Building on strong year-to-date financial
performance, CBA tightens guidance and updates SG&A spend
Craft Brew Alliance, Inc. (“CBA”) (Nasdaq: BREW), a leading
craft brewing company, today announced financial results for the
third quarter and year-to-date ended September 30, 2018. Third
quarter results include 9% depletions growth for Kona, as well as
continued progress leveraging our improved business fundamentals to
develop a strong portfolio for tomorrow as evidenced by the
recently announced acquisitions of our three regional partner
brands, Appalachian Mountain Brewery, Cisco Brewers, and Wynwood
Brewing Co.
As a result of strong year-to-date financial performance in line
with management’s expectations, including accelerated depletions
growth for Kona, a 200-basis-point expansion in gross margin, and a
$0.15 increase in EPS, we are tightening full-year guidance and
updating our selling, general & administrative (SG&A)
expense and income tax rate. We now anticipate higher SG&A
spend to reflect incremental marketing programs to fuel Kona’s
momentum and ongoing innovation initiatives, as well as costs
related to our partner acquisitions.
Accelerating Kona’s Growth in the Third
Quarter
Kona delivered robust 9% depletions growth in the third quarter,
after growing 7% in the second quarter and 3% in the first quarter,
improving the year-to-date trend to a 7% increase in depletions.
Kona’s momentum was driven by flagship Big Wave Golden Ale, which
grew total depletions by 30% in the third quarter, and is
particularly remarkable amidst increased headwinds in today’s
fast-changing market. Successful testing of incremental marketing
programming in key mainland markets, including Florida, also drove
Kona’s accelerated performance in the third quarter.
Reshaping our Portfolio for
Tomorrow
As part of our Kona Plus strategy to support Kona with strong
regional brands in key markets, we took steps to round out our
portfolio, culminating with the October 10, 2018 announcement that
we are acquiring our three partner brands, Appalachian Mountain
Brewery, Cisco Brewers, and Wynwood Brewing Co. Year-to-date, these
brands have achieved a combined 18% increase in depletions over the
same period last year. Looking forward, we plan to increase
investment behind these brands to further bolster their
contribution and overall value to CBA.
Unlocking Kona’s Potential in Brazil
with Local Production and Marketing
Building on a successful 18-month ecommerce pilot with Ambev in
Brazil, we committed to a comprehensive business plan to grow Kona
in the world’s third largest beer market with an initial focus in
Rio de Janeiro. The plan includes dedicated local commercial
resources and increased marketing, as well as local production of
Kona to ensure reliability of supply, freshness of beer, and
improved sustainability throughout the value chain. With this plan,
Rio will become the lead market in Brazil, serving as a template
for future international markets.
Investing in the Future through
Innovation
In the third quarter, we continued to invest in exploring new
opportunities for future topline growth through our ongoing
consumer research projects with the Yale Center for Consumer
Insights and global consultancy Prophet, as well as our
test-and-learn beverage initiative called the pH Experiment. While
the research projects are ongoing, our initial learnings continue
to broaden our view of today’s changing consumer landscape and
inform potential evolution of our business model and portfolio in
2019 and beyond.
Third quarter and year-to-date 2018
financial highlights:
- Third quarter net sales decreased by
6.6% to $52.9 million, primarily driven by lower shipment volume
compared to the third quarter in 2017.
- Year-to-date net sales increased
slightly to $162.2 million due to improvements in pricing,
alternating proprietorship fees, and lower excise tax rates. The
increase was partially offset by lower mainland brewpub sales and
the absence of a one-time $1.7 million contract brewing shortfall
fee that occurred in the first part of 2017.
- Third quarter total CBA depletions
decreased by 1%, improving the year-to-date trend to a decrease of
2% compared to the same period a year ago. The decrease in total
depletions for the third quarter and year-to-date primarily
reflects declines in Widmer Brothers and Redhook, offset by
continued accelerated growth for Kona.
- Third quarter depletions for portfolio
cornerstone Kona grew 9% compared to the third quarter in 2017,
driving an improved 7% depletions increase year-to-date, over the
same period a year ago.
- Third quarter shipments decreased by
5.8% and increased slightly by 0.2% year-to-date.
- The evolution in year-to-date shipments
was anticipated and reflects our supply chain team’s continued work
to better align shipments with depletions while maintaining optimal
inventory levels.
- Third quarter gross profit decreased by
14% to $16.7 million, while year-to-date gross profit increased by
7%, to $53.9 million, over the comparable periods last year. The
year-to-date increase was primarily driven by improved revenue
rates and cost of goods sold per barrel, partially offset by
decreases in brewpub performance.
