Core Insights - Boston Beer Company (SAM) is experiencing an inflection point with improving operational execution despite uneven consumer demand, raising questions about the ability to offset weaker shipment and depletion trends with profitability and efficiency gains [1][3] Financial Performance - In Q3 2025, Boston Beer achieved a gross margin of 50.8%, an increase of 450 basis points year-over-year, marking the highest level since 2018 [1][8] - For the first nine months of 2025, the gross margin was 49.7%, and earnings per share (EPS) rose to $11.82 [1] - Volume pressures are evident, with depletions down 3% and shipments down nearly 14% in Q3 [1][8] Operational Strategy - The company has focused on margin expansion, cost discipline, and improving portfolio mix rather than solely relying on top-line growth [1] - Approximately 90% of domestic volume is now produced internally, enhancing scale efficiency and cost absorption [2] - The shift towards "Beyond Beer" products, such as Twisted Tea and Truly, supports higher margins compared to traditional craft beer [2] Market Position - Despite margin strength, sustained declines in top-line growth could limit operating leverage, prompting management to reinvest some margin gains into advertising and innovation [3] - The company's stock has gained 6.5% over the past six months, outperforming the Zacks Beverages - Alcohol industry's decline of 2.8% and the broader Consumer Staples sector's fall of 3.2% [4] Valuation - Boston Beer shares are trading at a forward 12-month price-to-earnings (P/E) multiple of 18.11X, which is a premium to the industry average of 14.89X, indicating investor confidence in the company's margin expansion and long-term growth potential despite near-term volume pressures [9]

Core Insights - The performance of the Southeastern Small-Cap Fund has been mixed, with the underlying developments of holdings being better than stock price returns, particularly in a challenging market environment [2][3] - The fund's portfolio has a lower percentage of big winners compared to the Russell 2000, with only 15% of its holdings up an average of 30% compared to over 35% of the index's holdings up 70%+ [3] - The fund has maintained a strong position in the mid-range performance category, outperforming the Russell 2000 in that segment [4] - The fund's exposure to decliners was limited, with only 10% of the portfolio in this category, resulting in lower average losses compared to the index [5] Performance Analysis - The fund's average performance in the -20% to +20% return bucket was better than the Russell 2000's 0% return, with key holdings like White Mountains, CNX, and Rayonier contributing positively [4] - The fund's cash position and stable investments like Kodak initially provided safety but later became performance headwinds [6] - The fund's leverage rules have been effective in avoiding pitfalls, and adjustments to the overweight rule have been made to enhance performance [7][8] Notable Contributors - Beclé, a tequila and whiskey manufacturer, was a significant contributor due to its undervaluation and strong market position [9] - GCI Liberty, a communications company in Alaska, benefited from its unique market position and insider support from John Malone [10] - Graham Holdings showed strong performance due to growth in its education and healthcare segments [11] - Mattel has positioned itself well with strong brand power and a robust balance sheet, leading to significant stock repurchases [12] - Oscar Health experienced above-market growth but was exited due to emerging industry risks [14] Notable Detractors - Boston Beer faced challenges due to declining volumes in its major brands, although management is actively addressing these issues [15] - Clearwater Paper struggled with a weak market for solid bleached sulfate paperboard, but management is focusing on share repurchases [16] - Park Hotels & Resorts was impacted by macroeconomic concerns affecting leisure travel, leading to a decision to exit the position [18] Portfolio Activity - The fund made seven new purchases during the year, including GCI Liberty and Beclé, while exiting eight positions, including Kodak and Oscar Health [20][19] Outlook - The fund anticipates continued engagement through research perspectives and podcasts, focusing on quality investments amid market volatility [21] - The fund's strategy emphasizes owning resilient, free cash flow-generating assets to navigate market fluctuations effectively [22]

