For many, the beginning of fall is signaled by dropping temperatures, changing leaves, and pumpkin spice lattes. But I like to keep my eyes peeled for the first batch of Boston Beer's (SAM 0.74%) Samuel Adams OctoberFest to hit store shelves. On Wednesday after the market close, investors will get a peek at how well that and plenty of other brews from Boston Beer have fared when the company announces third-quarter results.
Here are three things I think you should watch going into Boston Beer's report:
Depletions, shipment volume
First, keep an eye on depletions growth, which Boston Beer uses to measure how quickly their products (primarily beer, hard ciders, and teas) travel from warehouses to consumer outlets. Positive depletions growth is generally a function of a brewer's effective sales execution, consumers' response to high-quality product, and efficiency in working with distributors and retailers to move that product. This also goes hand in hand with how many barrels Boston Beer ships each quarter. In Q2, Boston Beer achieved solid depletions growth of 23%, record total depletions during the quarter, and saw growth in core shipment volume of 25% to 1.1 million barrels.
As a result, Boston Beer raised its full-year depletions guidance to a range of 20%-24%, up from its previous range of 16%-20%. Even so -- and this certainly doesn't mean Boston Beer is faltering -- that depletions grew by 28% for the first half of 2014 means Boston Beer expects a deceleration in the back half of the year.
Brand and capital investments
Next, look for brand and capital investments to increase significantly. Part of those investments will come in the form of ramped up spending on marketing and a growing sales force, both of which Boston Beer cited last quarter as primary influences for the strength of their core Samuel Adams, Angry Orchard, and Twisted Tea brands -- and this despite continuously stronger competition from smaller brewers and industry behemoths seeking to grab a piece of the fast-growing craft beer movement. Consequently, Boston Beer also boosted both ends of its expected 2014 advertising, promo, and selling expenses range by $3 million, resulting in a new range of $37 million-$45 million.
In addition, Boston Beer CEO Martin Roper previously said while the company's supply chain performance was improving three months ago, it still remained below their expectations amid high demand, higher costs from a large number of expansion and efficiency projects, and higher-than-expected freight costs "to secure the performance and capacity that we need." Ideally, Boston Beer will report continued supply chain progress in tandem with strong volume growth.
Nonetheless, investors can take solace in this most (capital F) Foolish comment from Roper: "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."
Is Wall Street expecting too much?
But that also begs the question: How do Wall Street's expectations line up with those Boston Beer has provided?
Keeping in mind the increased investments, and despite strong results for each of its past two quarters, Boston Beer has steadfastly insisted on leaving intact its original fiscal year 2014 guidance for earnings per share between $6.00-$6.40.
Wall Street's models are more optimistic, calling for full-year earnings of $6.51 per share. This doesn't rule out the possibility that Boston Beer could pull off a beat and raise, especially if it sees any combination of volume strength or abating expense headwinds. But if that doesn't happen and the stock falls, investors can't say they weren't warned.
If last year's third-quarter report is any indication, Boston Beer will also likely offer some initial color on their expectations for fiscal year 2015. This probably won't include specific earnings figures, but rather round estimates for depletions growth (for example, "in the mid-teens"), gross margin (this year's target is currently 51%-53%), any anticipated price increases to offset higher costs, and estimates for how much those costs are expected to increase.
In any case, you can be sure I'll touch base after the report to see what Boston Beer had to say. In the meantime, I suggest you sit back, crack open a cold one, and enjoy the show.
