E-Malt.com News article: USA, OR: Craft Brew Alliance publishes second quarter 2015 results

Craft Brew Alliance, Inc. (CBA), a leading craft brewing company, on August 5 reported its financial results for the second quarter ended June 30, 2015. The Company reported net sales of $58.5 million, a 3% increase over the second quarter of 2014, driven by a 2% increase in shipments and higher net sales per barrel. Gross margin increased to $18.7 million, while the gross margin rate decreased by 90 basis points as a result of higher cost of goods sold per barrel compared to the same period last year, which included increased production volume in anticipation of their Memphis brewery coming online. Selling and general administrative expense increased by $1.1 million, which reflects planned investments in sales infrastructure and marketing.

Net income for the second quarter was $1.4 million, or a decrease of $0.6 million from the same period in 2014. Earnings per diluted share for the second quarter of 2015 were $0.07, or a decrease of $0.03 from the comparable period in 2014.

A performance has been observed in three of Craft Brew Alliance’s core brand families, with double-digit depletion growth from Kona and Omission, which remains the #1 beer in the gluten-free beer category; and Widmer Brothers continued its steady turnaround. Depletion volume, however, was flat over the second quarter of 2014, which primarily reflects weak performance in CBA’s Redhook brand family outside of its home market of Washington State.

In CBA’s home markets of Hawaii, Oregon, and Washington, depletion volume grew 7% over the second quarter of 2014, which validates its strategic focus on delivering sustainable topline growth, particularly in their brands’ home states.

CBA looks to build on its home market strategy through establishing strategic partnerships with strong local brands. CBA are expanding their partnership with Boone, NC-based Appalachian Mountain Brewery to include an alternating proprietorship in their Portsmouth brewery.

Craft Brew Alliance’s international business continues to grow, with international shipments increasing by 60% over the second quarter of 2014, driven by the continued strength of their Kona brand family.

Net sales and total beer shipments increased 3% and 2%, respectively, compared to the second quarter of 2014, reflecting continued progress to align shipments and depletions, while managing inventory levels in preparation for the peak summer season.

CBA’s beer gross margin rate decreased 70 basis points to 34.6% in the second quarter, compared to 35.3% in the second quarter last year. This decrease reflects the lapping of last year’s production build up to support bringing their Memphis brewery online. The decreased rate was also due to a planned decrease in production in the second quarter of 2015 as they continued to align production with shipments and depletions. These decreases were partially offset by lower raw material and distribution costs on a per barrel basis. CBA’s pub gross margin rate decreased by 40 basis points to 13.4% compared to 13.8%, due to increases in selling and employee related costs. As a result, the combined second quarter gross margin rate decreased 90 basis points to 31.9%, compared to 32.8% for the second quarter last year.

Owned capacity utilization was 82% in the second quarter of 2015, compared to 87% in the second quarter of 2014, which primarily reflects the addition of CBA’s brewing operations in Memphis, as well as continued efforts to balance and normalize inventories.

As a percentage of net sales, CBA’s selling, general and administrative expense increased to 28% in the second quarter of 2015, compared to 27% in the second quarter of 2014, due to lower sales and planned increases in sales infrastructure and marketing expenses.

Diluted income per share for the second quarter of 2015 was $0.07, compared to $0.10 for the same period last year.

Depletion volume grew 1% over the first six months of 2014.

In Hawaii, Oregon, and Washington, depletion volume grew 7% over the first six months of 2014.

Net sales were relatively flat compared to the comparable six-month period in 2014, and total beer shipments decreased by 3%, reflecting ongoing efforts to synchronize shipments and depletions.

