Boston Beer Q2 Earnings: Volume and Earnings Guidance Adjusted for FY22; Depletions -7%, Shipments -1%

Due to the “greater than expected continuing decline in demand in the hard seltzer category,” Boston Beer Company has “reduced” its fiscal year 2022 volume and earnings guidance, founder and chairman Jim Koch said in a press release announcing the company’s Q2 2022 results.

“Our company has strong brand building and innovation capabilities, the top selling organization in beer, and a strong balance sheet to support long term growth, even as we navigate some challenges in the near term,” Koch added.

Boston Beer cut its depletions and shipments guidance to between -2% and -8%, down from previously communicated range of +4% to +10%. The company attributed the revision to “a change in expectations in the company’s Truly Hard Seltzer business and the launch timing of Hard Mountain Dew in certain states moving into 2023.”

Boston Beer added that its estimates for “the 53rd week will have a positive impact of between 1 and 1.5 percentage points on its depletions and shipments growth rates for the full year and between 4 and 6 percentage points on its depletions and shipments growth rates for the fourth quarter.”

Boston Beer also adjusted its gross margin range to between 43% and 45%, down from previous estimates of between 45% and 48% “due to the impact of lower volume expectations and continuing supply chain impacts.”

The move was expected by many Wall Street analysts, such as Kevin Grundy (Jefferies) and Nik Modi (RBC Capital).

Grundy wrote that the “bottom for seltzer industry [is] still elusive vs. difficult YoY comps and waning demand.” Nevertheless, he expects Boston Beer’s depletions to improve low- to mid-single digits in the back half of 2022.

Modi projected a “difficult top-line quarter” for Boston Beer, adding that “hard seltzer trends have become too much to overcome.”

“While category compares will get easier, the current category velocities and two-year trends continue to decelerate on an underlying basis, making it more difficult to support a reversal of trends,” he wrote. “Truly’s share of hard seltzer has also regressed in the last four weeks and the overall hard seltzer category continues to lose share of beer.”

The second quarter has not been kind to Boston Beer over the last two years. Recall that Q2 2021’s earnings release flummoxed Wall Street analysts and led Boston Beer to revise its forecast for shipments and depletions growth due to the volatility of hard seltzer sales.

In Q2 2022, Boston Beer reported depletions and shipments declined -7% and -1.1%, respectively, during the quarter, which ended June 25.

Depletions declines were attributed to declines by Truly, Angry Orchard, Samuel Adams, and Dogfish Head, only partially offset by increases from Twisted Tea and Hard Mountain Dew.

“Excluding the Truly declines, the company’s depletion volumes for the remainder of its business in the second quarter increased 14%,” the company added.

Boston Beer said it shipped about 2.4 million barrels in Q2 2022. The shipment declines were attributed to Truly, Angry Orchard, Samuel Adams, and Dogfish Head, only partially offset by increases in Twisted Tea and Hard Mountain Dew shipments.

As of June 25, the company said its wholesalers averaged about four weeks of inventory on hand, which it said was appropriate for all brands “except for low inventory levels for certain Truly brand packages.” Wholesaler inventories are expected to remain below 2021 levels, the company added.

Nevertheless, net revenue for the quarter increased +2.2%, to $616.2 million compared to the same period last year.

At 43.1%, Q2 gross margin was also below Q2 2021’s 45.7%, “due to higher materials costs and higher returns and scrap, partially offset by price increases.” The company reported that operating expenses declined -0.6%, to $194.4 million.

Boston Beer’s Q2 2022 net income of $53.3 million ($4.31 per diluted share) was down from $59.2 million (4.75 per share) in Q2 2021.The company attributed the decline to lower gross margin, partially offset by increased revenue and lower operating expenses.

“In the second quarter we delivered revenue growth driven by pricing and strength in Twisted Tea shipments, helping us make sequential progress on gross margin and generate over $100 million of operating cash flow,” Boston Beer president and CEO Dave Burwick added in the release. “We remain focused on building on the momentum of Twisted Tea and Hard Mountain Dew while we work on improving our gross margin trajectory.”

Boston Beer will also work to “turn around the trends” of Truly “by optimizing our core original flavors with real fruit juice,” Burwick added.

Through the first 26 weeks of 2022, Boston Beer said its depletions declined -7%. Remove Truly from that equation and depletions were +11%.

Shipments through the midpoint of 2022 stand at about 4.1 million barrels, -12.6% compared to this time in 2021.

The year-to-date performance didn’t improve through the extended period of July 16, with depletions declined about -7% and shipments down -11%.

Net income through two quarters was $51.4 million ($4.15 per share), a decline of $73.4 million ($5.86 per diluted share) compared to 2021. The decline was due to “decreased revenue and gross margins.”

Year-to-date net revenue topped $1.046 billion, an -8.8% decline versus 2021.

Gross margin through the first two quarters was 41.9%, a decline from 45.8% in 2021, “primarily due to higher materials costs, higher returns and scrap and higher per barrel processing costs at the company’s breweries due to lower volumes, partially offset by price increases.”

Boston Beer added that it has recorded a $5.3 million in contract termination costs, much of which occurred in Q1 “as a result of further negotiations with suppliers that eliminated certain future shortfall fees.”

In its full-year guidance, Boston Beer expects prices nationally for its beer to increase between 3% and 5%.

Editor’s Note: Full year depletions and shipments guidance numbers has been adjusted to -2%to -8%. We apologize for the error.