Boston Beer Q3 Earnings: Depletions -6%, Shipments +1.4%; Dogfish Head Brand Hit with $27M Non-Cash Impairment Charge

Boston Beer Company reported a -6% decline in depletions, while shipments increased +1.4% in its third-quarter 2022 earnings report today.

Depletions (sales-to-retailers) gains for Twisted Tea and Hard MTN Dew were not enough to offset declines related to Truly Hard Seltzer, Angry Orchard, Samuel Adams, and Dogfish Head. Taking Truly’s declines out of the equation, Boston Beer’s depletions volumes for the quarter would have increased +14%.

Q3 shipments (sales-to-wholesalers) reached about 2.3 million barrels, reflecting increases for Twisted Tea, Hard MTN Dew and Samuel Adams brands that offset losses from Truly, Angry Orchard and Dogfish Head.

Net revenue for Boston Beer’s portfolio of offerings increased +6.2%, to around $596.5 million, for the 13-week period ending September 24.

Boston Beer president and CEO Dave Burwick noted that the company “delivered revenue, shipment and cash flow growth in the third quarter, with strong pricing performance across our portfolio, continued growth in depletions and shipments in Twisted Tea, and positive early progress in Hard Mountain Dew.” He added that spirit-based Truly Vodka Seltzer launched in October and the company is “continuing to execute on our plans to support the base Truly business.”

“We remain focused on delivering our strategy to create a broad beverage portfolio with many pathways to growth while optimizing our supply chain to expand margins over the long term,” he added.

Boston Beer benefitted in Q3 2022 by comparison to the $133 million in direct and indirect costs the company ran up against in Q3 2021 related to the slowdown in hard seltzer sales.

Recall that in Q3 2021, the tumult from Boston Beer’s oversupply of hard seltzer was just beginning to be quantified following the company pulling its financial guidance, writing off costs related to that excess supply and facing a crush of investor lawsuits.

The write-off for the quarter ended up at $102.4 million in direct costs to the company, including $54.3 million for “inventory obsolescence, destruction costs and other inventory related costs;” $35.4 million for contract termination costs primarily for “excess third-party contract production;” and $12.7 million in equipment impairments.

Q3 2021 depletions and shipments increased by +11% and +11.2%, respectively. Shipments for the quarter were around 2.3 million barrels, while net sales topped $561.6 million (+14%).

In today’s Q3 2022 report, Boston Beer’s net income of $27.3 million ($2.21 per diluted share), which included a $27.1 million non-cash impairment charge and the related tax benefit, marked an improvement over the $58.4 million loss (a loss of $4.76 per diluted share) recorded in Q3 2021.

The $85.7 million increase ($6.97 per diluted share) was credited to easier comps to Q3 2021 and increased net revenue along with lower advertising, promotional and selling expenses in Q3 2022. However, those were “partially offset by increased income taxes, a non-cash impairment charge relating to the Dogfish Head brand … and increased supply chain costs.”

Boston Beer recorded a $27.1 million non-cash impairment of intangible assets related to the Dogfish Head brand, as a result of the company’s annual impairment analysis as of September 1, 2022. “The impairment determination was primarily based on the latest forecasts of brand performance, which has been below our projections made on the acquisition date,” the company said.

In a 10Q filing, Boston Beer said the Dogfish Head trademark asset, which had a value of $98.5 million, “was written down to its estimated fair value of $71.4 million,” as a result of the $27.1 million impairment charge.

Boston Beer noted that its gross margin of 43.2% in Q3 marked an increase from 30.7% in Q3 2021, due to the easier comp related to last year’s seltzer charges.

Boston Beer Year-to-Date Depletions -7%, Shipments -8%

Boston Beer noted that its year-to-date 2022 performance was affected by $143.9 million (before a related tax benefit) in direct and indirect costs recorded last year related to hard seltzer’s slowdown. The company reported that year-to-date depletions are down -7%, due to losses related to Truly, Angry Orchard, Dogfish Head and Samuel Adams, only partially offset by the growth of Twisted Tea and Hard MTN Dew.

Through the first 39 weeks of 2022, Boston Beer has shipped about 6.5 million barrels of product, an -8% decline compared to 2021. Those declines are attributed to Truly, Angry Orchard, Dogfish Head and Samuel Adams, with Twisted Tea and Hard MTN Dew unable to offset those losses.

Boston Beer’s net revenue year-to-date has declined -3.9%, to $1.643 billion, compared to the same period in 2023.

For full year 2022, Boston Beer said it has “narrowed” its depletions and shipment guidance from a range of -2% to -8%, to -4% to -7%. The company is also expected to take price increases in the +4% to +5% range, compared to previously communicated range of +3% to +5%.

Even as the company narrowed its guidance, it warned that it could be revised once again.

“The company’s actual 2022 results could vary significantly from the current projection and are highly sensitive to changes in volume projections particularly related to the hard seltzer category and supply chain performance as well as inflationary impacts,” the company added.

Nevertheless, Boston Beer expects to benefit from a 53rd week in 2022. Depletions and shipment growth rates for the full year could benefit between 1 and 1.5 percentage points and between 4 and 6 percentage points in Q4.

Boston Beer said it would provide full year 2023 guidance during its Q4 earnings call in February 2023.

Boston Beer founder and chairman Jim Koch struck an “optimistic” tone for the “long-term growth outlook for Boston Beer’s diversified beverage portfolio” in a statement attached to the release.

“Based on our year-to-date performance and our view on the remainder of the year, we have narrowed the range of our fiscal 2022 financial guidance,” he said. “As we continue to navigate through this dynamic operating environment, we remain committed to investing in innovation and brand support across our beyond beer portfolio. We operate in attractive segments and believe our strong capabilities – combined with the top salesforce in beer – position us well to deliver long-term value.”