The Industry Focus cast continues its discussion of Boston Beer Company's (NYSE:SAM) sluggish growth in recent years, including the potential for the New England-based craft brewer to make several acquisitions in the near future.
Has the window of opportunity to buy out craft brewers with high growth potential firmly closed on the Sam Adams maker? Click below to find out.
A full transcript follows the video.
This video was recorded on Jan. 9, 2018.
Vincent Shen: I talked to my friend about this company not long ago. He's a self-proclaimed beer connoisseur. And he brought up some interesting points to me. I'm not as big of a craft beer fan as he is. When we were talking about Boston Beer, his main points were: 1) Sam Adams doesn't have the cachet and prestige that it used to, like you mentioned, Asit, now that there are thousands of these small, hip, regional brewers and new labels they have to compete with; 2) there's so many different varieties, too, of Samuel Adams, that the company has released hoping to rejuvenate some of the growth and stir up results for the company, but it's not working. I think it adds to the complexity of their operations, and probably their cost, too.
The company is working to manage expenses, but I don't think growth is going to come from a turnaround of the core Samuel Adams brand at this point. Management is going to have to make some pretty tough choices in the next year in 2018, between their new CEO on the leadership side, and then, as you mentioned, ponying up for potential acquisitions, and there's even been some rumors of the company eventually putting itself up for sale. Do you think, Asit, that following in the footsteps now, in terms of, how the megabrewers acquired some of the more fast-growing, popular craft brewers, to get a piece of that trend, do you think for Boston Beer to take on that strategy now, you know there's been a lot of crazy price tags for these acquisitions -- is that the right play? Do you think that's really their only option at this point, that if they're looking to actually grow the company, they have to look outside of their own operations?
Asit Sharma: I think they should really consider acquisitions. It seems crazy. We've talked about Ballast Point Beer, a small craft brewery out on the West Coast being acquired for $1 billion by Constellation Brands. So there are valuations that are ridiculous for the very strongest of the craft breweries. But for a management team that's willing to poke around and then scale up a smaller brewery through a Boston Beer distribution system, I think it makes sense, and I think it's their only choice.
A very interesting article by one of our Fool contributors who I consider to be a guru on beer, Rich Duprey, I've spoken about him before on this show, but listeners, if you want to follow someone who knows his beer, Rich Duprey, follow his articles. He wrote earlier last year that, if you look at the way that Samuel Adams, Boston Beer Company, has allocated its excess cash, it's bought back its own shares at high prices, and the stock has really flatlined over the last couple of years. So instead of putting $200 to $300 million to work and buying a smaller brewery, it's chosen to invest in itself. And I'm not saying that's a bad thing. But that capital allocation has to change in the coming years. Management, the new management that comes in, the new CEO, which we'll find out some time this year, is going to have to go around and find out which companies, hopefully close to the regional headquarters, that it can purchase and scale up. And it needs to experiment with this.
On the plus side, Samuel Adams, as a brand, is still a very strong brand. And I agree with you, Vince. If they could cull some of these varieties that would see, I think they could get a better return on their marketing investment. Also, they've seen some of their brands, like Truly Spiked and Sparkling and Twisted Tea, those have grown in the last year, whereas the total volume growth for Samuel Adams has been about negative 4%. So it has some growth areas. Shift the money. Invest in what's growing. Simplify, as you pointed out. And I think, beat the bushes, find those small breweries, invest in them, and look to the future.
Asit Sharma has no position in any of the stocks mentioned. Vincent Shen has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Boston Beer. The Motley Fool has a disclosure policy.