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02/23/2017

Analysts Tough on Boston’s Outlook; Overreliance on Seasonals, Innovation & Cider; SAM Stock Down

Not much positive from the financial community following Boston Beer’s Q4 report and conference call yesterday.  Headlines ranged from “Still Can’t Shake Those Boston Blues,” (Cowen’s Vivien Azer), “Hopscape not an Escape,” (Goldman Sachs’ Judy Hong), “Too Much Uncertainty for Our Taste,” (RBC’s Nik Modi), “Rough Road Ahead,” (CSLA’s Caroline Levy), to “Major Change in Strategic Mindset Needed,” (SIG’s Pablo Zuanic).  Several analysts pointed to Sam Adams’ overreliance on seasonals as a major issue, ~55% of total sales in scans, both Caroline and Pablo noted.  “Missteps” on Hopscape are “concerning,” sez Judy, and this is “the first time we can point to obviously poor execution at the company,” said Caroline. (Editor’s note: Boston’s not alone in reliance on seasonals, as CBN has been reporting.)  Also, innovations aren’t providing as large a lift as in previous years, (i.e. new Rebel launches and Truly Spiked seltzer).  And cider category remains weak, while Angry Orchard makes up over 1/4 of total Boston sales in scans (see last issue).  

There’s a “lack of confidence on [Sam Adams’] core brands,” particularly Boston Lager, sez Pablo, and co should look to escape “fixation with its own ‘craft mentality.’”  In fact, Boston Lager trends improved in early 2017 scan data, down just 5% for 4 wks thru Feb 12 Nielsen data compared to down 11% in last 12 wks, he showed.  Yet other SKUs, including seasonals, collectively down 26% for last 4 wks and 17% for 12 wks.  And Rebel IPA franchise collectively down 27% for 4 wks and -24% for 12 wks.  Several times, Pablo references Constellation Beer Brands Division, since it sources ~90% of sales from just 2 brands and has given natl TV ads to Modelo Especial.  Net-net, “the company could do a lot better and a lot more by ramping up advertising and distribution on these few core brands,” he thought.  Tho Judy and co “question whether increasing marketing investment is a prudent strategy in light of volume uncertainty and limited evidence of payback from prior investment.”

SAM Stock Down 5-6% at Presstime; “Wide” EPS Target  SAM stock has fluctuated greatly since Q4 report, first dipping “more than 11% in after-hours trading Wednesday evening,” according to Boston Globe, before climbing back to -2% early today and sliding back down 5-6% to ~$158 at presstime.  Keep in mind, all analysts pointed to Boston’s “wide” Earnings Per Share (EPS) target for the year, between $4.20-6.20.  At this time last yr, Boston’s full-yr EPS guidance was just a 40-cent range, $7.60-8.00.  But again, wide range is a function of uncertainty on volume: “our earnings are incredibly sensitive to volume,” Martin explained during call, as “that’s where the value creation is.”  So with volume outlook so variable, execs chose wide range that, at the low end, would put EPS “close to 2012 levels,” Nik Modi noted.  Based on our estimates, if Boston beer volume comes in down high single-digits again, it’ll also end up close to 2012 levels.  Currently, EPS is $6.24 and mkt cap shrunk to just under $2 bil.

Publishing Info

  • Year: 2017
  • Volume: 8
  • Issue #: 17
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