Bull vs. Bear: Boston Beer Co.

In this Motley Fool Money podcast, Motley Fool senior analyst Maria Gallagher discusses:

• Amazon's announcement it will increase hourly pay and hire 150,000 seasonal workers.
• Data around consumer spending sentiment.
• Why she's watching how higher-end retailers will fare this year.

Also, you may enjoy a cold Sam Adams beer, Angry Orchard cider, or Truly hard seltzer, but does that make the owner of those brands -- The Boston Beer Company -- a good investment? Motley Fool contributors Jason Hall and Travis Hoium engage in our latest bull vs. bear debate!

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

This video was recorded on Oct. 6, 2022.

Chris Hill: Hey, somebody call Bill Burr and Mark Wahlberg. We've got a bull versus bear debate over Boston Beer. Motley Fool Money starts now. I'm Chris Hill, and joining me from the financial capital of the United States of America, Motley Fool senior analyst Maria Gallagher. Thanks for being here.

Maria Gallagher: Thanks for having me.

Chris Hill: This morning, Amazon announced it is hiring 150,000 seasonal employees to help with the holiday rush. This makes me feel better for a couple of reasons -- the main one being that this is in line with what we've heard out of UPS and Target in terms of the seasonal workers that they're going to be hiring. Because earlier this fall we had Walmart coming out and saying, "Hey, we're going to hire 40,000," which is far fewer than they did last year. When you saw this news, your reaction was what?

Maria Gallagher: I actually think there are a couple of different interesting things here. The first is the competition between the retailers to get and retain hourly employees I think is pretty fascinating. The retail industry alone hires around 500,000 temporary workers for the holiday season. Amazon, you're seeing, bumped its pay to $19 an hour, from $18 an hour. They have sign-on bonuses ranging from $1,000 to $3,000. UPS is hiring 100,000 seasonal workers with wages from $16 to $30 an hour. And UPS is working on making its online hiring process really quick and really easy. It's done in 25 minutes. Most of the time, you don't even have to have an interview.

Michaels, the craft store, is hiring 15,000 people and promising to give people more hours and more flexibility for them within the holiday season. So that's the first thing I think is interesting. Then, the second is the sentiment around holiday shopping from the consumer side. This is obviously a pretty good sign that Amazon sees people spending a good amount of money. You see them having their Prime Early days sales in the next couple of weeks.

Last year, Americans spent over $1 trillion during the holiday season. An average American spends about $942 on Christmas gifts. Two out of five respondents in a recent survey said that inflation is going to change how they shop for holidays. In the U.K., British shoppers are expected to spend about 22% less. I think there's this interesting push and pull between companies needing to spend more to retain more employees for the holiday season, and also a little bit of trepidation around what the consuming habits for this holiday season are going to be. So I think both of those are really interesting data points.

Chris Hill: Let's stick with the consumer side for a second, because we've seen companies -- Nike most recently -- talk about their inventory problems. And I don't know, Maria, I hear everything you're saying -- it makes me wonder if we're essentially setting up for ... not a showdown between consumers and retailers, but basically, like, if you're Nike, you're Target, you're any of these retailers, that you have a backlog of inventory that you're looking to get rid of. Consumers are dealing with higher inflation across the board -- more so than they were a year ago. It's going to be very interesting to see what discounting levers retailers are willing to pull to get people into the stores or shopping online so that they can move this inventory out. Depending on the retailer you're talking about, the inventory problem ranges from average to flat-out serious.

Maria Gallagher: Yeah, I think we're going to continue seeing a lot of these retailers who saw really strong promise in 2020, 2021 with higher consumer spending, really need to offload a lot of that excess inventory. I think discounting is going to be really popular. I think it's going to be interesting to compare things like the Amazons, the Targets, the TJXs, to some more of those high-brand retailers like a Lululemon or a Tiffany's. Because I think, at least anecdotally, people who say, "I don't want to shop on Amazon; I'm trying to shop smaller, shop local for this holiday season" -- a lot of people maybe don't have that option going into this holiday season with inflation, with stagnant wages, with all of those pressures.