Financial Data and Key Metrics Changes - In Q3 2025, depletions decreased by 3%, while shipments decreased by 14% compared to the previous year, primarily driven by declines in Twisted Tea, Truly Hard Seltzer, and Samuel Adams brands [8][24] - Revenue for the quarter decreased by 11.2% due to lower volumes, partially offset by increased pricing and favorable product mix [24] - The gross margin for Q3 was 50.8%, an increase of 450 basis points year-over-year, marking the highest level since 2018 [24][25] - Year-to-date, the company generated $11.82 in EPS, with gross margin at 49.7% [25] Business Line Data and Key Metrics Changes - Twisted Tea experienced a decline of 5% in dollar sales year-to-date in measured off-premise channels, losing share in a category that is down 3% [11][12] - Sun Cruiser has become the leading RTD spirits, tea, and lemonade brand in on-premise bars and restaurants, with significant growth in distribution and velocity [17][18] - Angry Orchard returned to growth, driven by increased investment and new sponsorships, with depletions growing in Q3 [22] Market Data and Key Metrics Changes - The overall beer industry is estimated to be down over 4% in volume, while the company’s depletions were down 3% [8][9] - The hard seltzer category declined by 4% in dollars in measured off-premise channels, as consumer preferences shift towards premium RTD spirits-based beverages [20] Company Strategy and Development Direction - The company is focused on innovation, advertising investment, and margin improvement, with a strong emphasis on the beyond beer category, which represents over 85% of its volume [6][7] - Plans include expanding Sun Cruiser and launching additional innovation brands, alongside local market activation programs [8][19] - The company aims to maintain share within its brand families and is investing in marketing to support Twisted Tea and Truly [55][56] Management's Comments on Operating Environment and Future Outlook - The management noted ongoing challenges in the macroeconomic environment, impacting consumer demand, particularly among Hispanic consumers [6][12] - Despite current headwinds, the company sees long-term growth opportunities in the beyond beer category and plans to continue investing in its brands [7][19] - Management expressed confidence in the strategies and team in place to improve share trends and expand margins [23] Other Important Information - The company generated over $230 million in operating cash flow in the first nine months, allowing for significant share repurchases [10][30] - The company has narrowed its volume guidance range and raised its gross margin and EPS guidance for the full year [27][29] Q&A Session Summary Question: Clarification on promotional spend and pack sizes - Management confirmed that promotional spending will continue to support brands, particularly Twisted Tea, and mentioned the introduction of a four-pack of 16-ounce cans priced under $10 to attract consumers [34][38] Question: Gross margin performance and future targets - Management highlighted that strong gross margin performance was driven by procurement savings and brewery efficiencies, with a target of maintaining high 40s gross margin [44][46] Question: Top-line growth outlook and brand support - Management expressed optimism about Sun Cruiser's growth potential and emphasized the importance of maintaining share for Twisted Tea and Truly through increased brand support [52][55] Question: Impact of hemp beverages and Hispanic consumers - Management estimated that about 20% of Twisted Tea drinkers are Hispanic and noted that macroeconomic conditions and health concerns are significant factors affecting demand [72][73] Question: Fourth quarter earnings outlook - Management reiterated that the fourth quarter is typically the lowest revenue quarter, with expectations of continued volume challenges [78][79]

Financial Data and Key Metrics Changes - In Q3 2025, depletions decreased by 3%, while shipments decreased by 14% compared to the previous year, primarily due to declines in Twisted Tea, Truly Hard Seltzer, and Samuel Adams brands [8][24] - Revenue for the quarter decreased by 11.2% due to lower volumes, partially offset by increased pricing and favorable product mix [24] - The gross margin for Q3 was 50.8%, an increase of 450 basis points year-over-year, marking the highest level since 2018 [24][25] Business Line Data and Key Metrics Changes - Twisted Tea experienced a decline of 5% in dollar sales year-to-date in measured off-premise channels, losing share in a category that is down 3% [11][12] - Sun Cruiser has become the leading RTD spirits brand in on-premise channels and is now the fourth largest brand in the RTD spirits category, with significant growth in distribution [17][18] - Angry Orchard returned to growth in Q3, driven by increased investment and new sponsorships [22] Market Data and Key Metrics Changes - The overall beer industry is estimated to be down over 4% in volume, while the beyond beer category, which represents over 85% of the company's volume, is expected to grow as it attracts a younger and more diverse consumer base [6][7] - The hard seltzer category declined by 4% in dollars in measured off-premise channels, as consumer preferences shift towards premium RTD spirits-based beverages [20] Company Strategy and Development Direction - The company is focused on innovation, supporting its brand portfolio with advertising investments, and driving margin improvement [4][5] - Plans include expanding the Sun Cruiser brand and launching additional innovation brands in 2026 [8][19] - The company aims to maintain share within its brand families and is investing in marketing to support Twisted Tea and Truly [56] Management's Comments on Operating Environment and Future Outlook - The management noted ongoing challenges in the macroeconomic environment, impacting consumer demand, particularly among Hispanic consumers [6][12] - Despite current headwinds, the company sees long-term growth opportunities in the beyond beer category and plans to continue investing in its brands [7][19] - Management expressed confidence in the strategies and team in place to improve share trends and expand margins [23] Other Important Information - The company generated over $230 million in operating cash flow in the first nine months of the year, allowing for brand investments and share repurchases [10] - The company has narrowed its volume guidance range and raised its gross margin and EPS guidance for the full year [27][29] Q&A Session Summary Question: Clarification on promotional spend and pack sizes - Management indicated that promotional spending will support Twisted Tea, including a new four-pack of 16-ounce cans priced under $10, and they are exploring smaller pack sizes [34][39] Question: Gross margin performance and future targets - Management highlighted that strong gross margin performance was driven by procurement savings and brewery efficiencies, with a target to maintain high 40s gross margin [44][46] Question: Top-line growth outlook - Management expressed optimism about Sun Cruiser's growth potential and plans to maintain share for other brands, despite challenges faced by Twisted Tea and Truly [53][56] Question: Impact of hemp beverages and Hispanic consumers - Management estimated that about 20% of Twisted Tea drinkers are Hispanic, and the overall macroeconomic situation and health concerns are significant factors affecting demand [72][73]

Financial Data and Key Metrics Changes - The beer industry is projected to experience a mid single-digit decline in 2025, following several years of significant declines prior to this year [24] - The company has raised its 2025 gross margin guidance, indicating improvements in operational efficiency and cost management [45] Business Line Data and Key Metrics Changes - The fourth category of alcoholic beverages, which includes hard cider and other innovative products, is expected to outgrow traditional beer, wine, and liquor [23] - Twisted Tea, which had been growing at double digits for over twenty years, has recently faced a decline, with growth dropping from high single digits to low single digits [37] Market Data and Key Metrics Changes - The Hispanic consumer base is under economic pressure, which may impact population growth and consumption patterns in the alcohol industry [10] - The company is focusing on the on-premise market, which has been neglected by the industry, to strengthen brand presence and consumer engagement [28] Company Strategy and Development Direction - The company is prioritizing innovation in the fourth category of alcoholic beverages, leveraging its existing infrastructure and logistics advantages [23] - There is a strategic focus on internal succession planning, with efforts to develop multiple CEO candidates from within the organization [4] Management's Comments on Operating Environment and Future Outlook - The management acknowledges ongoing challenges in the alcohol consumption landscape, citing health concerns and economic pressures as significant factors affecting the industry [10][32] - The company is optimistic about its growth potential in the fourth category, despite the overall decline in traditional beer consumption [23] Other Important Information - The company has repurchased $110 million of stock in the first half of the year and announced an additional $50 million share buyback, reflecting a commitment to returning value to shareholders [57] - The management is cautious about pricing strategies for Twisted Tea, indicating that previous price increases may have been too