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Boston Beer (SAM) Beats on Q3 Earnings & Sales, Ups 2018 View

After witnessing a setback in the last reported quarter, The Boston Beer Company, Inc.SAM reported top and bottom-line beat in third-quarter 2018. Including third-quarter 2018, the company surpassed earnings estimates in six of the trailing eight quarters. Further, it delivered positive sales surprise in four out of the last six quarters.

Shares of Boston Beer has surged 3.3% in the after-hour trading session, driven by strong third-quarter results. However, this Zacks Rank #3 (Hold) stock has rallied 41.3% year to date against the industry 's decline of 20.3%.

Q3 Highlights

Boston Beer's third-quarter 2018 adjusted earnings per share of $3.21 surpassed the Zacks Consensus Estimate of $3.17 and improved from earnings of 43 cents in the prior-year quarter. The increase mainly stemmed from higher revenues and lower income taxes, somewhat negated by higher advertising, promotional and selling expenses as well as gross margin contraction.

The Boston Beer Company, Inc. Price, Consensus and EPS Surprise

The Boston Beer Company, Inc. Price, Consensus and EPS Surprise | The Boston Beer Company, Inc. Quote

Net revenues advanced nearly 24.2% year over year to $306.9 million and beat the Zacks Consensus Estimate of $271 million. Excluding excise taxes, the top line rose 23.8% year over year to $326.9 million, primarily driven by 23.5% improvement in shipment volume to nearly 1.3 million barrels.

Additionally, depletions grew 18%, reflecting an accretion from 12% in the second quarter and 8% in the first quarter. This is primarily attributed to major innovations, quality and strong brands, alongside solid sales execution and support from distributors. Moreover, increases in Twisted Tea, Truly Spiked & Sparkling, and Angry Orchard brands aided depletion growth, which was partially offset by fall in the Samuel Adams brand.

Depletions for the year-to-date period through the 42 weeks ended Oct 20, 2018, are estimated to have grown nearly 13% from the comparable year-ago period.

Costs & Margins

Gross profit improved 19.5% year over year to $157.2 million while gross margin contracted 200 basis points to 51.2%. The decline can be attributed to higher processing costs, stemming from increased production at third-party breweries, and higher temporary labor at company-owned breweries, as well as escalated packaging costs, partly negated by price increases, cost-saving initiatives at company-owned breweries and lower excise taxes.

Furthermore, advertising, promotional and selling expenses increased 38.1% to $87.8 million, mainly owing to higher planned investments in advertising and local marketing, higher salaries and benefits costs as well as increased freight to distributors on escalated rates and volumes.

General and administrative expenses grew 38.4% to $22.7 million, driven by higher salaries and benefits costs as well as stock compensation expenses.

Financials

As of Sep 29, 2018, Boston Beer had cash and cash equivalents of $38.9 million and total stockholders' equity of $623.7 million.

During the year-to-date period ended Sep 29 and the period between Sep 30 and Oct 20, Boston Beer bought back about 350,000 shares worth roughly $88.3 million. With this, it had nearly $90.3 million remaining under its $931-million share buyback authorization as of Oct 20, 2018.

Guidance

Management narrowed its earnings guidance for 2018. For the year, adjusted earnings per share are now envisioned to be $7.10-$7.70 compared with $6.30-$7.30 expected earlier. Of the assumptions for the earnings view, the company raised its depletions and shipments forecast, based on favorable trends witnessed so far. It now projects depletions and shipments to grow 12-15% compared with the prior guidance of 7-12%.

The company also raised estimates for price increases per barrel to 1-2% versus 0-2% mentioned earlier.

The company lowered its targeted gross margin forecast for the year, mainly due to additional costs related to the higher production volumes at third-party breweries, higher temporary labor at company-owned breweries and increased packaging material costs. Gross margin is now estimated to be 50-52% compared with 51-53% mentioned earlier.

Investment in advertising, promotional and selling expenses is envisioned to increase $15-$25 million, excluding any increase in freight costs for shipments to distributors. Management continues to anticipate general and administrative expenses to grow $10-$20 million. Adjusted effective tax rate guidance is anticipated to be roughly 24%, including one-time favorable impact of 38 cents per share due to tax accounting method changes reported in the third quarter. However, it excludes the impact of ASU 2016-09.

The company continues to project capital spending of $65-$75 million, which will be mostly spent on continued investments in breweries and tap rooms.

Additionally, the company provided its initial guidance for 2019. It estimates depletions and shipments percentage increases between a high-single digit and low-double digits. Revenue per barrel is likely to increase 0-3%.

The company expects gross margins to increase in 2019 due to progress on capacity and cost initiatives. Gross margin is anticipated to be 51-53%. Investment in advertising, promotional and selling expenses is envisioned to increase $25-$35 million. Adjusted effective tax rate guidance is anticipated to be roughly 27%. Capital expenditure for 2019 is estimated to be $100-$120 million.

Looking for Solid Stocks? Check These

Some better-ranked stocks in the broader consumer staples sector include Archer Daniels Midland Company ADM , Helen of Troy Limited HELE and The Chefs' Warehouse, Inc. CHEF , each carrying a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Archer Daniels delivered an average positive earnings surprise of 18.6% in the last four quarters. Moreover, the stock has surged 19.5% year to date.

Helen of Troy has rallied 28.9% year to date. It has a long-term earnings growth rate of 6%.

Chefs' Warehouse has a long-term earnings growth rate of 19%. Moreover, the stock has rallied 62.6% year to date.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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