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Boston Beer Co. (SAM) Misses Q4 EPS by 35c, Revs Beat

February 19, 2020 4:22 PM EST

Boston Beer Co. (NYSE: SAM) reported Q4 EPS of $1.12, $0.35 worse than the analyst estimate of $1.47. Revenue for the quarter came in at $301.3 million versus the consensus estimate of $280.55 million.

Jim Koch, Chairman and Founder of the Company, commented, "We are happy to report 25% fourth quarter depletions growth, of which 19% is from Boston Beer legacy brands and 6% is from the addition of Dogfish Head brands. We are making good progress on the Dogfish Head integration and have merged our sales forces and our business processes and systems. We have learned a lot from each other, as we have merged our teams, culture, values and innovation capability. Collectively, we are thankful to our outstanding coworkers for their focus and diligence and our distributors, retailers and drinkers, all of whom helped the Company to achieve double digit volume growth for the seventh consecutive quarter. We believe that our depletions growth is attributable to our key innovations, the quality of our products and our strong brands, as well as sales execution and support from our distributors. We see significant distribution and volume growth opportunities in 2020 for our Dogfish Head brands as our Truly, Twisted Tea and Dogfish Head brands remain our top priorities for 2020. At the same time, we are working hard to further develop our brand support and messaging for our Samuel Adams brand to position it for long-term sustainable growth, in the face of a difficult competitive environment. We are excited about the response to the reformulation of our Samuel Adams Cold Snap seasonal, our new Samuel Adams 'Toast Someone' campaign, and the Samuel Adams Tap Room that opened in downtown Boston in January. We are confident in our ability to innovate and build strong brands that complement our current portfolio and help support our mission of long-term profitable growth."

Dave Burwick, the Company\'s President and CEO, stated, "Our depletions growth in the fourth quarter was the result of increases in our Truly Hard Seltzer and Twisted Tea brands and the addition of the Dogfish Head brands, partly offset by decreases in our Samuel Adams and Angry Orchard brands. Truly continues to generate triple-digit volume growth and we are continuing to expand package and draft distribution across all channels. During the fourth quarter, we launched new formulations for all of our Truly flavors, which have been very well received by drinkers. Before we rolled out the new flavors, we conducted consumer tests to ensure that we had the best-tasting hard seltzer on the market. In fact, since the reformulations hit the market in November, both our volume and velocity trends have increased significantly. We continue to launch additional flavors, and recently launched Truly Hard Seltzer Lemonade. To date, the response from our distributors, retailers and drinkers on the new formulations and Truly Hard Seltzer Lemonade has been very positive, but it\'s too early to draw conclusions on the long-term impact. We believe the new, improved formulations and the Truly Lemonade launch, combined with our previously announced NHL partnership and our significantly increased advertising spend, will help further bolster our position as a leader in hard seltzer as more competitors enter the category. In 2020, we will continue to build a compelling and differentiated Truly brand and evolve our brand communications campaign accordingly. Our Twisted Tea brand continues to generate consistent double-digit volume growth, even as new entrants have been introduced and competition has increased. Angry Orchard\'s volume has declined against the 2018 national roll out of Angry Orchard Rosé, but Angry Orchard continues to maintain more than a 55% market share in hard cider. The cider category continues to be challenged and we are working to return Angry Orchard to growth through continued packaging, innovation, promotion and brand communication initiatives."

Mr. Burwick went on to say, "During the fourth quarter, as we increased our brand spend, we also made investments in our supply chain to ensure that we are prepared for increased competitive activity in the hard seltzer category. We have invested to increase our can and automated variety pack capacity, but these capacity increases keep on getting eclipsed by our depletions growth, resulting in higher than expected usage of third-party breweries. We will continue to take advantage of the fast-growing hard seltzer category and deliver against the increased demand through this combination of internal capacity increases and higher usage of third-party breweries. Meeting these higher volumes while installing new capacity has a negative impact on our gross margins. To address this, we\'ve started a comprehensive program to transform our supply chain with the goal of making our integrated supply chain more efficient, reduce costs, increase our flexibility to better react to mix changes, and allow us to scale up more efficiently. We expect this program to run for two to three years and begin showing margin improvement by the first half of 2021, but our gross margins and gross margin expectations will continue to be impacted negatively until the volume growth stabilizes. For 2020, we are targeting 15% to 25% volume growth and a significant increase in our operating income. We expect first quarter shipments growth to be significantly higher than depletions as we continue to manage our supply chain and capacity to ensure that our distributor inventory levels adequately support drinker demand for our brands during the peak summer months. Our priorities continue to be to drive Truly, Twisted Tea and Dogfish Head brand growth and work to return Samuel Adams and Angry Orchard toward long-term sustainable growth. We also will continue to focus on cost savings and efficiency projects to fund the investments required to grow our brands, to build our organization\'s ability to deliver against our goals, and to improve our profitability. While we are in a very competitive business, we are optimistic for continued growth of our current brand portfolio and innovations and we remain prepared to forsake short-term earnings as we invest to sustain long-term profitable growth, in line with the opportunities that we see."

For earnings history and earnings-related data on Boston Beer Co. (SAM) click here.



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