- Beer gross margin was 34.8% in the
third quarter, a decrease of 330 basis points compared to the third
quarter in 2017, primarily due to lower fixed cost absorption as a
result of lower shipment volumes. Gross margin for the quarter was
also negatively impacted by a change in mix of shipments from more
profitable owned brands to less profitable alternating
proprietorship and contract brewing volume. These factors were
partially offset by a reduction in beer loss and the removal of
fixed costs associated with the closure of our Woodinville
facility.
- Year-to-date beer gross margin was
36.8%, an expansion of 220 basis points over the comparable 2017
period, primarily reflecting an increase in net sales and a
reduction in cost of goods sold due to increased shipments out of
Fort Collins and improved brewery operations, including the
elimination of Woodinville as a fixed cost, partially off-set by an
increase in contract shipments and higher fuel costs.
- Total CBA gross margin was 31.6% in the
third quarter, a decrease of 260 basis points, compared to the
third quarter in 2017. The third quarter gross margin decrease
reflects higher cost of goods sold due to lower fixed cost
absorption from lower shipment volumes, and lower brewpub gross
margins as a result of lower sales in our mainland brewpubs.
- Year-to-date gross margin was 33.2%, an
increase of 200 basis points over the comparable nine-month period
in 2017, reflecting improved beer gross margins, offset by lower
brewpub gross margins.
- Third quarter SG&A was $16.7
million, a slight increase over the third quarter of 2017,
primarily reflecting increased creative and media investments and
initial legal and transaction costs related to our partner
acquisitions, partially offset by a decrease in administrative
costs.
- Year-to-date SG&A was $47.3
million, essentially flat compared to the same period last year, as
we actively reallocated funds away from general and administrative
towards market-facing initiatives.
- Diluted net income per share was $0.00
for the third quarter, a decrease of $0.09 compared to the third
quarter in 2017.
- Year to date, diluted net income per
share was $0.24, an increase of $0.15 over the same period last
year.
“We accomplished a lot in the third quarter – from continuing to
accelerate Kona, to bringing our partner acquisitions to the finish
line, to maintaining close control of our operations – and I’m
proud of our team for their continued focus on achieving these
milestones,” said Andy Thomas, chief executive officer, CBA. “While
our third quarter results were largely in line with our
expectations, they nevertheless reflect the increasing costs and
challenges of competing in today’s crowded market.”
Tightened Year-End Financial
Guidance
Based on our solid year-to-date performance, we are updating and
tightening our guidance as follows:
- Total depletions and shipments ranging
between a decline of 1% and an increase of 1%, reflecting continued
progress in harmonizing our supply chain.
- Average price increases of 2% to 3%,
reflecting improvements in revenue management and lower federal
excise taxes.
- Total gross margin rate of 33.0% to
34.0%, 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 $62
million to $63 million, as we continue to reinvest cost savings
into our brands and expand our consumer and trade marketing
programming.
- Capital expenditures of $16
million to $17 million. Due to variability in the timing of certain
significant progress payments related to construction of the new
100,000-barrel Kona brewery, there could be a shift of up to $6
million from this year into 2019.
- Effective tax rate of 25.5%, a decrease
of 250 basis points from the previously communicated tax rate
guidance, primarily as a result of the IRS’s clarification that
certain business expenses continue to qualify for a 50% deduction
for income tax purposes.
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, and gross margin rate improvement,
the level and effect of SG&A expense and business development,
anticipated capital spending, our effective income 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
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,
2018 2017
2018 2017 Sales $ 55,639
$ 60,040 $ 170,977 $ 171,010 Less excise taxes 2,750
3,402 8,778 9,520 Net
sales 52,889 56,638 162,199 161,490 Cost of sales 36,190
37,254 108,302 111,108
Gross profit 16,699 19,384 53,897 50,382 As percentage of
net sales 31.6 % 34.2 % 33.2 % 31.2 % Selling, general and
administrative expenses 16,712 16,328
47,317 47,357 Operating income (loss)
(13 ) 3,056 6,580 3,025 Interest expense (107 ) (179 ) (348 ) (533
) Other income (expense), net (13 ) (59 ) 42
(46 ) Income (loss) before income taxes (133 ) 2,818
