Craft Brew Alliance Announces 2018 Results with Record Beer Performance Led by 11% Depletion Growth for Kona in Q4
March 6, 2019
Accelerated depletion growth for Kona, highest-ever beer revenue and
beer gross margin, and strategic portfolio transformation contribute to
another record year for CBA
CBA delivers on tightened 2018 guidance and prepares to increase Kona
momentum and drive further topline growth in 2019, supported by new pH
Experiment unit
PORTLAND, Ore.–(BUSINESS WIRE)–Craft
Brew Alliance, Inc. (“CBA”) (Nasdaq: BREW), a leading craft brewing
company, reported strong financial results for the fourth quarter and
year ended December 31, 2018. We continued to accelerate Kona’s momentum
in 2018, which grew depletions by 11% in the fourth quarter to drive an
8% increase – representing approximately 30,000 incremental barrels – in
full-year depletions. We also delivered our highest-ever total company
gross margin, which expanded 160 basis points to 33.1%, and beer gross
margin, which reached a record high of 36.8% for the year. These
achievements reflect our continued improvements in brewery performance
and footprint optimization, as well as strong pricing discipline, which
drove another record with our highest company beer revenue per barrel.
2018 results were in line with tightened guidance, including shipment
volumes, gross margin, and SG&A expense. Capital expenditures were below
our guidance range due to a shift in costs related to construction of
the new Kona brewery to 2019.
In 2019, we will look to increase topline growth, continuing to
accelerate Kona’s momentum and unlock the full potential of our newly
acquired brands, while building on our strong foundation. We will also
leverage CBA’s new pH Experiment business unit to anticipate market
trends and quickly bring innovative new products to market, as
announced March 5, 2019.
Accelerating Kona’s Growth by 11% in Q4
As one of the largest craft beer brands in the U.S. and a leading
American craft beer export, Kona continued to accelerate in 2018,
delivering 11% depletions growth in the fourth quarter that drove an 8%
increase for the full year. Kona’s 2018 volume growth alone is more than
the total volume of 80% of today’s U.S. craft brewers, and combined with
2016 and 2017 growth, the brand has added over 125,000 incremental
barrels in the last three years alone. Kona’s increasing popularity as a
global lifestyle brand is led by its award-winning flagship, Big Wave
Golden Ale, which posted a 30% increase in fourth quarter depletions,
driving a 26% increase in depletions for the full year. Kona also
expanded its national portfolio of island-inspired craft beers during
the year with the launch of Kanaha Blonde Ale, a refreshing 99-calorie
ale that was the seventh largest new craft brand as measured by Nielsen.
Leveraging A-B Partnership to Drive
Distribution, Cost Savings and Kona’s Global Expansion
We continued to drive value through our enhanced agreements with
Anheuser-Busch (“A-B”) in 2018. As part of our brewing agreement,
through which we leverage A-B’s Fort Collins, Colorado brewery to brew
up to 300,000 barrels a year at a savings of $10 per barrel, we came
closer to fully unlocking the estimated $3 million in annual cost
savings in 2018. Additionally, we expanded on our contract brewing
arrangement, producing Goose Island and Virtue Cider in our Portsmouth
and Portland breweries. As part of our enhanced commercial agreement,
Kona was included in key wholesaler incentive programs and planning
calendars. In 2019, we will look to build on this success and increase
participation with additional wholesalers throughout the U.S. Through
our international agreement, we expanded on a successful test pilot with
Kona in Brazil, launching a significant commercial investment and
cross-brewing arrangement to support Kona’s growth in the world’s third
largest beer market.
Achieving Record Financial and Operational
Results
2018 was a record year for CBA both financially and operationally, with
beer revenue, total company gross margin, and beer gross margins each
reaching historic levels. Through strong revenue and cost management, we
delivered a 2.6% increase in total revenue per barrel, which led to a
5.6% improvement in beer gross profit and record full-year beer gross
margin of 36.8%. Our strong 150-basis point expansion in beer gross
margin drove a 160-basis point increase in total company gross margin,
which reached an all-time high of 33.1% for the year. These
achievements, which reflect our progress in driving cost reductions,
improving supply chain execution, and stabilizing our inventory levels,
are even more impressive when compared to 2017. As a reminder, our 2017
financial results included $4.4 million in Pabst brewing shortfall and
contract termination fees, which benefitted various sections of our
income statement.
