Notes from Boston Beer 2013 earnings report

The Boston Beer Co., makers of Samuel Adams, reported fourth quarter 2013 net revenue of $205.4 million, an increase of $52.4 million or 34 percent over the same period last year, mainly due to core shipment growth of 29 percent. Net income for the fourth quarter was $18.1 million, or $1.33 per diluted share, an increase of $1.2 million or $.08 per diluted share from the fourth quarter of 2012. The company attributed the increases to shipment increases, which were partially offset by increased investments in advertising, promotional and selling expenses.

Net revenue for all of 2013 was $739.1 million, an increase of $158.8 million, or 27 percent, from the comparable 52-week period in 2012.

Quotes from the execs

New brands in 2014…

Jim Koch, chairman and founder of the company: “During the first quarter, we are releasing several new beers that should continue this momentum. Our new spring seasonal brew, Samuel Adams Cold Snap, a unique and approachable white ale brewed with a blend of exotic spices, has launched and appears to be well received by drinkers and retailers alike.  We also began a national rollout of Samuel Adams Rebel IPA, a West Coast style IPA brewed with hops from the Pacific Northwest that created a lot of excitement in its test markets last year. It is already receiving great support from distributors, and on and off premise retailers.  We believe that these styles and packages are being favorably received by drinkers, and we remain confident about the long-term outlook for the craft category and our Samuel Adams brand.”

Supply chain struggles…

Martin Roper, the company’s president and CEO: “Over the past year, our supply chain struggled under the unexpected increased demand and we experienced higher operational and freight costs as we reacted. While our growth continues to challenge us operationally, we improved our service level to our distributors during the fourth quarter and decreased our product shortages.  In preparation for 2014, we have significantly increased our packaging and shipping capabilities and our tank capacity at our breweries to address the opportunity and meet these challenges. Given the opportunities that we see, 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.”

The Freshest Beer Program strategy…

Roper: “We believe that one benefit of our Freshest Beer Program is better visibility into distributor inventories and needs. This allowed us to better allocate available product in 2013, when we were at capacity and experiencing shortages. Overall, we remain committed to the program and continue to believe that we are benefitting by delivering better, fresher Samuel Adams beer to our drinkers while lowering distributor inventories.  We also recognize that we have significant opportunities to ensure that our on-time product shipping performance meets expectations, and to ensure that as we grow, we are reducing costs and improving efficiency throughout the supply chain without the cost of lost sales. We currently have more than 120 distributors participating in the program, at various stages of inventory reduction, representing over 65 percent of our volume. We believe participation in the program could reach between 70 percent and 80 percent of our volume by the end of 2014. We continue to evaluate whether we can reduce distributor inventory levels even further and are making investments in our breweries to improve their service in support of the program.”

Random earnings data points

• Depletions grew 20 percent and 23 percent from the comparable 13- and 52-week periods in the prior year.
• Core shipment volume in Q4 was approximately 941,000 barrels (bbls), a 29 percent increase over the fourth quarter of 2012. For the full year, core shipment volume was approximately 3.4 million bbls, a 25 percent increase from the comparable 52-week period in 2012.
• Gross margin for the fiscal 2013 full-year was 52 percent.
• Advertising, promotional and selling expense and customer program and incentive costs increased by a combined $17.6 million or 39 percent in the quarter, and $45.6 million or 26 percent for the full year 2013.
• Full year 2013 capital spending totaled $104 million, most of which relates to continued investments in the company’s breweries and additional keg purchases.
• Full year 2014 depletion growth is estimated to be between 16 percent and 20 percent and full year 2014 earnings per diluted share is estimated to be between $6.00 and $6.40. Year-to-date depletions through the 7 weeks ended February 15, 2014 are estimated by the company to be up approximately 35 percent from the comparable period in 2013.
• Based on the estimated 2014 and future growth, current estimates of full-year 2014 capital spending now range between $160 million and $220 million.