Category: SAM

SAM – Why Boston Beer Stock Gained 17% in March

What happened

Boston Beer (NYSE:SAM) shareholders beat a rallying market last month. The stock rose 17% in March, compared to a 4.2% increase in the S&P 500, according to data provided by S&P Global Market Intelligence.

With that, the alcoholic-beverage specialist is up more than 10% so far in 2021 after having trounced the market last year.

Two people clinking beer glasses in a toast.

Image source: Getty Images.

So what

The stock gained more love from Wall Street pros in March, with an analyst at Goldman Sachs issuing an elevated price target late in the month. Investors have been impressed with Boston Beer’s market-trouncing sales growth despite some difficult selling conditions. Depletions, a measure of consumption, jumped 37% last year thanks to booming demand for the Truly and Twisted Tea brands. Expectations are high for the company to repeat that stellar performance in 2021.

Now what

With an earnings report likely in late April, investors won’t have to wait long to learn whether Boston Beer is meeting those goals. That announcement will add clarity to the company’s growth expectations. In its most recent guidance, management gave a wide estimate for depletions, projecting an increase of between 35% and 45% in 2021.

An updated forecast near the high end of that range would support the stock’s rally. But there are also big risks to the bullish thesis, including mounting competition in the hard seltzer space and weak profit margins as Boston Beer prioritizes growth over earnings.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

SAM – Can Boston Beer Lead the Industry Again in 2021?

Boston Beer (NYSE:SAM) ended 2020 on a high note. Last week, the craft beer specialist announced industry-leading sales through December thanks to the Truly hard seltzer and Twisted Tea product lines.

Shares fell immediately following the report after having soared in the past year. But, in a conference call with Wall Street analysts, CEO David Burwick and his team issued uniformly positive projections around market share and profitability in 2021 despite growing competition.

Let’s look at some highlights from that call.

Friends drinking beer together outside.

Image source: Getty Images.

Owning the hard seltzer category

Every alcoholic beverage producer is targeting the popular hard seltzer niche, but Boston Beer defended its dominant position. Depletions, an industry measure of sales, rose 26% in the fourth quarter to meet investors’ expectations and put the company at 37% growth for the year. Constellation Brands (NYSE:STZ), which successfully introduced Corona Hard Seltzer, notched 11% growth in 2020 .

The Truly brand had no trouble extending its market share lead even as competitors like Corona established new brands. In fact, the franchise more than doubled its volume last year. “Truly increased its market share from 22% to 26%,” Burwick said, “and was the only national hard seltzer not introduced in 2020 to grow share.”

No letup on expenses

Boston Beer’s earnings continued to struggle under the weight of ballooning costs. Management had to rely on third-party brewers to meet hard seltzer demand, which pressured gross profit margin by more than executives had planned going into Q4. The company also accelerated advertising in a bid to protect Truly’s dominant position.

SAM Gross Profit Margin Chart

SAM Gross Profit Margin data by YCharts

This cost posture isn’t ideal, and management acknowledged that by announcing a restructuring program aimed at lowering expenses over the next few years. But for now Boston Beer is still prioritizing growth over profitability. “We remain prepared to forsake short-term earnings,” Burwick explained, “as we invest to sustain long-term profitable growth.”

Another bubbly year ahead

Boston Beer is targeting another industry-leading growth year ahead, with depletions rising by between 35% and 45%. Several 2021 product introductions are already lifting sales in the Truly and Twisted Tea franchises, and management also expects the Samuel Adams brands to return to growth as the pandemic winds down.

Investors will have to wait a bit longer for a profitability rebound, though. Gross profit margin will be weaker than originally forecast, CFO Frank Smalla warned, even though selling prices should rise by between 1% and 2% this year.

Boston Beer still expects to endure elevated costs from its capacity squeeze and from its advertising blitz. “While we are in a very competitive business, we are optimistic for continued growth of our current brand portfolio and innovations,” Burwick said.

The good news is that Boston Beer should have an even more dominant position in the hard seltzer category by the time its restructuring projects start paying off in 2022. That position could deliver explosive earnings growth for several years.

But the big question is whether demand will still be as high for the product at that time. Boston Beer suffered from a sales slump after dominating the craft beer space for years as dozens of tiny breweries picked away at its market share. Management is doing what it can to try to prevent a similar episode from playing out in the hard seltzer niche.


This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

SAM – Boston Beer Still Can't Meet Soaring Demand for Hard Seltzer

Investors had a lot to look forward to in Boston Beer‘s (NYSE:SAM) fourth-quarter earnings report. The company’s growth trounced most alcoholic beverage rivals through September as people enthusiastically loaded up on its Truly and Twisted Tea brands. Demand was so high, in fact, that the company had to bring in outside brewers to help it satisfy the soaring volume pressures.

Those trends carried through into the fiscal fourth quarter, which paired industry-leading growth with another drop in profitability.

Let’s take a closer look.

Sales were sparkling

There was no sign of a slowdown in Boston Beer’s key growth niches. The Truly hard seltzer franchise ended the year with more than a 100% boost in depletions, a measure of consumption. Demand was especially strong for the new lemonade flavor that helped Boston Beer significantly grow market share in the competitive hard seltzer niche.

A man drinking a beer at home.

Image source: Getty Images.

Overall, growth in depletions landed at 37% for the full year. That metric sat at the low end of management’s forecast, but shareholders shouldn’t worry about demand weakness. Boston Beer’s growth still more than tripled the expansion rate of Constellation Brands (NYSE:STZ), which had its own popular introduction in the category.

“[Truly] was the only national hard seltzer not introduced in 2020 to grow [market] share,” CEO Dave Burwick said in a press release. Boston Beer estimates that the franchise accounted for 26% of sales in the niche, up from 22% in 2019 .

Costs are surging

The news around costs and spending was less encouraging. Boston Beer again failed to meet demand entirely through its own brewery network, relying instead on other brewers to close the production gap. This move pressured margins, as did increased spending on marketing and the supply chain.

SAM Gross Profit Margin Chart

SAM Gross Profit Margin data by YCharts.

All those expenses can be tied to the runaway growth in the Truly franchise and management’s choice to satisfy that pandemic-fueled growth. “We have invested to increase our … capacity, but these … increases keep on getting eclipsed by our depletions growth,” Burwick said.

Looking ahead to 2021

Management believes the right strategy is to keep prioritizing market-share expansion at the cost of profitability, which means margins won’t rebound until growth stabilizes. The company is doing everything it can to protect the newfound sales momentum, including introductions this year that combine Twisted Tea and Truly Hard Seltzer, the brewer’s two most popular franchises. Boston Beer is also aiming for the Samuel Adams brands to return to growth in 2021 as the pandemic slowly winds down.

A new cost-cutting program that is ramping up now should boost efficiency while ending expensive manufacturing bottlenecks like the one that hurt earnings in 2020. In a few years, Boston Beer might close the widening profitability gap with peers like Constellation Brands. But for now, the company is focused on locking down as much of the hard seltzer niche as it can, even if it means sacrificing a few years of profitability.

SAM – Boston Beer Earnings: What to Watch

Expectations could hardly be higher for Boston Beer‘s (NYSE:SAM) earnings report in just a few days. While its craft beer products are struggling with slumping demand at bars and restaurants, the runaway success of Truly hard seltzer is lifting sales to new records. As a result, the company is set to close fiscal 2020 with head-turning growth although the wider industry struggled.

That enthusiasm means investors will be following the fourth-quarter earnings report set for Wednesday, February 17. So let’s look at the key metrics to watch for in that announcement.

Friends sharing a beer at a bar.

Image source: Getty Images.

Still winning share

There’s no shortage of competitors in the booming hard seltzer space today, but Boston Beer should still show positive market share results on Wednesday. The Truly and Twisted Tea franchises helped depletions, a measure of sales, jump 40% through late September.

CEO Dave Burwick and his team predicted stable gains ahead, with growth landing between 37% and 42% for 2020. Constellation Brands (NYSE:STZ), for context, recently posted a 12% sales boost, while global conglomerates like Molson Coors (NYSE:TAP) are seeing flat results these days.

SAM Revenue (TTM) Chart

SAM Revenue (TTM) data by YCharts

Boston Beer had some supply challenges last quarter, as it did for most of the year. The surging demand for Truly at retailers has been hard to satisfy during the pandemic. We’ll find out this week whether the company fixed those manufacturing bottlenecks, which might allow it to end the year on a positive growth note.

Paying for growth

The outlook isn’t as positive on earnings, which are being pressured by Boston Beer’s need to enlist other brewers to meet demand. Gross profit margin in Q3 dropped to 49% of sales from 48% a year ago, and investors might see a similar pinch this quarter as the company spends heavily to try to pad its early lead in the hard seltzer niche. “We will continue to prioritize volume delivery over margin optimization,” Burwick said back in late October.

That’s a small price to pay for a secure hold on the industry’s biggest growth segment. But shareholders will still want to hear that Boston Beer is ramping up its own capacity so that it can bring all its production back into the fold in 2021.

Looking ahead

The company has a packed calendar for product releases this year, including one that brings together its two best-selling categories, hard seltzer and tea. There’s a stronger version of Truly seltzer coming out, too.

In addition to updates on these launch expectations, look for a detailed 2021 outlook that likely projects surging growth with improving profitability. Boston Beer’s last forecast called for depletions to rise by between 35% and 45% this year as gross profit landed at about 47%. The company will have three more months of sales and expense data to help it adjust these targets on Wednesday.

Judging by the stock’s rally in recent months, investors will be looking for any changes to the outlook to be on the upside. But even if Wall Street gives a cool reception to the earnings announcement, Boston Beer is primed to once again lead the industry in growth in 2021.

SAM – Is Boston Beer (SAM) Still a Great Growth Stock?

Shares of The Boston Beer Company (SAM Free Report) have skyrocketed 185% in the past year, as hard seltzer flies off the shelves. The stock had cooled off since it hit records following its Q3 release in late October.

But things have changed quickly, with SAM up 25% since the end of January to breakout of its small slump to reach new highs ahead of Q4 fiscal 2020 financial release that’s due out on Wednesday, February 17.

Seltzer Sales Keep Flowing

One of the founding fathers of the U.S. craft beer revolution helped kickstart the booming hard seltzer market. Boston Beer launched Truly Hard Seltzer back in 2016 and its success has helped SAM’s sales soar. The company is one of two dominant players in the category, alongside White Claw, which is owned by Mark Anthony Brands.

Boston Beer’s founder Jim Koch has called hard seltzer the biggest thing since light beer and “really once in a generation.” The growth of the hard seltzer category has propelled Anheuser-Busch InBev (BUD Free Report) , Molson Coors (TAP Free Report) , Constellation Brands (STZ Free Report) , and even Coca-Cola (KO Free Report) —under its Topo Chico brand—to join the party. SAM’s competitors sell seltzers under their flagship brands such as Bud Light and Coors, and many other smaller players have emerged as well.

Boston Beer has expanded its reach within the space to include Lemonade Hard Seltzer and Iced Tea Seltzer, while also rolling out new flavors and package sizes. All of this should help it capture more of the hard seltzer market that is projected to climb from roughly $4.1 billion in 2020 to $14.5 billion by 2027.

Diving Deeper

The nearby chart shows that the introduction of Truly in 2016 helped Boston Beer’s revenue climb once the category started to catch on. For instance, SAM’s revenue jumped by 15% in fiscal 2018 and 26% in FY19, after it dipped in FY17 and FY16.

The pandemic has also been very kind to SAM, with its sales up over 30% in the first three quarters of 2020 (after doing 34% in the final quarter of 2019), including a 42% jump in Q2. And this growth isn’t expected to stop anytime soon.

Zacks estimates call for its fourth quarter revenue to jump 51% to $456 million, with its adjusted earnings projected to soar 144% to $3.02 a share. Boston Beer is then expected to post 50% and 137% top and bottom-line growth in the first quarter of fiscal 2021.

More broadly, SAM’s 2020 revenue is projected to climb 39% to $1.73 billion to help lift its adjusted earnings by 63%. Its sales are then expected to climb 32% higher in 2021 to push its adjusted earnings up by 52%. Investors should note that both of these revenue estimates would mark Boston Beer’s strongest growth as a public firm—topping 2013’s 27% climb.

Bottom Line

Boston Beer is currently a Zacks Rank #3 (Hold) and its portfolio still features Samuel Adams, Dogfish Head Brewery, and some other craft brands. SAM has easily topped our earnings estimates in the last two periods and its Most Accurate Q4 ESP estimate—which is the most recent estimate Zacks has—comes in 32% above our consensus. This could mean that Boston Beer is due to post impressive results once again.   

SAM stock jumped 3.75% during regular trading hours on Friday to $1,167.13 a share to outpace the S&P 500’s 0.50% pop. On top of that, the broader earnings season has seen companies report far better-than-projected results and provide positive guidance.

Even though Boston Beer is trading right near its recent records and has trounced the market and its industry recently and over the last several years, it trades at a huge discount to the Alcoholic Beverage market at 5.9X forward 12-month sales vs. 16.3X. Perhaps more importantly, SAM trades at a 15% discount compared to its own year-long highs in terms of valuation.

Zacks Top 10 Stocks for 2021

In addition to the stocks discussed above, would you like to know about our 10 best buy-and-hold tickers for the entirety of 2021?

Last year’s 2020Zacks Top 10 Stocks portfolio returned gains as high as +386.8%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don’t miss your chance to get in on these long-term buys.

AccessZacks Top 10 Stocks for 2021 today >>

SAM – Boston Beer (SAM) Stock Sinks As Market Gains: What You Should Know

In the latest trading session, Boston Beer (SAM Free Report) closed at $1,014.93, marking a -0.89% move from the previous day. This change lagged the S&P 500’s daily gain of 0.35%. Elsewhere, the Dow gained 0.23%, while the tech-heavy Nasdaq added 0.26%.

Heading into today, shares of the brewer had gained 13.36% over the past month, outpacing the Consumer Staples sector’s gain of 3.34% and the S&P 500’s gain of 3.27% in that time.

SAM will be looking to display strength as it nears its next earnings release. The company is expected to report EPS of $3.05, up 145.97% from the prior-year quarter. Meanwhile, the Zacks Consensus Estimate for revenue is projecting net sales of $455.95 million, up 51.33% from the year-ago period.

SAM’s full-year Zacks Consensus Estimates are calling for earnings of $14.95 per share and revenue of $1.73 billion. These results would represent year-over-year changes of +63.03% and +38.54%, respectively.

Any recent changes to analyst estimates for SAM should also be noted by investors. Recent revisions tend to reflect the latest near-term business trends. As such, positive estimate revisions reflect analyst optimism about the company’s business and profitability.

Based on our research, we believe these estimate revisions are directly related to near-team stock moves. We developed the Zacks Rank to capitalize on this phenomenon. Our system takes these estimate changes into account and delivers a clear, actionable rating model.

The Zacks Rank system ranges from #1 (Strong Buy) to #5 (Strong Sell). It has a remarkable, outside-audited track record of success, with #1 stocks delivering an average annual return of +25% since 1988. Over the past month, the Zacks Consensus EPS estimate remained stagnant. SAM is currently a Zacks Rank #2 (Buy).

Digging into valuation, SAM currently has a Forward P/E ratio of 68.5. This valuation marks a premium compared to its industry’s average Forward P/E of 31.08.

The Beverages – Alcohol industry is part of the Consumer Staples sector. This group has a Zacks Industry Rank of 65, putting it in the top 26% of all 250+ industries.

The Zacks Industry Rank gauges the strength of our industry groups by measuring the average Zacks Rank of the individual stocks within the groups. Our research shows that the top 50% rated industries outperform the bottom half by a factor of 2 to 1.

Make sure to utilize Zacks. Com to follow all of these stock-moving metrics, and more, in the coming trading sessions.

SAM – Truly Brand Investments Shape Boston Beer's (SAM) Growth Story

The Boston Beer Company Inc. (SAM Free Report) stock has been trending up the charts, owing to unparalleled strength in depletions and shipments, which have been the key growth drivers. Notably, the company reported earnings beat for the second straight quarter in third-quarter 2020. Moreover, both top and bottom lines improved on a year-over-year basis on robust shipments and depletion growth. Further, its three-point growth plan focused on the revival of its Samuel Adams and Angry Orchard brands, cost-saving initiatives, and innovation position it for a strong upside in the long term.

Boston Beer’s shipments advanced 30.5% year over year in third-quarter 2020. Depletions grew 36%, marking the 10th successive quarter of double-digit growth in depletions. Depletion growth was driven by key innovations, quality and strong brands as well as sales execution and support from distributors. Further, growth was backed by strength in Truly Hard Seltzer and Twisted Tea brands.

The Zacks Rank #1 (Strong Buy) company, with a market capitalization of $11.1 billion, has rallied 139.1% year to date against the industry’s decline of 9.3%. Moreover, it has comfortably outpaced the Consumer Staples’ decline of 1.6% and the Zacks S&P 500 composite’s growth of 13%.


Factors Driving Growth

Boston Beer is the largest premium craft brewer in the United States and commands a strong portfolio of globally recognized brands. We expect the company’s continued focus on pricing, product innovation, growth of non-beer categories alongside brand development to boost its operational performance and position in the market. The company’s innovation in the non-beer categories, including hard teas, ciders and seltzer has been a hit among liquor drinkers, which should continue to drive growth.

The company has been a key beneficiary of the recent boom in the hard seltzer market. The hard seltzer beverage industry is dominated by the privately-held White Claw and Boston Beer’s Truly brand. Truly and White Claw together held nearly 80% of the hard seltzer market at the end of 2019, per sources.

It has lately been witnessing robust trends for the Truly and Twisted Tea brands, which aided depletions in the third quarter. Growth at Truly was led by the Truly Lemonade Hard Seltzer, which is witnessing solid trends with the momentum likely to continue. Truly has been growing its velocity and market share sequentially since early 2020 despite several hard seltzer brands entering the market. Notably, Truly is the only hard seltzer brand that was not launched in 2020 but has significantly grown share in 2020.

Driven by the Truly brand’s robust performance so far this year, the company raised the depletion growth guidance for 2020. Moreover, the company expects the Truly brand to continue leading business growth in 2021.

In early 2021, it plans to launch Truly Iced Tea Hard Seltzer, Truly Extra — a higher ABV version of Truly, and other new Truly flavors and package sizes as part of its continued innovation in the Hard Seltzer category. The Truly Iced Tea Hard Seltzer, combining the refreshment of hard seltzer with real brewed tea and fruit flavor with fewer calories and sugar, is expected to further strengthen its position in the category. It expects to continue investing heavily in the Truly brand to enhance the brand’s position in the hard seltzer category as competition continues to increase.

Moreover, it is optimistic about the “Live Truly” advertising campaign that showcases colors, variety, and joy to hard seltzer drinkers. Further, the Twisted Tea brand continues to generate double-digit volume growth rates, driven by increased at-home consumption despite a stark rise in competition from new entrants.

Upbeat Outlook

Boston Beer revised its depletions growth and earnings guidance for 2020 based on the trends witnessed in the first nine months and expectations for the remainder of the year. This was mainly driven by strong performance for the company’s Truly brand so far this year. For 2020, management now envisions earnings per share of $14-$15 compared with $11.70-$12.70 mentioned earlier.

Depletions and shipments are now likely to grow 37-42%, wherein the addition of the Dogfish Head brand is expected to contribute 1-2%. Earlier, it expected depletion and shipment growth of 27-35%. The company expects national price increases of 1-2% for 2020. Advertising, promotional and selling expenses are forecast to be $55-$65 million compared with $70-$80 million mentioned earlier. The expected decline in advertising, promotional and selling expenses is attributed to lower selling expenses, excluding freight costs for the shipment of products to its distributors.

Additionally, the company expects all of its brands to witness growth in 2021, including the Truly brand. Consequently, it expects volume growth of 35-45% for 2021. It also outlined its depletion and cost view for 2021. Its initial guidance predicts depletion and shipment growth of 35-45% and national price increases of 1-2% for 2021. Moreover, it expects advertising, promotional and selling expenses of $130-$150 million, excluding freight costs for the shipment of products to its distributors. Capital spending for 2021 is anticipated to be $300-$400 million.


With that said, we believe that the company is well-poised to retain its momentum in the near term. Overall, the hard seltzer market has been a lucrative investment avenue for companies brewing beer and other spirits in the past few years. Consequently, the company’s strong footing in the hard seltzer market is likely to provide it an advantage over peers.

Other Stocks to Consider

Molson Coors Beverage Company (TAP Free Report) currently has a long-term earnings growth rate of 3.7% and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

National Beverage Corp. (FIZZ Free Report) also carries a Zacks Rank #2 at present. It delivered an earnings surprise of 26.6%, on average, in the trailing four quarters.

Brown-Forman Corporation (BF.B Free Report) delivered an earnings surprise of 8.2%, on average, in the trailing four quarters. The company presently carries a Zacks Rank #2.

Looking for Stocks with Skyrocketing Upside?

Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.

Ignited by referendums and legislation, this industry is expected to blast from an already robust $17.7 billion in 2019 to a staggering $73.6 billion by 2027. Early investors stand to make a killing, but you have to be ready to act and know just where to look.

See the pot stocks we’re targeting >>

SAM – Why Is Boston Beer (SAM) Up 2.2% Since Last Earnings Report?

A month has gone by since the last earnings report for Boston Beer (SAM Free Report) . Shares have added about 2.2% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Boston Beer due for a pullback? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Boston Beer Q3 Earnings Beat, Updates View

Boston Beer reported upbeat third-quarter 2020 earnings performance. Meanwhile, the top line lagged estimates. Nonetheless, both earnings and sales improved year over year, backed by strong shipment and depletions trends.

However, the company has been witnessing a significant reduction in keg demand from the on-premise channel, and higher labor and safety-related costs at its breweries as a result of the ongoing pandemic. In third-quarter 2020, it recorded $0.1 million of coronavirus-related pre-tax reductions in net revenues and increases in other costs. Year to date, pre-tax reductions in net revenues and escalation in other costs were $14.2 million, of which $10.0 million was recorded in the first quarter and $4.1 million in the second quarter. This included $3.4 million related to reduced revenues due to keg returns from distributors and retailers, and $10.8 million of other COVID-19-related direct costs, of which $7.4 million was for cost of goods sold and $3.4 million in operating expenses.

Further, COVID-19-related safety measures led to the reduction in brewery productivity, leading to the shifting of more volumes to third-party breweries. This resulted in higher production costs and negatively impacted the gross margin.

Boston Beer’s third-quarter adjusted earnings of $6.51 per share surpassed the Zacks Consensus Estimate of $5.24. Further, the bottom line grew 78.4% from $2.86 earned in the year-ago period, mainly driven by an increase in revenues on the back of shipment growth. This was partly offset by soft gross margins and a rise in operating expenses.

Net revenues advanced 30.2% year over year to $492.8 million but lagged the Zacks Consensus Estimate of $521.4 million. Excluding excise taxes, the top line rose 30.4% year over year from $525.2 million.

The increase in the top line can primarily be attributed to a 30.5% improvement in shipments to 2.1 million barrels. Depletions grew 36%, marking the tenth successive quarter of double-digit growth in depletions. Depletions growth was driven by key innovations, quality and strong brands as well as sales execution and support from distributors. Further, growth was backed by strength in Truly Hard Seltzer and Twisted Tea brands. This was somewhat offset by sluggishness in Samuel Adams, Angry Orchard and Dogfish Head brands, which were most impacted by the pandemic and the related on-premise closures. However, the company notes that these brands closed September on a strong note, reflecting strong growth in off-premise channels compared with September 2019.

Depletions for the year-to-date period through the 42 weeks ended Oct 17, 2020 have grown nearly 39% from that witnessed in the year-ago period. Excluding the Dogfish Head brewery, depletions grew 37%.

Costs & Margins

Gross profit improved 28.1% year over year to $240.6 million. However, gross margin contracted 280 basis points to 46.9% due to elevated processing costs, stemming from higher production at third-party breweries. This was partly negated by price increases and cost-saving initiatives at company-owned breweries.

Advertising, promotional and selling expenses rose 11.8% in the quarter to $108 million. The increase was driven by higher investments in media and production; elevated salaries and benefits costs; and increased freight to distributors, owing to higher volumes.

General and administrative expenses totaled $30.3 million, down 3.5% from the year-ago quarter. The decline was mainly due to one-time costs of $3.6 million related to the Dogfish Head transaction, which was incurred in the third quarter of 2019. This was somewhat offset by higher salaries and benefits costs.


As of Sep 26, 2020, Boston Beer had cash and cash equivalents of $157.1 million, and total stockholders’ equity of $318.5 million. The company currently has $150 million in its line of credit for use to enhance the cash position and liquidity amid the coronavirus pandemic.

During the third quarter and the period between Sep 27 and Oct 16, Boston Beer did not repurchase any shares. As a result, the company has $90.3 million remaining under the $931-million share buyback authorization.


Boston Beer revised its depletions growth and earnings guidance for 2020 based on the trends witnessed in the first nine months and expectations for the remainder of the year. This was mainly driven by strong performance for the company’s Truly brand so far this year.

Furthermore, the company expects the Truly brand to continue to lead business growth in 2021. In early 2021, it plans to launch Truly Iced Tea Hard Seltzer, Truly Extra — a higher ABV version of Truly, and other new Truly flavors and package sizes, as part of its continued innovation in the Hard Seltzer category.

For 2020, management envisions earnings per share of $14-$15. Depletions and shipments are likely to grow 37-42%, wherein the addition of the Dogfish Head brand is expected to contribute 1-2%. The company expects national price increases of 1-2% for 2020.

Moreover, gross margin is anticipated to be 46-47%. Advertising, promotional and selling expenses are forecast to be $55-$65 million compared with $70-$80 million mentioned earlier. The expected decline in advertising, promotional and selling expenses is attributed to lower selling expenses, excluding freight costs for the shipment of products to its distributors. Capital expenditure is likely to be $160-$190 million compared with $180-$200 million stated earlier.

Additionally, the company expects all of its brands to witness growth in 2021. Consequently, it expects volume growth of 35-45% for 2021. The company also outlined its depletion and cost view for 2021.

For 2021, its initial guidance predicts depletion and shipment growth of 35-45%, national price increases of 1-2%, and gross margin of 46-48%. Moreover, it expects advertising, promotional and selling expenses of $130-$150 million, excluding freight costs for the shipment of products to its distributors. Capital spending for 2021 is anticipated to be $300-$400 million.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 66.67% due to these changes.

VGM Scores

Currently, Boston Beer has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren’t focused on one strategy, this score is the one you should be interested in.


Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Boston Beer has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.

