Boston Beer Analysis

Matthew Schreck Management 511: Financial Decision Making Boston Beer Company April 18, 2013 Amelia Drobile Boston Beer Company History and Financial Position Boston Beer Company (SAM) is a brewery in Massachusetts most commonly known for its Samuel Adams line of “craft” beers. The Samuel Adams line of beer was introduced in 1985. Since then the company has grown to do over 580 million dollars in revenue each year. 580 million is a very small piece of the food and beverage industry but the amount of shareholder wealth they are providing is impressive.
Boston Beer Company has been named one of the top publically traded businesses to watch in 2013 by Forbes. Boston Beer Company is actually part of two markets. In the overall U. S. Beer market they have a mere one percent of the market. However, they own 22% of the craft beer market. In their industry, 66% of those competing in the craft brew market are brewpubs, which generally do not do mass distribution giving Boston Beer Company an edge. (Smith, 2011) Boston Beer Company has one major difference from its competitors. The company has no debt.
The entire company runs on cash even though they have a 50 million dollar line of credit available to them, which they have never used. The company purchased Diageo’s Pennsylvania Brewery in June of 2008 for 55 million dollars cash so that they could produce 100% of their product without having to subcontract larger orders out. Boston Beer Company is capitalized with no bonds or preferred stock, only 13. 6 million shares of common stock. (Smith, 2011) Boston Beer Company’s cost of capital is 6. 60% since their weighted cost of equity is 6. 60% and their weighted cost of debt is 0. 00%. Market Grader Inc. , 2013) Price to Revenue Ratio (Price to Sales) Boston Beer Company’s price to revenue ratio (TTM) is 3. 54 The price to revenue ratio is usually applied in place of the price to earnings ratio. This ratio is usually applied to companies within the same industry, however it excludes debt and expenses so the information the ratio provides is limited. Price to Cash Flow Ratio The current price to cash flow ratio for Boston Beer Company is 25. 76. The price to cash flow ratio is used to evaluate the price of a company’s stock as compared to the amount of cash flow it generates.

The price to cash flow ratio is important for one main reason, it allows the comparison of companies from different jurisdictions because it removes depreciation (which may vary by country) and other non-cash factors. Therefore, it would allow an investor to compare Boston Beer Company’s stock to that of AB InBev along similar financial values. Price to Book Ratio (MRQ) The price to book ratio for Boston Beer Company is 8. 34. The price to book ratio measures a company’s market value in comparison to its book value.
The price to book ratio indicates whether or not a company’s asset value is comparable to the market price of it’s stock. Because the price to book ratio for Boston Beer Company is well over one it may be an indicator that the stock is overvalued. An over valued stock for Boston Beer Company could imply the rapid decline in stock value in the near future, especially since the stock has climbed almost 25% in the last quarter alone. With the book value ratio as high as it is, a drop in stock price seems likely in the near future. Current Ratio (MRQ) Boston Beer Company’s current ratio is 1. 83.
Current ratio is defined by a company’s current assets divided by is current liabilities. A company’s current ratio is a liquidity ratio that measures a company’s ability to pay short-term obligations. This ratio also takes into account inventory as current assets, although it may easily be converted into cash quickly. Because Boston Beer Company’s ratio is well over one, it means they have the assets and cash flows available to pay off any immediate debt should it be made due. The company’s amount of inventory provides a great deal of assets that makes the company much more liquid when this formula is used.
Quick Ratio (MRQ) The quick ratio for Boston Beer Company is 1. 33. A company’s quick ratio is an indicator of a company’s short-term liquidity. This ratio is a more conservative form of the current ratio because it does not take into account inventory of the company when determining its current assets. Boston Beer Company still has a favorable ratio well above 1. 0. While their current ratio is much better with all the inventory, Boston Beer Company is still a reliable company that can pay off its short term debts if need be. Measuring Returns
Primary Stakeholders Boston Beer Company has five primary stakeholders within company, Martin F. Roper (President and CEO), C. James Koch (Founder and Chairman), William F. Urich (CFO and Treasurer), John C. Geist (Vice President of Sales), and Thomas W. Lance (Vice President of Operations). Of the five of them C. James Koch holds more than 34% of the shares and is the sole holder of the class B common stock that gives him the right to appoint five of the eight members that are chosen to be on the board as seen in the following quote from the 2013 Proxy Statement. At the Annual Meeting you will be asked to elect three Class A Directors and cast an advisory vote on executive compensation. As the sole holder of Class B Common Stock, I will elect five Class B Directors and cast a vote to ratify the selection of our independent registered public accounting firm. ” (Boston Beer Company, Inc. , 2013) While Koch may have stepped down from CEO in 2001 he has maintained a great interest in his company and has positioned himself to have great control over the Company with his position as Chairman of the Board.
His actions and goals are seen laid out in all of the company’s press releases and the company is continuing to be grown and maintained the same as it always has been with the exception of Boston Beer Company running its own breweries instead of subcontracting out their orders. Capital Budgeting Boston Beer Company runs just like any cash business. They have no money tied up in debt and any investment they make is paid for in cash. There is an upside and downside to this method of running a company.
