Third quarter financial results reflect
continued robust performance for Kona and strong improvements in
CBA’s overall business fundamentals
Craft Brew Alliance, Inc. (“CBA”) (Nasdaq: BREW), a leading
craft brewing company, today announced financial results for the
third quarter ended September 30, 2017. Third quarter results
include continued robust depletion growth for Kona, as well as
strong EPS performance driven by improving fundamentals, including
revenue per barrel growth, gross margin expansion, and ongoing
tighter management of Selling, General & Administrative
(SG&A) expenses.
Kona Continues to Outpace Across
Segments
Against a backdrop of intensifying market pressure and
competition, Kona continued to outperform all segments of the beer
market, growing depletions by 9% in the third quarter and 10% year
to date. As the cornerstone of CBA’s “Kona Plus” portfolio
strategy, Kona’s strong brand identity and distinctive
island-inspired beers resonate with consumers – from its home
market of Hawaii, where Kona has grown 8% year to date, to around
the world as evidenced by Kona’s continued double-digit
international shipment growth. Kona flagship Big Wave Golden Ale
delivered 15% depletions growth in the third quarter, driving a 25%
increase in depletions year to date, and Hanalei Island IPA, Kona’s
latest national beer launched earlier this year, remains a top
seller in its category and a top 10 new craft brand nationally.
Strong Improvements in Business
Fundamentals
Our progress strengthening CBA’s business fundamentals
accelerated in the third quarter. Net sales grew 3% compared to the
same period last year, driven by stronger revenue management as
reflected in improved revenue per barrel. Gross profit increased by
14%, and gross margin expanded by 350 basis points to 34.2% over
the same period last year, as a result of higher revenue per barrel
and brewery optimization efforts, including the shutdown of our
Woodinville brewery, expansion of production in Fort Collins, and
operational efficiencies in our largest-volume brewery in Portland.
With ongoing cost control management, we continued to invest in the
Kona brand, contributing to an increase of 30 basis points in
SG&A expense.
Substantive Progress Leveraging AB
Agreements
We continued to leverage our recent agreements
with Anheuser-Busch (“AB”). Building on the successful launch of
our contract brewing partnership earlier this year, we expanded CBA
brewing volumes in AB’s Fort Collins brewery. Additionally, as
previously discussed, we continued working with AB on a deliberate
and strategic approach to grow Kona internationally, which included
the pilot distribution of Kona beers in key global beer markets. In
2018, we anticipate enhanced performance as a result of inclusion
of our brands in AB’s wholesaler planning process.
Clarifying Year-End
Expectations
Based on our third quarter and year-to-date results, we are
revising and tightening certain aspects of our 2017 guidance to
provide more clarity around our expectations for the full year. We
expect to deliver full-year revenue growth of 3.5% to 5%,
underpinned by healthy increases in pricing and changes in mix, as
well as previously disclosed recurring AB international
distribution payments and a one-time contract brewing shortfall
fee. We are revising our estimates for depletions, which we expect
will range between flat and a decrease of 2%, as well as for
shipments, which we estimate will range between a decrease of 2%
and a decrease of 4%. Additionally, we expect gross margin to come
in at the mid to high end of guidance and SG&A to be at the low
end of the range. Further, we have narrowed the range for capital
expenditures.
Third quarter and year-to-date 2017
financial highlights:
- Overall depletions decreased 2% for the
quarter and 1% year to date, compared to the same periods last
year, while depletions for Kona maintained strong growth,
increasing 9% in the third quarter and 10% year to date.
- Shipments were relatively flat in the
third quarter and down 3% year to date, compared to the same
periods last year.
- Net sales increased 3% to $56.6 million
in the third quarter and 3% to $161.5 million year to date over the
comparable periods in 2016, primarily attributed to increases in
average unit pricing and brand mix, alternating proprietorship
sales, and, in the nine-month period, the benefit of international
distribution fees earned from AB. The increases were partially
offset by decreases in our brewpub sales and, in the nine-month
period, a decrease in our shipment volumes as a result of
previously discussed efforts to reduce inventory levels.
- Third quarter gross profit increased by
14%, to $19.4 million, over the third quarter in 2016. Year-to-date
gross profit increased by 9%, to $50.4 million, compared to the
same period last year, driven by pricing and brand mix, the AB
international distribution payment, a one-time contract brewing
shortfall fee, and overall improvements in cost of goods sold.
