Boston Beer Stock Plummets on Earnings Miss as Hard Seltzer Goes Flat

Following a massive boom in demand for hard seltzer in recent years, consumers may have had their fill. Boston Beer Company (NYSE: SAM) reported second quarter earnings on Thursday, with the results missing investor expectations due in part to weak sales of hard seltzer.

Growth in that category is slowing as the market matures, while competition intensifies as beverage companies introduce more hard seltzer brands.

As of 12 p.m. EDT on Friday, Boston Beer stock had plummeted by 23%.

A Truly disappointing quarter

Revenue in the second quarter came in at $602.8 million, a meaningful miss compared to the consensus estimate of $665.3 million. Depletions, which represent sales by distributors to retailers, grew 24%, while shipment volume was roughly 2.45 million barrels.

As shipment volume outpaced depletions, distributor inventory increased and was around five weeks on hand at the end of the quarter.

As pandemic restrictions on retail establishments are lifted in many regions, Boston Beer’s on-premise channel is seeing growth as people start going back out as opposed to consuming alcohol at home.

Still, Chairman and Founder Jim Koch conceded that the overall beer industry was “softer than we had anticipated,” including in the hard seltzer category. Boston Beer’s flagship hard seltzer brand is Truly, which is second only to White Claw.

The company attributed weakness in hard seltzer to several factors. The market is maturing, leading to slowing growth in household penetration. Hard seltzer volumes are shifting to the on-premise channel, where there are more choices than ever before. Year-over-year comparisons are also difficult, as “pantry loading” led to bulk purchasing in the second quarter of 2020.

“We overestimated the growth of the hard seltzer category in the second quarter and the demand for Truly, which negatively impacted our volume and earnings for the quarter and our estimates for the remainder of the year,” CEO Dave Burwick conceded.

“We increased our production of Truly to meet our summer peak and have had lower than anticipated demand for certain Truly brand styles which has resulted in higher than planned inventory levels at our breweries and increased supply chain costs and complexity.”

Net income was $59.2 million, or $4.75 per share, in the second quarter. Wall Street was expecting $6.85 per share in profit.

Slashing its profit outlook

As a result of the disappointing quarter, Boston Beer cut its guidance for 2021. The company now expects full-year depletions and shipments to increase by 25% to 40%, down from its prior forecast of 40% to 50%. 

Boston Beer now only plans to spend $180 million to $230 million in capital expenditures, down from the previous estimate of $250 million to $350 million. The company will also reduce its advertising budget.

Adjusted earnings per share for the year are expected to be in the range of $18 to $22, compared to the previous outlook of $22 to $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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