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Boson Beer (SAM) Posts Q3 Loss on Soft Hard Seltzer Trends

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Shares of The Boston Beer Company, Inc. (SAM - Free Report) have declined 3.3% in the after-hours trading session on Oct 21 on negative investor sentiment regarding the slowdown in the hard seltzer business trends. The slowing hard seltzer trends also hurt the company’s bottom line in third-quarter 2021, which missed the Zacks Consensus Estimate. The company reported net loss per share in the quarter mainly due to direct and indirect costs incurred related to the slowing hard seltzer business. Higher operating costs also hurt the bottom line.

Boston Beer reported a loss per share of $4.76 in third-quarter 2021, reflecting a decline of $11.27 per share from third-quarter 2020 earnings. The loss per share also lagged the Zacks Consensus Estimate of earnings of $4.04. The dismal results were mainly due to the direct and indirect costs of $7.73 per share incurred in the third quarter due to the slowing hard seltzer category growth and higher operating expenses. This was partly negated by improved revenues.

Net revenues advanced 14% year over year to $561.6 million and beat the Zacks Consensus Estimate of $496.9 million. Excluding excise taxes, the top line rose 14.2% year over year to $600 million.

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

The year-over-year increase in the top line can primarily be attributed to an 11.2% improvement in shipments to 2.3 million barrels. Volume growth was aided by a rise in Twisted Tea, Samuel Adams and Angry Orchard brands, partly offset by a decline in Truly hard seltzer and Dogfish Head brands.

Depletions grew 11%, marking the 14th successive quarter of double-digit growth in depletions. However, depletion growth in the third quarter reflected a marked decline from 24% and 48% witnessed in the second and first quarters, respectively. The sequential decline in depletion was mainly attributed to softer-than-anticipated trends in the hard seltzer category and the beer industry. However, year-over-year depletions growth was mainly driven by a rise in Twisted Tea, Truly hard seltzer, Samuel Adams and Dogfish Head brands, partially negated by a decline in the Angry Orchard brand.

The company noted that despite the rapid slowdown in the hard seltzer category, Truly brand has continued to gain share and strengthen its long-term position. Year to date, Truly has garnered 54% of all hard seltzer category growth. It has also achieved the second-highest household penetration in all of beer, behind only Anheuser-Busch InBev’s (BUD - Free Report) Bud Light beer, and ahead of all its other hard seltzer and beer industry peers. The company notes that hard seltzers represent 11% of total beer dollars year to date, up from 9% in the same period in 2020. It expects hard seltzers to form a key part of the beer market in the future.

Depletions for the year-to-date period (the 42 weeks) ended Oct 16, 2021, have grown nearly 23% from that witnessed in the year-ago period.

The Zacks Rank #5 (Strong Sell) stock has lost 26.2% in the past three months compared with the industry’s 7.1% decline.

Costs & Margins

The gross profit declined 28.2% year over year to $172.7 million. The gross margin contracted 1,810 basis points to 30.7% from 48.8% in the year-ago quarter, owing to the aforementioned direct and indirect volume adjustment costs as a result of the hard seltzer slowdown and higher materials costs, partly negated by price increases.

Advertising, promotional and selling expenses rose 54.4% in the reported quarter to $166.8 million. The increase was driven by higher brand investments, particularly in media, production and local marketing, and increased freight to distributors, owing to higher volumes and rates.

General and administrative expenses increased 5.7% year over year to $32 million mainly due to a rise in external services costs, partly offset by lower salaries and benefits costs.

Financials

As of Sep 25, 2021, Boston Beer had cash and cash equivalents of $86.5 million, and total stockholders’ equity of $1,029.4 million. The company currently has $150 million in its line of credit, which along with its cash position will be sufficient to meet cash requirements.

For 2021, capital spending is anticipated to be $160-$200 million, backed by the current spending and investment plans. Capital spending in 2022 is estimated to be $140-$190 million.

Outlook

For 2021, Boston Beer envisions adjusted earnings per share of $2.00-$6.00, excluding the impacts of ASU 2016-09 mainly due to the slowdown in the hard seltzer category growth and associated inventory write-offs, contract termination fees, equipment impairments, absorption impacts, downtime charges, and increased sourcing and warehousing costs. The company noted that the expectations are highly sensitive to changes in volume, particularly for the hard seltzer category.

Depletions and shipments are predicted to increase 18-22%. The company expects national price increases of 2-3%.

It anticipates a gross margin of 40-42%, which includes an estimated impact of $132.6 million related to direct and indirect costs linked to the hard seltzer slowdown. Of this, the company noted that $95.8 million were incurred in the first nine months of 2021 and $36.8 million is likely to be incurred in the fourth quarter.

Investments in advertising, promotional and selling expenses are expected to be $80-$100 million. The advertising, promotional and selling guidance does not assume any changes in freight costs for the shipment of products to its distributors. The non-GAAP effective tax rate is anticipated to be 28%, excluding the impacts of ASU 2016-09.

The company also provided preliminary expectations for 2022. It expects depletions and shipments to increase between a mid-single-digit and a low-double-digit percentage range. National price increases are expected to be 3-6%. The gross margin is anticipated to be 45-48%. The company expects higher investments in advertising, promotional and selling expenses of $10-$30 million. The non-GAAP effective tax rate is likely to be 26%, excluding the impacts of ASU 2016-09.

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