Boston Beer (NYSE:SAM) shareholders have trounced the market so far in 2020. And while the over 60% stock price gain through mid-July looks impressive compared to the S&P 500's almost flat result, it looks even better when compared to industry peers. Global beer titans like Anheuser-Busch InBev and Molson Coors are each down more than 30% in that period. Even Constellation Brands, with its hit premium import franchises, has lost ground this year.
That performance gap reflects lots of investor optimism that Boston Beer will avoid sharp sales declines during pandemic shutdowns while winning market share in growing niches like hard seltzer. With that bigger picture in mind, let's look at some metrics investors will be watching when the owner of the Truly and Twisted Tea brands reports its second-quarter results on Thursday, July 23.
No signs of demand stress
Boston Beer's core growth metric showed no signs of stress in its last report. Depletions, which tracks consumption at bars, restaurants, and retailing chains, were up 30% in the fiscal first quarter. Anheuser-Busch InBev, in contrast, reported a 9% volume decline in its last pre-pandemic report.
Boston Beer's announcement this week will cover the pandemic-influenced sales months of April and May, which InBev said showed a brutal 32% sales slump. But investors are expecting the company to maintain its positive momentum. Surging retailer demand for the Truly, Angry Orchard, and Sam Adams brands should help it continue growing even as sales dive at restaurants and bars. Constellation Brands managed flat depletion in that period, but Boston Beer should fare even better. Most investors who follow the stock are predicting revenue will rise by nearly 40% to $427 million.
That level of growth should support strong earnings gains, and Wall Street pros are expecting Boston's profit to rise to about $2.45 per share this week, from $2.36 per share a year ago. But that increase implies a big hit to profitability.
Gross profit margin was already trending lower before pandemic challenges mounted in recent weeks. The metric dove to 44.8% of sales from 49.5% a year ago. CEO Dave Burwick and his team estimated that about 2 full percentage points of that decline came from early COVID-19 related expenses through late March. Those costs likely spiked over the following months and pushed gross and operating profit margins lower in the second quarter.
Market share updates
With consumer demand patterns changing by the week, Boston Beer's forward-looking comments will capture even more attention than usual. The company likely won't issue a detailed outlook due to volatility in the industry and the wider economy. But about three weeks will have passed since the end of the second quarter, and management will have valuable data about sales trends as more states reopened in that period. They'll also have early demand figures that might reflect secondary demand slumps in places with new outbreaks.
These challenges should contribute to an unusually cautious outlook from Boston Beer on the growth side of the business, with the profitability forecast looking even worse. But investors might still celebrate Thursday's report if it shows that the company is still expanding sales faster than its peers, even through the industry's painful spring selling months.