aggressive [40] Q&A Session Summary Question: How does the company view the current state of U.S. alcohol consumption? - The management expressed concerns about the structural headwinds affecting consumption, particularly among the Hispanic population and health-related discussions surrounding alcohol [10][32] Question: What lessons have been learned from the Truly experience that are being applied to SunCruiser? - The company is focusing on a market-by-market rollout for SunCruiser, avoiding national advertising and being cautious about flavor proliferation [34][35] Question: What actions are being taken to optimize Twisted Tea's pricing and retail presence? - The management is addressing pricing strategies to ensure they remain competitive while also strengthening marketing efforts targeted at Hispanic consumers and traditional demographics [39][40] Question: How does the company plan to sustain gross margin improvements amid ongoing challenges? - The company is focusing on procurement efficiencies, production improvements, and network optimizations to drive further cost savings [46][50] Question: What is the company's approach to capital allocation and share buybacks? - The management emphasized a shareholder-first approach, prioritizing business needs while also returning excess cash to shareholders through buybacks [57][58]

Financial Data and Key Metrics Changes - The company has raised its 2025 margin guidance, indicating improvements in gross margins despite challenges from tariffs and inflationary pressures [47][59] - The company is generating significant cash flow, with a healthy cash balance allowing for stock repurchases totaling $110 million in the first half of the year and an additional $50 million buyback announced [59] Business Line Data and Key Metrics Changes - The fourth category of products, which includes hard cider and other innovative beverages, is expected to outgrow traditional beer, wine, and liquor, indicating a strategic shift towards more innovative offerings [23][24] - Twisted Tea has experienced a decline in growth rates, prompting the company to reassess pricing strategies and marketing efforts to regain market share [38][41] Market Data and Key Metrics Changes - The beer industry is projected to face a mid-single-digit decline, with the company acknowledging the need for improved execution at retail to counteract this trend [25][30] - The Hispanic consumer base is under economic pressure, which may impact overall consumption trends in the alcohol industry [10][33] Company Strategy and Development Direction - The company is focusing on innovation within the fourth category of beverages, leveraging its brewing capabilities to create products that align with consumer tastes [23][24] - There is a strategic emphasis on strengthening retail execution and marketing efforts, particularly in the on-premise segment, to build brand equity and consumer connections [30][32] Management's Comments on Operating Environment and Future Outlook - Management acknowledges ongoing challenges in the operating environment, including economic uncertainty affecting the majority of consumers, and recognizes the need for targeted promotions to drive volume [33][34] - The company is committed to maintaining share in core brands while pursuing growth through innovation, indicating a balanced approach to market challenges [52][58] Other Important Information - The company is working on developing multiple internal CEO candidates to ensure a strong succession plan, reflecting a long-term strategic focus on leadership continuity [4] - Management has noted the importance of balanced research on the health effects of alcohol, suggesting a need for the industry to invest in neutral research to counteract negative perceptions [27] Q&A Session Summary Question: How does the company view the current state of U.S. alcohol consumption? - Management expressed concerns about the structural headwinds affecting consumption, particularly related to health discussions and economic pressures on the Hispanic population [9][10] Question: What lessons have been learned from the Truly experience that are being applied to SunCruiser? - The company is focusing on a market-by-market rollout for SunCruiser, emphasizing a bottom-up approach and cautious SKU proliferation to ensure sustainable growth [35][36] Question: What actions are being taken to optimize Twisted Tea's pricing and retail presence? - Management is addressing pricing strategies that may have been set too high, particularly for 12 packs, and is working to restore brand equity through targeted marketing efforts [40][41] Question: How does the company plan to sustain gross margin improvements amid ongoing challenges? - The company is focused on procurement efficiencies, production improvements, and network optimizations to drive further cost savings and sustain margin growth [47][51]

