Investors could hardly be more optimistic heading into Boston Beer's (NYSE:SAM) Oct. 22 earnings report. The alcoholic beverage giant's business has been a big winner from the shift in spending toward home consumption during the pandemic. Wall Street responded by pushing the stock higher by nearly 150% so far in 2020.

That rally sets up some high expectations for Thursday's report, which we'll preview below.

A man shops for beer in a store aisle.

Image source: Getty Images.

Sales trends will impress

There's every reason to expect industry-leading sales growth trends for the period that ran from July through September. Boston Beer revealed a 46% spike in depletions (a measure of consumption) in the most recent quarter, which marked an acceleration over the prior quarter's boost.

Sure, competition is heating up in the hard seltzer category that's currently dominated by its Truly brand. Constellation Brands, for example, said its successful Corona hard seltzer has quickly shot up to 6% market share.

But Boston Beer should announce continued head-turning sales in that niche and in that of another core popular product, Twisted Tea. Those massive gains should offset declines in the Samuel Adams and Angry Orchard brands, which are more tilted toward on-premises consumption at bars and restaurants.

Overall, executives in late July implied that depletions were running higher by about 37%. Wall Street is a bit more optimistic, calling for revenue to rise by about 38% in Q3, up to $521 million.

Short-term profit squeeze

Normally a few blockbuster products would support rising profitability, but that's not the case for Boston Beer today. Gross profit margin slumped to 46% of sales last quarter from 50% a year earlier, and management forecast a similar drop for the fiscal third quarter.

The good news is that these declines are tied to the manufacturing bottlenecks that are forcing Boston Beer to shift production toward third-party brewers. Ideally, management will describe progress toward ramping up its own manufacturing chain over the last few months.

The bigger question is whether the competitive landscape is forcing Boston Beer to support its hit beverages with more marketing and/or price cuts. Seeing these moves in the context of dominant market share will tell shareholders that the company is solidifying its leadership position. If they come with slowing growth, though, it could point to competitive intrusions by Constellation Brands and other rivals.

Looking ahead

CEO Dave Burwick and his team should take the opportunity to update the 2020 outlook that currently predicts depletion growth of between 27% and 35%. That wide range reflected significant uncertainties around the pace of restaurant and bar reopenings, the recession, and potential further COVID-19 outbreaks. But updated sales data, and a shorter forecast period ahead, means management can be more specific in this week's forecast.

As for profits, Boston Beer is predicting declining profit margins even as average sales prices rise by between 1% and 2%. These moves should pressure earnings growth at least into 2020. But investors will be happy to look past that issue if they see more evidence of industry-leading sales growth along with a clear path toward rebounding margins next year.