CBA is reaffirming full-year operating guidance
following strong acceleration of Kona, combined with continued
success driving core business health
Craft Brew Alliance, Inc. (“CBA”) (Nasdaq: BREW), a leading
craft brewing company, today announced financial results for the
second quarter and year to date ended June 30, 2018. Our second
quarter results include accelerated growth for Kona Brewing Co., as
well as a 2% increase in overall net sales and a robust
550-basis-point expansion in gross margin over the second quarter
last year. These results were supported by sustained strong
operational performance in the quarter, reflecting ongoing
excellence in brewery operations, disciplined cost management, and
healthy revenue per barrel increases, all of which came together to
deliver record quarterly net income and earnings per share.
As a result of our solid year-to-date performance and continued
confidence in delivering against our 2018 operating plan, we are
reaffirming guidance for the full year and expect to tighten ranges
in the coming quarter.
Accelerating Kona’s
Growth
Kona’s growth accelerated in the second quarter, with total
depletions up 7% over the second quarter in 2017. Kona’s momentum
was again fueled by flagship Big Wave Golden Ale, which grew 22% in
the second quarter, and supported by Kona’s new 99-calorie Kanaha
Blonde Ale that launched nationally this year to address increasing
consumer demand for lower-calorie craft beers. Kona’s growth in the
U.S. continued to outperform the craft segment, underscored by
strong on-premise performance led by Big Wave, which increased
on-premise sales by 35% over the second quarter of 2017. Kona also
continued to gain traction in key markets as a result of ongoing
investments to support growth leading into the peak summer selling
season.
Building on our AB
Partnership
We continued to unlock value through our successful partnership
with Anheuser-Busch (“AB”) in the second quarter, with a strong
focus on leveraging the enhanced commercial and contract brewing
agreements to support topline growth and core business health. As
part of our extended commercial agreements, CBA’s brands continued
to be included in key wholesaler incentive programs and planning
calendars. We expanded on our brewing agreement, increasing brewing
volumes in AB’s Fort Collins, Colorado brewery, while also
initiating brewing of select AB craft beers in our Portland brewery
as part of a cross-brewing arrangement with AB launched earlier
this year in our Portsmouth brewery. We also made progress in
developing a deliberate international growth strategy for CBA,
exploring opportunities to increase focus and resources in key
markets; we anticipate sharing evolved plans in the coming
months.
Expanding Our Gross
Margin
As compared to the second quarter in 2017, we expanded our beer
gross margin by 640 basis points to 39.4%, driven by increased
operating efficiencies, healthy pricing, and continued strong cost
management. Total CBA gross profit improved by 21%, reflecting
gross margin expansion of 550 basis points to 35.8% compared to the
second quarter last year. These results underscore the achievements
we’ve made in reshaping our portfolio mix, evolving our brewing
footprint, stabilizing our supply chain, and driving efficiencies
throughout the business.
Exploring Topline Growth
Opportunities
As a result of our success in reshaping CBA’s brand portfolio
and strengthening our core financial health, we are poised to
increase our focus on topline expansion. In addition to continuing
work to realize the full benefits of our existing partnerships and
their increasing role within the Kona Plus strategy, we began
actively exploring opportunities to invest in our future topline
across three broad areas: Firstly, we started testing heavy-up
spending programs for Kona and other CBA brands in select markets.
Secondly, our newly created Innovation Team launched one of its
first test-and-learn initiatives, a consumer focus group experiment
called pH that will help identify evolving consumer taste
preferences. Thirdly, as part of ongoing work to increase our
understanding of today’s changing social lubricant landscape, we
initiated two complementary research projects with the Yale School
of Management’s Center for Consumer Insights and Prophet, a global
growth consultancy. Each of these efforts will contribute to our
plans for 2019 and beyond, and we will continue to share updates on
our progress in the coming quarters.
Second quarter and year-to-date 2018
financial highlights:
- Total CBA net sales increased by 2% to
$61.8 million over the second quarter in 2017, led by shipment
growth for Kona and increases in average unit pricing. Total CBA
net sales year-to-date increased 4% to $109.3 million, compared to
the same period in 2017. Increases in net sales for both periods
were partially offset by declines in brewpub sales.
- CBA’s total depletions decreased by 2%
in the second quarter, improving the year-to-date trend to a
decrease of 3% over the same period last year.
- Depletions for portfolio cornerstone
Kona grew 7% over the second quarter of 2017, which positively
impacted Kona year-to-date depletion trend to an increase of 5%
over the same period in 2017.
- Total shipments decreased slightly, by
0.4%, in the second quarter and increased by 3.5% year-to-date.
- Our slight second quarter shipment
decrease primarily reflects declines in Redhook and Widmer
Brothers, partially offset by growth in domestic and international
shipments for Kona and Omission.
