BOSTON, Oct. 25, 2018 /PRNewswire/
-- The Boston Beer Company, Inc. (NYSE: SAM) reported third
quarter 2018 net revenue of $306.9
million, an increase of $59.8
million or 24.2% from the third quarter of 2017, mainly due
to an increase in shipments of 23.5%. Net income for the
third quarter was $38.0 million, or
$3.21 per diluted share, an increase
of $4.3 million or $0.43 per diluted share from the third quarter of
2017. This increase was primarily due to increases in net
revenue and lower income taxes that were partially offset by
increased advertising, promotional and selling expenses and lower
gross margins. The lower income taxes related to the Tax Cuts
and Jobs Act of 2017 include a favorable one-time impact of
$0.38 per diluted share.
Earnings per diluted share for the 39-week period ended
September 29, 2018 were $5.96, an increase of $0.42 from the comparable 39-week period in
2017. Net revenue for the 39-week period ended September 29, 2018 was $770.4 million, an increase of $113.8 million, or 17.3%, from the comparable
39-week period in 2017.
In the third quarter and the 39-week period ended September 29, 2018, the Company recorded a tax
benefit of $0.01 per diluted share
and $0.34 per diluted share,
respectively, resulting from the Accounting Standard "Employee
Share-Based Payment Accounting" ("ASU 2016-09"), which was
effective for the Company on January 1,
2017.
Highlights of this release include:
- Depletions increased 18% and 13% from the comparable 13 and
39-week periods in 2017.
- Full year 2018 depletions growth is now estimated to be between
12% and 15%, an increase from the previously communicated estimate
of between 7% and 12%.
- Gross margin was 51.2% for the third quarter, a decrease from
53.2% in the comparable 13-week period in 2017, and 51.3% for the
39-week period ending September 29,
2018, a decrease from 52.1% in the comparable 39-week period
in 2017. The Company's full year gross margin target is now between
50% and 52%, a decrease of the range from the previously
communicated estimate of between 51% and 53%
- Advertising, promotional and selling expense increased by
$24.1 million, or 37.9%, in the third
quarter over the comparable period in 2017 and increased
$56.6 million, or 30.5%, from the
comparable 39-week period in 2017.
- Based on current spending and investment plans, full year 2018
Non-GAAP earnings per diluted share1, which excludes the
impact of ASU 2016-09, is now estimated at between $7.10 and $7.70, an
increase and narrowing of the range from the previously
communicated estimate of between $6.30 and $7.30.
Jim Koch, Chairman and Founder of
the Company, commented, "Our depletions growth increased to 18% in
the third quarter from 12% in the second quarter and 8% in the
first quarter. We believe that the acceleration in our depletions
growth is attributable to our key innovations, quality and strong
brands, as well as sales execution and support from our
distributors. During the quarter, we introduced a new Samuel Adams
advertising campaign and continued to work hard on our Samuel Adams
brand messaging, which communicates our artisanal care in the
brewing of Samuel Adams Boston
Lager. We plan to invest in this campaign in the
coming months, with the goal of improving trends and returning
Samuel Adams back to growth. We remain positive about the
future of craft beer and are happy that our diversified brand
portfolio continues to fuel double-digit growth. We are
confident in our ability to innovate and build strong brands and we
are planning to launch new brands in 2019 that complement our
current portfolio and help support our mission of long-term
profitable growth."
Dave Burwick, the Company's
President and CEO stated, "Our depletions growth in the third
quarter was the result of increases in our Truly Spiked &
Sparkling, Twisted Tea and Angry Orchard brands that were only
partially offset by decreases in our Samuel Adams brand. I'd
like to note, however, that the Samuel Adams seasonal program has
returned to growth this year. Meanwhile, Truly continues to
grow beyond our expectations and is well positioned as a leader in
the emerging segment of hard seltzer. Twisted Tea is growing
both distribution and velocity, while generating consistent
double-digit volume growth as new entrants have been introduced and
competition has increased. Angry Orchard's growth is led by
Angry Orchard Rosé, which was introduced in early 2018. We believe
that both Truly and Angry Orchard Rosé are attracting new drinkers
to their categories from wine and spirits. Our plans for 2019
include investments in our new Samuel Adams advertising campaign
and the second year of our successful 2018 innovations, which
include Angry Orchard Rosé, Truly Berry Variety Pack, Truly Wild
Berry, Sam'76 and Samuel Adams New England IPA. Overall,
these five new innovations in 2018 are within the top product
introductions in their combined categories. We've adjusted our
expectations for 2018 full-year depletions growth and our earnings
guidance to reflect our trends for the first nine months and our
current view of the remainder of the year. We've provided our
preliminary view of 2019 growth rates based on our plans, but these
rates are difficult to predict and subject to reassessment.
We're in a very competitive business and we remain optimistic for
continued long-term growth of our current brand portfolio and our
innovations."
Mr. Burwick went on to say, "We'll continue to focus on cost
savings and efficiency projects to fund the investments needed to
grow our brands and to build our organization's ability to deliver
against our goals. During the quarter, our operating expenses
increased significantly, primarily due to the timing of our planned
brand investments. Brand investment will decrease as planned
for the remainder of the year, as we're maintaining our annual
spend guidance. We operated at record high capacity during peak
weeks and increased our usage of third-party breweries during the
quarter in response to the accelerated depletions growth,
especially in slim can packages and cans in general. The growth has
been challenging operationally, which has resulted in higher supply
chain costs. Given the growth challenges and industry-wide
headwinds of higher packaging costs and transportation costs, we've
reduced our expectations for 2018 gross margins. While we're
achieving the expected cost savings, the corresponding margin
benefits are more than offset by the incremental costs that we're
incurring to meet the significant growth in our key innovations. We
expect to recoup most of the 2018 margin set back as we adjust our
supply chain over the next couple of years. Hence, we're
maintaining our previously stated goal of increasing our gross
margins by about one percentage point per year, before any mix or
volume impacts, but likely will not see the full benefit until
2020. Further, we're accelerating capacity and efficiency
improvements at our breweries, which is reflected in our capital
spend expectations for 2019. We remain prepared to forsake short
term earnings as we invest to return to long-term profitable
growth, commensurate with the opportunities that we see."
3rd Quarter 2018 Summary of Results
Depletions increased 18% from the comparable 13-week period in
2017.
Shipment volume was approximately 1.3 million barrels, a 23.5%
increase from the comparable 13-week period in 2017.
Shipments for the quarter increased at a higher rate than
depletions and resulted in higher distributor inventory as of
September 29, 2018 when compared to
September 30, 2017. The Company
believes distributor inventory as of September 29, 2018 was at an appropriate level
based on inventory requirements to support the forecasted growth of
brands and new innovations. Inventory at distributors
participating in the Freshest Beer Program as of September 29, 2018 increased slightly in terms of
days of inventory on hand when compared to September 30, 2017. The Company has approximately
77% of its volume on the Freshest Beer Program.
Gross margin at 51.2% represented a decrease from the 53.2%
margin realized in the third quarter of 2017, primarily as a result
of higher processing costs due to increased production at third
party breweries and higher temporary labor at Company-owned
breweries and higher packaging costs, partially offset by price
increases, cost saving initiatives at Company-owned breweries and
lower excise taxes.
Advertising, promotional and selling expenses increased
$24.1 million from the comparable
13-week period in 2017, primarily due to increased planned
investments in media advertising and local marketing, higher
salaries and benefits costs, and increased freight to distributors
due to higher rates and volumes, and less efficient truck
utilization.
General and administrative expenses increased by $6.4 million from the comparable 13-week period
in 2017, primarily due to increases in salaries and benefits and
stock compensation costs.
The Company's effective tax rate for the 13-week period ended
September 29, 2018 decreased to 19.2%
from 35.1% in the comparable 13-week period in 2017. This decrease
was primarily due to the favorable impact of the Tax Cuts and Jobs
Act of 2017, including a favorable one-time impact of $0.38 per diluted share due to tax accounting
method changes reported in the current period.