The beer gross margin rate decreased slightly by 10 basis points to 32.6% in the first six months, compared to 32.7% in the first six months last year, reflecting lower capacity utilization in CBA’s owned breweries, a shift in packaging mix, as well as the intentional increased production in the second quarter of 2014 to support bringing Memphis online. The decrease was partially offset by lower distribution costs and higher pricing on a per barrel basis. The pub gross margin rate decreased by 180 basis points to 11.7% in the first six months of 2015, compared to 13.5% in the same period of 2014, due to closures resulting from inclement weather during the first quarter of 2015 and the closure of the Koko pub for a full remodel. As a result, CBA’s combined year to date gross margin rate decreased 50 basis points to 29.8%, compared to 30.3% for the first six months last year.

Owned capacity utilization decreased to 70% in the first six months of 2015 compared to 78% in the first six months of 2014, which primarily reflects the addition of brewing operations in Memphis, as well as a decrease in shipment volume.

As a percentage of net sales, our sales and general administrative expense increased to 29% in the first six months of 2015 from 27% in the first six months of 2014, which was primarily due to increased investments in sales infrastructure and marketing.

Diluted income per share for the first half of 2015 was $0.01, compared to $0.09 for the same period last year.

To address the wide variances in quarterly results and provide a more representative view into CBA’s financial performance, they are sharing trailing 12-month comparisons for the periods ended June 30, 2015 and June 30, 2014.

For those periods, beer shipments increased 1%, depletions increased 3%, and net sales increased 3%.

Beer gross margin expanded by 10 basis points to 31.7% and pub/restaurant gross margin contracted by 160 basis points to 12.5% for the same 12-month periods, for a combined gross margin contraction of 20 basis points to 29.1%, compared to 29.3%.

“While I’m disappointed in our second quarter topline growth, we continued to make solid headway in multiple areas that underscore the strength of our distinctive strategy. Strong home market growth of 7%, continued double digit growth for Kona and Omission, further proof of Widmer Brothers’ turnaround, and continued improvements in our operational efficiency were offset by unanticipated weaknesses in Redhook and California,” said Andy Thomas, chief executive officer, CBA. “Looking forward, we continue to be emboldened by the validation of our home market strategy, ongoing progress in achieving sustainable gross margin growth, and success in planting seeds in key beer geographies. Together, these will not only address our short-term challenges, but also set us up for long-term success.”

“Our relatively flat depletion growth across the first half of the year has affected our revenue and profit growth against our guidance and expectations,” said Joe Vanderstelt, chief financial officer, CBA. “At the same time, we maintain a healthy balance between depletions and overall shipments and have reduced distributor inventory days. We continue to see healthy pricing, and our margin enhancement initiatives are on target. Looking forward, we expect to see growth in our full year revenue, gross margin, and earnings as second half 2015 commercial programming is executed for our core brands.”

CBA is revising previously issued guidance regarding their anticipated full year 2015 results, with the exception of estimated average price increases, as follows:

• Owned beer shipment growth between 1% and 3%. The adjusted anticipated beer shipment growth reflects greater-than-anticipated challenges to the Redhook brand family outside of its home market.

• Average price increase of 1% to 2%. CBA expects further improvements in revenue per barrel as they experience a favourable shift in product mix.

• Contract brewing revenue is expected to be flat compared to 2014, previously estimated to range from a decline of 10% to an increase of 10%.

• Gross margin rate of 30.5% to 31.5%, which is unchanged based on continued efforts to optimize brewing locations and improve capacity utilization as CBA steers towards gross margin expansion target of 35% in 2017.

• Sales and general administrative expense ranging from $58 million to $61 million. The company is committed to keeping the high end of its sales and general administrative expenses in line with topline performance, while ensuring the commercial programming is fully supported.

• Capital expenditures of approximately $16 million to $19 million, which were previously estimated at $17 million to $21 million. The decrease in projected capital expenditures is due to the timing of certain planned projects. Capital expenditures are predicted at approximately $17 million to $21 million in 2016. Capital expenditures will support the recently announced brewery expansion projects, as well as continued investments in quality, safety, sustainability, capacity and efficiency.


07 August, 2015