Big Changes: The Sam Can and The Dollar Menu – Boston Beer Co Inc (SAM), McDonald’s Corporation (MCD)

Boston Beer Co Inc (NYSE:SAM) recently announced that it will offer its signature beer, Sam Adams Boston Lager, in a can for the first time this summer. Previously the number one ranked craft brewer had only sold it in a bottle. Founder Jim Koch had resisted the temptation for years, even going as far as promising in a 2005 “Beer Drinkers Bill Of Rights” that his brew would never be put in a can.

Boston Beer Co Inc (NYSE:SAM) has been on somewhat of a roll lately, announcing record beer sales and increased guidance for 2013 earnings even though  profits for the last quarter dropped a bit. The stock has soared about 40% over the last 3 months.
With a P/E of about 36 (higher than its historical average, its peers and the overall market) some analysts are saying that the stock is overvalued and is ripe for a fall.
However, in spite of the dropoff in earnings and elevated P/E Boston Beer Co Inc (NYSE:SAM) still has a lot going for it:
1. Near zero debt levels: TTM long term debt/equity = 0.2%
2. Founder still in charge: although he has given up the CEO post Jim Koch remains the board chairman and uses an old family recipe
3. Relatively small size: with a market cap of about $2 billion the company is still agile enough to keep growing and reacting to market pressures and the many competitors in the craft brew space
McDonald's Corporation (NYSE:MCD)Another company that is in the midst a change right now is McDonald’s Corporation (NYSE:MCD). Last October (and again for February) it reported that monthly same store sales had declined. The company has provided cautious guidance going forward.
It reacted quickly late last year with a new advertising pitch emphasizing their low-cost dollar menu instead of the more pricer extra value offerings.
McDonald’s Corporation (NYSE:MCD) has always seemed to get through rough patches in the past and consistently provide solid returns for shareholders. It seemed to ride though the last recession without missing much of a beat. McDonald’s Corporation (NYSE:MCD) stock has been one of the best performers in the Dow Industrial Average since the recession ended about 4 years ago.
How have other companies fared after changing some aspect of its operation or a product?
In 1985 The Coca-Cola Company (NYSE:KO) changed the formula for its top-rated soft drink. Although various taste tests confirmed that “New Coke” performed much better than “Old Coke” and competitor products many consumers were nostalgic for the original version. The company reversed course and later that same year reintroduced the old recipe as “Coke Classic.”

It doesn’t appear that the flip-flop had much of an effect on the company’s fortunes. Since late 1985 Coca-Cola has increased annual revenue and its dividend by over six-fold and grown earnings at a compounded rate of 13% per year.
International Business Machines Corp. (NYSE:IBM) was once the world’s largest manufacturer of PC’s and in fact, in the early days, they were commonly referred to as “IBM-compatible PC’s.” The first model was called the IBM 5150.

IBM is famous for invention and has

generated the most patents by a company for 20 consecutive years, a record. It is responsible for creating the automated teller machine, the floppy disk and the standard barcode, among many other products. The company is widely recognized as having the world’s # 2 brand, behind Coca-Cola’s top ranking.

IBM is in the midst of reinventing itself right now as it has transitioned from hardware-oriented products, including PC’s, to providing various types of services to other companies and for “Big Data.”

“Big Blue” has also returned a lot of value to shareholders over the years, including repurchasing its own shares and increasing its dividend by over five times in the past decade. It also has been one of the Dow’s best performing stocks over the last four years.
So will Boston Beer follow the lead of other companies, such as Coca-Cola and IBM, and be able to change an important aspect of a successful product and continue to perform well? Will McDonald’s Corporation (NYSE:MCD) still be successful after their revised ad campaign? I wouldn’t bet against them.

The article Big Changes: The Sam Can and The Dollar Menu originally appeared on and is written by Mark Morelli.

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