Long-term, Boston Beer and Craft Brew Alliance stocks had very different years in 2016, but both got off to a slow start to 2017. Boston's SAM ticker jumped a few points to $175 on Jan 4, but dropped almost 10% since then to current price around $158. Similarly, CBA's BREW climbed over $17 on same date, but today traded around $15.50, also down about 10%. Estimating final 2016 volume results for these co's ain't easy, but story didn't change much for either portfolio of brands last yr: a mix of bright spots and dark clouds.

Will Extra Week Keep Boston Volume Within Guidance? Sam Brands -9% in Recent Scans What a difference a year makes. Last Feb, Boston execs set expectations that the co would grow depletions and shipments in "mid-singles" range. By the time they reported first qtr results for 2016, they lowered that guidance to volume change between +2% and -4%. That was first of 3 changes to volume guidance last yr. Boston lowered upper-end of guidance in 2d qtr results, thinking that it would end the yr flat at best. Finally, execs expected depletions and shipments to decline between 2% and 6% for the full-yr when reporting 3d qtr results. Recall, an additional 53rd week of sales in 2016, compared to normal 52 wks in 2015, is built into each of those estimates, suggesting apples-to-apples calendar trend could be up to a couple points lower. Though Boston had its easiest comp of the yr and that additional week in 4th qtr, retail scan trends did not improve. So our early estimate pegs Boston shipments at less than 4 mil bbls in 2016, down about 300K bbls, 7% (as we published in parent-pub beer marketer's INSIGHTS late last week). When Boston reports official numbers next month, expected shipments decline will be the co's 1st since 2003.

Total Boston Beer + Alchemy & Science volume declined about 3% last yr in IRI multi-outlet + convenience data thru Dec 25. For 12 wks, the co dipped by over 7% and over 9% for 4 wks. Its bright spot remains Twisted Tea, with Original brand up 19% and Half and Half up near 27% for the year. But lead Angry Orchard brand volume down 8%, both Sam Adams Seasonal and Rebel IPA -17% and Boston Lager -13%. Sam Variety Pack volume also dropped by about 7% last yr. During shorter period, total Sam Adams portfolio declined by 8.7% in IRI data for 12 wks thru Dec 18, Pablo Zuanic at Susquehanna Financial Group reported early this week. That's even steeper than 7.4% decline in third qtr, Pablo pointed out. So while "it's hard to think 2017 will be worse," he wrote, "there is no sign of improvement" yet. He actually expects even steeper depletions decline than Boston execs guided to and cut stock price estimate from $173 to $165. At same time, another financial firm, William Blair, downgraded the stock from Outperform to Market Perform about a week after RBC Capital Markets set a price target of $158, around where SAM hovered today. That's after closing out 2015 over $200 and nearly hitting that price again last March. Stock now trading at about 20% below that level.

BREW Doubled in 2016 Following Deal Announcements, But Still Soft in Scans Tougher start to 2017 may be more of the same for Boston, but it's a bit of a change for CBA. Its BREW stock ended 2016 trading at more than twice its price at the start of last yr. After announcement of its agreements with part-owner AB in late Aug, it hit high over $21 before sagging again, only to be lifted once more following deal to take minority stake in Wynwood Brewing last month. But this week alone, stock dropped over 15% before starting to climb again.

Like Boston, biggest CBA brands had tough time in off-premise scans again last yr. Volume of biggest brand in each of its 3 core brand families in IRI multi-outlet + convenience data all declined YTD thru Dec 25. They round out the final 3 slots in top 30 craft brands in IRI: Widmer Hefe cases -11%, Redhook Long Hammer IPA -12% and even Kona Longboard Lager -0.5%. Of course, rest of Kona portfolio clearly coming on much stronger, including Big Wave Golden Ale, as CBA reported Kona shipments up 17% thru 3d qtr last Nov. The co's debuting new lower-alc, tropical fruited IPA for Kona this yr, likely to provide new boost. But retrenchment of Widmer Bros and Redhook still in progress and weighing down CBA's total trend. So again, CBA volume -5.4% last yr thru Dec 25 in IRI MULC, with no big turnaround showing up in 4th qtr: total co's decline actually a couple points steeper for last 12 wks. Recall, CBA execs guided that depletions likely to finish yr about flat, +1% to -1%. But shipments expected to finish 2016 down mid-singles.