- Third quarter gross margin increased by
350 basis points to 34.2% compared to the third quarter of 2016,
driven by a 460-basis point expansion in beer gross margin through
improved cost of goods sold and healthy pricing, offset by lower
pub gross margin.
- Year-to-date gross margin increased by
170 basis points to 31.2% compared to the same period in 2016,
reflecting favorability in recurring non-operational benefits,
including the AB international distribution payment, and one-time
contract brewing shortfall fee, partially offset by lower cost
absorption and a decrease in pub foot traffic.
- SG&A for the third quarter was
$16.3 million, a 3% increase over the third quarter of 2016, and
$47.4 million year to date, a 2% increase over the same period last
year.
- The third quarter increase primarily
reflects increased in-market promotional costs, as well as costs
related to the reorganization of our IT resources, partially offset
by a decrease in general and administrative costs.
- The increase in year-to-date SG&A
expense is primarily due to increases in employee benefit-related
costs, professional fees, and the reorganization of our IT
resources, partially offset by the timing of creative and media
spend.
- Diluted net income per share was $0.09
for the third quarter, an increase of $0.06 over the third quarter
in 2016. For the year-to-date period, diluted net income per share
was $0.09, an increase of $0.11 over the same period last
year.
“We feel really good about our third quarter results across a
number of dimensions – be that in terms of our performance in the
context of a fiercely competitive market, our absolute performance
relative to last year, and our performance relative to our peers,”
said Andy Thomas, chief executive officer, CBA. “Kona continues to
distinguish itself with bright prospects for the future, our
business fundamentals continue to improve, and our relationship
with AB is providing ever greater value to our stakeholders.”
Updated financial guidance for
full-year 2017:
- Average price increases of 1% to 2% are
unchanged and do not reflect the recurring AB international
distribution payments or the one-time contract brewing shortfall
fee that will be recognized in the fourth quarter.
- Depletions are now expected to range
between a decrease of 2% and flat compared to last year.
- Shipments are now expected to range
between a decrease of 4% and a decrease of 2%, primarily reflecting
our decision to focus the remainder of the year on maximizing our
owned brand portfolio, led by Kona, alongside our existing partner
portfolio, including Appalachian Mountain Brewery, Cisco Brewers,
and Wynwood Brewing Co., and to not bring on additional partners at
this time.
- Total gross margin remains in the range
of 30.5% to 32.5%, and we expect to be at the mid to higher end of
the range.
- SG&A ranging from $61 million to
$63 million, reflecting an increase in marketing spend and SG&A
cost optimization. As we leverage investments made in prior years
and seek to improve efficiencies, we expect to be at the lower end
of the range.
- Our capital expenditure range has been
narrowed and is expected to be approximately $18 million to $20
million, reflecting continued work on previously disclosed
projects, including the new Kona brewery and the Redhook brewpub in
Seattle.
“CBA’s third quarter revenue growth, improved cost management,
and operational efficiencies have contributed to our solid
year-to-date results. Despite adjusting guidance ranges in some
areas to reflect the dynamic market in which we operate, we remain
confident in delivering EPS performance well ahead of last year,”
said Joe Vanderstelt, chief financial officer, CBA.
Forward-Looking
Statements
Statements made in this press release that state the Company’s
or management’s intentions, hopes, beliefs, expectations or
predictions for the future, including depletions, shipments and
sales growth, price increases, lower inventory levels, and gross
margin rate improvement, the level and effect of SG&A expense
and business development, anticipated capital spending, and the
benefits or improvements to be realized from strategic initiatives
and capital projects, are forward-looking statements. It is
important to note that the Company’s actual results could differ
materially from those projected in such forward-looking statements.
Additional information concerning factors that could cause actual
results to differ materially from those in the forward-looking
statements is contained from time to time in the Company’s SEC
filings, including, but not limited to, the Company’s report on
Form 10-K for the year ended December 31, 2016. Copies of these
documents may be found on the Company’s website, www.craftbrew.com,
or obtained by contacting the Company or the SEC.
About Craft Brew
Alliance
CBA is an independent craft brewing company that brews, brands,
and brings to market world-class American craft beers.
Our distinctive portfolio combines the power of Kona Brewing
Company, a dynamic, fast-growing national craft beer brand, with
strong regional breweries and innovative lifestyle brands
Appalachian Mountain Brewery, Cisco Brewers, Omission Brewing Co.,
Redhook Brewery, Square Mile Cider Co., Widmer Brothers Brewing,
and Wynwood Brewing Co. CBA nurtures the growth and development of
its brands in today’s increasingly competitive beer market through
our state-of-the-art brewing and distribution capability,
integrated sales and marketing infrastructure, and strong focus on
partnerships, local community and sustainability.
