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Craft Brew Alliance Q3 earnings: Kona’s Big Wave Golden Ale increases depletions by a crazy 30 percent (everything else is meh)

November 8, 2018Pretty Much a Press Release

Kona Brewing logo

Craft Brew Alliance announced financial results for the third quarter, which is now synonymous with an update on Kona’s growth — which grew 9 percent again — while the net sales for the company dipped 6.6 percent.

Kona continues to klimb

Kona delivered 9 percent depletions growth in the third quarter, after growing 7 percent in the second quarter and 3 percent in the first quarter, improving the year-to-date trend to a 7 percent increase in depletions. Kona’s momentum was driven by flagship Big Wave Golden Ale, which grew total depletions by 30 percent in the third quarter, which, even given its advantages under the AB InBev flag is still pretty wild given the fierce competition in the market. CBA says successful testing of incremental marketing programming in key mainland markets, including Florida, also drove Kona’s accelerated performance in the third quarter.

There are even bold plans to grow Kona in Brazil, the world’s third largest beer market with an initial focus in Rio de Janeiro. The plan includes dedicated local commercial resources and increased marketing, as well as local production of Kona.

The rest of the portfolio?

The oft-mentioned Kona Plus strategy is also supposed to include strong regional brands in key markets that fit in around Kona. To that end, CBA took steps to round out its portfolio by acquiring its three partner brands Appalachian Mountain Brewery, Cisco Brewers and Wynwood Brewing Co. Year-to-date, these brands have achieved a combined 18 percent increase in depletions over the same period last year.

Third quarter and year-to-date 2018 financials

Third quarter net sales decreased by 6.6 percent to $52.9 million, primarily driven by lower shipment volume compared to the third quarter in 2017.

Year-to-date net sales increased slightly to $162.2 million due to improvements in pricing, alternating proprietorship fees and lower excise tax rates. The increase was partially offset by lower mainland brewpub sales and the absence of a one-time $1.7 million contract brewing shortfall fee that occurred in the first part of 2017.

Third quarter total CBA depletions decreased by 1 percent, improving the year-to-date trend to a decrease of 2 percent compared to the same period a year ago. The decrease in total depletions for the third quarter and year-to-date primarily reflects declines in Widmer Brothers and Redhook, offset by continued accelerated growth for Kona.

Third quarter shipments decreased by 5.8 percent and increased slightly by 0.2 percent year-to-date. The evolution in year-to-date shipments was anticipated and reflects the supply chain team’s continued work to better align shipments with depletions while maintaining optimal inventory levels.

Third quarter gross profit decreased by 14 percent to $16.7 million, while year-to-date gross profit increased by 7 percent, to $53.9 million, over the comparable periods last year. The year-to-date increase was primarily driven by improved revenue rates and cost of goods sold per barrel, partially offset by decreases in brewpub performance.

Beer gross margin was 34.8 percent in the third quarter, a decrease of 330 basis points compared to the third quarter in 2017, primarily due to lower fixed cost absorption as a result of lower shipment volumes. Gross margin for the quarter was also negatively impacted by a change in mix of shipments from more profitable owned brands to less profitable alternating proprietorship and contract brewing volume. These factors were partially offset by a reduction in beer loss and the removal of fixed costs associated with the closure of the company’s Woodinville facility.

Year-to-date beer gross margin was 36.8 percent, an expansion of 220 basis points over the comparable 2017 period, primarily reflecting an increase in net sales and a reduction in cost of goods sold due to increased shipments out of Fort Collins and improved brewery operations, including the elimination of Woodinville as a fixed cost, partially off-set by an increase in contract shipments and higher fuel costs.

Got all that?

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Craft Brew Alliance has ‘meh’ second quarter in 2015
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Craft Brew Alliance shows depletion growth of 6 percent in Q3
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Craft Brew Alliance on 2013 earnings, international moves, SKU rationalization

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