E-Malt.com News article: USA: Pyramid Breweries reports weak 3rd quarter 2007 financial results

Pyramid Breweries Inc reported a net loss of $101,000, or negative $0.01 per diluted share for the quarter ended September 30, 2007, compared to net income of $130,000, or $0.01 per diluted share in the third quarter a year ago, according to company’s press release, November 13. Gross sales for the quarter were $14.6 million, a 7.6% decrease from gross sales for the third quarter of 2006, primarily attributable to the fact that Pyramid now contract manufactures Thomas Kemper Soda (TK Soda) under a 5-year Supply Agreement, and as an agent, records the revenues and cost of sales, as a net amount in gross sales. Additionally, the Company recorded a one-time net impact of $321,000 relating to a final arbitration settlement issued in favor of a former distributor of ours, which increased general and administrative expenses in the third quarter of 2007.

Key Factors for the Third Quarter:

- “Our beer shipments, led by our core Pyramid brand family, were up 6% in the third quarter consistent with the craft beer category segment growth rate in the West.
- Alehouse revenue was up 6% in the third quarter 2007 as compared to the same period last year.
- A final arbitration settlement was issued in favor of a former distributor of ours for $400,000 in damages, plus interest, attorney and arbitration fees totaling approximately $186,000 for settlement of a suit that alleged that we had unreasonably withheld consent to the transfer of distribution rights to another distributor. Net of third-party reimbursements, the impact to the Company was $321,000.
- We sold the TK Soda brand in January this year in order to focus on our core beer business. While we are still manufacturing TK Soda under contract for the new owner, our soda revenue and margins are appreciably lower versus last year. Additionally, net contract manufactured and soda shipment volume in the quarter was lower than last year.
- We continued investing in selling and marketing expense for brand building and expansion efforts to take advantage of the momentum in the craft beer category and to focus on our core Pyramid brand family.
- In the third quarter of the prior year, we recorded $700,000 excise tax assessment as part of the 2006 settlement with the federal Alcohol and Tobacco Tax and Trade Bureau (TTB), which resulted in the loss of a second small brewer’s exemption.”

“We continued to make progress behind our core beer brand volume and strong Alehouse revenue growth. Sales in our home Northwest Region, which had been relatively soft in previous quarters, rebounded in the third quarter behind the introduction of a new fall seasonal brand and was up versus 2006 for the first time this year. Our business in the large and important California market continued to grow nicely and our shipments in some of our emerging craft markets within the Southwest were up over 40% where we gained nearly 1.5 market share points over the quarter according to Information Resources, Inc.,” said CEO Scott Barnum.”

Financial Highlights – third quarter 2007 compared to third quarter 2006:

Beverage Division:

- Although total shipments for the quarter decreased 1% to 69,400 barrels, beer shipments were up 6%, to 56,500 and were comprised primarily of the following:

- Pyramid brand family shipments were up 6% primarily driven by our new fall seasonal Broken Rake and by our flagship Hefeweizen.

- MacTarnahan's brand shipments were up 11% continuing its resurgence since relaunching in the first quarter of 2007.

- Gross revenue decreased 12.3% to $10.2 million primarily attributable to the fact that beginning in 2007, we now contract manufacture Thomas Kemper Soda as an agent, and as such, we record the revenues and cost of sales as a net amount in gross sales. Additionally, net contract manufactured and soda shipments decreased 3,700 barrels to 12,900 barrels for the quarter. Offsetting the decrease was an increase in beer shipments of 6% to 56,500 barrels, primarily due to increased Pyramid brand shipments.

- Gross margin dollars increased 18% to $3.4 million primarily as a result of a one-time impact of a $700,000 TTB excise tax assessment recorded during the third quarter of 2006. This one-time impact was partially offset by decreases in soda gross margin due to reduced sales revenue per unit on TK Soda products under the contract manufacturing agreement and lower contract manufactured and soda shipment volume this quarter versus third quarter a year ago.

- Gross margin as a percentage of net sales for the current quarter increased to 37% from 29% in the prior year, primarily attributed to the decrease in excise taxes.

Alehouse Division:

- Gross revenue increased 6% to $4.4 million.
- Operating income decreased to $399,000 from $407,000 a year ago. The Seattle, Walnut Creek, and Berkeley alehouses contributed to the operating income, offset by operating losses in the Sacramento and Portland alehouses.

Business Outlook

“Craft beer consumers throughout the West, and particularly in our core Northwestern markets, are seeking seasonal and new more adventurous styles as they further explore the breadth of the craft beer category. This should bode well for us in the fourth quarter where seasonal beer interest is highest during the year and we have one of the most sought after winter season beer brands called Snow Cap,” Barnum added.

The Company anticipates significant increases in hops and malt raw material costs in 2008 due to a combination of external factors that will likely affect most every brewer in the US. The Company is aware of this impending cost impact and is taking measures to address the situation in the coming year.

About Pyramid Breweries Inc.

Pyramid Breweries Inc. is a leading brewer of specialty, full-flavored beers produced mainly under the Pyramid and MacTarnahan’s brand names. Pyramid’s family of unfiltered wheat beers continue to be honored by beer drinkers and judges, earning the most craft beer medals in the last decade at the prestigious Great American Beer Festival (“GABF”). Pyramid beers have received a total of 34 medals at the GABF. The brewery has also received a total of 9 medals in international competition at the World Beer Cup.

Pyramid owns two alehouse restaurants adjacent to its full production breweries under the Pyramid Alehouse and MacTarnahan’s Taproom brand names in Berkeley, California and Portland, Oregon, respectively, and three alehouse restaurants in Walnut Creek and Sacramento, California and Seattle, Washington.


14 November, 2007