When Boston Beer (NYSE:SAM) released fourth-quarter results yesterday evening, management was probably wondering why they even bother providing guidance. To be sure, shares of the craft brewer opened down more than 4% this morning, thanks to what analysts saw as mixed quarterly results and weak forward guidance.
Here's what happened
Boston Beer's quarterly revenue rose 34% year over year, to $205.4 million, helped by impressive core shipment growth of 29%. However, that only translated to a 6.4% increase in fourth-quarter earnings, to $1.33 per share. Analysts, on average, were expecting higher earnings of $1.51 per share on significantly lower sales of $193.29 million.
To explain the discrepancy, Boston Beer pointed to increased ingredient costs and investments in advertising, promotional, and selling expenses. Meanwhile, fourth-quarter depletions -- the key metric for how long it takes product to go from warehouses to consumer outlets -- grew 20% over the same year-ago period.
Going forward, Boston beer expects full-year 2014 earnings per share between $6 and $6.40, which assumes depletions and shipments growth between 16% and 20%, steady gross margin between 51% and 53%, and increased investment in advertising, promotional, and selling expenses of between $34 million and $42 million.
By contrast, analysts were modeling 2014 earnings of $6.47 per share.
Now, I understand hoping for an earnings beat, but is nobody listening to what Boston Beer management is saying?
Specifically, Boston Beer's 2013 earnings came in at $5.18 per share -- right in the middle of the company's most recent guidance for earnings in the range of $5.05 to $5.35. Considering that analysts were expecting 2013 earnings of $5.28 three months ago, it's no surprise that Wall Street temporarily punished the stock.
What's really crazy, however, is the fact that analysts went into Boston Beer's report yesterday expecting even higher 2013 earnings of $5.39 per share.
To its credit, Boston Beer's revised 2014 guidance does reduce the top and bottom ends of expected gross margin by 1%. But it also calls for slightly larger price increases of 2% to partially offset those higher expenses. Meanwhile, Boston Beer's depletions and shipments growth is expected to be far better than previous guidance, which called for growth in the "mid-teens." Finally, Boston Beer made no changes to its expected investments in ads, promos, and selling expenses.
Still, analysts' 2014 top-line miss wasn't that far off base. Along with today's rising broader market, that could explain why the stock gradually recovered its losses as the morning wore on, and is even crossing into positive territory as I write.
If anything, it goes to show that the knee-jerk reactions induced when companies meet or beat analysts' expectations aren't everything they're cracked up to be.
Does that mean Boston Beer stock looks cheap? Not at first glance. In fact, considering the midpoint of guidance calls for net income per share to increase "just" 20%, the stock looks downright expensive with its trailing and forward price-to-earnings ratios of 46 and 38, respectively.
But that's also no reason for current shareholders to sell. After all, Boston Beer stock has risen an incredible 845% during the past five years alone, and all with an average trailing price-to-earnings ratio right around 30. In the end, Boston Beer stock rarely looks cheap based on traditional metrics, and I think today's premium is easily justified given its outsize long-term growth potential.