So I think it'll be interesting to see if there's more of a shift to places like Amazon. That's why I think looking at the Prime Early days sales of the next couple of weeks, they have that two-day sale. I think that's going to be pretty fascinating, especially depending on what delays look like for delivery for online shopping this year. I wonder how that's going to impact the holiday season, as well as the supply chain issues. I think there's going to be a little bit of stress around this holiday season for retailers, for consumers, all coming from different angles.

Chris Hill: How much color do you think we're going to get from Amazon next week after their two-day Prime sale on [Oct. 11 and 12], because historically, the company plays it pretty close to the vest -- unless of course, it's a screaming success, and then they can't wait to tell you about it.

Maria Gallagher: My answer was going to be, it depends on how well it goes. I think if it is positive, we will hear a lot about it. If it's just OK, we won't hear as much about it. But after their success with Thursday Night Football, they were very vocal about how many Prime sign-ups they had. I think it will really depend on how popular it is.

Chris Hill: I've said this before. The early success that they've had with Thursday Night Football surprises me a little bit. Especially since I watched that first night and the broadcast quality was good but not amazing. It wasn't without its glitches, but certainly, Amazon is doing I think a pretty effective job of just promoting everything it has at all times. If you go on the website, you're going to find promotions for Thursday Night Football. If you're watching Thursday Night Football or just Amazon Prime, as I happened to be last night watching -- I'll just give a random plug because I know you're a movie fan -- a new documentary about music in James Bond films, which is very well done. It was a very well-done documentary. It moves along, and interesting if you're [into] that sort of thing.

But you turn on Amazon Prime streaming, and they're promoting the heck out of the sales event next week.

Last thing before I let you go: What else are you watching to get a sense of how the economy is doing? Obviously, we're going to get a jobs report Friday morning. As you think about going into the holiday season and how important that is for retailers, all of the data that you're talking about with consumers and the battle with inflation -- what are you watching?

Maria Gallagher: I'm going to be definitely watching the difference between the more higher-end retailers and seeing how many people are looking for ... I feel it's really interesting watching Lululemon roll out a subscription service and also a membership program, a loyalty program. I think we're going to see a lot more higher-end retailers looking at things like that, to say, "OK, we have to incentivize people to keep coming back," especially places with these higher price points. I think I'm going to be looking at those pretty closely because I think we can make some educated guesses on how well Target or Amazon or TJX are going to do, but I think those higher-price-point retailers are something I'm pretty fascinated to keep watching.

Chris Hill: Maria Gallagher. Great talking to you. Thanks for being here.

Maria Gallagher: Thanks so much for having me. 

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Chris Hill: Friday, Oct. 7 is Fredtoberfest, the No. 1 beer festival in St. Charles, Missouri. We can't make it this year, but we can still celebrate with a bull versus bear debate over Boston Beer Company -- the business behind such brands as Sam Adams, Angry Orchard, and Truly hard seltzer. Ricky Mulvey has more. 

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Ricky Mulvey: Welcome to bear versus bull. We pick a company, find some analysts, flip a coin, and then see which side they'll take. Today, the company is Boston Beer Company and in the bull corner, we have Jason Hall. Jason, thanks for being here.

Jason Hall: Hey man, excited to be here to talk about one of my favorite companies.

Ricky Mulvey: Oh, and on the bear side talking about one of Jason's favorite companies, it is Travis Hoium. Thank you for taking the bear side of the Boston Beer Company.

Travis Hoium: I am a fan of the product. Maybe not a fan of the stock. We'll see if I can maybe change Jason's mind a little bit.

Ricky Mulvey: Yes, it's going to be a heater. You know what? Let's just get started. Jason, you've got the bull side. Five minutes is yours.

