Boston-based Boston Beer Company (SAM, Financial), very popular for its Samuel Adams beer, announced its fourth-quarter earnings on Feb. 24, 2015.
Quarter numbers
The revenue figure of $218 million was 6% higher than last year’s figure but short of analyst expectation of $236 million. The revenue figure by the end of corresponding quarter last year was $206 million. Net income increased to $19 million from last year’s $18 million. The company said that the net income stood at $1.40 per share, lower than the analyst expectation of $1.51. Boston Beer has given a guidance of $7.10 to $7.50 to be the earnings for the entire year.
The advertising and promotional expenses for the quarter were flat as compared to the corresponding quarter in 2013 but increased 21% to $42.8 million for the entire year, owing to the increased investment in the brands owned by Boston Beer. The company is expected to continue the trend this year.
Higher brewery processing cost and unfavorable product mix led to the gross margin for the quarter come down to 50%, as compared to 51% in the corresponding quarter last year. The difference could have been more adverse had the company not hiked the prices to cover up the escalated cost.
Boston Beer witnessed a 4% rise in the core shipment volume in this quarter when it hit approximately 983,000 barrels. The shipment growth rates were lower than the depletion growth rates due to timing of shipments and decrease in distributor inventories.
Annual numbers
The total capital spending for the year amounted to $151.8 million. The amount includes additional investments in the existing breweries and additional keg purchases. The gross margin for the year stood at 51.5%.
Non-numbers
The brands that remained strong during the year were Samuel Adams (the front runner and obvious one), Twisted Tea, Angry Orchard and Traveller. In the fourth quarter the company witnessed lower sales and marketing spends but increased shipment cost for these brands, converting into higher-than-expected earnings.
Guidance numbers for 2015
The capital spending for the year is expected to be in the range of $80 million to $110 million. Keeping aside the higher freight cost, Boston Beer expects the selling, advertising and promotion expenses to be in between $25-$35 million; $10 to $15 million of this estimated expense will be allocated for Alchemy and Science brands that will be irrecoverable through their sale this year. The remaining amounts will be spent on the cash cows Samuel Adams, Twisted Tea, Angry Orchard and Traveller. This year, Boston Beer is expecting to reap the benefits of significant capital investments and efficiency projects undertaken by it in 2014 to meet the increasing demand.
Stock numbers
The share has been trading 7% higher since the beginning of the year and witnessed 36% spike in the last six months. After the highly anticipated but fizzled out Q4 performance announcement on Feb. 24, the share price of Boston Beer Company took some beating and closed at $310.71, nearly $2 lower than the previous close of 312.50. But the strong fundamentals and the attempt by the management to tie up strategically loose ends (operations and distribution) and dividing the risk through new brand introductions is expected to provide the momentum to stock. Hence it would be a "Hold" to "Buy" guidance.
Conclusion
Boston Beer Company is struggling to meet the increasing demand. The company has admitted having lagged behind in the supply chain and logistics management since past two years in the wake of unexpected spike in the demand for some of its brands. In a way this is good news, as increasing demand for the products translates into improving prospect for the company and its stake holders. Boston Beer needs to get its act together in this spectrum as its arch rivals Anheuser-Busch InBev SA/NV (BUD, Financial), Heineken NV (HINKF, Financial) and privately held MillerCoors LLC are closing in to fill in the demand-supply gap.
