis, that book value excluding goodwill works out to about $28.73. With the stock trading near $24.70 in early December, investors were able to buy $1 of these non goodwill net assets for about 86 cents.
A few points fall out of that:
Two years ago, the stock traded near 2.6 times price to book on total equity. The current ex goodwill multiple of 0.86 times represents a massive collapse in how the market values the same basic set of plants and brands.
If we simply ask, "Where has MGPI historically traded relative to tangible book?", our work on its historical price to tangible book bands suggests implied fair value in the roughly $53-59 range. Those levels are consistent with normalized P to TB multiples the stock earned when investors were not panicking about barrels.
Even if you assume brands get written down substantially, the scenario work we laid out in the longer piece left meaningful asset coverage above or near the then current price, with a worst case tangible only floor still well below the ex goodwill book value but not at zero.
This is why we say MGPI is priced like a company that messed up and will never recover, not like one that owns real assets and has a decent shot at muddling through.
Technical Setup - From Falling Knife To Boredom
Fundamentals tell us the stock is cheap. Technicals tell us whether the market has already finished panicking.
From late 2023 into late 2025, MGPI's chart went from the low 100s to the mid 20s. That is about a 75.6% drawdown from the peak around $101.30 to roughly $24.70. Over the same period, the broad market marched higher and most food and beverage names saw nothing like that kind of decline.
Zoom in on the last year and you see:
A 52 week high near $47.25, followed by a slide to a 52 week low around $21.67 - a collapse of roughly 54%.
Heavy volume on the way down as funds de-risked and anything cyclical got sold.
Then, over recent weeks, a tight trading band in the mid 20s with repeated bounces off the low 20s area.
In the Clifford Pistolese playbook, that combination - vertical drop into a flat base, on shrinking volume - often signals that forced selling has run its course. Markets tend to bottom in panic but base in boredom. MGPI now looks more like boredom than panic.
Support seems to sit in the low 20s, where real buyers have repeatedly shown up. The first logical resistance band is the high 20s to low 30s, where trapped holders will likely try to sell "just to get back to even." A convincing move through that band on rising volume would be the classic sign that the downtrend is giving way to a new regime.
Technicals are not a substitute for valuation. But when a stock trades at something like 4.7 times EBITDA and below ex goodwill book value and the chart says the forced sellers are mostly gone, we pay attention. Our job is not to nail the exact bottom tick. It is to show up somewhere near the point where the risk to shorts and marginal sellers has quietly become much higher than the risk to long term buyers.
Risks
This is not a "set it and forget it" consumer staple. Real risks:
The brown goods cycle takes longer than anyone thinks.
Management's tone is "this normalizes, but it will take time." If customers decide to stretch out inventory drawdown into 2027 and beyond, or if they simply need less bourbon in a structurally different world, your mid cycle assumptions get hit and the stock can stay cheap for a long time.Structural demand shifts away from alcohol.
Gen Z and younger Millennials are drinking differently: more selectively, more "better for you," more sober curious. If that trend accelerates beyond what premiumization can offset, the entire spirits industry will have to work harder for each dollar. MGPI is not magically exempt.Branded execution risk.
The brands may be in the right categories, but execution matters. Bad pricing, cluttered line extensions, or sloppy distribution could erode what is supposed to be the high margin growth engine.Capital allocation misfires.
MGPI has used M&A to build its portfolio. In a distressed industry, the temptation to "buy the dip" on assets can be overwhelming. Overpaying for someone else's problem plant or subscale brand is the easiest way to ruin the upside case.Balance sheet creep.
Leverage looks fine now. If EBITDA falls below already conservative guidance or management leans into big acquisitions, that can change quickly.
If you need linear, low volatility compounding, none of this will feel good. If you are comfortable underwriting cyclicals where the risk is "longer and bumpier than consensus," these are manageable but real.
Conclusion
We try to keep our playbook simple: we buy companies that mess up along the way.
