Boston Beer misses Q4 revenue estimate (still kills it, really)

The Boston Beer Co. reported fourth quarter 2014 net revenue of $217.8 million, an increase of $12.4 million or 6% over the same period last year, mainly due to core shipment growth of 4%. That number might look solid, but it apparently fell a bit shy of estimates. Net income for the fourth quarter was $19.1 million, an increase of $1 million or from the fourth quarter of 2013. This increase was primarily due to shipment increases partially offset by a higher tax rate.

“I am pleased with our depletion growth in 2014,” said Jim Koch, Chairman and Founder of the Co. “I am especially proud of our employees for growing Samuel Adams in a very competitive environment and learning to brew, manage and sell a more complicated portfolio. At the end of the fourth quarter, we had a smooth transition to our spring seasonal Samuel Adams Cold Snap, which is in its second year.”

Click here for brewery accounting tips

Net revenue for full year 2014 was $903 million, an increase of $163.9 million, or 22%, from the comparable 52-week period in 2013. Depletions grew 13% and 22% from the comparable 13- and 52-week periods in the prior year. Gross margin for the fourth quarter was 50% and the fiscal 2014 full-year was 51.5%.

“As we anticipated, depletions growth rates slowed from earlier in the year as we faced tougher comparables, and we did not benefit from new product launches as we did earlier in the year,” said Martin Roper, President and CEO. “In the fourth quarter we had lower sales and marketing spending and higher shipments than expected, which resulted in higher earnings than anticipated. Looking forward, we are excited, but expect the competitive environment to be tougher. We therefore anticipate the need to increase investing in advertising, promotional and selling expenses behind existing brands and to support national roll-outs of brands and test future innovations. With the launch of several new beers and ciders in the first quarter of 2015, and our planned increased investment behind Samuel Adams, Twisted Tea, Angry Orchard and Traveler brands, we believe we are well-positioned to maintain our momentum.”

Year-to-date depletions through the seven weeks ended February 14, 2015 are estimated by the Company to be up approximately 12% from the comparable period in 2014. In the first quarter, Boston Beer began a national rollout of its new session IPA, Samuel Adams Rebel Rider IPA and a new double IPA, Samuel Adams Rebel Rouser IPA.

For 2015, Boston Beer is forecasting:

• Depletions and shipments percentage growth of between 8% and 12%.
• National price increases of between 1% and 2%.
• Gross margin of between 51% and 53%.
• 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 Alchemy & Science brands, which are included in our 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 38% based upon current tax laws and underlying regulations.
• Estimated capital spending of between $80 million and $110 million, which could be significantly higher, depending on capital required to meet future growth. These estimates include capital investments for existing Alchemy & Science projects of between $3 million and $5 million.

“Over the past two years, our supply chain struggled under unexpected increased demand and we experienced higher operational and freight costs than we had planned,” Roper said. “During that period, we completed significant capital and efficiency projects that increased our capacity and capabilities. Our focus for 2015 will be to take full advantage of these increased capabilities through improved training, stable scheduling, and operating efficiency and reliability improvements. We will also continue to make supply chain improvements intended to improve the freshness of our beers and enhance our customer service.

“As we absorb and optimize our 2013 and 2014 investments, we are slowing the pace of our capital expansion. Our sales focus in 2015 will be to ensure successful second year growth of our 2014 launches, and to support the national launch of our Traveler brand. Looking forward, we expect to maintain a high level of brand investment, as we pursue sustainable growth and innovation, and 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 concluded

Full 4th Quarter 2014 Summary of Results

Depletions grew 13% from the comparable 13-week period in the prior year, reflecting increases across the Angry Orchard, Twisted Tea, Samuel Adams and Traveler brands.
Core shipment volume was approximately 983,000 barrels, a 4% increase over the fourth quarter of 2013.

Fourth quarter shipment growth rates were lower than depletions growth rates, primarily due to timing of shipments and a decrease in distributor inventories. The company believes distributor inventory at Dec. 27, 2014, was at an appropriate level. Inventory at distributors participating in the Freshest Beer Program at Dec. 27, 2014, decreased slightly in terms of days of inventory on hand when compared to Dec. 28, 2013. The Company has approximately 68% of its volume on the Freshest Beer Program and it believes participation in the Program could reach 72% to 78% of its volume by the end of 2015.

Gross margin at 50% for the fourth quarter was lower than the 51% realized in the fourth quarter of the prior year, primarily due to higher brewery processing costs and unfavorable product mix effects that were partially offset by price increases.

Advertising, promotional and selling expenses were flat compared to the fourth quarter of 2013. Increases in local marketing, costs for additional sales personnel and freight to distributors due to higher volumes were offset by decreases in point of sale and media advertising due to the timing of these brand investments and new product launches during 2014 compared to the prior year.

General and administrative expenses increased by $600,000 from the fourth quarter of 2013, primarily due to increases in salary costs that were partially offset by lower consulting costs.
The Company’s effective tax rate for the fourth quarter increased to 39% from 37.5% in the fourth quarter of 2013 due to the full year unfavorable tax rate impact of bonus depreciation which was enacted during the fourth quarter of 2014.