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Boston Beer (SAM) to Post Q4 Earnings: What's in the Offing?

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The Boston Beer Company, Inc. SAM is slated to report fourth-quarter 2018 results on Feb 20.

A glimpse of the company’s performance in the trailing four quarters shows that it has a mixed record of earnings surprise history. Nevertheless, it has posted a trailing four-quarter average earnings beat of 1.7%. Boston Beer has outpaced earnings estimates in seven of the past 10 quarters. Also, it delivered a positive sales surprise in four of the last six quarters.

The Zacks Consensus Estimate for fourth-quarter earnings is pegged at $1.77 that remained unchanged over the past 30 days. For revenues, the estimate is pinned at $223.1 million, up 8.1% year over year.

How Things Are Shaping Prior to 4Q18 Earnings

Boston Beer has been benefiting from its three-point growth plan that focuses on cost-saving initiatives, long-term innovation, and the revival of Samuel Adams and Angry Orchard brands. Further, the company is witnessing continued momentum in its Twisted Tea brand besides ensuring Truly Spiked & Sparkling's leadership position in the hard sparkling-water category.  Its focus on pricing, product innovation, growth of non-beer categories, and brand development is an added positive. These are likely to boost the company’s operational performance and market position.

Additionally, Boston Beer has been witnessing sturdy depletions growth for a while now, which is contributing to the top-line performance. Major innovations, quality and strong brands alongside solid sales execution and support from distributors are fueling the depletions growth. In third-quarter 2018, revenues improved 24.2% year over driven by 23.5% improvement in shipment volumes and 18% depletions growth. Based on favorable trends witnessed in the first nine months of 2018, management raised its depletions forecast for the year. It projects depletions and shipments to grow in the 12-15% band.

For 2018, adjusted earnings per share are envisioned to be $7.10-$7.70. Also, the company estimates price increases of 1-2% per barrel.

However, increased expenses are hurting the company’s margins. Higher processing costs, rise in temporary labor at company-owned breweries as well as increased packaging costs weighed on gross margin in the last reported quarter. These factors are expected to continue denting gross margin in 2018. Gross margin is estimated to be 50-52% for the year.

Furthermore, higher advertising, promotional and selling expenses as well as increased general and administrative costs are denting the company’s operating margin. For 2018, investment in advertising, promotional and selling expenses is envisioned to increase $15-$25 million, excluding any increase in freight costs for shipments to distributors. Management continues to anticipate general and administrative expenses to grow $10-$20 million. These factors might hurt margins and overall profitability in the fourth quarter. Additionally, soft volume growth for Boston Beer’s Samuel Adams brand has been a key headwind. The brand is struggling due to the industry-wide softening of the craft beer growth rates and increased choices for drinkers owing to the entry of smaller craft brewers.

Zacks Model

Our proven model does not clearly show that Boston Beer is likely to beat earnings estimates in the fourth quarter. This is because it does not have the right combination of two key components. A stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Although Boston Beer has a Zacks Rank #3, its Earnings ESP of 0.00% makes surprise prediction difficult.

Stocks Likely to Deliver Earnings Beat

Here are some companies that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Newell Brands Inc. NWL has an Earnings ESP of +1.24% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Coca-Cola Company (KO - Free Report) has an Earnings ESP of +0.88% and a Zacks Rank of 3.

PepsiCo, Inc. PEP has an Earnings ESP of +0.20% and a Zacks Rank #3.

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