Thursday, November 6, 2008

Boston Beer Takes a Hit

From an AP story posted last night:


Shares of Boston Beer Co. fell Wednesday, a day after the brewer slashed its full-year outlook and posted worse-than-expected third-quarter results. The stock fell $2.87, or 7.9 percent, to $33.69. The stock has ranged from $31 to $54.15 over the past year.
Goldman Sachs analyst Lindsay Mann told investors in a research note that the maker of Samuel Adams beer faces a "much tougher" cost outlook in 2009. Late Tuesday, the company said the cost of a product recall and expenses relating to the opening of a new brewery would drag down full-year profit. The company now expects to earn between 60 cents and 80 cents per share for the year, down sharply from the $1.70 to $2 per share it previously predicted.
Mann cut his full-year estimates on Boston Beer for 2008, 2009 and 2010.
BBC's been all over the chart, but given the product recall (which, while most everyone agreed was well-handled, still cost them a lot (and no word on whether any costs would be recovered from glass supplier Owens-Illinois)) and the costs of renovating the Lehigh Valley brewery, there was bound to be some backlash. Coming when it did, in the middle of an incredibly volatile market, probably amplified the downward pressure.

Not sure where Mann's "much tougher cost outlook" is coming from, though: energy's down (which means glass should at least stay steady) and the German hops crop is apparently coming through really big (just talked to a brewer friend yesterday who was in Bavaria for the hop harvest). Guess we'll see.

I still think BBC and Sam Adams are sitting pretty. Sammy A is the fall-back, the go-to base beer for many craft drinkers, and as prices go up -- and Sammy A stays relatively steady -- I still see more folks going to them. I know, many beer geeks see it as one tiny step up from Budweiser...lieber Gott...but "many beer geeks" are less than a bump in the road.

18 comments:

Eric Trimmer said...

Buy while it's low!

Steven said...

"I know, many beer geeks see it as one tiny step up from Budweiser"

They do? I've seen scoffs over its craft brew "authenticity," but never heard it insulted that low!

"the German hops crop is apparently coming through really big"

Now there's great news! Maybe Bell's can find a good substitute for Saaz in the Oberon.

jp said...

Agree it is very fine beer that I always enjoy drinking. But in my opinion Boston Beer is not a buy at these levels. I think you get in much closer to the bottom next year or the following. I agree that some of their inputs should be coming off which will help their margins, but what is worse than a cost problem is as sales problem, and I think that could be out there from what we are reading about trading down. Also seems to me the only way to grow in this fragmenting industry is through big acquisitions and I do not see that being feasible right now just my 2 cents of course so feel free to opine either way

Lew Bryson said...

Looking at the last recession, though, craft continued to grow, albeit at lower levels. If anything, the circumstances are even better for that growth now. As for acquisition, I look around the market and the only targets for acquisition for BBC that make sense are either privately held (which doesn't mean a sale's impossible, just less obvious) or...don't actually make sense. Acquisition will be a tough nut for BBC; being acquired would actually make more sense. Not that I'm trying to start a rumor, just that, looking at it from outside, it seems like it would be easier to fold the SA brand (and Twisted Tea) into a larger brewery's portfolio than it would to fold other brands into BBC.

jp said...

"Looking at the last recession, though, craft continued to grow, albeit at lower levels" 2 things: It grew true, but from a much, much, smaller starting base than where it is today. See law of diminishing returns. Do not expect rate of growth to continue at same pace. Also more players are fighting for a piece of essentially the same size (if not smaller) pie. Competition is much more advanced in this cycle vs 2001-02. I take it then, you agree with me that an acqusition is not feasible right now. Being a target is something I did not think about, but why not? amazing valuable brand, but it all depends on what Sam K wants to do as he control most of the the equity. If he was going to do something I would imagine he would try and do it sooner, or much later. In any case I agree that the long term growth prosepcts for this brewery are good, I just think going into a recession where the consumer is levered to the gills, Boston Beer is going to feel a lot ore like a discretionary cycle business than a specialty player like back in 02 looking where the stock trades I say you get it cheaper next year.

Lew Bryson said...

