Craft Brew Alliance (CBA) today released its second quarter earnings results, which were highlighted by a 23.9 percent increase in Kona Brewing shipments and a portfolio-wide net sales increase of 6.4 percent compared to the same period in 2015.
Driven by its “Kona Plus” strategy — which prioritizes national sales of the Hawaiian-themed brand over those from Widmer, Redhook, Omission and its partner brands — CBA was able to push year-to-date shipments, depletions and net sales back to about flat following a challenging first quarter.
It was the company’s best quarterly performance of all time, according to spokeswoman Jenny McLean, who told Brewbound that CBA’s $62.3 million in net sales and 239,000 barrels shipped were the largest ever recorded.
“Against a backdrop of increasing competition and dynamic industry change, CBA’s ability to deliver the largest net sales, depletions and shipments in our history while making steady improvements to our core business health, is tangible validation of our strategy,” CEO Andy Thomas said via a release. “Our solid second quarter performance not only reflects significant progress in strengthening our topline by sustaining Kona’s remarkable growth and supporting it with a stronger regional portfolio of strategic partners, it starts to reveal the benefits of our gross margin investments.”
According to CBA, increasing Kona sales were “primarily due to increases in domestic and international shipments, primarily led by demand for Big Wave Golden Ale,” it wrote in an SEC filing.
Nevertheless, while Kona shipments continued to grow at a rate of about 20 percent, the same can’t be said for CBA’s other core brands. Year-to-date shipments of the Widmer Brothers, Redhook and Omission brands were down 16.3 percent, 27.1 percent and 12.8 percent, respectively, through June 30.
Widmer and Redhook declines were attributed to a deliberate focus on home markets of Oregon and Washington, respectively, and led by decreasing sales of flagships Widmer Hefeweizen and Redhook Longhammer IPA as well as ESB.
Sales of CBA’s partner brands — Cisco Brewers and Appalachian Mountain Brewery — as well as its Square Mile Cider brand were up through the first six months, however. Shipments increased 43 percent, according to the filing.
Additional information is included in the press release (reprinted below) and in the accompanying 10-Q filing. Brewbound will provide an update to this story following tomorrow’s earnings call with investors and analysts.
Craft Brew Alliance Reports Largest Net Sales, Shipments, and Depletions in Company History
Portland, OR – Craft Brew Alliance, Inc. (“CBA”) (Nasdaq: BREW), a leading craft brewing company, today announced results for the second quarter ended June 30, 2016. The results, which include the largest net sales, shipments and depletions in the company’s history, reflect CBA’s continued progress strengthening the topline by harnessing the growth potential of its “Kona Plus” strategy, while actualizing the future with strategic partners Appalachian Mountain Brewery and Cisco Brewers and optimizing its brewery operations for long-term business health.
As a result of the strong topline growth and gross margin improvement in the second quarter, along with the anticipated incremental operational benefits in the second half of the year, CBA is maintaining its full-year guidance.
Select second quarter financial highlights
- Net sales for the second quarter were $62.3 million, an increase of $3.7 million or 6.4% compared to the second quarter of 2015, primarily driven by a 3.9% increase in revenue per barrel and a 3% increase in overall shipments.
- Shipments of our owned and partnership beers increased by 10,700 barrels, or 4.7%, to 239,000 barrels, over the second quarter of 2015.
- Depletions for Kona continued to outpace the growth of craft, increasing by 18% for the quarter and driving CBA’s overall depletion volume up by 3% for the quarter, compared to the same period in 2015.
- Our increase in net sales is also attributed to fees earned from our alternating proprietorship with Appalachian Mountain Brewery, which began in the first quarter of 2016.
- Second quarter gross margin rate increased 100 basis points to 32.9%, compared to 31.9% for the second quarter last year, which led to a $1.8 million, or 9.7%, increase in gross profit.
- Our Beer gross margin rate increased 70 basis points to 35.3% in the second quarter, compared to 34.6% in the second quarter last year, which is mainly due to an increase in pricing and lower component costs. Looking at the balance of the year, we expect to see incremental gross margin improvement as we optimize key cost reduction projects completed in the first two quarters, including the Portland bottling line modernization and beer loss centrifuge, and the Portsmouth canning line.
- Our Brewpub gross margin rate increased by 180 basis points to 15.2%, compared to 13.4% in the second quarter of 2015, and reflects an increase in guest counts and sales, primarily at our Hawaiian brewpubs.
- Selling, general and administrative (SG&A) expense as a percent of net sales decreased to 26.6% compared to 27.8% for the second quarter of 2015. Our SG&A expense for the quarter was $16.5 million, which represents a 1.8% increase over the second quarter of 2015, and is primarily due to emerging business and international support, as well as brand marketing.
- Net income for the quarter was $2.3 million, an increase of $871,000 or 63% compared to the second quarter of 2015.
- Diluted earnings per share for the second quarter was $0.12, an increase of $0.05 compared to the second quarter of 2015.
Select year-to-date financial highlights:
- Net sales increased by 1.3%, primarily attributed to improved pricing, alternating proprietorship fees, and increased guest counts at our brewpubs; partially offset by a decrease in overall shipment volumes.
