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Can Growth Efforts Counter Boston Beer's (SAM) Supply-Chain Woes?
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Boston Beer (SAM - Free Report) has been reeling under declines in shipments and depletions, as well as continued challenges in the hard seltzer category. An unfavorable product mix and supply-chain inefficiencies act as deterrents.
This led to a soft performance in first-quarter 2023, wherein the top and bottom lines declined year over year and missed the Zacks Consensus Estimate. The adjusted loss per share of 73 cents in first-quarter 2023 was wider than the year-ago quarter’s loss of 16 cents. Net revenues declined 4.7% year over year to $410 million. Excluding excise taxes, the top line fell 4.8% year over year to $435.2 million.
Also, gross profit declined 10% year over year to $155.7 million, whereas the gross margin contracted 220 basis points (bps) to 38% from 40.2% in the year-ago quarter. Rising inventory obsolescence costs and higher brewery processing mainly hurt the company’s gross margin, offset by price increases. Inventory obsolescence cost growth mainly resulted from rebranding Truly Vodka Seltzer to Truly Vodka Soda, and a non-recurring payment to a third-party contract brewery. These factors resulted in unfavorable impacts of 210 bps on the gross margin.
Moving on, the company has been witnessing a slowdown in the hard seltzer category and the demand for the Truly brand in recent quarters. The slowing hard seltzer trends hurt the company’s depletions to some extent in first-quarter 2023. The hard seltzer category witnessed continued declines in the first quarter.
The hard seltzer category’s decelerating trend has mainly been attributed to the loss of novelty among consumers due to the entry of several beyond beer products in the marketplace. Additionally, the decline has resulted from the ongoing dismal macroeconomic environment, which has caused a volume shift from hard seltzers to premium light beers due to their lower pricing.
The slowed hard seltzer sales mainly impacted the company’s Truly hard seltzer performance, which is expected to continue through the first half of 2023. Overall volumes in 2023 are likely to decline due to the continued weakness in Truly volume, which is expected to partly offset strong growth in Twisted Tea.
For 2023, Boston Beer envisions GAAP earnings per share of $6-$10, in line with our estimate of $6.29. The company’s adjusted earnings per share guidance excludes the impacts of ASU 2016-09. Depletions and shipments are expected to decline 2-8%. This view includes the adverse impact of 1% since fiscal 2022 had 53 weeks and fiscal 2023 will have 52 weeks.
On a 52-week comparable basis, the company expects depletions and shipments to decline 1-7%. For the first quarter of 2023, shipments are likely to be at the low end of 2023 guidance. Also, the company expects a loss for the aforementioned quarter.
Image Source: Zacks Investment Research
Consequently, shares of SAM have lost 4.5% in the past three months against the industry’s growth of 0.5%.
Efforts to Overcome Hurdles
Boston Beer’s continued focus on pricing, product innovation, growth of non-beer categories and brand development bodes well. The company is on track with growth of its Beyond Beer category, wherein it currently holds the second position. Beyond Beer is growing faster than the traditional beer market. The company expects this trend to continue for the next several years.
SAM expects to improve Truly brand trends through a renewed focus on core business, smart brand innovation, and strong distributor support and retail execution. The company’s recent innovation for the Truly brand — Truly flavored bottle Vodka and the Truly Vodka Seltzer — have been performing well.
With regard to revisiting the core flavors, the company announced the reformulation and improvement of core Truly flavors, including the addition of real fruit juice for an even smoother, easy-to-drink and refreshing taste. Coming to Twisted Tea, the brand's first-quarter dollar sales growth in off-premise measured channels accelerated to 34%. Consequently, the brand is likely to witness strong double-digit growth for the remainder of 2023.
SAM has been committed to the three-point growth plan focused on the revival of its Samuel Adams and Angry Orchard brands, cost-saving initiatives, and long-term innovation. The company plans to revive the Samuel Adams brand through packaging, innovation, promotion and brand communication initiatives. It has been keen on retaining Angry Orchard and Twisted Tea’s momentum, while ensuring Truly Spiked & Sparkling's leadership position in the hard sparkling-water category.
