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Boston Beer, Keurig Dr Pepper and Microsoft highlighted as Zacks Bull and Bear of the Day

Zacks Equity Research
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For Immediate Release

Chicago, IL – July 20, 2018 – Zacks Equity Research highlights The Boston Beer Company SAM as the Bull of the Day, Keurig Dr Pepper, Inc KDP as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Microsoft MSFT.

Here is a synopsis of all three stocks:

Bull of the Day:

The Boston Beer Company, a Zacks Rank #1 (Strong Buy) is is America's leading brewer of world-class beer. The company has won more than 500 international awards for its better-tasting beers. Samuel Adams Boston Lager(R) is the company's flagship brand, celebrated worldwide for its high-quality ingredients and traditional brewing techniques. It markets and sells its products to a network of approximately 350 wholesalers, who in turn sell to retailers, such as pubs, restaurants, grocery stores, convenience stores, package stores, stadiums and other retail outlets in various countries.

Recent Earnings Data

The company’s Q1 earnings report surpassed expectations for both earnings and revenues. On a year-over-year basis, earnings grew by +22.2%, and revenues improved by +17.3%. A +15% increase in shipments helped the big revenue beat. Further, net income increased by +63.2% due to improvements in net revenues and gross margins. Lastly, gross margins came in at 50.5%, a 3.3% increase from the year-ago quarter. 

Upcoming Earnings Expectations

The company is scheduled to report Q2 18 results on July 26th, after the market closes. Current expectations are for EPS of $2.77, representing a +17.9% improvement from the year ago quarter, and revenues of $276 million, a +4.1% increase from Q217. For fiscal year 2018 EPS is expected to grow by +34.8% while revenues are currently pegged to increase by +6.6%. To add, gross margins for FY 18 are expected to be between 52-54%. 

Management’s Take

According to Jim Koch, Chairman and Founder of the company, “Our total company depletions increased in the first quarter. We saw significant improvement in Samuel Adams and Angry Orchard trends, led by our key innovations that include Sam '76, Samuel Adams New England IPA and Angry Orchard Rose, all of which are generating excitement during the early stages of their introductions.

"To date, the response from our wholesalers, retailers and drinkers has been quite positive, but it's too early to fully understand repeat rates on these new products and therefore to draw conclusions on the long-term impact.  New craft brewers continue to enter the market and existing craft brewers are expanding their distribution and tap rooms, with the result that drinkers are seeing more choices.

"We believe that we are well positioned to meet our longer-term challenges because of the quality of our employees, our beers, our innovation capability and our sales execution strength, coupled with our strong financial position that enables us to invest in growing our brands and creating new growth opportunities.”

Bear of the Day:

Keurig Dr Pepper, Inc, a Zacks Rank #5 (Strong Sell), is a leading coffee and beverage company in North America, with annual revenue in excess of $11 billion. KDP holds leadership positions in soft drinks, specialty coffee and tea, water, juice and juice drinks and mixers, and markets the #1 single serve coffee brewing system in the U.S.

The company maintains an unrivaled distribution system that enables its portfolio of more than 125 owned, licensed and partner brands to be available nearly everywhere people shop and consume beverages. With a wide range of hot and cold beverages that meet virtually any consumer need, KDP key brands include Keurig®, Dr Pepper®, Green Mountain Coffee Roasters®, Canada Dry®, Snapple®, Bai®, Mott’s® and The Original Donut Shop®. The company employs more than 25,000 employees and operates more than 120 offices, manufacturing plants, warehouses and distribution centers across North America.

New Merger

On July 9th, Keurig Dr. Pepper finalized the merger between Keurig Green Mountain and Dr. Pepper which created the third largest beverage company in the U.S., and is now the seventh largest company in the Food and Beverage segment.  Shares began trading on the NYSE on July 10th

Regarding the merger, Keurig Dr Pepper CEO Bob Gamgort commented, “The combination of these two great companies creates the scale, portfolio and selling and distribution capabilities to compete differently in the beverage industry. With a large stable of iconic brands and the leading single-serve coffee brewing system on the market, KDP has the ability to satisfy any beverage need or consumption occasion—hot or cold, at work or at play, at home or on the go—and the capability to get our brands to consumers virtually anytime and anywhere they purchase beverages. I am honored to lead this great team and excited that together we will challenge this industry in a new way.”

Issues Facing the New Company

The merger has some critics stating that there are several headwinds facing the new company with limited revenue synergies being the biggest issue. Already many convenience store retailers that have current contracts with Dr. Pepper have determined that they will not carry Keurig products. Further, analysts have pointed out that there are limited opportunities for the new company to sell legacy Dr. Pepper products in the current distribution channels utilized by Keurig. 

Two other key issues facing the KDP are pricing power and distribution issues with a key Allied Brand of Dr. Pepper. Dr. Pepper distributes drinks made by other brands including Fiji Water, Vita Coco and Body Armor, and the more drinks they distribute the more money they make. This revenue stream is expected to be negatively impacted by Fiji’s announcement that they will build its own distribution stream as it was one of the best sellers in its Allied Brands collection. Another issue has been Keurig’s deteriorating pricing power issues with its pods. These issues add to the potential revenue synergies problems.

Additional content:

Microsoft (MSFT) Tops Q4 Estimates,Cloud Revs +23%

Microsoft just released its Q4 and fiscal 2018 financial results, posting adjusted earnings of $1.13 per share and revenues of $30.09 billion.

Microsoft is currently a Zacks Rank #3 (Hold), which is subject to change based on today’s results. Shares of Microsoft are up 42% over the last year and nearly 14% during the last 12 weeks. However, MSFT saw its stock price dip 0.68% on Thursday to hit $104.40 per share prior to the release of its quarterly earnings results.

Microsoft stock is currently up 0.53% to $104.95 per share in after-hours trading shortly after its earnings report was released.

MSFT:

Beat earnings estimates. The company posted adjusted earnings of $1.13 per share, beating the Zacks Consensus Estimate of $1.07 per share. Investors should note that this consensus projection trended downward over the last 30 days.

Beat revenue estimates. The company saw revenue figures of $30.09 billion, topping our consensus estimate of $29.21 billion.

Microsoft's quarterly revenues jumped roughly 17% from the year-ago period. Microsoft’s Intelligent Cloud unit revenues surged by 23% to hit $9.6 billion, which topped our NFM estimate of $9.08 billion. The company’s vital Azure revenues skyrocketed by 89%.

More Personal Computing climbed 17% to $10.8 billion, while Productivity & Business Processes popped by 13% to touch $9.7 billion.

For the full-year, Microsoft’s revenues jumped 14% to $110.4 billion, topping our $109.41 billion estimate. The firm’s adjusted fiscal 2018 earnings also topped our $3.84 per share estimate at $3.88 per share.

“Exceptional sales execution delivered double-digit revenue growth across all segments and strong progress against our strategic priorities, anchored by commercial cloud revenue growing 53% year-over-year to $6.9 billion,” CFO Amy Hood said in a statement.

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