Boston Beer (SAM 1.07%) stock has had a huge rally since the pandemic started about a year ago. While sales plunged for its restaurant and bar customers, the alcoholic beverage giant led the industry in overall growth thanks to soaring retailer demand for brands like Truly hard seltzer and Twisted Tea hard iced tea.
But competition is heating up in these non-traditional beer niches, which might threaten Boston Beer's momentum in 2021. The company also faces some major cost challenges in the short term and as it works to scale up its brewing capacity.
These trends will be on top of investors' minds when Boston Beer reports earnings results on Thursday. Let's take a closer look at the metrics that will matter in its April 22 announcement.
It's no secret that the hard seltzer niche is booming. Every major alcoholic beverage producer has several products aimed at that category and most introduced new brands in the past year. Yet Boston Beer stayed on top in 2020, with Truly increasing its market share to 26% of the industry. In fact, it was the only established brand to gain ground last year.
Investors are hoping to see more of the same on Thursday, with surging Truly sales helping push revenue up 44% to $477 million. Boston Beer should notch growth in depletions, a measure of sales, that's near 40%. For context, Constellation Brands just announced a 6% depletion boost, in part thanks to success in its Corona hard seltzer product. We'll find out this week whether Boston Beer continued outpacing that brand and other challengers through early 2021.
Boston Beer struggled through 2020 with more demand than it could meet with its current brewing capacity. That's a nice problem to have, but it still created headaches for the business.
Gross profit margin declined for the year and is expected to drop again in 2021. Executives have promised to slow this drop and eventually reverse it by bringing Boston Beer's manufacturing capacity up to the right level. That project might take more than a year, and in the interim investors should brace for continued weak margins despite those surging sales volumes and rising beer prices.
The second half of 2021 might be unusually volatile as consumers change their behavior to reflect the expected end of the pandemic threat. But CEO Dave Burwick and his team back in February were still comfortable enough to project big sales gains this year.
That forecast was wide, though, and so it might be updated on Thursday. As it stands now, depletions should rise by between 35% and 45% while gross profit margin could drop to as low as 45% even though management is planning to raise prices by between 1% and 2%. The company aims to spend as much as $400 million this year on building out capacity but warned that the actual figure might be much higher depending on how demand trends move in 2021.
Investors would love to see those growth trends push depletions closer to 50% for another year despite the short-term pressure that would put on earnings. But we'll have to wait and see just how valuable that prime market share position becomes through shifting consumer preferences over the next few years.