Boston Beer Looks Frothy

Narrow-moat

Depletions for the quarter fell 2% over last year (based on comparable 13-week periods), as Boston Beer’s core Samuel Adams and Angry Orchard brands continue to face headwinds, but reflect a more positive trend than seen in previous quarters (comparable depletions declined 3.5% in the third quarter). This supports our contention that the firm’s investments in advertising and promotion--which totaled nearly 15% of sales for the year, an uptick of 320 basis points over the year prior--stand to improve the trajectory of its volume and enhance the brand intangible assets that underpin its competitive edge. However, we remain wary of the softening hard cider category, which management estimates to have declined 6% in 2017 (on top of declines in the year prior), and continued competition in the maturing craft beer market, which management estimates grew 5% in 2017, versus a double-digit clip between 2010 and 2015. This bolsters our view that the firm’s longer-term volume growth will be constrained to the low single digits.

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