Boston Beer (SAM) – Risks Are Building

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Four items stood out on the SAM 4Q13 conference call – it’s becoming clear that significant risks to the bull case are emerging:

Buyside Notes: If I average out the volume growth over the last 4 December quarters, I come to an expectation of 961,000 barrels (vs a reported 941,000). This was a miss in my eyes; not good for a stock valued at SAM’s multiple.

Buyside Notes: Look for margins to come down. Also not good for a stock valued at SAM’s multiple.

Buyside Notes: Let’s do a quick look-back on the company’s CapEx guidance:

2Q13: “The Company is increasing its 2014 estimated capital expenditure range to between $100 million and $130 million from $30 million to $50 million.”

3Q13: The Company stated that 2014 CapEx would be “between $140 million and $180 million, an increase in the range from the previously communicated estimate of $100 million to $130 million.”

4Q13: “The Company expects to invest between $160 million and $220 million in 2014”

In just 6 months, the CapEx plan has moved from $40MM to $190MM (midpoints). Isn’t it strange that the Company is having such a hard time planning their capital investments? What does this say about management’s forecasting ability?

Note that in 2013, the Company spent $104MM on capital investments so CapEx will ~double Y/Y. Not good for FCF.

Buyside Notes: CapEx is going to eat up their current cash ($50MM at YE13) and their operating cash flow ($100MM in 2013) and the company will likely be borrowing money in 2014 (they have 0 long term debt at YE13). This isn’t a big deal given the strength of their balance sheet, but on the margin increases risks to shareholders.

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