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2/26/2017 9:07 am  #1

Is the Craft Segment Softening?

Boston Beer tumbles on disappointing outlook, CEO calls out 'softening' craft sector

Boston Beer Company, with its Samuel Adams line, helped pioneer the craft beer category, and now it's warning that seeing a "general softening" for craft brews.

The company's shares fell more than 5 percent Thursday after it reported fourth-quarter results a day earlier and offered up a disappointing outlook for 2017.

During the quarter, sales of its Angry Orchard product line were weak, and cider trends so far this year are showing similar declines, the company said.

The full-year earnings forecast also reflected weakness in its flagship Samuel Adams line, including a new seasonal offering.

"Guidance for 2017 does not inspire confidence," Goldman Sachs analyst Judy Hong said in a research note Thursday. "Craft beer dynamics have not benefited SAM."

Craft beer has been a fast-growing segment in the U.S. market but Boston Beer has been struggling given the brand is not viewed as authentic craft by some consumers due to its size.

Management indicated on the earnings call late Wednesday that shipment/depletion trends "have remained weak" in the current year-to-date period.

"These trends are affected by the general softening of the craft beer category, and cider category, and a more challenging retail environment with a lot of new options for our drinkers," James Koch, the company's chairman and founder, said during the call.

Koch added the company was "particularly disappointed" with the performance of its new spring seasonal beer, Samuel Adams Hopscape.

"I don't really know how long the shakeout is going to take," he said. "It certainly will be more likely to be measured in quarters or years rather than months."

Susquehanna analyst Pablo Zuanic said in a note Thursday that the company's weak trends and outlook "is mostly self-inflicted," although he adds it comes amid "a more challenging period for craft beer in general."

Zuanic said one of strategic mistakes made by the company is "a fixation with its own 'craft mentality' when some of its brands (while premium) are already well-established and big enough to be managed differently."

Hong added, "Management's commentary around execution missteps on seasonals is concerning and we question whether increasing marketing investment is a prudent strategy in light of volume uncertainty and limited evidence of payback from prior investment."

Here's how Boston Beer did in the fourth-quarter period:

• EPS: $1.75 a share, versus $1.22 by Thomson Reuters analysts' consensus.
• Revenue: $219.4 million, versus $214.4 million expected by Thomson Reuters.

For the fourth quarter, Boston Beer's EPS beat Wall Street estimates and was up 45 percent from the prior year, while net revenue grew 2 percent. It said the earnings rise was primarily due to the increase in revenue and lower operating expenses that were only partially offset by decreased gross margin.

Depletions in the quarter were down by 1 percent, which the company said reflected decreases in Samuel Adams, Angry Orchard, Coney Island and Traveler brands. Boston Beer said that weakness was "only partially offset" by gains from Twisted Tea and the Truly Spiked & Sparkling brands.

Shares of Boston Beer closed about 5.4 percent lower at $157.90 a share, on more than double its average daily volume. The stock fell below $155 earlier in the session.

We live in a time in which decent and otherwise sensible people are surrendering too easily to the hectoring of morons or extremists. 

2/26/2017 8:05 pm  #2

Re: Is the Craft Segment Softening?

Maybe this will spur them to stop including the original Boston Lager iin their seasonal sampler 12 packs.

Life is an Orthros.

2/28/2017 1:06 pm  #3

Re: Is the Craft Segment Softening?

I can tell you that yes, without a doubt the craft segment of the beer market is softening. 

In my town, we have to beer stores. The one, your traditional Pennsylvania beverage distributor. The other, across the street, is a 6 pack selling craft store with 500 different beers and 20 taps for growler fills. 

I was in there a couple of weeks ago talking to the owner and he's said business is way down and now with grocery stores and the traditional distributorships now able to sell six packs and growlers, he's very worried that he may go out of business. 

He even noted that my trips into the store have become less frequent. Which is true. I'm trying less new stuff these days and sticking to a steady rotation to craft favorites (Victory Golden Monkey, Troeg's Nugget Nectar, Dogfish 60 Minute, Bell's Two-Hearted) which I can buy in cases.

I think some of the downturn is that we're going through this "Sour" phase where there are a lot of Sour beers being produced  and I'm not a sour fan. But I could also be misjudging that.

I wouldn't be surprised to see two things in the craft brew market in the next 12-18 months

1) - The winnowing of the market. I think we'll see a lot of very small craft breweries go under.

2) - The "Big 2" (Miller-Coors and InBev will swoop in and buy out a number of craft breweries that may have one or two popular brands, keep making those, and discontinue the more nice offerings.

Neither is good for the craft beer market but I do think in some regards we have reached the saturation point.

I think you're going to see a lot of different United States of America over the next three, four, or eight years. - President Donald J. Trump

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