Year to Date 2018 Summary of Results
Depletions increased 13% from the comparable 39-week period in
2017, reflecting increases in the Company's Truly Spiked &
Sparkling, Twisted Tea and Angry Orchard brands, partially offset
by decreases in its Samuel Adams brand.
Shipment volume was approximately 3.3 million barrels, a 16.0%
increase from the comparable 39-week period in 2017.
Gross margin at 51.3% represented a decrease from the 52.1%
margin realized in the comparable 39-week period in 2017, primarily
as a result of higher processing costs due to increased production
at third party breweries and higher temporary labor at
Company-owned breweries and higher packaging costs, partially
offset by price increases, cost saving initiatives at Company-owned
breweries and lower excise taxes.
Advertising, promotional and selling expenses increased
$56.6 million from the comparable
39-week period in 2017, primarily due to increased planned
investments in media advertising, local marketing, and
point-of-sale, higher salary and benefit costs and increased
freight to distributors due to higher rates and volumes and less
efficient truck utilization.
General and administrative expenses increased by $11.6 million from the comparable 39-week period
in 2017, primarily due to increases in salaries and benefits and
stock compensation costs.
Impairment of long-lived assets decreased $1.0 million from the comparable 39-week period
in 2017, primarily due to a decrease in write-downs of brewery
equipment at the Company's Pennsylvania and Cincinnati breweries.
The Company's effective tax rate for the 39-week period ended
September 29, 2018 decreased to 18.9%
from 32.5% in the comparable 39-week period in 2017. This decrease
was primarily due to the favorable impact of the Tax Cuts and Jobs
Act of 2017 including a favorable one-time impact of $0.38 per diluted share due to tax accounting
method changes reported in the current period.
The Company expects that its September
29, 2018 cash balance of $68.9
million, together with its future operating cash flows and
its $150.0 million line of credit,
will be sufficient to fund future cash requirements.
During the 39-week period ended September
29, 2018 and the period from September 30, 2018 through October 20, 2018, the Company repurchased
approximately 350,000 shares of its Class A Common Stock for an
aggregate purchase price of approximately $88.3 million. As of October 20, 2018, the Company had approximately
$90.3 million remaining on the
$931.0 million share buyback
expenditure limit set by the Board of Directors.
Depletion estimates
Year-to-date depletions through the 42-week period ended
October 20, 2018 are estimated by the
Company to have increased approximately 13% from the comparable
period in 2017.
2018 Outlook
The Company currently projects full year 2018 Non-GAAP earnings
per diluted share of between $7.10
and $7.70. This Non-GAAP
projection excludes the impact of ASU 2016-09. The Company's
actual 2018 earnings per share could vary significantly from the
current projection. Underlying the Company's current 2018
projection are the following full-year estimates and targets:
- Depletions and shipments growth of between 12% and 15%.
- Price increases per barrel of between 1% and 2%.
- Gross margin of between 50% and 52%.
- Increased investments in advertising, promotional and selling
expenses of between $15 million and
$25 million. This does not
include any changes in freight costs for the shipment of products
to the Company's distributors.
- Increased general and administrative expenses of between
$10 million and $20 million due to organizational investments and
stock compensation costs.
- Non-GAAP effective tax rate of approximately 24%, which
includes the favorable one-time impact of $0.38 per diluted share due to tax accounting
method changes reported in the third quarter, but excludes the
impact of ASU 2016-09.
- Estimated capital spending of between $65 million and $75
million, most of which relates to continued investments in
the Company's breweries and taprooms.
2019 Outlook
The Company is completing its 2019 planning process and will
provide further detailed guidance when the Company presents its
full-year 2018 results. The Company is currently using the
following preliminary assumptions and targets for its 2019 fiscal
year:
- Depletions and shipments percentage increase of high single
digits to low double digits.
- National price increases of between 0% and 3%.
- Gross margin of between 51% and 53%. Increasing during the year
due to progress on the capacity and cost initiatives.
- Increased investment in advertising, promotional and selling
expenses of between $25 million and
$35 million. This does not
include any changes in freight costs for the shipment of products
to the Company's distributors.
