Bear Of The Day: The Boston Beer Company, Inc.

Photo by Timothy Dykes on Unsplash

The hard seltzer boom helped The Boston Beer Company, Inc. (SAMgo on a massive run from the middle of 2017 until April 2021. Wall Street poured into the stock as its Truly hard seltzer brand flew off the shelves, helping drive double-digit revenue growth.

Boston Beer was never going to be able to keep up its hyperbolic run and SAM shares have tumbled over the last 12 months as Truly’s growth slows to more reasonable levels amid increased competition.

SAM Basics

Boston Beer helped kick start the craft beer revolution in the U.S. decades ago. Years later, it was at the forefront of the biggest thing since light beer. SAM launched Truly Hard Seltzer in 2016 and it became one of two dominant players in the category, alongside White Claw, right out of the gate.

Boston Beer’s revenue surged 15% in fiscal 2018, 26% in FY19, 39% in 2020, and another 19% last year. The past four years marked SAM’s strongest top-line growth since 2014. In fact, Boston Beer had never posted 30% or stronger revenue growth since it went public in the late 1990s until 2020.

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Zacks Investment Research

Image Source: Zacks Investment Research

Victim of Its Own Success?

Boston’s first-to-market advantages have slowly faded a bit as nearly every alcoholic beverage giant joined the party. Anheuser-Busch InBev, Molson Coors, Constellation Brands, and even Coca-Cola, under its Topo Chico brand, are now players in the hard seltzer market. These companies have rolled out offerings under Bud Light, Corona, and other brands. At the same time, many smaller players are entering the market constantly. 

Boston Beer has fallen way short of our Zacks earnings estimates in the trailing four periods. This includes a massive first quarter fiscal 2022 miss when it reported on April 21. The company reported an adjusted loss of -$0.16 per share vs. the Zacks consensus that called for +$2.05 a share on lower-than-projected revenue. The first quarter marked its second-consecutive adjusted loss.

Boston Beer is coming up against very tough to compete against years, with its Q1 revenue down 21% after its fourth quarter 2021 sales slipped 25%. The company’s gross margin also fell from 45.8% in the year-ago quarter to 40.2%.

Zacks estimates call for Boston Beer’s revenue to climb another 9% in 2022 to $2.25 billion and 6% higher in FY23. This is highly impressive considering the run it just went on. The company’s adjusted earnings are, however, projected to slip 20% YoY in 2022. And its FY22 and FY23 consensus estimates have dipped since its recent release.

(Click on image to enlarge)

Zacks Investment Research

Image Source: Zacks Investment Research

Bottom Line

Boston Beer’s downward earnings revisions help it land a Zacks Rank #5 (Strong Sell) right now, and its Beverages – Alcohol space is in the bottom third of over 250 Zacks industries. SAM shares have fallen 21% in the last two years and 70% from its records.

Boston Beer operates a solid business that’s continuing to grow. The firm is even rolling out new Truly drinks to get into the “high-end of the hard seltzer category.” And we have hardly even mentioned its beer business. Therefore, it is likely the stock will start to make a comeback some time, but it might not be the best time to dive into SAM given the current market turmoil. 

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