Boston Beer Co. Inc.’s SAM second-quarter 2015 earnings of $2.18 per share grew 16% from $1.88 in the prior-year quarter and surpassed the Zacks Consensus Estimate of $1.83. The bottom line primarily gained from a rise in core shipments, higher gross margin as well as slightly lower taxes, offset by elevated advertising, promotional and selling expenses.
However, investors of the country’s largest craft brewer did not respond positively to the news, leading shares to decline 3.2% in the after-hours trading session.
Delving Deeper into the Quarter
Net revenue advanced 9% year over year to $252.2 million and beat the Zacks Consensus Estimate of $249 million. The year-over-year improvement in the top line was driven by a 7% jump in core shipments.
Moreover, depletions improved by 6% in the quarter, gaining from depletion growth for the company’s Angry Orchard, Twisted Tea and Traveler brands, offset by a fall in depletion for certain Samuel Adams brand products.
The company’s gross profit climbed 10.6% year over year to $136.2 million, while gross margin expanded 100 basis points (bps) to 54% in the quarter. The improvement can be attributed to higher prices and lower raw material costs, partly compensated by unfavorable product mix.
Advertising, promotional and selling expenses increased 8.3% to $71.4 million due to a rise in investments in media advertising, higher expenses related to supplementary sales personnel and commissions, costs incurred on point of sale, and enhanced freight to distributors because of higher volumes.
General and administrative expenses rose 7.8% to $18 million owing to an increase in salary and benefit expenses as well as consulting costs.
Financials
Boston Beer ended the second quarter with cash and cash equivalents of $147 million. Debt and capital lease obligations, excluding current portion, stood at $471 million, while stockholders’ equity was $514.7 million.
During the first half of 2015, the company generated approximately $78.4 million of cash from operating activities, while it deployed nearly $38.9 million toward capital expenditure, primarily for investing in its breweries.
In the first half of 2015 as well as during the period from Jun 28 through Jul 24, the company bought back nearly 170,000 shares for $41.4 million. Following this, Boston Beer had shares worth roughly $51.2 million remaining under its $400 million share repurchase authorization. Moreover, on Jul 29, the company’s board approved another $75 million for share buyback, bringing its total authorization to $475 million.
Guidance
Going forward, management remains optimistic about the growth of craft beer. Further, the company believes that its quality brands and beers, innovation, sales execution, strong financial position and ability to invest in growing its brands position it well to tap the elevated demand for craft beer.
Moreover, it intends to remain focused on making further investments in advertising and promotion of brands, and bringing about innovations. The company is smoothly progressing with the rollout of its Traveler brand, which is strongly supported by national media. In mid-July, the company also rolled out the Coney Island Hard Root Beer, which received a favorable response from distributors, retailers and drinkers.
Also, the company continues to focus on improving its supply chain structure in order to provide better customer service and preserve beer freshness. Finally, the company stated that though these initiatives could weigh on its earnings initially, these are most likely to drive profits in the long run.
Subsequent to this outlook, management retained its projections for 2015, expecting earnings per share to range from $7.10–$7.50.
However, based on recent trends of declines in the Samuel Adams brand, the company lowered its full-year projections for depletions and shipments growth to a band of 6%–9%. Nevertheless, it retained other projections of a 1%–2% improvement in prices, gross margin of 51%–53%, and advertising, promotional and selling expenses of $25–$35 million, including ongoing investments of $10–$15 million in Alchemy & Science. Effective tax rate expectation for 2015 was lowered to 37% from the previous guidance of 38% as lower state tax rates signal a positive impact.
Capital expenditure for 2015 is anticipated to be in the range of $70–$100 million, including about $3–$5 million in capital investments for its existing Alchemy & Science projects.
Stocks to Consider
Currently, Boston Beer has a Zacks Rank #4 (Sell). Better-ranked stocks in the beverages-alcohol industry include Brown-Forman Corporation BF.B, Constellation Brands Inc. STZ and Castle Brands Inc. ROX, all carrying a Zacks Rank #2 (Buy).
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