Analyst Note| Jaime M. Katz, CFA |
After a series of rapid revisions to its current-year outlook and a faster-than-expected deceleration in the hard seltzer business, we have reassessed the medium-term potential for narrow-moat Boston Beer. Most recently, management rescinded its EPS guidance for the 2021 year due to weaker-than-expected demand, noting hard seltzer-related inventory write-offs, shortfall fees (to third-party brewers), and other costs would jeopardize profit potential over the rest of the year. Recall, guidance offered on July 22 had already reduced volume growth to a low-30s midpoint versus 45% previously, while EPS had moved to $18-$22 (from $22-$26 prior). In turn, we have materially lowered our 2021-22 volume and EPS outlook for Boston Beer. Our updated forecast assumes the seltzer business matures faster than before, and we are estimating enterprise volume growth of 15% in 2021, down from 30% prior, while 2022 volume grows at a more tepid 10%, versus the 23% pace we had modeled earlier. This results in a 2021 EPS estimate of $16.99 ($19.41 prior), before more stable demand delivers more than $20 EPS again in 2022.