It took over two years, but Boston Beer (NYSE:SAM) is finally showing growth again. Almost across the board, the craft brewer reported sharply higher revenue, profits, shipments, and depletions as new product introductions were well-received by the market.
While the enthusiasm for the strong quarter needs to be tempered by the fact that Boston Beer was lapping easy comparables and that its flagship Samuel Adams brand is still sinking, it's a welcome change of pace that investors should rightly toast.
Crafting a comeback in cider
Revenue surged 17% on a 15% rise in shipments and an 8% increase in depletions, an industry benchmark for consumer demand that measures sales to distributors and retailers. The last time shipments and depletions were positive was the third quarter of 2015, so it's been a long road back.
Boston Beer was carried higher on the continued strength of its hard tea and seltzer brands, as well as Angry Orchard, its hard cider label that surprised everyone by launching a rose variety that apparently caught on with the drinking public.
Angry Orchard's problems have been almost as extensive as the continuing downturn in Samuel Adams, showing negative depletions for nine straight quarters before the current upturn. The flagship beer brand, however, has much deeper issues, as it has not posted a single quarter of higher depletions in over three years. Although the recently released Sam '76 lager-ale blend and a New England-style IPA seemed to help lessen the impact, Samuel Adams' decline more than offset those gains and Boston Beer is struggling to stage a turnaround for the brand.
Plenty of uncertainty ahead
The craft brewer will take whatever solace it can from its results. It sold 813,000 barrels this quarter, but was facing easier comparables from the first quarter of 2017 when shipments tumbled 15% to 707,000 barrels, and revenue was down 14% year over year. That still puts it below where it was two years ago, but at least now it is heading in the right direction.
While its Truly brand of hard sparkling water seems to have more staying power than hard soda, which was a quick flash in the pan, even founder and chairman Jim Koch isn't sure the excitement surrounding the new products will last very long. While pointing out the uptake has been quite large early on and they're only about halfway through getting the products distributed everywhere, Koch said it was too soon to make any definitive predictions.
"It's too early to fully understand repeat rates on these new products," he told analysts during the brewer's earnings conference call, so he couldn't "draw a conclusion on the long-term impact." Hard soda looked like it had legs, then dropped off the map.
Moreover, Boston Beer still has to confront its nemesis: thousands of new craft brewers entering the market while existing ones expand their distribution and add new taprooms.
Tapping into taprooms
Brewpubs look like they're going to be the next big trend that carries the craft beer industry forward. According to the industry trade group Brewers Association, there were more than 2,250 brewpubs operating last year, a better than 10% increase from 2016, but almost twice as many as there were in 2012. Last month Boston Beer announced it was opening its third taproom across the street from Faneuil Hall in the shadow of the statue of Sam Adams.
The troubles of the brewer haven't slowed its stock down any, which is now up more than 60% over the past year. Yet those gains mean Boston Beer stock isn't cheap anymore, either, as it trades at 35 times trailing earnings and almost 29 times next year's estimates. With its shares going for 27 times the free cash flow it produces, investors would be better off celebrating its gains with a frothy pint than a tranche of its stock.