This Brewer Is Focused on the Future

In a recent conference call, the Boston Beer Company made it clear that it will forsake short-term results for long-term earnings.

Mar 7, 2014 at 3:54PM

The Boston Beer Company (NYSE:SAM) recently reported mixed results for the fourth quarter of 2013. The company posted strong depletion and shipment growth of 20% and 29%, respectively, but it fell short of earnings estimates with earnings per share of $1.33. While this might worry investors who are focused on the short term, the company has its sights set on long-term growth while it faces competition from rival brewers like Craft Brew Alliance (NASDAQ:BREW) and Anheuser-Busch (NYSE:BUD).

Investing for the future
Boston Beer's depletion growth was driven by the Samuel Adams Twisted Tea and Angry Orchard brands. These brands were helped by an increase in advertising, promotion, and selling expenses as the costs that the company incurred for these items rose by $38.6 million from 2012. The spending increase focused on local marketing, sales commissions, point of sale and media advertising, and increased freight to distributors.

G

The company expects to maintain a high level of brand and capital investment as it works to expand growth in new beers and beer alternatives. Brand investments in 2014 related to Alchemy & Science, Boston Beer's smaller craft beer production project, are expected to be between $5 million and $7 million. The company admits that the sales volumes of the Alchemy & Science brands probably won't cover its expenses, but management views this as a necessary short-term pain that will bring long-term gains.

During the company's most recent conference call, CEO Martin Roper said, "We are prepared to forsake the earnings that may be lost as a result of these investments in the short term as we pursue long term profitable growth." While the company is focused on the distant future, its short-term earnings might make investors sweat a little.

Current headwinds
During 2013, Boston Beer's supply chain struggled with an unexpected increase in demand for its products. The company reacted by increasing production which raised its operational and freight costs. When this was paired with the rise in ingredient costs the company's gross margin declined to 51% for the quarter and 52% for the year.

SAM Gross Profit Margin (Quarterly) Chart

SAM Gross Profit Margin (Quarterly) data by YCharts

Craft Brew Alliance also experienced a similar situation during its third quarter when its shipments were at an all-time high. This placed a large burden on the company's growing shipping and warehousing operations which increased its cost structure and shrunk its gross margin by 50 basis points.

Boston Beer and Craft Brew Alliance are investing in their growth, which has led to lower margins, but Anheuser-Busch has been improving its margins and its bottom-line results. The world's largest beer distributor recently reported EPS growth of 9.1% driven by cost synergies captured by the company's combination with Grupo Modelo.

Looking toward 2014, Boston Beer has increased its packaging and shipping capabilities as well as tank capacity at its breweries to adjust to increased demand. The company does not expect its gross margin to improve during 2014 with projections landing the statistic between 51% and 53%.

Eye on the prize
Boston Beer's long-term strategy is what Foolish investors like, but it hints that short-term earnings might struggle. With heavy investments in operations and brand expansion, the gross margin should stay level as the company grows sales. It's clear that Boston Beer's management has a vision for the company's future that they will work for without worrying about immediate returns. While this company might not make you rich immediately, it will reap the benefits of its investments as you move toward retirement.

Want to retire in style?
It's no secret that investors tend to be impatient with the market, but the best investment strategy is to buy shares in solid businesses and keep them for the long term. In the special free report "3 Stocks That Will Help You Retire Rich," The Motley Fool shares investment ideas and strategies that could help you build wealth for years to come. Click here to grab your free copy today.

Ben Popkin has no position in any stocks mentioned. The Motley Fool recommends Boston Beer. The Motley Fool owns shares of Boston Beer. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers