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Thanks to another uptick in gross margin and an active share repurchase program, Boston Beer Co (SAM) poured out better-than-expected earnings in 3Q24, but from a growth perspective, the alcoholic beverage maker's results and outlook fell flat. Once again, Truly Hard Seltzer was a notable laggard in Q3, underperforming a category that experienced an 11% volume decline in measured channels this quarter. Market share losses, combined with a challenging consumer spending environment, have upended SAM's hard seltzer business, which is pacing towards a low-20% yr/yr drop in sales this year.

To reflect the persistently weak hard seltzer category trends, macroeconomic headwinds, and gross margin improvements, SAM narrowed its FY24 EPS guidance to $8-$10 from its prior guidance of $7-$11. The midpoint of this new guidance range, though, is below analysts' expectations, which isn't helping the stock's cause today.

• Slowing growth and the lack of an identifiable near-term growth catalyst is the root issue that's weighing on SAM. Depletions, a key demand metric that measures the number of cases sold to retailers by distributors, declined by 3% in Q3. The company also lowered its FY24 depletions guidance again, forecasting a low-single-digit decline. Rewinding to last quarter, SAM cut its outlook to down low-single-digits to zero, from down low-single-digits to up low-single-digits.
• SAM's struggles with turning around Truly Hard Seltzer are the most obvious, but it's not the only challenge its facing. For instance, growth is slowing for Twisted Tea (+8% in Q3), the company's star performer that has helped to soften the blow from Truly's downturn. With an 85% market share in the category, growth is naturally going to decelerate, but the problem for SAM is that there's not a clear replacement in the product portfolio to mitigate the impact from the slowing growth.
• In the core beer business, there's not much to raise a glass too, either, as sales were down by mid-to-high single digits. SAM is enthusiastic about its new Sam Adams American Light beer, stating that it has seen positive consumer acceptance in its early markets of New England, Florida, and Texas. The company is planning for a full national rollout of American Light in early 2025.
• However, the key to turning the business around still rests with the struggling Truly Hard Seltzer business. The company acknowledged that it had too many line extensions with Truly, so part of its strategy moving forward is to be more strategic with the flavors and styles it adds. In particular, SAM is seeing a bifurcation in flavor preferences, with bolder flavors underperforming lighter flavors. Therefore, the company will optimize the product portfolio to skew towards lighter flavors.

Overall, it's a mixed bag for SAM as the company is in a bit of a rut in terms of top-line growth but is doing well to keep margins churning higher through price increases, supply chain optimization initiatives, and brewery optimization efforts. However, until the Truly Hard Seltzer business stabilizes and turns around in a meaningful way, SAM will be hard pressed to significantly improve its growth profile.