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July 22, 2022updated 28 Jul 2022 7:14am

The Boston Beer Co. cuts full-year earnings forecast as hard seltzer continues to fizzle

Excluding Truly Hard Seltzer, the group’s depletions increased by 14% in Q2.

By James Beeson

  • Three-month sales increase 2.2% to US$616.2m
  • Performance represents return to growth following two consecutive quarters of decline
  • Truly Hard continues to falter, with depletions declining 7%

The “greater-than-expected” decline in the hard seltzer category continues to cause headaches for The Boston Beer Co., with the Truly Hard Seltzer brand owner reducing its volume and earnings guidance on the back of another challenging quarter.

The group announced second-quarter revenues of US$616.2m yesterday (21 July), a 2.2% increase on the same period the year previous. The quarter marked a return to growth for the Samuel Adams beer brewer, following two consecutive quarters in decline.

The Q2 sales figure, however, was lower than the $629.3m predicted by Wall Street, causing shares to fall by 8% in post-market trading on Thursday. In total, Boston Beer Co.’s share price has dropped by more than 30% since the start of 2022.

On a year-to-date basis, Boston Beer Co.’s net revenue now sits 8.8% behind 2021 and faces an uphill battle to claw back sales in H2, or risk failing to build on its full-year sales of US$2.06bn last year. The group is now predicting full-year earnings per share of $6-11 on a non-GAAP basis, down from prior expectations of $11-16 per share.

It also expects depletions and shipments to decrease between 2% and 8%, a change from the previous estimate of an increase of between 4% and 10%.

Hard seltzer woes continue to drag on Boston Beer Co.’s sales

At the heart of Boston Beer Co.’s woes remains its flagship Truly Hard Seltzer brand, as the sparkling alcoholic water category continues to falter following a period of explosive growth.

The group does not provide a breakdown of performance by brand in its quarterly earnings but total depletions were down 7% in the three months to 25 June, driven by Truly Hard Seltzer woes (excluding the brand, depletion volumes were up 14%).

Elsewhere, cost pressures continue to drag on the Angry Orchard brand owner’s margins, with gross margins sitting at 43.1%, 2.6 percentage points behind the same period last year. The group blamed the decline on raw material costs, and higher returns and scrap, adding that these increases had been partially offset by price increases.

In a note to clients, analysts at Bernstein said Boston Beer Co. would continue to be “plagued by uncertainty” due to the challenges facing the Truly Hard Seltzer brand, as well as in improving gross margins.

“Management were honest in their assessment of the challenges facing Truly and the hard seltzer category, including increased competition and a volume shift back to light beer among 35- to 44-year-olds,” the note said. “They outline a number of steps to turn it around, including a reformulation, a refocus on the core and hinted at a potential rationalisation of the portfolio. But it is too soon to see if these initiatives will be enough to fix the -25% YoY volume the brand is now posting in Nielsen.”

Chairman and founder Jim Koch struck a more upbeat tone, stating he remained “optimistic about the long-term growth outlook” for Boston Beer Co.’s portfolio, despite “the greater than expected continuing decline in demand in the hard seltzer category”.

He added: “Based on our first-half performance and our view on the remainder of the year we have reduced our fiscal year 2022 volume and earnings guidance. Our company has strong brand building and innovation capabilities, the top-selling organisation in beer, and a strong balance sheet to support long-term growth, even as we navigate some challenges in the near term.”

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