Local brewer sees its stock plunge after it revises its earnings outlook; prospects dim for possibility of a new Mass. brewery.

The Boston Beer Co. will move forward with plans to buy a brewery in Pennsylvania's Lehigh Valley, even though renovation costs there will be considerably higher than company executives initially expected.

The decision, which was announced as part of the South Boston-based company's latest quarterly earnings report on Tuesday, nearly guarantees that the company's initial plan to build a large brewery off Route 24 in Freetown will be scrapped.

Meanwhile, the company reported a 46 percent drop in net income from the same time a year ago and lowered its earnings estimate for the year - news that sent the company's stock price plunging by 25 percent on Tuesday afternoon.

The company blamed the change on rising ingredient costs for its Samuel Adams craft beers as well as a new federal audit of its Cincinnati plant that uncovered excise tax issues.

Shares in the company dropped by $13.15 a share to $38.55 on Tuesday, erasing most of the gains that the stock has seen in the past six months.

The audit, by the Alcohol and Tobacco Tax and Trade Bureau, prompted the company to set aside $3.9 million to resolve a potential excise tax liability. The federal bureau's preliminary findings concern 2006 and 2007 shipments of the company's Twisted Tea alcoholic iced tea.

As a result, Boston Beer said it now expects to earn between $1.40 a share and $1.65 a share for the year, down from an estimated range of $1.42 a share to $1.70 a share that it provided in August.

The company said it will move forward with its $55 million purchase of a Diageo brewery complex in Breinigsville, Pa., and has already paid a deposit of $10 million, following a "due diligence" review of the property. The deal is expected to close next June, but the company plans to start renovations before that time.

However, the estimated cost of those renovations has risen to $60 million to $110 million, up from the $30-million-to-$75-million range that the company provided in August before its site review.

Boston Beer also bought a 52-acre site in Freetown in August for nearly $6 million from Campanelli Cos. of Braintree to use for a backup plan in case its review of the Pennsylvania brewery found too many problems.

The company hasn't yet decided what it will do with the Freetown property, which had originally been the company's primary choice for a new brewery until rising construction costs caused the estimated price to skyrocket beyond $200 million.

"I don't want to say the chances of us building a brewery in Freetown are zero," Boston Beer spokeswoman Michelle Sullivan said on Tuesday. "They're not zero. But it's highly unlikely."

Although Boston Beer typically makes most of its beer at the Cincinnati plant, it also relies on contracting with several other brewing companies. That reliance on outside breweries will decrease significantly after the company starts using its new brewery in Pennsylvania.

Jon Chesto may be reached at jchesto@ledger.com.