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Boston Beer (SAM) Relies on Growth Strategic Amid Cost Woes

The Boston Beer Company SAM has been gaining from pricing actions, product innovation and growth of its non-beer categories. This, along with brand development to boost its operational performance and position in the market, bodes well.

The company is on track with growth of its Beyond Beer category, wherein it currently holds the 2nd position. Beyond Beer is growing faster than the traditional beer market, and the company expects this trend to continue for the next several years.

As part of product innovation, the company expects to improve the Truly brand trends through a renewed focus on core business, smart brand innovation, and strong distributor support and retail execution. The company’s recent innovation for the Truly brand — Truly flavored bottle Vodka — sold by Beam Suntory has been well-received by consumers. With regard to revisiting the core flavors, the company announced the reformulation and improvement of core Truly flavors, including the addition of real fruit juice for an even smoother, easy-to-drink and refreshing taste.

Coming to Twisted Tea, the brand drove most growth of Boston Beer in the first quarter of fiscal 2023, owing to an effective brand-building campaign, increased investment in media and an additional retail program focused on the Super Bowl. The Twisted Tea brand's first-quarter dollar sales growth in off-premise measured channels accelerated to 34%. Consequently, the brand is likely to witness strong double-digit growth for the remainder of 2023.

The company is committed to the three-point growth plan focused on the revival of its Samuel Adams and Angry Orchard brands, cost-saving initiatives, and long-term innovation. Management plans to revive the Samuel Adams brand through packaging, innovation, promotion and brand communication initiatives.

Further, Boston Beer has been keen on retaining Angry Orchard and Twisted Tea’s momentum, while ensuring Truly Spiked & Sparkling's leadership position in the hard sparkling water category. The company is focused on accelerated cost savings and efficiency projects, with savings directed toward further brand development.

 

Zacks Investment Research
Zacks Investment Research


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We note that this Zacks Rank #3 (Hold) stock has rallied 7.4% in the past three months against the industry’s decline of 1.1%.

Headwinds to Overcome

Despite these upsides, SAM continues to reel under declines in shipments and depletions, as well as continued challenges in the hard seltzer category. An unfavorable product mix and supply-chain inefficiencies also affected the company in the first quarter of fiscal 2023.

The adjusted loss per share of 73 cents in first-quarter 2023 was wider than the year-ago quarter’s loss of 16 cents. Net revenues declined 4.7% year over year to $410 million. Excluding excise taxes, the top line fell 4.8% year over year to $435.2 million.

Higher inventory obsolescence costs and rising brewery processing mainly hurt the company’s gross margin, offset by price increases. The rise in inventory obsolescence costs mainly resulted from rebranding Truly Vodka Seltzer to Truly Vodka Soda and a non-recurring payment to a third-party contract brewery.

These factors resulted in an unfavorable impact of 210 bps on the gross margin. Also, general and administrative expenses increased 10.1% year over year to $43.7 million mainly due to increased consulting costs.

Boston Beer has been witnessing a slowdown in the hard seltzer category for some time now. The slowing hard seltzer trends hurt the company’s depletions to some extent in first-quarter 2022. The hard seltzer category witnessed continued declines in the first quarter due to a dismal macroeconomic environment, which caused a volume shift from hard seltzers back to premium light beers due to their lower pricing. The slowed hard seltzer sales mainly impacted the company’s Truly hard seltzer performance, which is expected to continue through the first half of 2023.

For 2023, Boston Beer envisions depletions and shipments to decline 2-8%. This view includes the adverse impact of 1% due to the fact that fiscal 2022 had 53 weeks and fiscal 2023 will have 52 weeks. On a 52-week comparable basis, the company expects depletions and shipments to decline 1-7%. For the first quarter of 2023, shipments are likely to be at the low end of the 2023 guidance, backed by the launch of Truly Margarita. Also, the company expects a loss for the aforementioned quarter.

Bottom Line

Although a drab hard seltzer unit, weakness in shipments and depletions, and cost headwinds have been concerning, Boston Beer’s solid strategies are likely to drive growth. Notably, the Zacks Consensus Estimate for the company’s earnings has moved up 2.6% over the past seven days. Topping it, investors can’t ignore the stock’s Momentum Score of A, which is a testament to its sound fundamentals.

Stocks to Consider

We highlighted some better-ranked stocks from the broader Consumer Staples space, namely Conagra Brands CAG Celsius Holdings CELH and Procter & Gamble PG.

Conagra Brands, a consumer-packaged goods food company, currently sports a Zacks Rank #1 (Strong Buy). CAG has a trailing four-quarter earnings surprise of 13.2%, on average. It has a long-term earnings growth rate of 6.4%.

You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Conagra Brands’ current fiscal-year sales and earnings suggests improvements of 7.1% and 16.5%, respectively, from the year-ago reported number. The consensus mark for CAG’s earnings per share has moved up 3.4% in the past 30 days.

Celsius Holdings currently carries a Zacks Rank #2 (Buy). CELH specializes in commercializing healthier, nutritional functional foods, beverages and dietary supplements.

The Zacks Consensus Estimate for CELH’s current financial-year sales suggests 67.9% growth, while earnings per share are expected to rise 154% from the year-ago reported figures. The company reported an earnings surprise of 81.8% in the last reported quarter.

Procter & Gamble currently carries a Zacks Rank #2 (Buy). PG has a trailing four-quarter earnings surprise of 1.02%, on average. It has a long-term earnings growth rate of 6.1%.

The Zacks Consensus Estimate for Procter & Gamble’s current financial-year sales and earnings per share suggests growth of 1.3% and 0.9%, respectively, from the year-ago reported numbers. The consensus mark for PG’s earnings per share has moved up by a penny in the past seven days.

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Procter & Gamble Company (The) (PG) : Free Stock Analysis Report

Conagra Brands (CAG) : Free Stock Analysis Report

The Boston Beer Company, Inc. (SAM) : Free Stock Analysis Report

Celsius Holdings Inc. (CELH) : Free Stock Analysis Report

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Zacks Investment Research