Boston Beer's Core Brands Enjoy a Turn for the Better

Boston Beer (SAM -0.39%) announced first-quarter 2018 results late Wednesday, highlighting a return to growth in shipment volumes and marked improvement in industry trends for its various beer, hard cider, and hard sparkling water brands. But Boston Beer also urged caution, opting to reaffirm its full-year guidance despite its strong start to 2018.

Let's take a deeper look, then, at what Boston Beer accomplished over the past few months and what investors can expect from the craft brewer in the coming quarters.

IMAGE SOURCE: BOSTON BEER.

Boston Beer results: The raw numbers

DATA SOURCE: BOSTON BEER COMPANY. 

What happened with Boston Beer this quarter?

• Reported net income included a tax benefit of $0.23 per diluted share this quarter, as compared to a $0.28-per-share benefit in last year's first quarter, related to new accounting standards for stock-based compensation that were adopted at the start of 2017. Still, even excluding this item Boston Beer's results trounced investors' expectations for earnings of $0.30 per share on revenue of $175.9 million.
• Revenue growth was driven by a 15% increase in shipment volume, to roughly 833,000 barrels.
• Depletions -- a metric for measuring how quickly Boston Beer's products travel from warehouses to consumer outlets -- grew 8% year over year, marking a big improvement from last quarter's 2% decline. This improvement came as continued decreases from Samuel Adams brand varieties only partially offset increases from Twisted Tea, Truly Spiked & Sparkling, and Angry Orchard.
• Gross margin improved by 3.3 percentage points year over year to 50.5%.
• Repurchased roughly 119,000 shares of stock for $22.6 million, leaving $156.1 million remaining under Boston Beer's authorization as of April 20, 2018.

What management had to say

Boston Beer's new CEO, Dave Burwick, stated:

As I onboard to the Company, I'm focused on reviewing all areas of the business, with a focus on brand strategies that will enable the Company to return to long-term profitable growth. [...] We're excited that Twisted Tea continues to grow distribution and generate consumer pull, and that Truly Spiked & Sparkling is well positioned as a leader in the emerging segment of hard sparkling water. Samuel Adams performance improved in the first quarter due to the national launch of Sam '76 and increases in Seasonal volumes, but these positives were more than offset by declines in other Samuel Adams styles. We had a smooth seasonal transition to Samuel Adams Summer Ale late in the first quarter, which was a few weeks earlier than last year's second quarter transition.

Boston Beer founder and chairman Jim Koch added that the company has seen "significant improvement in Samuel Adams and Angry Orchard trends," driven by exciting early responses to its newest innovations such as Sam '76, Samuel Adams New England IPA, and Angry Orchard Rose.

But Koch also cautioned that in the increasingly crowded craft beer space, it's still "too early to fully understand repeat rates on these new products and therefore to draw conclusions on the long-term impact."

Looking ahead

Boston Beer reiterated its previous full-year outlook for earnings per share of between $6.30 and $7.30 (excluding the impact of its accounting changes), while admitting its volume outlook is still uncertain. Boston Beer also continues to expect 2018 gross margin of between 52% and 54%.

Still, there's an undeniable sense of optimism as Boston Beer's two largest brands -- Samuel Adams and Angry Orchard -- continue to benefit from improving trends and positive consumer response to newer varieties. Whether some of those varieties can keep consumers coming back for more remains to be seen. But I think this marks another big step in the right direction as Boston Beer strives to return all of its brands to sustained, profitable growth.