Core Insights - Sin stocks, representing companies in industries like alcohol, tobacco, cannabis, and gambling, are often viewed as unethical but have a history of delivering strong returns due to consistent demand [2][3][4] - These stocks are characterized by their defensive nature, maintaining stable demand even during economic downturns, which allows for strong pricing power and consistent cash flows [3][4] - Despite their potential for robust returns, sin stocks face challenges such as heavy regulation, negative public perception, and ethical concerns that may deter some investors [5][10] Industry Overview - Sin stocks have shown resilience during both economic expansions and contractions, making them appealing for investors willing to overlook ethical concerns [4] - The alcohol sector is experiencing a shift towards premium and craft offerings, while tobacco companies are adapting to declining cigarette use by investing in vaping products [8] - The cannabis industry is rapidly expanding in regions where legalization is increasing, presenting both growth opportunities and volatility [8][9] Company Analysis - **Diageo Plc (DEO)**: Focuses on market share growth through innovation and premiumization in the alcohol sector [6] - **Las Vegas Sands (LVS)**: Concentrates on property upgrades and strategic investments to drive growth in the gambling sector [6][18] - **Turning Point Brands (TPB)**: Building a growth story around established brands and next-generation products, with a focus on smoke-free alternatives [12][13][14] - **Boston Beer Company (SAM)**: Maintains a strong position in the U.S. craft beverage market, emphasizing innovation and operational efficiency to adapt to consumer preferences [15][16][17] - **MGM Resorts International (MGM)**: Holds a leading position in global gaming, enhancing its competitive edge through capital investments and expansion in digital gaming [18][19][20]

Financial Data and Key Metrics Changes - Depletions in the second quarter decreased by 5%, while shipments decreased by only 0.8% compared to the previous year, primarily driven by declines in the Truly Hard Seltzer and Sam Adams brands [30] - Revenue for the quarter increased by 1.5% due to increased pricing and favorable product mix, partially offset by lower volumes [31] - Gross margin for the second quarter was 49.8%, an increase of 380 basis points year over year, benefiting from improved brewery efficiencies and price increases [31] - Earnings per share (EPS) was reported at $5.45, a 24.1% increase compared to the prior year [32] Business Line Data and Key Metrics Changes - Twisted Tea held share in the overall FMB category, with dollar sales declining by 4% in measured channels last quarter [15] - Sun Cruiser has quickly grown to a 4% share of the RTD spirits category and continues to grow volumes week over week as distribution expands [20] - Dogfish Head grew depletions in the second quarter for the first time in many years, driven by the successful launch of Grateful Dead juicy pale ale [25] - Angry Orchard returned to growth in depletions, driven by increased investment and new sponsorships [26] Market Data and Key Metrics Changes - The overall beer industry is estimated to be down over 4%, while the company gained share [8] - The hard seltzer category declined by 7% in dollars in the second quarter as consumer preferences shift towards more premium RTD spirits [22] - The Hispanic consumer segment has been under pressure, impacting overall volume performance [14] Company Strategy and Development Direction - The company is focusing on long-term growth opportunities in the Beyond Beer category, which represents over 85% of its volume [7] - Continued investment in brand support and innovation is emphasized, particularly for Sun Cruiser and Twisted Tea [10][19] - The company is committed to a disciplined approach to investments, only pursuing clear opportunities [10] Management's Comments on Operating Environment and Future Outlook - The management acknowledges a challenging macroeconomic environment, with factors such as economic uncertainty and poor weather negatively impacting consumer demand [6][7] - Despite near-term challenges, the management remains confident in the company's strategies and innovation pipeline to create long-term value for shareholders [11][28] - The company has updated its volume guidance to reflect a more dynamic industry environment, expecting volume to be down in the high single digits to low single digits for the year [33] Other