Craft Brew Alliance posts strong financial return in 2018, continued momentum for Kona

The Craft Brew Alliance showed strong financial results for the fourth quarter and all of 2018, riding the continued momentum of Kona Brewing, which grew depletions by 11% in the fourth quarter to drive an 8% increase – representing approximately 30,000 incremental barrels – in full-year depletions. The beer corporation also achieved its highest-ever total company gross margin and beer gross margin.

“In 2019, we will look to increase topline growth, continuing to accelerate Kona’s momentum and unlock the full potential of our newly acquired brands, while building on our strong foundation,” the earnings release stated. “We will also leverage CBA’s new pH Experiment business unit to anticipate market trends and quickly bring innovative new products to market, as announced March 5, 2019”

CBA’s partnership with Anheuser-Busch is obviously a huge factor in these results. As part of its brewing agreement, through which it leverages A-B’s Fort Collins, Colo., brewery to brew up to 300,000 barrels a year at a savings of $10 per barrel, CBA came closer to hitting its estimated $3 million in annual cost savings in 2018.

“Additionally, we expanded on our contract brewing arrangement, producing Goose Island and Virtue Cider in our Portsmouth and Portland breweries,” the company stated. “As part of our enhanced commercial agreement, Kona was included in key wholesaler incentive programs and planning calendars. In 2019, we will look to build on this success and increase participation with additional wholesalers throughout the U.S. Through our international agreement, we expanded on a successful test pilot with Kona in Brazil, launching a significant commercial investment and cross-brewing arrangement to support Kona’s growth in the world’s third largest beer market.”

Anheuser-Busch’s option to buy CBA outright this year has to be looking pretty tasty at this point.

Kona insight

Kona’s 2018 volume growth alone is more than the total volume of 80% of today’s U.S. craft brewers, and combined with 2016 and 2017 growth, the brand has added over 125,000 incremental barrels in the last three years alone. Big Wave Golden Ale is the biggest mover, posting a 30% increase in fourth quarter depletions, driving a 26% increase in depletions for the full year. Kona also expanded its national portfolio of island-inspired craft beers during the year with the launch of Kanaha Blonde Ale, a refreshing 99-calorie ale that was the seventh largest new craft brand as measured by Nielsen.

2019 outlook

• Depletions and shipments each ranging between an increase of 5% to an increase of 8%, reflecting a significant increase in commercial investments and insights from our consumer research.
• Average price increases of 1% to 2%, reflecting improved revenue management capabilities.
• Gross margin rate of 34.5% to 36.5%, reflecting increases in net revenue per barrel, continued improvements in brewery operations, lower fixed overhead, and ongoing efforts to stabilize our pub operations.
• SG&A ranging from $70 million to $74 million, primarily reflecting reinvestment of cost savings into our sales and marketing infrastructure, as well as expanded consumer and trade programming.
• Capital expenditures of approximately $15 million to $19 million, including expenses related our new Kona brewery going online in 2019.
• Effective tax rate of 27%.