A Sobering Performance in Craft Brew Alliance Inc (BREW)

Be it their tasty beverages or strong fundamentals, popular Craft Brew Alliance Inc (NASDAQ:BREW) brewer Boston Beer Co Inc (NYSE:SAM) has attracted a lot of investor interest in 2013, but their first earnings report of the year had investors reaching for a glass of water. Despite posting a year over year increase in revenue of 20%, the company undershot the consensus earnings estimate by 18%, citing increased raw materials and advertising costs, as well as softness in their flagship Sam Adams line. This disconcerting information snowballed with a confidently ambiguous outlook for the rest of the year, as management stated that gross margins are still expected to reach 55% for the year, but in the next breath divulged that actual results on their full year earnings could “vary significantly.” Investors were sent into a selling rampage that washed down 11% of the stock’s value on more than seven times its average trading volume the following day.

A worse scenario

Many have previously shied away from this company because of its consistently high valuations, but now the attention might turning to a very real, and even worse case scenario—a back alley brawl of craft brewing with the heavy weights of the beer industry, including Anheuser-Busch InBev NV (ADR) (NYSE:BUD). The big dogs of beer have previously steered clear of craft brewing because the avoidance of those mass producing companies is an important factor to many of the consumers of craft beer. However, should InBev decide the time is finally right, they have clear leveraging capabilities in terms of scale and cash flow as a $150 billion company generating $4.9 billion in free cash flow last year, and they’ve also had their whistle wet in the craft brewing market for some time now with their 35% ownership stake in Craft Brew Alliance Inc (NASDAQ:BREW). Craft Brew Alliance Inc (NASDAQ:BREW) is making quick progress for its comparably minute size to peers, growing revenues by 13.5% last year thanks to its lineup of satiating core brands including Redhook Ale, Widmer Brothers and Kona Brewing. This partial ownership gives Anheuser-Busch InBev NV (ADR) (NYSE:BUD) a powerful angle into the market of craft brewing, the same market that Boston Beer Co Inc (NYSE:SAM) is hoping to grow aggressively into. With scalability becoming more of a reality in craft brewing, and many of those aforementioned companies’ popularity growing rapidly at the same time, this could put a serious damper on Boston Beer Co Inc (NYSE:SAM)’s lofty growth agenda.