When I last cracked open quarterly results from Boston Beer (NYSE:SAM), its stock was hopping in response to frothy earnings. This time around, shares lost more than 5% in recent trading. While sales remain stout, a drop in first-quarter profits left a sour taste among investors.

The top line is still going strong, as the company grew revenues by 16.8% compared with the same period a year ago. Price increases contributed to roughly 2% of this growth, while a 13.7% core shipment volume increase was the primary factor.

Boston Beer reported growth in every one of its brands. According to management remarks in the quarterly earnings conference call, the Samuel Adams seasonals and Samuel Adams brewmasters collection were among the strongest performers. The Craft beer category in general is doing well as consumers have become more interested in "more full flavored, better quality beers." Company officials believe the "Take Pride in Your Beer" campaign is "resonating with drinkers" looking to move to higher quality beers.

Campaigns don't come cheaply, however. Despite the strong top-line performance, profits took a hit as advertising, promotional, and selling expenses were higher by $5.6 million, or 28%, compared with a year ago. Additional hurdles include increased packaging material and production costs, as well as a rise in utility and fuel costs. The 2% price increase was implemented to try to offset escalating energy costs, but didn't do the job. For the quarter, Boston Beer earned $0.13 per diluted share, well short of last year's $0.27.

For the year, Boston Beer expects freight and production costs to be about 5% to 10% higher in comparison with 2005. If sales remain as strong as they have been so far, management believes it can still meet the original earnings target of $1.10 to $1.18 per diluted share.

Looking to 2008, when its production contract with Miller Brewing expires, the company is re-evaluating its contract strategy in light of the increasing production and freight costs. One idea being investigated is to move toward 100% ownership of its production capacity by building another brewery. The estimated costs of such a venture are $70 million to $90 million over a two-year period. Shareholders should expect to hear more on this in coming quarters.

Boston Beer faced some challenges this quarter, but it is no reason to throw the beer down the drain. That said, prospective investors should keep a close eye on its ability to absorb the escalating costs.

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Fool contributor Jeremy MacNealy does not own shares of any companies mentioned.