- 2017 delivered against CBA’s long-term
strategy to strengthen the topline and improve core business
health, led by 10% depletions growth for Kona, record gross margin
expansion, and robust EPS gains
- 2018 outlook reflects growing
confidence and increasing momentum in leveraging our enhanced AB
partnership as we continue to harness Kona’s potential, sharpen the
role of our strategic local brands, strengthen revenue management,
and drive value through operational improvements
Craft Brew Alliance, Inc. (“CBA”) (Nasdaq:BREW), a leading
craft brewing company, today announced final financial results for
the fourth quarter and year ended December 31, 2017 in line with
preliminary results reported Feb. 1, 2018. CBA’s strong full-year
results reflect significant and anticipated progress against our
long-term strategy to strengthen our topline and improve the core
health of our business. Highlights from the year include continued
double-digit depletion growth for Kona amidst unprecedented market
dynamics that challenged our industry, record gross margin
expansion driven by net revenue per barrel growth and ongoing
operational improvements, and robust GAAP earnings per diluted
share (“EPS”) performance of $0.49. On a non-GAAP basis, EPS was
$0.14, excluding the effect of a favorable one-time, non-cash tax
benefit of $0.35 per share related to 2017 U.S. tax reform.
Delivering 10% growth for Kona in
2017
CBA maintained double-digit growth for Kona in 2017, delivering
a 10% increase in Kona depletions, which includes 23% depletions
growth for Kona flagship Big Wave Golden Ale and 45% shipment
growth for Kona internationally. Hanalei Island IPA, which Kona
debuted nationally in 2017, ended the year in the top five of all
new craft brands in the U.S. as measured in grocery sales by
Nielsen. For the first eight weeks of 2018, Kona depletions have
increased 10% over the same period in 2017.
Driving incremental value through AB
partnership
We achieved several strategic objectives as part of our enhanced
agreements with Anheuser-Busch (“AB”) in 2017, including aligning
our brands in AB’s wholesaler planning processes, starting up
brewing operations in AB’s Fort Collins brewery to drive
incremental cost savings, and continuing to seed Kona’s
international expansion in a deliberate and thoughtful way.
Achieving record improvement in core
business fundamentals
CBA delivered net sales growth of 2%, gross profit improvement
of 9%, and record gross margin of 31.5%, including beer gross
margin of 35.3%, in 2017. These improvements were achieved while
simultaneously shutting down brewing operations in Memphis and
Woodinville, starting up brewing operations in Fort Collins, and
reducing wholesaler inventories by 10 days, which impacted shipment
growth. The inventory reduction effort represented approximately
25,000 barrels, which equates to 3% of shipments. In 2018, we will
continue to leverage our headway in cost reduction and operating
efficiencies to reinvest in our sales and marketing
infrastructure.
Select financial results for the full
year 2017:
- Depletions decreased 1% compared to
2016, in line with updated guidance.
- Kona depletions grew 10%, which
includes strong 5% growth in its home market of Hawaii.
- Through ongoing efforts to focus and
strengthen our regional brands in their home markets, Widmer
Brothers grew share in Oregon despite depletions being down 7%, and
our partner brands each grew share in their respective markets.
Over the prior year, our partner brands, Appalachian Mountain
Brewery, Cisco Brewers, and Wynwood Brewing grew depletions
41%.
- While Omission depletions decreased by
2% compared to 2016, the launch of Omission Ultimate Light, a new
99-calorie, 5-carb, gluten-removed golden ale, in the second half
of 2017 drove a 10% depletions increase in the fourth quarter. For
the first eight weeks of 2018, Omission depletions increased 19%
compared to the same period in 2017.
- Shipments decreased 3.5% compared to
2016, which is in line with updated guidance and reflects the
significant 2017 wholesaler inventory reduction of 10 days, which
equated to a 3% decrease in shipments as described above.
- Net sales were $207.5 million, a 2%
increase over 2016, primarily due to increases in average unit
pricing, alternating proprietorship sales, international
distribution fees earned from AB, and Pabst contract shortfall
fees.
- Total gross margin expanded 210 basis
points to 31.5%, compared to 29.4% in 2016, in line with guidance.
- CBA’s beer gross margin expanded 320
basis points to 35.3%, underscoring record achievements in
improving our operating performance.
- Pub gross margin decreased 690 basis
points to 6.7%, primarily reflecting the impact of the closure of
our Woodinville brewery as we put the facility and pub up for sale,
as well as the temporary closure of our Portland pub for a
remodel.
- Selling, general and administrative
expense (“SG&A”) increased by $1.2 million to $60.5 million and
was 29.1% of net sales. The total reflects a favorable $1.0 million
Pabst contract settlement fee, partially offset by an impairment
charge of $0.5 million related to the sale of our Woodinville
brewery.
