The great American brewer behind the very popular Samuel Adams and Angry Orchard brands, Boston Beer (SAM -0.28%), released its fourth-quarter report this week to complete fiscal 2013. The results were mixed in comparison with expectations, which caused Boston Beer's shares to drop, but the bulls took over and eventually sent the shares higher on the day. Let's take a look at the results and decide if we should follow the bulls and buy or if we should avoid the stock for now.
The fourth-quarter mixer
Boston Beer released its fourth-quarter report after the market closed on Feb. 25, and the results were mixed in comparison with analysts' expectations. Here's a breakdown and a year-over-year comparison:
|Earnings Per Share||$1.33||$1.49|
|Revenue||$205.40 million||$193.29 million|
Boston Beer's earnings per share increased 6.4% and revenue rose 34.2% year over year, driven by shipment volume growth of 29%. Depletions increased by 20%, once again led by the Angry Orchard, Samuel Adams, and Twisted Tea brands. Gross profit rose 31.2% to $104.63 million, but the gross margin declined 100 basis points to 51%; the primary reason for this decline was the increased costs associated with ingredients and brewing, but Boston Beer has offset most of these costs by increasing prices.
At first glance, it may appear that Boston Beer had a disappointing quarter; however, the low earnings per share was not caused by weakness, but by a decision. You see, Boston Beer's brands are in such high demand that the company can hardly keep up operationally.
CEO Martin Roper spotlighted this fact when he said in the earnings release, "Over the past year, our supply chain struggled under the unexpected increased demand and we experienced higher operational and freight costs as we reacted." In order to meet the demand, Mr. Roper said that the company "significantly increased our packaging and shipping capabilities and our tank capacity at our Breweries to address the opportunity and meet these challenges."
The additional spending hurt the company's earnings in the end, but Boston Beer is willing to sacrifice earnings in order to grow; this is the same mind-set we see at other high-growth companies like Amazon. Roper continued by saying, "Given the opportunities that we see, we expect a continued high level of brand investment and capital investment as we pursue growth and innovation. We are prepared to forsake the earnings that may be lost as a result of these investments in the short term, as we pursue long term profitable growth." This means the company will continue to focus on growing and becoming as operationally efficient as possible, with less focus on growing its earnings. I believe these facts turn the earnings miss into a thing of beauty and investors can rest assured that this is still the best high-growth company in the industry.
Outlook on the year ahead
In its report, Boston Beer also provided guidance for fiscal 2014. Here is what the company expects to see in comparison with the results from fiscal 2013:
|Metric||2014 Outlook||Fiscal 2013|
|Earnings Per Share||$6.00-$6.40||$5.18|
This outlook points toward Boston Beer's earnings per share increasing 15.8%-23.6% year over year, but the projection came up just short of the consensus analyst estimate, which called for earnings of $6.47 per share. Boston Beer added that it will likely increase prices by another 2% in order to offset the increased costs of ingredients, brewing, packing, and shipment. Although this was a weaker-than-expected outlook, we must return to the fact that the company is focused on investing in its operations and brands to meet consumer demand. With this factored in, I believe this is a much better-than-expected outlook and it can support higher share prices throughout the year.
A-B InBev's results are out too
On the morning following Boston Beer's release, Anheuser-Busch InBev (BUD -0.24%), the largest brewer in the world, released fourth-quarter results of its own. The key statistics came in much better than expected and the company's shares reacted by rallying higher. Here's what Anheuser-Busch reported:
|Earnings Per Share||$1.46||$1.31|
|Revenue||$11.71 billion||$11.62 billion|
The company's earnings per share increased 32.7% and revenue increased 13.8% year over year, driven by organic sales growth of 4.6%. Volumes declined 1.7%, but the company's global brand portfolio, which includes Budweiser and Corona, showed strength with growth of 2.9%. These are good statistics, but I believe the highlight came when A-B InBev reported that its gross margin expanded 186 basis points to 61.7%; this was helped by cost of sales decreasing by 0.3%. Overall, the fourth quarter was very successful for A-B InBev and I believe its stock reacted correctly by rising more than 1.5% on the day of the release. If you are not sold on Boston Beer's potential and want to add a brewer to your portfolio, A-B InBev may be just what you're looking for.
The Foolish bottom line
Boston Beer's quarterly results were misleading because the company has switched its focus from maximizing profitability to investing in itself to maximize its growth and efficiency. I think it will be very successful with this plan and the Samuel Adams, Angry Orchard, and Twisted Tea brands will continue to lead the way while the company carries it out. Foolish investors should strongly consider initiating positions in Boston Beer because I believe it is headed back toward its 52-week high -- which it sits more than 10% below today -- and I believe it will continue setting new highs throughout the year.