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Can Boston Beer (SAM) Beat Q1 Earnings Estimates Despite Odds?

Zacks Equity Research

The Boston Beer Company, Inc. SAM is slated to report first-quarter 2019 results on Apr 24.

A glimpse of the company’s performance in the trailing four quarters shows that it has a mixed earnings surprise history. Nevertheless, it posted average earnings beat of 5.4% for the trailing four quarters. Boston Beer outpaced earnings estimates in seven of the past nine quarters. Also, it delivered a positive sales surprise in five of the last seven quarters.

The Zacks Consensus Estimate for first-quarter earnings is pegged at 90 cents that remained unchanged over the past 30 days. However, estimates suggest a decline of 63.6% from the year-ago quarter figure. For revenues, estimates are pinned at $252 million, suggesting rise of 32.3% from the year-earlier quarter number.

The Boston Beer Company, Inc. Price and EPS Surprise

 

The Boston Beer Company, Inc. Price and EPS Surprise | The Boston Beer Company, Inc. Quote

 

How Things are Shaping Prior to Q1 Earnings

Boston Beer has been displaying significant earnings momentum on the back of sturdy shipment volume and depletions. Further, the company's results are benefiting from the three-point growth plan that focuses on cost-saving initiatives, long-term innovation, and the revival of Samuel Adams and Angry Orchard brands. Further, continued momentum in the Twisted Tea brand, besides ensuring Truly Spiked & Sparkling's leadership position in the hard sparkling-water category, is a driver of depletions growth.  Its focus on pricing, product innovation, growth of non-beer categories, and brand development should further aid growth. These are likely to boost the company’s operational performance and market position in the to-be-reported quarter.

In fact, the company is poised well to deliver significant depletions growth in the upcoming quarter, backed by expansion of distribution and customer base for the Truly brand, investment plans in packaging for the Angry Orchard Rose, and the emerging unit of Hard Seltzer brand’s leadership position. Additionally, the Twisted Tea brand continues to deliver double-digit volume growth, owing to increasing distribution. Based on the favorable trends witnessed in 2018, the company projects depletions and shipments to grow 8-13% in 2019.

Furthermore, the company expects double-digit growth in revenues and robust increase in operating income during 2019. Adjusted earnings per share are envisioned to be $8-$9, up from $7.47 earned last year.

However, persistent softness in the Samuel Adams brand as well as higher packaging and transportation costs may prove detrimental to the earnings performance in the upcoming quarter. Notably, the Samuel Adams brand is struggling due to the industry-wide softening of the craft beer growth rates and increased choices for drinkers, owing to entry of smaller craft brewers. Despite witnessing success in Sam'76 and Samuel Adams New England IPA products as well as major innovations, volume for the Samuel Adams brand continued to decline in fourth-quarter 2018, which partly hurt depletions. This may continue in first-quarter 2019.

Further, the company is witnessing soft gross margin due to higher processing costs on increased production at third-party breweries and higher temporary labor at company-owned breweries as well as escalated packaging costs. Moreover, higher freight costs to distributors on increased rates in volumes as well as less efficient truck utilization is weighing on the gross margin.

Additionally, higher advertising, promotional and selling expenses along with increased general and administrative costs remain a threat to the company’s overall profitability. For 2019, investment in advertising, promotional and selling expenses is envisioned to increase $20-$30 million. Notably, this guidance excludes any changes in freight costs for the shipment of products to the company's distributors.

Zacks Model

Our proven model does not clearly predict that Boston Beer is likely to beat earnings estimates in the fourth quarter. This is because it does not have the right combination of two key components. A stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Although Boston Beer has a Zacks Rank #3, its Earnings ESP of 0.00% makes surprise prediction difficult.

Stocks Likely to Deliver Earnings Beat

Here are some companies that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

The Estee Lauder Companies Inc. EL has an Earnings ESP of +1.16% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Amazon.com, Inc. AMZN has an Earnings ESP of +10.65% and a Zacks Rank of 2.

Altria Group, Inc. MO has an Earnings ESP of +0.05% and a Zacks Rank #3.

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