The Boston Beer Company Inc. SAM has always been in investors’ good books, given its continued efforts to keep pace with industry trends, and strong shipment and depletion growth record. Notably, the company reported the 12th straight quarter of double-digit depletion growth in the first quarter of 2021. Meanwhile, shipments improved at a significantly higher rate than depletions in the first quarter, driven by actions to maintain adequate distributor inventory levels to support demand.
Additionally, strength in Truly Hard Seltzer and Twisted Tea brands, driven by the booming hard seltzer category, has been a key driver. Gains from the trends are not only reflected in Boston Beer’s stock performance but also significantly boosted its first-quarter 2021 results.
The company reported better-than-expected earnings and sales results for first-quarter 2021. Better-than-expected earnings mainly resulted from top-line growth, offset by higher operating expenses. Net revenues advanced 64.9% year over year.
In the past year, shares of the Zacks Rank #3 (Hold) company have gained 104.1% compared with the industry’s growth of 45.7% and the Consumer Staples sector’s rise of 26.5%.
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Now let us discuss at length why you should hold on to the leading alcohol stock.
We suggest holding on to the Boston Beer stock, driven by its solid fundamentals and robust current business trends. The company has been lately witnessing robust trends for the Truly and Twisted Tea brands, which are driving depletions.
In the first quarter, it witnessed accelerated depletion growth for the Truly Hard Seltzer and Twisted Tea brands. The company notes that the recently launched Truly Iced Tea Hard Seltzer has led to accelerated growth for the Truly brand, which has witnessed more than double growth from the past year.
The Truly brand has witnessed significant market share growth in the measured off-premise channel in the first quarter, outpacing the hard seltzer category by more than 2 times or 50 percentage points. This has resulted in share gains of 6.5 percentage points for the Truly brand, with market shares reaching more than 28%.
Also, the Twisted Tea brand generated double-digit volume growth along with significant market share gains. For the second quarter, the company expects to launch the Truly Punch Hard Seltzer. This combined with Truly Iced Tea Hard Seltzer demonstrates the company’s innovation leadership in the Hard Seltzer category.
Moreover, Boston Beer remains committed to the three-point growth plan focused on the revival of its Samuel Adams and Angry Orchard brands, cost-saving initiatives, and long-term innovation.
The company raised its volume and earnings view for 2021 based on positive first-quarter and robust current trends. The upbeat view for 2021 is also driven by expectations of continued momentum in the Truly and Twisted Tea brands as well as innovations. Moreover, Boston Beer expects the on-premise business to significantly improve in 2021 as restrictions are slowly lifted.
For 2021, the company envisions adjusted earnings per share of $22-$26, excluding the impacts of ASU 2016-09. Notably, it anticipated $20-$24 per share earlier. Depletions and shipments are likely to increase 40-50% versus 35-45% mentioned earlier. The company expects national price increases of 1-3% compared with the previously mentioned 1-2% growth. The gross margin is still expected to be 45-47%. Non-GAAP effective tax rate is anticipated to be 26.5%, excluding the impacts of ASU 2016-09.
Despite the positive business trends, the company is not free from the COVID-related impacts. Boston Beer has been witnessing a significant reduction in keg demand from the on-premise channel, and higher labor and safety-related costs at its breweries, as a result of the pandemic. Also, elevated processing costs, stemming from higher production at third-party breweries, have been hurting the gross margin.
Moreover, higher advertising, promotional and selling expenses remain threats to the company’s overall profitability. For 2021, advertising, promotional and selling expenses are now forecast to be $130-$150 million, marking an increase from $120-$140 million mentioned earlier. The advertising, promotional and selling guidance does not assume any changes in freight costs for the shipment of products to its distributors.
Better-Ranked Stocks to Watch
Fomento Economico Mexicano S.A.B. de C.V. FMX has an expected long-term earnings growth rate of 9.3%. It currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Albertsons Companies, Inc. ACI has an expected long-term earnings growth rate of 11.9%. It currently carries a Zacks Rank #2.
Archer Daniels Midland Company ADM, also a Zacks Rank #2 stock, has an expected long-term earnings growth rate of 6.2%.
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