Truly Brand Investments Shape Boston Beer's (SAM) Growth Story

The Boston Beer Company Inc. SAM stock has been trending up the charts, owing to unparalleled strength in depletions and shipments, which have been the key growth drivers. Notably, the company reported earnings beat for the second straight quarter in third-quarter 2020. Moreover, both top and bottom lines improved on a year-over-year basis on robust shipments and depletion growth. Further, its three-point growth plan focused on the revival of its Samuel Adams and Angry Orchard brands, cost-saving initiatives, and innovation position it for a strong upside in the long term.

Boston Beer’s shipments advanced 30.5% year over year in third-quarter 2020. Depletions grew 36%, marking the 10th successive quarter of double-digit growth in depletions. Depletion growth was driven by key innovations, quality and strong brands as well as sales execution and support from distributors. Further, growth was backed by strength in Truly Hard Seltzer and Twisted Tea brands.

The Zacks Rank #1 (Strong Buy) company, with a market capitalization of $11.1 billion, has rallied 139.1% year to date against the industry’s decline of 9.3%. Moreover, it has comfortably outpaced the Consumer Staples’ decline of 1.6% and the Zacks S&P 500 composite’s growth of 13%.

 

 

Factors Driving Growth

Boston Beer is the largest premium craft brewer in the United States and commands a strong portfolio of globally recognized brands. We expect the company’s continued focus on pricing, product innovation, growth of non-beer categories alongside brand development to boost its operational performance and position in the market. The company’s innovation in the non-beer categories, including hard teas, ciders and seltzer has been a hit among liquor drinkers, which should continue to drive growth.

The company has been a key beneficiary of the recent boom in the hard seltzer market. The hard seltzer beverage industry is dominated by the privately-held White Claw and Boston Beer’s Truly brand. Truly and White Claw together held nearly 80% of the hard seltzer market at the end of 2019, per sources.

It has lately been witnessing robust trends for the Truly and Twisted Tea brands, which aided depletions in the third quarter. Growth at Truly was led by the Truly Lemonade Hard Seltzer, which is witnessing solid trends with the momentum likely to continue. Truly has been growing its velocity and market share sequentially since early 2020 despite several hard seltzer brands entering the market. Notably, Truly is the only hard seltzer brand that was not launched in 2020 but has significantly grown share in 2020.

Driven by the Truly brand’s robust performance so far this year, the company raised the depletion growth guidance for 2020. Moreover, the company expects the Truly brand to continue leading business growth in 2021.

In early 2021, it plans to launch Truly Iced Tea Hard Seltzer, Truly Extra — a higher ABV version of Truly, and other new Truly flavors and package sizes as part of its continued innovation in the Hard Seltzer category. The Truly Iced Tea Hard Seltzer, combining the refreshment of hard seltzer with real brewed tea and fruit flavor with fewer calories and sugar, is expected to further strengthen its position in the category. It expects to continue investing heavily in the Truly brand to enhance the brand’s position in the hard seltzer category as competition continues to increase.

Moreover, it is optimistic about the “Live Truly” advertising campaign that showcases colors, variety, and joy to hard seltzer drinkers. Further, the Twisted Tea brand continues to generate double-digit volume growth rates, driven by increased at-home consumption despite a stark rise in competition from new entrants.

Upbeat Outlook

Boston Beer revised its depletions growth and earnings guidance for 2020 based on the trends witnessed in the first nine months and expectations for the remainder of the year. This was mainly driven by strong performance for the company’s Truly brand so far this year. For 2020, management now envisions earnings per share of $14-$15 compared with $11.70-$12.70 mentioned earlier.

Depletions and shipments are now likely to grow 37-42%, wherein the addition of the Dogfish Head brand is expected to contribute 1-2%. Earlier, it expected depletion and shipment growth of 27-35%. The company expects national price increases of 1-2% for 2020. Advertising, promotional and selling expenses are forecast to be $55-$65 million compared with $70-$80 million mentioned earlier. The expected decline in advertising, promotional and selling expenses is attributed to lower selling expenses, excluding freight costs for the shipment of products to its distributors.

Additionally, the company expects all of its brands to witness growth in 2021, including the Truly brand. Consequently, it expects volume growth of 35-45% for 2021. It also outlined its depletion and cost view for 2021. Its initial guidance predicts depletion and shipment growth of 35-45% and national price increases of 1-2% for 2021. Moreover, it expects advertising, promotional and selling expenses of $130-$150 million, excluding freight costs for the shipment of products to its distributors. Capital spending for 2021 is anticipated to be $300-$400 million.

Conclusion

With that said, we believe that the company is well-poised to retain its momentum in the near term. Overall, the hard seltzer market has been a lucrative investment avenue for companies brewing beer and other spirits in the past few years. Consequently, the company’s strong footing in the hard seltzer market is likely to provide it an advantage over peers.

Other Stocks to Consider

Molson Coors Beverage Company TAP currently has a long-term earnings growth rate of 3.7% and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

National Beverage Corp. FIZZ also carries a Zacks Rank #2 at present. It delivered an earnings surprise of 26.6%, on average, in the trailing four quarters.

Brown-Forman Corporation BF.B delivered an earnings surprise of 8.2%, on average, in the trailing four quarters. The company presently carries a Zacks Rank #2.

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