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Boston Beer (SAM) Up on Q1 Earnings & Sales Beat, Upbeat View

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Shares of The Boston Beer Company, Inc. (SAM - Free Report) rallied 6.9% in the after-hours trading session on Apr 22 on better-than-expected earnings and sales results for first-quarter 2021. Additionally, the top and bottom lines improved on a year-over-year basis, backed by strong shipment and depletion trends. Moreover, the company raised its earnings view for 2021, based on positive first-quarter and robust current trends.

However, it has been witnessing a significant reduction in keg demand from the on-premise channel, and higher labor and safety-related costs at its breweries due to the ongoing pandemic. In first-quarter 2021, it recorded $10 million of pandemic-related pre-tax reductions in net revenues and increases in other costs. This included a $5.8-million reduction in net revenues, led by estimated keg returns from distributors and retailers, and $4.2 million of other COVID-related direct costs, comprising cost of goods sold and operating expenses.

The Zacks Rank #3 (Hold) stock has rallied 31.5% in the past three months compared with the industry’s 9.3% growth.

 

 

Q1 Details

Boston Beer’s first-quarter adjusted earnings of $4.57 per share beat the Zacks Consensus Estimate of $2.39. On a GAAP basis, the bottom line was $5.26 per share, reflecting an increase of 253% from $1.49 in the year-ago period. Better-than-expected earnings mainly resulted from top-line growth, offset by higher operating expenses. Notably, the company’s earnings in the first quarter included 60 cents per share ($10 million) of pre-tax COVID-related reductions in net revenues and increases in costs.

Net revenues advanced 64.9% year over year to $545.1 million and surpassed the Zacks Consensus Estimate of $468.7 million. Excluding excise taxes, the top line rose 65.2% year over year from $581.7 million.

The increase in the top line can primarily be attributed to a 60.1% improvement in shipments to 2.28 million barrels. Notably, shipments improved at a significantly higher rate than depletions in the first quarter, driven by actions to maintain adequate distributor inventory levels to support demand.

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

 

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

The Boston Beer Company, Inc. price-consensus-eps-surprise-chart | The Boston Beer Company, Inc. Quote

Depletions grew 48%, marking the 12th successive quarter of double-digit growth in depletions. Depletion growth was backed by strength in Truly Hard Seltzer and Twisted Tea brands. This was somewhat offset by sluggishness in Samuel Adams, Angry Orchard and Dogfish Head brands, which were most impacted by the pandemic-led on-premise closures.

Meanwhile, the company notes that the recently launched Truly Iced Tea Hard Seltzer has led to accelerated growth for the Truly brand, which has witnessed more than double the growth from the past year. The Truly brand has witnessed significant market share growth in the measured off-premise channel in the first quarter, outpacing the hard seltzer category by more than 2 times or 50 percentage points. This has resulted in share gains of 6.5 percentage points for the Truly brand, with market share reaching more than 28%. Also, the Twisted Tea brand generated double-digit volume growth along with significant market share gains.

Depletions for the year-to-date period through the fifteen weeks ended Apr 10, 2021, have grown nearly 49% from that witnessed in the year-ago period.

Costs & Margins

Gross profit improved 68.6% year over year to $249.6 million. Gross margin expanded 100 basis points to 45.8%, helped by price increases, the absence of COVID-related direct costs incurred in 2020 and cost-saving initiatives at company-owned breweries. This was partly negated by elevated processing costs, stemming from higher production at third-party breweries.

Advertising, promotional and selling expenses rose 43.9% in the quarter to $140.9 million. The increase was driven by higher investments in media and production; elevated salaries and benefits costs; and increased freight to distributors, owing to higher volumes and rates.

General and administrative expenses increased 18.1% year over year to $31.9 million mainly due to higher salaries and benefits costs.

Financials

As of Mar 27, 2021, Boston Beer had cash and cash equivalents of $144.7 million, and total stockholders’ equity of $1,028.7 million. The company currently has $150 million in its line of credit, which along with its cash position will be sufficient to meet future cash requirements.

For 2021, capital spending is now anticipated to be $250-$300 million, reflecting a decline from $300-$400 million stated earlier.

Outlook

Backed by the first-quarter performance and current trends, the company raised its volumes and earnings view for 2021. Its upbeat view for 2021 is also driven by expectations of continued momentum in Truly and Twisted Tea brands as well as innovations.

For 2021, Boston Beer envisions adjusted earnings per share of $22-$26, excluding the impacts of ASU 2016-09, compared with $20-$24 mentioned earlier. Depletions and shipments are likely to increase 40-50% versus 35-45% mentioned earlier. The company expects national price increases of 1-3% compared with the previously mentioned 1-2% growth.

Gross margin is still expected to be 45-47%. Advertising, promotional and selling expenses are now forecast to be $130-$150 million, marking an increase from $120-$140 million mentioned earlier. The advertising, promotional and selling guidance does not assume any changes in freight costs for the shipment of products to its distributors. Non-GAAP effective tax rate is anticipated to be 26.5%, excluding the impacts of ASU 2016-09.

Better-Ranked Stocks to Consider

Sanderson Farms, Inc. (SAFM - Free Report) delivered an earnings surprise of 43.6% in the last reported quarter. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Compania Cervecerias Unidas, S.A. (CCU - Free Report) presently carries a Zacks Rank #2 (Buy). The company has a long-term earnings growth rate of 10.2%.

The Estee Lauder Companies Inc. (EL - Free Report) currently carries a Zacks Rank #2. It has a long-term earnings growth rate of 10.7%.

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