Boston Beer revenues up, Jim Koch hints at future sale?

The Boston Beer Co. Inc., parent company of Sam Adams and Angry Orchard, reported second quarter 2015 net revenue of $252.2 million, an increase of $20.6 million or 9 percent, over the same period last year, mainly due to core shipment growth of 7 percent. Net income for the second quarter increased 16 percent to $29.9 million from the second quarter of 2014. This increase was primarily due to shipment increases, improved gross margins and a slightly lower income tax rate, partially offset by increased investments in advertising, promotional and selling expenses.

And we will get to the rest of the earnings release in a moment, but we first need to share this quote from Boston Beer Founder and Owner Jim Koch, who spoke at a Senate hearing about corporate tax rules. Apparently, America’s corporate tax rate is higher than other countries, which can put foreign investors in a more favorable position when looking to acquire companies in the United States, as they will keep more of their earnings. So, Koch, a craft beer billionaire was there, and had this to say:

“We don’t mind paying our taxes here in the U.S. in gratitude for the opportunities that exist in this country and that I certainly have enjoyed — but don’t mistake that for good financial decision-making. Because of our broken corporate tax system, I can honestly predict that I will likely be the last American owner of Boston Beer Company.”

Here are some tax tips for your own brewery

A hint at a future sale of the country’s largest, independent craft brewery? Stay tuned. Now back to the 2015 Q2 numbers:

Depletions grew 6 and 7 percent from the comparable 13 and 26 week periods in the prior year.
Gross margin was 54 percent for the second quarter and 52 percent for first half of the year, with the company maintaining its full year gross margin target of between 51 and 53 percent.
Advertising, promotional and selling expenses increased by $5.4 million or 8 percent in the quarter, primarily due to planned increased investments behind the company’s brands.
Full year 2015 depletions growth is now estimated to be between 6 and 9 percent, a decrease from the previously communicated estimate of 8 to 12 percent.
Full year 2015 capital spending is now estimated to be between $70 million to $100 million, a decrease from the previously communicated estimated range of $80 million to $110 million.

“Our total company depletion trends of 6 percent in the second quarter of 2015 have slowed in comparison to prior quarters due to some developing weakness in our Samuel Adams brand,” Koch stated. “While our total growth is testament to our strategy of a diversified brand portfolio, our Samuel Adams trends appear to represent a very competitive category where drinkers are facing greatly increased choices and established brands are being impacted.”

“We have decreased our expectations for full-year depletions growth to between 6 and 9 percent to reflect the most recent trends,” said Martin Roper, the company’s President and CEO. “We are working hard to improve the Sam Adams brand trends, and in the second half of the year we expect to introduce new packaging and advertising to support our planned promotional activity.

“Looking forward, we expect to maintain a high level of brand investment, as we pursue sustainable growth and innovation. We remain 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,” he continued.

Outlook

The company has left unchanged its projected 2015 earnings per diluted share of between $7.10 and $7.50. The company’s actual 2015 earnings per share could vary significantly from the current projection. Underlying the company’s current projection are the following estimates and targets:

Depletions and shipments growth of between 6 and 9 percent.
National price increases of between 1 and 2 percent.
Gross margins of between 51 and 53 percent.
Increased investment in advertising, promotional and selling expenses of between $25 million and $35 million. This does not include any increases in freight costs for the shipment of products to the company’s distributors.
Increased expenditures of between $10 million to $15 million for continued investment in Traveler and other existing brands developed by Alchemy & Science, which are included in the full year estimated increases in advertising, promotional and selling expenses. These estimates could change significantly and 2015 volume from these brands is unlikely to cover these and other potential Alchemy & Science brand investments.
Effective tax rate of approximately 37 percent, a decrease from the previously communicated estimate of 38 percent due to the favorable impact of lower state tax rates.
Capital spending of between $70 million and $100 million, which could be significantly higher, dependent on capital required to meet future growth. These estimates include capital investments for existing Alchemy & Science projects of between $3 million and $5 million.