- EPS was $0.49, compared to a loss of
$0.02 per share in 2016.
- Due to the change in federal tax law,
we adjusted our deferred tax liabilities, resulting in a favorable
non-cash income tax adjustment of $6.9 million, or $0.35 per
share.
- CBA’s adjusted EPS improvement to $0.14
per share for the year also reflects 9% growth in gross profit
driven by 2% growth in net sales and 210-basis-point gross margin
expansion.
- Capital expenditures were $18.3
million, compared to $15.7 million in 2016, and primarily represent
investments in Kona’s new brewery, Redhook’s new Seattle brewpub,
and our Portland brewery to support our footprint
optimization.
Select financial results for the fourth
quarter 2017:
- Depletions decreased 3% from the fourth
quarter of 2016, partially offset by Kona, which increased by
6%.
- Shipments decreased 5.6% over the same
period last year.
- Net sales were $46.0 million and flat
compared to the fourth quarter in 2016.
- Total gross margin increased by 310
basis points to 32.4% over the fourth quarter last year. Beer gross
margin for the fourth quarter was 37.6%, or 540 basis points higher
than the same period in 2016.
- SG&A increased by $0.2 million to
$13.1 million, and was 28.5% of net sales. Fourth quarter SG&A
reflects a favorable $1.0 million Pabst contract settlement fee to
CBA, partially offset by an impairment charge of $0.5 million
related to the sale of our Woodinville brewery.
- Diluted EPS for the quarter was $0.40,
compared to zero earnings per share in the fourth quarter of 2016.
- Due to the change in federal tax law,
we adjusted our deferred tax liabilities, resulting in a favorable
income tax adjustment of $6.9 million, or $0.35 per share.
- Our adjusted EPS improvement to $0.05
for the fourth quarter was also driven by 11% growth in gross
profit related to a 300-basis-point increase in gross margin.
“2017 was a very good year for CBA. We combined strong progress
in our strategic initiatives with record results operationally to
deliver the best financial year in our company’s history…all within
the most competitive beer market in recent memory,” said CBA CEO
Andy Thomas.
Confirming financial guidance for
2018:
Our outlook for 2018 reflects growing confidence and increasing
momentum in leveraging our enhanced AB partnership as we harness
Kona’s growth potential, sharpen the role of our strategic local
brands, and strengthen revenue management, while continuing to
drive operational improvements.
We are confirming our previously reported guidance for 2018 as
follows:
- Depletions are expected to range
between a decline of 2% and an increase of 3%. As evidence of our
continued progress harmonizing our supply chain, we also expect
shipments to range between a decline of 2% and an increase of
3%.
- Average price increases of 1% to 3%,
reflecting improved revenue management capabilities and lower
federal excise taxes.
- Gross margin rate of 32.0% to 35.0%,
reflecting increases in net revenue per barrel, continued
improvements in brewery operations, lower fixed overhead, and
ongoing efforts to stabilize our pub operations.
- SG&A expense ranging from $59
million to $61 million, primarily reflecting reinvestment of cost
savings into our sales and marketing infrastructure, as well as
expanded consumer and trade programming.
- Capital expenditures of approximately
$16 million to $19 million, including our new Kona brewery and the
addition of a new can line in our Portland brewery to address
consumer demand.
- Effective tax rate of 27%.
“CBA’s 2017 financial results demonstrate continued traction in
delivering on our strategy to strengthen the topline while
improving the core health of our business,” said CBA CFO Joe
Vanderstelt. “In 2018, we are focused on leveraging our
advancements in operational efficiencies and revenue management
capabilities to continue improving our financial fundamentals and
ability to invest in our brands.”
