Boston Beer shares down 24% but still a ‘hold’

on 09/10/11 at 11:55 am

Booze News

The maker of Samuel Adams and other craft brews faces higher barley costs and competitive pressures, but has growth potential.

Question: Something bad has happened to my Boston Beer Co. shares, and I want to know if problems will continue.

Answer: The maker of Samuel Adams beer must contend with the higher cost of barley, a key ingredient in its brews, as well as competitive pressures.

Although it is the leading producer in the highly fragmented U.S. craft brew industry, it accounts for less than 1% of the total U.S. beer market. Growth potential therefore is a major consideration for its stock.

But with most of its production and sales in the eastern U.S., its capital expenditures for significant expansion in the U.S. and abroad would be high. The dominant forces in the beer business remain MillerCoors and Anheuser-Busch InBev, which are introducing their own craft beers and acquiring other trendy brewers.

Shares of Boston Beer Co., which produces beer, flavored malt beverages and hard ciders, are down 24% this year.

Profits rose 72% in the second quarter mostly because of a positive settlement with a former glass-bottle supplier. A decline in Sam Adams Light sales was partially offset by increases in its Twisted Tea, Boston Lager, Brewmaster’s Collection and Seasonals products. Marketing, advertising and freight costs rose in the quarter.

Boston Beer reduced its full-year expectations and said it is “exploring opportunities for price increases” because of the higher cost of the barley crop.

Consensus analyst opinion on Boston Beer stock is “hold,” according to Thomson Reuters, consisting of one “strong buy,” one “buy,” five “holds” and one “underperform.”

Boston Beer was launched in the mid-1980s and taken public in 1995 by founder Jim Koch, who is featured in its commercials. Koch last year rolled out the Freshest Beer Program, which reduces the lag between brewing and delivery to customers. The company’s website notes that over the years he has resisted several offers for the company from large brewers.

SOURCE: Andrew Leckey/LA Times


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