Formed in 2008, CBA is headquartered in Portland, Oregon and
operates breweries and brewpubs across the U.S. CBA beers are
available in all 50 U.S. states and 30 different countries around
the world. For more information about CBA and our brands, please
visit www.craftbrew.com.
Craft Brew Alliance, Inc.
Condensed Consolidated Statements of Operations (Dollars
and shares in thousands, except per share amounts)
(Unaudited)
Three Months EndedSeptember
30,
Nine Months EndedSeptember
30,
2017 2016
2017 2016 Sales $ 60,040
$ 58,660 $ 171,010 $ 166,747 Less excise taxes 3,402
3,457 9,520 10,044 Net
sales 56,638 55,203 161,490 156,703 Cost of sales 37,254
38,229 111,108 110,514
Gross profit 19,384 16,974 50,382 46,189 As percentage of
net sales 34.2 % 30.7 % 31.2 % 29.5 % Selling, general and
administrative expenses 16,328 15,876
47,357 46,348 Operating income (loss)
3,056 1,098 3,025 (159 ) Interest expense (179 ) (186 ) (533 ) (520
) Other income (expense), net (59 ) 7
(46 ) 19 Income (loss) before income taxes 2,818 919
2,446 (660 ) Income tax provision (benefit) 1,067
367 758 (264 ) Net income (loss)
$ 1,751 $ 552 $ 1,688 $ (396 ) Basic
and diluted net income (loss) per share $ 0.09 $ 0.03
$ 0.09 $ (0.02 ) Weighted average shares outstanding:
Basic 19,296 19,244 19,278
19,213 Diluted 19,443
19,343 19,401 19,213
Total shipments (in barrels): Core Brands 205,200 202,100 572,600
583,500 Contract Brewing 2,700 6,300
13,700 20,500 Total shipments
207,900 208,400 586,300
604,000 Change in depletions (1) -2 % 0
% -1 % 0 % (1) Change in depletions reflects
the period-over-period change in barrel volume sales of beer by
wholesalers to retailers.
Craft Brew
Alliance, Inc. Condensed Consolidated Balance Sheets
(In thousands) (Unaudited) September
30, 2017 2016 Current assets: Cash and
cash equivalents $ 405 $ 410 Accounts receivable, net 28,894 23,742
Inventory, net 17,659 20,906 Assets held for sale 23,462 - Other
current assets 1,372 2,029 Total current assets
71,792 47,087 Property, equipment and leasehold improvements, net
106,380 122,347 Goodwill 12,917 12,917 Intangible, equity method
investment and other assets, net 20,925 19,548 Total
assets $ 212,014 $ 201,899 Current liabilities: Accounts
payable $ 25,088 $ 18,253 Accrued salaries, wages and payroll taxes
6,170 5,858 Refundable deposits 5,477 6,804 Other accrued expenses
7,587 1,943 Current portion of long-term debt and capital lease
obligations 1,731 1,312 Total current liabilities
46,053 34,170 Long-term debt and capital lease obligations, net of
current portion 23,527 29,020 Other long-term liabilities 19,996
19,821 Total common shareholders' equity 122,438
118,888 Total liabilities and common shareholders' equity $ 212,014
$ 201,899
Craft Brew Alliance,
Inc. Condensed Consolidated Statements of Cash Flows
(In thousands) (Unaudited)
Nine Months EndedSeptember
30,
2017 2016 Cash
Flows From operating activities: Net income (loss) $ 1,688 $
(396 ) Adjustments to reconcile net income (loss) to net cash
provided by operating activities: Depreciation and amortization
7,904 8,056 Loss on sale or disposal of Property, equipment and
leasehold improvements 164 16 Deferred income taxes (168 ) 174
Other, including stock-based compensation 1,851 655 Changes in
operating assets and liabilities: Accounts receivable, net (4,886 )
(4,816 ) Inventories 1,371 (2,902 ) Other current assets 1,124 410
Accounts payable and other accrued expenses 13,096 736 Accrued
salaries, wages and payroll taxes 1,203 389 Refundable deposits
(884 ) 545 Net cash provided by operating
activities 22,463 2,867
Cash Flows from investing
activities: Expenditures for Property, equipment and leasehold
improvements (16,170 ) (12,206 ) Proceeds from sale of Property,
equipment and leasehold improvements 95 8 Expenditures for
long-term deposits - (925 ) Investment in Wynwood (2,101 )
- Net cash used in investing activities (18,176 )
(13,123 )
Cash Flows from financing activities: Principal
payments on debt and capital lease obligations (483 ) (477 ) Net
borrowings (repayments) under revolving line of credit (3,922 )
10,138 Proceeds from issuances of common stock 98 172 Tax payments
related to stock-based awards (17 ) (78 ) Net cash
provided by (used in) financing activities (4,324 )
9,755
Decrease in cash and cash equivalents (37 )
(501 )
Cash and cash equivalents, beginning of period
442 911
Cash and cash equivalents, end of
period $ 405 $ 410
Craft Brew Alliance, Inc.
