USA, OR: Craft Brew Alliance reports Q1 results

Craft Brew Alliance, Inc. (“CBA”), a leading craft brewing company in the US, on May 5 announced results for the first quarter ended March 31, 2016. The results, which were consistent with the guidance provided during CBA’s 2015 earnings call on March 3, 2016, underline the continued double-digit growth of Kona Brewing Co. and reinforce the confidence in achieving its full-year guidance, CBA said.

CBA’s first quarter results were largely impacted by the temporary closure of its largest-volume brewery in Portland, which enabled the completion of multiple strategic operational projects to increase brewing capacity and gross margin. In addition to the Portland brewery expansion, CBA also kicked off the site preparation for the new Kona brewery and the launch of a new can line in Portsmouth to support its strategic partnerships with Appalachian Mountain Brewery and Cisco Brewers.

As previously disclosed, CBA expected the Portland brewery closure to result in a first quarter shipment decline of 15,000 to 20,000 barrels, along with commensurate impacts to first quarter revenue, gross margin, and capacity utilization. With key operations enhancement projects on track and first quarter results in line with management’s expectations, CBA is reconfirming full-year guidance and providing insight to its anticipated performance for the balance of the year.

Select first quarter financial highlights

Depletions for Kona Brewing increased by 19% reflecting steady domestic and international growth despite continued market competition. CBA’s overall depletion volume declined 3% from the first quarter of 2015.

In line with the company’s expectations due to the temporary Portland brewery closure, shipments decreased by 18,100 barrels, or 10.8%, to 149,600 barrels, compared to the same period of 2015. The first quarter shipments decline, which conforms to CBA’s previously projected decline of 15,000 to 20,000 barrels, reflects a provisional increase to wholesaler inventories in the fourth quarter of 2015 as the company prepared for the Portland brewery closure in early 2016.

The anticipated decline in shipment volume resulted in a net sales decline of 6.0% in the first quarter, which was partially offset by strong revenue per barrel and improved Pubs sales. The estimated negative impact of the brewery shutdown on CBA’s net sales was approximately 890 basis points.

Also in line with the projected impact of the Portland brewery closure, first quarter gross margin rate decreased 460 basis points to 22.2%, compared to 26.8% for the first quarter last year.

CBA’s Beer gross margin rate decreased 550 basis points to 24.2% in the first quarter, compared to 29.7% in the first quarter last year, due to the planned lower capacity utilization in its owned breweries as it completed the capital projects.

The company’s Brewpub gross margin rate increased by 310 basis points to 12.8%, compared to 9.7% in the first quarter of 2015. The increase reflects the normalization of CBA’s Pub margins, which were impacted by a multi-week closure of its Koko pub in the first quarter of 2015 for a full remodel.

The estimated impact of the brewery shutdown and related volume decline on CBA’s gross margin in the first quarter of 2016 was approximately 490 basis points.

Selling, general and administrative (SG&A) expense for the first quarter was $13.9 million, a 7.5% increase over the first quarter of 2015, primarily due to emerging business and international support, brand marketing, and employee-related costs.

Corresponding to the decrease in gross margin due to the Portland brewery closure, along with the increase in SG&A, CBA’s diluted loss per share for the first quarter of 2016 was $0.17, compared to $0.06 for the same period last year. Brewery shutdown-related volumes and the corresponding negative impact on gross margins represents $0.09 per share.

Select anticipated financial results for the remaining three quarters of 2016 to support full-year guidance:

April through December 2016 shipment growth of 4% to 5%, reflecting increased volume growth during the peak selling season and continued acceleration of Appalachian Mountain Brewery, Cisco Brewers, and contract partnerships.

Gross margin of 33.0% to 34.5% by leveraging the increased efficiencies related to the successful completion of operational enhancements in the first quarter, as well as improved overall volume and cost leverage, and other ongoing strategic margin improvement projects.

Anticipated financial results for the full year 2016:

The company reconfirmed previously issued guidance regarding its anticipated full year 2016 results, as follows:

Full-year shipment growth between 1% and 2%, which reflects the planned first-quarter decrease due to the Portland brewery closure, offset by volume growth during peak selling seasons and ramp up of partner volumes, including Appalachian Mountain Brewery, Cisco Brewers and Pabst Brewing.

Average price increases of 1% to 2%.

Gross margin of 31.0% to 32.5%.

SG&A ranging from $58 million to $59 million as a result of tighter cost controls and the company’s commitment to improved leverage. Increases compared to 2015 are primarily focused against its sales team, its growing international business, and strategic marketing investments.

Capital expenditures between $19 million and $23 million as CBA continues to make investments in strategic gross margin initiatives, quality, safety, sustainability, and its Brewpubs. The increase in 2016 expenditures compared to last year’s guidance reflects the carry over impact of lower spend on active projects in 2015.

“The anticipated benefits from the increased capacity and efficiency in Portland, combined with continued acceleration of our Appalachian Mountain Brewery and Cisco Brewers partnerships, reinforce our confidence in delivering on the plan for the balance of the year,” said Joe Vanderstelt, chief financial officer, CBA.

05 May, 2016