The Trouble with Valuation: Reconciling Stock Market Caps and M&A Valuations Current stock market prices value Boston Beer at about $2 bil and CBA at a little less than $300 mil. That equates to a little over $500 and under $400 per bbl, respectively. That's lower than any possible acquisition would value either co, as expected. But even a multiple similar to what Molson Coors paid for the piece of MillerCoors it didn't already own would value Boston Beer at half a billion dollars more than its current cap, a Seeking Alpha analyst wrote this week. That "big margin of safety" is just one of reasons he remains "long" on SAM. And recall that another SA analyst repeatedly cited similar thinking about CBA's stock last yr. Meanwhile, by most accounts, craft valuations continue to come down. And mixed bag of brand families in each of these larger companies' portfolio complicates future growth. So what are these cos really worth? While there's been some speculation about possible M&A for both of these companies, nothin' yet materialized and value's clearly in the eye of the beer holder. 

Massachusetts has become hotbed of alc bev litigation and legislative activity.  Latest development: mega-retailer Total Wine, which has 2 stores in MA, just filed suit to challenge state law that bans below-cost sales, similar to its suit in neighboring CT.  Restriction boosts “profits for every retailer in the state, and consumers pay for those profits,” founder David Trone said, in Boston Globe report.  “It’s collusive and it’s wrong,” said David, repeating his long-held opposition to state pricing restrictions.  State ABCC suspended Total license in Jan after investigators found they sold brands at price below invoiced costs.  Also tagged supermkt Shaw’s for selling 30-packs below cost.  Total claims ABCC erred in applying law since Total later got volume discounts on that liquor, which brought price down below original invoice.  Other states fine with Total pricing based on “expected discounts,” Trone sez.  State sez rule’s clear that most recent invoice applies and retailers “could always claim they were expecting discounts later,” Globe reports.  As MA loosens licensing restrictions and more big-box stores coming, battle between traditional, smaller stores and Total likely to expand.  Indeed, package store assn director told Globe: “The gorilla has come into the state and decided the rule doesn’t apply to him.”  Echoing smaller retailers (and regulators) in CT, he added that without minimum price rule, “it would be virtually impossible for most of the liquor stores in the state to compete.”   Meanwhile, CT legislator has proposed bills that would up penalties to CT retailers that violate state’s minimum price laws.

Separately, the one on-premise MA retailer that got tagged in pay-to-play investigation so far, Jerry Remy’s, is balking at looming 3-day suspension for allegations it accepted about $8K from Craft Brewers Guild.  ABCC originally hit Remy’s with 18-day suspension, Boston Biz Journal reports.  About to serve just 3 days beginning Feb 22, it filed lawsuit in state court.  Claims it should not be singled out for accepting payments directly, as opposed to other retailers who got much bigger payments indirectly and escaped punishment.  Meanwhile, Craft Brewers Guild suit challenging its fine for pay-to-play on tap for mid-March hearing.  These issues, and much more (including franchise law), likely to be part of upcoming broad task force review of MA alc bev laws.          

Another big brewer just announced a $50-mil brewery project in US.  On heels of Diageo’s plan to invest $50 mil to build brewery in Baltimore (see Jan 31 Express), MC announced project to spend same amount to expand its 10th Street Leinenkugel facility in Milwaukee.  Plant needs to “expand to meet market demand,” according to papers filed with city, reports Milwaukee Biz Journal. It will get bigger brew house and new tank cellar.  “Building out the 10th Street brewery will allow us more efficient, modern and highly flexible processes at the location,” MC said in statement, adding: “While brewing capacity will increase, no operations are transferring over from Miller Valley,” its main brewing location in town.  Documents filed with city suggest project may add about 40 employees, papers report.  

Comments on Diageo Brewery in Md from All 3 Tiers Meanwhile, reactions coming in from brewers, distribs and retailers to Diageo’s Baltimore plans.  Fred Crudder, mktg director for Heavy Seas craft brewer, told Baltimore Sun project could attract new visitors.  “If Diageo spends the kind of money that they can because of who they are to make that location an absolute tourist destination, then that could be good for Maryland, the surrounding areas of Baltimore County and could be good for us in the long run.”  Evan Athanas, prexy of Chesapeake Bev distrib (which sells Diageo products)  gave thumbs up too.  Project will help build the Guinness brand in MD, Evan said, plus “the tourism piece and brand experience planned for this project will certainly enhance Maryland’s beer industry and be a benefit to our retail customers.”  So neither Fred nor Evan publicly fretting about big supplier planning to expand its retail presence.  Retailer assn, whose members will get new competitor, a bit more circumspect: “It just comes down to what they’re asking for,” legislative co-chair for MD State Licensed Bev Assn told Baltimore Sun.  Recall, Diageo needs law change to expand cap on how much beer can be sold on-site, now capped at just 500 bbls.  “The company is seeking permission to sell as many as 5,000 barrels a year,” paper reported.