Building our Portfolio for Tomorrow
2018 was another transformational year for CBA, where we expanded our
brand family, our footprint, and our understanding of the changing
consumer landscape. On October 10, 2018, we announced the acquisition of
our three partner brands, Appalachian Mountain Brewery, Cisco Brewers,
and Wynwood Brewing Co., fundamentally reshaping our Kona Plus portfolio
and adding new home markets and innovation breweries to our footprint.
We also initiated two complementary research projects with the Yale
Center for Consumer Insights and global consultancy Prophet to broaden
our view of the consumer market. Additionally, we launched our own
test-and-learn beverage initiative called the pH Experiment. Earlier
this week, we cemented our commitment to being at the forefront of
anticipating and meeting consumer needs with the launch of the pH
Experiment as a separate growth unit. Collectively, these efforts and
changes make us stronger, nimbler, and better equipped to capitalize on
potential growth opportunities.
“2018 was a banner year for CBA across many dimensions,” said Andy
Thomas, CEO of CBA. “Strategically, we accelerated Kona’s growth and
continued our portfolio transformation by taking the next step and
acquiring our craft partners. Operationally, we delivered record
financial performance, despite absorbing partner acquisition costs and
lapping $4.4 million in 2017 Pabst contract brewing fees. We are now in
our strongest position ever to explore new frontiers of growth.”
Select results for the full year 2018:
-
As planned, our 2018 shipments and depletions trends continued to
converge throughout the year, and total shipments were in line with
updated guidance, reflecting continued progress in harmonizing our
supply chain and supporting optimum wholesaler inventory levels.-
Kona shipments increased by 7.5% for the full year, and depletions
grew by 8%. -
Total shipments were relatively flat, and depletions decreased by
2%, compared to 2017.
-
Kona shipments increased by 7.5% for the full year, and depletions
-
Beer net sales were $182.2 million, a 1.3% increase over 2017,
primarily due to pricing.-
Total net sales were $206.2 million, a 1% decrease from last year,
which primarily represents $3.4 million in contract brewing
shortfall fees received from Pabst in 2017 that did not recur in
2018. Our total net sales decrease also reflects lower 2018 pub
sales, mainly attributable to the absence of our Woodinville pub,
which closed at the end of 2017 as part of our brewery footprint
optimization.
-
Total net sales were $206.2 million, a 1% decrease from last year,
-
Beer gross margin expanded by 150 basis points to a record 36.8%, from
35.3% in 2017.-
Total company gross margin expanded 160 basis points to 33.1%,
compared to 31.5% in 2017, which was in line with tightened
guidance. -
Our pub gross margin decreased 100 basis points to 5.7%, primarily
reflecting the gross profit impact of the closure of our
Woodinville brewpub at the end of 2017 as noted above.
-
Total company gross margin expanded 160 basis points to 33.1%,
-
Selling, general and administrative expense (“SG&A”) increased by $2.1
million to $62.6 million, or 30.3% of net sales, in line with updated
guidance. The increase reflects additional investments to expand
consumer and trade marketing programming and drive topline growth, as
well as professional fees related to the partner acquisitions and
consumer research initiatives. -
EPS was $0.21, compared to $0.49 last year, primarily reflecting the
effect of federal tax legislation on 2017 results.-
Due to the change in federal tax law, we adjusted our deferred tax
liabilities in 2017, resulting in a favorable non-cash income tax
adjustment of $6.9 million, or $0.35 per share. - As a result, CBA’s adjusted EPS for 2017 was $0.14.
-
Due to the change in federal tax law, we adjusted our deferred tax
-
Capital expenditures were approximately $12.8 million, compared to
$18.3 million in 2017. The decrease from planned expenditures was due
to a shift in timing of certain progress payments related to
construction of the new Kona brewery that will now be paid in 2019.
Select results for the fourth quarter 2018:
-
Kona depletions increased by 11% in the fourth quarter, and total CBA
depletions decreased 1% from the same period a year ago. -
Kona shipments increased by 8% in the fourth quarter, and total CBA
shipments decreased 1% compared to the same period last year. -
Beer net sales were $38.2 million, a decrease of $1.2 million from
beer net sales in the fourth quarter of 2017, primarily due to the
$1.7 million Pabst contract brewing shortfall fee received in the
fourth quarter of 2017 that did not recur in the fourth quarter of
2018.-
Total company net sales were approximately $44.0 million, a 4%
decrease compared to the fourth quarter in 2017.
-
Total company net sales were approximately $44.0 million, a 4%
-
Beer gross margin for the fourth quarter was 36.7%, a 90-basis point
decline from 37.6% beer gross margin in the fourth quarter of 2017.