I'm gonna have to disagree. BBC's base was over half of what it is today, not much, much smaller. Craft's base, similarly was over half of today's. Anyone can tell me that growth in numbers/volume is not the same as %age growth; sure, and dollar sales growth is different, too. But the pie is growing, not the same size; craft sales are still growing in the latest quarterly numbers. Most of craft growth is coming -- and has come -- from BBC, SN, Alaskan, New Belgium, Boulevard, Harpoon, Deschutes...the large crafts. I don't see any reason for this to change; certainly not when BBC still comes in under most crafts in price. It's a different set of circumstances from 2001-2, agreed: but I see them favoring BBC.

I don't see BBC being acquired, as Jim K owns a majority of voting stock, and he's too shrewd to sell now. His position is favorable long-term: great brand, owns a great facility to make his product. Might the stock go lower? Sure. Is it good long-term? I think so, but I don't invest in any booze stocks to avoid conflicts of interest.

jp said...

well then how about betting me a case of beer(your pick) I pick this up 20% off its highs in 2009 which was my original point that is, it is not a buy here, or at least write me some puts :-)

Lew Bryson said...

Huh. Talk down to me, willya: what did you just say?

shadow said...

If the small step above Bud is the one from "not drinkable" to "solid" I'm with them. But that doesn't seem like all that small a step.

jp said...

I will gladly bet you a case of sam adams (your choice)that I can buy this stock 25% off of todays closing price in 2009
OR you give me the option that allows me to sell you sam adams stock at Today's closing price some time in 2009

Chipper Dave said...

It's a shame that a fine brewery like this bothered to go public with stock. Once that happens then your business actions are forever dictated by the shareholders and stock analysts. They may be better off private and give themselves more flexibility to focus on what they want. Still, they manage to put out a great selection of beers.

sam k said...

I was totally unaware that I had that much influence on your blog.

Lew Bryson said...

JP,
Lemme think about this.

Anonymous said...

C'mon Lew, Read the post from JP at 2:50pm on Nov 6. It's inarticulate. How much can this guy know? Go for it, you'll have an extra case, anyway, the whole from a glass page is watching!

Anonymous said...

WHEN Sam found glass silvers in some of their bottles they instituted a massive recall that swung it for a small loss..might have been the batch brewed at the Lion only kidding Lew...
Sam shows great top-line growth but weak earnings..First quarter revenue showed 18% increase compared to previous year/with volumn up 12%,consumers still trading up to affordable craft beers despite price increases and being cash strapped..despite increasing commodity cost..Boston Beer made some nice moves by releasing excess hops to fellow craft brewers and MANAGEMENT NEVER SHY IN MENTIONING IT TO EVERY BEER RAG IN THE COUNTRY..Sam is not a great buy right now but has decent growth prospects for the next couple of years but seems already priced into the stock.The chances the company selling are not good they are self brewing last couple of years and not relying on third parties.A major brewer would only be instrested in their brands and would look to consolidate its breweries..Lew take the bet..

Lew Bryson said...

The glass "batch" was actually brewed/bottled more than one place, I believe. And I don't recall getting a press release on the hop "giveaway." The information was sent out to brewers, who then made various outlets aware of it; that's where I got it. They're contracting half their output right now (or more, depending on who you talk to), but that's going to change as Allentown comes fully online. I don't think there's one chance in 20 that Koch will sell the company. But if the stock goes to 24 in the next year, even for an hour, that's the bet, eh?

Anonymous said...

Pigs get fat,hogs get slaughtered in the market,you can never ever time the highs and lows,cannot do it.Trying to get the last penny will be a mistake.if making money in the beveragr sector is the goal..If you buy the Sam at $24 or $30 you will not remember what you paid for it five years from now..Passing on the stock or the bet over a few bucks will look dumb in a few years from now..
Example;Millercoors wholesaler consolidation should we sell or wait for the other guys offer for more money...

Bill said...

The thing is, Lew and jp are both probably right. Lew is right that the company is well positioned and stands to make money long term. JP is probably right on how the market views the company's stock price, especially since they don't pay a dividend. I think investors do tend to view Boston Beer more as established player than specialty player -- major growth for them at this point would mean making major outlays to achieve it (either capacity or advertising or acquisitions or some combination of these). Further, with the market across the board going down, you'll see depressed prices based on factors that have nothing to do with Boston Beer's short- or long-term prospects. I'd bet JP would win the bet should Lew take it, but that doesn't mean Lew's analysis of whther things look good for Boston Beer is wrong.