USA: Boston Beer reports 5.9% drop in Q4 net revenue

The Boston Beer Company reported a fourth-quarter 5.9% drop in net revenue to $206.3 million, down $13.1 million from the same period last year, according to a company release.

Shipments declined 7.7% during the period to about 898,000 barrels, compared to the fourth quarter of 2016.

The company reported $30.5 million in net income for the fourth quarter, or $2.57 per diluted share, an uptick of $8.4 million, or 82 cents per diluted share, from the year-ago period. The bump was mainly due to a one-time benefit of $1.72 per diluted share from the corporate tax cut enacted in late December, plus a gross margin increase, although the company said that was partially offset by lower shipments and more media and digital advertising.

Boston Beer projects full-year 2018 earnings per diluted share to be between $6.30 and $7.30, reflecting the uncertain volume outlook, and added that actual numbers could vary significantly from the current projection.

Boston Beer continues to struggle in a market that's crowded and competitive, but it isn't for lack of trying. The sixth-largest beer company in the US recently innovated with Samuel Adams Sam '76, Samuel Adams New England IPA and Angry Orchard Rosé hard cider, although the new items haven't yet turned the situation around — despite Boston Beer spending $15.5 million more on market research, advertising and promotion.

However, CEO Martin Roper noted in the beer maker's latest earnings report that Angry Orchard Rosé will be the focus of a national launch this year, adding that the company believes the hard cider product "can attract new drinkers to the category from wine and beer."

He has good reason to hope it does. According to Brewbound, Boston Beer's last full year of growth was in 2015, when there were 4,225 U.S. craft breweries and collective sales were up 12% for six years running. Since then, segment growth slipped to 6% in 2016 and about 4% last year, while the number of craft breweries has now exceeded 6,000.

Roper, the company's president and CEO for the past 17 years, is retiring and will be replaced April 2 by Dave Burwick, the president and CEO of Peet's Coffee and a member of Boston Beer's board of directors since 2005. Meanwhile, Jim Koch, the company's founder and chairman, will remain in those roles.

One of the first challenges for Burwick is the tumultuous state of the craft brewing industry. Koch said in the earnings release that while the company continues to see a general softening of the craft beer and hard cider categories as more startup brewers appear and retailers offer more drinking options, he also sees Boston Beer improving its cost structure and investing the savings into its brands.

Still, after pumping money into marketing its established and new products with lackluster results, the company may switch directions and become part of a larger beverage firm looking to diversify into hard cider, hard iced tea and spiked sparkling water. Credit Suisse analyst Laurent Grandet speculated last fall that if the company's problems continued into this year, it could be bought by Molson Coors or a private equity firm. Boston Beer's market cap was estimated at $2.26 billion.

Burwick knows a thing or two about M&A. Peet's Coffee was bought in July 2102 by JAB Holdings, the private Luxembourg-based conglomerate that owns Keurig Green Mountain, Krispy Kreme and Panera and is about to merge Keurig with Dr Pepper Snapple in a $18.7-billion deal.

Burwick was named CEO of Peet's in December 2012, so he was in a good position to study the post-acquisition environment of a beverage company. However, since Koch has said that he plans to keep Boston Beer as an independent American craft beer company, and since he reportedly controls all the Class B voting shares, he would have plenty of influence over any potential sale.

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