Our fourth quarter 2017 beer gross margin included a 260-basis point
benefit related to the Pabst contract brewing shortfall fees.-
Total company gross margin increased by 40 basis points to 32.8%
over the fourth quarter last year.
-
Total company gross margin increased by 40 basis points to 32.8%
-
SG&A increased by $2.1 million to $15.3 million, or 34.7% of net
sales. The fourth quarter increase reflects investments behind our
brands, as well as a $1.0 million credit for Pabst termination fees
received in the fourth quarter of 2017 that did not recur in the
fourth quarter of 2018. -
We reported a loss per share for the quarter of ($0.03), compared to
$0.40 earnings per share in the fourth quarter of 2017, reflecting the
impact of federal tax legislation in 2017.-
Due to the change in federal tax law, we adjusted our deferred tax
liabilities in the fourth quarter of 2017, resulting in a
favorable non-cash income tax adjustment of $6.9 million, or $0.35
per share. -
As a result, CBA’s adjusted EPS for the fourth quarter of 2017 was
$0.05.
-
Due to the change in federal tax law, we adjusted our deferred tax
Anticipated financial highlights for 2019:
-
Depletions and shipments each ranging between an increase of 5% to an
increase of 8%, reflecting a significant increase in commercial
investments and insights from our consumer research. -
Average price increases of 1% to 2%, reflecting improved revenue
management capabilities. -
Gross margin rate of 34.5% to 36.5%, reflecting increases in net
revenue per barrel, continued improvements in brewery operations,
lower fixed overhead, and ongoing efforts to stabilize our pub
operations. -
SG&A ranging from $70 million to $74 million, primarily reflecting
reinvestment of cost savings into our sales and marketing
infrastructure, as well as expanded consumer and trade programming. -
Capital expenditures of approximately $15 million to $19 million,
including expenses related our new Kona brewery going online in 2019. - Effective tax rate of 27%.
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 depletions and shipments, price increases, and
gross margin rate improvement, the level and effect of SG&A expense and
business development, anticipated capital spending, effective tax rate,
and the benefits or improvements to be realized from strategic
initiatives and capital projects, are forward-looking statements. It is
important to note that the Company’s actual results may 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, 2018. 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 an independent craft brewing company that brews, brands, and
brings to market world-class American craft beers.
Our distinctive portfolio combines the power of Kona Brewing Company, a
dynamic, fast-growing national craft beer brand, with strong regional
breweries and innovative lifestyle brands Appalachian Mountain Brewery,
Cisco Brewers, Omission Brewing Co., Redhook Brewery, Square Mile Cider
Co., Widmer Brothers Brewing, and Wynwood Brewing Co. CBA nurtures the
growth and development of its brands in today’s increasingly competitive
beer market through our state-of-the-art brewing and distribution
capability, integrated sales and marketing infrastructure, and strong
focus on partnerships, local community and sustainability.
Formed in 2008, CBA is headquartered in Portland, Oregon and operates
breweries and brewpubs across the U.S. CBA beers are available in all 50
U.S. states and 30 different countries around the world. For more
information about CBA and our brands, please visit www.craftbrew.com.
| Craft Brew Alliance, Inc. | ||||||||||||||||
| Condensed Consolidated Statements of Operations | ||||||||||||||||
| (Dollars and shares in thousands, except per share amounts) | ||||||||||||||||
| (Unaudited) | ||||||||||||||||
|
Three Months Ended |
Twelve Months Ended |
|||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Sales | $ | 46,292 | $ | 48,537 | $ | 217,269 | $ | 219,547 | ||||||||
| Less excise taxes | 2,305 | 2,571 | 11,083 | 12,091 | ||||||||||||
| Net sales | 43,987 | 45,966 | 206,186 | 207,456 | ||||||||||||
| Cost of sales | 29,561 | 31,090 | 137,863 | 142,198 | ||||||||||||
| Gross profit | 14,426 | 14,876 | 68,323 | 65,258 | ||||||||||||
| As percentage of net sales | 32.8% | 32.4% | 33.1% | 31.5% | ||||||||||||
