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In his first quarter as Boston Beer Co (SAM +3%) CEO, Michael Spillane dealt with a familiar headwind-filled quarter in Q2. The prominent alcoholic beverage producer felt good last quarter that depletions bottomed in April, setting the stage for a healthy recovery. While May and June's depletions did improve from April, they still contracted yr/yr. As a result, SAM fell short of its Q2 earnings and sales estimates and reduced the high end of its depletions and shipments growth forecast for the year.

• In Q2, depletions -- cases sold to retailers by distributors -- fell by 4.0% yr/yr while shipments ticked 6.4% lower, representing a reversal from the flat depletions growth and 0.9% shipments bump in Q1, underpinning just how quickly the category slumped in April and has since struggled to recover. This performance culminated in weak headline numbers, including EPS of $4.39 and revs of $579.1 mln, a 4% drop yr/yr.
• Truly Hard Seltzer remained a laggard in Q2. The main issue here is competition; too many brands exist in the channel, making it hard for Truly to stand out, resulting in a 22.8% drop in volumes in measured off-premise channels, worse than the industry decline of 14.9%. Mr. Spillane is staying the course to revitalize Truly sales, focusing on lighter flavors and higher ABV options.
• Perhaps more concerningly, the typical star, Twisted Tea, endured slowing growth in measured channels. Again, competition is an issue. SAM was also lapping unfavorable yr/yr comparisons. Still, Twisted Tea did enjoy positive growth, boasting a 15.1% uptick in dollar sales and around a 30% increase in shelf space yr/yr, bolstering its presence, which should help stave off intensifying competition.
• Hard Mountain Dew is a relatively new brand in SAM's portfolio. SAM noted that it is nearly finished with the brand's transition to its wholesaler network. Management is confident Hard Mountain Dew will positively impact its 2025 results as it begins launching in more population-dense states in 1Q25.
• Margins have been an encouraging attribute lately. In Q2, SAM expanded margins by 60 bps yr/yr, totaling 260 bps of improvement YTD. SAM has been working on line efficiency to improve brewery performance. Management admitted that it is not where it wants to be yet, but it is optimistic that it has the capital in place to drive margin expansion over the next few years.
• In the interim, SAM is traversing a challenging economic environment. Due to the slower-than-expected pace of recovery in depletions, the company trimmed part of its FY24 guidance, reiterating its EPS forecast of $7.00-11.00 but lowering its depletions and shipments percentage change to down low single digits to flat yr/yr compared to its previous outlook of down low single digits to up low single digits.

Bottom line, SAM's brands are facing numerous headwinds, from a gloomy economic picture to increasing competition. While investors are beginning to view SAM with a glass-half-full mentality today, without some of these clouds clearing over the next few months, the stock could struggle to mount a meaningful comeback.