Boston Beer Q3 Shipments -2.5%, Depletions -6%

Boston Beer Company has updated its full-year guidance following its Q3 earnings results, with slightly more pessimistic expectations for the year.

The company now expects shipments (sales to wholesalers) and depletions (sales to retailers) to decline between -5% and -7%, after previously projecting both to decline between -2% to -8%.

Boston Beer announced its financial results for the quarter (ending September 30) today. Here is the early read on the Q3 earnings report, as well as year-to-date (YTD) earnings and commentary from CEO Dave Burwick:

Q3 Depletions: -6% (-3% on a comparable week basis, adjusting for “the timing impact of the July 4 holiday.”)

  • Q2 Depletions: -3% (-7% on a comparable week basis)
  • Growth Brands: Twisted Tea and Hard MTN Dew
  • Declining Brands: Truly Hard Seltzer, Angry Orchard, Samuel Adams and Dogfish Head

Q3 Shipments: -2.5%, to 2.3 million barrels (-1.8% on a comparable week basis)

  • Q2 Shipments: -4.5%, to 2.3 million barrels (-4.8% on a comparable week basis)
  • Growth Brands: Twisted Tea and Hard Mountain Dew
  • Declining Brands: Truly, Samuel Adams, Angry Orchard and Dogfish Head

Q3 Gross Margin: +250 basis points, from 43.2% in Q3 2022, to 45.7% in Q3 2023.

  • The increase was credited to “strong price realization” and “low inventory obsolescence and procurement savings” that were partially offset by increased inflationary costs.

Q3 Net Revenue: +0.9% year-over-year (YoY), to $601.6 million.

  • The increase marks some improvement after the -2.1% decline recorded in Q2.

Q3 Net Income: $45.3 million

  • Net income includes a $16.4 million impairment charge, recorded primarily for Dogfish Head, “taken as a result of the company’s annual impairment analysis as of September 1.”
  • The impairment was based on forecasts for brand performance “which have been below our projections made on the acquisition date,” according to the release. The charge also comes one year after Boston Beer recorded a $27.1 million impairment charge for the craft beer brand in Q3 2022.
  • Dogfish Head’s estimated fair value is now $55.6 million.
  • Boston Beer also took a $0.6 million impairment charge for Coney Island Brewery. The company announced earlier this month that it will shut down Coney Island’s taproom in November.
  • Coney Island’s estimated fair value is now $1 million.

Advertising, Promotional and Selling Expenses: -0.7% (or -$1.1 million)

  • The decline in expenses was credited to decreased freight to distributors (- $10.8 million) from “lower rates and volumes,” that was partially offset by an increase in brand and selling costs (+$9.6 million), including higher salaries and benefits and increased media investments.

“We are pleased with our performance in the third quarter as momentum on Twisted Tea remained strong and we continued to show progress on our margin enhancement plans while increasing brand investment,” Burwick said in the release.

“We plan to continue to invest behind the Twisted Tea and Truly brands while also nurturing innovation across beyond beer categories to drive long-term growth,” he continued.

Year-to-date (YTD) Net Revenue: -1.7%, to $1.615 billion

YTD Depletions: -5% (also -5% on a comparable weeks basis)

  • Growth Brands: Twisted Tea and Hard Mountain Dew
  • Declining Brands: Truly, Angry Orchard, Samuel Adams and Dogfish Head

YTD Shipments: -4.6%, to 6.2 million barrels (-5.5% on a comparable weeks basis)

  • Growth Brands: Twisted Tea and Hard Mountain Dew
  • Declining Brands: Truly, Angry Orchard, Samuel Adams and Dogfish Head

YTD Gross Margin: +120 basis points, to 43.6%

  • The YTD gross margin increase was primarily due to price increase and procurement savings, partially offset by increased inflationary costs.

YTD Advertising, Promotional and Selling Expenses: -2.7% (-$11.8 million)

  • The expenses decrease was primarily due to decreased freight to distributions (-$39 million), partially offset by an increase in brand investments (+27.2 million). Those investments include primarily salaries and benefits and higher investments in “local marketing and media.”

Boston Beer also increased its general and administrative expenses +12.9% YTD (+$15 million), primarily due to increased consulting and increased salaries and benefits. Additionally, the company incurred a $3.9 million impairment costs for brewery equipment (up from $1.3 million in 2022).

YTD Net Income: $94.4 million ($7.67 per diluted share), up from $15.7 million ($1.31 per diluted share) in the same period in 2022.

  • The increase was credited to high gross margins and lower impairment, partially offset by lower revenue and a higher tax rate (now 28.4%, versus 26.3% this time in 2022).

Full-Year Guidance: In addition to the shipment and depletions guidance changes, Boston Beer has narrowed its price increase expectations to +2% to +3% (previously +1% to +3%), and its full-year gross margin to 42% to 43% (previously 41% to 43%).

The narrowing of Boston Beer’s guidance was due to “our results year-to-date and our expectations for the fourth quarter,” Burwick said in the release.