SAM – The Boston Beer Company, Inc. (SAM) CEO Dave Burwick on Q3 2020 Results – Earnings Call Transcript

The Boston Beer Company, Inc. (NYSE:SAM) Q3 2020 Earnings Conference Call October 22, 2020 5:00 PM ET

Company Participants

Jim Koch – Founder and Chairman

Dave Burwick – Chief Executive Officer

Frank Smalla – Chief Financial Officer

Conference Call Participants

Vivien Azer – Cowen

Bonnie Herzog – Goldman Sachs

Eric Serotta – Evercore

Kevin Grundy – Jefferies

Stephen Powers – Deutsche Bank

Laurent Grandet – Guggenheim

Sean King – UBS

Bill Kirk – MKM Partners


Greetings. Welcome to The Boston Beer Company’s Third Quarter 2020 Earnings Call. [Operator Instructions] At this time, I will turn the conference over to Mr. Jim Koch, Founder and Chairman. Mr. Koch, you may now begin.

Jim Koch

Thank you. Good afternoon and welcome. This is Jim Koch, Founder and Chairman and I am pleased to kick off the 2020 third quarter earnings call for the Boston Beer Company.

Joining the call from Boston Beer are Dave Burwick, our CEO and Frank Smalla, our CFO. I will begin my remarks this afternoon with a few introductory comments, including some highlights of our results and then hand over to Dave who will provide an overview of our business. Dave will then turn the call over to Frank who will focus on the financial details of our third quarter results as well as a review of our outlook for the remainder of 2020 and our initial outlook for 2021. Immediately following Frank’s comments, we will open the line up for questions.

We achieved depletions growth of 36% in the third quarter. We believe that our depletions growth is attributable to our key innovations, quality and strong brands as well as sales execution and support from our distributors. As the COVID-19 pandemic continues, our primary focus continues to be on operating our breweries and our business safely and working hard to meet customer demand. I am very proud of the patient, creativity and commitment to community that our company has demonstrated during this pandemic. We remain positive about our future growth of our brands and are happy that our diversified brand portfolio continues to fuel double-digit growth for the 10th consecutive quarter. We planned some major innovations to be introduced in 2021 for our brands. These include Twisted Iced Tea Hard Seltzer, Samuel Adams, Just the Haze, our first non-alcoholic beer, Dogfish Head Scratch-Made Canned Cocktails and Angry Orchard Fruit Cider. We are confident in our ability to continue to innovate and build strong brands to help support our mission of long-term profitable growth.

I will now pass over to Dave for a more detailed overview of our business.

Dave Burwick

Thanks, Jim. Hello, everyone. Before I review our business results, I will start with the usual disclaimer. As we stated in our earnings release, some of the information we discuss and that may come up on the call reflect the company’s or management’s expectations or predictions of the future. Such predictions are forward-looking statements. It’s important to note that the company’s actual results could differ materially from those projected in these forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in the company’s most recent 10-Q and 10-K. The company does not undertake to publicly update forward-looking statements, whether as a result of new information, future events, or otherwise.

Okay. Now, let me share a deeper look at our business performance. Our depletions growth in the third quarter was a result of increases in our Truly Hard Seltzer and Twisted Tea brands, partly offset by decreases in our Sam Adams, Angry Orchard and Dogfish Head brands. The growth of the Truly brand led by Truly Lemonade Hard Seltzer continues to be very strong and we expect the Truly brand to continue to lead the growth of the business into 2021. In early 2021, we will launch Truly Iced Tea Hard Seltzer, Truly Extra, a higher ABV version of Truly and other new Truly flavors and package sizes as we continue to lead innovation in the hard seltzer category.

We believe that Truly Iced Tea Hard Seltzer, which combines the refreshment of hard seltzer with real brewed tea and fruit flavor at only 100 calories and 1 gram of sugar will further strengthen our position in the category. Since early in 2020, Truly has grown its velocity and its market share sequentially despite other national, regional and local hard seltzer brands entering the category. Truly is the only national hard seltzer, not introduced earlier this year, to grow its share during 2020. We will continue to invest heavily in the Truly brand and work to improve our position in the hard seltzer category as competition continues to increase. We will also continue to invest heavily in our Live Truly advertising campaign that showcases, variety, colors and joy to hard seltzer drinkers. Twisted Tea has benefited greatly from increased at-home consumption and continues to generate consistent double-digit volume growth, even as new entrants have been introduced and competition has increased. Our Samuel Adams, Angry Orchard and Dogfish Head brands have been most negatively impacted by COVID-19 and the related on-premise closures, but we are pleased that they all finished the month of September with strong growth in the measured Off-Premise channels compared to last September.

For the remainder of 2020 and into 2021, we plan to build upon our success and work to drive our brands to their full potential, with a particular focus on our Truly brand. We’ve adjusted our expectations for 2020 full-year depletions growth and our earnings guidance to reflect our trends for the first nine months and our current view of the remainder of the year, which is primarily driven by the year-to-date performance of Truly. We are expecting all of our brands to grow in 2021 and are targeting overall volume growth rates to be between 35% and 45%. We have closely managed our operating costs through the COVID-19 pandemic and achieved our planned cost synergies from the Dogfish Head merger.

In 2021, based on our current spending and volume assumptions, we are planning for the growth rate of our operating expenses to be below our top line growth rate delivering leverage to our operating income. We have been operating our breweries at full capacity for many months and, like our competitors, we have had out of stocks during the quarter. We expect wholesaler inventories to return to normal levels in the fourth quarter, as we recover from our summer seasonal peak. Improving our supply chain performance continues to be our top priority and we are in the process of doubling our internal and third-party brewery can packaging capacity for 2021. Our new can line at our Cincinnati Brewery began production late in the third quarter and we have recently added additional third-party brewery sleek can capacity.

As reflected in our 2020 and 2021 capital spending guidance, we will continue to invest heavily to increase capacity as appropriate to meet the needs of our business and take full advantage of the fast-growing hard seltzer category. However, the increased usage of third-party breweries and an increasing percentage of variety packs in the company’s overall product mix come at a higher incremental cost. As a result, our gross margins and gross margin expectations will be negatively impacted until the volume growth stabilizes. We began a multi-year supply chain transformation project in 2020 to automate and change internal processes to increase efficiency and reduce costs. The timing of the benefits of this program will depend on the timing and amount of our future volume growth. We will continue to prioritize volume delivery over margin optimization in this high-growth environment.

While we are in a very competitive business, we are optimistic for continued growth of our current brand portfolio and innovations and we remain prepared to forsake short-term earnings as we invest to sustain long-term profitable growth, in line with the opportunities that we see. Based on information in hand, year-to-date depletions reported to the company through the 42 weeks ended October 17, 2020 are estimated to have increased approximately 39% from the comparable weeks in 2019. Now, Frank, will provide the financial details.

Frank Smalla

Thank you, Jim, and Dave. Good afternoon everyone. For the third quarter, we reported net income of $80.8 million, an increase of $36 million or 80.6% from the third quarter of 2019. Earnings per diluted share were $6.51, an increase of $2.86 per diluted share for the third quarter of 2019. This increase was primarily due to increased revenue driven by higher shipments, partially offset by lower gross margins and higher operating expenses. Shipment volume was approximately 2.1 million barrels, a 30.5% increase from the third quarter of 2019. We believe distributor inventory as of September 26, 2020 average approximately 2 weeks on hand and was lower than prior year levels due to depletions outpacing supply constrained shipments. We expect wholesaler inventory levels in terms of weeks on hand to remain between one and four weeks for the remainder of the year. Our third quarter 2020 gross margin of 48.8% decreased from the 49.6% margin realized in the third quarter of 2019, primarily as a result of higher processing costs due to increased production at third-party breweries, partially offset by cost saving initiatives at company-owned breweries and price increases.

Third quarter advertising, promotional and selling expenses increased by $11.5 million from the third quarter of 2019, primarily due to increased investments in media and production, increased salaries and benefits costs and increased freight to distributors because of higher volumes. General and administrative expenses decreased by $1.1 million from the third quarter of 2019, primarily due to non-recurring Dogfish Head transaction-related expenses of $3.6 million incurred in the comparable 13-week period in 2019, partially offset by increases in salaries and benefits costs. Based on information of which we are currently aware, we are now targeting full year 2020 earnings per diluted share of between $14 and $15, an increase of the previously communicated estimate of between $11.70 and $12.70. However, actual results could vary significantly from this target. This projection excludes the impact of ASU 2016-09.

Full year 2020 depletions growth is now estimated to be between 37% and 42%, an increase and narrowing from the previously communicated estimate of between 27% and 35%. We project increases in revenue per barrel of between 1% and 2%. Full year 2020 gross margins are expected to be between 46% and 47% and narrowing down of the previously communicated estimate of between 46% and 48%. We plan to increase investments in advertising, promotional and selling expenses of between $55 million and $65 million for the full year 2020, a change from the previously communicated estimate of between $70 million and $80 million primarily due to lower selling expenses. This does not include any increases in freight costs for the shipment of products to our distributors. We estimate our full year 2020 non-GAAP effective tax rate to be approximately 26%, which excludes the impact of ASU 2016-09. We are continuing to evaluate 2020 capital expenditures and currently estimate investments of between $160 million and $190 million, a change from the previously communicated estimate of between $180 million and $200 million, most of which relates to continued investments in the company’s breweries.

