This story was updated at 8:49am on August 13, 2013.
The Boston Beer Co Inc (NYSE:SAM), which makes the famous Sam Adams beer and ranks as America’s largest craft beer brewer, is on track for “robust growth,” according to a Citigroup Inc (NYSE:C) research note.
The company could also slash beer prices to undercut its competition and gain market share and could boost its advertising budget in coming months, wrote Citi analyst Vivien Azer.
The company is scheduled to offer preliminary pricing guidance in three months, while a recent television advertising campaign in the latest quarter produced the most notable consumer response in a decade, Azer said.
Come November, Azer said, Boston Beer could offer lower price targets, though it’s unclear when potential prices cuts would translate to discounts on the shelves.
“We suspect pricing could again be below their leading beer competitors,” she wrote, noting growing price competition from beer rivals and Boston Beer’s push for more craft beer dominance.
Continue Reading Below
In advertising, she noted that a recent TV ad campaign impacted earnings and sales of the Boston Lager beer much more quickly than previous ad spends, which took three to six months before affecting company growth.
“If in fact advertising proves to be the key, then we would expect SAM to increase their investments here to fuel future share gains,” she wrote.
Despite the strengths of Sam Adams, Americans are drinking less beer generally, according to the Atlantic, with Americans increasingly adopting wine and spirits as their preferred alcoholic beverage. Americans under 30, in particular, are drinking less beer.
But even as beer’s share of the total drinking market fell from 55 percent in 2000 to about 49 percent in 2011, the craft beer industry has stuck close to 10 percent growth since 2007, a craft beer industry report by Demeter Group Investment Bank stated.
At current growth rates, craft beer is expected to account for 15 percent of the beer industry in the United States by 2020, the report said. That’s up from 10 percent of dollar sales in 2012, according to the craft beer trade group the Brewers Association.
But this notable enthusiasm for craft beer still compares poorly to the recent several months, wrote Azer, representing a risk for the Boston Beer company.
She noted a “notable slowdown in the growth of craft beer demand in the U.S.” as a reason Sam’s stock could underperform in the near term.
The firm’s executives have also consistently maintained that long-term growth is more important than impacts on profits in the short term.
“Time and again, we have heard this management team emphasize that they are willing to forgo earnings today for growth tomorrow, and that tune was unchanged,” Azer wrote.
In its second-quarter results last week, the company said it boosted revenues by 23 percent from the year before, with an earnings per share, or EPS, boost of 35 cents per share extra.
Management also upped its 2013 outlook last week, raising EPS projections for the full year to between $5.10 and $5.40.
A company spokesperson declined to comment on advertising or pricing plans to the International Business Times, beyond the information in the company's latest quarterly earnings. Their latest revised guidance indicates increased advertising spending of $20 million to $26 million for 2013, citing “planned increased investments behind the company’s brands.”