Boston Beer Co (SAM) Earnings Preview: Potential Breakout Opportunity

Boston Beer Co (SAM) is set to release its Q3 earnings results, with analysts and investors anticipating a pivotal moment for the company. The FactSet consensus estimates adjusted earnings per share (EPS) of $5.00, representing a significant 35% increase, while revenues are expected to remain flat year-over-year at approximately $601.06 million.

This earnings call, scheduled for after market close, is critical for determining whether SAM’s recent performance improvements are sustainable and indicative of a long-term recovery.

Historical Context: Recovering from the Hard Seltzer Setback

Boston Beer Co has faced a challenging few years, particularly since its substantial miscalculation of the hard seltzer market’s growth potential in 2021. This misstep led to an extended sell-off, reflecting investors' disappointment with SAM’s overreliance on the Truly Hard Seltzer brand, which failed to live up to market expectations amid intensifying competition.

However, last quarter’s performance suggested a potential turnaround as SAM reported that depletions—a key metric reflecting the volume of cases sold to retailers by distributors—seemed to have bottomed out in April.

Despite a modest reduction in its full-year guidance for depletions (now projected to range from flat to low single-digit declines year-over-year), the adjustment was minor and more reflective of the slow pace of recovery rather than any fundamental weakness. This cautious optimism indicates that Boston Beer Co may have found a stable baseline from which to grow, but it remains contingent on several factors including supply chain performance and inflationary pressures on consumer behavior.

Diverging Fortunes Within the Product Portfolio

One of the most intriguing aspects of Boston Beer Co's trajectory is the contrasting performance of its two major product lines: Truly Hard Seltzer and Twisted Tea. Truly continues to struggle, facing heavy competitive pressure and a resulting 22.8% drop in volumes year-over-year last quarter. The hard seltzer market, once a booming segment, has seen increasing competition and market saturation, which has left Truly in a precarious position despite its early market leadership.

In stark contrast, Twisted Tea has emerged as a reliable performer for SAM. Last quarter, Twisted Tea’s dollar sales expanded by an impressive 15.1% year-over-year, even as it faced growing competition. Twisted Tea’s resilience is further bolstered by its increased shelf space, which serves as a protective buffer against competitors. The growth of Twisted Tea has been instrumental in offsetting some of the weaknesses seen in the Truly segment and underscores the importance of product diversification for Boston Beer Co’s overall performance.

Margin Expansion: A Silver Lining

Amidst fluctuating volume metrics, margins have offered a glimmer of hope for Boston Beer Co. Last quarter, the company reported a 60 basis point year-over-year expansion, bringing total margin improvement for the year-to-date period to 260 basis points. While this progress is encouraging, SAM acknowledges that its margins are still below where they need to be for long-term profitability. The management’s focus remains on strategic adjustments aimed at sustaining and expanding these gains over the next several quarters.

Margins will likely be a focal point in the upcoming earnings call, as they are not only indicative of operational efficiency but also of SAM's ability to manage costs amidst inflationary pressures that are squeezing consumer discretionary spending. Achieving further margin expansion could validate management’s strategic efforts and signal to investors that the company is on a path to sustainable recovery.

Technical Analysis: Potential Breakout Signals

Recent technical movements in SAM’s stock suggest that the market is pricing in optimism ahead of the Q3 earnings release. Notably, the stock recently broke above its 200-day moving average of $296.78, after bouncing strongly off its 50-day moving average of $279.53 the previous week. These technical levels serve as significant indicators of investor sentiment, and a sustained move above the 200-day moving average could confirm a bullish breakout if supported by strong Q3 earnings results.

The behavior of SAM’s stock suggests that traders are positioning themselves for a potential breakout, anticipating positive developments in the earnings report that could push the stock higher. The upcoming earnings call will therefore be pivotal in determining whether the current rally has the momentum to continue.

Risks and Considerations for Investors

Despite the optimism surrounding SAM's earnings release, there are several risks that could impact its stock performance. The company’s reaffirmed full-year GAAP earnings guidance range of $7.00 to $11.00 is highly sensitive to volume projections, inflation effects, and supply chain dynamics. Any negative revisions to these estimates could cause volatility in SAM’s stock, as investor sentiment remains closely tied to the company’s ability to stabilize its Truly Hard Seltzer volumes while maintaining growth in its Twisted Tea segment.

Additionally, the competitive landscape for both product categories continues to evolve, with new entrants and aggressive marketing strategies posing a threat to Boston Beer Co's market share. Truly’s underperformance indicates that SAM is not immune to market forces, and a prolonged struggle in this segment could weigh heavily on the company’s overall growth prospects.

Outlook: A Critical Juncture

Boston Beer Co’s Q3 earnings call is poised to be a decisive moment for the company as it navigates a post-seltzer-boom landscape. With the potential for EPS to show a significant year-over-year increase, SAM may be able to demonstrate that its strategic initiatives and product diversification efforts are beginning to bear fruit.

However, for this recovery to be viewed as sustainable, the company will need to show consistent improvement in margins, solidify growth in its Twisted Tea segment, and find a way to either stabilize or reposition the Truly brand in a competitive market.

Investors looking at SAM as a potential breakout stock should closely monitor the Q3 earnings details and management’s guidance. While the technical setup appears favorable, the fundamental factors—such as margin trajectory, product volume recovery, and external economic conditions—will ultimately determine whether Boston Beer Co can deliver the earnings and growth needed to justify further stock appreciation.