Persistent Hard Seltzer Weakness Throws Boston Beer Another Curveball; Shares Cheap

While we believed we were largely through significant hard seltzer category declines, second-quarter results at narrow-moat Boston Beer indicate the company is not yet out of the woods. The hard seltzer segment saw unit and dollar volumes fall 17% and 13%, respectively, in off -premises channels, leading to weaker-than-hoped-for depletions. To this effect, second-quarter depletions contracted 7%, lapping 24% depletion growth, though excluding the declines in Truly (hard seltzer) depletion volumes, the rest of Boston Beer product depletions increased 14% in the period. Given the continued uncertainty around hard seltzer demand, the company now foresees category volume declines of 15%-20% in 2022, a material swing from the flat to 10% increase it had previously anticipated. This was a key contributor in Boston Beer’s revised depletion and shipment outlook for 2022, which is set to contract 2%-8%, woefully below the 4%-10% increase previously indicated and our 6% preprint projection. As a result, 2022 adjusted EPS guidance was sliced by roughly 40% at the midpoint, set to fall between $6 and $11, down from $11-$16 prior.