Boston Beer Company Presentation


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This is the final project I helped prepare for the culmination of the Tuck Business Bridge Program at Tuck Businesss School, Dartmouth College

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  • Sam
  • Recommendation: While the Boston Beer Company IS a strong company, Based on current price market price, We believe that Boston Beer Company is not a good acquisition Spell out Price distinctions (Our Valuation and current market price)
  • We will begin by painting a full picture of the company, including highlighting its strategic strengths and weaknesses I will now begin by giving you a background of the company
  • Ben: “ Better Beer” is the category of beer production that brews super-premium beer at higher cost to the customer. Currently Better Beer holds roughly 20% of the overall beer market in the USA and it is expected to rise to 33% within the next 5 years. Analyst reports suggest that the craft beer sector is still in the middle stages of growth. Craft beer looks to expand in line with the overall Better Beer sector growth We expect that Boston Beer Co. will retain the big lead it has over other craft breweries because of the forward-thinking initiatives and high growth motivation it has historically shown.
  • Domestic Craft, Imported, Large players, Substitutes
  • Sam
  • Yellow cash White Net PPE
  • Sumi
  • Sam
  • Firm has made a commitment to continue to look for growth opportunities Our model assumes that their capital investment will continue to be strong over the next 10 years We differ significantly from many wall-street analysts because they assume capital investment will decrease significantly following 2010 -Company says in 10K they will puruse opps whereas analysts look at historical levels We think company is accurate in its estimate because in order to maintain margins and growth rates it will have to pursue increased volume because margins arent’ going to come from price increases anymore
  • Based on projections FCF starts to increase significantly in 2010 Because of significant cost reductions in COGS Lower input prices and cost efficiencies coming from the acquired breweries (specifically PA brewery) Increased production of core brands by company owned breweries The reason market price is below is because they are making investments in growth/PPE and their costs are higher while this is happening but then as you can see, eventually the revenue growth leads to a higher cash flow
  • Maddy
  • Sumant
  • Sumant
  • Recommendation: While the Boston Beer Company IS a strong company, Based on current price market price, We believe that Boston Beer Company is not a good acquisition Spell out Price distinctions (Our Valuation and current market price)
  • We think value is $33.50. Current value is around $38.
  • We think value is $33.50. Current value is around $38.
  • Company breweries: company owned ones in cincinnati and boston. Partnertships with Miller Brewing Company, High Falls Brewing Company, and City Brewing Company in Eden NC, Rochester NY, Latrobe PA, and La Crosse, WI
  • Datamonitor Company Profile Strengths: -Strong recent financial performance—huge revenue growth past three years. Strong balance sheet in that there’s no long term debt -Robust network of breweries—two company owned breweries and three partnerships with breweries to make distribution easier; closer to end markets helping to preserve freshness Threats: -Counterfeit Alcohol– 700 million business annually—for the market as a whole though -Europe is the most important market but only grew .05% last year -Health concern trends affecting taste preferences
  • Boston Beer Company Presentation

    1. 1. The Boston Beer Company Group 2 Samantha Zalaznick, Ben Minter, Tyler Gleysteen, Sumiran Das, Madeline Zingle, Sumant Shendye
    2. 2. Our recommendation is not to acquire the Boston Beer Company. Equity Value/Share: $31.62 Market Value/Share: ~$39
    3. 3. Agenda
    4. 4. Agenda
    5. 5. The Boston Beer Company History <ul><li>Founded in 1984 by Jim Koch, sixth generation brewer </li></ul><ul><li>Named after patriot and brewer Samuel Adams </li></ul><ul><li>Led American beer evolution </li></ul>
    6. 6. The Boston Beer Company Brands and Products <ul><li>Samuel Adams brands: over 20 beers </li></ul><ul><li>Twisted Tea brand: 5 malt beverages </li></ul><ul><li>HardCore Cider brand: 1 hard cider product </li></ul>
