by Will Ashworth | November 15, 2011 9:49 am
Women account for only 17% of beer consumed in the United Kingdom. In an effort to get more of them drinking beer, the U.K. division of Molson Coors (NYSE:TAP) is introducing Animée, a pink-colored libation with only 101 calories per bottle. According to Molson Coors, women want beer that’s less filling and less bitter. That might be so, but patronizing them by selling “girly” products likely won’t add up to a significant revenue boost — and could even turn some drinkers off. Molson Coors would be better off making the best beer it can.
This is but one example of a brewer that has lost its way. Investors should avoid its stock and instead buy shares in Samuel Adams maker The Boston Beer Co. (NYSE:SAM).
The high unemployment rate in the U.S. is having a profound effect upon Molson Coors’ business. Its third-quarter profits dropped 23% year-over-year to $197.4 million. Analysts were expecting $1.25 per share and TAP delivered $1.14. Molson Coors’ revenues were up 9% year-over-year to $954.4 million — higher than analyst expectations. However, its revenue increase was the result of foreign currency exchange and higher prices.
Particularly disappointing was Molson Coors’ joint venture with SAB Miller PLC, which sells beer in the U.S., most popularly under the Miller brand. Net income fell 44% year-over-year as a result of poor sales in its home market. Until the American economy improves, not much is going to change regarding its situation in the U.S.
Contrast this with Boston Beer, which saw its revenue increase 8% year-over-year to $134.8 million with a 9.2% gain in earnings per share to $1.19. Analysts were expecting $1.13 a share. Founder Jim Koch rightfully has reason to be happy with its future and the future of craft beer. Boston Beer anticipates full-year 2011 earnings per share will be at least $3.60 on the low end and potentially as high as $3.90. The analyst consensus is $3.68 per share, and chances are good that number will be revised higher in the coming weeks.
Craft beer producers continue to thrive in the U.S. while mainline producers like Molson Coors are being left in the dust. Since SAM announced first-quarter earnings Nov. 1, its stock is up 15%, most of which came on the next day of trading. Based on its Nov. 11 closing price of $99.36, it’s trading at a P/E ratio of 27.6. That’s not bad when you consider its core demographic of 21- to 35-year-old white males will grow substantially over the next five years. As a result of this growing fan base, revenues should grow 11% to 12% annually through 2015. Unlike Molson Coors, Boston Beer’s revenue growth will trickle down to the bottom line.
To think about the future, I’m going to go back to the past. Boston Beer went public in 1995. To let the small investor participate in its IPO, the company offered customers the opportunity to buy 33 shares for $15 each. The offer was right there on its beer labels. A grand total of 30,000 people took advantage of this creative way of selling stock. In its 2010 annual report, Jim Koch proudly boasts that 9,000 people still own those original shares.
The New York Times ran an article about a year after the IPO lamenting the fact that SAM shares had lost 22% from an IPO price of $15. Sixteen years later, those original shareholders are sitting on a 562% cumulative return. This compares favorably with Molson Coors at 454% and the S&P 500 at 111%. If you exclude dividends, there is no comparison.
Sixteen years ago, you might have been sitting on a barstool in Boston somewhere, reading the label’s IPO offer and thinking what a crazy idea it was. Big mistake. Many years later and you have an opportunity for redemption. Despite Boston Beer’s tremendous growth, it still has less than 1% of the U.S. beer market. Companies like Molson Coors are falling all over themselves to get into emerging markets while Boston Beer is just getting started in America.
Visits to its Boston brewery were up more than 25% in 2010, with 3,000 separate tours taking place. The company now offers tours six days a week at a clip of 10 tours a day. Visitors are asked for a small donation with all proceeds going to charities. In 2010, Boston Beer donated nearly $200,000 as a result of its tours.
Craft beer is the real deal. Estimates suggest craft beer sales will double during the next 10 years, with Boston Beer continuing to be a big player in the industry’s development.
Boston Beer might appear expensive to some investors. However, it’s important to keep in mind that it possesses a floor price of sorts because of its attractive position within the U.S. beer market. Molson Coors or any other large beer company would love to own the Sam Adams and Twisted Tea product lines. Jim Koch, however, owns 33.4% of the company. Nothing happens without his say-so. At age 61, he still has plenty of time on the clock, so I doubt he’s in the mood for selling. But when he does, it won’t be for a song. Until then, enjoy the ride.
As of this writing, Will Ashworth did not own a position in any of the aforementioned stocks.
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