Craft Brew Alliance Inc (NASDAQ:BREW) has been swinging around this week. Craft Brewers Alliance’s share price went up 6% on Tuesday, dropped 3% Wednesday and Thursday and popped back up 4% Friday, to finish the week out up 9%. While small caps are known for swings, Craft Brewers Alliance’s beta — a measure of share price volatility — is .89, meaning that its price tends to fluctuate less than the S&P 500. Why is Craft Brewers Alliance’s share price moving so choppily?
Craft Brewers Alliance released its preliminary 2012 results and 2013 guidance on Thursday, which could explain today’s activity. Tuesday’s jump may be due to a reported consumer spending increase and a small Super Bowl publicity deal. General optimism about the stock market and beer at Super Bowl parties could also be lifting Craft Brewers Alliance. For example, Craft Brewers Alliance’s major shareholder Anheuser-Busch InBev NV (ADR) (NYSE:BUD) was up over 4% on Friday, despite continued uncertainty around a Department of Justice antitrust complaint blocking the company’s purchase of Mexico-based Modelo. Anheuser-Busch currently controls 39% of the American beer market and acquiring Modelo would push its market share to 46%. After dropping 5% on the antitrust complaint on Thursday, Anheuser-Busch InBev bounced back on Friday with assurances and, as the Super Bowl’s top ad spender, a wave of good publicity set for the weekend. However, Super Bowl optimism is a less compelling explanation for Craft Brewers Alliance’s swings, as craft beer gets a much smaller sales and publicity boost from the Super Bowl.
What was in Craft Brewers Alliance’s preliminary report? First, the company reassured investors that 2012 results are still in line with the guidance Craft Brewers Alliance released with its third quarter results in November, at about $.13 per share. The November report slashed 2012 guidance by about 50%, from $.20-$.25 to $.12-$17 earnings per share. On one hand, the market tends to welcome reductions in uncertainty. But on the other hand, November’s guidance sent Craft Brewers Alliance’s share price plummeting 22% in one week, from $7.45 to $5.70. Craft Brewers Alliance’s share price is now flirting with $7 on the news that Craft Brewers Alliance’s 2012 performance is as mediocre as November’s guidance predicted. Additionally, Craft Brewers Alliance reported a decrease in margin rates from 2011.
To put the earnings numbers in perspective, 2011 saw a nice $.51 earnings per share. Even once investors subtract earnings from a one-time brewery sale, Craft Brewers Alliance reported 2011 earnings of $.17 per share. Four cents is not a huge difference, but as a small cap with a PE of 50, Craft Brewers Alliance is valued as a growth stock and should be posting and forecasting yearly earnings per share increases.
Does anything in the report explain the market’s optimism? Possibly. Echoing second and third quarter conference calls, Craft Brewers Alliance restated that it expects more revenue growth in 2013, but did not offer any revenue estimates. The company has been expanding capacity, revamping marketing, pushing its new gluten removed brand Omission and trying to expand into international markets. All of these ventures have cost money, but they could start boosting revenues this year. However, without concrete estimates or additional details, Craft Brewers Alliance’s recent share price bounces seem more hopeful than secure.
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