US: Boston Beer Co could feel effects of drinkers trading down - analyst
Boston Beer Co says it does not want to be drawn into a price war
Beer drinkers trading down to less expensive brands and the dollar/euro exchange rate could affect Boston Beer Company's future earnings, according to an analyst.
The Samuel Adams brewer announced an 11% drop in YTD profits to US$42.6m last week, despite a 15% jump in sales. It pointed to an increased spend on advertising and the recruitment of new sales staff for the fall in earnings.
In a conference call, the group's chairman Jim Koch admitted its price increases had been higher than other brands, but said the company has no “desire” to compete at the lower end of the market.
Analyst Caroline Levy from CLSA said Boston's volume momentum is “strong” and its investments are “positive”. But based on the brewer's performance, CLSA lowered its FY target price from $130 to $120.
Levy said in a note: “About 99%-plus of Boston Beer's EBIT is generated in the US. If US consumers traded down to less expensive beer alternatives, there could be an adverse effect on sales growth and earnings.”
Another risk was the fact the brewer sources “several key ingredients, including hops” from Europe, she said. “If the euro strengthened significantly against the dollar, there could be an adverse effect on earnings,” she added.
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