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Boston Beer Co Inc Class A SAM

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Morningstar’s Analysis

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Truly Demand Continues to Hinder Narrow-Moat Boston Beer’s Performance; Shares Attractive

Jaime M. Katz, CFA Senior Equity Analyst

Analyst Note

| Jaime M. Katz, CFA |

Boston Beer has been unable to escape slowing demand in its hard seltzer business, an issue that had previously prompted write downs and has now led to additional wholesaler pressure as these partners attempt to trim inventory levels. As a result, Boston Beer lowered its 2021 outlook to include shipment growth of 15%-16% (modestly below the 18%-22% offered prior and our 18% forecast) and price increases of 2%-3% (unchanged). While this won’t impact our top line materially (impacting our fair value estimate by less than 3%), the altered prognosis for the firm’s gross margin also provides pressure. The gross margin outlook has been trimmed to 38%-40% (from 40%-42%) as a result of lower cost leverage and rising supply chain costs, around a $40 million hit by our math. This downside will be completely offset by lower expected 2021 capital expenditures, which were trimmed to $145 million-$150 million (from $160 million-$200 million prior) and a return to a low 20% long-term tax rate, as we now believe corporate tax rates are likely to stay put (rather than rise).

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Company Profile

Business Description

Boston Beer is a leader in U.S. high-end malt beverages and adjacent categories, with strong positions in craft beer, hard cider, and hard seltzer. The firm sells an array of flavor variants and package sizes, predominantly centered around four priority brands: Samuel Adams, Angry Orchard, Twisted Tea, and Truly Hard Seltzer. Its drinks are produced in both company-owned breweries as well as through third-party contract arrangements, and while the company primarily goes to market through independent wholesalers (as mandated by law), it operates a fairly large salesforce to induce demand across the value chain (distributors, retailers, and drinkers). The preponderance of revenue is generated domestically.

One Design Center Place, Suite 850
Boston, MA, 02210
T +1 617 368-5000
Sector Consumer Defensive
Industry Beverages - Brewers
Most Recent Earnings Sep 30, 2021
Fiscal Year End Dec 28, 2020
Stock Type Aggressive Growth
Employees 2,423