SAM: Impressive Results on Easy Comp; 2H More Challenging

Takeaway: Q1 strong on easy comp; on balance we like SAM's ability to navigate its growing pains -- the remainder of the year will be more challenging

SAM had a strong quarter of results for what is typically its smallest quarter of revenue in the year: it grew net income 20.3% to $8.3M (albeit on a very easy comp of -7.8%) on net revenue of $183.8B, or +35.2% Y/Y, which beat our estimate of $177.1B (+30.0%).

 

There were lots of exciting offerings in the quarter:  it introduced a new spring seasonal Samuel Adams Cold Snap, late in the quarter launched Samuel Adams Summer Ale; and launched Samuel Adams Rebel IPA.  The strong volume performance in the quarter (+32% Y/Y) clearly got a lift from this suite of products (alongside strong performance from Angry Orchard, Twisted Tea and the launch of Twisted Tea Lemonade), however going into the remainder of the year the company will get less of a benefit as it does not plan to launch any more seasonals.    

 

To support these launches SG&A was bumped up significantly in the quarter, to +32.8% or $77.1M, which was also against a light comp of +16.8% in the prior year quarter (avg last year was 23.8%). 

 

Other Notables:

  • Company achieve price increases of ~ 2%
  • Gross Margin was down in the quarter by 70bps Y/Y to 49.2% on higher input costs
  • Operating Margin grew 20bps Y/Y
  • Tax rate increased to 37% versus 28% in the year-ago quarter
  • Company maintained the FY Gross Margin range of 51% to 53%
  • Company maintained the FY diluted EPS range of $6.00 to $6.40
  • Company narrowed its FY Capital Expenditure range to $160M to $200M versus previous guidance of $160M to $220M

We continue to like SAM but are cognizant that Q1 had relatively easy comparisons. We expect SAM’s GM in particular to be challenged over the remaining quarters on more difficult comps and rising input costs. We also expect shipping costs, which fall under Advertising and Promotional Spending (up a significant 41% in the quarter Y/Y) to remain elevated as the company cites less availability of carriers.

 

We’re seeing strong demand across the portfolio, but cognizant that the company will experience growing pains as it expands its brewing capacity. Rising input costs will also be a headwind and the company must manage its advertising throughout the year after an impressive rollout of new products in Q1.

 

Howard Penney

Managing Director

 

Matt Hedrick

Associate

 

Fred Masotta

Analyst