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Boston Beer Sees Favorable Trends in a Mixed Quarter

By Steve Symington - Updated Oct 27, 2017 at 5:24PM

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The craft brewer's trends continued to improve, but challenges remain.

Boston Beer (SAM -3.38%) announced mixed third-quarter 2017 results on Thursday after the market closed, showcasing modest earnings growth and improved depletions trends despite continued headwinds in the craft beer space.

But shipment volume remained light. With shares up nearly 30% over the past three months after last quarter's post-earnings pop, and with investors' thirst for a more pronounced turnaround largely unquenched, Boston Beer stock declined nearly 5% on the day.

Let's take a deeper look at how Boston Beer kicked off the second half of the year, as well as what investors should expect going forward.

Montage of Samuel Adams Octoberfest beer


Boston Beer results: The raw numbers


Q3 2017

Q3 2016

Year-Over-Year Growth

Net revenue

$247.0 million

$253.4 million


Net income

$33.7 million

$31.5 million


Earnings per diluted share




Data source: Cypress Semiconductor. 

What happened with Boston Beer this quarter?

  • Earnings included a $0.04 per share tax benefit related to adoption of new accounting standards for stock-based compensation this year. Adjusting for that benefit, Boston Beer's bottom line still handily beat consensus estimates for earnings of $1.99 per share.
  • Revenue fell short of investors' expectations by roughly $9.7 million, with declines primarily driven by a 4% year-over-year drop in shipment volume, to 1.1 million barrels.
  • Depletions -- a key industry metric for how fast Boston Beer's products travel from warehouses to consumer outlets -- declined 3.5% year over year, primarily driven by decreases in the Samuel Adams and Angry Orchard brands. Meanwhile, Truly Spiked & Sparkling and Twisted Tea continued to outperform.
  • Boston Beer enjoyed the successful execution at retail of its fall seasonal program, helping bolster trends for its popular Samuel Adams Octoberfest variety.
  • Boston Beer believes distributor inventory levels at the end of the quarter were appropriate; days of inventory at distributors participating in its "Freshest Beer Program," which represents around 79% of total shipment volume, declined from the same year-ago period.
  • Gross margin improved by 50 basis points year over year, driven by favorable pricing and package mix, and lower brewery processing costs from waste reduction and efficiency gains.
  • Boston Beer has repurchased 884,000 shares of common stock for $130.5 million through the first nine months of the year, leaving $192.8 million remaining on its repurchase authorization.

What management had to say

Boston Beer CEO Martin Roper stated:

We are encouraged by the improving total Company depletions trends since the first quarter, but the on-premise channel remains challenging. Truly Spiked & Sparkling has developed as one of the leaders in the emerging hard sparkling water segment and Twisted Tea continues to grow distribution and pull. Most of our volume declines for the quarter resulted from the continued underperformance of our Samuel Adams brand; however, we have seen sequential improvements relative to first and second quarter performance.

Looking ahead

Roper elaborated that Boston Beer's top three priorities for the rest of this year and 2018 are unchanged. Those include returning Samuel Adams and Angry Orchard to growth while maintaining Twisted Tea's momentum, focusing on cost savings and efficiency projects to help fund growth-oriented investments, and continuing the company's track record of long-term innovation through a steady cadence of interesting new brands and varieties.

In the meantime, Boston Beer raised the bottom end of its 2017 earnings outlook by $0.60 per share for a new full-year EPS guidance range of $5.60 to $6.20. That range continues to assume national price increases of between 1% and 2%, and gross margin of between 51% and 52%. But Boston Beer also revised its expected full-year depletions decline to a range of between minus 7% and minus 4%, compared to a change of minus 7% to plus 1% previously.

Boston Beer also provided preliminary 2018 guidance for depletions and shipments to climb in the low single-digit percent range, national price increases of between 1% and 2%, and gross margin of between 52% and 53%, with the latter metric increasing throughout the year as cost initiatives take hold.

The bottom line? Though Boston Beer's revenue fell short, the company is moving in the right direction -- however slowly -- with overall trends expected to continue improving into next year. But our market also hates being effectively told to hurry up and wait, so it's no surprise to see shares trading down today in response.

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