Boston Beer earnings hold steady, but Sam Adams brand underperforms

Boston Beer Co. has had a rough go of it lately (as far as profitable, multi-million-dollar beverage corporations go), as it tries to find its footing in today’s beer market. The second quarter of 2017 doesn’t exactly show that foothold, but it at least stopped slipping.

Earnings overview

Second quarter 2017 net revenue of $247.9 million was an increase of $3.1 million or 1 percent, from the same period last year, and net income for the second quarter was $29.1 million, an increase of $2.5 million. This increase was primarily due to increases in net revenue and an increase in gross margin that were partially offset by increased advertising, promotional and selling expenses.

Gross margin was 54.1 percent for the second quarter, an increase from 51.8 percent in the comparable 13-week period in 2016, and 51.4 percent for the 26-week period ending July 1, 2017, an increase from 50.4 precent in the comparable 26-week period in 2016.

Depletions, however, decreased 3 and 7 percent from the comparable 13 and 26 week periods in the prior year.

Executives explain

“We are happy that our total company depletion trends have significantly improved from earlier in the year, but we remain challenged by the general softening of the craft beer and cider categories and a more competitive retail environment with a lot of options for our drinkers,” said Jim Koch, chairman and founder. “We are working hard to return to growth through improving our messaging and innovation behind Samuel Adams and Angry Orchard. Our leadership team is making strides to address our challenges.”

Yet again, most of the company’s volume declines came from the underperformance of its flagship Samuel Adams brand, although it did show sequential improvement relative to first quarter performance.

“We are working to improve our Samuel Adams trends by focusing on sales execution, new messaging through media and point of sale and continued innovation,” said CEO Martin Roper. “Our priorities for 2017 remain unchanged. Our number one priority is returning both Samuel Adams and Angry Orchard to growth through continued packaging, innovation, promotion and brand communication initiatives, while maintaining Twisted Tea’s momentum.”

The next biggest priority? Cost savings and efficiency projects to fund the investments needed to grow the brands.

“We have adjusted our organization to the new volume environment, while preserving the capability to innovate and return to growth,” Roper said. “We believe that the results of these initiatives are starting to show in our reported gross margin improvements and in our operating expenses and have allowed us to increase our brand investment spend during the quarter. Based on the early success of these efforts, we are maintaining our previously stated goal of increasing our gross margins by about one percentage point per year through 2019, before any mix or volume impacts, while preserving our quality and improving our service levels.”

Outlook for the rest of the year

• Depletions and shipments percentage change of between minus 7 percent and plus 1 percent.
• Increases in revenue per barrel of between 1 and 2 percent.
• Gross margin of between 51 and 52 percent.
• Increased investments in advertising, promotional and selling expenses of between $20 million and $30 million. This does not include any changes in freight costs for the shipment of products to the Company’s distributors.
• Non-GAAP effective tax rate of approximately 37 percent, excluding the impact of ASU 2016-09.
• Estimated capital spending of between $35 million and $45 million, most of which relates to continued investments in the Company’s breweries. This estimate is a narrowing of the previously communicated range of $30 million to $50 million.