The latest earnings results from Boston Beer (NYSE:SAM) showed continued strength for the company in all core areas of growth. Despite an initial negative reaction to earnings, shares of the craft-beer brewer made a strong recovery the following day and remain relatively unchanged for the year.

While management continues to aggressively spend on advertising, research and development, and various supply chain improvements, earnings in the short term are expected to be volatile and relatively weak. However, the strong growth story in the craft-beer market should help to propel Boston Beer higher in the future.

Source: Official Sam Adams Fan Page

Earnings show robust growth
The headline numbers for Boston Beer really were impressive. On a year-over- year basis, the company grew first-quarter revenue 35% from $135.9 million to $183.5 million. Diluted net income per common share grew 21% from $0.51 to $0.62.

The solid results were mainly due to strong core shipment growth of 32% and depletions growth of 34% in the quarter. Other highlights for the quarter included a 2% overall price increase and an impressive 49% gross margin, which is expected to rise to 51%-53% for full fiscal year 2014.

Speaking of 2014, management has maintained its guidance for the remainder of the year, calling for diluted earnings per share to be in a range of $6-$6.40. Management also expects depletions and shipments growth of between 16%-20%, which is lower than the robust results experienced in the first quarter.

Future growth comes at a cost
As has been the story for quite a while, Boston Beer management is taking an aggressive approach to making sure the company remains on a viable path toward sustainable long-term growth. However, this means sacrificing earnings power in the short term.

The company is fighting two battles: one on the product front and one on the supply front. In order to remain a leader in the craft-beer industry, Boston Beer must constantly introduce new products to market and promote them aggressively. Although the company has been able to do this consistently in the past, it is a process that requires time and money.

Make no mistake: Boston Beer is the king of the craft-beer market at the current time. Much smaller competitor Craft Brew Alliance (NASDAQ:BREW), which is responsible for brands like Redhook, Blackhook, and Wheathook, is benefiting from the same overall trends in the craft-beer market as Boston Beer but is still growing at much slower rates. In its most recent quarter, Craft Brew Alliance grew net sales only 5% and depletions only 10%.

For Boston Beer, advertising, promotional, and selling expenses increased 41% to $17.8 million in the first quarter. This increase was driven primarily by planned investments in "media advertising, point of sale and local marketing, increased costs for additional sales personnel and commissions, and increased freight to distributors due to higher volumes." 

In its 2014 outlook, the company projected capital spending of between $160 million and $200 million, which could increase significantly depending on future growth needs. Included in these estimates is $7 million-$9 million for the company's Alchemy & Science division, which is responsible for developing new products. 

Secondly, management is making improvements to the company's supply chain, including increasing brewing, packaging, and shipping capabilities as well as tank capacity to meet robust demand.

President and CEO Martin Roper explained:

"Our supply chain performance improved during the quarter, but still remains below our expectations. The high demand levels, unseasonal weather[,] and planned shutdowns for maintenance and efficiency improvements caused us to experience higher operational and freight costs than we had originally expected."

He concluded:

"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."

(Source: Official Sam Adams Fan Page)

Bottom line
Boston Beer management has been very clear regarding its intent to grow the company's brands in the long term at the expense of earnings in the short term. Any earnings weakness should therefore come as little surprise to investors. With a powerful brand and a viable growth strategy, Boston Beer remains the most aggressive investment in the beer industry and a savory long-term growth investment.