    7. 7. The Boston Beer Company Operations <ul><li>400 wholesale distributers </li></ul><ul><li>200 sales people </li></ul><ul><li>Sells mainly in US, but also in Canada, Europe, Israel, the Caribbean and the Pacific Rim </li></ul><ul><li>Uses privately owned and contracted breweries </li></ul>
    8. 8. Growth is stagnating in the U.S. beer industry
    9. 9. <ul><li>“ Better Beer” includes craft beer, super premium, and import brands </li></ul><ul><ul><li>Craft Beer accounts for 4% of the volume and 6% of the revenues of the total U.S. beer market </li></ul></ul><ul><ul><li>Craft sector grew by 6% in volume and 10% in revenues over 2008 </li></ul></ul><ul><li>Boston Beer holds 20% of the craft beer market </li></ul><ul><li>Opportunity for growth within a stagnant U.S. beer production industry </li></ul>Boston Beer Co. operates in the “ Better Beer” category of the beer industry
    10. 10. The Boston Beer Company faces competition from several fronts Large Players Imported Wine & Spirits Domestic Craft
    11. 11. <ul><li>Base consumer groups: </li></ul><ul><ul><li>Fiscally secure, Caucasian, males, over 30 </li></ul></ul><ul><ul><ul><li>Affluent drinkers </li></ul></ul></ul><ul><ul><ul><li>Beer aficionados </li></ul></ul></ul><ul><li>Potential new customers </li></ul><ul><ul><li>Health or flavor conscious drinkers </li></ul></ul><ul><ul><ul><li>“ Millennial Generation” who are coming of age </li></ul></ul></ul><ul><ul><ul><li>Low calorie, full flavor alcoholic beverage </li></ul></ul></ul><ul><ul><ul><li>Inventive product design, status symbol </li></ul></ul></ul><ul><li>Struggle with consumer trade-downs </li></ul>Boston Beer Company targets specific consumer segments
    12. 12. Agenda
    13. 13. <ul><li>The Company historically has had no debt </li></ul><ul><li>The Company generates earnings by aggressively growing sales volume </li></ul>Key Historical Financial Trends Volume & Price Growth 2003 - 2008 2003 2004 2005 2006 2007 2008 Volume (# of Barrels) 1,236,000 1,267,000 1,400,000 1,600,000 1,900,000 2,300,000 - 3% 10% 14% 19% 21% Price ($ per Barrel) 168.24 171.43 174.71 177.07 182.11 170.18 - 2% 2% 1% 3% -7%
    14. 14. Historical practice of collecting cash and using it to invest in PP&E Year Cash Net PP&E
    15. 15. <ul><li>15% gross revenue growth in 2009 </li></ul><ul><ul><li>Revenue growth rate is straight-line depreciated until 2018 </li></ul></ul><ul><ul><li>1.5% terminal growth rate </li></ul></ul><ul><li>COGS are 46% of gross revenue in 2009 </li></ul><ul><ul><li>COGS decrease as a percentage of gross revenue each year until 2018 </li></ul></ul><ul><li>Net PP&E is 30% of gross revenue </li></ul><ul><ul><li>Depreciation expense amounts 15% of net PP&E per year </li></ul></ul>There were a few key assumptions made in our financial analysis
    16. 16. Agenda
    17. 17. Continued investment in PP&E to capitalize on growth opportunities Year Projected Capital Investment 2009-2018
    18. 18. Free Cash Flow increases significantly in 2012 after cost efficiencies from brewery acquisitions are realized Year Projected Free Cash Flows 2009-2018 Market Price Predicted Price
    19. 19. Gross Margins will improve but will remain below historical levels Historical Margins 2002 - 2008 Projected Margins 2009 - 2018 2002 2003 2004 2005 2006 2007 2008 Net Revenue 100% 100% 100% 100% 100% 100% 100% COGS 41% 41% 41% 41% 42% 45% 54% Gross Margin 59% 59% 59% 59% 58% 55% 46% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Net Revenue 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% COGS 51% 50% 49% 49% 48% 47% 47% 46% 45% 45% Gross Margin 49% 50% 51% 51% 52% 53% 53% 54% 55% 55%
    20. 20. The value per share of the firm is $31.62 Weighted Average Cost of Capital Equity Value: 447,434,512 Shares Outstanding: 14,150,000 Equity Value/Share: $31.62 Market Value/Share: ~$39 Risk-Free Rate 3.79% Risk Premium 5% Beta 0.8 Cost of Capital 7.79%
    21. 21. 3-month Stock Price Performance Projected Price
    22. 22. Equity Value Sensitivity to WACC WACC (%)
    23. 23. Equity Value Sensitivity to Revenue Growth Revenue Growth Rate (%) Market Value Predicted Value
    24. 24. Equity Value Sensitivity to COGS COGS (% of Gross Revenue) Market Value Predicted Value
    25. 25. Our recommendation is not to acquire the Boston Beer Company. Equity Value/Share: $31.62 Market Value/Share: ~$39
    26. 26. <ul><li>Key Factors </li></ul><ul><li>Slowing total industry growth </li></ul><ul><li>Increasing competitiveness leading to lower margins </li></ul><ul><li>Consumer trade-downs to lower cost alternatives </li></ul><ul><li>Continued PP&E expenditures </li></ul>Our recommendation is not to acquire the Boston Beer Company.
