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Boston Beer (SAM) Q4 Earnings & Revenues Miss on Soft Trends

The Boston Beer Company, Inc. SAM reported an adjusted loss per share of 9 cents in fourth-quarter 2021, reflecting a significant decline from adjusted earnings of $6.78 per share reported in fourth-quarter 2020. The loss per share also significantly lagged the Zacks Consensus Estimate of earnings of $3.27. The dismal results were mainly due to the decrease in revenues due to lower shipment volumes, partly offset by lower operating expenses.

Net revenues declined 24.5% year over year to $348.1 million and missed the Zacks Consensus Estimate of $437.1 million. Excluding excise taxes, the top line fell 24.2% year over year to $373.7 million. The decline mainly stemmed from lower production and shipment volumes due to the slowdown in growth trends for the Hard Seltzer category. The Hard Seltzer category’s growth decelerated to 13% from 158% in 2020.

Shipment volume fell 24.5% to 1.5 million barrels in the fourth quarter, driven by declines in the Truly Hard Seltzer and Angry Orchard brands, partially offset by increases in Twisted Tea, Samuel Adams and Dogfish Head brands. The fourth-quarter shipment decrease also resulted from a more aggressive wholesaler inventory reduction than expected, primarily affecting Truly Hard Seltzer.

In the fourth quarter, the company recorded total indirect volume adjustment costs of $52 million, of which $9.2 million was accounted as a reduction in net revenues and $42.8-million as an increase in the cost of goods sold.

Depletions grew 15% on gains in the Twisted Tea, Samuel Adams, Truly Hard Seltzer, Angry Orchard and Dogfish Head brands. This marked the 14th successive quarter of double-digit growth in depletions. All of the company’s brands grew depletions in the fourth quarter, with Twisted Tea being the fastest-growing one of the top 25 brands in the fourth quarter. Truly generated 57% of all hard seltzer category growth in the quarter. Additionally, the Truly brand increased household penetration by 22%, making it the second-highest penetrated brand in all of beer.

Depletions for the year-to-date period (the seven weeks) ended Feb 12, 2022, have declined 26% from that witnessed in the year-ago period. For the same period, shipments have decreased 26%.

Shares of Boston Beer declined 7.1% in the after-hours trading session on Feb 17 on dismal earnings results, and the ongoing impacts of the slowdown in the hard seltzer business trends and supply-chain headwinds. The Zacks Rank #3 (Hold) stock has lost 13.6% in the past three months compared with the industry’s 2.4% decline.

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Costs & Margins

The gross profit declined 53.9% year over year to $99.8 million. The gross margin contracted 1,820 basis points to 28.7% from 46.9% in the year-ago quarter, owing to the aforementioned indirect volume adjustment costs as a result of the hard seltzer slowdown and higher materials costs, partly negated by price increases.

Advertising, promotional and selling expenses fell 2.6% in the reported quarter to $137.7 million. The decline was driven by lower brand investments, particularly in media and production, offset by higher investments in local marketing and increased freight to distributors, owing to higher freight rates.

General and administrative expenses increased 17.6% year over year to $36.7 million mainly due to a rise in external services costs, increased salaries and benefits costs.

Financials

As of Dec 25, 2021, Boston Beer had cash and cash equivalents of $26.9 million, and total stockholders’ equity of $983.4 million. The company currently has $150 million in its line of credit, which, along with its cash position, will be sufficient to meet cash requirements.

For 2022, capital spending is anticipated to be $140-$190 million, backed by the current spending and investment plans.

Outlook

For 2022, Boston Beer envisions adjusted earnings per share of $11.00-$16.00, excluding the impacts of ASU 2016-09. However, it expects the earnings guidance to be highly sensitive to changes in volume projections mainly due to the slowdown in the hard seltzer category and the supply-chain performance.

Depletions and shipments are predicted to increase 4-10%. The company expects distributors to keep inventory levels below 2021 levels in terms of weeks on hand, as the need for peak season inventory pre-builds is greatly reduced due to its increased production capacity. Consequently, it expects shipments to decline in the first quarter and return to growth in the second quarter. The company expects national price increases of 3-5%.

It anticipates a gross margin of 45-48%. Investments in advertising, promotional and selling expenses are expected to be $0-$20 million. The advertising, promotional and selling guidance does not assume any changes in freight costs for the shipment of products to its distributors. The non-GAAP effective tax rate is anticipated to be 26%, excluding the impacts of ASU 2016-09.

Stocks to Consider

We highlighted some better-ranked stocks from the broader Consumer Staples space, namely Diageo DEO, Brown-Forman (BF.B) and Coca-Cola KO.

Diageo currently has a Zacks Rank #2 (Buy) and an expected long-term earnings growth rate of 9.2%. The company has declined 5.4% in the past three months. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Diageo’s current financial-year sales and earnings per share suggests growth of 32.1% and 15.9%, respectively, from the corresponding year-ago reported numbers. The consensus mark for DEO’s earnings per share has moved up 1.5% in the past 30 days.

Brown-Forman currently has a Zacks Rank of 2. BF.B has a trailing four-quarter negative earnings surprise of 5.3%, on average. The company has declined 8.4% in the past three months.

The Zacks Consensus Estimate for Brown-Forman's current financial-year sales and earnings suggests growth of 8.1% and 3.7%, respectively, from the prior-year reported number. The consensus mark for BF.B’s earnings per share has moved up by a penny in the past 30 days.

Coca-Cola currently has a Zacks Rank #2. KO has a trailing four-quarter earnings surprise of 13.5%, on average. It has an expected long-term earnings growth rate of 8%. The company has increased 9.9% in the past three months.

The Zacks Consensus Estimate for Coca-Cola’s current financial-year sales and earnings per share suggests growth of 9% and 6%, respectively, from the corresponding year-ago reported numbers. The consensus mark for KO’s earnings per share has moved up 2.1% in the past seven days.


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BrownForman Corporation (BF.B) : Free Stock Analysis Report

CocaCola Company The (KO) : Free Stock Analysis Report

Diageo plc (DEO) : Free Stock Analysis Report

The Boston Beer Company, Inc. (SAM) : Free Stock Analysis Report

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