- Non-GAAP effective tax rate of approximately 27%, excluding the
impact of ASU 2016-09.
- Estimated capital spending of between $100 million and $120
million, which could be significantly higher, if deemed
necessary to meet future growth.
Non-GAAP effective tax rate and Non-GAAP earnings per diluted
share are not defined terms under U.S. generally accepted
accounting principles ("GAAP"). These Non-GAAP measures should not
be considered in isolation or as a substitute for diluted earnings
per share and effective tax rate data prepared in accordance with
GAAP, and may not be comparable to calculations of similarly titled
measures by other companies. The Company's projection for its
Non-GAAP effective tax rate and Non-GAAP earnings per diluted share
exclude the impact of ASU 2016-09, which could be significant and
will depend largely upon unpredictable future events outside the
Company's control, including the timing and value realized upon
exercise of stock options versus the fair value of those options
when granted. Therefore, because of the uncertainty and variability
of the impact of ASU 2016-09, the Company is unable to provide,
without unreasonable effort, a reconciliation of these Non-GAAP
measures on a forward-looking basis.
About the Company
The Boston Beer Company, Inc. (NYSE: SAM) began in 1984 and
today brews more than 60 styles of Samuel Adams beer. Our
portfolio of brands also includes Angry Orchard Hard Cider, Twisted
Tea and Truly Spiked & Sparkling, as well as several other
craft beer brands brewed by A&S Brewing, our craft beer
incubator. For more information, please visit our investor
relations website at www.bostonbeer.com, which includes links to
all of our respective brand websites.
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 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 years ended December 30, 2017 and December 31, 2016. Copies of these
documents may be found on the Company's website,
www.bostonbeer.com, or obtained by contacting the Company or
the SEC.
1 See "Outlook" below for additional information
regarding non-GAAP forward-looking measures used in this press
release.
THE BOSTON BEER
COMPANY, INC. AND SUBSIDIARIES
|
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME
|
(in thousands, except
per share data)
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen weeks
ended
|
|
Thirty-nine weeks
ended
|
|
|
|
September
29,
|
|
September
30,
|
|
September
29,
|
|
September
30,
|
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
Barrels
sold
|
|
|
1,338
|
|
1,084
|
|
3,328
|
|
2,869
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
$
326,852
|
|
264,146
|
|
$
818,257
|
|
$
701,247
|
Less excise
taxes
|
|
|
19,982
|
|
17,099
|
|
47,830
|
|
44,575
|
Net revenue
|
|
|
306,870
|
|
247,047
|
|
770,427
|
|
656,672
|
Cost of goods
sold
|
|
|
149,643
|
|
115,546
|
|
375,133
|
|
314,808
|
Gross
profit
|
|
|
157,227
|
|
131,501
|
|
395,294
|
|
341,864
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
Advertising, promotional and selling expenses
|
|
|
87,765
|
|
63,647
|
|
241,796
|
|
185,232
|
General
and administrative expenses
|
|
|
22,734
|
|
16,358
|
|
65,951
|
|
54,315
|
Impairment of
assets
|
|
|
-
|
|
-
|
|
517
|
|
1,505
|
