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Earnings Results: Boston Beer slashes earnings forecast as the downfall of hard seltzer continues

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Boston Beer Inc. executives slashed their annual earnings forecast Thursday, admitting that demand for hard seltzer continued to fizzle below their expectations.

Boston Beer
SAM,
+0.39%

reported second-quarter earnings lower than Wall Street expected, and adjusted its annual guidance to reflect a less rosy view. It now expects earnings for the full year of $6 to $11 a share, after previously guiding for $11 to $16 a share.

“I continue to be optimistic about the long-term growth outlook for Boston Beer’s diversified beverage portfolio, despite the greater-than-expected continuing decline in demand in the hard seltzer category that we have seen year to date,” founder and Chairman Jim Koch said in a statement. “Based on our first-half performance and our view on the remainder of the year, we have reduced our fiscal-year 2022 volume and earnings guidance.”

The alcoholic-beverage company bet big on hard seltzer with its Truly brand after the success of White Claw, but the market for seltzer turned in 2021 and took Boston Beer stock with it. Executives admitted their mistake a year ago, but the stock has continued to struggle since, declining 63.7% in the past year while the S&P 500 index
SPX,
+0.99%

dropped 7.8%.

Despite last year’s hard lesson on hard seltzer, executives still appeared to overestimate the appeal of the drink, which has fallen out of favor as drinkers turn to ready-to-drink cocktails instead of the malt-based beverages. MKM Partners Managing Director Bill Kirk has repeatedly pointed out that executives’ forecasts were likely too optimistic.

“We are worried that the Seltzer category may decline double-digits y/y this summer, when Boston expects it to be flat to slightly up,” Kirk wrote in a note at the end of May. “We also worry that Boston Beer will struggle to gain share.”

Kirk followed up that note with a more recent one titled “Seltzer’s Summer is Cooked — Fourth of July Didn’t Save Seltzer,” which focused on early holiday-weekend data from alcohol-delivery company Drizly that showed an even steeper dropoff for seltzer from earlier in the year.

“The lack of sequential excitement suggests significant y/y declines coming,” he wrote, while predicting annual earnings of $9 a share for the company. “Yet, Boston Beer expects the Seltzer category to be up slightly in 2022, and for them to gain share (neither is happening).”

For the second quarter, Boston Beer reported profit of $53.3 million, or $4.31 a share, down from $4.75 a share a year ago. Revenue rose to $616.2 million from $603 million a year ago despite shipment and depletion decreases, as Boston Beer has increased prices in the past year; executives expect price increases to continue, guiding for 3% to 5% price hikes nationally through the rest of the year.

Analysts on average expected earnings of $4.47 a share on sales of $603 million, according to FactSet. Shares declined more than 7% in after-hours trading, following a 0.4% increase to $336.18 in the regular session.

Executives did cite some successes amid Truly’s issues, namely the company’s Twisted Tea offering and the new hard Mountain Dew drink made in partnership with PepsiCo.
PEP,
+0.15%
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Boston Beer reported that overall depletions fell 7% in the quarter, but were up 14% when removing Truly hard seltzer results.

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