On the upside, the company is very liquid, meaning they can pay for most investments on the spot without accruing any debt. However, no debt might deter some investors from buying into the company. Having no debt throws off a company’s ratios in comparison with other companies within the industry and can make it difficult for investors to trust in the company. A typical investment for Boston Beer Company would be opening a new brewery or purchasing an existing one to help the company keep up with the demands for their products.
The acquisition of the Diageo brewery 60 miles outside of Philadelphia in 2008 was the company’s most recent investment. Since the purchase, Boston Beer Company has been pouring tens of millions of dollars into the facility that used to employ 220 people to make Smirnoff and now employs 260 people to brew Sam Adams. “Boston Beer’s Breinigsville facility employs 260, up from 220 workers when the plant was purchased from Diageo. ” (Richardson, 2012) Boston Beer Company now has three breweries.
They are located in Cincinnati, Ohio, Breinigsville, Pennsylvania, and Boston, Massachusetts. Boston Beer Company has been weary to invest in the western half of the U. S. because they believe the craft beer market is oversaturated and they will not have much success, however, some market specialists believe they should do a trial batch with a brewery in the western market and measure real results. The only real measure of value for Boston Beer is the volume being sold. Boston Beer used to lease brewery locations in order to brew according to their demand.
Within the last five years the demands for craft beers have grown significantly especially among the younger alcohol consuming demographic that is looking for something more the generic beer taste of the three big beer companies, Anheuser Busch InBev, MillerCoors, and Pabst. Boston Beer Company no longer has the need to lease other breweries after the purchase of the Diageo brewery. Now that they have the capacity to brew their own beer and staff accordingly Boston Beer Company has not only added value to the company, but have positioned them self to expand as the demands for their products continue to increase.
The only place that Boston Beer Company seems to be struggling with is the money that they are leaving sit idle. While the company is very profitable and is run as a cash business, some of their cash flows could be invested to generate a better return than they are currently getting. Strategy and Governance The Boston Beer Company is currently governed by a board consisting of eight members. The board consists of C. James Koch, David A. Burwick, Pearson C. Cummin III, Cynthia A. Fisher, Jay Margolis, Martin F. Roper, Gregg A. Tanner, and Jean-Michael Valette.
The board has a committee that reviews the current members of the board at least annually and determines what characteristics and skills should be sought in new board members to be elected. Board members for the Boston Beer Company board members are asked to limit the number of boards they are on in order to keep them focused. “The Chairman of the Board and the Chairman of the Nominating/Governance Committee should be advised in advance of a director’s intention to accept an invitation to serve on another board” (Boston Beer Company, Inc. , 2013) Management
Boston Beer Company’s executives have deep roots within the company. C. James Koch founded the company in 1984 and was Chief Executive Officer up until 2001 when he stepped down and became Chairman of the Board. Martin F. Roper the President and Chief Executive Officer replaced C. James Koch as CEO in 2001. Martin F. Roper has been with the company since 1994 when he was hired as Vice President of Operations. In 1997 he became Chief Operating Officer and in 1999 he became the President of Boston Beer Company. William F. Urich is the CFO and Treasurer since 2003. Before joining Boston Beer Company Mr.
Urich served as Vice President of Finance and Business Development for United Distilleries & Vinters from 1998 to 2000. From 2001 to 2003 Mr. Urich was Chief Financial Officer for Acirca, Inc. John C. Geist, the Vice President of Sales has been with the company since 1998 when he was first brought on as the National Sales Manager. He was made Vice President of Sales in February of 2007. David L. Grinell has been the Vice President of Brewing since 2008. Prior to that he started working as the Manager of Brewing Operations in 1988 before being promoted to Director of Brewing and Quality in 2001.
The Vice president of Operations, Thomas W. Lance, joined the company in 2007 after leaving the Executive Vice President of Operations position at Ken’s Foods. A position which he held for five years. Ai-Li Lim is the Vice President of Human Resources. She joined the company in February of 2012 after leaving Vistaprint USA, Inc. as Senior Director of Human Resources. Robert P. Pagano, the Vice President of Brand Development joined the company in 2011. Prior to joining Boston Beer Company Mr. Pagano was the Managing Director at the brand strategy firm, Red Sky Insights, LLC, for five years. Kathleen H.
Wade is the Vice President-Legal and Corporate Secretary. She joined the company in 1999 as Corporate Legal Director and Corporate Secretary. She became Secretary of the company in 2010 and was appointed to the vice president position in 2012. Average Ceo Compensation In This Industry Industry Range Salary686. 8K Bonus871. 2K Total Short Term Compensation1. 0M Total Value of Options4. 9M Key Executive Compensation Boston Beer Company, Inc. SAM Name/Title 20082009201020112012 Key Executive Compensation10,037,7063,868,6674,181,5019,897,5693,718,707 Martin F. Roper/President and Chief Executive Officer ,415,9181,049,3031,094,238933,8181,052,493 William F. Urich/Treasurer and Chief Financial Officer 834,313766,768938,3183,437,998599,363 C. James Koch/Chairman of the Board 589,496546,005836,895754,163817,949 Thomas W. Lance/Vice President, Operations 449,636858,643479,857693,401721,454 John C. Geist/Vice President, Sales 748,343647,948832,1934,078,189527,448 *A publicly-traded company is only required to disclose information concerning the amount and type of compensation paid to its CEO, CFO, and the three other most highly compensated executive officers in a given year.