Total operating
expenses
|
|
|
110,499
|
|
80,005
|
|
308,264
|
|
241,052
|
Operating
income
|
|
|
46,728
|
|
51,496
|
|
87,030
|
|
100,812
|
Other income
(expense), net:
|
|
|
|
|
|
|
|
|
|
Interest income,
net
|
|
|
343
|
|
211
|
|
821
|
|
381
|
Other (expense)
income, net
|
|
|
(51)
|
|
196
|
|
(539)
|
|
253
|
Total other income,
net
|
|
|
292
|
|
407
|
|
282
|
|
634
|
Income before income
tax provision
|
|
|
47,020
|
|
51,903
|
|
87,312
|
|
101,446
|
Income tax
provision
|
|
|
9,013
|
|
18,220
|
|
16,460
|
|
32,927
|
Net income
|
|
|
$
38,007
|
|
$
33,683
|
|
$
70,852
|
|
$
68,519
|
|
|
|
|
|
|
|
|
|
|
Net income per common
share - basic
|
|
|
$
3.25
|
|
$
2.82
|
|
$
6.02
|
|
$
5.60
|
Net income per common
share - diluted
|
|
|
$
3.21
|
|
$
2.78
|
|
$
5.96
|
|
$
5.54
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
number of common shares - Class A basic
|
|
|
8,557
|
|
8,789
|
|
8,646
|
|
9,037
|
Weighted-average
number of common shares - Class B basic
|
|
|
3,018
|
|
3,097
|
|
3,018
|
|
3,122
|
Weighted-average
number of common shares - diluted
|
|
|
11,702
|
|
12,037
|
|
11,773
|
|
12,299
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
$
38,007
|
|
$
33,683
|
|
$
70,852
|
|
$
68,519
|
Other comprehensive
income:
|
|
|
|
|
|
|
|
|
|
Foreign currency
translation adjustment
|
|
|
(13)
|
|
(13)
|
|
4
|
|
(23)
|
Comprehensive
income
|
|
|
$
37,994
|
|
$
33,670
|
|
$
70,856
|
|
$
68,496
|
THE BOSTON BEER
COMPANY, INC. AND SUBSIDIARIES
|
CONSOLIDATED
BALANCE SHEETS
|
(in thousands, except
share data)
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
September
29,
|
|
December
30,
|
|
|
|
2018
|
|
2017
|
|
|
|
|
|
|
Assets
|
|
|
|
Current Assets:
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
$
68,887
|
|
$
65,637
|
Accounts receivable, net of allowance for doubtful accounts
of
|
|
|
|
|
|
$39 and $0 as of September 29, 2018 and December 30, 2017,
respectively
|
|
|
52,812
|
|
33,749
|
Inventories
|
|
|
72,254
|
|
50,651
|
Prepaid expenses and other current assets
|
|
|
10,252
|
|
10,695
|
Income tax receivable
|
|
|
16,439
|
|
7,616
|
Total current assets
|
|
|
220,644
|
|
168,348
|
|
|
|
|
|
|
Property, plant and
equipment, net
|
|
|
387,069
|
|
384,280
|
Other assets
|
|
|
12,308
|
|
13,313
|
Goodwill
|
|
|
3,683
|
|
3,683
|
Total assets
|
|
|
$
623,704
|
|
$
569,624
|
|
|
|
|
|
|
Liabilities and
Stockholders' Equity
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
Accounts payable
|
|
|
$
62,047
|
|
$
38,141
|
Accrued expenses and other current liabilities
|
|
|
69,599
|
|
63,617
|
Total current liabilities
|
|
|
131,646
|
|
101,758
|
|
|
|
|
|
|
Deferred income taxes,
net
|
|
|
47,637
|
|
34,819
|
Other liabilities
|
|
|
9,875
|
|
9,524
|
Total liabilities
|
|
|
189,158
|
|
146,101
|
|
|
|
|
|
|
Commitments and
Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
Equity:
|
|
|
|
|
|
Class A Common Stock, $.01 par value; 22,700,000 shares
authorized;
|
|
|
|
|
|
8,475,037 and 8,603,152 issued and outstanding as of September 29,
2018
|
|
|
|
|
|
and December 30, 2017, respectively
|
|
|
85
|
|
86
|
Class B Common Stock, $.01 par value; 4,200,000 shares
authorized;
|
|
|
|
|
|
3,017,983 and 3,017,983 issued and outstanding as of September 29,
2018
|
|
|
30
|
|
