Product mix, reinvestment, strong balance sheet: An investor’s look at Boston Beer’s strategy

How does one investor value Boston Beer? And are there any lessons for your company?

The average (and even above average) craft brewing business doesn’t have a ton in common with Boston Beer Co., producer of Sam Adams and the top craft brewer in the industry (by the Brewers Association definition), at least in terms of its size, market position and company strategy. But there is value in understanding what the company is doing to grow and how those moves are viewed through the objective eyes of an investor.

In this great piece on Seeking Alpha, Bill Maurer, takes a deep dive into Boston Beer’s numbers, and what he sees as the continued growth story of the company.

Key among his outlook is Boston Beer’s now very diverse brand portfolio and product mix:

When you think of the Boston Beer Company, the first thing you probably think of is the Samuel Adams beer line. This year, the company is celebrating the 30th anniversary of Boston Lager, the company’s flagship product. However, this company is more than just the Sam Adams line. Have you heard of Twisted Tea or Angry Orchard seen in the picture below? Those malt beverages and hard ciders are part of this company, and right now are providing a solid amount of growth.

If you recall, Boston Beer had a hugely successful first quarter in terms of revenue growth, which is officially a Q1 trend now for the company:

In the last three years, Q1 net revenue per barrel is up by about 7.5 percent. Not only is the company growing revenues by increasing shipments, but the ability to get higher prices per barrel has also helped.

Maurer also notes how these reported revenue figures consistently beat analyst estimates, which is something investors really like to see.

In the company’s most recent Q1 period, revenues beat analyst estimates by nearly $5 million. If this trend continues, you would think 2014 ends with more than $900 million easily. Perhaps the company could even do $925 million to if the year turns out very strong … Current estimates call for just over $1 billion for the year in 2015, but I think you might see the $1 billion number (on a trailing 12 month basis) hit by Q3 2015 or perhaps earlier.

Boston Beer also has a strong balance sheet and is committed to reinvesting in its business, both of which show a confident, strong company:

So for this company, it is about the next big thing. Last year, the company spent heavily on the packaging side of the business, and this year it was on the tank side. In Q1, production was running at about 95 percent of capacity. The company has more capacity coming online during Q2, which will help the business during peak times later in the year.

The statements [in their Q1 conference call] reflect the growth strategy of this company, and investors should appreciate that. This isn’t a company that is parking cash on its balance sheet and letting it sit there to earn minimal interest. This is a company that’s using its cash to grow the business across all lines (packaging, tanks, etc.). While short-term profits may be dinged a little, it’s all about the long-term. The company knows that production needs to increase, and I wouldn’t be surprised in the next couple of years if Boston Beer looks for more production space. It looks like the company will need it. This isn’t a small niche craft brewer anymore. This company is on the verge of being a billion dollar sales company.

For much, much more analysis on Boston Beer and Maurer’s personal opinion and valuation, be sure to visit Seeking Alpha for the full story.