Craft Brew Alliance Reports Second Quarter 2014 Earnings

Portland, Ore. (August 6, 2014) – Craft Brew Alliance, Inc. (“CBA”) (Nasdaq: BREW), an independent craft brewing company, today reported its financial results for the quarter ended June 30, 2014. The results for the second quarter are in line with management’s expectations, and the Company confirms previously reported 2014 guidance. 

Summary highlights of this release include

  • CBA’s distinctive portfolio strategy continued to drive depletion growth in the second quarter, resulting in a 9% increase in depletions for the first half of 2014.
  • Increased demand for CBA’s well-loved brands, including Kona Brewing, Redhook Brewery and Omission, and the introduction of new favorite beers, such as Redhook KCCO Black Lager, led to a 17% increase in net sales and a 15% increase in total beer shipments in the first six months.
  • Our gross margin rate increased by 230 basis points to 32.8% in the second quarter, which contributed to a 240 basis point increase and 30.3% gross margin rate year-to-date. We attribute the increase to significant advancements in our brewery efficiency and utilization and supply chain.

“We continue to achieve steady and consistent growth through leveraging the power of CBA’s advantaged strategy and our leadership in brewing, branding and bringing to market world-class American craft beers,” said Andy Thomas, Chief Executive Officer of CBA. “As we communicated in our first quarter earnings call, we set out to achieve solid performance and continued improvement in the second quarter, and our results underscore that we delivered on that promise.”

Second quarter 2014 financial highlights

  • Depletion volume grew 9% from the second quarter in 2013.
  • Net sales and total beer shipments grew 16% and 13%, respectively, for the quarter. We attribute these increases to the continued organic growth of our complementary portfolio of high-quality, award-winning beers such as Widmer Brothers Upheaval IPA, Redhook KCCO Black Lager, Kona Big Wave Golden Ale and Omission Beer.
  • Gross margin rate increased 230 basis points to 32.8% over the second quarter in 2013.
  • Capacity utilization increased to 87% from 77% in the comparable three-month period in 2013.
  • As a percentage of net sales, our selling, general and administrative expense (“SG&A”) remained steady at 26.8% in the second quarter, compared to 26.4% for the second quarter of last year.
  • Diluted earnings per share for the second quarter improved to $0.10, compared to $0.06 for the same period last year.

Year to date 2014 financial highlights

  • Depletion volume grew 9% over the first six months of 2013.
  • Net sales and total beer shipments grew 17% and 15%, respectively, in the six-month period ended June 30, 2014 compared to the first six months of 2013.
  • Gross margin rate increased 240 basis points to 30.3% over the comparable period in 2013.
  • Capacity utilization increased to 78% in the first half of 2014, compared to 68% in the first half of 2013.
  • As a percentage of net sales, our selling, general and administrative expense (“SG&A”) decreased to 27.1% in the six-month period ended June 30, 2014 from 28.9% in the same period of 2013, primarily due to the increase in our net sales.
  • Diluted earnings per share for the first six months of 2014 improved to $0.09, compared to a loss per share of $(0.04) for the same period last year.

“The consistency and progress we achieved in the first half of the year reflects the focus and efforts of many people across CBA,” said Thomas. “From our breweries and production teams driving significant operating efficiencies, to our national sales team working with wholesaler partners to maintain momentum around our core brands, to our supply chain management team continuing to tackle our challenges and optimize in key areas, I am proud of the talent and commitment exhibited on a daily basis at CBA.”

Components of anticipated 2014 financial results and developments

Based on year-to-date financial results in line with expectations, we are confirming previously issued guidance regarding our anticipated full year 2014 results, as follows:

  • Depletion growth estimate of 7% to 11%, reflecting the continued strength of the Kona, Redhook and Omission brands and ongoing stabilization of the Widmer Brothers brand.
  • Average price increases of approximately 1% to 2%.
  • Growth in contract brewing revenue of 25% to 50% as a result of new partnerships.
  • Gross margin rate of 28.5% to 30.5%. As we continue to optimize our brewing locations and improve our capacity utilization and efficiency, we expect our gross margin rate to expand 500-700 basis points over the next five years.
  • SG&A expense of $52 million to $54 million, primarily reflecting reinvestment into our sales and marketing infrastructure.
  • Capital expenditures of approximately $15 million to $20 million, continuing our investments in capacity and efficiency improvements, quality initiatives and restaurant and retail.

“We are pleased the business continues to generate strong sales and earnings trends consistent with our expectations and our full year guidance,” said Chief Financial Officer Mark Moreland. “While we still have work to do on our brewery and supply chain operations, we have made significant progress from last year’s first half, which has positively impacted our performance. Looking forward, we continue to expect quarterly volatility in our results and will continue to focus on and provide guidance for our full-year performance.”

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 sales growth, the level or effect of SG&A expense, 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, 2013. 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, publicly traded craft brewing company that was formed through the merger of leading Pacific Northwest craft brewers – Widmer Brothers Brewing and Redhook Ale Brewery – in 2008. With an eye toward preserving and growing one-of-a-kind craft beers and brands, CBA welcomed Kona Brewing Company in 2010, and then launched Omission beer in 2012 and Square Mile Cider Company in 2013.

When Kurt & Rob Widmer founded Widmer Brothers Brewing in 1984, they didn’t confine their brewing exploration to strict style guidelines. To this day, Widmer Brothers continues to create craft beers with a unique and unconventional twist on traditional styles that are award winning and please a wide range of craft beer lovers. Redhook began in a Seattle transmission shop in 1981 and those colorful roots are reflected in the brand’s personality to this day. The eminently drinkable beers consistently win awards and please crowds across the United States. Kona Brewing was founded in 1994 by the father and son team of Cameron Healy and Spoon Khalsa, who dreamed of crafting fresh, local-island brews with spirit, passion and quality. As the largest craft brewery in Hawaii, Kona personifies the laid-back, passionate lifestyle and environmental respect of the Hawaiian people and culture. Omission beer is the first craft beer brand in the United States focused exclusively on brewing great tasting craft beers with traditional beer ingredients, including malted barley, that are specially crafted to remove gluten. Square Mile Cider was inspired by the fortitude and perseverance of the original pioneers and reinvigorates an enduringly classic beverage.

For more information, visit: www.craftbrew.com.