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Boston Beer (SAM) Retains Strong Position on Growth Strategies

The Boston Beer Company, Inc. SAM has been benefiting from innovation and product portfolio expansion. Its advancement in the non-beer categories, including ciders and hard seltzer, should continue to drive progress. We expect its intensified concentration on pricing, product innovation, growth of non-beer categories and brand-building efforts to reinforce its position in the market.

The company’s focus on improving Truly brand trends through a renewed focus on the core business, smart brand innovation, and strong distributor support and retail execution bodes well.

Boston Beer reported second-quarter 2023 results, wherein the top and bottom lines beat the Zacks Consensus Estimate. While the top line declined from the year-ago quarter, the bottom line increased. The performance mainly reflected strong growth in Twisted Tea, offset by continuing challenges in the hard seltzer category.

In the second quarter, Boston Beer witnessed improvements in financial performance and volume, bolstered by the timely occurrence of the 4th of July holiday. This positive outcome is a result of the consistent execution of operational plans.

Shares of Boston Beer have rallied 8.9% in the year-to-date period compared with the industry’s rise of 1.7%. Meanwhile, the sector has declined 2.7%.


Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research


The Zacks Consensus Estimate for the Zacks Rank #3 (Hold) company’s current financial year’s earnings suggests growth of 6.7% from the year-ago period’s reported number.

Factors to Drive Growth

SAM's focus on innovation to revive the Truly brand and expand Twisted Tea’s potential bodes well. Boston Beer is keen on bringing excitement to the Truly brand’s core flavors through innovation. The company's Truly flavored bottle Vodka and Truly Vodka Seltzer have been performing well. With regard to revisiting the core flavors, the company announced the reformulation and improvement of core Truly flavors, including the addition of real fruit juice for an even smoother, easy-to-drink and refreshing taste.

Coming to Twisted Tea, the brand drove most of the improvements of Boston Beer in the second quarter. Effective brand-building campaigns, increased investment in media and additional retail programs focused on the Super Bowl, better distribution of 12 packs and improved service levels have been aiding the performance of the brand. Its growing brand awareness and household penetration also bode well. The company further expanded its light portfolio offerings with a new variety pack available in select highly developed markets, which has received positive feedback from customers.

We note that Boston Beer has made successful innovations in craft beer, and hard cider and iced tea categories over the years. The company is on track with growth of its Beyond Beer category, wherein it currently holds the 2nd position. Beyond Beer is growing faster than the traditional beer market. It expects the trend to continue for the next several years.

The company is also focused on accelerated cost savings and efficiency projects to aid margins. In the second quarter, its gross margin primarily benefited from strong price realization and procurement savings, which more than offset increased inflationary costs. Also, advertising, promotional and selling expenses declined 3.6% in the reported quarter due to lower freight to distributors on reduced rates and volumes.

For 2023, management envisions GAAP earnings per share of $6.00-$10.00 for 2023, whereas it reported $5.44 in the prior year.

Headwinds to Overcome

Boston Beer has been witnessing a slowdown in the hard seltzer category and the demand for the Truly brand in recent quarters. The slowing hard seltzer trends hurt the company’s depletions to some extent in second-quarter 2023. The hard seltzer category’s decelerating trend has mainly been attributed to the loss of novelty among consumers due to the entry of several beyond-beer products in the marketplace. Additionally, the decline has resulted from the ongoing dismal macroeconomic environment, which has caused a volume shift from hard seltzers back to premium light beers due to their lower pricing.

For 2023, the company expects overall volumes to decline due to continued weakness in Truly volume, which is expected to partly offset strong growth in Twisted Tea. Depletions and shipments are expected to decline 2-8% in 2023. This view includes the adverse impact of 1% due to an additional 53rd week in 2022, while 2023 will have 52 weeks. On a 52-week comparable basis, the company expects depletions and shipments to decline 1-7%.

Stocks to Consider

We highlighted some better-ranked stocks from the broader Consumer Staples space, namely Coca-Cola FEMSA KOF, Molson Coors TAP and PepsiCo Inc. PEP.

Coca-Cola FEMSA produces, markets and distributes soft drinks throughout the metropolitan area of Mexico City in Southeastern Mexico and the metropolitan region in Buenos Aires, Argentina. KOF has a trailing four-quarter earnings surprise of 21.1%, on average. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Coca-Cola FEMSA’s current financial-year sales and earnings suggests growth of 21.3% and 19.1%, respectively, from the year-ago period's reported figures. KOF has an expected EPS growth rate of 13.4% for three to five years.

Molson Coors is a global manufacturer and seller of beer and other beverage products. It currently has a Zacks Rank #2 (Buy). The company has an expected EPS growth rate of 7.3% for three to five years.

The Zacks Consensus Estimate for Molson Coors’ current financial-year sales and earnings per share suggests growth of 9.3% and 23.4%, respectively, from the year-ago period’s reported figures. TAP has a trailing four-quarter earnings surprise of 34.2%, on average.

PepsiCo is one of the leading global food and beverage companies. PEP currently has a Zacks Rank #2. PepsiCo has a trailing four-quarter earnings surprise of 6.3%, on average.

The Zacks Consensus Estimate for PepsiCo’s current financial-year sales and earnings suggests growth of 6.7% and 10.2%, respectively, from the year-ago period’s reported figures. PEP has an expected EPS growth rate of 8.1% for three to five years.

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The Boston Beer Company, Inc. (SAM) : Free Stock Analysis Report

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