Boston Beer Company, Inc. (NYSE: SAM) has announced an amendment and restatement of an existing production agreement with a third-party supplier, Rauch North America Inc. The amendment, which involves a $26 million cash payment to Rauch, will provide increased production flexibility and more favorable termination rights to the company.
As a result of this payment, the company expects to record a pre-tax contract settlement expense of $26 million or $1.70 after-tax per diluted share impact in the fourth quarter of 2024. The impact of the payment on the company's prior guidance is as follows:
- Depletions and shipments percentage decrease: Down low single digits (no change from prior guidance)
- Price increases: 2% (no change from prior guidance)
- Gross margin: 44% to 45% (no change from prior guidance)
- Advertising, promotion, and selling expense year over year change: ($5) to $15 million (no change from prior guidance)
- Effective tax rate: 34% (up from 30% in prior guidance)
- GAAP EPS: $3.80 to $5.80 (down from $5.50 to $7.50 in prior guidance)
- Non-GAAP EPS: $8.00 to $10.00 (no change from prior guidance)
- Capital spending: $80 to $95 million (no change from prior guidance)
The increase in the estimated full-year effective tax rate is attributed to the impact of the contract settlement, which decreased estimated full-year pre-tax income but did not significantly change estimated full-year non-deductible expenses.
The company continues to work on finalizing its 2025 financial plan and does not expect the agreement with Rauch to materially impact its previously provided estimate of $14 million in 2025 shortfall fees disclosed in its third-quarter 10-Q filed on October 24, 2024.
The Boston Beer Company has updated its full-year 2024 guidance to reflect the estimated contract settlement expense and emphasizes that its actual 2024 results could vary and are highly sensitive to changes in volume projections and supply chain performance. The company will provide further guidance on shortfall fees and the non-cash expense of third-party production pre-payments along with its full-year 2025 financial guidance in its fourth-quarter earnings report in February 2025.
As a result of these announcements, the company's shares have moved -1.9% on the market, and are now trading at a price of $302.77. For more information, read the company's full 8-K submission here.