Boston Beer is focused on accelerated cost savings and efficiency projects, with savings directed for further brand development. The company’s other priority is long-term innovation and maximizing shareholder value. SAM remains optimistic about the future of craft beer and cider categories.
Bottom Line
Although drab hard seltzer unit, weakness in shipments and depletions, and cost headwinds are concerning, solid growth strategies are likely to help this Zacks Rank #3 (Hold) stock get back on track soon. The Zacks Consensus Estimate for Boston Beer’s earnings has moved up 2.6% over the past 30 days. Topping it, investors can’t ignore the stock’s Momentum Score of A, which is a testament to its sound fundamentals.
Stocks to Consider
We highlighted some better-ranked stocks from the broader Consumer Staples space, namely Conagra Brands (CAG - Free Report) , Celsius Holdings (CELH - Free Report) and Procter & Gamble (PG - Free Report) .
CAG has a trailing four-quarter earnings surprise of 13.2%, on average. It has a long-term earnings growth rate of 6.4%. The Zacks Consensus Estimate for Conagra Brands’ current fiscal-year sales and earnings suggests improvements of 7.1% and 16.5%, respectively, from the year-ago reported numbers. The consensus mark for CAG’s EPS has moved up 3.4% in the past 30 days.
Celsius Holdings currently carries a Zacks Rank #2 (Buy). CELH specializes in commercializing healthier, nutritional functional foods, beverages and dietary supplements.
The Zacks Consensus Estimate for CELH’s current financial-year sales suggests 67.9% growth, and the same for EPS is expected to rise 154% from the year-ago reported figures. The company had an earnings surprise of 81.8% in the last reported quarter.
Procter & Gamble currently carries a Zacks Rank of 2. PG has a trailing four-quarter earnings surprise of 1.02%, on average. It has a long-term earnings growth rate of 6.1%.
The Zacks Consensus Estimate for Procter & Gamble’s current financial-year sales and EPS suggests growth of 1.3% and 0.9%, respectively, from the year-ago reported numbers. The consensus mark for PG’s EPS has moved up by a penny in the past seven days.
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Can Growth Efforts Counter Boston Beer's (SAM) Supply-Chain Woes?
Boston Beer (SAM - Free Report) has been reeling under declines in shipments and depletions, as well as continued challenges in the hard seltzer category. An unfavorable product mix and supply-chain inefficiencies act as deterrents.
This led to a soft performance in first-quarter 2023, wherein the top and bottom lines declined year over year and missed the Zacks Consensus Estimate. The adjusted loss per share of 73 cents in first-quarter 2023 was wider than the year-ago quarter’s loss of 16 cents. Net revenues declined 4.7% year over year to $410 million. Excluding excise taxes, the top line fell 4.8% year over year to $435.2 million.
Also, gross profit declined 10% year over year to $155.7 million, whereas the gross margin contracted 220 basis points (bps) to 38% from 40.2% in the year-ago quarter. Rising inventory obsolescence costs and higher brewery processing mainly hurt the company’s gross margin, offset by price increases. Inventory obsolescence cost growth mainly resulted from rebranding Truly Vodka Seltzer to Truly Vodka Soda, and a non-recurring payment to a third-party contract brewery. These factors resulted in unfavorable impacts of 210 bps on the gross margin.
Moving on, the company has been witnessing a slowdown in the hard seltzer category and the demand for the Truly brand in recent quarters. The slowing hard seltzer trends hurt the company’s depletions to some extent in first-quarter 2023. The hard seltzer category witnessed continued declines in the first quarter.
The hard seltzer category’s decelerating trend has mainly been attributed to the loss of novelty among consumers due to the entry of several beyond beer products in the marketplace. Additionally, the decline has resulted from the ongoing dismal macroeconomic environment, which has caused a volume shift from hard seltzers to premium light beers due to their lower pricing.
The slowed hard seltzer sales mainly impacted the company’s Truly hard seltzer performance, which is expected to continue through the first half of 2023. Overall volumes in 2023 are likely to decline due to the continued weakness in Truly volume, which is expected to partly offset strong growth in Twisted Tea.
