The Boston Beer Company, Inc. (SAM) delivered mixed third-quarter results with revenue beating and earnings failing to meet expectations. Weak earnings were driven by temporary costs related to the slower-than-expected hard seltzer growth this summer. Following the news, shares slipped 3.3% in the extended trading session on October 21.
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The company reported a quarterly loss of $4.76 per share, much worse than the consensus-estimated profit of $4.01 per share. In the prior-year period, SAM posted a quarterly profit of $6.51 per share.
The huge loss was due to direct and indirect costs related to the slowdown of seltzer category growth. Direct costs such as contract termination costs and equipment impairments, inventory obsolescence, and destruction costs were included in the cost of goods sold (COGS) and contract termination fees. Indirect costs such as downtime charges, increased material sourcing costs, and warehousing costs were included as a reduction in net revenue as well as COGS.
On a positive note, SAM’s net revenue grew 14% year-over-year to $561.64 million and surpassed Street estimates of $531.45 million. Additionally, the company noted that its Q3 depletions grew 11%, and shipments jumped 11.2% compared to the prior-year quarter.
Commenting on the results, Jim Koch, Chairman and Founder of Boston Beer said, “With our balanced portfolio of strong brands and a pipeline of innovative products preparing to come to market, we are well-positioned to succeed in 2022 and beyond as consumers look to drink more ‘Beyond Beer’ products.”
Koch added, “We are fixing our capacity and supply chain issues, our marketing is hitting its stride, and we have the best distributor network behind us… We will continue to work hard to prove our ability to outgrow the beer category for many years to come.”
Based on the current business momentum and economic environment, the company expects full-year Fiscal 2021 depletions and shipments to grow by 18% – 22% and national price increases of around 2% – 3%. (See Insiders’ Hot Stocks on TipRanks)
In response to SAM’s financial performance, MKM Partners analyst William Kirk maintained a Hold rating on the stock with a price target of $530, implying 2.5% upside potential to current levels.
Kirk said, “With commentary about a maturing Seltzer category (less household penetration gains), a sharp reduction in advertising spend; and a decrease in expected capital spending, we think Boston Beer is positioning defensively to protect the profit & loss.”
Kirk concluded, “Boston is preparing for future innovation waves (partnership with Beam, Long Drink, Mt. Dew, and cannabis beverages), but in the meantime, expense deleveraging remains a major risk. Boston Beer has finally admitted that there is too much inventory of Truly, so we still believe there are ~500k excess barrels in the system, which will result in 10pp of under shipment versus depletion trends.”
Overall, the stock has a Moderate Buy consensus rating based on 6 Buys, 5 Holds, and 2 Sells. The average Boston Beer price target of $636.92 implies 23.1% upside potential to current levels. Shares have lost 43.7% over the past year.
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