Should Boston Beer Have Investors So Optimistic?

Boston Beer (SAM 0.74%), best known for its Sam Adams brand, reported its fourth-quarter results Thursday, and profits looked good, even if sales were a hair off.

But what got investors a lot more excited about the stock was management's strong guidance. And that leads to a natural question: How reasonable are those upbeat predictions?

In this segment of the MarketFoolery podcast, host Chris Hill and senior analyst Emily Flippen discuss the beverage purveyor's strategy of keeping its core craft brew segment in focus even as it expands into other niche alcohol areas and small brands; its moves to targeting the fitness market, its overall sales rebound, and its outlook.

A full transcript follows the video.

Check out the latest Boston Beerearnings call transcript.

This video was recorded on Feb. 21, 2019.

Chris Hill: Let's move on to Boston Beer, which is having a much better morning. Shares up 11%. This is the parent company of Sam Adams. Fourth-quarter profits looked good. If you're just looking at the results, it seems a little mixed because the profits were good, the overall sales were a little bit down. But this seems like it's, among other things, about their guidance. Speaking of lofty guidance, they're pretty confident about how 2019 is going to go for them.

Emily Flippen: It's interesting because the craft brew market for a while now has been softening. In fact, the beer market in general is softening in comparison to liquors and wine. I like the idea that Boston Beer is not only continuing with what they're known for, which is the craft brew -- because a lot of times, we see demand for these things change over time, and just because they're going through a soft period right now does not mean that craft brew is done forever.

I think the reason they've posted such impressive guidance and revenue is largely due to the optionality that they have of their different brands. They're moving into things like hard teas. A new health fitness craze they're pursuing is kombucha, alcoholic kombucha, targeting these fitness and health and wellness communities with different brands that you wouldn't normally associate with Sam Adams. It's exciting. It's exciting that they've seen all these different opportunities, and they're still posting amazing growth for their hard cider division, as well.

Hill: I just like that they're targeting the health and fitness community by saying, "Hey, here's this drink. To make it even healthier, we've added some alcohol."

Flippen: How about this? One of their new brands is going to be 26.2 Brew. That's targeted at the running community. After you get done with your marathon, sit down with your 26.2 Brew.

Hill: [laughs] We'll see how that goes. I mean, all kidding aside, the guidance, if they deliver on it, is very impressive. Basically, what they came out and said was, "We're looking at shipment growth in 2019. We're looking at price increases in 2019 as well. We're going to ship more beer and we're going to charge more for it." If they can do that, then yes, that absolutely justifies what we're seeing with the stock today.

Flippen: Yeah, and their depletions growth -- which sounds bad, but it's actually a good thing when you look at the beer market, it's the rate at which the beer is leaving the distributor's warehouse for the target consumer -- that's been increasing significantly for the company, almost back to their heyday in 2013. So far, they seem to be posting guidance in line with what their expectations are.