USA, OR: Craft Brew Alliance reports Q1 2017 financial results
Craft Brew Alliance, Inc. (“CBA”), a leading US craft brewing company, on May 3 announced financial results for the first quarter ended March 31, 2017 and reconfirmed guidance for the full year. CBA reported 14% depletion growth for Kona, a 13% increase in total company net sales, and a robust 640-basis point improvement in total company gross margin, attributing its strong first quarter results to the ongoing advancement of several strategic initiatives, including:
Kona delivered 14% depletion growth in the first quarter despite increasing market competition that continued to put pressure on overall craft beer sales. This depletion growth includes 60% growth in international depletions. As the cornerstone of CBA’s portfolio strategy, Kona’s first quarter growth reflects the national success of Big Wave Golden Ale, which posted a 33% boost in depletions in the quarter, and strong results for its newest national brand Hanalei Island IPA. Hanalei IPA was the top 11th new craft beer launched in the first quarter, as measured in grocery sales by Nielsen.
In the first quarter, CBA continued to focus on unlocking the value from its enhanced agreements with Anheuser-Busch (“AB”) announced last year. The company successfully completed the qualification process to begin brewing in AB’s Fort Collins, Colo. Brewery and is on track to begin shipments this month, in time to support execution of its commercial programs heading into the peak summer selling season.
In the first quarter, CBA continued to make strong progress evolving CBA’s brewing footprint to improve production efficiency, reduce overhead costs, and increase gross margins. In line with its plans, the company said it has been successfully winding down production at City Brewing in Memphis and at its Woodinville brewery, while preparing for production in Fort Collins as described above.
With respect to the Woodinville brewery, CBA and Pabst Brewing Company, LLC have reached an agreement to terminate their contract brewing agreement, as well as Pabst’s option to purchase CBA’s Woodinville facility. As a result, Pabst will pay negotiated fees to CBA, and CBA will close its Woodinville brewery as of July 1, 2017. The Woodinville pub is not impacted by this change and will remain open.
CBA said it achieved a significant milestone in the first quarter, delivering a 2.1% increase in shipments despite cutting 10 days from our wholesaler inventory levels. This accomplishment validates the company’s efforts to address the inventory pressures facing its distributors in today’s competitive craft market, while still delivering a significant improvement over first quarter 2016 shipments, which were lower due to the temporary closure of CBA’s Portland brewery.
Select financial highlights for the first quarter 2017:
Depletions for Kona were 14% in the first quarter, while overall CBA depletions were flat for the first quarter of 2017, compared to the first quarter in 2016.
CBA’s shipments increased 2.1% over the same period last year, amidst the successful completion of its wholesaler inventory objectives as described above.
Net sales increased 13.0% to $44.3 million in the first quarter, compared to the first quarter in 2016.
The increase is primarily attributed to shipment growth for Kona and CBA’s partner brands, $1.7 million in Pabst contract brewing shortfall fees, $0.9 million in AB international distribution fees, its alternating proprietorship business, and an increase in average unit pricing. CBA’s net sales increase also reflects the improvement over the first quarter in 2016, during which shipments were impacted by the temporary closure of its Portland brewery.
Partially offsetting the first quarter increases were decreases in Widmer Brothers and Redhook shipment volume, as well as shipment volume decreases associated with CBA’s ongoing efforts to reduce inventory levels at its wholesaler partners.
Gross profit increased by 45.3%, to $12.7 million, and gross margin increased by 640 basis points to 28.6% compared to the first quarter in 2016.
Selling, general and administrative expense (“SG&A”) for the first quarter was $15.5 million, an 11% increase over the first quarter of 2016. The increase primarily reflects continued investment in CBA’s brands and emerging business.
Diluted net loss per share was $0.09 for the first quarter, an improvement of $0.08 over the first quarter diluted net loss per share of $0.17 in 2016.
“Our first quarter results are strong in and of themselves. And they’re especially remarkable given the dynamics in today’s increasingly challenging market,” said Andy Thomas, chief executive officer, CBA. “The substantial progress we made across many areas of our business – from continuing Kona’s double-digit growth and strengthening our local brands, to expanding our gross margins while evolving our brewery footprint and reducing our wholesaler inventory days by a third – provides tangible evidence that our strategy is working and beginning to bear fruit.”
Anticipated financial highlights for 2017:
As a result of CBA’s first quarter performance being in line with expectations, the company is reaffirming its 2017 guidance and will be exploring the opportunity to update the ranges later in the year as the need arises.
Total CBA depletion change of flat to growth of 6%.
Shipments ranging between a decrease of 1% and increase of 4%, which reflects the brewer’s success in achieving its 2017 wholesaler inventory reduction goals in the first quarter.
Average price increases of 1% to 2%.
Total gross margin rate of 30.5% to 32.5%.
Gross margin on CBA’s owned business, which includes beer related and pubs, is expected to be higher on a rate basis despite the dilutive influence of alternating proprietorship volume.
Over the course of 2017, CBA management will assess the 2017 gross margin range against the previously disclosed target of 35%, which was projected without the AB agreements and with the completed sale of the company’s Woodinville brewery.
SG&A ranging from $61 million to $63 million including increase in marketing spend and SG&A cost optimization, as CBA leverages investments made in prior years and seek to improve efficiencies.
Capital expenditures of approximately $16 million to $20 million, reflecting continued work on previously disclosed projects including the new Kona brewery and Redhook brewpub in Seattle.
“We saw a 45% increase in gross profitability versus last year which was supported by strong topline growth, healthy revenues per barrel sold, and improved brewery efficiencies,” said Joe Vanderstelt, chief financial officer, CBA. “The upcoming closure of our Woodinville brewery in July will allow us to take another step forward in reducing fixed overhead costs, increasing gross margins, and improving capacity utilization.”
04 May, 2017
