USA: Boston Beer’s second-quarter net revenue increases by 16.6%

The Boston Beer Company, Inc. reported second quarter 2019 net revenue of $318.4 million, an increase of $45.3 million or 16.6%, from the same period last year. Net income for the second quarter was $27.9 million, or $2.36 per diluted share, an increase of $4.3 million or $0.38 per diluted share from the second quarter of 2018. This increase was primarily due to increased revenue, partially offset by lower gross margins and increases in advertising, promotional and selling expenses.

Net revenue for the 26-week period ended June 29, 2019 was $570.1 million, an increase of $106.5 million, or 23.0%, from the comparable 26-week period in 2018. Earnings per diluted share for the 26-week period ended June 29, 2019 were $4.38, an increase of $1.62 from the comparable 26-week period in 2018.

In the second quarter and the 26-week period ended June 29, 2019, the company recorded a tax benefit of $0.02 per diluted share and $0.17 per diluted share, respectively, resulting from the Accounting Standard "Employee Share-Based Payment Accounting" ("ASU 2016-09").

On July 3, 2019, the company completed its merger with the Dogfish Head Brewery for a total consideration consisting of $173.0 million in cash and 429,292 shares of restricted Class A Stock, after taking into account a post-closing cash-related adjustment. The Company plans to consolidate Dogfish Head results into the Company's financial results beginning on July 3, 2019. In the second half of 2019, the Company expects Dogfish Head to add between 3% and 4% in annual shipments and depletions growth and between $50 million and $60 million in net revenues at a gross margin of approximately 50%. The Company estimates Dogfish Head operating expenses will be between $20 million and $25 million in the second half of 2019. These estimates include transaction related costs and other non-recurring costs of approximately $8.0 million of which $1.5 million has been incurred and expensed as of June 29, 2019. Excluding these transaction related costs and other non-recurring costs, the Company currently estimates that the merger impact will be neutral to slightly accretive to full-year 2019 earnings per diluted share.

Highlights of this release include:

Depletions increased 17% and 15% from the comparable 13 and 26 week periods in the prior year.

Shipments increased 17% and 23% from the comparable 13 and 26 week periods in the prior year.

Full year 2019 shipments and depletions growth including Dogfish Head beginning July 3, 2019 is now estimated to be between 17% and 22%, an increase from the previously communicated estimate of between 10% and 15%.

Excluding the Dogfish Head impact, full year 2019 shipments and depletions growth is now estimated to be between 13% and 18%.

Gross margin was 49.9% for the second quarter, a decrease from 52.0% in the comparable 13-week period in 2018, and 49.7% for the 26-week period ending June 29, 2019, a decrease from 51.4% in the comparable 26-week period in 2018. The company's full year gross margin target is now between 50% and 51%, a narrowing down of the previously communicated estimate of between 50% and 52%.

Advertising, promotional and selling expense increased by $7.6 million, or 8.7%, in the second quarter over the comparable period in 2018 and increased $11.8 million, or 7.6%, from the comparable 26-week period in 2018.

Based on current spending and investment plans, full year 2019 Non-GAAP earnings per diluted share1, which excludes the impact of ASU 2016-09, is now estimated at between $8.30 and $9.30, an increase from the previously communicated estimate of $8.00 and $9.00.

Full year 2019 capital spending is now estimated to be between $120 million and $140 million, an increase from the previously communicated estimate of $100 million to $120 million.

Jim Koch, Chairman and Founder of the company, commented, "We achieved depletions growth of 17% in the second quarter, an increase from depletions growth of 11% in the first quarter. I am tremendously proud of the efforts of our coworkers in achieving our fifth consecutive quarter of double-digit growth, while maintaining a focus on quality and innovation. We were delighted to learn that, for the ninth year out of the last eleven years, our distributors ranked us the number one beer supplier in the industry, in the annual poll of beer distributors conducted by Tamarron Consulting, a consulting firm specializing in the alcohol beverage distribution industry. This is a result of the efforts of all Boston Beer coworkers to service and support our distributors' businesses and to the strong relationships we have built with them. We are still seeing challenges across the industry, including a general softening of the part of the craft beer category that goes through the three-tier distribution system and retail shelves that offer an overwhelming number of options to drinkers. 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 disappointed with our Samuel Adams brand trends and continue to evolve our brand messaging. During the quarter we had success with continued growth of Samuel Adams New England IPA and our new "lighter and brighter" recipe for Samuel Adams Summer Ale as well as a significant package redesign. We plan to continue to invest to improve trends and remain focused on the longer-term goal of returning Samuel Adams to growth."

Mr. Koch continued, "We are excited about our recent merger with Dogfish Head Brewery that we completed on July 3, 2019. Dogfish Head has a proud history as a craft beer pioneer with a brand that is beloved by American consumers and highly respected by the industry. This combination is the right fit as both Boston Beer and Dogfish Head have a passion for brewing and innovation. We share the same values and we will learn a lot from each other as we continue to invest in the high-end beer category. I am very happy that Sam Calagione of Dogfish Head will be joining our management team at Boston Beer. He is a tremendous friend, innovator and brewer, and we have a bright future together with Sam and his off-centered Dogfish team."

28 July, 2019