Boston Beer Company’s shipments and depletions declined -6.2% and -6%, respectively, in 2023, the company reported today in its full-year and fourth-quarter earnings report.
However, those trends improved slightly on a comparable basis (fiscal year 2022 included an extra week), with shipments and depletions -5.2% and -5%, respectively, on a 52-week comparable basis.
Boston Beer shipped around 7.7 million barrels of product in 2023 across its portfolio of brands, including Twisted Tea, Truly Hard Seltzer, Samuel Adams, Dogfish Head and Angry Orchard.
The company pinned its declines in depletions for the year on the performance of its beer portfolio and Truly Hard Seltzer. Gains by Twisted Tea, along with Truly Vodka Soda, Dogfish Head Canned Cocktails, and Samuel Adams non-alcoholic offerings were unable to offset the negative trends.
Full-year net revenue declined -3.9%, to $2.009 billion. Revenue was down -2.9% on a 52-week comparable basis.
Boston Beer’s gross margin improved 120 basis points year-over-year (YoY), to 42.4%. The company attributed the gains to “price increases, procurement savings and lower inventory obsolescence partially offset by inflationary costs, higher third-party production shortfall fees and higher brewery processing costs per barrel due to lower volumes.”
The company’s full-year gross margin included “$9.5 million of shortfall fees, which negatively impacted gross margin by approximately 45 basis points on an absolute basis, and non-cash expense of third-party production pre-payments of $27.8 million, which negatively impacted gross margins by approximately 140 basis points on an absolute basis.”
The company’s advertising, promotional and selling expenses declined by $22.4 million compared to 2022.
Boston Beer’s full year general and administrative costs increased $17 million (+10.8% YoY) due to increased consulting fees, as well as salaries and benefits costs. Raises to 2024 executive salaries can be read here.
Boston Beer said it took a $16.4 million non-cash impairment charge on the Dogfish Head brand, following an annual analysis conducted in September. A $27.1 million writedown on the Dogfish Head brand was taken in Q3 2022 as well.
“The impairment determination was primarily based on the latest forecasts of brand performance which have been below the company’s projections made on the acquisition date,” the company said.
Boston Beer reported net income of $76.3 million, which represented a $9 million increase compared to full-year 2022. The improvement was due to “higher gross margins, lower operating expenses and lower impairment, partially offset by lower revenue and a higher tax rate.”
The company estimated its distributors had an average of four weeks’ worth of product in inventory for each of its brands at the end of Q4, which is called an “appropriate level,” compared to the average of five weeks at the end of Q3.
Looking ahead to 2024, Boston Beer is forecasting depletions and shipments to be down low-single digit to up low-single digit. The company is also projecting price increases between +1% to +2%. Gross margin is expected to be between 43% and 45%, negatively affected by shortfall fees and non-cash expense of third-party production pre-payments.
Q4: Single-Digit Volume Declines, Hard Seltzer Contracts Continue to Drag Margin
The fourth quarter of 2023 had one fewer week than Q4 2022, which was born out in Boston Beer’s quarterly results.
The company recorded modest volume declines when Q4 2023, which had 13 weeks, was adjusted to compare with Q4 2022, which had 14 weeks.
Depletions (sales to retailers) declined -1% on a 13-week comparable basis. Declines in Truly Hard Seltzer drove the quarter’s depletion declines, which were “partially offset” by Twisted Tea, Samuel Adams’ non-alcoholic beers and Dogfish Head spirits-based, ready-to-drink (RTD) canned cocktails.
Boston Beer shipped 1.5 million barrels to wholesalers in Q4, marking a -3.5% decline in shipments on a comparable basis.
The company’s net revenue for the quarter was $393.7 million, marking a -3.1% decline when adjusted to compare to Q4 2022.
Boston Beer recorded a net loss of -$18.1 million in the quarter, but “ended the fourth quarter with $298.5 million in cash and no debt,” according to the filing.
Gross margin increased +60 basis points YoY, to 37.6%.
“Gross margin primarily benefited from price increases, procurement savings and lower inventory obsolescence partially offset by inflationary costs, higher third-party production shortfall fees and higher brewery processing costs per barrel due to lower volumes,” the company wrote.
The steep drop off in hard seltzer volume that began in 2021 continues to affect Boston Beer financially, as the company “entered into certain contractual agreements to access third-party production capacity.”
“These agreements continue to negatively impact the company’s gross margins,” Boston Beer wrote. “The costs associated with these agreements include shortfall fees for not meeting contractual production minimums and third party production pre-payments that are being expensed over the estimated life of the related agreements.”
In Q4, Boston Beer paid $6.5 million in shortfall fees and made $5.6 million in pre-payments to third-party production partners, both of which dragged down margin.
The company found some savings in Q4, as it spent -7.6% less on advertising, promotional and selling expenses YoY, and saved $11.8 million on freight to distributors through lower rates and volumes. However, increased media investments led to an increase of $1.2 million in brand costs.
Salaries and benefits drove general and administrative costs up by $2.1 million (+5.1%) YoY.
Boston Beer recorded $1.5 million in impairment costs for brewery equipment, an impairment it also recorded in Q4 2022.