What: Shares of Boston Beer Co. Inc. (NYSE:SAM) were up 16.8% as of 10:25 AM EDT Friday after the craft brewer announced stronger-than-expected second-quarter 2016 results.
So what: Those results don't look particularly strong at first glance; quarterly revenue fell 2.9% year over year, to $244.8 million, net income declined 11.1%, to $26.6 million, and (thanks to share repurchases) net income per share dropped 5.5%, to $2.06. But analysts, on average, were anticipating lower earnings of $1.94 per share, and revenue of $238.9 million.
Depletions -- an industry measure for how quickly Boston Beer's products travel from warehouses to consumer outlets -- declined 5% year over year. That was roughly consistent with last quarter and, according to Boston Beer CEO Martin Roper, "significantly" below the company's expectations as decreases in the Samuel Adams, Angry Orchard, and Traveler brands were only partially offset by strength at Twisted Tea, Coney Island, and the ongoing national rollout of the Truly Spiked & Sparkling brand.
Boston Beer founder and chairman Jim Koch stated, "Our Samuel Adams Brand lost share of craft due to the increased competition and continued growth of drinker interest in trying new styles."
Now what: However, Roper also added, "We are encouraged by recent improvements in depletion trends that we have seen since the middle of June, but it's too early to determine if these improvements are sustainable."
As such, Boston Beer reduced its full-year guidance to call for 2016 earnings per diluted share between $6.40 and $7.00 (down from between $6.50 and $7.30 previously). This range assumes a change in depletions of minus 4% to flat from 2015 (compared to minus 4% to up 2% previously), steady price increases of between 1% and 2%, and gross margin between 50% and 52% (compared to between 51% and 53% before). Boston Beer also adjusted its planned investments in advertising, promotional, and selling expenses to be in the range of a $5 million decrease to a $5 million increase from last year, down from previous guidance calling for ad, promo, and selling expenses to be flat to up $10 million. However, Boston Beer also noted it may increase investments depending on the success of the rollout of Truly Spiked & Sparkling.
Here again, this bottom-line guidance reduction might not sound encouraging. But analysts' consensus estimates already predicted earnings near the lower end of Boston Beer's previous range. And I applaud Boston Beer's caution in not sustaining guidance at the first sign of improvement.
In the end, after three straight quarters of watching Boston Beer's flagship brand lose market share to steep competition, it's no surprise this quarter's relative strength has investors raising their glasses today.