CBA’s Third Quarter Earnings: Widmer Soft, Kona Growth Continues (Video)

Investors sold off Craft Brew Alliance (CBA) shares today after the company, which produces Kona, Widmer, Redhook and Omission brands, released disappointing third quarter earnings yesterday.

During an investor call following up the earnings report, CEO Terry Michaelson expressed his dissatisfaction with the company’s overall return.

“We are disappointed that we have not been able to deliver the short term earnings we anticipated,” he said.

Today’s call sounded much like the company’s second quarter investor call in August. Once again, Kona and Redhook brands carried the load – up 22 percent and 8 percent respectively for the quarter. Meanwhile, the company’s biggest brand by volume, Widmer, was again the soft spot, down 9 percent for the quarter.

The two biggest positives for CBA were Kona and gluten-free offering Omission Beer. Kona Longboard Lager was up 18 percent for the quarter and the brand’s newest introduction — Big Wave Golden Ale — accounted for 25 percent of the overall Kona growth in Q3.

And while Andy Thomas, the VP of commercial operations, said it’s still too early to tell what real impact Omission will make to the bottom line, early numbers appear promising. CBA reports that Omission currently owns 66 percent of the gluten-free beer market in its home state of Oregon and has already captured 6.6 percent of the dollar share nationally in the gluten-free beer category. The brand’s Pale Ale and Lager SKU’s are already the number 3 and number 5 gluten-free SKU’s (respectively) at the national level.

But even those positives did little to overshadow the continued problems with the Widmer Brothers brand, something CBA is well aware of. Thomas said the company had been a little too bullish with initial sales projections.

“We are very disappointed about missing guidance,” he said. “We got ahead of ourselves and got overly optimistic on sales. We take that seriously and it isn’t indicative of what will happen going forward.”

CBA’s argument is that volume from high-end productions within the Widmer family have yet to reach the levels of scale needed to offset major declines to legacy offerings like Hefeweizen. The company is also pointing to increased competition from small-batch producers in that category.
It’s important to note that Widmer makes up CBA’s largest volume chunk and negative numbers could be one reason why the company stock (BREW) was down 11 percent when the market closed today.

In 2013, Thomas said to expect further innovation and renewed marketing efforts to the hefeweizen brand and a continued sales push into new markets with the Kona brand.

CBA will also be evolving its Omission brand packaging. Labels on product sent outside of Oregon will now read: “crafted to remove gluten.” Current TTB and FDA regulations prohibit the company from labeling the product as “gluten-free” outside of Oregon; Thomas said the change should help to ease many national retailers initial concerns of stocking the product alongside other gluten-free beer offerings.

One other interesting note: CBA and Anheuser Busch-InBev negotiated a deal in October that stops production of Goose Island brands at the Redhook brewery in New Hampshire. The original contract allowed for the production of Honker’s and IPA styles through 2013. Thomas said that as a result of the settlement, CBA received an amount greater than what the company would have seen if it had actually contract brewed the beers. He also said this allows the company to free up capacity for increased production of CBA brands in the Northeast.

In a recent video interview with Brewbound editor Chris Furnari, Kona Brewing president Mattson Davis discusses the reasons behind Kona’s success.

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