Three reasons for the Craft Brew Alliance's solid first quarter income

The first quarter of 2018 was another good one for the Craft Brew Alliance, which showed net sales growth of 7 percent, along with strong revenue per barrel increases and improvement in beer-related costs per barrel that generated a 310-basis point expansion in gross margin over the first quarter in 2017. The CBA consists of Kona Brewing, Red Hook, Widmer Brothers, Omission Brewing and Appalachain Mountain Brewing and is partially owned by Anheuser-Busch InBev.

“We’re seeing the building blocks of CBA’s financials come together in a way that truly reinforces the strengthening of our company as an outcome of the team’s hard work,” said CBA CFO Joe Vanderstelt. “These results could not have come together at a more important time in our business as we look for opportunities to grow the topline by strategically investing in our brands in an otherwise challenging segment.”

According to its investor earnings report, those improvements, coupled with cost management, helped drive a 112 percent increase in CBA’s first quarter operating income. Here are the three main storylines of the results.

Kona-plus strategy continues to thrive

Kona’s flagship Big Wave Golden Ale continued to outperform the craft market, with global depletions up 22% in the first quarter. Kona’s overall depletion growth of 3% reflects continued strong demand both domestically and internationally, for Kona’s distinctive portfolio that addresses consumer demand for both flavor and sessionability. In the first quarter, Kona also introduced a new year-round offering, Kanaha Blonde Ale, a refreshing 99-calorie beer with a hint of mango that is available nationwide.

Depletions for Kona grew 3% in the first quarter, while overall CBA depletions were down 4% for the quarter, compared to the same period in 2017.

AB Partnership

The CBA continues to leverage its strengthened ties with Anheuser-Busch, participating in key wholesaler focus programs to support the upcoming summer selling season and realizeing ongoing cost efficiencies through producing and shipping beer from AB’s Fort Collins brewery.

Financials improve after reduction in breweries, wholesaler inventory

CBA delivered first quarter net sales growth of 7%, gross profit improvement of 19%, and gross margin of 31.7%, including beer gross margin of 35.5%. These results reflect the the move to transition out of its Memphis brewing facility, the closure and sale of its Woodinville facility, and the start-up of brewing operations in Fort Collins. Also, wholesaler inventories were reduced by over 30%. As a result of our successful cost management and improved financial fundamentals, we are now able to increase investment behind our brands to further strengthen the top line.

“CBA’s solid first quarter results underscore the improved health of our company by combining sustained strength for Kona, anchored by a 22% increase in flagship Big Wave, with exceptional company-wide cost management and efficiency gains,” said CBA CEO Andy Thomas. “We are now in a stronger position than ever to increase investments behind our Kona plus strategy as we explore new avenues for growth in this transformed and ever-changing competitive marketplace.”