Boston Beer Bubbles Up Despite Another Painful Quarter

Shares rose even after the craft brewer fell well short of expectations. Here's why.

Boston Beer (NYSE:SAM) stock climbed more than 4% Friday, after the company released third-quarter 2016 results, but that doesn't mean Boston Beer was toasting its own performance.

Boston Beer's headline numbers

In fact, on the surface there was little to like about Boston Beer's report. Quarterly revenue declined 13.5% year over year to $253.4 million, net income fell 18.4% to $31.5 million, and -- thanks in part to Boston Beer's repurchase of around 807,000 shares of Class A common stock for $138.4 million during the quarter -- net income per diluted share fell a more modest 13% year over year, to $2.48.

By comparison, and though we don't typically pay close attention to Wall Street's quarterly demands, analysts' consensus estimates predicted Boston Beer would achieve higher earnings of $2.60 per share on revenue of $279 million.

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Depletions -- a key measure for how quickly Boston Beer's products travel from warehouses to consumer outlets -- declined 8% year over year, marking a negative acceleration from the metric's 5% slide last quarter. This also means that early improvements in depletions trends that management cited as of last quarter's report didn't hold for the duration of the quarter. To be fair, though, Boston Beer CEO Martin Roper did caution at the time that "it's too early to determine if these improvements are sustainable."

"Our total company depletion trends declined in the third quarter at a slightly faster rate as we lapped new beer launches from last year," explained Boston Beer founder and Chairman Jim Koch, "and we saw a further slowdown in growth across the craft-brewing industry."

Roper elaborated that depletions declines in Q3 were primarily driven by decreases in Boston Beer's flagship Samuel Adams, Angry Orchard, Coney Island, and Traveler brands, which were only partially offset by continued gains from the Twisted Tea, Truly Spiked & Sparkling varieties.

Thirsty to find growth again

So why did the market reward Boston Beer stock with Friday's jump?

For one, keep in mind that Boston Beer is still down more than 30% over the past year as of this writing. That decline might be enticing for any investors still optimistic for the prospects of the craft-beer market over the long term. And Boston Beer isn't sitting on its heels as it continues to get pressed by both larger and smaller rivals encroaching on its niche.

In keeping with a comprehensive review of Boston Beer's brand messaging and packaging completed (ahead of schedule) last quarter, Koch noted that a "major packaging update for Samuel Adams Boston Lager has already shipped, to be followed by new Seasonal and Rebel packaging by the end of the fourth quarter."

In addition, Boston Beer expects to complete the national draft launch of its new Samuel Adams Rebel Juiced tropical IPA by the end of this month and has plans for "reimagining" its seasonal program with several promising new seasonal brews over the first three months of 2017.

On operational efficiency, financial guidance

But perhaps most intriguing were Roper's comments that Boston Beer is now conducting another comprehensive review, this time of its brand strategies and activation plans with the aim of ensuring "our investments are effective and efficient in building long-term brand equities."

This news naturally spurred some rumblings on Wall Street of whether Boston Beer might be considering whether to put itself up for sale. But until an actual acquisition scenario materializes -- and in light of management's decidedly long-term comments (more on that in a moment) -- I think investors would be wise to focus first on the actual business.

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