Information about compensation for these individuals may be unavailable in prior years if they were not in their current roles or did not qualify as among the most highly compensated officers at the time. (MorningStar, 2013) For the most part Boston Beer Company pays below the industry average with the exception of the executive bonuses that certain members of upper management received for reaching certain sales goals. Boston Beer Company is not nearly as large as the other beer conglomerates so it is expected that their executive compensation would be to scale.
Corporate Social Responsibility Boston Beer Company’s corporate social responsibility (CSR) is heavily mandated by the government. Because they deal in the alcoholic beverage industry there are numerous amounts of taxes and laws restricting their advertising and sales. “The alcoholic beverage industry is regulated by federal, state and local governments. These regulations govern the production and distribution of alcoholic beverages, including permitting, licensing, marketing and advertising, distributor relationships, sales, environmental, and occupational health and safety issues.
To operate its breweries, the Company must obtain and maintain numerous permits, licenses and approvals from various governmental agencies, including the Alcohol and Tobacco Tax and Trade Bureau, the Food and Drug Administration, state alcohol regulatory agencies and state and federal environmental agencies. ” (Boston Beer Company, Inc. , 2013) Growth and Opportunity Boston Beer Company has grown significantly in the last decade. It has grown organically through increasing sales and demand from their marketing campaigns.
It has also grown a great deal through acquiring two more breweries, one in Ohio and one in Pennsylvania in addition to the original Massachusetts brewery. Boston Beer Company is known primarily for its Samuel Adams line of “craft” beers however they also compete in other segments of the alcoholic beverage industry for those that don’t prefer beer. Boston Beer Company also makes Twisted Tea and Angry Orchard Cider. The concept of making several types of beverages allows Boston Beer Company to be more diversified and attract more sales by appealing to a larger demographic by providing a wider selection of products.
Boston Beer Company has what most market analysts would call a “niche market”, meaning they will never produce a large scale generic beer like the big three beer companies (Anheuser Busch InBev, Miller, and Coors). So the need to diversify is not a necessity for survival or growth for the Boston Beer Company. Of the three major lines of alcoholic beverages the company produces, there are 56 varieties of them combined. Boston Beer Company essentially has it’s own market because 66% of their competitors are brewpubs that do not mass distribute. The only thing limiting Boston Beer Company other than its sales are it’s distribution network.
Since the firm operates entirely on cash the value of the company has skyrocketed. Boston Beer Company has plenty of capital to reinvest in itself and increase shareholder wealth all while maintaining a balance sheet with minimal debt. Boston Beer has grown by leaps and bounds over the last decade, which is reflected by their total sales, volume of product produced (measured in barrels), and price per share, which is currently leveling out around $166. 00 per share. While companies like Anheuser Busch InBev have a much larger market cap (157. 93B) compared to Boston Beer Company (2. 1B), Anheuser Busch InBev’s price per share is only $98. 78. The overall value to the shareholders for Boston Beer Company is much greater because of the way the business operates and finances its investments. The company finances everything without debt controlling the company’s resources carefully and allowing rapid growth. Boston Beer Company will be one of the premiere firms to watch over the next decade to see how they will combat the much larger competitors within the industry as they try to compete in the craft beer market. References Smith, B. (2011, August 30). Buffett-Munger Screener Highlight – Boston Beer Company (Sam).
Retrieved from Guru Focus website: http://www. gurufocus. com/news/144123/buffettmunger-screener-highlight–boston-beer-company-sam Market Grader Inc. (2013, March 30). Boston Beer Co. , Inc.. Retrieved from Market Grader Inc website: http://www. marketgrader. com/MG. Services/servlet/pdf. PDFServer? ticker=SAM Boston Beer Company, Inc. (2013). Proxy Statement 2013. Retrieved from Boston Beer Company website: http://www. bostonbeer. com/phoenix. zhtml? c=69432&p=irol-overview Richardson, T. (2012, January 27). Boston Beer pouring millions into Lehigh Valley. Retrieved from The Morning Call Website: http://articles. mcall. om/2012-01-27/business/mc-allentown-boston-beer-20120127_1_craft-beers-samuel-adams-beer-yuengling Boston Beer Company, Inc. (2013) Corporate Governance Guidelines. Retrieved from Boston Beer Company website: http://www. bostonbeer. com/phoenix. zhtml? c=69432&p=irol-governance MorningStar. (2013, April 18). Boston Beer Company, Inc. Class A (SAM). Retrieved from MorningStar website: http://insiders. morningstar. com/trading/executive-compensation. action? t=SAM Boston Beer Company, Inc. (2012) 10-K Annual Report 2012. Retrieved from Boston Beer Company website: http://www. bostonbeer. com/phoenix. zhtml? c=69432&p=irol-overview