Craft brewer Boston Beer (SAM 2.79%) reported fourth-quarter and full-year 2012 earnings Wednesday after the market close and, by all accounts, the numbers were solid.
Why, then, did the stock close down more than 2% yesterday? Let's dig in to find out.
The numbers
Considering shares of Boston Beer already popped more than 30% since the company raised guidance in December, yesterday's drop looks absolutely insignificant by comparison, and reinforces the fact there were few surprises in the report.
For the quarter, depletions growth -- a measure for how quickly the products travel from the warehouses to consumer outlets -- rose to an impressive 16%, thanks largely to strength in the company's Angry Orchard, Samuel Adams Seasonals, and Twisted Tea brands. This also explains why Boston Beer was comfortable forecasting increased depletions growth for 2013 of between 10% and 15%.
On one hand, net income for the quarter was $16.9 million, or $1.25 per diluted share, falling short of analysts' consensus estimates of $1.28 per share. On the other hand, quarterly net revenue came in at $153.0 million, slightly beating expectations, which called for $152.5 million. So why the disparity between revenue gains and growth in earnings per share, you ask? Unfortunately, gross margins decreased to 54.3% (compared with 55.5% in 2011), as implemented price increases couldn't fill the gap caused by higher costs for ingredients like barley and hops.
Finally, Boston Beer issued in-line guidance for fiscal 2013, and expects earnings per share between $4.70 and $5.10, with gross margins between 53% and 55%.
What now?
At first glance, with Boston Beer trading up nearly 50% over the past year, and at more than 33 times trailing earnings, the stock admittedly looks like it might be a bit foamy at the top.
However, as I noted just last month, when do truly great growth stocks like Boston Beer ever look cheap? As it stands, Boston Beer's current trailing P/E ratio isn't substantially higher than its five-year average at 29 -- a period during which its shareholders have enjoyed gains north of 300%. In addition, though Boston Beer can't boast the same incredible economies of scale as industry giants like Anheuser-Busch InBev (BUD +1.03%) and Molson Coors (TAP 1.67%), it still enjoys the notable advantage of being the country's largest publicly traded, American-owned brewery, thanks to a flurry of industry consolidation over the past decade.
Besides, while most folks resonate with the idea of supporting the little guy anyway, part of me would be surprised if the folks at Boston Beer didn't take at least some pleasure in annoying their massive competitors with their consistent, near-fanatical focus on quality over quantity. Even so, with its market capitalization still less than $2 billion, Boston Beer is well aware it has plenty of room for sustainable growth.
As Founding Chairman Jim Koch puts it:
You have a viable business only if your product is either better or cheaper than the alternatives. If it's not one or the other, you might make some money at first, but it's not a sustainable business.
In the end, that's exactly the kind of attitude any long-term investor should appreciate, and precisely why I have no intention of closing my long-standing "Outperform" CAPScall on Boston Beer anytime in the near future.
