Boston Beer: when good is just not good enough
Boston Beer is doing what AB-InBev is best known for – slashing costs. However, shareholders aren’t feeling the buzz, even though the company’s third quarter (until the end of September) results beat Wall Street’s estimates.
The problem for the number two craft brewer is that the profit growth to USD 33.7 million, from USD 31.5 million in the same quarter last year, was driven by cost cuts, not by rising demand for products, which remains weak.
On 26 October 2017 the company reported a lower-than-expected net revenue of USD 247 million, down from USD 253 in the same quarter last year as its Sam Adams beers and Angry Orchard cider brands continue to struggle. Volume sales dropped four percent year-on-year.
Speaking about Angry Orchard and declines in the cider business, CEO Marty Roper said the company was “determined to turn these category trends around and will introduce a new media campaign designed to better educate drinkers on hard cider and the occasions to drink it while explaining the quality and uniqueness of Angry Orchard.”
Ad campaigns, of course, cost money, which shareholders would rather see in their pockets.
Bright spots for the company include Twisted Tea, its spiked iced tea brand, and Truly Spiked & Sparkling, which Mr Roper called “one of the leaders in the emerging hard sparkling water segment.” However, strong performance from these products wasn’t enough to make up for declines elsewhere in the business.
In recent years, Boston Beer’s non-beer products may have helped save the company from steeper declines but this leaves the question if Boston Beer is still a brewer in accordance with the Brewers Association’s rules? To warrant the “craft” label, it will need to produce a majority of its total beverage alcohol volume as beer.
At the end of 2016, the percentage of beer produced as part of its overall portfolio stood at only 57 percent. If it drops even more, this might threaten the company’s “craft” designation.
What’s more, Boston Beer still has not announced who will replace Mr Roper – who will retire in February 2018 – as CEO.
No wonder, investors are growing a bit fidgety.