Select Financial Information on a Trailing Twelve Month
Basis (Dollars in thousands, except per share amounts)
(Unaudited)
Twelve Months EndedSeptember
30,
2017 2016 Change
% Change Net sales $ 207,294 $ 205,942 $ 1,352 0.7 %
Gross profit $ 63,792 $ 61,674 $ 2,118 3.4 % As percentage
of net sales 30.8 % 29.9 % 90 bps Selling, general and
administrative expenses 60,233 59,567
666 1.1 % Operating income $ 3,559 $ 2,107
$ 1,452 68.9 % Net income $ 1,764 $ 863
$ 901 104.4 % Basic and diluted net income per
share $ 0.09 $ 0.04 $ 0.05 125.0 %
Total shipments (in barrels): Core Brands 738,000 772,600 (34,600 )
(4.5 )% Contract Brewing 19,900 29,200
(9,300 ) (31.8 )% Total shipments 757,900
801,800 (43,900 ) (5.5 )% Change in
depletions (1) -2 % 0 % (1) Change in
depletions reflects the period-over-period change in barrel volume
sales of beer by wholesalers to retailers.
Supplemental
Disclosures Regarding Non-GAAP Financial Information
Craft Brew Alliance, Inc.
Reconciliation of Adjusted EBITDA to Net Income (Loss)
(In thousands) (Unaudited)
Three Months EndedSeptember
30,
Nine Months EndedSeptember
30,
2017 2016 2017 2016
Net income (loss) $ 1,751 $ 552 $ 1,688 $ (396 )
Interest expense 179 186 533 520 Income tax provision (benefit)
1,067 367 758 (264 ) Depreciation expense 2,371 2,651 7,709 7,926
Amortization expense 65 43 195 130 Stock-based compensation 391 333
945 642 Loss on disposal of assets 18 7 164
16 Adjusted EBITDA $ 5,842 $ 4,139 $ 11,992 $ 8,574
CBA has presented Adjusted Earnings before Interest, Taxes,
Depreciation and Amortization (“Adjusted EBITDA”) in these tables
to provide investors with additional information to evaluate our
operating performance on an ongoing basis using criteria that are
used by management. We define Adjusted EBITDA as net income
(loss) before interest, income taxes, depreciation and
amortization, stock-based compensation and other non-cash charges,
including net gain or loss on disposal of property, equipment and
leasehold improvements. We use Adjusted EBITDA, among other
measures, to evaluate operating performance, to plan and forecast
future periods’ operating performance, and as an incentive
compensation target for certain management personnel.
As Adjusted EBITDA is not a measure of operating performance or
liquidity calculated in accordance with generally accepted
accounting principles in the United States of America (“GAAP”),
this measure should not be considered in isolation of, or as a
substitute for, net income (loss) as an indicator of operating
performance, or net cash provided by (used in) operating activities
as an indicator of liquidity. The use of Adjusted EBITDA
instead of net income (loss) has limitations as an analytical tool,
including the inability to determine profitability; the exclusion
of interest expense and associated cash requirements, given the
level of our indebtedness; and the exclusion of depreciation and
amortization which represent significant and unavoidable operating
costs, given the capital expenditures needed to maintain our
operations. We compensate for these limitations by relying on GAAP
results. Our computation of Adjusted EBITDA may differ from
similarly titled measures used by other companies. As Adjusted
EBITDA excludes certain financial information compared with net
income (loss) and net cash provided by (used in) operating
activities, the most directly comparable GAAP financial measures,
users of this financial information should consider the types of
events and transactions which are excluded. The table above shows a
reconciliation of Adjusted EBITDA to net income (loss).
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version on businesswire.com: http://www.businesswire.com/news/home/20171108006542/en/
Craft Brew AllianceJenny McLean, 503-331-7248Director of
Communicationsjenny.mclean@craftbrew.com
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