In his first quarter as CEO of Boston Beer Co (SAM, Financial), Michael Spillane encountered several challenges in Q2. Despite initial optimism that depletions had bottomed out in April, the company still faced year-over-year declines in May and June. Consequently, SAM missed its Q2 earnings and sales estimates and lowered the high end of its depletions and shipments growth forecast for the year.
- Depletions, or cases sold to retailers by distributors, fell by 4.0% year-over-year in Q2, while shipments decreased by 6.4%. This marked a reversal from Q1, where depletions were flat and shipments increased by 0.9%. The weak performance resulted in an EPS of $4.39 and revenues of $579.1 million, a 4% drop year-over-year.
- Truly Hard Seltzer continued to struggle in Q2 due to intense competition, leading to a 22.8% drop in volumes in measured off-premise channels, worse than the industry's 14.9% decline. Spillane plans to revitalize Truly sales by focusing on lighter flavors and higher ABV options.
- Twisted Tea, usually a strong performer, experienced slowing growth due to competition and unfavorable year-over-year comparisons. However, it still saw a 15.1% increase in dollar sales and a 30% increase in shelf space year-over-year.
- Hard Mountain Dew is a new brand in SAM's portfolio. The company is nearly finished transitioning this brand to its wholesaler network and expects it to positively impact 2025 results as it launches in more densely populated states in Q1 2025.
- Margins have been a bright spot, expanding by 60 basis points year-over-year in Q2, totaling a 260 basis point improvement year-to-date. SAM has focused on line efficiency to enhance brewery performance and is optimistic about future margin expansion.
- SAM is navigating a challenging economic environment. Due to the slower-than-expected recovery in depletions, the company trimmed part of its FY24 guidance, maintaining its EPS forecast of $7.00-11.00 but lowering its depletions and shipments percentage change to down low single digits to flat year-over-year.
In summary, SAM faces numerous headwinds, including economic challenges and increasing competition. While some investors remain optimistic, the stock could struggle to recover without significant improvements in the coming months.
