Boston Beer (SAM 1.59%) is set to report third-quarter earnings on Oct. 21. It will be interesting to see how the company is adjusting as economies are reopening. 

In this segment from Motley Fool Live's "Beat & Raise," recorded on Oct. 4, contributors Brian Withers and Demitri Kalogeropoulos discuss what investors should look for when the company releases Q3 figures. 


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Brian Withers: Boston Beer. That's Demitri, you're up first?

Demitri Kalogeropoulos: Yes. Sure. Boston Beer, this is one I'm definitely going to be following. Really interested in seeing this. Ticker symbol is SAM, S-A-M, and earnings are coming out after market close on the 21st. Expectations are for some modest revenue growth around 8%. That earnings number is going to drop a lot but that has to do with just some one-time stuff that happened last year. But the big question going into this report is going to be the Hard Seltzer situation. That's basically why you see in the stock price chart here, the collapse around that July territory there, the stock is down 42%. It had been up almost 50%, so that's a quite a swing.

The main reason is Boston Beer misjudged its short-term estimate for the growth of the Hard Seltzer industry and their Truly brand. Truly is the No. 2 market share leader in that really attractive niche. It's been the fastest-growing niche in the whole industry. Massive growth all the way through the pandemic. The No. 1 market share is White Claw. But Truly has just been growing so fast, and there was a turning point that the industry hit and it impacted Truly's sales last quarter. That was where they had to dramatically reduce their outlook, and that is why you see the stock price drop. Then subsequently, a couple of weeks later, they came back and had another update. They actually went through their entire outlook because the industry deteriorated a little bit more from there. A lot of things to watch there.

There's a lot more competition entering the market. People are going back to restaurants and bars and not having alcoholic beverages as much around the house. That's impacted it a lot. The big question is what's going to happen with their growth. You're going to see some financial write-offs they warned about that a couple of weeks ago because they had such a quick turn in demand, they had to make some costly changes to their manufacturing. There might be some one-off hits to their earnings, and bottom line, that's not something to worry about but that's something to really be expecting this report. Then the big question is the new outlook because like I said, they withdrew their outlook, it's a hard time to forecast in this industry. People are going to be watching really closely to see how growth is supposed to go from here. They were growing at over 50% rate, and that was cut in half last quarter to 24%, and then the last time they suggested, they had a yearly target of between 25% and 40% growth, which is still fantastic. Any of those numbers are much better than most alcoholic beverage giants could do. But like I said, they pulled that outlook, so it's anybody's guess what Boston Beer is going to say about the broader market on that date.

Withers: That's really interesting, Demitri. I didn't realize that a couple of years after they released earnings last time, they pulled the outlook altogether. That's for Q4 and I guess, that's the only quarter left in the year so for Q4 and the full year.

Kalogeropoulos: Yeah. Really interesting. They said last quarter that basically, it was a combination of a bunch of things which is got to be true in a case like this. But one of the big issues was competition just has dozens and dozens of new flavors and everybody's got it and consumers are just confused by it is what they said. Also, the luster is gone. It's really hard to stand out in a category where everyone's got dozens of these different flavor profiles and different sizes and all this stuff from the Hard Seltzer. But the good news is I did take another look at the chart, like I said, the stock chart for this past year, it doesn't look so good, but Boston Beer is still a winner over the last three years, over the last five years, over the last 10 years, just not by as huge of a margin as it looked six months ago.

Withers: The other thing that I would mention for this hard seltzer thing is it's important for investors to understand where Boston Beer sits in the supply chain. They sell to large distributors and record the revenue at that point. At that point, there's inventory somewhere in retail. Then those distributors sell to local mom-and-pop shops, they sell to restaurants. I think Boston Beer has some direct sales but mostly, it's through these distributors. When cases and pallets of beer and the hard seltzer are sitting there, waiting for the retail outlets, every retail outlet might order some of the hard seltzer, four, five, six packs in every flavor. If every place does that and then they sell out one time because everybody is trying it, it's not like you can just take home one. [laughs] You usually have to go and pick up a half a dozen. I think some of the initial demand may have been overstated because you try one of the six and you go, "This isn't really what I want." It inflates the demand a bit. That's really hard when you're building to chase things and then all of a sudden, it goes-- Like you're saying, they may want to retool some manufacturing lines that they had set up to do hard seltzer back to their old stables. It's just a really challenging time. I think for the next couple of quarters, it may be a little volatile. I don't think they're certainly going to miraculously have all the answers come the 21st. But certainly, they'll have a little bit better idea and we're into October, some pre-holiday sales might have some indication of that.

Kalogeropoulos: This company has made it through many transitions in consumer demand. They've also got a wide portfolio. Twisted Tea is very popular still, and the Sam Adams craft beers. They're not going anywhere, it's just they're dealing with quite a hiccup right now.

Withers: Yeah. I remember one CEO was interviewed, and said, [laughs] "There's no rulebook for how to run a company during a pandemic." [laughs] It's certainly hard, but as you point out, they've been through numerous ups and downs with the economy and things going on. I think they'll come out alright.