- Shipments of our owned and partnership beers decreased by 5,400 barrels, or 1.4%, over the comparable period in 2015, due to the planned shutdown of our largest-volume brewery (Portland) in the first quarter of 2016 and continued competitive challenges faced by Redhook, Widmer Brothers, and Omission. The second quarter decrease in shipments was offset by Kona, which increased shipments by 19.3%, as well as growth of Appalachian Mountain Brewery and Cisco.
- Depletions for Kona increased by 19%, while overall depletions were flat compared to the same time period in 2015.
- Year-to-date gross margin rate is 28.8%, a decrease of 100 basis points compared to 29.8% for the same period last year, which primarily reflects the planned shutdown of our largest-volume brewery in the first quarter 2016, partially offset by an increase in pricing and mix, and a decrease in component costs.
- Our Beer gross margin rate decreased 140 basis points to 31.2%, compared to 32.6% in the same period last year.
- Our Brewpub gross margin rate increased by 230 basis points to 14.0%, compared to 11.7% in the same period of 2015. The increase reflects higher guest counts, primarily in our Hawaiian brewpubs.
- SG&A for the first half of 2016 increased by $1.3 million, or 4.3%, compared to the same period in 2015, primarily due to emerging business and international support, and brand marketing.
- Diluted loss per share for the first half of 2016 was $0.05, compared to diluted earnings per share of $0.01 for the same period last year.
- Trailing twelve-month financial highlights
To address the wide variances in quarterly results and provide a more representative view into our financial performance, we are sharing trailing 12-month comparisons for the periods ended June 30, 2016 and June 30, 2015.
For those periods, our Beer shipments decreased 0.8%, depletions were flat, and net sales increased 2.8%.
Our Beer gross margin expanded by 80 basis points to 32.5% and Brewpubs gross margin expanded by 150 basis points to 14.0% for the same 12-month periods, for a combined gross margin expansion of 90 basis points to 30.0%.
“Against a backdrop of increasing competition and dynamic industry change, CBA’s ability to deliver the largest net sales, depletions and shipments in our history while making steady improvements to our core business health, is tangible validation of our strategy,” said Andy Thomas, chief executive officer, CBA. “Our solid second quarter performance not only reflects significant progress in strengthening our topline by sustaining Kona’s remarkable growth and supporting it with a stronger regional portfolio of strategic partners, it starts to reveal the benefits of our gross margin investments.”
Anticipated financial results for the full year 2016
We are reconfirming previously issued guidance regarding our 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 our commitment to improved leverage. Increases compared to 2015 are primarily focused against our sales team, our growing international business, and strategic marketing investments.
- Capital expenditures between $19 million and $23 million as we continue to support strategic investments, which include the Portland brewery expansion and efficiency initiatives, the Kona brewery expansion, the Portsmouth brewery canning line, and the new Redhook brewpub in Seattle. The increase in 2016 expenditures compared to last year’s guidance reflects the effect of lower-than-anticipated spend on active projects in 2015.
“We are pleased to see such a strong rebound in the second quarter and remain committed to our full year guidance,” said Joe Vanderstelt, chief financial officer, CBA. “Kona, Cisco, AMB, and our International business will all contribute to our topline objectives, while the operational enhancements we absorbed this past quarter will generate significant efficiencies and allow us to achieve our gross margin targets and ultimately improve our bottom line.”
Forward-Looking Statements
Statements made in this press release that state the Company’s or management’s intentions, hopes, beliefs, expectations or predictions of the future, including shipments and sales growth, price increases, and gross margin rate improvement, the level and effect of SG&A expense and business development, anticipated capital spending, and the benefits or improvements to be realized from cost controls, operational enhancements, strategic partners, and capital projects, are forward-looking statements. It is important to note that the Company’s actual results could differ materially from those projected in such forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained from time to time in the Company’s SEC filings, including, but not limited to, the Company’s report on Form 10-K for the year ended December 31, 2015. Copies of these documents may be found on the Company’s website, www.craftbrew.com, or obtained by contacting the Company or the SEC.
About Craft Brew Alliance
CBA is a leading craft brewing company, which brews, brands and markets some of the world’s most respected and best-loved American craft beers. We are home to three of the earliest pioneers in craft beer: Redhook Ale Brewery, Washington’s largest craft brewery founded in 1981; Widmer Brothers Brewing, Oregon’s largest craft brewery founded in 1984; and Kona Brewing Company, Hawaii’s oldest and largest craft brewery founded in 1994. As part of Craft Brew Alliance, these craft brewing legends have expanded their reach across the U.S. and approximately 30 international markets.
In addition to growing and nurturing distinctive brands rooted in local heritage, Craft Brew Alliance is committed to developing innovative new category leaders, such as Omission Beer, which is the #1 beer in the gluten-free beer segment, and Square Mile Cider, a tribute to the early American settlers who purchased the first plots of land in the Pacific Northwest.
Publicly traded on NASDAQ under the ticker symbol BREW, Craft Brew Alliance is headquartered in Portland, OR and operates five breweries and five pub restaurants across the U.S. For more information about CBA and its brands, please visit www.craftbrew.com.