The Boston Beer Company’s SAM stellar performance in the past few months clearly portrays the credibility of its three-point growth plan. This plan mainly focuses on revival of its Samuel Adams and Angry Orchard brands, cost saving initiatives and long-term innovation programs. Further, the company’s continuous efforts to offset the persistent softness in depletion trends have helped it sustain amid the tough competitive scenario.
Consequently, the stock has gained 13.7% in the last three months, outperforming the industry’s growth of 2.5%. Let’s analyze the pros and cons of this Zacks Rank #3 (Hold) company.
Strategic Initiatives Promise Growth
Boston Beer is on track with its three-point growth plan. The first part of the plan focuses on the revival of its Samuel Adams and Angry Orchard brands via its packaging, innovation, promotion and brand communication initiatives. Going forward, the company plans to launch new media campaigns for these brands including innovations like Samuel Adams Sam '76, Samuel Adams New England IPA and Angry Orchard Rose. In first-quarter 2018, it expects to launch these innovations nationally. Further, Boston Beer targets maintaining momentum for the Twisted Tea brand.
The second part of the plan deals with the accelerated focus on cost savings and efficiency projects, which is reflected in the improved gross margin and lower operating expenses in third-quarter 2017. Boston Beer expects to use these cost savings for brand development. Backed by the early success of these initiatives, it continues to anticipate improving gross margin by one percentage point every year through 2019.
Lastly, Boston Beer’s growth plan prioritizes long-term innovations. Herein, the company’s focus hovers around maintaining the leadership of its Truly Spiked & Sparkling brand and ensuring that it reaches full potential.
Acquisitions to Aid Growth
Boston Beer’s course of actions reveals its belief in reinvesting profits toward capital expenditures rather than distributing it to shareholders. This led the company to seek more strategic opportunities for expanding its business by making significant investments toward acquiring brewing assets, enhancing research & development (R&D) as well as packaging and marketing of products. We believe the company’s growth strategies will aid in capturing considerable market share from its rivals in the coming days.
Robust Earnings Trend and Solid Q3 Results
Boston Beer has maintained a robust earnings surprise trend. This is evident from its fourth-straight earnings beat in third-quarter 2017 while sales topped estimates for the second consecutive quarter. The company’s strong performance was backed by improved gross margins and lowered operating costs owing to its cost-saving initiatives as well as lower tax rate. Consequently, the company raised the lower-end of its previously stated earnings guidance range for 2017.
Soft Depletion Trends Hurting Performance
Though all seems well with Boston Beer, persistently soft depletion volumes remain a headwind. The fall in depletion volumes can be attributed to decline in the Samuel Adams and Angry Orchard brands. While the company pointed to some improvement in the depletion trends from the beginning of 2017, it stated that the on-premise channel remains tough.
Furthermore, trends in the craft beer and cider categories continued to remain soft. In addition, challenges related to a competitive retail backdrop persist, thus providing lot of drinking options. Meanwhile, Boston Beer continues to anticipate soft depletion trends for 2017.
Bottom Line
Despite the odds, Boston Beer’s strong portfolio of globally recognized brands and constant focus on pricing, product innovation and brand development boosts its operational performance through enhancing its position in the market.
Do Consumer Staple Stocks Grab Your Attention? Check These
Investors interested in the sector may also consider stocks such as Nu Skin Enterprises Inc. NUS, Ollie’s Bargain Outlet Holdings Inc. OLLI and Lamb Weston Holdings Inc. LW. While Nu Skin sports a Zacks Rank #1 (Strong Buy), Ollie’s Bargain and Lamb Weston carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Nu Skin delivered an average positive earnings surprise of 3.2% in the trailing four quarters. It has a long-term earnings growth rate of 8.5%.
Ollie’s Bargain pulled off an average positive earnings surprise of 9.5% in the trailing four quarters. It has a long-term earnings growth rate of 20.6%.
Lamb Weston came up with an average positive earnings surprise of 11% in the trailing four quarters. It has a long-term earnings growth rate of 5.7%.
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