Boston Beer Dips on Sales Concerns, Earnings Top Estimates
Shares of Boston Beer Co. Inc. SAM were down 5.1% in yesterday’s after-hours trading session as the company reported another quarter of sales decline due to lower depletion trends at its Samuel Adams and Angry Orchard brands. However, the company posted better-than-expected bottom line for fourth-quarter 2015.
The country’s largest craft brewer’s fourth-quarter earnings per share of $1.21 surpassed the Zacks Consensus Estimate of $1.11. However, earnings fell 13.6% from $1.40 reported in the prior-year quarter primarily due to a revenue decline and elevated advertising, promotional and selling expenses, partly offset by higher gross margin.
The Boston Beer Company Inc. (SAM) Street Actual & Estimate EPS - Last 5 Quarters | FindTheCompany
Delving Deeper into the Quarter
Net revenue inched down 1% year over year to $215.1 million and fell short of the Zacks Consensus Estimate of $218 million. The top-line miss resulted from a 3% decline in core shipments, offset by higher prices.
Total revenue were also impacted by a 3% fall in depletions due to the soft depletion trend at Samuel Adams and Angry Orchard brands, somewhat offset by growth at the Coney Island, Twisted Tea and Traveler 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.
Gross profit climbed 0.4% year over year to $108.8 million while gross margin expanded 80 basis points (bps) to 50.6% in the quarter. The improvement can be attributed to higher prices and lower raw material costs, partly counteracted by unfavorable product mix.
Advertising, promotional and selling expenses increased 9.1% to $63.8 million due to increase in point of sale and media advertising, offset by lower freight to distributors because of fall in volumes.
General and administrative expenses rose 5.1% to $18.6 million owing to an increase in consulting and facilities costs, offset by lower salary expenses.
Full-Year Performance
Boston Beer’s earnings per share for full-year 2015 grew 8% year over year to $7.25 and surpassed the Zacks Consensus Estimate of $7.17. Net revenue jumped 6% to $959.9 million but missed the Zacks Consensus Estimate of $967 million.
Financials
As of Dec 26, 2015, Boston Beer had cash and cash equivalents of $94.2 million. Debt and capital lease obligations, excluding current portion, were at $58 million, while stockholders’ equity was $461.2 million.
In 2015, the company generated approximately $168.7 million of cash from operating activities, while it deployed nearly $74.2 million toward capital expenditure, primarily to be invested in breweries.
In the fourth quarter and the period from Dec 27, 2015 to Feb 12, 2016, the company bought back nearly 438,000 shares for $87.9 million. On Feb 10, the company’s board approved another $50 million for share repurchase, bringing its total authorization to $575 million. As of Feb 12, Boston Beer had roughly $95.9 million remaining under its $575 million share repurchase authorization.
Growth Plan
Going forward, management remains optimistic about the growth in craft beer. Further, Boston Beer believes that its quality brands and beers, innovation, sales execution, strong financial position and ability to invest in growing its brands will enable it to benefit from elevated demand for craft beer.
In keeping with its commitment to improve the Samuel Adams brand, Boston Beer launched the Samuel Adams Nitro Project in first-quarter 2016. It also initiated the national roll-out of Rebel Grapefruit IPA in bottles and cans, following the national draft release in the last quarter. Also, the company remains hopeful of the recently launched media advertising message 'Know more. Love more' that should fetch some stability for the craft beer brand.
Further, the company expects the weakness in the cider category to persist in the short term, as new cideries enter the market. However, the company remains encouraged as the Angry Orchard brand retained its market share. Also, the company remains confident about the long-term growth potential of this category.
Additionally, 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.
Guidance
Following the close of 2015, management issued the earnings outlook for 2016. Earnings per share are projected in the range of $7.60–$7.80. The company stated that 2016 will include 53 weeks as against 52 weeks last year.
Other assumptions for earnings include depletions and shipments growth in the mid-single digit percentage range, price increases of 1–2%, gross margin of 52–54%, advertising, promotional and selling expenses between $10 million and $20 million and effective tax rate of 37%.
Capital expenditure guidance for 2016 has been lowered to a range of $60–$80 million from $70–$80 million.
Stocks to Consider
Currently, Boston Beer has a Zacks Rank #4 (Sell). A couple of better-ranked stocks in the beverages-alcohol industry are Constellation Brands Inc. STZ and Castle Brands Inc. ROX, both carrying a Zacks Rank #2 (Buy). Another stock worth considering in the related beverage-soft drinks industry is Primo Water Corporation PRMW with the same Zacks Rank as Constellation Brands.
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