30
|
and December 30, 2017, respectively
|
|
|
|
|
|
Additional paid-in capital
|
|
|
402,056
|
|
372,590
|
Accumulated other comprehensive loss, net of tax
|
|
|
(1,503)
|
|
(1,288)
|
Retained earnings
|
|
|
33,878
|
|
52,105
|
Total stockholders' equity
|
|
|
434,546
|
|
423,523
|
Total liabilities and stockholders' equity
|
|
|
$
623,704
|
|
$
569,624
|
|
|
|
|
|
|
THE BOSTON BEER
COMPANY, INC. AND SUBSIDIARIES
|
CONSOLIDATED
STATEMENTS OF CASHFLOWS
|
(in
thousands)
|
(unaudited)
|
|
|
|
Thirty-nine weeks
ended
|
|
|
|
September
29,
|
|
September
30,
|
|
|
|
2018
|
|
2017
|
|
|
|
|
|
|
Cash flows
provided by operating activities:
|
|
|
|
|
|
Net income
|
|
|
$
70,852
|
|
$
68,519
|
Adjustments to reconcile net
income to net cash provided by operating activities:
|
|
|
|
|
|
Depreciation and amortization
|
|
|
38,860
|
|
38,372
|
Impairment of assets
|
|
|
517
|
|
1,505
|
Loss on disposal of property, plant and equipment
|
|
|
45
|
|
571
|
Bad debt expense
|
|
|
39
|
|
170
|
Stock-based compensation expense
|
|
|
6,995
|
|
4,593
|
Deferred income taxes
|
|
|
12,818
|
|
(3,581)
|
Changes in operating assets
and liabilities:
|
|
|
|
|
|
Accounts receivable
|
|
|
(20,412)
|
|
(6,658)
|
Inventories
|
|
|
(20,836)
|
|
(9,330)
|
Prepaid expenses, income tax receivable and other assets
|
|
|
(8,385)
|
|
2,852
|
Accounts payable
|
|
|
20,560
|
|
5,371
|
Accrued expenses and other current liabilities
|
|
|
6,309
|
|
6,244
|
Other liabilities
|
|
|
693
|
|
(390)
|
Net cash provided by operating activities
|
|
|
108,055
|
|
108,238
|
|
|
|
|
|
|
Cash flows used in
investing activities:
|
|
|
|
|
|
Purchases of property, plant
and equipment
|
|
|
(38,752)
|
|
(23,415)
|
Proceeds from disposal of
property, plant and equipment
|
|
|
2
|
|
16
|
Cash paid for acquisition of
intangible assets
|
|
|
5
|
|
-
|
Change in restricted cash
|
|
|
131
|
|
(4)
|
Net cash used in investing activities
|
|
|
(38,614)
|
|
(23,403)
|
|
|
|
|
|
|
Cash flows used in
financing activities:
|
|
|
|
|
|
Repurchase of Class A Common
Stock
|
|
|
(88,311)
|
|
(121,535)
|
Proceeds from exercise of
stock options
|
|
|
21,528
|
|
15,159
|
Cash paid on note
payable
|
|
|
(78)
|
|
(60)
|
Net proceeds from sale of
investment shares
|
|
|
670
|
|
611
|
Net cash used in financing activities
|
|
|
(66,191)
|
|
(105,825)
|
|
|
|
|
|
|
Change in cash and
cash equivalents
|
|
|
3,250
|
|
(20,990)
|
|
|
|
|
|
|
Cash and cash
equivalents at beginning of year
|
|
|
65,637
|
|
91,035
|
|
|
|
|
|
|
Cash and cash
equivalents at end of period
|
|
|
$
68,887
|
|
$
70,045
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
Income taxes
paid
|
|
|
$
11,252
|
|
$
22,408
|
Decrease in accounts
receivable for ASU 2014-09 adoption
|
|
|
$
(1,310)
|
|
$
-
|
Income taxes
refunded
|
|
|
$
-
|
|
$
2
|
Increase (Decrease)
in accounts payable for purchase of property, plant and
equipment
|
|
$
3,346
|
|
$
(3,763)
|
|
|
|
|
|
|
|
|
|
|
|
|
Copies of The
Boston Beer Company's press releases, including quarterly financial
results,
|
are available
on the Internet at www.bostonbeer.com
|
|
|
|
|
|
|
View original
content:http://www.prnewswire.com/news-releases/boston-beer-reports-third-quarter-2018-results-300738206.html
SOURCE The Boston Beer Company, Inc.