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Should Boston Beer Co put up the 'For Sale' sign? - Analysis

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Late last week, Boston Beer Co turned in a disappointing set of first-quarter numbers. Net profits plummeted 49% while sales and volumes in the three months to the end of March were down 5%.

The Samuel Adams brand is to be reviewed, following volumes depletions

The Samuel Adams brand is to be reviewed, following volumes depletions

The fall in volume depletions was driven by the company's Samuel Adams brand as well as Angry Orchard cider, which is losing out to new US phenomenon hard soda. In the analysts' notes that followed, talk turned to M&A possibilities. Some considered whether Boston might look to sell up, while others questioned whether the firm might be better off buying in some innovation, rather than always doing it themselves.

Cowen & Co analyst Vivien Azer writes: "We commend the company's quick response to the hard soda phenomenon - with the introduction of Coney Island last year, and the introduction of a hard seltzer on tap - though disappointingly Coney Island trends have been less than stellar in Nielsen. We wonder whether Boston Beer Co would not be well served to start considering M&A, as regional and local craft beers consolidate share from bigger, established craft beer brands." Azer notes that Boston's balance sheet carries "essentially no debt".

But, along with the results announcement, Boston Beer also set out plans to conduct a review of Samuel Adams. With that in mind, Azer cautions that "it would seem that Boston is likely to remain committed to their organic growth strategy, at least in the near term."

Meanwhile, CLSA's Caroline Levy, who rated the stock 'underperform', says: "Absent an acquisition bid, we see few significant upside catalysts on the horizon." And. SIG analyst Pablo Zuanic offers a clear opinion in the title of his note to clients: 'Bad Start to 2016, But M&A Multiples Buffer Downside'.

He says the company's volumes have been hit by three things:

  • the rise of more local craft brands and continued expansion of the national craft brands
  • continued acquisition of craft brewers by bigger beer companies, and
  • the continued emergence of new segments, such as hard soda, where Boston "has not been able to replicate the same level of success it garnered in cider share-wise"

"Clearly Boston Beer Co is worth more on M&A multiples if we go by market multiples being paid, by the still large actual cash value opportunity that Boston Beer Co has (in our view), and room for significant cost cuts if the company was part of a larger beer conglomerate," says Zuanic. "Of course, we cannot predict when - and if - (founder) Jim Koch will sell Boston Beer."

This is not the first time talk has turned to M&A. At the end of December, Boston confirmed the appointment of Frank Smalla as its next CFO. Smalla had spent the previous 14 years at Kraft Foods, rising to become senior VP for finance at the group last year. In a blog post, editor Olly Wehring said: "One of the biggest news stories in 2015 on our sister site, just-food, was Kraft's merger with Heinz in July. Does Smalla's previous experience, then, suggest something may be afoot at the Sam Adams brewer?"

As craft brewers continue to enter - and exit - the market, Boston's path would appear to have a few forks in it yet.


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