Boston Beer (SAM) Rises on Q1 Earnings Beat, Strong Shipments

The Boston Beer Company, Inc. SAM reported impressive first-quarter 2019 results, wherein earnings outpaced estimates while sales were in line. This marked the company’s third straight earnings beat.

Solid shipment growth due to the company’s efforts to ensure that distributors’ inventory levels were appropriate to cater to increased customer demand during the peak summer months mainly boosted results. Further, strong depletions growth, supported by strength in Truly Hard Seltzer and Twisted Tea brands, aided top and bottom-line performance. Driven by these positive trends, management raised shipment and depletion guidance for 2019.

Following the quarterly results, shares of Boston Beer increased 8.5% in after-hours trading yesterday. Moreover, this Zacks Rank #3 (Hold) stock has rallied 27.7% in a year’s time against the industry’s 10.3% decline.

Q1 Highlights

Boston Beer’s first-quarter adjusted earnings of $1.87 per share surpassed the Zacks Consensus Estimate of 90 cents. Including tax benefits, earnings per share were $2.02, up 62.9% from $1.24 in the year-ago period. This increase was backed by robust revenue growth, partly negated by higher operating expenses and lower gross margin.

The Boston Beer Company, Inc. Price, Consensus and EPS Surprise

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

Net revenues advanced 32.1% year over year to $251.7 million and almost in line with the Zacks Consensus Estimate of $252 million. The robust performance can be primarily attributed to a 32.5% improvement in shipments to nearly 1,076 thousand barrels. Higher shipments were aided by a planned acceleration in the timing of shipments to support current and expected rise in demand in the future.  Notably, shipments also surpassed depletions growth in the quarter. Excluding excise taxes, the top line rose 32.6% year over year to $267.6 million.

Additionally, depletions grew 11% in the quarter, marking the fourth straight quarter of double-digit growth. Depletions growth gained from major innovations, quality of products and strong brands alongside solid sales execution and support from distributors. Moreover, increases in Truly Hard Seltzer and Twisted Tea brands aided depletions growth, which was partly offset by fall in the Samuel Adams and Angry Orchard brands.

Depletions for the year-to-date period through the 15 weeks (ended Apr 13, 2019) are anticipated to have grown nearly 12.5% from the comparable year-ago period.

Costs & Margins

Gross profit improved 29.6% year over year to $124.5 million while gross margin contracted 100 basis points to 49.5%. Elevated processing costs due to increased production at third-party breweries, higher temporary labor at company-owned breweries and escalated packaging costs were the key culprits for the decline in the gross margin. However, these factors were partly negated by price increases and cost savings at company-owned breweries.

Furthermore, advertising, promotional and selling expenses increased nearly 6.2% to $71.7 million, mainly on higher spending on media and production, increased salaries and benefits expenses, and rise in trade to distributors on escalated volume.

General and administrative expenses totaled $29.4 million, substantially up from $9.2 million in the year-ago quarter. This increase was driven by higher salaries and benefits as well as consulting expenses.

Financials

As of Mar 30, 2019, Boston Beer had cash and cash equivalents of $102.9 million and total stockholders’ equity of $489.8 million.

During the first quarter and the period between Mar 31, 2019, and Apr 20, 2019, Boston Beer did not carry out any share repurchases. Consequently, the company had nearly $90.3 million remaining under the $931-million share buyback authorization.

Outlook

Driven by robust shipments and depletions growth trend, management updated some parts of its guidance for 2019. The revised guidance was primarily due to robust trends witnessed for the truly brand in the first quarter, which aided depletions growth. However, the company notes that increased volumes for the brands are attracting higher costs due to the use of third-party breweries, which is likely to hurt the gross margin in 2019.

The company now estimates depletions and shipments growth of 10-15%, up from previously mentioned 8-13%. National price increases per barrel are still estimated between 1% and 3%.

Due to the aforementioned cost scenario, the company now anticipates gross margin of 50-52%, a decline from the previously stated 51-53%. Investment in advertising, promotional and selling expenses is envisioned to increase $20-$30 million, excluding any changes in freight costs for the shipment of products to the company's distributors.

Moreover, the adjusted effective tax rate is estimated to be roughly 27% for the year. The company reiterated adjusted earnings per share to be $8.00-$9.00. Furthermore, it continues to expect capital spending of $100-$120 million.

Want Better-Ranked Beverage Stocks? Check These

PepsiCo Inc. PEP, with a long-term earnings growth rate of 7.2%, currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

New Age Beverage Corporation’s NBEV estimates for the current year moved north in the last 30 days. The stock presently carries a Zacks Rank #2.

Ambev S.A. ABEV, with a long-term earnings growth rate of 7.2%, currently carries a Zacks Rank #2.

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