Although Boston Beer (NYSE: SAM) looks to be approaching a tipping point where it will soon produce more non-beer beverages than beer, investors don't seem to mind, so long as sales, profits, and depletions (sales to distributors and retailers) continue to grow.
Shares of the craft brewer are up over 60% so far in 2019, as the market responded to the strength exhibited from Boston Beer's hard seltzer, hard cider, and hard teas. While growth from its flagship Samuel Adams brand would be nice, it's on a four-year downward slide that shows no signs of abating.
With the brewer scheduled to report second-quarter earnings on Thursday, July 25, let's see what investors might find on tap.
Anything but beer
Revenue surged 32% in the first quarter on an 11% increase in depletions, the fifth consecutive quarter of growth, and the fourth straight quarter of double-digit increases. Boston Beer had been mired in an extended slump as it tried to revive flagging Samuel Adams sales, but then it began brewing up beverages that had nothing to do with beer and saw sales take off.
But dipping outside of beer was nothing new for Boston Beer, as its Angry Orchard brand of hard cider quickly redefined the segment and breathed new life into it after its national launch back in 2012. Although it, too, eventually experienced a protracted period of declining depletions, Angry Orchard has more recently been on the path of growth once again. While it did drop last quarter, that may have had more to do with the tremendous response it received from the introduction of Angry Orchard rose cider the previous year, which became an instant hit.
However, having already assembled a portfolio of alcoholic beverages that went beyond barley, malt, and hops, Boston Beer hardly noticed the shortfall.
Redfining the craft beer business
The Truly seltzer brand continues to be a standout, as it has been almost since its release in 2016. It is now the second largest hard seltzer behind White Claw and along with Boston Beer's Twisted Tea hard tea brand, accounted for virtually all of the depletion growth the brewer saw in the first quarter. It also caused Boston Beer to raise its depletion growth forecast for all of 2019, increasing the range from 8% to 13% up to 10% to 15%.
The remarkable thing about Truly is that it was expected it would be a seasonal favorite as a refreshing summer drink, but the brewer's experience is showing it is enjoying strong sales all year round. Now that the coming quarterly report will capture sales that were building into the summer, it's quite possible they could surge much further than expected.
Yet there is a risk in having so much ride on this one product, as Boston Beer knows all too well now from the decline of Samuel Adams. Consumer tastes change, and what's popular today may be tomorrow's fad.
For example, Pabst Brewing looks to have its own monster hit with its own new creation, Pabst Blue Ribbon Hard Coffee, a mocha coffee alcoholic beverage that tastes like a Yoo-Hoo chocolate drink with a kick. The one thing that might hold Pabst back from hurting sales of other beverages is that it is in limited supply in just four states.
Boston Beer isn't neglecting its Samuel Adams brand in favor of just frou-frou drinks, but the brewer has proved adept at following drinking trends so there does seem to be a more intense focus on these other beverages. Still, it has introduced a number of different beers under its flagship's banner, such as its lager-ale mashup Sam '76.
But the brewer is also taking a page from the megabrewers' playbook by developing a whole new brewing company to launch a beer that targets the latest trend of "wellness beers." Boston Beer created Marathon Brewing to market its 26.2 gose beer that's brewed with salt water and aimed at runners and athletes -- the name represents the length in miles of a full marathon.
Like Anheuser-Busch InBev's branding one of its "mass craft" beers, you'll be hard-pressed to find any reference to Boston Beer on the label or website, as if it didn't want to taint the beer by being associated with Samuel Adams. It could have released it under its flagship's banner, as it has done with every other beer it's made, but with the brand's sales in serious decline, it might have wanted to avoid stigmatizing 26.2.
That will undoubtedly help it and the brewer enjoy better sales, and it suggests that second-quarter earnings and beyond will still be showing heady growth, though it will probably once again come from non-beer beverages.
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Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Boston Beer. The Motley Fool recommends Anheuser-Busch InBev NV. The Motley Fool has a disclosure policy.