Boston Beer (SAM -0.16%) hasn't given investors much to celebrate in recent quarters. The alcoholic beverage giant's sales volume took a dramatic and surprising turn lower in late 2021 as consumers shunned the hard seltzer products that had become so popular in earlier phases of the pandemic. Boston Beer's Truly brand was seriously pinched by that move.
The beverage stock's recent fourth-quarter announcement revealed just how bad trends in the hard seltzer category got through early 2022. Let's look at that metric and at a few other trends investors might have missed in Boston Beer's latest earnings update.
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1. The hard seltzer challenge
We knew from Boston Beer's previous quarterly updates that the hard seltzer niche hit a wall in the second half of 2021 as people began shifting behavior compared to earlier phases of the pandemic. The Q4 report put a number on that deceleration. Growth in the hard seltzer niche, where Truly owns the second market share spot, slowed to just 13% from 158% in 2020.
That shift caught Boston Beer, along with other producers, by surprise. It destroyed the company's 2021 earnings potential and forced the beer giant to adjust to an entirely new growth plan.
"The slowdown," management said in mid-February, "greatly impacted ... production and shipment volumes, as well as [our] financial results and projections for the future."
Boston Beer has a wide portfolio of products, including growing brands like Twisted Tea and Samuel Adams. But its challenges in the last year or so have all been tied to the implosion of the hard seltzer category that helped it dramatically expand sales in 2019 and 2020.
2. Why shipments are declining
Boston Beer is also facing a second pressure on its shipment volumes. The company scaled up its production capabilities through its high-growth period in 2020 and early 2021, and that means distributors can wait longer before committing to purchase inventory.
In previous years, Boston Beer could expect to see rising shipments as its partners stock up in preparation for the spring and summer seasons. But that's not happening now, and so management is projecting that shipments will drop in the first half of 2022 even as sales to consumers increase. Shipments plunged 25% in Q4, for example, while depletions, a measure of retailing sales, were up 15%.
3. The variable outlook
CEO Dave Burwick and his team projected much better earnings trends in 2022, along with rising sales, prices, and profitability. The high end of these forecast ranges suggests that Boston Beer will quickly return to a more normal financial and growth footing.
But it's important to note that the forecasts are wide. Depletions might grow a disappointing 4%, for example, or they might spike as high as 10% for the year. Boston Beer is also predicting that trends will look worse before they rebound, with shipments and earnings looking weak in the first half of 2022.
This outlook doesn't jeopardize the long-term investment picture for the business. But it does mean shareholders will be in for a volatile period ahead, at least until demand trends clear up by early summer.