- For the quarter and year-to-date, we
also successfully maintained optimum wholesaler inventory levels,
building on the strong supply chain stability achievements made
over the past year.
- Second quarter gross profit increased
by 21% to $22.1 million, and year-to-date gross profit increased by
20% to $37.2 million, over the comparable periods a year ago.
- Beer gross margin expanded by 640 basis
points to 39.4% in the second quarter, primarily reflecting
increases in average unit pricing and cost savings related to our
optimized brewery footprint, partially offset by increases in
freight and logistics costs. Beer gross margin year-to-date
expanded by 500 basis points to 37.7%.
- Overall gross margin increased by 550
basis points to 35.8% in the second quarter and by 440 basis points
to 34% year-to-date, which reflects decreases in brewpub gross
profit for the quarter and year-to-date. Brewpub gross margins were
pressured by increased net costs associated with the new brewpub in
Seattle, partially offset by increased sales at both of our pubs in
Hawaii.
- Selling, general and administrative
expense (“SG&A”) for the second quarter was $15.9 million, a
1.9% increase over the second quarter of 2017, primarily due to
increased creative and media spend. Year-to-date SG&A was $30.6
million, a 1.4% decrease from the comparable period in 2017, which
reflects a $0.5 million gain in the first quarter of 2018 related
to the sale of brewing and bottling equipment from our former
Woodinville, WA facility, partially offset by increases in creative
and media.
- Diluted earnings per share was $0.23
for the second quarter, an increase of $0.14 over second quarter
earnings per share of $0.09 in 2017. Year-to-date diluted earnings
per share was $0.24, a $0.24 increase compared to a diluted net
loss per share of $0.00 in the same six-month period in 2017. Our
earnings per share for the quarter and year to date reflects an
effective tax rate of 28%.
“It’s fitting that as CBA marks its 10th anniversary this
summer, we also just delivered the best quarterly performance in
our company’s history across all key dimensions,” said Andy Thomas,
chief executive officer, CBA. “As we look to continue navigating
the fast-changing social lubricant landscape, we are emboldened by
our team’s track record of tangible strategic and operational
results and bullish on a future rooted in our Kona Plus strategy
and guided by our learnings.”
Anticipated financial highlights for
2018:
We are maintaining CBA’s operating guidance for the full year
2018 and updating our effective tax rate guidance as follows:
- Total CBA depletion change ranging
between a decline of 2% and an increase of 3%.
- Shipments ranging between a decrease of
2% and increase of 3%, which reflects ongoing progress to align our
supply chain.
- Average price increases of 1% to 3%,
reflecting improvements in revenue management and lower federal
excise taxes.
- Total 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 pub operations.
- SG&A expense ranging from $59
million to $61 million, as we continue to reinvest cost savings
into our brands and expand our consumer and trade marketing
programming.
- Capital expenditures of approximately
$16 million to $19 million, which reflects continued work on the
new Kona brewery and the addition of a new canning line in our
Portland brewery.
- Effective tax rate of 28%, an increase
of 100 basis points over the previously communicated tax rate
guidance.
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, shipments and
sales growth, price increases, and gross margin rate improvement,
the level and effect of SG&A expense and business development,
anticipated capital spending, our 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 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, 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 idependent 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, 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 EndedJune
30,
Six Months EndedJune 30,
2018 2017
2018 2017 Sales $ 65,253
$ 64,204 $ 115,338 $ 110,970 Less excise taxes 3,430
3,654 6,028 6,118 Net
sales 61,823 60,550 109,310 104,852 Cost of sales 39,696
42,221 72,112 73,854
Gross profit 22,127 18,329 37,198 30,998 As percentage of
net sales 35.8 % 30.3 % 34.0 % 29.6 % Selling, general and
administrative expenses 15,857 15,560
30,605 31,029 Operating income (loss)
6,270 2,769 6,593 (31 ) Interest expense (107 ) (173 ) (241 ) (354
) Other income, net 21 10 55
13 Income (loss) before income taxes 6,184
2,606 6,407 (372 ) Income tax provision (benefit) 1,732
882 1,794 (309 ) Net
income (loss) $ 4,452 $ 1,724 $ 4,613 $ (63 )
Basic and diluted net income (loss) per share: $ 0.23
$ 0.09 $ 0.24 $ — Weighted average
shares outstanding: Basic 19,334 19,278
19,322 19,270 Diluted 19,517
19,389 19,502 19,270
Total shipments (in barrels): Core Brands 218,700
219,200 379,300 367,400 Contract Brewing 5,900
6,400 12,300 11,000 Total
shipments 224,600 225,600
391,600 378,400 Change in depletions
(1) -2 % -2 % -3 % 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)
June 30, 2018 2017
Current assets: Cash, cash equivalents and restricted cash $ 5,778
$ 2,034 Accounts receivable, net 36,999 27,342 Inventory, net
14,522 15,493 Assets held for sale - 23,622 Other current assets
1,874 3,588 Total current assets 59,173 72,079
Property, equipment and leasehold improvements, net 104,982 105,134
Goodwill 12,917 12,917 Intangible, equity method investment and
other assets, net 20,469 19,061 Total assets $
197,541 $ 209,191 Current liabilities: Accounts payable $
20,042 $ 26,600 Accrued salaries, wages and payroll taxes 4,673
4,918 Refundable deposits 4,282 6,690 Deferred revenue 4,685 2,585
Other accrued expenses 3,163 4,959 Current portion of long-term
debt and capital lease obligations 807 1,599 Total
current liabilities 37,652 47,351 Long-term debt and capital lease
obligations, net of current portion 9,946 21,826 Other long-term
liabilities 13,995 19,727 Total common shareholders' equity
135,948 120,287 Total liabilities and common shareholders'
equity $ 197,541 $ 209,191
Craft Brew Alliance, Inc.