For 2023, Boston Beer envisions GAAP earnings per share of $6-$10, in line with our estimate of $6.29. The company’s adjusted earnings per share guidance excludes the impacts of ASU 2016-09. Depletions and shipments are expected to decline 2-8%. This view includes the adverse impact of 1% since fiscal 2022 had 53 weeks and fiscal 2023 will have 52 weeks.
On a 52-week comparable basis, the company expects depletions and shipments to decline 1-7%. For the first quarter of 2023, shipments are likely to be at the low end of 2023 guidance. Also, the company expects a loss for the aforementioned quarter.
Image Source: Zacks Investment Research
Consequently, shares of SAM have lost 4.5% in the past three months against the industry’s growth of 0.5%.
Efforts to Overcome Hurdles
Boston Beer’s continued focus on pricing, product innovation, growth of non-beer categories and brand development bodes well. The company is on track with growth of its Beyond Beer category, wherein it currently holds the second position. Beyond Beer is growing faster than the traditional beer market. The company expects this trend to continue for the next several years.
SAM expects to improve Truly brand trends through a renewed focus on core business, smart brand innovation, and strong distributor support and retail execution. The company’s recent innovation for the Truly brand — Truly flavored bottle Vodka and the Truly Vodka Seltzer — have been performing well.
With regard to revisiting the core flavors, the company announced the reformulation and improvement of core Truly flavors, including the addition of real fruit juice for an even smoother, easy-to-drink and refreshing taste. Coming to Twisted Tea, the brand's first-quarter dollar sales growth in off-premise measured channels accelerated to 34%. Consequently, the brand is likely to witness strong double-digit growth for the remainder of 2023.
SAM has been committed to the three-point growth plan focused on the revival of its Samuel Adams and Angry Orchard brands, cost-saving initiatives, and long-term innovation. The company plans to revive the Samuel Adams brand through packaging, innovation, promotion and brand communication initiatives. It has been keen on retaining Angry Orchard and Twisted Tea’s momentum, while ensuring Truly Spiked & Sparkling's leadership position in the hard sparkling-water category.
Boston Beer is focused on accelerated cost savings and efficiency projects, with savings directed for further brand development. The company’s other priority is long-term innovation and maximizing shareholder value. SAM remains optimistic about the future of craft beer and cider categories.
Bottom Line
Although drab hard seltzer unit, weakness in shipments and depletions, and cost headwinds are concerning, solid growth strategies are likely to help this Zacks Rank #3 (Hold) stock get back on track soon. The Zacks Consensus Estimate for Boston Beer’s earnings has moved up 2.6% over the past 30 days. Topping it, investors can’t ignore the stock’s Momentum Score of A, which is a testament to its sound fundamentals.
Stocks to Consider
We highlighted some better-ranked stocks from the broader Consumer Staples space, namely Conagra Brands (CAG - Free Report) , Celsius Holdings (CELH - Free Report) and Procter & Gamble (PG - Free Report) .
Conagra Brands, operating as a consumer-packaged goods food company, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
CAG has a trailing four-quarter earnings surprise of 13.2%, on average. It has a long-term earnings growth rate of 6.4%. The Zacks Consensus Estimate for Conagra Brands’ current fiscal-year sales and earnings suggests improvements of 7.1% and 16.5%, respectively, from the year-ago reported numbers. The consensus mark for CAG’s EPS has moved up 3.4% in the past 30 days.
Celsius Holdings currently carries a Zacks Rank #2 (Buy). CELH specializes in commercializing healthier, nutritional functional foods, beverages and dietary supplements.
The Zacks Consensus Estimate for CELH’s current financial-year sales suggests 67.9% growth, and the same for EPS is expected to rise 154% from the year-ago reported figures. The company had an earnings surprise of 81.8% in the last reported quarter.
Procter & Gamble currently carries a Zacks Rank of 2. PG has a trailing four-quarter earnings surprise of 1.02%, on average. It has a long-term earnings growth rate of 6.1%.
The Zacks Consensus Estimate for Procter & Gamble’s current financial-year sales and EPS suggests growth of 1.3% and 0.9%, respectively, from the year-ago reported numbers. The consensus mark for PG’s EPS has moved up by a penny in the past seven days.