Generation Y and Beer
August 17, 2009
In our February and March editions of The Age Curve Report we highlighted the fact that the U.S. beer industry is entering a period of generational growth, as Generation Y enters its legal drinking age. The beer segment we are particular keen on from an investment point of view is the craft, or micro-brewed, variety, as we feel like those will be Gen. Y's most popular thirst quenchers.
We believe the recent financial results from Boston Beer Co. suggest we are on the right track for long-term positive surprises. The company's second quarter earnings per share of $0.83 beat Wall Street estimates by $0.21. The key to Boston Beer's story is revenue growth over the next five years that will be driven by the fact that more and more of Gen. Y are entering their beer drinking years.
The shares have performed very well since the March lows versus the S&P Global 100 Index ETF (IOO) and, in particular, from the July lows up to the Aug. 4, earnings announcement.
Boston Beer Co. at $39.80, sell on a forward price to earnings ratio of 23.4 and a price to sales ratio of 1.2. The group has no debt. The shares are currently very overbought short term, however, we would look to buy on any weakness. The company remains a core holding in the model Beacon Master Portfolio.
(Reuters) - Shares of Boston Beer Co (SAM.N) rose as much as 13 percent a day after the maker of Samuel Adams beer posted a 40 percent jump in net profit, as year-ago quarter was weighed down by product-recall charges.
On Tuesday, the company had also reported second-quarter gross margins of 53 percent, an increase of 2 percentage points, and backed its full-year profit outlook.
"The second-quarter results paint a better picture on gross margins, which are finally stabilizing as its Lehigh capacity utilization increases," Deutsche Bank Securities Inc analysts said in a note to clients.
Deutsche Bank, which raised its price target on the company's stock to $34 from $28 on higher long-term margin assumptions, however said Boston Beer remains well below its peak gross margins of 60 percent, but heavy margin compressions seem to have eased.
The company, which also sells flavored malt beverages under the Twisted Tea brand and cider products under the HardCore Cider brand, had also reported a 2 percent rise in total product depletions in the quarter, adjusted for comparable selling days.
Jim Koch, Chairman and Founder of the Company gave a positive looking forward statement and confirmed estimate of earnings per diluted share for 2009 remains between $1.40 and $1.70, consistent with previous guidance.
"Our 2% depletions growth in the second quarter was an improvement over the 5% decrease in the first quarter. We believe that while underlying trends improved slightly, most of this improvement is due to the comparison to a period impacted by the voluntary recall that was announced in April of last year. We continue to face increased competition from expanded distribution of domestic specialty brands and regional craft brands, and adverse economic pressures that could be affecting our drinkers' willingness to trade up as often. We believe that the quality of our beers, our innovation capability and our sales execution, coupled with our strong financial position and ability to invest in growing our brand, position us well to maintain our brand health and for future growth."
The Boston Beer Company began in 1984 with a generations-old family recipe that Founder and Brewer Jim Koch uncovered in his father's attic. After bringing the recipe to life in his kitchen, Jim brought it to bars in Boston with the belief that drinkers would appreciate a complex, full-flavored beer, brewed fresh in America. That beer was Samuel Adams Boston Lager®, and it helped catalyze what became known as the American craft beer revolution. Today, the Company brews more than 21 styles of beer. The Company uses the traditional four vessel brewing process and often takes extra steps like dry-hopping and a secondary fermentation known as krausening. It passionately pursues the development of new styles and the perfection of its classic beers by constantly searching for the world's finest ingredients. While resurrecting traditional brewing methods, the Company has earned a reputation as a pioneer in another revolution, the "extreme beer" movement, where it seeks to challenge drinkers' perceptions of what beer can be. The Boston Beer Company strives to elevate the image of American craft beer by entering festivals and competitions the world over, and in the past five years it has won more awards in international beer competitions than any other brewery in the world. The Company remains independent, and brewing quality beer remains its single focus. While the Company is the country's largest-selling craft beer, it accounts for only about eight-tenths of one percent of the U.S. beer market. For more information, please visit www.samueladams.com.
