Boston Beer Co. (NYSE:SAM) announced fourth-quarter 2015 results Thursday after the market close, and made it clear that heightened competition is making things as difficult as ever for the craft brewing giant. But before we go there, let's take a closer look at what Boston Beer achieved in both the fourth quarter and full-year 2015.
The headline numbers
Quarterly revenue fell 1.2% year over year, to $215.1 million, as price increases only partially offset a 3% decline in core shipment volume from the same year-ago period, to 958,000 barrels. Quarterly depletions -- a key measure for how quickly Boston Beer's product travels from warehouses to consumer outlets -- fell 3% year over year, and net income dropped 15.7%, to $16.1 million.
Thanks to repurchases during the past year -- including 438,000 shares bought back for $87.9 million since the end of last quarter -- net income per diluted share fell a more modest 13.6%, to $1.21. Just last week, Boston Beer's board of directors approved a $50 million increase to its existing repurchase authorization, bringing the program's total to $575 million, of which all but $95.9 million had been exhausted as of February 12, 2016. Nonetheless, the positive effects of buybacks and expanding gross margin -- up 80 basis points, to 50.6% in Q4 -- were more than offset by Boston Beer's declining revenue and planned increases to advertising, promotion, and selling expenses.
When all was said and done in 2015, Boston Beer's revenue climbed 6% year over year, to $959.9 million, full-year depletions climbed 4%, and diluted net income per share rose 8%, to $7.25. That might not sound impressive, but these figures arrived firmly within Boston Beer's latest guidance ranges, which called for full-year earnings per share between $7.00 and $7.40, and depletions growth between 3% and 6%. By comparison, analysts' consensus estimates predicted slightly lower full-year earnings of $7.20 per share, and higher revenue of $968.4 million.
"We believe we have lost share..."
Boston Beer's founding chairman, Jim Koch, didn't sugarcoat it, stating: "Our depletion trends softened during the year, even as the better beer and craft categories appear healthy. We believe we have lost share, as new craft brewers enter the market and more existing craft brewers are expanding their regional distribution, with the result that drinkers are seeing more choices, including a wave of new beers in all markets."
At the same time, Koch insisted that Boston Beer remains well positioned to participate in the craft beer category's continued growth over the long term, as well as to use its strong financial position to continue to strategically invest in growing its brands.
Next, Boston Beer CEO Martin Roper largely echoed the comments he made last quarter, blaming depletions declines on decreases in Boston Beer's core Samuel Adams varieties, as well as general declines in the cider category affecting its Angry Orchard brands -- though he did note that Angry Orchard maintained its share throughout the quarter. On a positive note, Boston Beer continues to enjoy the relative strength of its younger Coney Island, Twisted Tea, and Traveler brands.
Cheers to another year
Through the first six weeks of the year ended February 6, 2016, Boston Beer has seen these trends continue, with depletions down 3% from the same year-ago period. But perhaps most important to its future direction, Roper explained:
We expect to maintain a high level of brand investment in this competitive environment, as we pursue sustainable growth. At the same time, we are taking steps to ensure that our investment dollars are well spent. To that end, we plan to evaluate the effectiveness of all of our investments and endeavor to improve our internal processes and cost structures. We continue to evaluate all our spending, so as to allocate it to the activities which are most likely to support growth.
On one hand, keeping in mind that Boston Beer already provided preliminary guidance for 2016, along with its Q3 report in October, Boston Beer now expects slightly lower full-year depletions and shipments growth in the mid-single-digit range, compared to previous guidance for mid- to high-single-digit growth.
On the other hand, Boston Beer also anticipates increased 2016 ad, promo, and selling expenses of between $10 million and $20 million, and capital spending between $60 million and $80 million -- the latter of which marks a $10 million reduction from both ends of Boston Beer's previous capital spending estimates. Meanwhile, Boston Beer continues to expect national price increases in 2016 between 1% and 2%, and healthy gross margin between 52% and 54%.
Finally, Boston Beer projects full-year earnings per diluted share between $7.60 to $8.00. That equates to year-over-year earnings growth of between 4.8% and 10.3%, but still falls short of Wall Street's projections for 2016 earnings of $8.05 per share.
That doesn't mean Boston Beer's past days of heady growth are over. To the contrary, with a less than 2% share of the total U.S. beer market, the company knows it's still small enough to maintain the flexibility to pounce on growth opportunities as they arise, and is willing to invest in operational efficiency and innovation commensurate to the size of those opportunities.