Boston Beer Co. Inc. SAM is facing a tough time due to troubles at its Samuel Adams brand, which has been up against severe competition from other brewers that are entering the craft beer market. Consequently, shares of the largest U.S. premium craft brewer have slumped 30% year to date.
Boston Beer has been a major player in the industry with its Samuel Adams brand over the past few years. However, it is currently losing its share to a horde of smaller craft brewers that are providing more choices to drinkers. Looking ahead, this Zacks Rank #4 (Sell) company expects competitive headwinds to intensify due to the increasing popularity of craft beer and entry of new players.
Though the company reported better-than-expected top- and bottom-line results for third-quarter 2015 on the back of increased core shipments, higher gross margin and lower taxes, depletion trends seem to be weakening. Despite a 6% rise in depletion rate in the quarter, the company noted that it was short of expectations and slower than the prior quarters. This is mainly due to a softer cider category and slowdown in the Samuel Adams brand amid intensifying competition.
Hurt by increased competition from smaller craft beer companies, Boston Beer lowered its 2015 depletions and shipments growth target for the third time this year. Depletions are now expected to grow in the range of 3–6%, down from the previous forecast of 6–9% and the initial guidance of 15%. Consequently, the company also slashed its earnings projections for 2015 to $7.00–$7.40 per share.
This, in turn, led to a downtrend in the Zacks Consensus Estimate, making investors skeptical about the company’s future performance. The Zacks Consensus Estimate has dipped 0.3% to $7.22 and 0.2% to $8.38 for 2015 and 2016, respectively, over the past 60 days.
However, Boston Beer remains optimistic about growth in the craft beer industry. It believes that its quality brands and beers, innovation, sales execution, strong financial position and ability to invest in growing its brands will enable it to benefit from elevated demand for craft beer.
Also, the company continues to focus on improving its supply chain structure in order to provide better customer service and preserve beer freshness. The company intends to make further investments in advertising and promotion of brands, and to bring about innovation.
Stocks to Consider
A better-ranked stock in the beverages-alcohol industry is Constellation Brands Inc. STZ, with a Zacks Rank #2 (Buy). Other well-placed stocks in the related beverages-soft drinks space are Coca-Cola FEMSA S.A.B de C.V. KOF and Primo Water Corporation PRMW, both carrying a Zacks Rank #2.
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