SAM report after the close yesterday and the stock is up on a rope at +13.1% today. In a quarter that saw a nice turnaround in the performance of Samuel Adams in its Q2 2013 results versus last quarter, we’re a bit surprise by the move (clearly some short covering is involved) as we still expect challenges ahead given the competitiveness of the craft segment as well as increased fragmentation alongside new categories like cider and teas. SAM did raise its FY EPS guidance and also announced increased investment in the business for longer term profitability (more below), which we think is prudent for the business but could lead to bumpy quarters ahead.
The chart below shows our immediate term TRADE level of support. We could see the stock blasting shorts all the way up to the $183 - $204 range.
This quarter’s strength in Sam Adams as well as the bottlenecks it experienced to meet demand came as somewhat of a surprise to the company. On the call it increased its capital expenditure for 2013 and 2014 to improve efficiencies at its existing breweries to address its inability to meet demand this quarter (while running at full capacity and leveraging higher than planned usage of third party brewerie). It’s also increasing its keg purchases, and spends on media and marketing, its sales-force, and innovation (including the launch of its new can in May) in the back half of the year.
SAM increased its FY 2013 cap ex guidance to the range of $100MM to $140MM versus the previously communicated range of $85MM to $105MM, and $100MM to $130MM in 2014 versus prior estimates of $30MM to $50MM.
What we liked:
- EPS $1.45 beat consensus of $1.36
- Revenue $181.3MM vs consensus $175.7MM, or an increase of $33.8MM or 23% versus the prior-year quarter
- Q2 Depletion growth of 24% versus 16% in Q2 2012 primarily due to Angry Orchard (rolled out Q2 2012), Samuel Adams, and Twisted Tea
- Core shipment volume increased 21% versus the prior-year period
- FY EPS guidance increased to $5.10 - $5.40 versus previous estimate of $4.70 - $5.10
- FY depletion growth increased to 17% - 22% versus previous 10% - 15%
- New can, in line in terms of volume perspective, ~ 4%
What we didn’t like:
- In the quarter, GM backed off to 53.6% versus 54.5% in the prior-year quarter
- FY GM guidance reduced to 52% - 54% versus previous 53%-55% due to increases in product and ingredient costs
Matthew Hedrick
Senior Analyst
