Boston Beer Earnings: Early Signs of Sales and Margin Bottoming Out, Ad Spending to Drive Growth

Narrow-moat Boston Beer posted better-than-expected second-quarter results, with moderating sales decline and margin rebound that indicate product refreshment and supply chain cost saving measures are starting to bear fruit. A revenue decline of 2% (versus the 5% fall in the first quarter) and EPS expansion of 9% (versus a loss) both exceeded our estimates (for sales and EPS to fall by 4% and 8%, respectively). We see no need to change our 2023 preprint estimates that are in line with management guidance and expect the brewer to take a few more quarters to reposition its Truly portfolio amid ongoing hard seltzer industry consolidation. We are incrementally more constructive on the firm’s long-term outlook as a leader in the premium beyond beer category and believe our 10-year projection for mid-single-digit top-line growth and low-teens average operating margins remain achievable. We maintain our $497 fair value estimate and view shares as undervalued, trading at a 24% discount after a 20% pop on the earnings update.