Boston Beer Co (SAM, Financial) reported better-than-expected earnings for 3Q24, supported by increased gross margins and an active share repurchase program. However, growth remains a concern as the company's results and outlook did not impress. Truly Hard Seltzer continues to underperform, with an 11% volume decline in measured channels during Q3, leading to market share losses and a projected low-20% year-over-year sales drop in 2024.
In response to ongoing challenges in the hard seltzer category, macroeconomic headwinds, and gross margin improvements, SAM adjusted its FY24 EPS guidance to $8-$10, down from $7-$11. This revised midpoint falls short of analysts' expectations, negatively impacting the stock.
- Slowing growth and the absence of near-term growth catalysts are key issues for SAM. Depletions, a measure of cases sold to retailers by distributors, fell by 3% in Q3. The company further reduced its FY24 depletions guidance, anticipating a low-single-digit decline, compared to the previous forecast of flat to low-single-digit growth.
- Truly Hard Seltzer's struggles are evident, but SAM faces additional challenges. Growth for Twisted Tea, its leading product, slowed to 8% in Q3. With an 85% market share, Twisted Tea's growth is naturally decelerating, and SAM lacks a clear alternative in its portfolio to offset this slowdown.
- The core beer segment also faced challenges, with sales declining by mid-to-high single digits. SAM is optimistic about its new Sam Adams American Light beer, which has received positive feedback in New England, Florida, and Texas. A national rollout is planned for early 2025.
- Reviving the Truly Hard Seltzer business remains crucial for SAM. The company plans to streamline its product offerings by focusing on lighter flavors, as bolder flavors have underperformed. This strategic shift aims to stabilize and eventually grow the Truly brand.
Overall, SAM is experiencing mixed results. While the company maintains strong margins through price increases and operational optimizations, significant growth improvements remain elusive until Truly Hard Seltzer stabilizes and rebounds.
