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Boston Beer (SAM) Down 3.1% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research
Procter & Gamble (PG) closed at $109.60 in the latest trading session, marking a -1.25% move from the prior day.

A month has gone by since the last earnings report for Boston Beer (SAM). Shares have lost about 3.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Boston Beer due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Boston Beer’s Q4 Earnings & Revenues Beat Estimates

Boston Beer reported impressive fourth-quarter 2018 results, wherein earnings and revenues outpaced the Zacks Consensus Estimate. This marked the company’s second straight earnings and sales beat.

Q4 Highlights

Boston Beer’s fourth-quarter adjusted earnings of $1.84 per share surpassed the Zacks Consensus Estimate of $1.77. Including tax benefits, earnings per share came in at $1.86, down from $2.57 mainly due to tax benefits in the year-ago period.

Net revenues advanced 9.2% year over year to $225.2 million and edge past the Zacks Consensus Estimate of $223 million. This outperformance can be primarily attributed to a 6.3% improvement in shipment volume to nearly 958 thousand barrels. Excluding excise taxes, the top line rose 8.5% year over year to $239.2 million.

Additionally, depletions grew 11% in the quarter mainly backed by major innovations, quality and strong brands alongside solid sales execution and support from distributors. Moreover, increases in Twisted Tea, Truly Hard Seltzer and Angry Orchard brands aided depletion growth, which was partly offset by fall in the Samuel Adams brand.

Depletions for the year-to-date period through the six weeks (ended Feb 9, 2019) are anticipated to have grown nearly 12% from the comparable year-ago period.

Costs & Margins

Gross profit improved 8.2% year over year to $116.9 million, while gross margin contracted 50 basis points to 51.9%. Elevated processing costs due to increased production at third-party breweries and higher temporary labor at company-owned breweries as well as escalated packaging costs resulted in gross margin decline. These factors were partly negated by price increases, cost-savings at company-owned breweries and lower excise taxes.

Furthermore, advertising, promotional and selling expenses decreased nearly 14% to $63.1 million, mainly on fall in spending on media advertising and point of sale marketing, somewhat compensated with improved local marketing, higher salaries and benefits expenses along with increased freight to distributors on escalated rates and volumes.

However, general and administrative expenses grew 32.4% to $24.9 million driven by higher salaries and benefits costs as well as stock compensation expenses.

Financials

As of Dec 29, 2018, Boston Beer had cash and cash equivalents of $108.4 million and total stockholders’ equity of $460.3 million.

During 52 weeks (ended Dec 29) and the period between Dec 30, 2018 and Feb 15, 2019, Boston Beer bought back about 350,000 shares worth roughly $88.3 million. With this, it had nearly $90.3 million remaining under its $931-million share buyback authorization as of Feb 15, 2019.

Outlook

Boston Beer remains impressed with robust depletions and shipment growth. Further, the company is confident about its investment plans for the Angry Orchard brand this year. Moreover, it is on track to launch three more brands namely, 26.2 Brew, Wild Leaf Hard Tea and Tura Alcoholic Kombucha to address health and wellness prospects. Also, it remains committed toward cost savings and efficiency initiatives.

Further, management updated guidance for 2019. It estimates depletions and shipments percentage growth of 8-13% along with national price increases between 1% and 3%. The company expects double-digit growth in revenues and robust increase in operating income as well.

Gross margin is still anticipated to be 51-53%. 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.

Moreover, adjusted effective tax rate is estimated to be roughly 27% for the year. Also, adjusted earnings per share are envisioned between $8.00 and $9.00. The Zacks Consensus Estimate for 2019 earnings stands at $8.22. Furthermore, the company continues to expect capital spending of $100-$120 million.

For the first quarter of 2019, the company expects shipments growth to be considerably higher than depletions.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions.


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