Boston Beer (NYSE: SAM) reported its fiscal first-quarter earnings on April 22, after the bell. The brewer’s revenue grew 65% yoy to $545.1 million, coming in well above Wall Street estimates of $477.3 million. Earnings of $5.26 a share were more than double expectations of $2.61 a share.
Unsurprisingly, Boston Beer shares traded more than 7% higher at the April 23 open. You may be surprised to find out, however, that shares closed around 3% higher for the session.
And Boston Beer has dipped 13% more since the April 23 close – it now trades around 10% lower than it was prior to the earnings release.
So, what gives?
There were no major issues in the earnings release itself, but investors are starting to wonder if Boston Beer is going to thrive in a post-pandemic world. The concern isn’t completely unfounded, but it is overblown.
Americans Drank More During the Pandemic… And Turned to Hard Seltzer
According to a report in the journal JAMA Network Open, American adults said they’re drinking 14% more often during the coronavirus pandemic compared to the year prior. The study was based on a sample of 1,540 adults aged between 30 and 80, so there is no insight on the drinking habits of adults aged 21-30. But there is no reason to think that their drinking habits have diverged much from older adults.
As more people have turned to alcohol to alleviate their pandemic-related angst – or something like that – a few of Boston Beer’s brands have benefited. But Truly hard seltzer has stood above the rest. The hard seltzer market has seen rapid growth over the last few years, and Truly is the undisputed #2 player in the market.
That rapid growth is expected to continue over the next few years, but investors are concerned because a) hard seltzer is more popular at home than at restaurants and b) alcoholic drink sales may dip after the economy fully re-opens.
But It’s Not Smart to Doubt Truly
In a growing category with several high-profile new entrants, Truly has still managed to grow its market share.
In the Q1 2021 earnings call, CEO David A. Burwick said, “In the first quarter in measured off-premise channels, the Truly brand outgrew the hard seltzer category by nearly 2 times or 50 percentage points, resulting in a share increase of 6.5 percentage points. The Truly brand has now reached a market share of over 28%, accounting for approximately 40% of all growth cases in the hard seltzer category year-to-date, which is two times greater than the next largest growth brand.”
As stated earlier, hard seltzer sales are higher off-premise than on-premise. But the gap is narrowing. And it’s not like people are going to stop drinking at home when the pandemic ends – they will just revert to their pre-pandemic behavior.
Boston Beer’s Other Brands are a Mixed Bag
Besides Truly, Boston Beer has turned to its Twisted Tea brand to drive company-wide growth. Burwick believes “Twisted Tea is on its way to becoming the number one flavored malt beverage by year's end.”
But Samuel Adams, Angry Orchard, and Dogfish Head brands saw declines in depletions in the first quarter. Obviously, you’d prefer to see strong growth across the board, but the good news is that Boston Beer is seeing excellent company-wide growth in spite of the underperformance.
Furthermore, those brands – unlike Truly – were actually hurt by the on-premise closures. A possible (slight) slowdown in Truly’s growth could be accompanied by a recovery for Samuel Adams, Angry Orchard, and Dogfish Head.
How Should You Play Boston Beer?
Boston Beer shares are currently on sale for 45.6x forward earnings. On sale for 45.6x forward earnings?
When you consider the company’s track record, yes. For full-year 2020, Boston Beer’s revenue grew 38.9% yoy to $1.74 billion. The brewer may not match that growth rate for full-year 2021 – due in large part to tough comps – but you shouldn’t expect that much of a slowdown.
Turning our attention to the chart, SAM shares appear to have stabilized around $1,100.
Boston Beer’s long-term outlook can easily support a move to the recent highs – and beyond. Consider getting in sooner rather than later.
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