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Can Boston Beer's (SAM) Beyond Beer Expansion Aid Growth?

The Boston Beer Company, Inc. SAM has retained its niche in the market, driven by its progress on its Beyond Beer strategy, the premiumization of the beer industry and robust trends for its twisted tea brand. Additionally, the company’s innovation, intensified attention to pricing and product portfolio expansion efforts bode well.

SAM is on track with the expansion of its Beyond Beer category, which includes exploring categories other than beer. Beyond Beer is growing faster than the traditional beer market, and the company expects this trend to continue for several years. SAM’s advancement in the non-beer categories, including ciders and hard seltzer, as well as brand-building efforts, is expected to fortify its position in the market.

Boston Beer is on track with growth of its Beyond Beer category, wherein it currently holds the second position. The company expects the trend to continue for the next several years.

However, weak depletions, along with continued challenges in the hard seltzer category, acted as deterrents. The slowed consumer demand for hard seltzers has been hurting the company’s performance, with marked declines noted for the Truly brand in recent quarters.

Consequently, shares of the Zacks Rank #3 (Hold) company have lost 17.2% in the year-to-date period compared with the industry’s decline of 11.5%. SAM also compared unfavorably with the Consumer Staples sector’s growth of 0.7% and the S&P 500’s improvement of 7.6% in a year.

 

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

 

Other Strategies in Focus

Boston Beer’s pricing, product innovation and growth of non-beer categories alongside brand development efforts bode well. The company has been benefiting from strong price realization and procurement savings, which more than offset increased inflationary costs.

SAM's focus on innovation to revive the Truly brand and expand Twisted Tea’s potential bodes well. Boston Beer is keen on bringing excitement to the Truly brand’s core flavors through innovation. The firm expects to improve the Truly brand’s trends through a renewed focus on core business, smart brand innovation, and strong distributor support and retail execution. The company's Truly flavored bottle Vodka and Truly Vodka Seltzer have been performing well.

Twisted Tea is the brand that drove most growth for Boston Beer in first-quarter 2024. Being one of the fastest-growing brands, Twisted Tea rose in the double-digits. Improved geographic, channel and package distribution; effective brand-building campaigns; increased media investment; and optimized packaging design have been aiding the performance of the Twisted Tea brand.

The growing awareness of the Twisted Tea brand and household penetration also bode well. The company further expanded its light portfolio offerings with a new variety pack available in select highly developed markets and has received positive feedback for the same.

In recent years, Boston Beer has implemented strategic pricing actions that have boosted its position in the competitive landscape. Craft beer enthusiasts are known for their willingness to pay a premium for unique and high-quality brews. SAM has leveraged this consumer mindset by strategically pricing its products to reflect the craft beer experience it offers.

The company is optimistic about continued pricing gains in the near term. It estimates price increases of 1-2% for 2024.

Major Setbacks

Boston Beer’s first-quarter 2024 results reflected continued softness in depletions and challenges in the hard seltzer category. The hard seltzer category’s decelerating trend has mainly been attributed to the loss of novelty among consumers due to the entry of several beyond beer products in the marketplace. The decline has also resulted from the ongoing dismal macroeconomic environment, which has caused a volume shift from hard seltzers to premium light beers due to their lower pricing. The slowed hard seltzer sales continued to impact the company’s Truly hard seltzer performance.

In 2024, the hard-seltzer category is likely to remain under pressure and management anticipates category volume declines in the low teens. Depletions and shipments are expected between a low-single-digit decline and a low-single-digit increase for 2024.

Key Picks

We have highlighted three better-ranked stocks from the Consumer Staple sector, namely The Vita Coco Company Inc. COCO, Vital Farms VITL and PepsiCo Inc. PEP.

Vita Coco, a producer and marketer of coconut water products under the Vita Coco brand name, currently flaunts a Zacks Rank of 1 (Strong Buy). COCO has a trailing four-quarter earnings surprise of 25.3%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for COCO’s current financial-year sales and earnings suggests growth of 3.5% and 40.5%, respectively, from the year-ago reported figures.

Vital Farms offers a range of produced pasture-raised foods. VITL presently sports a Zacks Rank of 1. It has a trailing four-quarter earnings surprise of 102.1%, on average.

The consensus estimate for Vital Farms’ current financial year’s sales and earnings per share indicates growth of 22.5% and 59.3%, respectively, from the year-ago reported figures.

PepsiCo, a leading global food and beverage company, currently carries a Zacks Rank #2 (Buy). PEP has a trailing four-quarter earnings surprise of 5.1%, on average.

The Zacks Consensus Estimate for PEP’s current financial-year sales and earnings indicates growth of 3.4% and 7.1%, respectively, from the year-earlier actuals.

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