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Boston Beer (SAM) Down Above 10% on Slashed 2021 Earnings View

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Shares of The Boston Beer Company, Inc. SAM have plunged more than 10% in after-hours trading on Jan 13, after the company slashed its earnings view for 2021. Management cited that stronger-than-anticipated supply-chain expenses, including costs of additional damaged and expired inventory stemming from reduced shipment volumes are persistent headwinds. These factors are likely to lower gross margins for 2021.

Boston Beer now forecasts shipment growth for its products to be lower than its expectations. This is caused by a greater wholesaler inventory reduction, mainly hurting Truly. Nonetheless, consumer demand is robust and tracking at the upper end of management’s expectations. This has contributed to the depletion growth. SAM will report its 2021 results on Feb 16, 2022.

2021 Outlook

Management updated 2021 view in response to the aforesaid factors. Boston Beer estimates depletion growth of 21-22%, shipment increase of 15-16% and the national price rise of 2-3%. Gross margin is projected between 38% and 40%. SAM further predicts higher investments in advertising, promotional and selling expenses of $85-$95 million. This expense excludes freight costs changes for shipping products to the distributors.

Management had earlier predicted a depletion and shipment increase of 18-22%. SAM expected national price increase of 2-3% and a gross margin of 40-42%.

We note that the adjusted effective tax rate is envisioned to be 43%, while capital expenditure is expected at $145-150 million for 2021. Considering these, management now forecasts 2021 earnings per share between a loss of $1 and a profit of $1, excluding the impact of ASU 2016-09. The revised view shows a decline from the earlier earnings guidance between $2 and $6 per share.

Preliminary View for 2022

Boston Beer reaffirmed its preliminary expectations for 2022. SAM continues to expect depletions and shipments to increase between a mid-single-digit and a low-double-digit percentage range. National price increases are still anticipated to be 3-6%. Gross margin is anticipated to be 45-48%.

Management continues to estimate higher investments in advertising, promotional and selling expenses of $10-$30 million. The non-GAAP effective tax rate is likely to be 26%, excluding the impacts of ASU 2016-09. Boston Beer expects to incur capital expenditure of $140-$190 million for 2022.

Wrapping Up

A glance at this craft brewer’s price performance shows that it has declined 5.6% in the past three months against the industry’s 3.9% rise. Boston Beer witnesses a persistent slowdown in the hard seltzer category. The sluggish hard seltzer trends also hurt SAM’s bottom line in third-quarter 2021. Higher operating costs were added deterrents.

This presently Zacks Rank #2 (Buy) player’s robust brand portfolio and strategic initiatives appear encouraging. Boston Beer remains committed to the three-point growth plan focused on reviving its Samuel Adams and Angry Orchard brands, cost-saving initiatives and long-term innovation.

Other Key Picks in the Consumer Staples Space

We highlighted some other top-ranked stocks from the broader Consumer Staples space, namely Diageo DEO, The Duckhorn Portfolio NAPA and Hershey HSY.

Diageo currently has a Zacks Rank #1 (Strong Buy) and an expected long-term earnings growth rate of 8.9%. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Diageo’s current financial-year sales and earnings per share suggests growth of 31.1% and 14.2%, respectively, from the corresponding year-ago reported numbers.

Duckhorn Portfolio currently has a Zacks Rank of 2. NAPA has an expected long-term earnings growth rate of 10.9%.

The Zacks Consensus Estimate for Duckhorn Portfolio's current financial-year sales suggests growth of 7.9% from the prior-year reported number. The consensus mark for NAPA’s earnings per share is flat with the year-ago  reported figure.

Hershey is currently Zacks #2 Ranked. HSY has a trailing four-quarter earnings surprise of 4.4%, on average.

The Zacks Consensus Estimate for Hershey's current financial-year sales and earnings per share suggests growth of 8.9% and 12.7%, respectively, from the corresponding year-ago reported numbers. HSY has an expected long-term earnings growth rate of 7.7%.


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