| Selling, general and administrative expenses | 15,255 | 13,106 | 62,572 | 60,463 | ||||||||||||
| Operating income (loss) | (829) | 1,770 | 5,751 | 4,795 | ||||||||||||
| Interest expense | (266) | (182) | (614) | (715) | ||||||||||||
| Other income (expense), net | 250 | 7 | 292 | (39) | ||||||||||||
| Income (loss) before income taxes | (845) | 1,595 | 5,429 | 4,041 | ||||||||||||
| Income tax provision (benefit) | (313) | (6,240) | 1,287 | (5,482) | ||||||||||||
| Net income (loss) | $ | (532) | $ | 7,835 | $ | 4,142 | $ | 9,523 | ||||||||
| Net income (loss) per share: | ||||||||||||||||
| Basic | $ | (0.03) | $ | 0.41 | $ | 0.21 | $ | 0.49 | ||||||||
| Diluted | $ | (0.03) | $ | 0.40 | $ | 0.21 | $ | 0.49 | ||||||||
| Weighted average shares outstanding: | ||||||||||||||||
| Basic | 19,382 | 19,302 | 19,349 | 19,284 | ||||||||||||
| Diluted | 19,382 | 19,507 | 19,557 | 19,447 | ||||||||||||
| Total shipments (in barrels): | ||||||||||||||||
| Core Brands | 153,300 | 158,000 | 719,400 | 730,600 | ||||||||||||
| Contract Brewing | 6,900 | 4,000 | 28,200 | 17,700 | ||||||||||||
| Total shipments | 160,200 | 162,000 | 747,600 | 748,300 | ||||||||||||
| Change in depletions (1) | -1% | -3% | -2% | -1% | ||||||||||||
|
(1) Change in depletions reflects the period-over-period change in barrel volume sales of beer by wholesalers to retailers. |
| Craft Brew Alliance, Inc. | ||||||||
| Condensed Consolidated Balance Sheets | ||||||||
| (In thousands) | ||||||||
| (Unaudited) | ||||||||
| December 31, | ||||||||
| 2018 | 2017 | |||||||
| Current assets: | ||||||||
| Cash, cash equivalents and restricted cash | $ | 1,200 | $ | 579 | ||||
| Accounts receivable, net | 29,998 | 27,784 | ||||||
| Inventory, net | 17,216 | 13,844 | ||||||
| Assets held for sale | – | 22,946 | ||||||
| Other current assets | 3,121 | 4,335 | ||||||
| Total current assets | 51,535 | 69,488 | ||||||
| Property, equipment and leasehold improvements, net | 113,189 | 106,283 | ||||||
| Goodwill | 21,986 | 12,917 | ||||||
| Trademarks | 44,289 | 14,429 | ||||||
| Intangible, equity method investment and other assets, net | 5,048 | 6,520 | ||||||
| Total assets | $ | 236,047 | $ | 209,637 | ||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 17,552 | $ | 14,338 | ||||
| Accrued salaries, wages and payroll taxes | 5,635 | 5,877 | ||||||
| Refundable deposits | 4,123 | 4,816 | ||||||
| Deferred revenue | 6,015 | 3,385 | ||||||
| Other accrued expenses | 3,618 | 2,368 | ||||||
| Current portion of long-term debt and capital lease obligations | 919 | 699 | ||||||
| Total current liabilities | 37,862 | 31,483 | ||||||
| Long-term debt and capital lease obligations, net of current portion | 46,573 | 32,599 | ||||||
| Other long-term liabilities | 15,177 | 14,764 | ||||||
| Total common shareholders’ equity | 136,435 | 130,791 | ||||||
| Total liabilities and common shareholders’ equity | $ | 236,047 | $ | 209,637 | ||||
| Craft Brew Alliance, Inc. | ||||||||||
| Condensed Consolidated Statements of Cash Flows | ||||||||||
| (In thousands) | ||||||||||
| (Unaudited) | ||||||||||
|
Twelve Months Ended |
||||||||||
| 2018 | 2017 | |||||||||
| Cash Flows From operating activities: | ||||||||||
| Net income | $ | 4,142 | $ | 9,523 | ||||||
|
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||||
| Depreciation and amortization | 10,612 | 10,457 | ||||||||
|
(Gain) loss on sale or disposal of Property, equipment and leasehold improvements |
(567 | ) | 428 | |||||||
| Deferred income taxes | (506 | ) | (5,400 | ) | ||||||
|
Other, including stock-based compensation and impairment of assets held for sale |
1,987 | 2,348 | ||||||||
| Changes in operating assets and liabilities: | ||||||||||
| Accounts receivable, net | (2,770 | ) | (3,776 | ) | ||||||
| Inventories | (2,728 | ) | 5,500 | |||||||
| Other current assets | 466 | (1,840 | ) | |||||||
| Accounts payable, deferred revenue and other accrued expenses | 3,488 | 277 | ||||||||
| Accrued salaries, wages and payroll taxes | (266 | ) | 910 | |||||||
| Refundable deposits | (617 | ) | (1,649 | ) | ||||||
| Net cash provided by operating activities | 13,241 | 16,778 | ||||||||
| Cash Flows from investing activities: | ||||||||||
| Expenditures for Property, equipment and leasehold improvements | (12,769 | ) | (18,342 | ) | ||||||
| Proceeds from sale of Property, equipment and leasehold improvements | 23,017 | 95 | ||||||||
