PORTLAND, OR – Craft Brew Alliance, Inc. (“CBA”) (Nasdaq: BREW), an independent craft brewing company, reported net sales of $82.8 million and net income of $1.3 million for the six months ended June 30, 2012, as compared with net sales of $73.8 million and net income of $8.2 million a year ago, which included an after-tax gain of $6.5 million from the sale of our minority interest in Fulton Street Brewery, LLC (“FSB”). Earnings per share on a fully diluted basis for the year-to-date period were $0.07 as compared with $0.43 for the same period last year, which included $0.34 earnings per share from the FSB sale.
Significant year-to-date highlights include:
- Net sales increased $9.0 million, or 12%, to $82.8 million versus last year
- Total beer shipments increased 6%, while depletions grew 5% for the period
- Gross profit percentage of 30.3% exceeds prior full year guidance
- Cash provided by operations increased to $9.1 million for the period compared to $3.6 million last year
- Capital expenditures were $4.6 million as we continue to make strategic investments in systems and infrastructure
- Revised full year guidance calls for depletion growth of 8% to 10% and revenue growth of 13% to 15% with no change to previously issued guidance of $0.20 to $0.25 fully diluted earnings per share (“EPS”)
“While we would have preferred second quarter depletion growth above 3%, the result was in keeping with our expectations of quarterly volatility as we grow on a geographic and brand basis. We remain confident that our core strategy provides a compelling platform for long term-growth,” said Terry Michaelson, CBA’s CEO. “We have a model that is unique to the craft beer segment and provides unparalleled benefits that include four distinct authentic craft-beer brands, bi-coastal brewing capabilities, an established national sales and marketing footprint with seamless distribution, and pubs to interact intimately with customers. As we continue to grow our brands on a national basis, we expect to experience volatility in our results from quarter-to-quarter. Our year-to-date results demonstrate the ongoing success of our strategy while the standalone quarter, when compared with the second quarter of 2011, demonstrates the volatility. We are confident that we will deliver long-term profit growth for our shareholders by continuing to invest in the underlying strengths of our brands.”
Financial Outlook:
Based on year-to-date and anticipated future performance levels, we are updating components of our 2012 guidance as follows. Full year EPS guidance remains unchanged.
- Depletion growth estimate of 8% to 10%, reflecting both continued strength of our brands and continued growth of the craft category. We had previously guided from high single to low double digit growth.
- Sales growth of approximately 13% to 15%. Previous guidance was 10% to 12%.
- Gross margin rate of flat to a 50 basis point improvement versus last year, reflecting brewery productivity and positive product mix, partially offset by pressure from grain prices and distribution costs. Previous guidance was negative 100 basis points.
- Selling, general and administrative (“SG&A”) expense ranging from $43 million to $45 million, reflecting continued investment in sales and marketing initiatives. Previous guidance was $42 million to $44 million.
- Diluted EPS in the range of $0.20 to $0.25.
- Capital expenditures of approximately $8.5 million to $9.5 million, continuing our investments in capacity and efficiency improvements, and quality initiatives.
Operating Results
Net sales for the six months ended June 30, 2012 were $82.8 million, an increase of $9.0 million, or 12%, from net sales of $73.8 million for the same period of 2011. A combination of factors drove the increase, including increased shipments, a decrease in master distributor fees, price increases for our beers sold to wholesalers and an increase in revenues earned from our pubs.
Net sales for the quarter ended June 30, 2012 were $44.3 million, an increase of $2.8 million, or 7%, from net sales of $41.5 million for the same quarter last year, primarily as a result of a decrease in master distributor fees, price increases for our beers sold to wholesalers and an increase in revenues earned from our pubs. Net income for the quarter ended June 30, 2012 was $0.6 million, or $0.03 per diluted share. This was a decrease of $7.6 million from our net income of $8.2 million, or $0.43 per diluted share, for the same quarter in 2011, primarily as a result of our $6.5 million net-of-tax gain, or $0.34 per diluted share, on the sale of FSB.
Total shipments for the six-month period ended June 30, 2012 grew 6% to 360,400 barrels, an increase of 21,400 barrels, from 339,000 barrels for the same period of 2011, primarily reflecting the increase in shipments to wholesalers and growth in our contract brewing business. Total shipments for the quarter were basically flat from last year primarily as a result of significant programing timing variances, opportunities to align pricing in certain markets, and increasing competition for on-premise sales.
Cost of sales as a percentage of net sales declined 48 basis points for the six months ended June 30, 2012, reflecting increased distribution and grain costs in the first six months of 2012 as compared with the same period of 2011. These unfavorable factors were partially offset by decreased distributor fees and increased selling prices for our beers. Overall, gross margin rate is trending ahead of our full year guidance of negative 100 basis points versus last year.
SG&A expense of $22.6 million for the six-month period ended June 30, 2012 increased $2.6 million, or 13%, from $20.0 million for the same period of 2011. This increase reflects our investment in selling and marketing initiatives, higher benefits costs and the absence in 2012 of a reimbursement for legal fees received in 2011.
“Our year-to-date 6% shipment growth and 12% revenue growth, in contrast to the quarterly results, demonstrates that while the business remains healthy, it will also exhibit some quarterly volatility as we grow,” said Mark Moreland, CBA’s CFO. “Underscoring our confidence in the business’ performance, we are reaffirming our full year EPS guidance of $0.20 to $0.25 and increasing revenue guidance to a growth rate of 13% to 15%. We continue to invest in our brands and sales capabilities and expect those investments to generate sustained long-term revenue and profit growth.”
Cash Flow and Liquidity:
Our cash and cash equivalent balance was $5.4 million, an increase of $4.6 million for the year-to-date. Cash provided by operating activities was $9.1 million for the six months ended June 30, 2012 compared with $3.6 million for the same period of 2011. The $5.5 million increase was primarily due to improved working capital. Capital expenditures for the six-month periods ended June 30, 2012 and 2011 were $4.6 million and $3.7 million, respectively. Capital expenditures in both periods included projects designed to increase our capacity and improve efficiency.
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 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, 2011. 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 with 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 was joined by Kona Brewing Company in 2010. Craft Brew Alliance launched Omission beer in 2012.
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.
For more information, visit: www.craftbrew.com.