Will Soft Seltzer Trends Hurt Boston Beer's (SAM) Q3 Earnings?

The Boston Beer Company, Inc. SAM is scheduled to report third-quarter 2021 results on Oct 21. The company is expected to have registered top-line growth in the to-be-reported quarter, whereas the bottom line is likely to have declined. The Zacks Consensus Estimate for third-quarter earnings is pegged at $4.60 per share, implying a 24.6% decline from the year-earlier quarter's reported figure. The consensus mark has moved down 7.6% in the past 30 days.

For quarterly revenues, the Zacks Consensus Estimate stands at $496.9 million, suggesting a 0.8% increase from the prior-year quarter’s reported figure.

In the last reported quarter, the company delivered a negative earnings surprise of 32.6%. However, the bottom line beat the Zacks Consensus Estimate by 15.1%, on average, in the trailing four quarters.

The Boston Beer Company, Inc. Price and EPS Surprise

The Boston Beer Company, Inc. Price and EPS Surprise

The Boston Beer Company, Inc. price-eps-surprise | The Boston Beer Company, Inc. Quote

Key Factors to Note

Boston Beer hinted at being affected by the slowdown in the hard seltzer market demand on its last reported quarter’s earnings call. In second-quarter 2021, the company noted that hard seltzer growth was negatively impacted by several factors, including slowed growth of household penetration as the market matures and new trails reduce. The hard seltzer demand was also impacted by the gradual transition to the on-premise channel as hard seltzer has become a regular option in that channel.

Newer and increased number of hard seltzer brands at retail outlets has caused an explosion of choices and consumer confusion, resulting in a decline in hard seltzer demand. Hard seltzer depletions were affected by challenging year-over-year comparisons, owing to heightened pantry loading in the year-ago quarter as on-premise restrictions prevailed.

On Sep 8, 2021, the company withdrew its 2021 guidance, citing the aforementioned slowdown in hard-seltzer trends. It revealed that the hard seltzer market has been witnessing slowed growth in the past few months. Per the industry estimates, volumes for hard seltzer retail are likely to decline more than 100 million cases from what was stated in May 2021. It also predicted volumes to be more than 30 million lower than what was mentioned in July 2021.

The company, on its September release, stated that the current demand for Boston Beer’s hard seltzer products is increasing at a faster rate than category rates in measured off-premise channels. However, the company predicted the uncertainty regarding the hard seltzer demand trends to persist throughout 2021. It anticipated incurring additional costs through the rest of 2021 for hard seltzer-related inventory write-offs, shortfall fees payable to third-party brewers, and other costs. Consequently, the company is expected to have witnessed marked impacts from the slowdown and additional costs in the to-be-reported quarter. This is likely to get reflected in its top and bottom-line performances.

The company’s third-quarter results are also expected to reflect headwinds from the ongoing industry-wide supply-chain woes due to port congestions and higher freight costs. Elevated processing costs, stemming from higher production at third-party breweries, are also expected to have been a headwind. These are likely to have affected the company’s margins in the third quarter.

However, the company’s continued focus on pricing, product innovation, growth of non-beer categories alongside brand development to boost its operational performance and position in the market bode well. Its innovation in the non-beer categories, including hard teas and ciders, has been a hit among liquor drinkers, which is likely to have cushioned the performance in the third quarter. Its diversified brand portfolio has been fueling depletions growth for the past several quarters.

Zacks Model

Our proven model does not conclusively predict an earnings beat for Boston Beer this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Boston Beer has a Zacks Rank #5 (Strong Sell) and an Earnings ESP of +21.39%.

Stocks Poised to Beat Earnings Estimates

Here are some companies you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this season:

Archer Daniels Midland Company ADM has an Earnings ESP of +1.84% and it currently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Coca-Cola Company KO has an Earnings ESP of +0.75% and a Zacks Rank #2 at present.

The Estee Lauder Companies Inc. EL currently has an Earnings ESP of +0.24% and a Zacks Rank #2.

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