Boston Beer (NYSE:SAM) released bolder-than-expected fourth-quarter 2016 results on Wednesday after the market closed. But the after-hours share-price decline made it clear that the craft brewer left a bad taste in the market's mouth.
Let's take a closer look, then, at how Boston Beer capped the year, as well as what investors can expect from the company going forward.
Boston Beer's headline numbers
To be fair, Boston Beer's quarterly revenue climbed a modest 2% year over year, to $219.4 million, marking a return to growth after four straight quarters of year-over-year declines. For that, the company can primarily thank a 2% increase in shipment volume, to roughly 974,000 barrels. On the bottom line, net income increased 37.5%, to $22.2 million. And thanks to share repurchases over the past year, including 275,000 shares repurchased for $45.1 million in the fourth quarter, net income per diluted share rose 44.6%, to $1.75.
All told, that brought Boston Beer's earnings for the full year to $6.79 per diluted share -- down 6% from 2015, but well above the high end of Boston Beer's latest guidance for full-year earnings per diluted share of between $6.30 and $6.70.
"We are disappointed with our depletion trends..."
Meanwhile, depletions -- a metric for how quickly Boston Beer's products travel from warehouses to consumer outlets -- declined 1% year over year in the fourth quarter, marking an improvement from the steeper 8% drop Boston Beer endured last quarter. Depletions for the full year fell 5%.
Boston Beer founder and Chairman Jim Koch elaborated:
We are disappointed with our depletion trends in 2016, which have remained weak so far in 2017. These trends are affected by the general softening of the craft-beer category and cider category and a more challenging retail environment with a lot of new options for our drinkers. New craft brewers continue to enter the market, and existing craft brewers are expanding their distribution and tap rooms, with the result that drinkers are seeing more choices, including a wave of new beers in all markets.
In particular, Koch said, the company was disappointed by the performance of its new spring seasonal, Samuel Adams Hopscape. CEO Martin Roper later explained that Hopscape's underwhelming launch was probably due to "executional misses, with the additional impact of the greater number of new options available to our drinkers at retail and general weakness in the sub-category."
Meanwhile, Boston Beer saw continued declines from its Angry Orchard offerings, primarily because of general weakness in the cider category.
On two more encouraging notes, however, Twisted Tea continued to grow distribution and pull during the quarter, and the Truly Spiked & Sparkling launch has proved successful so far in establishing the brand as an early leader in the hard-sparkling-water niche.
The way forward
"We like our new Samuel Adams packaging and our media advertising message, 'Pursue Better,' and our plans for the summer," Roper insisted.
As of Boston Beer's last quarterly report in October, the company had shipped a major packaging update for Samuel Adams Boston Lager, and it was planning the same for its seasonal and Rebel packaging by the end of the year. But after the rollout of Hopscape proved underwhelming, Boston Beer looks forward to taking lessons learned and applying them toward the impending transitions to both another spring seasonal, cleverly dubbed Fresh as Helles, and of course to its wildly popular Summer Ale variety in the second quarter. Boston Beer is also executing the national rollout of its Samuel Adams Rebel Juiced IPA this quarter to complement the new beer's successful national draft release in Q4.
Roper further said Boston Beer's top priorities in 2017 will be to return both Samuel Adams and Angry Orchard to growth "through continued packaging, innovation, promotion, and brand communication initiatives." Boston Beer's teams are still conducting an ongoing comprehensive review of core brand strategies and plan to ensure the most effective use of investments toward building long-term brand equity.
Boston Beer also introduced bottom-line guidance for the coming year, telling investors to expect 2017 earnings per diluted share to be between $4.20 and $6.20, "reflecting the uncertain volume outlook." Underlying that earnings guidance range are assumptions for a 2017 depletions change between minus-7% and plus-1%, national price increases of between 1% and 2%, and gross margin between 51% and 52%, with the gross margin steadily increasing throughout the year as progress unfolds on cost-cutting initiatives.
By comparison -- and though we don't usually pay close attention to Wall Street's demands -- analysts' consensus estimates called for higher 2017 earnings of $6.44 per diluted share.
In the end, this was a strong quarter for Boston Beer, at least relative to expectations. But given management's wise decision to opt for caution as it looks ahead, it's no surprise to see Boston Beer stock pulling back.