While major brewers worry about consumers trading down to cheaper brands, Boston Beer (NYSE: SAM ) is moving up -- in profit, in revenue, in full-year forecast and, at least on Friday, in share price.
The maker of Samuel Adams and other premium brews served up third-quarter earnings of $0.72 a share, beating the Wall Street forecast of $0.39, and pushing the stock up by more than 10% in early afternoon trading. Revenue of $108.7 million was 8.6% higher than the year-ago period.
Boston Beer parlayed price increases, lower energy costs, greater efficiencies at its breweries, and lower costs into the dramatic advance in earnings. The conclusion in May of a packaging contract with Diageo (NYSE: DEO ) enabled a Boston Beer brewery to produce only higher-margin Boston Beer products rather than lower-margin Diageo products.
Boston Beer raised full-year guidance to a range of $1.75 to $2.05, compared with the previous forecast of $1.40 to $1.70. The company believes a mixture of stable costs and higher prices can produce gross margins next year that could match those of this quarter.
The price is right -- even in a recession
Boston Beer is hardly alone in raising prices. Anheuser-Busch InBev (NYSE: BUD ) and MillerCoors, the U.S. joint venture between Molson Coors (NYSE: TAP ) and SABMiller (OTC: SBMRY) already have signaled a price-hike strategy.
Higher prices are coming as many major brewers lament softer sales. SABMiller said its worldwide beer volume for the six months ended Sept. 30 was down 1%, adding that revenue was "supported by price increases taken in the prior year." It didn't provide details.
Earlier this week, Molson Coors said it offset "weak industry volume trends" with a combination of "cost control and price management" to yield third-quarter earnings of $1.14 a share, excluding one-time items, that beat the Wall Street consensus of $0.98. Worldwide beer volume fell by 2.9%.
Although the MillerCoors joint venture experienced "continued softness" in sales of more expensive brands, net income rose 28.1%, to $244.4 million, versus the year-ago quarter. Net revenue rose 3.1%, to $2 billion. Higher prices and reduced discounts propelled the gain in revenue and profit.
The price of beer and shares
However, Molson Coors didn't forecast a near-term revival in consumer demand, and, unlike Boston Beer, its stock took a big hit when the company announced its results on Nov. 4.
Perhaps the share-price tiebreaker will come next week when Anheuser-Busch InBev delivers its third-quarter results. We know the company makes the King of Beers, and we know the company has earned a reputation as the king of cost-cutting. To keep shareholders cheering, it will need more customers and more volumes as well as higher beer prices.
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