Looking forward to 2021 we are in process of completing our 2021 plan and will provide further detailed guidance when we present our full year 2020 results. Based on information of which we are currently aware, we are targeting depletions and shipments percentage increases of between 35% and 45%. We project increases in revenue per barrel of between 1% and 2%. Full year 2021 gross margins are expected to be between 46% and 48%. We plan increased investments in advertising, promotional and selling expenses of between $130 million and $150 million for the full year 2021, not including any changes in freight costs for the shipment of products to our distributors.

We estimate our full year 2021 non-GAAP effective tax rate to be approximately 26% excluding the impact of ASU 2016-09 line. We are currently evaluating 2021 capital expenditures and our initial estimates of between $300 million and $400 million, which could be significantly higher if deemed necessary to meet future growth. We expect that our cash balance of $157.1 million as of September 26, 2020 along with our future operating cash flow and unused line of credit of $150 million will be sufficient to fund future cash requirements.

We will now open up the call for questions. Since we are in different locations, Dave will be the MC on our side, similar to last time and coordinate the answers.

Question-and-Answer Session


Thank you. [Operator Instructions] Thank you. Our first question is from the line of Vivien Azer with Cowen. Please proceed with your question.

Vivien Azer

Hi, good evening.

Frank Smalla

Hey, Vivien.

Dave Burwick

Hi, Vivien.

Vivien Azer

Hello. So my first question has to do with your 2021 guide, certainly that’s been historically consistent and unique for you guys relative to the broader CPG peer group, where you do, do that, but given the uncertainty around COVID and the potential for more closures, I think, it would be helpful to understand what’s driving that conviction, and any underlying detail you could offer. Dave, I think I heard you say that you think all brands are going to grow, and certainly the Nielsen data from Tuesday would suggest that beer is in a better place at least in the four weeks. But just any underlying detail I think would be helpful, because that’s well ahead of consensus in my estimate?

Frank Smalla

Vivien, this is Frank. Let me take the first one on the 2021 guidance. I mean, you’re right, there’s a lot of uncertainty in the market. But when we look at the growth and what’s driving the growth of the company, it’s clearly hard seltzer, and Truly and also Twisted Tea, which are the biggest components of our portfolio. Based on what we know today, and how we see the market development – developing and the current growth rates, and we look at how we have grown distribution, and we’ll project that into 2021, we fear that the range – that this is the range that we’re shooting for, actually we’re shooting higher. And that’s something that we can accomplish based on the structure of our portfolio and the growth rates of the categories that we are projecting. I mean, nobody has a crystal ball. Nobody knows exactly where hard seltzers are going to go, but if we look at the different scenarios and we take a risk-adjusted approach, this is the kind of where we land.

Dave Burwick

Yes, exactly. And, Vivien, just to build on what Frank said, I think when you look at – you’re right. So it’s those two brands are driving obviously a lot of the growth. And if you look at some recent developments in seltzer, I know it’s slowed a little bit, but I think there’s a lot of noise with that with the can shortages and other capacity issues that are still being cleared up. But if you dig into some of the data on seltzer, you see some new information. One is that we’re looking at depth of repeat increasing pretty significantly, most recently. So people who purchased a product three times or more are now 31% of all the buyers versus 25% a year ago. So, we’re seeing people adopt it. Also category – we looked at some new data, category rejecters are declining from about 28% last year to 12% this year. So, we are seeing people embrace hard seltzer, making it part of the repertoire. There are other – another thing too that I think is a big one is that this year as you know because of COVID, many customers were not doing resets. In fact, very few did in the spring for sure, and even in the fall. And there’s a lot of space that is going to be allocated, probably 10% to 20% of space next year will be allocated to the category. So, we think there is still a lot of tailwinds in this category. And the question will probably come up, so I will just answer it. We think in this year we talked about this before, the category will end up growing probably 180% to 200%. Next year, we are thinking in our mind just maybe 80% to 100%. So, it will decelerate by maybe half, but still you’re looking at 80% to 100% growth there. I would also say on the Twisted Tea front, Twisted Tea has really benefited significantly from people consuming more at home. And we’ve seen it in pretty much every way you look at the brand, not just the measured channel growth rates, but the velocity, the household penetration, the repeat rates. And we feel very confident in that brand. And that it’s still very small penetrated brand, a very lightly penetrated brand. As it gets more household penetration and more consumers, we can see our way pretty confidently to very, very good growth, which was Tea next year. And then we can talk. I am not going worry about the other brands, but there is a lot of innovation that we can talk about that we see across the board for Angry Orchard, for Sam Adams, for Dogfish, that all – you add it all up, I think the difference next year to me is I feel like we’re going to be growing across the entire portfolio. And we will continue some very significant growth in hard seltzer, but we are going to have contributors coming from every direction next year.

Frank Smalla

That’s really helpful. Thank you. And in particular, Dave, I commend you for doubling down on those unique consumer insights, because you offered them in February of 2020 on the demos around Truly, and you guys were absolutely right on that. So, good job on continuing to stay close to the consumer. If I could pivot to my second and last question, it’s a little bit more philosophical in nature. I was looking at these results and reflecting back on your May 5 Cinco de Mayo 2017 Analyst Day. And, Jim, one of the things that you asserted, you showed us a very long-term stop chart, is that this company knows how to manage through innovation cycles. And I think the proof is in the pudding here. And so what I’m curious about is, like, whether there is an evolution in your KPIs for the team as you work your way through these cycles. Thanks.

Jim Koch

Thanks, Vivien and I do remember that Stock Day down at the brewery and I am glad you recall the assurances from that day because I think what I was talking about is Boston Beer Company, for now 36 years, has been built for growth. We have a very simple mission, long-term profitable growth and that has built into the company. It’s not just KPIs because people are not primarily coin-operated like that. It is just part of our culture and part of what we wake up to do every morning is to find new unmet consumer needs or new brands, new products, and to drive growth in the existing products that we have because we’ve never, I mean, for us, not to be growing significantly is an unusual and very uncomfortable state. Does that help?

Vivien Azer

Very much so. Thank you.


The next question comes from the line of Bonnie Herzog with Goldman Sachs. Please proceed with your question.

Bonnie Herzog

Alright. Thank you. Hello, everyone.

Dave Burwick

Hi, Bonnie.

Bonnie Herzog

Hi. My first question has to do with your FY 2020 guidance. So, your full year shipment and depletion guidance, it’s really a pretty big step up, which implies I think quite a big increase in your shipment growth in Q4. So, just would love to hear a little bit more color from you in terms of what you’re seeing already in October that gives you the confidence in this. And then, I think about this also in the context that you’re laughing a pretty tough Q4 last year with the sell-in from Truly Lemonade. So, how confident are you in Truly Iced Tea Hard maybe to sell in already? And then, the last question on this is just anticipate, or are you anticipating that your depletions will outpace your shipments for the full year and I am thinking about that as out-of-stock pressures potentially linger still in Q4?

Frank Smalla

Bonnie, this is Frank. I will take the first one on the guidance. What you see we have taken it up because the increase that we’re seeing won’t come through in Q4. Now what has happened in Q3 is our depletions have really outpaced our shipments, and as you look at the resources, it’s evolved a little bit – it’s about a 5-point gap and that has driven the wholesaler inventories to a bare minimum. It’s like they are basically whatever we deliver, they shift out. So, the hard sales and the depletions, which is in our mind is the real sales that has happened already. So, we need to catch up and we couldn’t produce everything that we could have sold, that we couldn’t produce everything that were depleted. So, what will happen and have started happening actually in Q4 already is that we started to catch up and replenish the inventories. So, the shipments that we are projecting are to not extend the catch-up of the depletions that have happened already. So, that’s kind of what’s driving the guidance to one extent. The other thing is that based on the market data, we see the – it’s a very seasonal business as you know. We don’t see that much of a decline as we had originally projected when we’re sitting in the middle of the year quite frankly. So, there’s additional volume coming. It’s coming toward the end of the fourth quarter. What that means is everything that we’re producing is going into replenishment, it’s going into higher sales, but the flip side is that we will have less premium than what we have projected originally. So, the confidence level that we’ll raise the guidance is relatively high. The range, the difference between the low-end and the upper-end really depends on how much we basically can produce, do we have all the materials and do we have the capacity. That’s what it comes down to.

Bonnie Herzog

Okay. That’s helpful.

Dave Burwick

And Bonnie, if you want I can talk about – I mean, just a quick one on Truly, on Truly Tea. We feel this product is tested very, very well, very similarly to Lemonade. And we think like Lemonade it’s unique and is distinct in the category, and it’s going to provide something that’s a very different form of variety than what’s out there in the category right now, so, sort of delivering on what seltzer drinkers are looking for. And also, just for what it’s worth, there’s a read, I mean our customers, both large format/small format customers, are all – I mean, they’re all-in on this thing. So, we have got a lot of support already with our customers and with our wholesalers and we feel confident that we are going to get off to a really good start with this new product.

Bonnie Herzog

That’s helpful. And that’s consistent with what I am hearing. And then that kind of brings me to my next question was as I think about your FY ‘21 guidance, which again it’s great that you have the visibility and confidence in your business, so just on the Truly point, just want to confirm that that guidance for next year does imply that you expect Truly to double again. That’s just a quick question or verification. Then I would love to get a little bit more color or understanding on your guidance for the incremental spend in ‘21, which is a pretty big step-up. So, just trying to understand the magnitude of that, and if that might end up proving to be too large of a step-up. And I am saying that or asking that especially given what I see as probably efficiencies and scale you are likely getting as your company really is getting so much bigger and Truly is becoming such a large part of your portfolio.

