Craft Brew Alliance Reports 2014 Earnings Results

CBA Logo - 5in

Portland, Ore. – Craft Brew Alliance, Inc. (“CBA”) (Nasdaq: BREW), a leading craft brewing company, today announced final financial results for the fourth quarter and full year ended December 31, 2014, in line with preliminary results released February 5, 2015. The Company also reconfirmed previously reported guidance for 2015, with a continued focus on driving sustained top line growth and strengthening its bottom line.

Highlights for the full year 2014:

  • Net sales increased 12% over 2013 and exceeded $200 million for the first time in our history, reflecting continued momentum across our core brand families.
  • Shipments grew 10%, compared to 4% in 2013, reflecting increasing consumer demand in key markets and ongoing efforts to maintain optimum wholesaler inventory levels.
  • Full year Kona shipments grew 17%, Widmer Brothers shipments grew 6%, and Redhook shipments grew 3% over 2013.
  • Depletions grew 7%, compared to 11% in 2013, despite an approximate 25% reduction in SKUs.
  • Gross margin expanded by 130 basis points to 29.4% in 2014, compared to 28.1% in 2013, which highlights our continued achievements in driving operational efficiencies and balancing production capabilities across our expanded brewing footprint in the U.S. as we steer towards our long-term gross margin target of 35% in 2017.
  • Contract brewing and beer related sales increased by 33% over the prior year.
  • Selling, general and administrative expense (“SG&A”) grew by $6.5 million to $53.0 million, due to Kona television advertising, as well as higher-than-average costs related to employee benefits. At 26% of net sales, 2014 SG&A remained level with SG&A percentage of net sales in 2013.
  • Diluted earnings per share (“EPS”) increased to $0.16 compared to 2013 EPS of $0.10.
  • Capital expenditures were approximately $15.8 million, compared to $9.9 million in 2013, and primarily represent investments related to capacity, efficiency, and quality improvements, as well as a major investment in cooperage as part of our long-term gross margin focus.

Highlights for the fourth quarter 2014

  • Net sales and shipments grew 7% and 6%, respectively, over the fourth quarter in 2013, attributable to strong sales execution, as well as continued support from our national partners, wholesalers and retailers.
  • For the quarter, Kona shipments grew 9%; Widmer Brothers shipments grew 6%, with Hefe increasing 7% – its first increase in 16 quarters; and Redhook shipments grew 1%.
  • Depletions grew 2% in the fourth quarter, despite facing a tough comparable over the fourth quarter in 2013 and the planned rationalization of winter seasonals across the portfolio.
  • Fourth quarter gross margin increased by 280 basis points to 28.8%, compared to an atypical 100 basis point decrease for the fourth quarter last year. The fourth quarter 2014 gross margin expansion reflects ongoing focus on gross margin improvement and the benefit from the first full quarter of brewing in Memphis.
  • Fourth quarter SG&A expense was $12.2 million, an increase of 20% over the same period in 2013, primarily reflecting planned increases in in-market investments and unforeseen expenses related to previously referenced employee benefits costs.
  • EPS was $0.04 for both comparable quarters.
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“I am extremely proud of the strong results we achieved in 2014, which are testament to the tremendous resolve and focus demonstrated by the CBA team,” said Andy Thomas, chief executive officer, CBA. “At the beginning of the year, we committed to driving continued and sustainable topline growth while reducing our SKUs by 25 percent, to expanding gross margin, and to bringing Memphis online by summer. Given that we accomplished each of these major priorities in an increasingly competitive market and during the first full year with the new executive leadership team in place, we are truly optimistic about the year ahead and our ability to achieve continued growth and long-term success.”

Anticipated financial highlights for 2015:

  • Owned beer shipment growth between 6% and 8%. [Note: The Company is adjusting its guidance in response to analyst feedback and to align with industry practices. It will not provide annual depletion guidance in financial press releases but will share actuals on analyst calls and in 10-K and 10-Q filings.]
  • Average price increase of 1% to 2%.
  • A growth of 10% to a decline of 10% in contract brewing revenue as we continue to manage the most efficient use of our owned capacity.
  • Gross margin rate of 30.5% to 31.5%. Through ongoing efforts to optimize our brewing locations and improve our capacity utilization and efficiency, we continue to expect gross margin expansion to 35% in 2017.
  • SG&A expense ranging from $58 million to $62 million, primarily reflecting reinvestment into our sales and marketing infrastructure, as well as expanded consumer and trade programming.
  • Capital expenditures of approximately $17 million to $21 million, as we continue to make investments in quality, safety, sustainability, capacity and efficiency.

Components of anticipated 2015 results and developments include:

Strengthening the Top Line

  • We continue to believe that our portfolio of well-loved brands, each with distinctive and authentic stories that are rooted in real people and real places, will drive sustained topline growth and differentiate us in today’s competitive market.
  • In 2015, we will build on our brands’ success and strength in their home markets, and look for opportunities to continue increasing value through wholesaler and retailer management.
  • Our high-growth brand Kona Brewing celebrates its 21st anniversary this year, and we are excited to be completing our expansion into all 50 U.S. states, as well as increasing our investment in our home market of Hawaii through the Makana Series, an exclusive small-batch series inspired by the four elements, earth, fire, water and wind. In Hawaiian, “makana” means “to give,” and Kona will contribute sales from each of the four Makana Series beers to four different Hawaiian non-profits.
  • Widmer Brothers culminates a year-long celebration of its 30th anniversary, one of the most ambitious craft brewing initiatives in the industry, which includes the release of 30 Beers for 30 Years and a collaboration series with six Oregon craft breweries. Additionally, we will be expanding on the success of The Original American Hefeweizen, which remains Oregon’s #1 craft beer, with the launch of Hefe Shandy nationwide.
  • Redhook will continue to build on its partnership strategy, most recently highlighted by the launch of the Redhook ESB Beer Battered Fish Sandwich at Carl’s Jr. and Hardees nationwide. The partnership includes a $3.5 million Carl’s Jr./Hardees-led promotional investment around Redhook ESB, which will debut a retro campaign in celebration of its 30th anniversary in 2015.
  • Following Omission’s milestone year in 2014, becoming the #1 beer in the gluten free beer category within just three years, we look forward to putting an increased focus and investment behind targeting the active, healthy lifestyle consumer in 2015. Priority initiatives include promoting the innovative category leader at major events such as Ironman 70.3, which will host over 30 races in the United States this year.
  • We will continue our commitment to innovation in 2015 through increased investment in KCCO, our beer brand in partnership with theCHIVE, as well as Square Mile Cider Company, which became the #2 selling cider in the Northwest in 2014.
  • We look forward to continued international expansion across all brand families, with CBA now in 15 countries around the world.

Continued Gross Margin Improvement

  • We will look to build on efforts initiated in 2014 to improve the efficiency of our breweries and achieve more balanced production.
  • Key 2015 priorities include driving further delivery procurement savings through leveraging our scale, unlocking additional procurement savings, and reducing losses in our brewing operations, while maintaining our commitment to setting the standards in quality, safety and sustainability.
  • Continued efforts to optimize our supply chain operation will leverage freight efficiencies, warehouse optimization, and planning improvements.

Actualizing the Future

  • 2015 initiatives will include continued development of complementary partnerships, planting seeds in key geographies and leveraging our infrastructure.
  • Additionally, we will maintain our focus on attracting and nurturing high performers who will help lead CBA through the next phase of our evolution.

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, level of contract brewing revenue and gross margin rate improvement, the level or effect of SG&A expense and business development, the amount of capital spending, 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 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, 2014. 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.

The company is 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 more than 15 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.