Boston Beer Earnings: Margins Expanded on Improving Sales Trends and Efficiency Gains

Narrow-moat Boston Beer posted better-than-expected third-quarter results as product innovation coupled with supply chain cost savings drove better pricing and margins. Sales growth of 1% reversed the negative first-half trend, and adjusted EPS rose 23%, both outpacing our estimates for sales and adjusted EPS to fall by 2% and 5%, respectively. Management nudged up 2023 pricing and gross margin guidance to 2.5% and 42.5% at the midpoints, up from 2% and 42%, respectively, which we take as a positive sign that sales and margin recovery are expected to take hold. We plan to tweak our 2023 projections to align with the updated outlook but see no need to change our 10-year projection for mid-single-digit topline growth and low-teens average operating margins. We expect to maintain our $497 fair value estimate and view shares as undervalued at a 26% discount.