CBA Earnings: Net Income Suffers Amid Kona Labeling Suit

Craft Brew Alliance today reported its first quarter earnings results, which included a net income loss of $7.3 million and a 5 percent decline in total depletions.

The net income loss was primarily driven by the previously disclosed $4.7 million charge that CBA elected to record as a result of settling a years-long class-action lawsuit over alleged “false and deceptive advertising” of its Kona Brewing beer brand.

The company also spent $4.6 million during the quarter on its largest-ever national marketing campaign for Kona, which helped to grow shipments by 10 percent, to 108,800 barrels, during the period.

However, shipments of CBA’s other core labels – Widmer Brothers, Redhook and Omission – declined 7.3 percent, 20.5 percent and 11.7 percent, respectively.

Meanwhile, shipments of Square Mile Cider, Appalachian Mountain Brewery, Cisco Brewers and Wynwood beers grew 7.4 percent, to 10,100 barrels, during the quarter.

Revenue per barrel for core brands also increased 1.6 percent during the quarter, while total gross margin expanded 270 basis points.

In a press release, CEO Andy Thomas and recently hired chief financial and strategy officer Christine Perich characterized the first quarter results as “remarkable” and “strong.” Both executives also expressed optimism for the future of the Kona business.

“While we are updating our SG&A to reflect the unanticipated settlement expense, we believe the investments behind Kona and understanding today’s changing consumer landscape will drive meaningful topline growth and remain focused on sustaining CBA’s strong underlying financials,” Perich said.

For his part, Thomas pointed to “robust gross margin expansion” and “healthy revenue per barrel increases” as reasons why the quarter was a success.

“On the heels of the marketing investment, Kona’s 16 percent depletions growth in April emboldens our outlook for Q2 and beyond,” he said.

For the remainder of the year, the company expects depletions and shipments to each increase between 5 percent and 8 percent.

CBA also updated its capital expenditures range to between $13 million and $17 million, from $15 million to $19 million, and announced a delay in opening its new Kona Brewing facility in Hawaii. That brewery will not open until 2020.

CBA also expects SG&A to range between $75 and $79 million (up from $70 to $74 million) as a result of the Kona lawsuit.

Additional details are included in the company’s SEC filing and press release.

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