Shares of Boston Beer Co. Inc. (SAM) surged 9.1% during yesterday’s after hours trading session following the company’s announcement of strong financial results for the third quarter of 2014. The largest craft brewer of the United States posted earnings of $2.79 per share for the quarter that surged 47.6% year over year and also came well ahead of the Zacks Consensus Estimate of $2.35.
Results for the quarter mainly benefited from robust increase in shipments and a notable decline in operating expenses per barrel due to fall in employee benefit expenses as well as a shift in timing of certain advertising promotional and selling expenses.
Quarterly Discussion
Net revenue soared 25% year over year to $269.7 million and came ahead of the Zacks Consensus Estimate of $259 million primarily owing to an increase of 23% in core shipment volume.
Moreover, depletions improved by a solid 21% in the quarter gaining from efficient sales execution, support from distributors and retailers, the quality of the company’s beers, innovation and strong brands. An improvement in the company’s Samuel Adams, Angry Orchard and Twisted Tea brands were primary contributors to the growth of brands.
The company’s gross profit increased approximately 23.9% year over year to $143 million. However, gross margin remained flat with last year at 53% as the benefit of rise in price was fully offset by a negative impact from product mix, and higher packaging and ingredient costs.
Advertising, promotional and selling expenses soared nearly 15.9% to $65 million because of higher investments in media advertising, point of sale, increased costs for extra sales personnel and enhanced freight to distributors due to higher volumes.
General and administrative expenses remained almost flat at $15.7 million primarily due to increase in salary expenses fully offset by lower consulting and benefit costs.
Operating income in the quarter came in at $60.6 million, up 43.6% from the year-ago quarter level of $42.2 million. Operating margin expanded 300 bps to 22.5% due to lower operating expenses as a percentage of sales.
Balance Sheet
Boston Beer ended the quarter with cash and cash equivalents of $57.2 million. Long-term debt excluding current maturities stood at $528 million while stockholders’ equity was $412.4 million. Further, during the nine months of 2014, the company generated approximately $102.6 million of cash from operating activities while it deployed nearly $128.3 million toward capital expenditure.
Guidance
Despite reporting solid third-quarter results, the company maintained its earlier fiscal 2014 guidance and provided a preliminary forecast for fiscal 2015. For fiscal 2014, the company reiterated its earnings per share guidance of $6.00–$6.40. However, the company expects actual results to deviate from the targeted numbers.
Underlying the reiterated guidance, the company maintained its projections for 20%–24% depletions and shipments growth, 2% increase in prices, gross margin of 51%–53%, and advertising, promotion and selling expenses of $37–$45 million. Effective tax rate for the period is now projected to be approximately 37.5%.
The company highlighted plans to invest around $3–$5 million in its existing brands developed by Alchemy & Science. These expenses form a part of the projected increases in advertising, promotional and selling expenses for the year.
However, the company lowered its estimated capital spending for the year and now expects it to be in the range of $150–$160 million, compared with its previous forecast of $160–$185 million. Moreover, the company stated that its capital spending forecast includes capital investments related to Alchemy & Science projects of $7–$9 million.
For fiscal 2015, the company expects depletions and shipments to rise 10%–15%, improvement in prices of 1%–2%, gross margin of 51%–53% and advertising, promotional and selling expenses of $25–$35 million, which includes $6–$12 million worth ongoing investments in Alchemy & Science brands. Effective tax rate for fiscal 2015 is expected to be 38%.
Capital expenditure for fiscal 2015 is currently anticipated in the range of $80–$100 million, which includes about $5–$7 million capital investments for its existing Alchemy & Science brands.
Currently, Boston Beer has a Zacks Rank #3 (Hold). Better-performing stocks in the related beverages – soft industry are Dr Pepper Snapple Group, Inc. (DPS), Monster Beverage Corporation (MNST) and True Drinks Holdings, Inc. (TRUU), all of which carry a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment