...copies or request permission to reproduce materials, call 1-800-545-7685 or write Harvard Business School Publishing, Boston, MA 02163. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School. 1 The Boston Beer Company, Inc. Making a buck at craft brewing has been as easy as falling off a barstool the last few years. So Wall Street is now bellying up for a couple of IPO brewers. They’d better start chugging; the party won’t last long. The intoxicating roundup of offerings began in August when Redhook Brewing, a specialty beermaker started in Seattle by former wine marketer Paul Shipman and Starbucks co-founder Gordan Bowker, tapped the market. The stock was priced at $17, never traded below $24.75 and was recently at $27.25. Again, investors went on a bender last month when Pete’s Brewing Company hit the market. The stock, priced at $18 a share, closed its first day of trading at $25.25 and hasn’t sold below $23.75 yet. Boston Beer, of Sam Adams fame, will roll out in mid-December; the Northwest’s Hart Brewing, which makes Pyramid Ales, is not far behind. 1 Eileen Gunn Fortune Magazine, December 11, 1995 Company Background History Boston Beer Company (BBC) was founded in 1984 by Jim Koch, who was the sixth generation of his German family to become a brewmeister...
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...Boston Beer Equity Valuation Valuation Date: April 1, 2005 Jason Boney jboneyttu@yahoo.com Jordan Gristy jgristy@yahoo.com Preston Madden preston.e.madden@ttu.edu Heath Stanley charles.h.stanley@ttu.edu Boston Beer Co. Equity Valuation Table of Contents Executive Summary Business and Industry Analysis Competitive Advantages Five Forces Model Industry Competitive Analysis Accounting Analysis Key Accounting Policies Degree of Accounting Flexibility Evaluation of Accounting Strategy Accounting Quality of Disclosure Red Flags Quantitative Analysis Ratio Analysis Liquidity Profitability Capital Structure Forecasting Balance Sheet Income Statement Statement of Cash Flows Forecast Summary Valuation Analysis Method of Comparables Valuation Tools Discounted Free Cash Flow Residual Income Long Run Residual Abnormal Earnings Growth (AEG) Conclusion of Valuation Work Cited Appendix 4 7 8 9 15 17 17 20 22 23 23 25 29 29 31 34 37 37 38 39 40 41 41 44 45 46 47 48 49 50 52 3 Boston Beer Co. By Valuation Proclamation Heath Stanley, Jordan Gristy, Preston Madden, Jason Boney Investment Recommendation: Buy, Undervalued Stock Ticker and Exchange Current Price (4-1-05) 52 week price range Revenue (2004) Market Capitalization Shares Outstanding 3-month Avg. Daily Volume Percent Institutional Ownership Book Value Per Share ROE ROA Est. 5yr EPS Growth Rate Cost of Capital Est. Beta Estimated 5-year -0.201 3-year 0.098 2-year 0.434 Published Beta 0.35 Kd WACC SAM-NYSE $22.14...
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...446 - 436,332) / 436,332 = 3.92% 3. What was SAM's Gross margin in fiscal 2008 and 2009? 2008: $183,887,000 2009: $213,818,000 4. What were SAM's Operating expenses (as a % of sales) in fiscal 2008 and 2009? = (Operating Expense / Revenue) *100 2008: 169,825 / 436,332 = 38.92% 2009: 159,547 / 453,446 = 35.19% 5. What was SAM's Effective tax rate in fiscal 2008 and 2009? 2008: 48.9% 2009: 42.8% 6. What effective tax rate does SAM anticipate for 2010? The company believes that the effective tax rate for 2010 will be 42%. 7. What is SAM's outlook and goal for future sales growth? List SAM’s risk factors. The Company’s business goal is to become the leading brewer in the Better Beer category by creating and offering high quality full−flavored beers. The company expects full year 2010 gross margins of approximately 54%. Based upon the Company’s best estimates at this time, the Company is targeting 2010 earnings per diluted share to be between $2.35 and $2.65, but actual results could vary significantly from this target. (10K, Page 23) SAM’s risk factors are: * Faces substantial competition. * Consolidation among brewers increases costs to compete, leads to reduction in contract brewing capacity and decreases distribution support and opportunities. * No assurance of continued growth. * Stock prices fluctuate because of fluctuation of company’s quarterly results. * The addition of Pennsylvania Brewery has high capital costs and increased...
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...Boston Beer Company Case Study Boston Beer Co. is a craft brewery with primary location in Boston, Massachusetts, which sold about 3.8 million barrels of its products in 2017. Their production consists of over sixty beers under the Samuel Adams brand, over ten flavored malt beverages under Twisted Tea brand and five hard sparkling waters under the Truly Spiked & Sparkling brand name. Majority of the beers produced by the company is positioned in the Better Beer category which includes craft brewers, domestic specialty beers and most imports. While the overall consumption of beer declined in the past decade, the consumption of high quality beers slightly increased, but this increasing trend is accompanied by large increase in the number of...
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...Commitment Product Line The Boston Beer Company has been able to grow at a fairly rapid pace without compromising its high standards (Cioletti, 2006). One of the Boston Beer Company’s main strengths is its strong commitment to its product line. It has many recipes that never make it to retail due to these standards. The brewer is reinventing old beers while maintaining its signature beer standard. Size There is strength in Boston Beer Company’s size. While still significantly smaller than a mass producer, it is the largest domestic craft beer producer. Sales of Samuel Adams Boston Lager (Samuel Adams) grew 5% annually over the past decade. This contributed to 6.6% growth overall for Boston Beer Co. This allows the company to have a larger distribution network than that of other craft beer producers and it is able to have a larger advertising budget. The company is the only craft beer that is sold in all 50 states, which is of major importance for name recognition. Furthermore, this contributed to the brand prospering so quickly in the beginning (Jannarone, 2011). Strong Word-of-Mouth Advertising The Boston Beer Co. has benefited from strong word-of-mouth advertising. The CEO, Jim Koch, never thought his beer company would grow so fast or so quickly. Koch’s five-year brewing goal was met in the first five months and his ability to maintain this growth made the company the size it is today (Cioletti, 2006). From helping others pair the correct beer with the type of meal...
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...Boston Beer Company- Case Analysis You are the investment banker assigned with the task of setting the IPO price for Boston Beer Company (BBC). Prepare a research report to support your recommendation. As you prepare this report, you may find that you would like to have more field information than what the case offers you. However, the case contains critical information that gives you a reasonable basis to compute its valuation. In addition use the following information for 1995.1 Sales ($ millions) Redhook Pete’s BBC 25.89 59.17 151.31 EPS .75 .25 .40 Book value/share 7.70 4.33 3.00 Price 27.00 24.75 ? Also, use the following information for BBC for 1996. Make additional assumptions as necessary (and state any additional assumptions) to compute free cash flows for subsequent years: 1. The ratio of Net profit before taxes to sales is 12%. 2. Tax rate is 35% 3. For every dollar of increased sales BBC will increase working capital by 15% (or working capital will increase by $0.15 for every dollar of increased sales) 4. Capex is 2% of sales 5. Depreciation is 2% of sales 6. BBC’s beta is 1.2. Use BBC’s cost of equity as its WACC since its debt is a trivial part of its capital structure. 7. Analysts’ growth forecast for BBC and for the craft brewing segment in general is 30% per year over the next five years. Present the following: 1. Overview of the industry – competitive landscape, expected short-term and longterm industry growth, key players in the industry. Summarize the key...
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...Marketing Program Product Strategy Product Line. According to The Boston Beer Company’s 2012 Annual Report, they are the largest craft beer in the United States. They sold over fifty different beers under the Samuel Adams brand, ten flavored malt beverages under the Twisted Tea brand, five hard cider beverages under the Angry Orchard brand, and five beers under Alchemy & Science (2). The suggested retail price depends on each product. Product Quality. Boston Beer Company employed over fifteen brew masters to monitor, operate, and control the production of its beers and ciders. In order to ensure the quality flavor of each brand, each product is tested, tasted, and evaluated to meet the Company’s standards. The Company includes on each product a clear and legible “Freshness” label to ensure their customers that they are enjoying the freshest beer. They use sufficient quantities of ingredients which include, two row varieties of barley for their malt, noble hops for superior taste and aroma, strains of yeast which is stored and protected, and different varieties of apples to be used in their ciders (2). Packaging. The Boston Beer Company maintains competitive packaging materials in the form of shipping cases, six pack carriers, and crowns. They distribute their products to different vendors in all forms of packaging (2). Price Strategy The Boston Beer Company maintains competitive pricings in the United States. Their products range in price depending on the product...
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...Sub Section‐ I Issues by Indian Companies in India This sub‐section attempts to cover the basic concepts and questions related to issuance of securities by unlisted Indian companies1 offering the shares to public and by listed Indian companies2. For full particulars of laws governing primary markets, please refer to the Acts/Regulations/Guidelines appearing in the Legal Framework Section . FAQs are presented under following 12 broad headings. 1. Different kinds of issues 2. Types of offer documents 3. Issue requirements 4. Pricing of the issue 5. Understanding book building 6. Investment in Public/Rights issues 7. Categories of Investors 8. Intermediaries involved in the issue process 9. Guide to understand an offer document 10. SEBI’s role in an issue 11. New terms 12. Additional information 1 2 “Unlisted Company” means a company which is not a listed company. “Listed Company” means a company which has any of its securities offered through an offer document listed on a recognized stock exchange and also includes Public sector Undertakings whose securities are listed on a recognized stock exchange. 1 1. Different kinds of issues What are the different kinds of issues which can be made by an Indian company in India? Primarily, issues made by an Indian company can be classified as Public, Rights, Bonus and ...
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...10/1/2012 Strategy – Ratio Analysis (Boston Beer) Analysis Observation #1) From our table, it is clear that Pete’s and Boston Beer have a higher Return on Equity than that of Coors, Anheuser Bush, and Red Hook. The reason for this difference is because Pete’s and Boston Beer have much lower shareholder equity than the other breweries. Pete’s and Boston Beer utilize contract brewing instead of investing in their own breweries like the other corporations and because of that, they have fewer assets. Since shareholder equity is the difference between assets and liabilities, fewer assets often mean lower equity. Since ROE is the ratio of profit over equity, lower equity means a higher ROE. Therefore, the high ROE from Pete’s and Boston Beer can be explained by their strategic approach of contract brewing. Observation #2) Boston Beer and Red Hook have similar Total Assets, but, Boston Beer sells about eight times more barrels than Red Hook. Because Boston Beer uses contract brewing, majority of their assets is their inventory (raw materials, beer, etc). This can be observed by the fact that Red Hook has twice the inventory turnover than that of Boston Beer, yet their assets are similar. Red Hook brews their own beer, and so majority of their Assets are their breweries, not their inventory. Boston Beer on the other hand, source out their brewing, so they have low asset numbers like that of a smaller brewing company such as Red Hook. Also, the low asset turnover number...
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...Boston Beer Co. Inc. (SAM) Boston Beer Co. Inc. (SAM)’s business primary engaged in producing and selling alcohol beverages in domestic market. The company’s revenues are derived by selling beers and hard ciders to distributors, who then distribute the products to retailers and drinkers. According to SAM’s 10-K, the company’s net revenue increased by 6.3% in 2015, primarily due to the increase of shipments and revenue per barrel. Moreover, the gross margin for the company’s core products was 52.3% in 2015, as compared to 51.5% in 2014; the increase in gross profit per barrel of $4.74 is primarily due to an increase in net revenue per barrel, partially offset by an increase in cost of goods sold per barrel. Based on SAM’s business model, changes in Sales, Cost of Goods Sold and SG&A would have significant influences on outputs: Net Income, Earning per Share, Price per Share and ROE. Input changes assumptions: -Sales: According to Yahoo Finance, analyst estimated a revenue of $993 million in 2016. -Cost of Goods Sold: According to SAM’s 2015 SEC filing, gross margin of the company in 2016 is expected to be between 52% and 54%, thus the average cost of good sold is expected to be 47% of the total revenue. -SG&A: Based on SAM’s 2015 SEC filing, the company intends to increase SG&A expenses by between $10 million and $20 million for the full year of 2016. Accordingly, SG&A expense will account for approximate 36% of the total revenue. Output results: SAM’s forecast net...
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...Cited: Page 89 Introduction Boston Beer Company (SAM) is one of the fastest growing breweries in the United States of America currently holding the largest market share of craft brewers in the country, and 6th largest of all brewers. Founded in 1984 in Boston, Massachusetts and staying true to both its local and family roots, this high quality beer has become an icon throughout the nation. Another extremely successful and predominant corporation in the beverage-alcohol industry is that of Anheuser-Busch Inbev SA (BUD) which will serve for the purposes of this paper as a benchmark for how a firm should be performing and operating in this field. Being that Anheuser-Busch has been operating since 1852, has 13 breweries nation-wide, and is one of the most iconic breweries in the world, it truly is a unique comparison of “David vs. Goliath” for these two companies. The History of the Boston Beer Company Jim Koch, founding member of The Boston Beer Company, has a long proud history of brewing a robust, full flavored beer in his family. In fact, it was his great-great grandfather Louise Koch, who concocted the original recipe for the brands metaphorical bread and butter “Samuel Adams Boston Lager” which is by far the bestselling brand in the portfolio of beers the company holds and distributes. The “Sam Adams” name (also the inspiration for the NYSE ticker the company holds “SAM”) was dubbed after the American patriot from Boston of the same name because of...
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...How to build a caseTable of Contents THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share data) December 27, December 29, 2008 2007 ASSETS Current Assets: Cash and cash equivalents $ Short-term investments Accounts receivable, net of allowance for doubtful accounts of $255 and $249 as of December 27, 2008 and December 29, 2007, respectively Inventories Prepaid expenses and other assets Deferred income taxes Total current assets Property, plant and equipment, net Other assets Goodwill Total assets $ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable Accrued expenses Total current liabilities Deferred income taxes Other liabilities Total liabilities Commitments and contingencies Stockholders' Equity: Class A Common Stock, $.01 par value; 22,700,000 shares authorized; 10,068,486 and 10,095,573 shares issued and outstanding as of December 27, 2008 and December 29, 2007, respectively Class B Common Stock, $.01 par value; 4,200,000 shares authorized; 4,107,355 shares issued and outstanding Additional paid-in capital Accumulated other comprehensive loss, net of tax Retained earnings Total stockholders' equity Total liabilities and stockholders' equity 9,074 $ — 18,057 22,708 16,281 2,734 68,854 147,920 1,606 1,377 219,757 $ 79,289 16,200 17,972 18,090 4,252 2,090 137,893 46,198 12,487 1,377 197,955 $ 20,203 $ 46,854 67,057 9,617 3,055 79,729 17,708 42,449 60,157 1,215 2,995 64,367 101 41...
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...Risk and Financial Impact As with all new ventures, potential risks may have a financial impact* on Boston Beer Company (BBC). In short, the latent risks of BBC’s new hard soda product line may cause revenue loss. Events (e.g. regulatory changes, supply shortages or natural disasters) may have a substantial economic impact to business, based on how business activities are effected (InvestorWords, n.d.). The following three sections address the major potential risks and financial impact, and the mitigation plan which addresses risk. Potential Risks Table 1: Potential Risks Suppler/Vendor Concerns Federal, State and/or Local Regulations Raw Material Prices Access to Capital Ability to Innovate to Meet Customer Needs Distribution Disruption Economic Conditions Competition Less Demand for Products Source: (Toomey, 2014)...
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...Company Analysis The Boston Beer Company- Britton McGlachlin As a relatively new entrant into the beer brewing industry, the United States has often been poked fun at and considered to be an inferior beer brewing country among global competitors. Up until 1984, most domestic beer options were pale lagers produced by the mass market brewers. If a person wanted to get a full and flavorful beer, it was considered that importing was the only option with beers such as Heineken and Beck’s establishing themselves as the premium beer leaders. American craft beers were virtually non-existent other than a few small basement and kitchen operations, and there were no widely distributed micro brewed, now known as craft, beers available. (History) In the early 1980s, Jim Koch, a would be sixth generation beer brewer, was convinced that he could find a niche in the competitive beer market for a high-quality American beer. In 1984, Koch used his great-great grandfather’s 150 year old recipe called “Louis Koch Lager” to brew his first batch of what eventually became Samuel Adams Boston Lager. (About) Jim began to take bottles of his beer bar-to-bar for tasting and received excellent feedback about the quality and flavor of his beer, which used all natural ingredients with no adjuncts. In 1985, Jim decided to debut in the Boston market with small batches focusing primarily on quality. Six weeks after its introduction, Samuel Adams was selected as “The Best Beer in America” in The Great...
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...Case: Boston Beer Company Address the following questions in a 4-5 page write-up of the Boston Beer Company Case to explore the issue of Initial Public Offerings. 1) What do you think of Boston Beer’s business model relative to the traditional beer companies’ business model? Relative to Redhook and Pete’s? (Hint: consider their brewing, production, distribution, marketing strategies. How is each firm attempting to achieve its own sustainable comparative advantage in the market place?) 2) Evaluate Boston Beer’s performance relative to its peers (Compare BBC's ratios to the ratios of its peers in exhibit 4). (Hint: how do differences in operating strategies translate into differences in financial ratios? Are there any downside risks to BBC's contract brewing strategy?) 3) What is your assessment of the intrinsic value of Boston Beer’s stock at the time of the case? What should be its IPO price? (Some hints below: First, you should look at the P/E multiples for Pete's and Redhook around the IPO time for BBC. You should also look at the average amount the price seems to jump on the day of the IPO, and the EPS of BBC for 1994 and 1995. From this, you should figure out what the implied price per share for BBC should be in this market environment. Second, you should try to justify this price per share by doing FCF analysis. Create a ten year pro-forma spreadsheet, projecting out barrels of beer each year, revenue per barrel, revenue...
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