Can The Tables Turn For Boston Beer Stock On Growth Plans?

Boston Beer Co. Inc. (NYSE:SAM) is facing a tough time due to weakness in the cider category and troubles at its Samuel Adams brand, which has been up against severe competition from other brewers entering the craft beer market. Shares of the company have plunged 17.8% on a year-to-date basis, highlighting this craft brewer’s dismal run.

Boston Beer remains susceptible to weak depletion trends, which along with other factors, hurt its results in the preceding quarter. The company, which performed brilliantly in 2015, succumbed to earnings and sales miss in the first quarter of 2016. While the top line was adversely impacted by a drop in core shipments, the bottom line felt the pinch of soft sales and margins, as well as elevated costs.

In fact, management expects this weakness to persist over the short term. This was reflected in the company’s lowered outlook for 2016. Management slashed its earnings, depletions and shipments and gross margin guidance for 2016. Consequently, the Zacks Consensus Estimate witnessed a downtrend, with the stock price dropping 5.5% since the earnings release.

On the brighter side, the company's consistent brand-building efforts and initiatives to add new products to its beer, malt and cider businesses remain key revenue drivers. Notably, Boston Beer is the largest premium craft brewer in the U.S. and commands a strong portfolio of globally recognized brands. Apart from selling alcoholic beverages in the U.S., the company distributes its beverages in many foreign countries through a strong network of wholesale distributors.

We expect Boston Beer’s continued focus on pricing, product innovation and brand development to boost its operational performance and position in the market. Further, the company is always seeking strategic opportunities to expand its business through inorganic means. It mainly focuses on acquiring assets to fulfill its goal of enhancing brewing capacity as well as expanding into new geographic regions, which can also help it gain considerable market share.

Additionally, Boston Beer invests significantly in research and development, and focuses on testing and producing new types of beers and ciders at its breweries. In 2016, the company remains committed to innovate within the Samuel Adams brand; incorporate persuasive drinking programs; promote and advertise all its brands; and prioritize the distribution of its core styles within the Angry Orchard, Twisted Tea, Traveler and Coney Island Hard Root Beer families.

While on the one hand, the company seems to be troubled by the aforementioned factors which hurt its first-quarter 2016 results, its brand revival efforts might just do some wonders and turn the tables for the stock. Let’s wait and see who wins this tug of war – Boston Beer’s growth strategies or the hurdles?

Zacks Rank

Boston Beer currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the same industry include Compania Cervecerias Unidas S.A. (NYSE:CCU) and Molson Coors Brewing Company (NYSE:TAP) , each with a Zacks Rank #1 (Strong Buy), and Ambev S.A. (NYSE:ABEV) , with a Zacks Rank #2 (Buy) .

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