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Boston Beer (SAM) Tops Q4 Earnings, Stock Down on Dull View

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Boston Beer Co. Inc. (SAM - Free Report) reported robust fourth-quarter 2016 earnings, which topped estimates and jumped year over year. Further, sales improved year over year. However, based on the soft depletion trends witnessed in 2016 and year to date in 2017, the company remains uncertain about its volumes and profitability for 2017. Thus, the company provided soft earnings per share forecast for 2017 and lowered its depletions and shipments view for the year.

Following the dismal outlook, the stock fell nearly 7.7% in the after-hours trading session on Feb 22. Overall, the shares of Boston Beer have declined 12.5% in the past one year, underperforming the Zacks categorized Beverages–Alcoholic industry that grew 7.6% in the same period.



Q4 Highlights

Boston Beer’s fourth-quarter earnings per share of $1.75 surpassed the Zacks Consensus Estimate of $1.19 and rose nearly 44.6% year over year. The increase reflected higher revenues and lower operating expenses, partly mitigated by soft gross margin.

Total revenue jumped 2% year over year to $219.4 million, while excluding excise taxes net revenue increased 2% year over year to $234.5 million. The Zacks Consensus Estimate was $225.8 million. The improvement in the top line resulted from higher shipments offset by the persistent fall in depletions. Core shipments rose 2% to 974 thousand barrels, while depletions were down 1%.

The company has witnessed challenging depletion trends throughout 2016 mainly due to the general weakness in the craft beer and cider categories, alongside a troubled retail backdrop owing to increased launch of new beers. The competition has intensified as new craft brewers are entering the market and existing ones are expanding their distribution and tapping capacities, providing more options for drinkers.

In the fourth quarter, depletion volumes were primarily influenced by the persistent decline in the Samuel Adams Coney Island and Traveler brands. Further, the cider categories continued to disappoint as evident from the decline in Angry Orchard. This was partly negated by growth in Twisted Tea, and the launch of Truly Spiked & Sparkling.

Further, the company notes that the soft depletion trends have continued into 2017. Evidently, depletions through the six weeks ended Feb 11, 2017 have declined nearly 15% from the comparable year-ago period in 2016.

Costs & Margins

Gross profit fell 1% year over year to $107.7 million while gross margin shriveled 150 basis points to 49.1% in the quarter. The contraction can be attributed to adverse package and product mix, partially neutralized by improved prices and cost saving initiatives at the breweries.

Advertising, promotional and selling expenses dropped 9.2% to $57.9 million due to lower freight to distributors, fall in point-of-sale costs, and lower media spending. General and administrative expenses slumped 15.6% to $15.7 million owing to a favorable stock-based compensation related to the planned retirement of the company’s CEO in 2018, offset by hikes in salaries and benefits costs.

Financials

As of Dec 31, 2016, Boston Beer had cash and cash equivalents of $91 million. Debt and capital lease obligations, excluding current portion, were at $411 million, while stockholders’ equity was $446.6 million.

In 2016, the company generated approximately $154.2 million of cash from operating activities, while it deployed nearly $49.9 million toward capital expenditure, primarily to be invested in breweries.

Growth Plan

Management remains committed to a three point growth plan. One, revival of the Samuel Adams and Angry Orchard brands through its packaging, innovation, promotion and brand communication initiatives. Two, accelerated focus on cost savings and efficiency projects, with savings directed for further brand development. Third, long-term innovation, with current focus maintaining the leadership of its Truly Spiked & Sparkling brand and ensuring it reaches full potential.

Moreover, Boston Beer remains focused on making investments to revive its hard cider category and Angry Orchard brand, while maintaining category leadership. Though management is prepared for not so impressive bottom-line results in the short-term, it remains on track to boost long-term profitability.

Guidance

Taking into consideration the trends witnessed in 2016, the company believes projecting depletion volumes and profitability for 2017 will be difficult until second quarter, when it will get a better visibility from its ongoing initiatives. However, the company remains optimistic about the future of craft beer and cider category growth.

For 2017, the company projected earnings per share in the range of $4.20–$6.20, based on an uncertain volume outlook. However, the company stated that the actual results may deviate significantly from current projections. Moreover, the company affirmed that 2017 will include 52 weeks as against 53 weeks in 2016.

Other assumptions for earnings include depletions and shipments changes of -7% to +1%, compared with the previous guidance of between negative low-single digits and positive low-single digits. The company continues to anticipate price increases of 1–2%. Gross margin is expected to range from 51–53% due to increased cost savings, compared with 51–53%projected earlier. Investment in advertising, promotional and selling expenses are now envisioned to increase in the range of $20–$30 million compared with the earlier guidance of $10–$20 million increase.

Effective tax rate for 2017 is anticipated to nearly 37%, excluding the impact of the new Accounting Standard "Employee Share-Based Payment Accounting" ("ASU 2016-09") which has been effective for the company from Jan 1, 2017. Earlier, it had estimated effective tax rate of 36.3%. Additionally, the company reiterated its capital expenditure guidance for the year of $40–$60 million.

Boston Beer Company, Inc. (The) Price, Consensus and EPS Surprise

 

Boston Beer Company, Inc. (The) Price, Consensus and EPS Surprise | Boston Beer Company, Inc. (The) Quote

Zacks Rank

Boston Beer currently carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the same industry include Constellation Brands Inc. STZ , Tsingtao Brewery Company Limited (TSGTY - Free Report) and Ambev S.A. (ABEV - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Constellation Brands has jumped 15.2% in the last one year. The stock has a long-term earnings growth rate of 19%.

Tsingtao Brewery, with a long-term earnings growth rate of 12.8%, has surged nearly 33.4% in the past one year.

Ambev has gained nearly 29.9% in the past one year. Moreover, it has a long-term earnings growth rate of 3%.

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