Craft Brew Alliance report confirms 2013 financial outlook

We already knew Craft Brew Alliance was a progressive brewing partnership, and its plans for progress don’t look to slow down any in 2013. Pioneering indie labels Red Hook Brewing, Widmer Brothers Brewing and Kona Brewing Co. merged in 2008, becoming a publicly-held company. In 2012, the company showed strong growth (10 percent). In a press release yesterday, Craft Brew Alliance Inc. (CBA) reaffirmed its plans for more aggressive growth in 2013.

“As a follow-up to our release in late January, we want to confirm that we expect meaningful growth in both revenue and earnings resulting from the overall strength of our portfolio strategy, operating expense leverage and SG&A leverage in 2013,” said Terry Michaelson, CBA’s chief executive officer. “As we enter the next phase in the development of our portfolio strategy, we are focusing on leveraging our recent investments, brand momentum and breadth, and geographic expansion, to deliver improved sales and profit growth. This is consistent with our phased approach to strengthening our model to ultimately deliver long-term value growth.”

CBA expect strong sales and profit growth in 2013 and to take advantage of the dynamic craft segment to achieve long-term value for its shareholders. Highlights of 2012 results included a strong close to 2012 highlighted by 10 percent growth in depletions for the fourth quarter. Full year top- and bottom-line results in line with guidance provided during the last quarterly update:

• Sales growth of 13 percent, reflecting the continued strength of the Kona, Redhook and Omission brands, as well as continued repositioning of the Widmer Brothers brand;
• Depletion growth of 6 percent;
• Shipment growth of nearly 8 percent, reflecting new initiatives such as the launch of the Omission brand and international export;
• Gross margin rate of 29.6 percent, a reduction of 70 basis points from 2011, reflecting higher brewery variable costs on a per barrel basis, partially offset by improved fixed cost coverage and a shift in mix to our higher-end beers;
• Selling, general and administrative expense (SG&A) of $44.9 million, an increase of $5.1 million from 2011, reflecting continued investments in brand development and sales capabilities;
• Diluted earnings per share (EPS) of $0.13 vs. 2011 EPS of $0.51; 2011 EPS included the one-time gain on sale of our equity interest in Fulton Street Brewery of $0.34 per share; and
• Capital expenditures of approximately $9.1 million, reflecting continued investments in capacity, efficiency and quality initiatives

“We continue to believe our brand strategy is the most promising it has been in CBA’s history. We expect strong growth tempered by unprecedented competition,” said Michaelson. Expectations for 2013 include: Confidence in the continued growth in sales of Kona, Redhook and Omission, and clear positioning of Widmer Brothers offerings; expansion into new geographic markets for Kona and international expansion for all brand families; updates to packaging across all brand families, as well as introduction of unique can and bottle offerings; refined messaging on Omission beers, promoting the beer as specially crafted to remove gluten; exploration of introducing additional or new brands to the CBA portfolio; and continued development of cross brand packages bringing the power of our portfolio to consumers in real and compelling ways.

“While we are providing full-year guidance for 2013, I want to emphasize that we anticipate significant differences in 2013 quarterly performance as compared to 2012,” said Mark Moreland, CBA’s chief financial officer. “This is due to both normal changes to programs and new product timing, as well as uneven 2012 quarterly performance as a result of the implementation of new supply chain processes and systems that will drive improved supply chain control during 2013. Specifically, we expect relatively weak shipments in the first quarter of 2013 when compared to the volume generated by the 15 percent growth in shipments in the first quarter of 2012.”

We quote directly from the website:

We are confirming previously provided anticipated full year 2013 results, as follows:
Depletion growth estimate of 7 to 11 percent, reflecting the continued strength of the Kona, Redhook and Omission brands and further stabilization of the Widmer Brothers brand. Average price increases of approximately 1 to 2 percent. Contract brewing revenue for 2013 will be approximately half of the 2012 level as a result of the mutual decision to unwind the Goose Island contract brewing arrangement. Gross margin rate of 28.5 to 30.5 percent, reflecting higher brewery variable costs on a per barrel basis, partially offset by better fixed cost coverage.