Jason Hall: Boston Beer Company is kind of the original craft brewer, so much so that the Craft Brewers Association has changed what a craft brewer is defined as, and brought the revenue number up and up and up and up over the years to keep Boston Beer considered a craft brewer. It's a really interesting story. It's an American success. And it's dealing with some problems right now. I think those problems are going to prove to be temporary. One of the things that Boston Beer was late with was the IPA craze. It was really late to get to that market, and it was slow to innovate where so many microbrews and so many small craft brewers were. But a trend that it absolutely was dominant in over the past couple of years is hard seltzers, with its Truly brand, which is one of a handful of the most popular brands. Now, right now, Truly is a bit of an albatross. You look at its revenue, it's down about 10% from the peak. It's had to write off a ton of inventory. It's seeing some declines in some important metrics.

Beer that's actually leaving its breweries and going into distributors and going to retail -- revenue's down about 10% from the peak, but the stock has absolutely been smashed. There's this expectation that the seltzer business is going to die. It's going to go the way of wine coolers and it's not going to be a thing. But the reality, I think, is it's going to prove very nascent and a temporary problem.

Here's the reality. You look at Boston Beer right now, it trades for about 29 times operating cash flow. Now that looks kind of expensive, a little bit on the expensive side. But if you adjust that and look at where its cash flow was when it peaked a couple of years ago, and look forward once it recovers from these expenses that are eating into its cash flows, it trades for about 20 times operating cash flow. If you look back over the company's history, if you could pay 20 times cash flow for this business or less, you ended up owning a market-beating investment. This is a long-term success story, and I don't think that success is over just yet. I say buy the company at this price.

Travis Hoium: I think you made a pretty good bear case there. Because it's an expensive stock and revenue was actually on the decline right now. Margins are on the decline. I'm looking at the five-year chart of margins, just a steady tick downward year after year. They're facing tons of pressure from every brewery across the country. I mean, there are a dozen breweries within five miles of me right now. I don't know how many are close to you guys, but they're everywhere. Despite the fact that craft brewing overall is growing, that doesn't mean that Boston Beer is going to be taking market share.

I want to cover what the beer market is overall, because I think the challenge right now is that the tailwinds are going to become headwinds, whether that's today or five years from now.

Overall, beer consumption in the U.S. was up 1% last year. Craft brewing was up 8%. Imports were up 8.5%. We're still trending toward these non-MillerCoors kinds of brands. But Boston Beer as a brand is taking a smaller and smaller chunk of that craft segment, and I think that's really the challenge for them long term. Your point about seltzers, I think really solidifies this for me, because I think the mission is gone.

You look at what Boston Beer was, and Sam Adams. I mean, the fact that ... they should just call the company Sam Adams, because that was always what it was absolutely known for. Now they're trying all kinds of other stuff. They're trying teas. Aren't they doing some hard drinks or something with Mountain Dew? I mean, I can't keep track of everything that they're trying to launch. I think that really takes their eye off the ball from a business perspective, and so that's what I would worry about. It's not as expensive as the stock was a year ago, but you're still paying a very high price for a company that doesn't necessarily have a lot of revenue growth ahead. Margins are coming down. I would worry that operating cash flows are not going to be growing at the same rate that they have for really two decades. That's why I'm just not excited about the stock right now. This is the kind of company, if it was priced for no growth, I could be very excited about it. But we're still not at the point where it's priced for no growth.

Ricky Mulvey: Travis Hoium, thank you for the bear case, Jason Hall, Thank you for the bull case on Sam Adams, Boston Beer, it's the best beer you can get at a wedding, probably. So you can decide who has made the better argument about today's company on Twitter, @MotleyFoolMoney. The winner of that poll will receive  ... one drink ticket to the Half Moon Saloon. Bring your leather jacket to one of Central Florida's most popular and least air-conditioned biker bars. Rated two-and-a-half stars on Google, the Half Moon Saloon has Floridians buzzing about the room-temperature beer and sticky floors. Enjoy raucous conversation with fellow bikers or a game of pool with the saloon's friendly locals. Either way, you'll hear Guns and Roses' greatest hits over the loudspeaker. The singular drink ticket could be yours if you win bear versus bull.

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Chris Hill: As always, people on the program may have interest in the stocks they talk about and the Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. I'm Chris Hill, thanks for listening. We'll see you tomorrow.