Food & Beverage

Boston Beer Co.'s stock surges 20 percent after it crushes earnings

Key Points
  • Boston Beer Co. shares surged 20 percent Friday morning after it crushed earnings and revenue expectations.
  • The company grew margins while decreasing depletions and administrative expenses.
  • Boston Beer's hard sparkling water and hard iced tea offset sluggish beer and hard cider sales.
Samuel Adams lager
John Bohn | The Boston Globe | Getty Images

Boston Beer Co.'s stock was brewing up gains Friday.

Shares in the maker of Sam Adams surged 20 percent Friday morning, before giving back some ground. The stock was up 18 percent at midday.

The company reported fiscal second-quarter earnings per share of $2.35 and revenue of $247.9 million on Thursday after the bell, crushing Wall Street's expectations of $1.41 and $222.7 million, respectively.

In the year-earlier quarter the company posted profit per share of $2.06 on revenue of $244.08 million.

Boston Beer grew its margins to 54.1 percent from 51.8 percent in the year-ago quarter, which it credited to lower brewery processing costs. The company decreased its depletions by 3 percent and its administrative expenses by $2.4 million.

However, shipment volume was flat from the year-earlier quarter. Sales of Truly Spiked & Sparkling, hard sparkling water, and Twisted Tea, spiked iced tea, fueled sales, rather than the company's namesake product: beer.

On an earnings call, CEO Martin Roper said Angry Orchard and Sam Adams "stumbled out of the gates" in the first half of the year.

"We are not happy with where we are," Roper said. "And we are putting programming in for (the third and fourth quarters) to try and turn that around, and that represents a fair amount of uncertainty in our range."

Despite the strong quarter, analysts are wary about Boston Brewing's growth prospects.

Jefferies called the beat "surprising." It expressed worry about Truly Spiked sales driving growth and fear of a "boom, splat" scenario. Cowen shared similar concerns about potential seasonal interest in the product.

"Though the team is hopeful that Truly and the hard seltzer category more broadly will show more staying power than hard soda (given its low-sugar, health and wellness positioning), we believe this business will likely be susceptible to the same seasonal trends in consumer behavior that we saw last year, where the 4th of July period in Nielsen was the strongest for Truly in absolute dollar terms," Cowen's Vivien Azer wrote.

Boston Beer founder James Koch tried to quell fears on an earnings call Thursday. He said retailers are starting to embrace hard sparkling waters and after facing disappointing hard soda sales.

"So we are starting to see chains actually put hard sparkling waters in general and Truly in particular into their stores, onto their floors, even though it's off-cycle, because it — as categories had a little more success than they anticipated," Koch said.

"And it's just proven itself that it's probably not going to be the same boom-splat phenomenon that they saw with some of the hard sodas. It seems to have a genuine reason for being rooted in health and wellness trends that are increasingly important to the chain retailers."