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).