Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Boston Beer Co. Inc. Earnings: This Glass Isn't Half-Empty

When Boston Beer (NYSE: SAM  ) released fourth-quarter results yesterday evening, management was probably wondering why they even bother providing guidance. To be sure, shares of the craft brewer opened down more than 4% this morning, thanks to what analysts saw as mixed quarterly results and weak forward guidance.

Here's what happened
Boston Beer's quarterly revenue rose 34% year over year, to $205.4 million, helped by impressive core shipment growth of 29%. However, that only translated to a 6.4% increase in fourth-quarter earnings, to $1.33 per share. Analysts, on average, were expecting higher earnings of $1.51 per share on significantly lower sales of $193.29 million.

To explain the discrepancy, Boston Beer pointed to increased ingredient costs and investments in advertising, promotional, and selling expenses. Meanwhile, fourth-quarter depletions -- the key metric for how long it takes product to go from warehouses to consumer outlets -- grew 20% over the same year-ago period.

Going forward, Boston beer expects full-year 2014 earnings per share between $6 and $6.40, which assumes depletions and shipments growth between 16% and 20%, steady gross margin between 51% and 53%, and increased investment in advertising, promotional, and selling expenses of between $34 million and $42 million.

By contrast, analysts were modeling 2014 earnings of $6.47 per share.

Guidance, shmidance...
Now, I understand hoping for an earnings beat, but is nobody listening to what Boston Beer management is saying?

Specifically, Boston Beer's 2013 earnings came in at $5.18 per share -- right in the middle of the company's most recent guidance for earnings in the range of $5.05 to $5.35. Considering that analysts were expecting 2013 earnings of $5.28 three months ago, it's no surprise that Wall Street temporarily punished the stock.

What's really crazy, however, is the fact that analysts went into Boston Beer's report yesterday expecting even higher 2013 earnings of $5.39 per share.

To its credit, Boston Beer's revised 2014 guidance does reduce the top and bottom ends of expected gross margin by 1%. But it also calls for slightly larger price increases of 2% to partially offset those higher expenses. Meanwhile, Boston Beer's depletions and shipments growth is expected to be far better than previous guidance, which called for growth in the "mid-teens." Finally, Boston Beer made no changes to its expected investments in ads, promos, and selling expenses.

Still, analysts' 2014 top-line miss wasn't that far off base. Along with today's rising broader market, that could explain why the stock gradually recovered its losses as the morning wore on, and is even crossing into positive territory as I write.

If anything, it goes to show that the knee-jerk reactions induced when companies meet or beat analysts' expectations aren't everything they're cracked up to be.

Foolish takeaway
Does that mean Boston Beer stock looks cheap? Not at first glance. In fact, considering the midpoint of guidance calls for net income per share to increase "just" 20%, the stock looks downright expensive with its trailing and forward price-to-earnings ratios of 46 and 38, respectively.

But that's also no reason for current shareholders to sell. After all, Boston Beer stock has risen an incredible 845% during the past five years alone, and all with an average trailing price-to-earnings ratio right around 30. In the end, Boston Beer stock rarely looks cheap based on traditional metrics, and I think today's premium is easily justified given its outsize long-term growth potential.

Speaking of massive potential...
If Boston Beer doesn't quench your thirst for growth, you're in luck! Let's face it... every investor wants to get in on revolutionary ideas before they hit it big. Like buying PC-maker Dell in the late 1980s, before the consumer computing boom. Or purchasing stock in e-commerce pioneer in the late 1990s, when it was nothing more than an upstart online bookstore. The problem is, most investors don't understand the key to investing in hyper-growth markets. The real trick is to find a small-cap "pure-play," and then watch as it grows in EXPLOSIVE lock-step with it's industry. Our expert team of equity analysts has identified one stock that's poised to produce rocket-ship returns with the next $14.4 TRILLION industry. Click here to get the full story in this eye-opening report.

Read/Post Comments (1) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 26, 2014, at 7:25 PM, brianslaytv wrote:

    on the call they said that the 35% depletions ytd are not reflected in the full year guidance lol theyre sand bagging my checks say coldsnap is selling out SAM is gonna blow the first quarter comps away

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2855534, ~/Articles/ArticleHandler.aspx, 9/2/2015 12:47:40 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Steve Symington

Technology and consumer goods specialist for the Fool. Steve looks for responsible businesses which positively shape our lives. Then, he invests accordingly. Enjoy his work? Connect with him on Twitter & Facebook so you don't miss a thing.

Today's Market

updated 3 hours ago Sponsored by:
DOW 16,058.35 -469.68 -2.84%
S&P 500 1,913.85 -58.33 -2.96%
NASD 4,636.11 -140.40 -2.94%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/1/2015 4:02 PM
SAM $197.05 Down -8.02 -3.91%
Boston Beer CAPS Rating: ****