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Boston Beer (SAM +6%) is trading sharply higher today after reporting its Q2 results yesterday after the close. Despite a weaker than expected volume environment and a challenging macro backdrop, the beer and specialty beverages giant (Samuel Adams, Truly, Twisted-Tea) exceeded expectations. The company delivered strong margin expansion and EPS growth. Perhaps just as encouraging to investors is the better-than-feared tariff impact on FY25 EPS.

• Because of the current challenges faced by the beer industry and notably bad weather in key selling weeks (13 consecutive weekends of rain in the Northeast), SAM's depletion softened sequentially and yr/yr. Depletions were down 5% in the quarter, while shipments fared better, being only down 1%. Shipments were mostly driven by wholesaler demand for its new Sun Cruiser and Truly Unruly innovations. SAM expects shipment trends to rebalance with depletions in 2H25.
• Despite the softness, SAM was able to deliver strong margin expansion and EPS growth in the quarter, mainly due to progress on productivity initiatives. These include improved brewery efficiency, pricing actions, and a favorable product mix. Notably, gross margin expanded 380bps yr/yr to 49.8%. As a result, SAM has raised its FY25 margin guidance to 46-47.3% from 45-47%, despite an estimated 70-100 bps tariff headwind.
• A bright spot is its new Sun Cruiser tea. The ready-to-drink spirit (RTD) launched last summer and went national at the start of FY25. The drink has been gross margin accretive and continues to grow volumes week/week. It's being well received by wholesalers, retailers, and consumers. As a result, it has quickly captured a 4% market share.
• Just as encouraging is its updated FY25 EPS guidance. On a positive note, SAM reduced its estimated impact of tariffs on EPS. The unfavorable tariff impact on EPS is now expected to be $0.96-1.28, down from $1.25-1.90. While FY25 EPS guidance excluding tariffs remains unchanged, the smaller tariff hit is being viewed as better-than-feared by investors.

Overall, SAM delivered Q2 results that exceeded expectations despite a challenging environment. Margin expansion, strong performance from new products, and a reduced tariff impact are resonating well with investors. Also, these results tell us that the US consumer is holding up pretty well despite the macro environment. Investors are pleased to see that as well. Finally, the stock has pulled back significantly since mid-May, which tells us sentiment was running low heading into this report. That helps to explain today's big move.