Is a Beat in Store for Boston Beer (SAM) in Q2 Earnings?

Zacks Equity Research

The Boston Beer Company, Inc. SAM is slated to report second-quarter 2019 results on Jul 25.

A glimpse of the company’s performance in the trailing four quarters shows that it has reported positive earnings surprise in the past three quarters. Thus, it posted average earnings beat of 21.1% for the trailing four quarters. Moreover, it delivered a positive sales surprise in three of the last five quarters.

The Zacks Consensus Estimate for the company’s second-quarter earnings is pegged at $1.83, which has remained unchanged in the past 30 days. However, estimates suggest a decline of 7.6% from the year-ago quarter figure. For revenues, estimates are pinned at $309.2 million, suggesting rise of 13.2% from the year-ago quarter.

The Boston Beer Company, Inc. Price and EPS Surprise


The Boston Beer Company, Inc. Price and EPS Surprise

The Boston Beer Company, Inc. price-eps-surprise | The Boston Beer Company, Inc. Quote

How Things are Shaping Prior to Q2 Earnings

Boston Beer has been displaying significant earnings momentum on the back of sturdy shipment volume and depletions. Further, the company's results are benefiting from the three-point growth plan that focuses on cost-saving initiatives, long-term innovation, and the revival of Samuel Adams and Angry Orchard brands. These trends should continue to boost the company’s operational performance and market position in the to-be-reported quarter.

Boston Beer has been witnessing sturdy depletion growth for a while now, which is aiding the top-line performance. Solid shipment growth stems from the company’s efforts to ensure that distributors’ inventory levels are appropriate to cater to increased customer demand. Additionally, a planned acceleration in the timing of shipments to support the current and expected rise in future demand is likely to boost shipments. Robust shipments along with major innovations, quality of products and strong brands as well as solid sales execution and support from distributors are aiding depletion growth. Moreover, the company remains poised for further depletion growth, backed by increases in Truly Hard Seltzer and Twisted Tea brands. Based on the favorable trends witnessed in the first quarter, Boston Beer raised its shipment and depletion growth target for 2019.

Additionally, we expect the company’s continued focus on pricing, product innovation and growth of non-beer categories alongside brand development to boost its operational performance and position in the market. Its innovation in the non-beer categories, including hard teas, ciders and seltzer, has been a hit among liquor drinkers, which should drive depletion growth. In 2019, it is on track to launch three new brands namely 26.2 Brew, Wild Leaf Hard Tea and Tura Alcoholic Kombucha, which address health and wellness ideals of consumers. These product launches throughout the year should provide a significant lift to the company’s results in the upcoming quarters, including the second quarter.

However, persistent softness in the Samuel Adams brand as well as higher operational costs may prove detrimental to the earnings performance in the upcoming quarter. Looking ahead, the company notes that increased volumes for the brands are attracting higher costs due to the use of third-party breweries, which is likely to hurt the gross margin throughout 2019. Additionally, higher advertising, promotional and selling expenses along with increased general and administrative costs remain a threat to its overall profitability. These escalated costs may hurt the company’s bottom-line performance in the to-be-reported quarter.

Moreover, the Samuel Adams brand is struggling due to the industry-wide softening of the craft beer growth rates and increased choices for drinkers on retail shelves. Volume declines for the brand is partly hurting depletion growth. The company is working hard on the brand messaging, with focus on the quality and brewing of the Samuel Adams Boston Lager as well as the new Sam Adams packaging design and a "lighter and brighter" taste for Samuel Adams Summer Ale. However, we believe that there is a lot of work to be done before seeing a turnaround in the trends for this troubled brand. Therefore, we believe that soft volume at the brand may hurt the otherwise strong depletion growth expected in second-quarter 2019.

Zacks Model

Our proven model does not predict that Boston Beer is likely to beat earnings estimates in the second quarter. This is because it does not have the right combination of two key components — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Although Boston Beer currently has a Zacks Rank #3, its Earnings ESP of 0.00% makes surprise prediction difficult.

Stocks Likely to Deliver Earnings Beat

Here are some companies that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

The Procter & Gamble Company PG has an Earnings ESP of +0.84% and a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Kimberly-Clark Corporation KMB currently has an Earnings ESP of +0.31% and a Zacks Rank #2.

Philip Morris International Inc. PM presently has an Earnings ESP of +0.38% and a Zacks Rank #3.

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