Frank Smalla

Yes. So, what is the – I am sorry.

Dave Burwick

Just does our guidance presume a doubling again.

Frank Smalla

Yes, yes, yes. I am sorry. So, for the first question being the – we have the midpoint. We have 35% to 45%. What we are projecting is that the hard seltzer category can double. That’s not fully reflected in the guidance, as you can imagine. It’s as I said before, there is, like – everybody has different projections. We are looking at different scenarios, and we look at, like, what are the different growth scenarios that we have, how much can we produce. We are definitely resourcing against the upper-end of the range, But the guidance doesn’t fully reflect yet a doubling of Truly. That’s number one. The second one related to the APS spend. You are looking at the growth that we are having. And I tend to mention that in the earnings calls, we don’t want to really spend our APS based on a formula, based on dollar per case or 4% of net revenue. We are looking at what do we need to invest to drive the business. We frequently adjust during the year depending on what is working, what is not working. This year, we started the year, we clearly wanted to spend more. COVID happened. We had the impact on the on-premise. So, we didn’t spend as much as we said at the beginning of the year. We are prepared to spend against the growth because we believe now is the time as we are building, as the category is being built to capture the market share, and to capture our place in the category. And then, we will go optimize later on. We continue to believe we are going to get leverage out of the growth that we are having. We don’t know exactly what the leverage is. We are not targeting a specific leverage. We are targeting the long-term growth of our brands and invest what is needed. But even at the high-end, we believe we are getting leverage within the P&L. How that exactly looks like, we will see as the year unfolds.

Bonnie Herzog

Okay. So, even in FY ‘21, you expect there could be leverage on the bottom line?

Frank Smalla


Bonnie Herzog

Okay. Thank you so much.


Next question comes from the line of Eric Serotta with Evercore. Please proceed with your question.

Eric Serotta

Good afternoon. The first I want to…

Jim Koch

Hi, Eric.

Eric Serotta

Hi. First, I wanted to see if you could give some perspective in terms of how you’re looking at Lemonade for year two, obviously, some new heavy-hitting competitors coming on with some big lofty ambitions behind it. If you could give some perspective as to how you are thinking about how that performs in year two that would be helpful. And also the – what your consumer testing is showing in terms of interaction between Lemonade and Truly Hard Iced Tea Seltzer? Are you seeing any interaction there? And what degree of incrementally do you expect from the Iced Tea variant? Thank you.

Dave Burwick

Yes, great. Okay, Eric. So, let me take a shot at that. I think, first of all, as it relates to lemonade, we have invested a lot in building that brand with 10 share thus far, and we will continue. In fact, we will be investing more in that brand next year. So, when we enter the year at a 10 share, the largest penetration base and [indiscernible] base of any new products that were launched this year and great tasting products. So, we entered in a really good place. I think what we like about this is that it’s really – it’s going after – here’s an interesting point, it doesn’t really interact with Mike’s Hard Lemonade. It’s very light interaction with Mike’s, because the F&B consumer is looking – well, we have heard they’re looking for something a little different drinking experience on different occasions, it’s going after, it’s really attracting seltzer consumers. So, we think we are targeting the right consumer with this brand, and there’s a reason why it’s under Truly, and for the same reason why we wouldn’t do a Twisted Tea Hard Seltzer is we just don’t think it’s safe for the right consumer, but the right direction to go. We like Truly being the hard seltzer brand that provides ultimate refreshment, and seltzer provides just different flavors, flavor experiences, many of them bold flavors but only 100 calories and 1 gram of sugar, and Tea plays there, Lemonade plays really, really well. And so, we will continue to build this brand because it’s obviously a big part of the portfolio. I mean, theoretically, the cannibalization rates across the brand, we’re not that concerned about really because it’s a Truly brand. It’s one brand. What the mix looks like a year from now? Personally, I don’t care as long as we’re growing share. That’s all I care about. We are going to grow share. And – but we – having said that, we have looked at some of the data, and there’s a couple of sources. So, for example, just to understand Lemonade this year, how incremental was Lemonade to the Truly brand, which I think you are asking, is if you look at different sources, we’ve looked at our numerator, how did that – it’s got to be pretty precise, and it’s not this precise. But they had that 71% incremental. Nielsen had a 95% incremental. I don’t believe either of those numbers. But from a pure consumer perspective, let’s call it 71% to 95% incremental. What you have got to remember, too, is that there’s cannibalization that happens when you hit because you have to go through a wholesaler, and you have to get your wholesaler to be supportive. There’s cannibalization because you have to go through the customer. So, that 71% to 95% is probably understated, but it’s certainly at a point where we’re happy with it, and if anyone is going to cannibalize it – us, it might as well be us. So, I think, as it relates to tea, we don’t know yet, down to Truly Tea, and so we put it – until we put it out there, my guess is it might be similar in that range, only because it’s very distinct from the base Truly flavor experience, as well as the Truly Lemonade flavor experience.

Eric Serotta

Great. That’s real helpful. And I am hoping for a little bit of perspective on what you alluded to in terms of the noise or in terms of the slowdown in the hard seltzer category recently, obviously continued slim can shortages and overall out of stocks. But any additional color that you are seeing in the marketplace? Or are there any signs of consumer demand weakening? Are you looking at this as purely a supply issue? You guys are clearly outperforming the category. But any perspective as to where the category is going in the short-term would be really helpful.

Dave Burwick

I think, it’ll be easier – that will be an easier question to answer like a month or two from now. But I think – this is my personal opinion. Maybe Jim and Frank would have different points of view. But I do think it’s – there’s still a can shortage in Q4, there’s no question about it. And I think it’s affected everybody. There’s still – as you know, there’s still capacity issues out there. But I look at the Truly – actually I look at the category, I mean Truly and White Claw, both growing penetration, repeat rates are going up. Truly’s velocity has been tripled – growth has been in triple-digit for 6 months, and it’s not slowing down. So, I don’t see any fundamental issue, but ultimately, if it’s growing – if we are growing 200% now in the category or close to that. It’s not – and clearly can’t sustain. And whether this is the beginning of a metering down like to 100%, and we will know more like – probably that and even more in a few months. But there’s nothing else I have seen. Well, like as I mentioned when I was answering Vivien’s question, when we look at the consumer data, there’s nothing in the consumer data that would suggest anything really changing. When you look at the market data, yes, there is something might be afoot, but again I think it’s too early to make – to draw any conclusions on that.

Eric Serotta

Great. Thanks so much. I will pass it on.


Thank you. [Operator Instructions] The next question comes from the line of Kevin Grundy with Jefferies. Please proceed with your questions.

Kevin Grundy

Hey, great. Good evening, guys, and congrats on the strong result. First one for Dave and Jim, just perhaps a little bit more color on your on-premise trends, specifically how that part of your business performed in the quarter. And what you have contemplated in your initial outlook for 2021, of course with that channel being in that part of your business more relevant for your beer and cider brands. And then, I have a follow-up on hard seltzers? Thanks.

Dave Burwick

Okay. Let’s say, in terms of on-premise trends this year, as we face the back-half of the year, you can think of it as probably down 15% or thereabouts is probably the way to think about it across – pretty consistent across all the brands. I think now again when we look in 2021, I am not sure if we really talked in detail by channel, so we don’t, I get that sense. But we don’t think it’s going to come back really quickly. It just doesn’t seem that way, until there’s herd immunity one way or the other, people are not going to be going back to bars or restaurants the way they have before. Jim, I don’t know if you have any other thoughts, because you have been talking to a lot of folks lately about that world.

Jim Koch

Yes. I am pretty much in agreement. Our business was just sort of devastated, because not only were we more heavily on-premise, but our on-premise is heavily draft. And even within the on-premise segment, as people opened up, they didn’t fill all their draft lines, they emphasized package, because package is easier to sell to-go. So it’s – the on-premise has just been really tough, and we have pulled our sales force in, and just had them start to go out tentatively a few weeks ago. So, it’s been probably even disproportionately hurt. And we are just looking at the same murky crystal ball that everybody else is. And we are projecting that the consumer is just going to be hesitant to go out to a bar and to drink for a while. Maybe this time next year, things will be looking like whatever the new normal is. But behavioral patterns will change. Bars will have closed. Restaurants will have closed. So it’s – I don’t see it fully recovering even next year.

Kevin Grundy

Got it. So Jim, just to stick with that for a moment, given that dynamic and the fact that you guys are cautious on that front, what’s the level of visibility? And I appreciate it’s difficult, so I know it’s a tough question. But you guys are planning for all of your brands to grow next year. And it sounds like the expectation is the on-premise is going to be challenged. So outside of the fact you will be cycling some easy year-over-year comparisons, and there’s some hope on the innovation front, what gives you confidence then that Dogfish Head and Sam Adams and Angry Orchard can indeed return to growth next year?

