Boston Beer Stock slumps on earnings as Hard Seltzer goes flat

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    After a massive boom in demand for Hard Seltzer in recent years, consumers are likely to have had enough. Boston Beer Company (NYSE: SAM) reported second quarter results on Thursday, with the results falling short of investor expectations in part due to poor sales of Hard Seltzer.

    Growth in this category slows as it matures, while competition intensifies as beverage manufacturers introduce more hard seltzer brands.

    At 12 noon EDT Friday, Boston Beer shares were down 23%.

    A really disappointing quarter

    Revenue for the second quarter was $ 602.8 million, a significant failure compared to the consensus estimate of $ 665.3 million. Depletions, which represent sales from distributors to retailers, increased 24% while shipping volume was around 2.45 million barrels.

    As the shipping volume exceeded its exhaustion, the dealers’ inventory increased and was available for around five weeks by the end of the quarter.

    With pandemic restrictions on retail businesses being lifted in many regions, Boston Beer’s on-premise channel has seen growth as people go out instead of drinking alcohol at home.

    Still, chairman and founder Jim Koch admitted that the beer industry as a whole was “softer than we expected,” including in the tough seltzer category. Boston Beer’s flagship brand is Truly, which ranks second after White Claw.

    The company attributed the weakness at Hard Seltzer to several factors. The market is maturing, causing a slowdown in household penetration growth. Hard seltzer volumes are moving to the on-premise channel, where there is more choice than ever before. Year-on-year comparisons are also difficult, as the “pantry loading” in the second quarter of 2020 led to mass purchases.

    “We overestimated the growth of the hard seltzer category in the second quarter and demand for Truly, which had a negative impact on our volume and earnings for the quarter and our estimates for the remainder of the year,” admitted CEO Dave Burwick.

    “We increased our production of Truly to meet our summer highs and had lower than expected demand for certain Truly brand styles, resulting in higher inventory levels in our breweries than planned and increased cost and supply chain complexity.”

    Net income for the second quarter was $ 59.2 million, or $ 4.75 per share. Wall Street expected earnings of $ 6.85 per share.

    Curtailment of his profit prospects

    As a result of the disappointing quarter, Boston Beer lowered its forecast for 2021. The company now expects consumption and deliveries to increase by 25 to 40% for the full year, compared to its previous forecast of 40 to 50%.

    Boston Beer now plans to spend just $ 180-230 million in capital expenditures, up from previous estimates of $ 250-350 million. The company will also reduce its advertising budget.

    Adjusted earnings per share for the year is projected to be in the range of $ 18-22, compared to the previous outlook of $ 22-26.

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    Evan Niu, CFA has no position in any of the stocks mentioned. The Motley Fool recommends Boston Beer. Millennial Money is part of The Motley Fool Network. Millennial Money has a disclosure policy.

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