Important Information - The company generated over $125 million in operating cash flow in the first half, enabling investments in brands and cash returns to shareholders [9] - The company ended the quarter with a cash balance of $212.4 million and an unused credit line of $150 million, providing flexibility for future investments [40] Q&A Session Summary Question: Update on business performance and Twisted Tea's decline - Management acknowledged a slow start to summer and noted that the industry is down 4-5%, but the company has gained volume and dollar share [46] - The decline in Twisted Tea is partially attributed to competition from the vodka tea category, but management believes the brand can recover as the market normalizes [49][51] Question: Clarification on updated guidance and depletion trends - Management explained that the updated guidance reflects softer depletion trends in Q2, leading to a wider range for future expectations [56][58] Question: Long-term growth potential for Sun Cruiser - Management expressed confidence in Sun Cruiser's growth potential, emphasizing a measured approach to its rollout and strong consumer reception [66][70] Question: Impact of tariffs on financial outlook - Management discussed the complexities of tariff impacts, noting adjustments based on supplier negotiations and changes in aluminum pricing [72][76] Question: Future gross margin potential - Management indicated that while current margins are strong, future performance will depend on tariff impacts and volume recovery [82][83] Question: Strategic actions in response to industry challenges - Management acknowledged the need for potential strategic actions in the industry due to ongoing structural headwinds [104]

Core Insights - Boston Beer Company is expected to report revenue growth of 3.1% year-over-year for Q2 2025, with estimated revenues of $596.8 million, while earnings per share are projected to decline by 0.5% to $4.37 [1][5] Group 1: Earnings Performance - The company delivered an earnings surprise of 176.9% in the last reported quarter, with an average trailing four-quarter earnings surprise of 32.6% [2] - The Zacks model indicates a negative Earnings ESP of -4.15% and a Zacks Rank of 4 (Sell), suggesting a lower likelihood of an earnings beat this time [7] Group 2: Strategic Initiatives - Boston Beer is focusing on strategic pricing, product innovation, and brand development to enhance market position and performance [3] - The company is expanding its presence in the Beyond Beer category, which is growing faster than the traditional beer market [3] Group 3: Financial Metrics - The Zacks Consensus Estimate for shipment volume is projected at 2.2 million barrels for the quarter, an increase from 1.7 million barrels in the previous quarter [4] - The stock is trading at a forward 12-month price-to-earnings ratio of 19.11X, above the industry average of 15.47X, indicating a premium valuation [8] Group 4: Market Challenges - Boston Beer faces challenges from a slowdown in the hard seltzer category and declining demand for its Truly brand, as consumer preferences shift [5][9] - Macroeconomic factors such as inflation and reduced discretionary spending are impacting sales mix and depletions [6]

Group 1: Market Overview - Goldman Sachs released a report indicating that the U.S. beer market performed poorly over Memorial Day weekend, failing to meet expectations [1] - Approximately 55% of distributors believe that sales trends for this year's Memorial Day are weaker compared to last year, with about 13% stating that beer sales trends are significantly weaker [1] - The challenging macroeconomic environment is identified as the primary factor affecting beer sales, with reduced disposable income leading consumers to prioritize non-essential purchases [1] Group 2: Brand Performance - Anheuser-Busch (BUD.US) showed the strongest sales trend during Memorial Day weekend, with 35% of distributors reporting an increase in sales compared to last year [1] - In contrast, Heineken (HEINY.US) performed poorly, with 66% of distributors indicating a decline in sales compared to the previous year [1] - Distributors expressed a cautious outlook for the summer sales season, with 56% expecting sales to be weaker than the same period last year [1] Group 3: Future Projections - Beer category sales are projected to further decelerate, with a decline of 1.9% expected this year and a 1.0% decline anticipated for 2024 [1] - Goldman Sachs maintains a "buy" rating on Constellation Brands (STZ.US) due to potential positive signals in monthly sales trends [2] - The firm also holds a "buy" rating on Molson Coors Beverage Company (TAP.US), as Miller beer is gaining market share [3]