Craft Brew Alliance has ‘meh’ second quarter in 2015

Craft Brew Alliance Inc. reported net sales of $58.5 million in the second quarter of 2015, a 3% increase over the second quarter of 2014. This was driven by a 2% increase in shipments and higher net sales per barrel. The CBA’s gross margin increased to $18.7 million though, while the gross margin rate decreased by 90 basis points as a result of higher cost of goods sold per barrel compared to the same period last year, which included increased production volume in anticipation of its Memphis brewery coming online. SG&A expense increased by $1.1 million, which reflects planned investments in sales infrastructure and marketing. Net income for the second quarter was $1.4 million.

“While I’m disappointed in our second quarter topline growth, we continued to make solid headway in multiple areas that underscore the strength of our distinctive strategy,” said Andy Thomas, chief executive officer, CBA. “Looking forward, we continue to be emboldened by the validation of our home market strategy, ongoing progress in achieving sustainable gross margin growth, and success in planting seeds in key beer geographies. Together, these will not only address our short-term challenges, but also set us up for long-term success.”

“Our relatively flat depletion growth across the first half of the year has affected our revenue and profit growth against our guidance and expectations,” said Joe Vanderstelt, chief financial officer, CBA. “At the same time, we maintain a healthy balance between depletions and overall shipments and have reduced distributor inventory days. We continue to see healthy pricing, and our margin enhancement initiatives are on target. Looking forward, we expect to see growth in our full year revenue, gross margin, and earnings as second half 2015 commercial programming is executed for our core brands.”

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Second quarter 2015 financial highlights include:

• Strong performance in three of their core brand families, with double-digit depletion growth from Kona and Omission, which remains the No. 1 beer in the gluten-free beer category; and Widmer Brothers continued its steady turnaround. Depletion volume, however, was flat over the second quarter of 2014, which primarily reflects weak performance in the Redhook brand family outside of its home market of Washington state.
• In their home markets of Hawaii, Oregon, and Washington, depletion volume grew 7% over the second quarter of 2014, which validates the company’s strategic focus on delivering sustainable topline growth, particularly in our brands’ home states.
• To that end, the alliance said it is expanding its partnership with Boone, NC-based Appalachian Mountain Brewery to include an alternating proprietorship in our Portsmouth brewery.
• International business continues to grow, with international shipments increasing by 60% over the second quarter of 2014, driven by the continued strength of the Kona brand family.
• Net sales and total beer shipments increased 3% and 2%, respectively, compared to the second quarter of 2014, reflecting continued progress to align shipments and depletions, while managing inventory levels in preparation for the peak summer season.
• Owned capacity utilization was 82% in the second quarter of 2015, compared to 87% in the second quarter of 2014, which primarily reflects the addition of brewing operations in Memphis, as well as continued efforts to balance and normalize inventories.

And going forward, the CBA is revising previously issued guidance regarding anticipated full year 2015 results, with the exception of estimated average price increases, as follows:

“Owned beer shipment growth between 1% and 3%. The adjusted anticipated beer shipment growth reflects greater-than-anticipated challenges to the Redhook brand family outside of its home market.”

“Average price increase of 1% to 2%. We also expect further improvements in our revenue per barrel as we experience a favorable shift in our product mix.”

“Contract brewing revenue is expected to be flat compared to 2014, previously estimated to range from a decline of 10% to an increase of 10%.”

“Gross margin rate of 30.5% to 31.5%, which is unchanged based on our continued efforts to optimize our brewing locations and improve our capacity utilization as we steer towards our gross margin expansion target of 35% in 2017.”

“SG&A expense ranging from $58 million to $61 million. We are committed to keeping the high end of our SG&A expenses in line with topline performance, while ensuring the commercial programming is fully supported.”