Boston Beer Revises 2021 Guidance Downward for Shipments, Gross Margin & EPS; Projects Depletions Growth of 21-22%

Lower than expected wholesaler inventory builds of Truly Hard Seltzer in the fourth quarter, as well as increased supply chain costs, have led Boston Beer Company to revise downward its shipment, gross margin and earnings per share projections for full-year 2021, according to a Form 8K filed with the U.S. Securities and Exchange Commission Thursday afternoon.

“The estimated lower shipment growth is primarily a result of more aggressive wholesaler inventory reduction than expected, primarily affecting Truly,” the company wrote. “Additionally, due to higher than expected supply chain costs, which include costs for additional damaged and expired inventory resulting from the lower shipment volumes, we estimate gross margins to be lower than expected.”

Nevertheless, Boston Beer said its depletion growth remained at the higher end of expectations since the company last offered guidance during its third quarter earnings report on October 21, 2021.

Amid the lower shipments and supply chain headwinds, Boston Beer updated its 2021 guidance to project full-year earnings per diluted share to fall between a loss of $1 and income of $1, down from previous guidance of income between $2 and $6. The company said it has not yet completed its financial results for full-year 2021, and its actual results may vary due to “financial closing procedures, final adjustments, management’s review of results, and other developments that may arise.” Those final results could still fall outside of the latest estimates, the company added.

Among Boston Beer’s latest projections for full-year 2021 are:

  • Depletions growth of between 21% and 22%, up from previous estimates of 18% and 22%;
  • Shipment growth of between 15% and 16%, revised down from growth of between 18% and 22%;
  • National price increases of between 2% and 3%;
  • Gross margin of between 38% and 40%, down from between 40% and 42%;
  • Increased investments in advertising, promotional and selling expenses of between $85 million and $95 million. Those estimates do not include changes in freight costs for shipments to wholesalers;
  • Estimated capital spending of between $145 million and $150 million.

Goldman Sachs analyst Bonnie Herzog called Boston Beer’s announcement of lower guidance for 2021 “a surprise” that suggests “management’s low visibility into its business.” This is the second revision Boston Beer has offered of its 2021 guidance, she noted. The company previously pulled its 2021 guidance in September 2021 amid hard seltzer uncertainty.

“We continue to be incrementally cautious on SAM and the broader hard seltzer category, and increasingly wonder if industry volatility, uncertainty and confusion about the category could ultimately lead to a potential price war,” Herzog wrote, noting Goldman’s lower FY21 and FY22 earnings per share estimates and price target. “We remain cautious on the stock as we expect these pressures to realistically last through 1H22, especially given the tough comparisons as SAM over shipped during the 1st part of 2021. We expect the stock to trade down on this news, and remain pressured/underperform near-term until visibility improves.”

Credit Suisse analyst Kaumil Gajrawala noted that while 2021 was a “volatile year” for hard seltzer, Truly’s share of the segment remained unchanged from January 2021 to December 2021 at 27.5%. Truly, the No. 2 player in hard seltzer, trails only White Claw (44.6% share of the seltzer segment in December 2021).

Credit Suisse’s models show the seltzer industry growing high-single digits in 2022, with mid-single digit off-premise growth and nearly triple-digit on-premise growth, Gajrawala added.

“This would make seltzer an 8% share of beer sales, on track to reach 10% share by 2024,” he wrote. “Importantly, we still view seltzer as a permanent addition to the beer category poised to have two dominant brands, akin to the soft drinks or energy drinks category.”

As of press time, Boston Beer’s stock (SAM) was down anywhere from 8% to 11%.

As for 2022, Boston Beer said it is still finishing its planning for the year and will provide guidance during its full-year 2021 earnings call on February 16. The company added that its “preliminary assumptions and targets” for 2022 haven’t changed since October, “but continue to be highly sensitive to changes in volume projections.”

Among those 2022 projections are:

  • Depletions and shipments percentage increase of between mid-single digits and low double-digits;
  • National price increases of between 3% and 6%;
  • Gross margin of between 45% and 48%;
  • Increased investments in advertising, promotional and selling expenses of between $10 million and $30 million, which doesn’t factor in changes in freight costs to ship to wholesalers;
  • Estimated capital spending of between $140 million and $190 million, which the company said “could be significantly higher, if deemed necessary to meet future growth.”