The Boston Beer Company, Inc. SAM has been making strategic initiatives to aid growth. SAM’s consistent focus on pricing, product innovation and growth of non-beer categories, alongside brand development, bodes well. 

In the latest update, the company has made an amendment and restatement entirely in its present production agreement with Rauch North America Inc (Rauch), its third-party supplier. This comes as part of its continuous efforts related to supply-chain optimization. Consequently, management has revised the outlook for 2024.

Details on SAM’s Latest Update

We note that the production agreement has been amended to resonate well with SAM’s capacity requirements in the future. This leads to higher production flexibility and favorable termination rights to Boston Beer in return for a $26-million cash payment to Rauch on or before Dec. 23, 2024.

Consequently, SAM is likely to record pre-tax contract settlement costs of $26 million or $1.70 after tax per share impact in the final quarter of 2024. For the current year, management still anticipates shortfall fees to hurt the gross margin by 65-75 basis points (bps) and the non-cash expense of third-party production pre-payments to adversely affect the metric by 95-105 bps.

Boston Beer had discussions with its third-party production suppliers with respect to the capacity requirements ahead and the contracts’ terms. Hence, changes in volume estimates, forthcoming amendments or cancellations of the existing contracts might increase or change the overall shortfall fees likely to be made.

What Does Boston Beer Expect Ahead?

Management updated guidance for the current year to show the expected contract settlement expenses. SAM now envisions GAAP earnings per share (EPS) to be in the band of $3.80-$5.80 compared with the prior expected view of $5.50-$7.50.

Boston Beer still projects depletions and shipments to decline low-single digits on a percentage basis, with price rises of 2% for 2024. The gross margin is likely to be in the band of 44-45% while advertising, promotion and selling costs are expected to range from a negative of $5 million to a positive of $15 million in 2024. 

Adjusted EPS is still forecast to be in the bracket of $8-$10 for the current year. This view does not reflect the contract settlement of $26 million or $1.70 a share. The EPS view also excludes the impacts of non-cash brand impairments of $42.6 million or $2.49 a share, which were identified in the third quarter of 2024, mainly associated with the Dogfish Head brand.

The company anticipates an effective tax rate of 34% for 2024 compared with the prior estimate of 30%. Management continues to project capital spending to be in the band of $80-$95 million .

Boston Beer remains on track to finalize its financial plans for 2025. The aforesaid agreement is not likely to materially affect SAM’s earlier-issued estimate of $14 million shortfall fees in the next year, revealed in the third-quarter 10-Q. Management will further update on shortfall fees and the non-cash expenses of third-party production pre-payments as well as the outlook for 2025 in its fourth-quarter earnings release in February 2025.

What’s More to Know About SAM?

Boston Beer is keen on bringing new excitement to core flavors through innovation. The company expects to improve Truly brand trends through a renewed focus on core business, smart brand innovation and strong distributor support and retail execution. In addition, SAM commands a strong portfolio of globally recognized brands.

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This Zacks Rank #3 (Hold) company's Truly flavored bottle Vodka and Truly Vodka Seltzer have been performing well. With regard to revisiting the core flavors, it announced the reformulation and improvement of core Truly flavors, including the addition of real fruit juice for an even smoother, easy-to-drink and refreshing taste. Over the past three months, SAM’s shares have gained 9.5% against the industry’s 13.3% decline.

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