Jim Koch

Well, you have hit the two biggest. One is recycling really crappy numbers, and the other is some innovations. I think I would, on top of that, put the tendency that arose during these pandemic times on the part of retailers as well as wholesalers to focus on their bigger brands, on their better known brands, the strong brand pull. There’s certainly a decline in consumers wanting to spend a lot of time in the grocery store, shopping in front of the beer cooler. People want to get in and get out. So, we believe that as on-premise does come back, it’ll focus more on strong brands. And similarly the trends at off-premise retailers and wholesalers have been to clear out some of the clutter and devote more space to the brands that are leaders in their category, and Sam Adams and Twisted Tea and Angry Orchard are number one, and Truly is a very strong number two in its category. So, we think that strong brands will benefit disproportionately even throughout next year.

Kevin Grundy

Got it. Thanks, Jim. One quick follow-up, and then I will pass it on. Just a broader question on what you are contemplating in your guidance next year with respect to competitive intensity. And I think the context is here broadly within the industry, you saw a big pullback in investment spending given the negative implications from the pandemic. I think that’s widely expected to change both around advertising and marketing perhaps trade support, etcetera. We touched earlier in the call the discussion around Mark Anthony Brands, and that innovation is clearly aimed at your portfolio and the success you have had with the Lemonade product. Coors now just sort of leaning in with Topo Chico, or at least they will be early next year. They just launched Coors and Vizzy, etcetera. I mean, we could spend the rest of the call kind of going through a litany of products that will be entering the category. What are you contemplating in your guidance with respect to competitive intensity? How do you expect this to evolve? I mean, I can’t recall a product category kind of like this where there’s just been so much interest, so much innovation, so much investment. The company was previously only operating in non-alcohol space, moving into the alcohol space. It’s very, very unique. So, how are you guys thinking about that, and how has that been contemplated in your initial ‘21 outlook? And I will pass it on. Thanks, guys.

Dave Burwick

Okay. Thanks, Kevin. Maybe I will start that one. I think everything you mentioned we have contemplated obviously we are very aware of everything that’s happening. And in fact, nothing that’s been announced has really been a surprise to us. I think if you go back – interestingly, if you go back like 2 years ago, Truly and White Claw were about 75% of the category, and I think there were like 12 brands or something like that in the category. This year, there’s something like 120 or 130 brands in the category, and Truly and White Claw are still 75% of the category. So, we think it was kind of we are not resting on our laurels or assuming it’s going to happen by itself, we are going to fight, like, until the end to make sure that we are very strong number two or ideally, number one. And we are investing aggressively in building the brand, the Truly brand, which we think has come a long way in the last couple of years in terms of brand awareness, in terms of kind of household penetration, repeat rates, all the rest. And we know that we can’t stop what everyone else is going to do, and it’s going to be another food fight in 2021. But we feel like we are ready for that, and we have plans, and as Frank had mentioned before, we are going to spend whatever it takes. So, yes, we are going to get the operating leverage next year, and we plan to do. But guess what, if things change competitively, we are going to – we will tell you on an earnings call what we are going to do, is going to be to continue to invest. This category is way too valuable to not fight to win, and that’s what we are going to do. And I would also say that on innovation, I think being first and Mark Anthony Brands has done an amazing job with their brands. And obviously Mike’s is a great brand, but we have been in the same – we will have a 15-month head start and a 10-share brand; that gives us an advantage. And we are going to do everything we can to save every ounce of that share. And guess what, we are launching a tea brand which – by the way we know how to do tea. I think we have proven over the years or I think we are the only ones that really understand how to do tea well. And it’s tea and fruit, it’s a tremendous product, and it’s going to give people something else to go to. And we also know in this category, people – consumers are looking for what’s new. They are looking for variety, and they want whatever is next. And honestly, with Lemonade it’s been – it’s already happened. We will continue to make it happen, but what’s next, next year in our minds is going to be tea, and maybe some other bags too, so. But, honestly, this is what makes it fun because it wouldn’t be fun if we are all by ourselves, so. But we have contemplated everything. Nothing has shocked us, no announcements, and we are ready to go.

Kevin Grundy

Got it. I appreciate the time. Good luck, guys.

Dave Burwick

Thanks, Kevin.


Next question comes from the line of Stephen Powers with Deutsche Bank. Please proceed with your question.

Stephen Powers

Yes hey, thanks. Good evening. Just a few more clarifying questions on the ‘21 outlook, I guess first, you talked about Truly Tea relative to base Truly. But how do you expect Truly Tea to interact with Twisted Tea, if at all, with any meaning? And then appreciate that you don’t really care, and I get it, what leg of the Truly offering leads growth, so long as the overall trade market is growing. Can you talk at all, I guess whether you expect Lemonade to ultimately be bigger than base Truly by the time we get to the end of 2021? It feels like that’s the trajectory we are on. I just want to just kind of think – clarify your thinking on lemonade versus the base offering?

Dave Burwick

Okay, Steve. I will take that. So, I think when it comes to – we don’t know how much Truly Tea is going to cannibalize Twisted Tea, but what we can do is look at what the interaction between Truly Lemonade and Mike’s Hard Lemonade, which I think is a fair proxy. And as I mentioned before, I think only about 10% to 15% of Truly Lemonade’s volume come from Mike’s Hard Lemonade, and it was actually never – was not our goal as to steal consumers from there because we think it’s just a very different occasion, different consumer. And so if you apply that to Truly Tea versus Twisted Tea, so say 10% and 15% interaction, so we don’t think it’s huge. And again, the drinking experiences are very different, and the consumers are very different. In fact, if you look at the Truly consumer, the Truly consumer is younger, more educated, more upscale, and more diverse than the Twisted Tea drinker. So, we think in terms of managing cannibalization as much as you can, I think we’ve got to manage, and whatever happens, happens from that point, and we feel pretty good about that. As it relates to will lemonade become, I don’t know. We don’t – I mean, we are not planning on that. I mean, it is probably very unlikely. We think we’ll continue to obviously have – we’ll have news on the base Truly business next year, that we are excited about, and I think it’s very unlikely that lemonade would be bigger than that. But again, at the end of the day, all that matters is that we grow share in total, and that’s what we’re going to – that’s how we’re going to measure success next year is gaining share through the Truly trademark. And the last thing I’ll say is that the reason – one of the reasons I can say this is because we have a pure play brand called Truly that stands for hard seltzer. And so, we are not – it is much easier to innovate within that platform than it is if we were coming from another place.

Stephen Powers

Yes. Thank you. That makes a lot of sense, and I appreciate the color. I guess if I could also ask about kind of slicing a broad channel, you talked about 10% to 20% of off-premise space being allocated to seltzer next year. I guess how does that compare to what you estimate the category was allocated or has been allocated in 2020? What’s your, what’s really your true visibility to that number? And I am assuming you do, but do you expect Truly’s relative share of shelf or of cooler space to sustain itself in next – in 21 against that backdrop And then, a little bit on the on-premise side, Jim, you have talked about this, I think in the last call just about maybe some untapped upside in seltzer and in Truly on-premise. And I guess, I am just would love a little bit of insight as to how much that thinking is factored into your ‘21 outlook? Do you think that on-premise demand can be material to Truly in ‘21 or is it really just a story of continued off-premise strength? Thanks.

Dave Burwick

Okay. And so, Steve, I will take the first part, and then I will hand it over to Jim for the second part. I think in terms of space, it obviously varies by customer and by geography today where it is at, but it’s probably like around 10%. And then, in some places, it could be very well be higher in that, it could be as high as 20% in certain places now. But on average, we are thinking right now it is probably about 10%, and we think – and based on what our customers have been telling us this fall is that they expect the category to be 15% to 20% of the total beer, and they are going to give its fair share of space. So, we could be going from 10% to 15% to 20%. And again, I think this year was kind of everything was sort of aborted because of the pandemic. So, it’s hard to really understand where we are starting from or where we would have been. But I think because we didn’t have that chance to do a reset this year, next year could be that much more impactful. And I think what customers are looking to do, there is going to be more closed space. There’s going to be more end caps. There’s going to be more freestanding displays. They are going to look to find – to put inventory anywhere they can to help, to support, to represent the size and the growth rate of the category. So, with that, I’ll hand over to Jim to talk more on on-premise.

Jim Koch

Yes. My guess as to how hard seltzer has fared on-premise this year was not as well as one would have expected given the snowballing number of hard seltzer drinkers, who are going to on-premise places and carrying their drinking patterns with them. But during these COVID times, the on-premise operators were not looking for new items. They were not looking to add stuff. They were not often even taking sales calls from distributor salespeople or supplier salespeople. So, there were very limited opportunities to pitch new items, and retailers were not especially focused on that. They had their hands full with everything else they were trying to do. And I think, I still believe that the seltzer category is underdeveloped on-premise. On-premise, when it reopens, I think we will all be thrilled if it ends up at 15% of overall consumption. So, that tells you the slice that we are aiming at when on-premise does start to come back. So, I think it will be basically seltzer on-premise will be a slow growth, it won’t explode as much as it did on-premise – I mean, I am sorry off-premise where people are talking about it being 15% or 16% of the beer category within a year or two.

Stephen Powers

Thank you very much both of you for your commentary. Appreciate it. Thank you.

