EUR 850.00 For Business Accounts Only

Morningstar | Boston Beer's Top Line Gaining Momentum, but We Expect Volumes to Decelerate Longer Term.

Boston Beer is one of the largest craft beer producers in the United States, and we think its brand intangible assets have allowed the company to secure a narrow economic moat. In recent years, intensifying competition in the craft beer segment has weighed on the company's volume, as Boston Beer has faced stepped-up competition from local microbreweries as well as the largest beer producers, which control the lion’s share of the domestic beer market. We think this positioning can be viewed as a strength, rather than a disadvantage, for several reasons. For one, Boston Beer has established long-standing relationships with distributors and on-premise channels over decades (its flagship beer, Samuel Adams Boston Lager, was first introduced in 1984) that would be difficult for smaller brewers to replicate. Compared with these breweries, the company also has substantially more resources with which to invest in its brands. Although the number of craft breweries has been increasing at a rapid clip recently (up 16% in 2017), and Boston Beer’s top line has slowed, we believe scale and brand-building activities will become increasingly important as retailers and on-premise establishments rationalize the brands they offer on shelves and taps.Though Boston Beer’s growth has slowed from the steady clip enjoyed over the past decade (averaging above 10% between 2008 and 2017), we think the company now has the ability to focus on its bottom line. Efforts to improve brewery efficiency and trim costs have already allowed for significant operational flexibility to adjust for suboptimal utilization; for example, though 2017 volume slipped more than 6%, gross margin expanded about 140 basis points to above 52%. We believe Boston Beer’s continued profitability will provide the resources needed to invest behind its portfolio (with advertising and promotion costs averaging 12% of sales over the past five years), return its flagship brands to growth, and maintain its competitive edge over craft rivals. We expect Boston Beer’s top line to recover in 2018 and forecast around 5% average revenue growth (with a roughly 1% average contribution from price/mix) after 2018.