Boston Beer CompanySAM

Boston Beer reported second-quarter earnings of $3.65 per share, which was well below the $4.83 that analysts expected. Revenue of about 568 million dollars was roughly in line with expectations but still fell about 3 percent compared to last year. The main issue was a 4.5 percent drop in shipments, which is the amount of product the company sends to its distributors.

There was one bright spot: gross margins, or the profit left after paying for ingredients and brewing, rose to 50.4 percent. This shows the company is getting more efficient at making its drinks. However, the overall business is still struggling because depletions, a measure of how fast products are actually selling off store shelves, fell 6 percent. Until the company can stabilize its Truly seltzer brand, these volume declines will likely keep weighing on the stock.

See the full quarter, and how our tracked metrics did

Source: 8-K filing

Key highlights

• Profit outlook confirmed: The company expects its full year non-GAAP earnings per share to be between $8.50 and $10.50, which is the same range it predicted three months ago. This guidance excludes the impact of a massive legal dispute that cost the company $14.27 per share in charges during the first half of the year.
• Core volume declining: Depletions, which represent the rate at which products are sold from distributors to retailers, fell 6% this quarter. This drop was led by lower sales of major brands like Twisted Tea, Truly, and Samuel Adams, compared to a 5% decline in the first quarter.
• Efficiency lifting margins: Gross margin reached 50.4%, an improvement from 49.8% a year ago, because of better brewery performance and higher prices. This puts the company well ahead of its long term target of 48% and shows it can make more money on every barrel sold despite rising costs for things like aluminum.
• Marketing spending spike: The cost of advertising and selling rose 16.4% to $185.9 million as the company poured more money into local marketing for its brands. This investment meant that even though revenue fell slightly, the company chose to spend an extra $26.2 million over last year to try and win back customers.
• Strong cash position: Boston Beer ended the quarter with $265.5 million in cash and zero debt, which is up from $223.4 million at the end of last year. This bankroll is important because it allows the company to buy back $54.1 million of its own shares while still having enough money to cover potential legal payments.

Our take: This was a soft quarter where efficiency gains could not hide the fact that people are buying less of the core brands. While margins are hitting 50.4% thanks to better brewing operations, the 6% drop in depletions is a real concern. The company is relying on cost cuts rather than growth to hit its numbers, which makes the long term case harder to support.