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Boston Beer Earnings Preview: What to Watch

Boston Beer (NYSE: SAM) investors are thirsty for clarity. The alcoholic beverage giant recently withdrew its growth outlook following collapsing demand in the hard seltzer niche. Management also warned about significant write-down charges on the way related to excess inventory and the need to quickly reorganize brewing capacity.

A few of those key growth and profit questions will be answered when Boston Beer announces its Q3 results in a few days while updating shareholders on the broader outlook. Let's look at a few metrics worth following in that report, slated for the afternoon of Thursday, Oct. 21.

Image source: Getty Images.

The new hard seltzer world

The big question is how badly demand for Truly hard seltzer has declined in recent weeks. Boston Beer said the industry niche further deteriorated following its Q2 earnings release in late July. Rival Constellation Brands also noted a sharp shift in the segment, as it was forced to write down excess inventory related to its Corona hard seltzer brand.

Those signs all point to another potentially jarring growth slowdown for Boston Beer this week, given its heavier reliance on the Truly brand. Most investors who follow the stock are looking for sales gains to land at less than 10% compared to 24% last quarter and over 50% in fiscal Q1.

It won't be all bad news in this report, though. Boston Beer has navigated through many shifts in consumer tastes over the years, including a move away from craft beers. CEO Dave Burwick and his team will likely express confidence that they'll manage through this disruption, too, with help from continued popularity elsewhere in the portfolio. Twisted Tea should see strong growth, after all, along with many of the new Sam Adams brands the company launched over the summer.

Inventory charges

The earnings outlook is just as cloudy. Boston Beer said in early September that it expects to endure major one-time costs related to the hard seltzer slowdown, including inventory write-offs and payments to the outside brewers it had contracted out for help with production.

Earnings for the full fiscal year will likely land below management's previous outlook of between $18 per share and $22 per share. This quarter might be particularly weak, with Wall Street analysts looking for profits to fall to $4.10 per share from $6.51 per share a year ago. Ideally, these charges will constitute most of the write-downs that Boston Beer expects to take for the year.

Looking ahead

Constellation Brands said earlier this month that it remains bullish on the hard seltzer niche even though the next few quarters will involve a painful industry shake-out. Yet Boston Beer's Truly, the No. 2 market share leader, should easily survive that purge and recover most of its momentum. It's a valuable brand that the company can use as a platform to launch new products into a market that's bound to become less crowded now that growth has slowed.

Management's last industry outlook suggested that the hard seltzer market as a whole will account for roughly 100 million fewer cases of volume than most people expected back in the spring. The biggest factor going into Boston Beer's updated 2021 forecast will be whether trends continued softening in the six weeks since that last prediction was released.

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Demitri Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Constellation Brands. The Motley Fool recommends Boston Beer. The Motley Fool has a disclosure policy.


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