USA: Boston Beer reports decrease in shipments, net income in Q2 2023
The Boston Beer Company, Inc. reported on July 27 its financial results for its second quarter that ended July 1, 2023. Key results were:
Second Quarter 2023 Summary:
• Depletions decreased 3%
• Shipments decreased 4.5%
• Net revenue decreased 2.1% to $603.3 million
• Gross margin increased 230 basis points to 45.4%
• Net income increased 8.8% to $58.0 million
• Diluted income per share increased 9.5% to $4.72
Capital Structure:
• Generated $119.0 million in operating cash flow in the second quarter
• Ended the second quarter with $207.8 million in cash and no debt
• Repurchased $52.5 million in shares from January 3, 2023 to July 21, 2023
"We saw improvement in our financial performance and our volume benefited from the timing of the July 4th holiday in the second quarter, as we continue to execute our operational plans. We are proud to have just been named the number one beer industry supplier in the Tamarron Survey, the annual poll of beer distributors conducted by Tamarron Consulting, for the sixth year in a row," said Chairman and Founder Jim Koch. "Our highly cash-generative business and strong balance sheet will not only fuel our 2023 brand investments, but have also enabled us to repurchase over $50 million in shares year-to-date."
"As we expected, our second quarter performance reflected strong growth in Twisted Tea, offset by continuing challenges in the hard seltzer category, and we are reiterating our 2023 depletion and shipment expectations as well as our earnings guidance," said President and CEO Dave Burwick. "Based on our second quarter financial performance, we plan to increase our balance of year spend behind both the Truly and Twisted Tea brands as we believe our messaging is effective and the business will respond over the short-and longer-term to these investments. We are focused on enhancing our productivity to continue to improve our gross margin and in turn incrementally invest to further strengthen our brands."
Second Quarter 2023 (13 weeks ended July 1, 2023) Summary of Results
Net revenue of $603.3 million decreased 2.1% compared to the prior year.
Depletions in the second quarter decreased 3% from the prior year, reflecting decreases in the company's Truly Hard Seltzer, Angry Orchard, Hard Mountain Dew and Samuel Adams brands, partially offset by increases in its Twisted Tea and Dogfish Head brands.
Shipment volume for the quarter was approximately 2.3 million barrels, a 4.5% decrease from the prior year, reflecting decreases in the company's Truly Hard Seltzer, Angry Orchard, Samuel Adams, Hard Mountain Dew and Dogfish Head brands, partially offset by increases in its Twisted Tea brand.
The timing of the July 4th holiday relative to the company's 2023 and 2022 fiscal calendars resulted in a depletion and shipment volume benefit in the second quarter of 2023. This volume benefit was the most significant factor in the difference between depletions and shipments on a fiscal calendar basis compared to a comparable weeks basis. On a comparable weeks basis, depletions declined approximately 7% and shipments declined 4.8%.
The company believes distributor inventory as of July 1, 2023 averaged approximately three weeks on hand and was at an appropriate level for each of its brands, except for certain Twisted Tea brand packages that were below targeted levels due to higher than forecasted consumer demand.
Gross margin of 45.4% increased 230 basis points from the 43.1% margin realized in the prior year. Gross margin primarily benefited from strong price realization and procurement savings, which more than offset increased inflationary costs.
Advertising, promotional and selling expenses for the second quarter of 2023 decreased $5.5 million or 3.6% from the second quarter of 2022, due to decreased freight to distributors of $15.7 million from lower rates and volumes, partially offset by an increase in brand and selling costs of $10.2 million, mainly driven by higher salaries and benefits costs, increased consulting costs and increased media investments.
General and administrative expenses increased by $6.1 million or 15.6% from the second quarter of 2022, primarily due to increased consulting and legal costs and higher salaries and benefits costs.
The company incurred impairment costs for brewery equipment of $1.5 million in the second quarter of 2023.