|
Restricted cash from sale of Property, equipment and leasehold improvements |
515 | – | ||||||||
| Business combinations and asset acquisitions | (37,887 | ) | – | |||||||
| Equity method investment | – | (2,101 | ) | |||||||
| Net cash used in investing activities | (27,124 | ) | (20,348 | ) | ||||||
| Cash Flows from financing activities: | ||||||||||
| Principal payments on debt and capital lease obligations | (724 | ) | (709 | ) | ||||||
| Net borrowings under revolving line of credit | 14,893 | 4,224 | ||||||||
| Proceeds from issuances of common stock | 427 | 219 | ||||||||
| Tax payments related to stock-based awards | (92 | ) | (27 | ) | ||||||
| Net cash provided by financing activities | 14,504 | 3,707 | ||||||||
| Increase in Cash, cash equivalents and restricted cash | 621 | 137 | ||||||||
| Cash, cash equivalents and restricted cash, beginning of period | 579 | 442 | ||||||||
| Cash, cash equivalents and restricted cash, end of period | $ | 1,200 | $ | 579 | ||||||
|
Supplemental Disclosures Regarding |
||||||||||||||||||||
| Craft Brew Alliance, Inc. | ||||||||||||||||||||
| Reconciliation of Adjusted EBITDA to Net Income (loss) | ||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||
|
Three Months Ended |
Twelve Months Ended |
|||||||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||||||
| Net income (loss) | $ | (532 | ) | $ | 7,835 | $ | 4,142 | $ | 9,523 | |||||||||||
| Interest expense | 266 | 182 | 614 | 715 | ||||||||||||||||
| Income tax provision (benefit) | (313 | ) | (6,240 | ) | 1,287 | (5,482 | ) | |||||||||||||
| Depreciation expense | 2,504 | 2,488 | 10,218 | 10,197 | ||||||||||||||||
| Amortization expense | 123 | 65 | 394 | 260 | ||||||||||||||||
| Stock-based compensation | 426 | 371 | 1,484 | 1,316 | ||||||||||||||||
| Loss on impairment of assets | – | 493 | – | 493 | ||||||||||||||||
| (Gain) loss on disposal of assets | (29 | ) | 264 | (578 | ) | 428 | ||||||||||||||
| Adjusted EBITDA | $ | 2,445 | $ | 5,458 | $ | 17,561 | $ | 17,450 | ||||||||||||
CBA has presented Adjusted Earnings before Interest, Taxes, Depreciation
and Amortization (“Adjusted EBITDA”) in these tables to provide
investors with additional information to evaluate our operating
performance on an ongoing basis using criteria that are used by
management. We define Adjusted EBITDA as net income (loss) before
interest, income taxes, depreciation and amortization, stock-based
compensation and other non-cash charges, including loss on impairment of
assets and net gain or loss on disposal of property, equipment and
leasehold improvements. We use Adjusted EBITDA, among other measures, to
evaluate operating performance, to plan and forecast future periods’
operating performance, and as an incentive compensation target for
certain management personnel.
As Adjusted EBITDA is not a measure of operating performance or
liquidity calculated in accordance with generally accepted accounting
principles in the United States of America (“GAAP”), this measure should
not be considered in isolation of, or as a substitute for, net income
(loss) as an indicator of operating performance, or net cash provided by
(used in) operating activities as an indicator of liquidity. The use of
Adjusted EBITDA instead of net income (loss) has limitations as an
analytical tool, including the inability to determine profitability; the
exclusion of interest expense and associated cash requirements, given
the level of our indebtedness; and the exclusion of depreciation and
amortization which represent significant and unavoidable operating
costs, given the capital expenditures needed to maintain our operations.
We compensate for these limitations by relying on GAAP results. Our
computation of Adjusted EBITDA may differ from similarly titled measures
used by other companies. As Adjusted EBITDA excludes certain financial
information compared with net income (loss) and net cash provided by
(used in) operating activities, the most directly comparable GAAP
financial measures, users of this financial information should consider
the types of events and transactions which are excluded. The table above
shows a reconciliation of Adjusted EBITDA to net income (loss).
Contacts
Media and Investor Contact:
Jenny
McLean
Director of Corporate Communications
Craft Brew
Alliance, Inc.
(503) 331-7248
jenny.mclean@craftbrew.com