Boston Beer Earnings: Innovation and Wider Distribution Fuel Volume, but Seltzer Weakness Persists

We plan to reduce our $497 fair value estimate for narrow-moat Boston Beer by a mid-single-digit percentage after absorbing weaker-than-expected 2023 results and a soft 2024 outlook. However, we still view the shares as undervalued. For 2023, a sales contraction of 4% and adjusted earnings per share of $7.17 missed our estimates for a 2% fall and $7.44. We expect to trim our 2024 sales and EPS estimates by mid-single-digit percentages to incorporate a flattish volume outlook (versus a 3% rise in our prior estimate) due to persistent weakness in hard seltzer and higher investment in product development and marketing. That said, we are encouraged by the firm’s expanding innovation pipeline in hard tea and alcoholic ready-to-drink beverages and its efforts to add new territories and on-premises clients, which bodes well for its long-term growth. As such, we maintain our 10-year projections for a mid-single-digit compound annual growth rate for sales and low-teens average operating margin.