Condensed Consolidated Statements of Cash Flows (In
thousands) (Unaudited)
Six Months EndedJune 30,
2018 2017 Cash
Flows from operating activities: Net income (loss) $ 4,613 $
(63 ) Adjustments to reconcile net income (loss) to net cash
provided by operating activities: Depreciation and amortization
5,387 5,468 (Gain) loss on sale or disposal of Property, equipment
and leasehold improvements (494 ) 146 Deferred income taxes (629 )
(378 ) Other, including stock-based compensation 875 1,429 Changes
in operating assets and liabilities: Accounts receivable, net
(9,215 ) (3,334 ) Inventories (285 ) 3,323 Other current assets
1,761 (1,093 ) Accounts payable and other accrued expenses 7,889
7,299 Accrued salaries, wages and payroll taxes (1,204 ) (49 )
Refundable deposits (241 ) (397 ) Net cash provided
by operating activities 8,457 12,351
Cash Flows from investing
activities: Expenditures for Property, equipment and leasehold
improvements (4,284 ) (4,920 ) Proceeds from sale of Property,
equipment and leasehold improvements 22,936 91 Restricted cash from
sale of Property, equipment and leasehold improvements 515
- Net cash provided by (used in) investing
activities 19,167 (4,829 )
Cash Flows from financing
activities: Principal payments on debt and capital lease
obligations (348 ) (261 ) Net repayments under revolving line of
credit (22,199 ) (5,756 ) Proceeds from issuances of common stock
206 87 Tax payments related to stock-based awards (84 )
- Net cash used in financing activities
(22,425 ) (5,930 )
Increase in Cash, cash equivalents and
restricted cash 5,199 1,592
Cash, cash equivalents and
restricted cash, beginning of period 579
442
Cash, cash equivalents and restricted cash, end of
period $ 5,778 $ 2,034
Craft Brew Alliance, Inc.
Select Financial Information on a
Trailing Twelve Month Basis
(Dollars in thousands, except per share amounts)
(Unaudited)
Twelve Months EndedJune
30,
2018 2017 Change
% Change Net sales $ 211,914 $ 205,859 $ 6,055 2.9 %
Gross profit $ 71,458 $ 61,382 $ 10,076 16.4 % As percentage
of net sales 33.7 % 29.8 %
390 bps
Selling, general and administrative expenses 60,039
59,781 258 0.4 % Operating
income $ 11,419 $ 1,601 $ 9,818 613.2 %
Net income $ 14,199 $ 565 $ 13,634 2,413.1 %
Income per share: Basic $ 0.74 $ 0.03 $ 0.71
2,366.7 % Diluted $ 0.73 $ 0.03 $ 0.70
2,333.3 % Total shipments (in barrels): Core Brands 742,500
734,900 7,600 1.0 % Contract Brewing 19,000
23,500 (4,500 ) (19.1 )% Total shipments
761,500 758,400 3,100 0.4 %
Change in depletions (1) -2 % -1 % (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 EndedJune
30,
Six Months EndedJune 30,
2018 2017 2018
2017 Net income (loss) $ 4,452 $
1,724 $ 4,613 $ (63 ) Interest expense 107 173 241 354 Income tax
provision (benefit) 1,732 882 1,794 (309 ) Depreciation expense
2,608 2,508 5,301 5,338 Amortization expense 43 65 86 130
Stock-based compensation 202 197 687 554 (Gain) loss on disposal of
assets 22 143 (494 ) 146
Adjusted EBITDA $ 9,166 $ 5,692 $ 12,228 $ 6,150
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: https://www.businesswire.com/news/home/20180808005727/en/
Craft Brew Alliance, Inc.Jenny McLean, 503-331-7248Director of
Corporate Communicationsjenny.mclean@craftbrew.com
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