USA: The Boston Beer Company reports fourth-quarter and full year 2015 results

The Boston Beer Company, Inc. reported on February 18 fourth quarter 2015 net revenue of $215.1 million, a decrease of $2.7 million or 1% from the same period last year, mainly due to a decline in core shipments of 3%, partially offset by price increases.

Net income for the fourth quarter was $16.1 million, or $1.21 per diluted share, a decrease of $3.0 million or $0.19 per diluted share from the fourth quarter of 2014. This decrease was primarily due to the decrease in net revenue and increases in advertising, promotional and selling expenses that were only partially offset by increased gross margin.

Earnings per diluted share for the 52-week period ended December 26, 2015 were $7.25, an increase of $0.56, or 8%, from the comparable 52-week period in 2014. Net revenue for the 52-week period ended December 26, 2015 was $959.9 million, an increase of $56.9 million, or 6%, from the comparable 52-week period in 2014.

Martin Roper, the Company's President and CEO stated, "In the fourth quarter, our depletions declined due to decreases in our Samuel Adams and Angry Orchard brands that were only partially offset by increases in our Coney Island, Twisted Tea and Traveler brands. This decline is largely due to increased competition in the craft beer category and general weakness in the cider category. We are working hard to improve the Samuel Adams brand trends and feel good about our new media advertising message 'Know more. Love more,' although it is too early to know if this messaging will stabilize our trends. During the fourth quarter, we saw the cider category start to decline, even as new cideries continued to enter. We are happy that Angry Orchard maintained its share and we are directing our efforts to grow the category and our share of it. We remain positive about the long term cider category potential, but short term growth is less certain. We remain committed to investment in innovation, commensurate with the opportunities and the increased competitive activity that we see."

Mr. Roper went on to say, "Our primary focus in 2016 will be on innovating within the Samuel Adams family, integrating persuasive drinker programming across point of sale, promotions and media for all of our brands, and prioritizing the core styles of Angry Orchard, Twisted Tea, Traveler and Coney Island Hard Root Beer for increased distribution and promotion. We are increasing investments in our new beer and cider development capabilities, so we can maintain the pace of innovation and also be positioned to react quickly to any opportunities that emerge. We expect to maintain a high level of brand investment in this competitive environment, as we pursue sustainable growth. At the same time, we are taking steps to ensure that our investment dollars are well spent. To that end, we plan to evaluate the effectiveness of all of our investments and endeavor to improve our internal processes and cost structures. We continue to evaluate all our spending, so as to allocate it to the activities which are most likely to support growth."

Commenting on planned senior leadership transitions, Mr. Roper said, "Our success over the last ten years has been a team effort by all employees, but I am particularly grateful for the support provided by my leadership team. We have previously announced the planned retirement of several members of that team: our Chief Financial Officer, Bill Urich, our Vice President Operations, Tom Lance, and our Vice President Brand Development, Bob Pagano. As part of our succession process we announced the promotion of Matt Murphy to Chief Accounting Officer when Bill announced his plans to step down last August and we have recently announced the promotion of John Geist to Chief Sales Officer, the hiring of Frank Smalla, who will succeed Bill as Chief Financial Officer on February 20, 2016, and the hiring of Quincy Troupe as Senior Vice President Supply Chain to provide operations leadership, taking on many of Tom's responsibilities. We have also created a Brand Leadership Team, consisting of the senior members of Bob's Brand Development team. These key leaders, who will report to me, have been challenged to drive our brand initiatives and integrate those initiatives with our Sales Team. I am excited by this opportunity to build our leadership team for the current challenges and to help lead the company on its next chapter."

4th Quarter 2015 Summary of Results

Depletions declined 3% from the comparable 13-week period in the prior year, reflecting decreases in our Samuel Adams and Angry Orchard brands, partially offset by increases in our Coney Island, Twisted Tea and Traveler brands.

Core shipment volume was approximately 958,000 barrels, a 3% decrease over the fourth quarter of 2014.

The Company believes distributor inventory at December 26, 2015 was at an appropriate level. Inventory at December 26, 2015 at distributors participating in the Freshest Beer Program decreased slightly in terms of days of inventory on hand when compared to December 27, 2014. The Company has approximately 71% of its volume on the Freshest Beer Program.

Gross margin at 50.6% increased from 49.8% in the fourth quarter of 2014, primarily due to price increases and lower ingredient costs that were partially offset by product mix effects.

Advertising, promotional and selling expenses increased $5.3 million compared to the fourth quarter of 2014. Increases in point of sale and media advertising were partially offset by decreases in freight to distributors, due to lower volumes.

General and administrative expenses increased by $0.9 million from the fourth quarter of 2014, primarily due to increases in consulting costs and facilities costs that were partially offset by lower salary costs.

The Company's effective tax rate for the fourth quarter decreased to 37.9% from 39.1% in the fourth quarter of 2014. The fourth quarter rates in 2014 and 2015 were higher than the full year rates, due to the unfavorable tax rate impact of bonus depreciation, which was enacted during the fourth quarter in both years.

Full Year 2015 Summary of Results

Depletions grew by 4% from the comparable 52-week period in 2014, reflecting increases in our Twisted Tea, Coney Island, Angry Orchard and Traveler brands, partially offset by decreases in our Samuel Adams brand.

Core shipment volume was approximately 4.2 million barrels, a 4% increase from the comparable 52-week period in 2014.

Advertising, promotional and selling expenses were $22.9 million higher than costs incurred in the comparable 52-week period in 2014. The increase was primarily a result of increased investments in media advertising, increased costs for additional sales personnel and commissions, and point of sale and local marketing.

General and administrative expenses increased by $5.6 million from the comparable 52-week period in 2014, primarily due to increases in salary and benefit expenses, consulting and facilities costs.

The Company's effective tax rate decreased to 36.5% from the 37.7% rate in the comparable 52-week period in 2014. The 2015 rate decrease was primarily the result of an increased federal manufacturing deduction and lower state tax rates.

The Company expects that its cash balance of $94.2 million as of December 26, 2015, along with future operating cash flow and the Company's unused line of credit of $150.0 million, will be sufficient to fund future cash requirements.

During the fourth quarter and the period from December 27, 2015 through February 12, 2016, the Company repurchased 438,000 shares of its Class A Common Stock for an aggregate purchase price of approximately $87.9 million. On February 10, 2016, the Board of Directors approved an increase of $50.0 million to the previously approved $525.0 million share buyback expenditure limit, for a new limit of $575.0 million. As of February 12, 2016 the Company had approximately $95.9 million remaining on the $575.0 million share buyback expenditure limit set by the Board of Directors.

2016 Outlook

The Company currently projects full year 2016 earnings per diluted share to be between $7.60 and $8.00. The Company's actual 2016 earnings per share could vary significantly from the current projection. The 2016 fiscal year includes 53 weeks compared to the 2015 fiscal year which included only 52 weeks. Underlying the Company's current 2016 projection are the following 53-week full-year estimates and targets:

Depletions and shipments percentage growth of mid-single digits.
National price increases of between 1% and 2%.
Gross margin of between 52% and 54%.
Increased investment in advertising, promotional and selling expenses of between $10 million and $20 million. This does not include any increases in freight costs for the shipment of products to the Company's distributors.
Effective tax rate of approximately 37%.
Estimated capital spending of between $60 million and $80 million, which could be significantly higher, depending on capital required to meet future growth.

19 February, 2016