Dave Burwick

Thanks, Steve.

Jim Koch

Thanks, Steve.


Thank you. [Operator Instructions] The next question is from the line of Laurent Grandet with Guggenheim. Please proceed with your question.

Laurent Grandet

Hello, Jim, Dave and Frank. Wow, congrats on another truly exceptional quarter. First question is really just a check, I mean, because I may not having heard you well. Are you saying that you would be shipping Truly Iced Tea at the end of this year or just starting next year?

Dave Burwick

Yes. So, I can answer that one right away. We will ship next week, Truly Tea will not be shipped this year.

Laurent Grandet


Dave Burwick

That’s definitely next year.

Laurent Grandet

Thank you. Dave, one for you, and then I have got one for Jim. But I understand very well the purpose and the potential of Truly Iced Tea. We wrote about this in the last few weeks. Wanted to understand a bit better about the role and potential of Truly Extra, you have been twisting it in some places in New York and some other places. So, you need to attract I mean a younger, more male man consumer into the franchise. What is the word for Truly Extra, and what’s the potential here? I believe a bit more limited there.

Jim Koch


Dave Burwick

So, I think Jim, go ahead.

Jim Koch

Well, I believe it is focused on convenience stores. That is a channel where Truly is less developed than in food and multi-outlet stores. And it does bring in a different customer that is maybe a little less calorie-conscious, health and wellness-conscious in a sense because your base hard seltzer tends to be 100 calories, 5 ABV, maybe 1 gram of sugar, and all of that changes in a C store because it’s 8% ABV and it’s in a 16-ounce can. So, you are going to end up with 220, 230 calories in it. So, the consumer is approaching something like Truly Extra with a different mentality. They want something refreshing, easy to drink, they are hard seltzer drinker, and they are in a C store, and they are paying up at single serve. So, really it’s a different occasion for hard seltzer than we have seen so far. And how big is it? We don’t really know. The tests were – did well, but again it’s crazy times, and it was New York, and it’s maybe a little different market than the big bulk of the C store. This is the bodega and the small store, that is a little different than a C store in Arizona.

Laurent Grandet

And, Dave, really just speaking on Truly Extra. I mean, I really like what you have been doing in marketing and building that brand over the last few years. But is that something potentially confusing for the consumer, the Truly consumer that there will be a Truly with more calories? And that definitely not respond to the, I would say, to the seltzer playbook. So could you explain this to me, please?

Dave Burwick

I am sorry, Laurent, can you repeat the question. I missed the end of that. I missed the question. Can you repeat that again? Sorry.

Laurent Grandet

Yes, sure. I really like everything you have been doing on Truly and building that brand over the last two years. But I really like to understand, the Truly Extra is not adding some more – I mean, maybe some confusion for the Truly consumer having much more calories. So is that kind of a risk to the franchise? I mean how do you see that, and why you are taking that potential risk?

Dave Burwick

So okay. I got it. I got it. So I think Jim sort of answered that question by saying that I think it’s a different – where we see this, it’s a different consumer, it’s a C store consumer, it’s more younger male, who might be buying that traditional F&Bs, who might be looking to branch out and try something different. So we are sort of appealing to somebody with that who isn’t necessarily looking for the 100 calories per se. And because it’s – because we are sort of – we are putting it into convenience stores, it’s not going to be broadly – at least it’s not our intent right now to make it broadly available in large format stores or multipacks. Where we think we can – we’re narrowcasting to that consumer. And we don’t – we think it will be successful, but we are not banking the year on it, necessarily. But as Jim said, it was well-received in New York City. New York City is not necessarily your average convenience store, your average store located in Arizona or California. But we think the brand, because it’s sub-brand and we sub-branded Extra, so that – and the sub-branding is actually very large, and really – it is actually, I think, bigger than Truly. So, it clearly says to the consumer something – it is from Truly, but it’s something different. And we’re trying to thread the needle there. We think we can, but we will find out next year.

Laurent Grandet

Thanks. A question on the capacity for Truly. You increased significantly CapEx for this coming year. I mean, planning for doubling actually probably next year. Are you starting to rebalance between contract manufacturing and your in-house manufacturing, starting a bit next year or having a larger percentage of your manufacturing in-house? Could you maybe give some color here to understand a bit more what is the split between in-house and contract manufacturing for next year?

Frank Smalla

Yes. Laurent, this is Frank. Clearly, the long-term goal is to rebalance between internal and external. But the number one priority, quite frankly, at the moment is to get the capacity to be able to support a doubling of the category. That’s the base premise. And naturally it’s a little faster to add it externally, because you can talk to different parties, and that’s what’s happening. So our share of internal manufacturing versus external manufacturing will continue to shift toward external manufacturing in the short term within 2021. Clearly, we’re also looking – we are building capacity internally and externally, but it’s a little faster externally, and that’s what’s shifting the balance. Longer term, clearly, we are looking at bringing more in-house, and thereby also bringing the costs down and getting the margin up.

Laurent Grandet

Thanks. Thanks, Frank. My last – I promise, my very last question for you, Jim, for a beer lover like you, I mean, what does it mean to launch a zero alcohol beer? And why are you doing this? I mean, what is the function and pace you are expecting from that beer, and the reception from consumers?

Dave Burwick

Jim, did you hear?

Jim Koch

Sorry, I was on mute.

Dave Burwick

Okay. Okay.

Jim Koch

Good question, Laurent. And I will start out with a confession, because after I finished my introduction, I poured myself a Sam Adams Just the Haze, non-alcoholic IPA, and I am almost at the bottom of the glass. So there are – and it’s my way of illustrating that something like Sam Adams Just the Haze is a product that has really never existed before. There have been plenty of non-alcoholic beers, but they were always compromises. You knew you were drinking an inferior product. And it didn’t have that much appeal, other than odd occasions or people who’d used up their quota and couldn’t drink alcohol anymore. And so we are we don’t have big volume projection numbers for it. We know it is going to be, again, a long-term build. But it is something that – what I am excited about is it is as good as an alcoholic IPA. And we have done and we have tested it in consumer testing, and had it rated and blind, double-blind testing with consumers, had it rated at or above the leading alcoholic IPAs out there. So, bottom line, we think that by introducing a new product that is never existed before, it will find – just by virtue of its product characteristics, it will find new drinkers and new occasions for drinkers. And how big and how quick, we really don’t know. But it’s always been our experience is if you give some consumers something that they have never had before, that really is an improvement in terms of taste and quality and character over any of the other options out there, you are going to have a market. How big? Depends.

Laurent Grandet

Thanks, Jim. And I pass it on. Cheers and keep it up the good work.

Jim Koch

Thank you. It’s fun having a beer while I do this.


Our next question is from the line of Sean King with UBS. Please proceed with your question.

Sean King

Thanks for the question. I guess with respect to the variety packs and gross margins, I recognize that variety packs are becoming a bigger part of the portfolio, which is really a function of Truly’s like weight in the portfolio, but I guess within Truly itself, are you starting to see consumers start to settle into preferred flavors, and moving away from variety packs?

Dave Burwick

Yes. This is Dave, Sean. Well, Jim, why don’t you have a go?

Jim Koch

Well, I was just going to say, actually basically, no. We wondered when it is going to happen. It hasn’t happened yet.

Sean King

Okay. Alright. Understood. Thank you.

Jim Koch

Yes. Go, stand next to a big display of LaCroix, and watch people shopping. Almost nobody buys like three 12 packs of the same flavor. They don’t have variety packs, but consumers will typically buy at least two different flavors when they shop. So, I don’t know, but it just doesn’t happen, and we have been thinking it would, but we haven’t seen it.

Sean King

Very helpful. Thank you.


The next question is from the line of Bill Kirk with MKM Partners. Please proceed with your question.

Bill Kirk

Hey. Thanks for taking the question. So, mine’s on loyalty within seltzer. Do you have any research that shows how many brands are in the seltzer drinker’s proverbial fridge, and maybe how that would compare to how many brands are in say a craft beer drinker’s fridge?

Dave Burwick

Yes. I mean, the last time I looked at it, it was – and this is David, this was probably six months ago. It was small. It was a small repertoire like two or three at most. It’s probably a good thing for us to look at now. But again, I think if you just look at the sheer – still the sheer distribution and the category of being the top two with 75%, by definition I think that is probably going to be a small repertoire than craft for sure, but don’t have the exact number to share with you.

Jim Koch

Yes. From the research that it is not really quantitative, but focus groups and qualitative and sort of anthropological-type research, general truth would be that I think White Claw and Truly are substitutable. You have people who drink one, but they will drink the other. The substitution for the smaller brands, the beer-branded seltzers is less. So, you’ve kind of got two leaders that share preferences, and we didn’t find lots of people who are only drinking one of the smaller brands.

Bill Kirk

Got it. That is super helpful and all for me. Thank you.


Thank you. At this time, we have reached the end of our question-and-answer session. I will now turn the call over to Mr. Jim Koch for closing remarks.

Jim Koch

Great. Well, thanks, everybody. Thank you for your patience going through all of this, and we will speak again in a few months. Cheers. And I did finish my Just the Haze, so thank you for joining me for a beer.

  • 1
  • 2