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Boston Beer (SAM) Q1 Earnings and Sales Miss; Stock Down

Boston Beer Co. Inc. SAM began 2016 on a dismal note reporting weaker-than-expected results for the first quarter, which was largely impacted by lower depletion trends, high costs and intense competition from other craft brewers. Shares of the company slumped nearly 10% in the after-market trading session yesterday following the drab results and subdued outlook for 2016.

Q1 Highlights

Boston Beer’s first-quarter earnings per share of 53 cents came in way below the Zacks Consensus Estimate of 96 cents and plunged 47% year over year, mainly on account of a revenue decline, elevated general and administrative costs, and soft gross margin.

Net revenue fell 5.4% year over year to $188.8 million and missed the Zacks Consensus Estimate of $196 million. The decline in the top line resulted from a 6% drop in core shipments, somewhat compensated by higher prices.

Total revenue was also impacted by a 5% fall in depletions due to the soft depletion trend at Samuel Adams and Angry Orchard brands, somewhat offset by growth at the Coney Island and Twisted Tea brands. The company attributed the weakness at Samuel Adams and Angry Orchard to the intense competition in the craft beer category and weakness in the cider class.

Though the company introduced new beers in the first quarter – including Samuel Adams Nitro White Ale, Samuel Adams Nitro IPA, Samuel Adams Nitro Coffee Stout and Samuel Adams Rebel Grapefruit IPA, it was a slow start. The company expects to build momentum and battle the stiff competition over time, through its superior quality products, solid innovations and financial strength.

Costs & Margins

Gross profit tanked 8.1% year over year to $91.5 million while gross margin shriveled 150 basis points to 48.5% in the quarter. The contraction can be attributed to unfavorable product mix coupled with higher brewery processing expenses per barrel, partly offset by improved prices.

Advertising, promotional and selling expenses dipped 1.7% to $59.2 million due to lower freight to distributors stemming from lower volumes and freight rates, somewhat offset by increased points of sale, coupled with higher salaries and benefits.

General and administrative expenses surged 22.1% to nearly $21 million owing to hikes in salaries, benefits, stock compensation and facilities expenses.


As of Mar 26, 2016, Boston Beer had cash and cash equivalents of $51.1 million. Debt and capital lease obligations, excluding current portion, were at $4.1 million, while stockholders’ equity was $435.3 million.

During the first quarter, the company generated approximately $6.3 million of cash from operating activities, while it deployed nearly $13 million toward capital expenditure, primarily to be invested in breweries.

In the first quarter and the period from Mar 26, 2016 through Apr 15, the company bought back nearly 415,000 shares for $75.7 million. As of Apr 15, Boston Beer had roughly $53.2 million remaining under its standing share repurchase authorization of $575 million.

Growth Plan

Going forward, management intends to focus on aggressively aligning its cost structure with volumes, to achieve efficiencies and generate cost savings for the company. The company plans to utilize these cost savings in making strategic investments, apart from developing its brands.

The company maintains its commitment to innovate within the Samuel Adams brand, promote and advertise all its brands, and increase distribution of its core styles within each brand. Also, the company plans to step-up investments in new beer and cider development capabilities in order to keep up with the innovations, and utilize any growth opportunity that might arise.

While the company expects the weakness in the cider category to persist in the short term, as new cideries enter the market, it also remains encouraged as the Angry Orchard brand retained its market share. Also, management remains confident about the long-term growth potential of this category.

Though management is prepared for not so impressive bottom-line results in the short-term, it remains on track to boost long-term profitability.


Taking all aforementioned factors into consideration, management lowered its earnings outlook for 2016. Earnings per share are now projected in the range of $6.50–$7.30, compared with $7.60–$7.80 guided earlier. The current Zacks Consensus Estimate for 2016 is pegged at $7.84 per share, which is likely to witness a revision. Also, the company stated that 2016 will include 53 weeks as against 52 weeks last year.

Other assumptions for earnings include depletions and shipments changes to range from -4% to 2%, compared with mid-single digit growth expected earlier. Further, the company expects price increases of 1–2%, while gross margin is now expected to range from 51–53%, down from 52%–54% projected earlier. Advertising, promotional and selling expenses are now envisioned to range between zero and $10 million, compared with $10 million–$20 million anticipated earlier.

Effective tax rate for 2016 is anticipated to be 37%. Also, capital expenditure guidance for the year has been lowered to a range of $50–$70 million from $60–$80 million.

Zacks Rank

Boston Beer currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same industry include Constellation Brands Inc. STZ and Molson Coors Brewing Company TAP, each with a Zacks Rank #2 (Buy). Another well-ranked stock in the related industry is Primo Water Corporation PRMW, with a Zacks Rank #1 (Strong Buy).

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