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Boston Beer (SAM) Q2 Earnings: Soft Depletion to Hurt Again?

The Boston Beer Company, Inc. SAM is scheduled to release second-quarter fiscal 2017 results on Jul 27. Last quarter, the company delivered a positive earnings surprise of 73.1%.

In fact, Boston Beer has reported positive surprise in three of the trailing four quarters, with an average beat of 30.6%. Let’s see how things are shaping up prior to this announcement.

What to Expect?

The question lingering in investors’ minds now is whether Boston Beer will be able to post positive earnings surprise in the quarter to be reported. The Zacks Consensus Estimate for the quarter under review is $1.28, reflecting a year-over-year decline of 37.6%. We note that the Zacks Consensus Estimate has been going down ahead of the earnings release. Analysts polled by Zacks expect revenues of $228.9 million, down 12.4% from the year-ago quarter.

Furthermore, we note that the stock has underperformed the broader industry in the last three months. The company’s shares have declined 4.9%, while the industry grew 3.1%.



Factors at Play

Boston Beer has been reeling under soft depletion trends of late, evident from its dismal stock performance. This softness can primarily be attributed to soft depletion trends that stemmed from weakness in Samuel Adams, soft craft beer and cider categories, alongside a troubled retail backdrop. Moreover, the competition in the craft beer segment has intensified as new craft brewers are entering the market and existing ones are expanding distribution and tapping capacities, providing more options for drinkers.

Notably, the aforementioned factors significantly weighed on the company’s performance in last reported quarter. The company posted year-over-year decline in earnings and sales in first-quarter 2017. Moreover, it has been witnessing contraction in the gross margin for five straight quarters now. Additionally, the company observes that the soft depletion trends have continued into second-quarter 2017. Depletions through the 15 weeks ended Apr 15, 2017 have declined nearly 13% from the comparable year-ago period in 2016. Based on these trends, the company remains uncertain about volumes and profitability for 2017.

However, we remain encouraged by Boston Beer’s three point growth plan which focuses on revival of Samuel Adams and Angry Orchard brands, cost saving initiatives and long-term innovation. Further, the company’s focus on pricing, product innovation and brand development are likely to boost operational performance and its market position.  Its practice of acquiring assets to expand geographically, along with brand-building efforts and initiatives to add new products remain key revenue drivers.

The company is keen on reviving the Samuel Adams and Angry Orchard brands through packaging, innovation, promotion and brand communication initiatives. Moreover, its cost savings plans are likely to boost gross margin by 1% every year over the next three years.

Given the ongoing troubles as well as the company’s efforts to overcome the same, we remain uncertain about the upcoming results. While the near-term outlook indicates a dismal performance in the fiscal second quarter, we would wait and see if its growth efforts make any difference.

What the Zacks Model Unveils?

Our proven model does not conclusively show that Boston Beer is likely to beat estimates this quarter. This is because 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. Boston Beer has an Earnings ESP of 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at $1.28 per share. While the company’s Zacks Rank #2 increases the predictive power of ESP, we need to have a positive ESP to be confident about an earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks Poised to Beat Earnings Estimates

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

Alibaba Group Holding Limited BABA currently has an Earnings ESP of +4.11% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Clorox Co. CLX currently has an Earnings ESP of +0.67% and a Zacks Rank #2.

Yum! Brands, Inc. YUM currently has an Earnings ESP of +1.64% and a Zacks Rank #2.

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