The company 's effective tax rate for the second quarter was 27.5% compared to 24.7% in the prior year. In the second quarters of 2023 and 2022, the company recorded a tax benefit of $0.03 and $0.08 per diluted share, respectively, resulting from the Accounting Standard "Employee Share-Based Payment Accounting" ("ASU 2016-09").
Year-to-date 2023 (26 weeks ended July 1, 2023) Summary of Results
Net revenue year-to-date of $1.013 billion decreased 3.2% compared to year-to-date 2022.
Depletions year-to-date decreased 4% from year-to-date 2022, reflecting decreases in the company's Truly Hard Seltzer, Angry Orchard, Dogfish Head, and Samuel Adams brands, partially offset by increases in its Twisted Tea and Hard Mountain Dew brands. Comparable weeks depletions year-to-date decreased 7%.
Shipment volume year-to-date was approximately 3.9 million barrels, a 5.8% decrease from year-to-date 2022, reflecting decreases in the company's Truly Hard Seltzer, Angry Orchard, Dogfish Head, and Samuel Adams brands, partially offset by increases in its Twisted Tea and Hard Mountain Dew brands. Comparable weeks shipments year-to-date decreased 7.6%.
Gross margin year-to-date of 42.4% increased from the 41.9% gross margin realized in year-to-date 2022, primarily due to price increases partially offset by higher inventory obsolescence costs, primarily related to rebranding Truly Vodka Seltzer to Truly Vodka Soda, and a non-recurring payment to a third-party contract brewery. Increased inflationary costs were offset by procurement savings.
Advertising, promotional and selling expenses year-to-date decreased $10.7 million or 3.8% from year-to-date 2022, primarily due to decreased freight to distributors of $28.3 million from lower rates and volumes, partially offset by an increase in brand investments of $17.6 million, mainly driven by increased salaries and benefits costs and higher investments in local marketing.
General and administrative expenses year-to-date increased by $10.0 million or 12.8% from year-to-date 2022, primarily due to increased consulting and legal costs.
In 2022, the company recorded $5.3 million in contract termination costs, most of which was recorded in the first quarter, as a result of further negotiations with suppliers that eliminated certain future shortfall fees.
The company 's effective tax rate year-to-date was 27.5% compared to 25.1% year-to-date 2022. Year-to-date 2023 and 2022, the company recorded tax benefit of $0.01 per diluted share and a tax benefit of $0.05 per diluted share, respectively, resulting from ASU 2016-09.
Net income year-to-date of $49.1 million or $3.98 per share, represented a decrease of $2.3 million or $0.17 per diluted share compared to year-to-date 2022. This decrease between periods was primarily driven by lower revenue, partially offset by higher gross margins and lower operating expenses.
The company expects that its July 1, 2023 cash balance of $207.8 million, together with its projected future operating cash flows and the unused balance on its $150.0 million line of credit, will be sufficient to fund future cash requirements.
During the 26-week period ended July 1, 2023 and the period from July 2, 2023 through July 21, 2023, the company repurchased its Class A Common Stock in the amounts of $46.7 million and $5.8 million, respectively, for a total of $52.5 million year to date. As of July 21, 2023, the company had approximately $307.0 million remaining on the $1.2 billion share buyback expenditure limit set by the Board of Directors.
Depletions Estimate
Year-to-date depletions through the 29-week period ended July 22, 2023 are estimated by the company to have decreased approximately 6% from the prior year fiscal period.
Full-Year 2023 Projections
The company is maintaining the full year volume and earnings guidance previously communicated in its April 25, 2023 Earnings Release and increasing its Advertising, Promotion and Selling Expense guidance. The company experienced lower than expected freight costs year to date, which in addition to gross margin performance allows it to further support its brands. The company 's actual 2023 results could vary significantly from the current projection and are highly sensitive to changes in volume projections particularly related to the hard seltzer category and supply chain performance as well as inflationary impacts. The 2023 fiscal year includes 52 weeks compared to the 2022 fiscal year which included 53 weeks.
28 July, 2023