    27. 27. Questions
    28. 28. Appendix A: Overview
    29. 29. Gallery of Products Core Products: Samuel Adams Boston Lager and Sam Adams Light Seasonal Beers: White Ale, Summer Ale, Octoberfest, Winter Lager, Old Fezziwig Ale, Cranberry Lambic, Holiday Porter Brewmaster’s Collection: Boston Ale, Cherry Wheat, Cream Stout, Hefeweizen, Pale Ale, Scotch Ale, Black Lager, Brown Ale, Honey Porter, Irish Red, Blackberry Witbier Imperial Series: Double Bock, Imperial White, Imperial Stout Extremes Beers: Utopias, Chocolate Bock, Millenium, Triple Bock, Imperial Pilsner, Hallertau 24
    30. 30. Key Employees Name Job Title Board Martin F. Roper President and Chief Executive Officer Executive Board C. James Koch Chairman and Clerk Executive Board David A. Burwick Director Non Executive Board Pearson C. Cummin Director Non Executive Board Charles Joseph Koch Director Non Executive Board Jay Margolis Director Non Executive Board Gregg A. Tanner Director Non Executive Board Jean-Michel Valette Director Non Executive Board William F. Ulrich Chief Financial Officer and Treasurer Senior Management Robert H. Hall Vice President, Brand Development Senior Management Thomas W. Lance Vice President, Operations Senior Management John C. Geist Vice President, Sales Senior Management David L. Grinnell Vice President, Brewing Senior Management
    31. 31. Four-Vessel Brewing Process
    32. 32. Total Beer Market Demographics Source: 2006 Behavioral Tracking Study by Miller Brewing Company
    33. 33. Major Players by Market Share
    34. 34. Five Forces Analysis Rivalry in the beer industry is high: differentiated products, strong brand loyalty Substitutes include wine and spirits, cheaper beers Highly concentrated; entry only feasible on small scale (microbreweries) Buyer power is moderate with low-cost switching the driving force in the industry Sellers have low power due to many producers and few alternative markets
    35. 35. The Product Chain Pubs and Restaurants Grocery Chains and Package Stores Stadiums and Other Outlets
    36. 36. SWOT Analysis Strengths <ul><li>Strong recent financial performance </li></ul><ul><li>Robust network of breweries for local distribution </li></ul><ul><li>Diversified in terms of products and geographical distribution </li></ul>Weaknesses <ul><li>Much smaller player than most main competitors </li></ul>Opportunities <ul><li>Focused strategy on reducing dependencies on other brewers </li></ul>Threats <ul><li>Thriving counterfeit alcohol trade </li></ul><ul><li>Changing consumer preferences </li></ul>
    37. 37. Appendix B: Financials
    38. 38. Pro-Forma Assumptions
    39. 39. Pro-Forma Income Statement Projected Income Statement 2008 - 2019
    40. 40. Pro-Forma Balance Sheet Projected Balance Sheet 2008 - 2019
    41. 41. Pro-Forma Free Cash Flows Projected Free Cash Flows 2008 - 2019
    42. 42. Historical Ratios