Boston Beer's Glass Is Half Full

Boston Beer (NYSE: SAM), maker of Samuel Adams and Twisted Tea products, announced mixed results for its second quarter after the bell on Tuesday, and shares are currently trading slightly below yesterday's close.

Here are some key points from the call:

• Earnings per share (ex-items) came in at $0.60, but a $0.14-per-share write-off was taken for the costs related to the Freetown, Mass., brewery project that the company may not pursue, following the purchase of a Pennsylvania plant from Diageo's (NYSE: DEO) North American segment. This left EPS at $0.46.
• Net revenue just beat analyst estimates of $92.6 million, coming in at $92.9 million, 17.1% higher than in Q2 2006.
• Gross margin continued to slide, from 59.3% in Q2 2006 to 56.8%. This shouldn't come as a shock to Boston Beer investors, as gross margins have eroded in recent quarters as a result of higher package-material and ingredient costs. Nevertheless, operating margins have remained steady over the period, thanks to the strength of the Samuel Adams brand name.
• Management raised the high end of the company's earnings guidance for the year from $1.55 to $1.70 per share.

Time for a Twisted Tea party?
Boston Beer's Twisted Tea product sales declined slightly in the second quarter, with new entrants coming into the so-called "malternative" or "alco-pop" industry. This highly competitive segment includes Diageo's Smirnoff Ice brands, Anheuser-Busch's (NYSE: BUD) Bacardi lineup, Molson Coors' (NYSE: TAP) Zima drinks, and Mike's Hard Lemonade products, all of which jockey for position in an industry that represents 2% of the U.S. beer market.

Long-term Boston Beer investors should pay heed to the progress of the Twisted Tea lineup specifically and the durability of the malternative industry in general. With the Sam Adams line gaining ground in the growing market for craft beers, you'd hate to see the company pouring excess capital into something that amounts to little more than a fad.

After all, beer has been brewed since the time of the pharaohs; malternatives were introduced during the Clinton administration.

Anheuser-Busch is a Motley Fool Inside Value recommendation. Diageo is an Income Investor selection. A free 30-day trial of these market-beating services is yours with a simple click on either link.

Fool contributor Todd Wenning owns shares of Diageo but loves himself a good Sam Adams Octoberfest. The Fool has a disclosure policy.