Forward-Looking
Statements
Statements made in this press release that state the Company’s
or management’s intentions, hopes, beliefs, expectations or
predictions of the future, including depletions and shipments,
price increases, and gross margin rate improvement, the level and
effect of SG&A expense and business development, anticipated
capital spending, effective tax rate, 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 may 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, 2017. 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
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 top 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 EndedDecember
31,
Twelve Months EndedDecember
31,
2017 2016 2017 2016
Sales $ 48,537 $ 48,880 $ 219,547 $ 215,627 Less excise
taxes 2,571 3,076 12,091
13,120 Net sales 45,966 45,804 207,456 202,507 Cost
of sales 31,090 32,394 142,198
142,908 Gross profit 14,876 13,410 65,258
59,599 As percentage of net sales 32.4 % 29.3 % 31.5 % 29.4 %
Selling, general and administrative expenses 13,106
12,876 60,463 59,224
Operating income 1,770 534 4,795 375 Interest expense (182 ) (189 )
(715 ) (709 ) Other income (expense), net 7 9
(39 ) 28 Income (loss) before income
taxes 1,595 354 4,041 (306 ) Income tax provision (benefit)
(6,240 ) 278 (5,482 ) 14 Net
income (loss) $ 7,835 $ 76 $ 9,523 $ (320 )
Income (loss) per share: Basic $ 0.41 $ — $
0.49 $ (0.02 ) Diluted $ 0.40 $ — $ 0.49
$ (0.02 ) Weighted average shares outstanding: Basic
19,302 19,259 19,284
19,225 Diluted 19,507 19,361
19,447 19,225 Total
shipments (in barrels): Core Brands 158,000 165,400 730,600 748,900
Contract Brewing 4,000 6,200
17,700 26,700 Total shipments 162,000
171,600 748,300 775,600
Change in depletions (1) -3 % -3 %
-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)
December 31, 2017 2016 Current
assets: Cash and cash equivalents $ 579 $ 442 Accounts receivable,
net 27,784 24,008 Inventory, net 13,844 19,091 Assets held for sale
22,946 - Other current assets 4,335 2,495 Total
current assets 69,488 46,036 Property, equipment and leasehold
improvements, net 106,283 121,970 Goodwill 12,917 12,917
Intangible, equity method investment and other assets, net
20,949 19,482 Total assets $ 209,637 $ 200,405
Current liabilities: Accounts payable $ 14,338 $ 16,076 Accrued
salaries, wages and payroll taxes 5,877 4,967 Refundable deposits
4,816 6,486 Other accrued expenses 5,753 4,108 Current portion of
long-term debt and capital lease obligations 699
1,317 Total current liabilities 31,483 32,954 Long-term debt and
capital lease obligations, net of current portion 32,599 27,946
Other long-term liabilities 14,764 19,844 Total common
shareholders' equity 130,791 119,661 Total
liabilities and common shareholders' equity $ 209,637 $ 200,405
Craft Brew Alliance, Inc.Condensed
Consolidated Statements of Cash Flows(In
thousands)(Unaudited)
Twelve Months EndedDecember
31,
2017 2016 Cash Flows From operating
activities: Net income (loss) $ 9,523 $ (320 ) Adjustments to
reconcile net income (loss) to net cash provided by operating
activities: Depreciation and amortization 10,457 10,862 Loss on
sale or disposal of Property, equipment and leasehold improvements
428 96 Deferred income taxes (5,400 ) 360 Other, including
stock-based compensation and impairment of assets held for sale
2,348 1,741 Changes in operating assets and liabilities: Accounts
receivable, net (3,776 ) (5,082 ) Inventories 5,500 (1,614 ) Other
current assets (1,840 ) (55 ) Accounts payable and other accrued
expenses 277 1,515 Accrued salaries, wages and payroll taxes 910
(501 ) Refundable deposits (1,649 ) 442 Net
cash provided by operating activities 16,778 7,444
Cash Flows
from investing activities: Expenditures for Property, equipment
and leasehold improvements (18,342 ) (15,722 ) Proceeds from sale
of Property, equipment and leasehold improvements 95 75
Expenditures for long-term deposits - (925 ) Investment in Wynwood
(2,101 ) - Net cash used in investing
activities (20,348 ) (16,572 )
Cash Flows from financing
activities: Principal payments on debt and capital lease
obligations (709 ) (605 ) Net borrowings under revolving line of
credit 4,224 9,198 Proceeds from issuances of common stock 219 172
Tax payments related to stock-based awards (27 ) (106
) Net cash provided by financing activities 3,707
8,659
Increase (decrease) in cash and cash
equivalents 137 (469 )
Cash and cash equivalents, beginning
of period 442 911
Cash and cash
equivalents, end of period $ 579 $ 442
Supplemental Disclosures Regarding
Non-GAAP Financial Information
Craft Brew Alliance, Inc.Reconciliation of
Adjusted EBITDA to Net Income (Loss)(In
thousands)(Unaudited)
Three Months EndedDecember
31,
Twelve Months EndedDecember
31,
2017 2016 2017 2016
Net income (loss) $ 7,835 $ 76 $ 9,523 $ (320 )
Interest expense 182 189 715 709 Income tax provision (benefit)
(6,240 ) 278 (5,482 ) 14 Depreciation expense 2,488 2,737 10,197
10,663 Amortization expense 65 69 260 199 Stock-based compensation
371 446 1,316 1,087 Loss on impairment of assets 493 - 493 - Loss
on disposal of assets 264 80 428
96 Adjusted EBITDA $ 5,458 $ 3,875 $ 17,450
$ 12,448
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
compensation and other non-cash charges, including loss on
impairment of assets and 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 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).
View source
version on businesswire.com: http://www.businesswire.com/news/home/20180307006276/en/
Craft Brew Alliance, Inc.Jenny McLean, 503-331-7248Director of
Communicationsjenny.mclean@craftbrew.com
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