6,274 2,446 Income tax provision (benefit) (194 )
1,067 1,600 758 Net income $ 61
$ 1,751 $ 4,674 $ 1,688 Basic
and diluted net income per share: $ — $ 0.09 $ 0.24
$ 0.09 Weighted average shares outstanding:
Basic 19,370 19,296 19,338
19,278 Diluted 19,545
19,443 19,525 19,401
Total shipments (in barrels): Core Brands 186,800 205,200 566,100
572,600 Contract Brewing 9,000 2,700
21,300 13,700 Total shipments
195,800 207,900 587,400
586,300 Change in depletions (1) -1 %
-2 % -2 % -1 % (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, 2018 2017 Current assets:
Cash, cash equivalents and restricted cash $ 12,156 $ 405 Accounts
receivable, net 28,460 28,894 Inventory, net 17,271 17,659 Assets
held for sale - 23,462 Other current assets 1,275
1,372 Total current assets 59,162 71,792 Property, equipment and
leasehold improvements, net 104,225 106,380 Goodwill 12,917 12,917
Intangible, equity method investment and other assets, net
20,244 20,925 Total assets $ 196,548 $ 212,014
Current liabilities: Accounts payable $ 18,899 $ 25,088 Accrued
salaries, wages and payroll taxes 4,749 6,170 Refundable deposits
4,029 5,477 Deferred revenue 5,335 2,985 Other accrued expenses
2,415 4,602 Current portion of long-term debt and capital lease
obligations 816 1,731 Total current liabilities
36,243 46,053 Long-term debt and capital lease obligations, net of
current portion 9,763 23,527 Other long-term liabilities 13,910
19,996 Total common shareholders' equity 136,632
122,438 Total liabilities and common shareholders' equity $ 196,548
$ 212,014
Craft Brew Alliance,
Inc. Condensed Consolidated Statements of Cash Flows
(In thousands) (Unaudited)
Nine Months EndedSeptember
30,
2018 2017 Cash
Flows From operating activities: Net income $ 4,674 $ 1,688
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation and amortization 7,985 7,904
(Gain) loss on sale or disposal of Property, equipment and
leasehold improvements (549 ) 164 Deferred income taxes (673 ) (168
) Other, including stock-based compensation and impairment of
assets held for sale 1,264 1,851 Changes in operating assets and
liabilities: Accounts receivable, net (676 ) (4,886 ) Inventories
(2,905 ) 1,371 Other current assets 2,360 1,124 Accounts payable
and other accrued expenses 6,872 13,096 Accrued salaries, wages and
payroll taxes (1,128 ) 1,203 Refundable deposits (560 )
(884 ) Net cash provided by operating activities 16,664
22,463
Cash Flows from investing activities: Expenditures
for Property, equipment and leasehold improvements (6,216 ) (16,170
) Proceeds from sale of Property, equipment and leasehold
improvements 22,998 95 Investment in Wynwood - (2,101 ) Restricted
cash from sale of Property, equipment and leasehold improvements
515 - Net cash provided by (used in)
investing activities 17,297 (18,176 )
Cash Flows from financing
activities: Principal payments on debt and capital lease
obligations (520 ) (483 ) Net repayments under revolving line of
credit (22,199 ) (3,922 ) Proceeds from issuances of common stock
427 98 Tax payments related to stock-based awards (92 )
(17 ) Net cash used in financing activities (22,384 )
(4,324 )
Increase (decrease) in Cash, cash equivalents
and restricted cash 11,577 (37 )
Cash, cash equivalents and
restricted cash, beginning of period 579
442
Cash, cash equivalents and restricted cash, end of
period $ 12,156 $ 405
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,
2018 2017 Change
% Change Net sales $ 208,165 $ 207,294 $ 871 0.4 %
Gross profit $ 68,773 $ 63,792 $ 4,981 7.8 % As percentage
of net sales 33.0 % 30.8 % 220 bps Selling, general and
administrative expenses 60,423 60,233
190 0.3 % Operating income $ 8,350 $ 3,559
$ 4,791 134.6 % Net income $ 12,509 $
1,764 $ 10,745 609.1 % Income per share: Basic
$ 0.65 $ 0.09 $ 0.56 622.2 % Diluted $ 0.64
$ 0.09 $ 0.55 611.1 % Total shipments
(in barrels): Core Brands 724,100 738,000 (13,900 ) (1.9 )%
Contract Brewing 25,300 19,900
5,400 27.1 % Total shipments 749,400
757,900 (8,500 ) (1.1 )% Change in depletions
(1) -2 % -2 % (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 (In thousands) (Unaudited)
Three Months EndedSeptember
30,
Nine Months EndedSeptember
30,
2018 2017 2018
2017 Net income $ 61 $ 1,751 $ 4,674 $ 1,688
Interest expense 107 179 348 533 Income tax provision (benefit)
(194 ) 1,067 1,600 758 Depreciation expense 2,521 2,371 7,713 7,709
Amortization expense 77 65 272 195 Stock-based compensation 371 391
1,058 945 (Gain) loss on disposal of assets (55 ) 18
(549 ) 164 Adjusted EBITDA $ 2,888 $ 5,842 $
15,116 $ 11,992 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/20181107005878/en/
Craft Brew AllianceJenny McLean, 503-331-7248Director of
Communicationsjenny.mclean@craftbrew.com
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