Not companies that are structurally broken. Companies that get caught on the wrong side of a cycle, or mis-time an acquisition, or admit a problem before everyone else does and take the earnings hit up front. The key is whether the balance sheet and the underlying franchise can take the punch.
MGPI looks like one of those.
On the surface, you see:
A 70-75% drawdown from the highs.
A cyclical brown goods business stuck in inventory purgatory.
A big goodwill impairment on the brands that were supposed to be the growth engine.
Underneath, you still have:
Real assets - distilleries, warehouses, barrels, ingredient plants - that add up to more than the current equity value if you strip out goodwill and keep brand IP.
A portfolio of bourbon and tequila brands that sit in the part of the shelf younger, more selective drinkers still care about.
A specialty ingredients business that gives the story a second leg.
A balance sheet that looks like it belongs to a consolidator rather than a casualty.
Layer on top of that:
A price to book ex goodwill multiple below 1 times, with our historical price to tangible book work pointing to a $53-59 fair value range.
Technicals that look less like a falling knife and more like a coiled spring after forced sellers have left the building.
We do not need perfection from here. We need survival, some normalization in brown goods, continued execution in branded spirits and ingredients, and a market that eventually remembers that paying 86 cents for $1 of real assets in a living, cash generative business is not a terrible idea.
That is exactly the sort of situation we exist to exploit. In our view, MGPI at these levels is a Buy - a bruised but not broken spirits and ingredients platform that fits our core strategy of owning good businesses that have very publicly messed up along the way.
Disclosure: This analysis is for informational purposes. MGPI remains a cyclical business with near-term headwinds and execution risk. Position sizing and risk management are essential. Do your own due diligence.
Please note that the Woodworth Contrarian Stock & Bond Fund, LP, of which the Millegan Brothers manage and are invested in, currently hold a position of MGPI as of the publication date of this article. They may or may not choose to modify their exposure to this name for any reason at any time. This is not a recommendation to buy or sell MGPI or any other name - investments incur significant risk, our risk tolerance may be significantly higher than the average investor, and any discussion in this article does not take into consideration your individual circumstances.
Additional reading:
https://www.woodworth.fund/news/mgp-ingredients-the-kingdom-of-brown-goods
https://finance.yahoo.com/news/assessing-lamb-weston-lw-valuation-121302294.html
https://auxocapitaladvisors.com/food-beverage-valuation-multiples-2025/
https://media-cdn.kroll.com/jssmedia/kroll-images/pdfs/food-and-beverage-ma-industry-winter-2025-valuation-data.pdf
https://seekingalpha.com/article/4703433-lamb-weston-isnt-as-cheap-as-it-may-seem-lw-stock
DEEP ROOTS. STUBBORN GROWTH. OREGON-BASED.
Now is a great time to diversify your portfolio with an investment into an award-winning fund. Call us or visit our website to inquire on an investment today in the Woodworth Contrarian Fund as an accredited investor.
(800) 651-1996 - info@woodworth.fund - www.Woodworth.Fund
Contrarian Value-Based Hedge Fund of the Year 2022-2024
Quinn Millegan (left) & Drew Millegan (right)
About the Managers: Brothers Drew Millegan and Quinn Millegan manage the Woodworth Contrarian Stock & Bond Fund, a hedge fund based in McMinnville, Oregon. They grew up in the finance world, and specialize in contrarian investment strategies in the US Public and Private markets.
Something missing from your portfolio may be a diversification into the Woodworth Contrarian Fund for accredited investors. Now is a great time to diversify your portfolio with an investment into a multi-award-winning fund. An exposure to a value-based contrarian strategy is a unique opportunity for your long term capital that you’re seeking aggressive returns for. With nine years of the Woodworth Fund under management, the Millegan Brothers are trained stock-pickers and experienced venture capital investors with a proven track record. Give us a call today to discuss a liquid investment with independent administration and independently audited monthly statements and a personal relationship.
