Sam Adams shows 30 percent revenue growth in third quarter, reports operational strains

The Boston Beer Co., holding company for Samuel Adams, increased both its net revenue and net income in the third quarter due mostly to core shipments growth of 29 percent. Riding these results, the company said it has raised its expectations for 2013 full-year depletions growth to between 21 percent and 24 percent to reflect the current trends.

Net revenue came in at $216.4 million, up $50 million (30 percent) from the prior-year period, while net income was $25.7 million, up $4.9 million from third quarter 2012. Net revenue for the 39-week period ended Sept. 28 was $533.7 million, an increase of $106.5 million, or 25 percent, from the comparable 39-

“I am pleased with our depletions growth, which is attributable to strong sales execution and support from our wholesalers and retailers as well as our great quality beers, innovation capability and strong brands,” said Jim Koch, chairman and founder.

Depletions grew 26 percent and 23 percent from the comparable 13- and 39-week periods in the prior year. Year-to-date depletions through the 42 weeks ended Oct. 19 are estimated to be up approximately 23 percent from the comparable period in 2012. Core shipment volume was about 993,000 barrels in the third quarter.

“Our depletions growth remained strong and benefited from growth in our Samuel Adams, Twisted Tea and Angry Orchard brands,” said Martin Roper, the president and chief executive officer. “To take advantage of the opportunities that we currently see and expected competitive activity, we are increasing our planned investment in media, our sales force and other support behind our brands for the remainder of the year.”

While Boston Beer’s earnings statement is nearly more Big Beer than craft beer, the company still reports operational growing pains. The company had product shortages and service issues in the third quarter.

“Our supply chain struggled under the increased volume and we experienced increased operational and freight costs as we reacted,” Roper said. “We commissioned our new bottling line during the quarter. This line and our new can line are starting to achieve their design capacities and ease our packaging constraints. We have, however, remained tank constrained in our breweries and this is not expected to be resolved for several more weeks.”

To address these challenges, Roper reports that the company has initiated significant capital improvements in its breweries that will help support their growth in 2014.

“We expect a continued high level of brand investment and capital investment as we pursue growth and innovation. We are prepared to forsake the earnings that may be lost as a result of these investments in the short term, as we pursue long term profitable growth,” Roper said.

During the quarter, Alchemy & Science completed the acquisition of the Coney Island Brewery brand. Alchemy & Science is also currently finalizing plans to build a small brewery and beer hall in Miami, Fla., named Concrete Beach Brewery.  To date, Roper said sales from Alchemy & Science brands have not been significant.

The company has 120 wholesalers, representing over 65 percent of its volume in its Freshest Beer Program and Roper believes this could reach 70 percent by the end of 2013. The company also expects price increases of approximately 1 percent to partially offset ingredients, packaging, freight and processing cost pressures.

Full year 2013 capital spending is now estimated to be between $100 million and $120 million, a narrowing of the range from the previously communicated estimate of $100 million to $140 million.

2014 Outlook

Boston Beer reported these preliminary forecasts for the coming year:

• Depletions and shipments percentage growth in the mid-teens.
• National price increases of between 2 and 3 percent to offset anticipated upward pressures on ingredients, packaging and freight costs, as well as increased investments behind the company’s brands.
• Increased investment in advertising, promotional and selling expenses of between $34 million and $42 million for the full year 2014.  This does not include any increases in freight costs for the shipment of products to the company’s wholesalers.
• Increased expenditures of between $3 million to $5 million for continued investment in Alchemy & Science brands, which are included in our full-year estimated increases in advertising, promotional and selling expenses. Brand investments in the Alchemy & Science brands could vary significantly from current estimates.
• Estimated full-year 2014 capital spending of between $140 million and $180 million.