Boston Beer(US:SAM)2023-10-27 00:48Financial Data and Key Metrics Changes - The company reported a third quarter depletion decrease of 6% on a fiscal calendar basis and 3% on a comparable week's basis, which improved from a decrease of 7% in the second quarter [14][60] - Gross margin for the third quarter was over 45%, consistent for two consecutive quarters, with a reported net income of $45.3 million or $3.70 per diluted share [16][62] - General and administrative expenses increased by $4.9 million or 13.2% from the third quarter of 2022, primarily due to higher salaries and consulting costs [32] Business Line Data and Key Metrics Changes - Twisted Tea experienced 34% dollar sales growth, adding $3.2 share points and expanding its overall share to 29% of total FMB dollar sales in measured on-premise channels [17][43] - Truly's dollar sales declined 26% in the third quarter, with a loss of $3 share points, although the decline was less severe than in the previous quarter [50][87] - Sam Adams' total share across all channels was slightly up in the third quarter, supported by new campaigns and seasonal products [25] Market Data and Key Metrics Changes - The Beyond Beer category is expected to grow faster than the traditional beer market over the next several years, with the company planning to invest in Twisted Tea and Truly brands [9] - Hard seltzers have seen a decrease in shelf space from 11% to about 8%, while RTDs have increased by 1 to 2.5 points [3] Company Strategy and Development Direction - The company aims to sustain Twisted Tea's growth while improving Truly's volume trends and enhancing supply chain performance to improve gross margins [45] - There is a focus on innovation within the Beyond Beer categories, with new products like Twisted Tea Extreme being tested in select markets [20][54] - The company is modernizing its supply chain and targeting procurement savings to improve margins [26][56] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about the operating environment, noting that the current demand for beer may be weaker than in previous years [75] - The company expects to see continued improvements in depletion trends, with a narrowing of full-year guidance reflecting a more conservative outlook [33][87] - There is confidence in the long-term growth potential of the diversified beverage portfolio, with expectations for improved performance in 2024 [57][135] Other Important Information - The company repurchased 280,000 shares at a cost of $69 million, with approximately $290 million remaining on the share repurchase authorization [36][89] - The full-year effective tax rate is estimated to be approximately 28%, with updated non-GAAP earnings per share guidance of $7 to $9 [34] Q&A Session Summary Question: What is the company's approach to SKU replacement? - The company is replacing less productive SKUs with new ones that are expected to perform better, maintaining shelf space while focusing on productivity [67] Question: How are margins performing in the third quarter? - Margins were in line with expectations, driven by waste reduction and procurement savings [71] Question: What is the outlook for demand and pricing in the current environment? - The company is being prudent with pricing strategies, expecting a lighter pricing environment in the fourth quarter [76] Question: What is the split between third-party manufacturing and internal production? - The company aims to keep internal production around 90% to 100%, increasing from 65% to 70% internal production this year [78] Question: How does the company view the performance of Truly? - Management is optimistic about the changes made to Truly, with gradual improvements expected in the coming quarters [49][135]