I hope you are thirsty, Boston Beer Co (NYSE:SAM) investors, because your favorite craft brewer is all set to serve up fourth quarter 2014 results after the market close on Tuesday.
So what should you expect? Here are four questions to keep in mind going into the report.
Was the cautious guidance merited?
First, Wall Street is expecting Boston Beer to post fourth quarter revenue and earnings of $236 million and $1.37 per share, respectively, while the average full-year 2014 earnings consensus currently sits at $6.60 per share. That is well above the reiterated guidance provided by Boston Beer last quarter, which calls for full-year 2014 earnings per share between $6.00 and $6.40.
So why the discrepancy? At first glance, that reiterated range seemed frustrating, as Boston Beer achieved lower-than-expected operating costs per barrel during the third quarter. But management said the benefit of those lower costs was expected to be offset by slightly lower than planned volumes in the fourth quarter.
That begs the question: Was Boston Beer simply under-promising with the intention of over-delivering? Based on analyst expectations, the market sure seems to think so.
How did depletions fare?
We will also be watching depletions growth, a metric Boston Beer uses to measure how quickly its products travel from warehouses to consumer outlets. Last quarter, depletions grew 21% year-over-year, driving year-to-date depletions growth to 25% thanks mostly to increases from the Angry Orchard, Samuel Adams, and Twisted Tea brands.
Once again, however, Boston Beer chose to keep intact its full-year guidance for depletions growth of 20% to 24%, citing more difficult comparables and a lack of new product launches planned for the second half of the year. Investors should not be surprised or concerned, then, if depletions growth decelerates once again.
Relatedly, we should also listen for updates on supply-chain improvements. Three months ago, management said that, while their supply chain improved following the completion of a number of capital and efficiency projects, their focus going forward would be to implement improved operator training and make further supply-chain improvements, which would, in turn, increase the freshness of their beers and enhance customer service.
Was the spring seasonal transition smooth?
Next, look for details on both new product launches and the transition from winter beers to spring seasonals. Around this time last year, for example, Boston Beer achieved a smooth transition to spring offerings like Samuel Adams Cold Snap. It also launched its wildly popular Samuel Adams Rebel IPA, which founding chairman Jim Koch last quarter called "the largest, most successful craft beer launch in history."
Of course, investors would love to see Boston Beer repeat that feat on a regular basis. But first, the company needs to manage the balancing act of ensuring its seasonal transitions go as planned. To seamlessly place the right spring beers on shelves just as its winter inventory wanes could mean the difference between happy or displeased consumers and distributors alike.
Will 2015 live up to expectations?
Last quarter, Boston Beer was kind enough to provide an early peek at 2015, calling for depletions and shipments growth of 10% and 15%, respectively. It also said national price increases would be between 1% and 2% -- compared to 2% so far in 2014 -- and that full-year 2015 gross margin would remain steady between 51% and 53%. Capital spending was also expected to be between $80 million and $100 million.
However, Boston Beer also noted it was too early to predict 2015 growth rates and promised to provide more detail in its fourth quarter report. Those new details may not include specific revenue expectations but will almost certainly include an initial guidance range for 2015 earnings per share. Analysts are modeling fiscal 2015 revenue and earnings of $1.05 billion and $7.96 per share, respectively.
Whether those expectations prove too high remains to be seen, especially given the already lofty analyst models for the fourth quarter. But you can be certain I will be digging into the Boston Beer earnings announcement as soon as it is released, so be sure to check back then to see how the company fared.