Boston Beer Company “overestimated the growth of the hard seltzer category in the second quarter” and the demand for the company’s Truly Hard Seltzer, CEO Dave Burwick said in a press release announcing the company’s Q2 earnings results.
As a result, Boston Beer’s “volume and earnings for the quarter” and its “estimates for the remainder of the year” were negatively affected, he added.
“We increased our production of Truly to meet our summer peak and have had lower than anticipated demand for certain Truly brand styles, which has resulted in higher than planned inventory levels at our breweries and increased supply chain costs and complexity,” Burwick said. “At the same time, we have been experiencing out-of-stocks on certain of our can products, most significantly on our Twisted Tea brand family. We expect wholesaler inventories of Twisted Tea to remain tight for the rest of the summer.”
Burwick added that the company’s outlook for the hard seltzer segment in the second half of 2021 is “uncertain” and the company has planned its “capacity and spending based upon several volume scenarios.”
During the second quarter, Boston Beer’s shipments and depletions increased 24% and 27.4%, respectively, the company reported. Q2 shipments totaled about 2.45 million barrels.
Boston Beer founder Jim Koch admitted that the 24% depletions growth in Q2 was a deceleration from Q1 and “below our expectations, as the hard seltzer category and overall beer industry were softer than we had anticipated.”
Koch ticked off a number of headwinds for the hard seltzer segment, including “(1) slowing growth in household penetration as the market matures and there is less new trial, (2) a gradual transition of volume to the on-premise channel as hard seltzer becomes a more regular option in that channel, (3) new hard seltzer brands at retail that resulted in a proliferation of choices and consumer confusion, and (4) a challenging comparative period of significant pantry loading related to on-premise restrictions in the second quarter of 2020.”
Through the first 26 weeks of 2021 (ending June 26), Boston Beer — whose brands include Samuel Adams, Truly Hard Seltzer, Dogfish Head Craft Brewery, Twisted Tea and Angry Orchard — reported that depletions are up 33%, while shipments have increased 41.3%. The company credited the growth to all of those brands, with the exception of Angry Orchard.
Boston Beer has shipped about 4.7 million barrels for the first half of the year. The company said the “significantly higher” shipments compared to depletions volume resulted in about five weeks of inventory on hand for its wholesalers. The company is now projecting between 25% and 40% depletion and shipment growth for the full year.
Nevertheless, Koch said that the company is “encouraged that four of our five major brands grew in the second quarter and we continue to expand our market share.” He added that Boston Beer’s portfolio of brands accounted for 4% of the total beer industry volume in measured off-premise channels in the first half of 2021, and “delivered over 45% of the industry volume growth, the highest of all brewers.”
Koch also pointed to “significant growth” in the on-premise channel and a reopening of the company’s retail locations during the second quarter.
Boston Beer reported a 33.3% increase in net revenue during the second quarter, to $602.8 million. Halfway through 2021, the company has posted $1.15 billion in sales, a 46.7% increase compared to the same period in 2020.
Boston Beer’s gross margin in Q2 was 45.7%, a decrease from 46.4% during the same 13-week period in 2020. The company attributed the decline to increased costs of production at third-party facilities for products such as Truly. For the year, the company’s gross margin is 45.8%, up slightly from the 45.7% during the first half of 2020. The company is now targeting between 45% and 47% gross margin for the full year.
Boston Beer stock closed at $947.54, prior to the release of the Q2 results. In after hours trading, the stock is down about 18%, as of this report.