Boston Beer Company (SAM)
, the makers of the Samuel Adams label that kicked off the craft beer movement in America, look like a pretty sure bet these days. Investors have bid it down on what might be a temporary sales dip.
Unlike its larger rivals Anheuser-Busch InBev (BUD)
and Molson Coors (TAP)
, the Sam Adams folks focus on producing good beer over marketing gimmicks or can redesigns, as both competitors have done in recent months.
To that end, SAM has developed its Freshest Beer Program, which delivers beer to customers when it’s ordered rather than having stocks that could have been sitting around for a few months. Drinkers get beer that tastes more like it just came out of the tap rather than out of a can or bottle, the company contends.
This new program requires some interesting logistics, so it’s taking a while to get the supply chain in order. That meant 5 percent lower sales during the quarter reported in early August.
Investors didn’t like that one bit, so the stock took a beating. But with the company expecting half of its distributors to be on board by the end of the year, what’s coming is better beer that should create more loyal customers.
Against the grain
One thing from which brewers cannot escape, be they craft brewers or your run-of-the-mill giant brand, is grain prices. So far, SAM has evaded rising barley prices pretty well over the past two years, considering that barley prices more than doubled during that period and show no sign of coming down in the near future.
Taking these high barley prices into consideration is what led in part to the company revising downward its earnings expectations for the rest of the year. Management also attempted to be pragmatic about consumer confidence. Even during tough economic times, the premium beer company was able to boost sales last quarter by 4 percent year-on-year, and net income was up sevenfold from the previous quarter.
Yet S&P in mid-August cut its rating on the Boston Beer Company to sell from hold, saying, “We think competition from specialty beers produced by larger brewers increased, with pricing pressure and increased advertising and other promotion, and we believe (the company) could have difficulty raising prices in the second half of 2011.”
SAM next reports earnings Nov. 1.
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