The Craft Brew Alliance is reaffirming its expectations for 2018 and “exploring topline growth” after reporting another strong earnings quarter this week, including a 2 percent increase in overall net sales and a robust 550-basis-point expansion in gross margin over the second quarter last year.
“It’s fitting that as CBA marks its 10th anniversary this summer, we also just delivered the best quarterly performance in our company’s history across all key dimensions,” said Andy Thomas, chief executive officer, CBA. “As we look to continue navigating the fast-changing social lubricant landscape, we are emboldened by our team’s track record of tangible strategic and operational results and bullish on a future rooted in our Kona Plus strategy and guided by our learnings.”
Here’s what’s working for the craft beer rollup these days.
Kona, Kona and more Kona
Kona’s growth accelerated in the second quarter, with total depletions up 7 percent over the second quarter in 2017. Kona’s momentum was again fueled by flagship Big Wave Golden Ale, which grew 2 percent in the second quarter, and supported by Kona’s new 99-calorie Kanaha Blonde Ale that launched nationally this year to address increasing consumer demand for lower-calorie craft beers. Kona’s growth in the U.S. continued to outperform the craft segment, underscored by strong on-premise performance led by Big Wave, which increased on-premise sales by 35 percent over the second quarter of 2017. Kona also continued to gain traction in key markets as a result of ongoing investments to support growth leading into the peak summer selling season.
Anheuser-Busch, Anheuser-Busch and more Anheuser-Busch
The CBA continues to benefit from the enhanced commercial and contract brewing agreements it has with Anheuser-Busch. As part of these extended commercial agreements, CBA’s brands continue to be included in key wholesaler incentive programs and planning calendars. The brewing agreement was expanded as well, increasing brewing volumes in AB’s Fort Collins, Colo., brewery, while also initiating brewing of select AB craft beers in the CBA’s Portland brewery.
Gross margin expansion
As compared to the second quarter in 2017, beer gross margin expanded by 640 basis points to 39.4 percent, driven by increased operating efficiencies, healthy pricing and continued strong cost management. Total CBA gross profit improved by 21 percent, reflecting gross margin expansion of 550 basis points to 35.8 percent compared to the second quarter last year. CBA execs attribute this to a “reshaped portfolio mix, evolved our brewing footprint, stabilizing our supply chain and driving efficiencies throughout the business.”
What’s the topline growth plan?
From the release:
Firstly, we started testing heavy-up spending programs for Kona and other CBA brands in select markets. Secondly, our newly created Innovation Team launched one of its first test-and-learn initiatives, a consumer focus group experiment called pH that will help identify evolving consumer taste preferences. Thirdly, as part of ongoing work to increase our understanding of today’s changing social lubricant landscape, we initiated two complementary research projects with the Yale School of Management’s Center for Consumer Insights and Prophet, a global growth consultancy. Each of these efforts will contribute to our plans for 2019 and beyond, and we will continue to share updates on our progress in the coming quarters.
Anticipated financial highlights for 2018
- Total CBA depletion change ranging between a decline of 2 percent and an increase of 3 percent.
- Shipments ranging between a decrease of 2 percent and increase of 3 percent, which reflects ongoing progress to align our supply chain.
- Average price increases of 1 to 3 percent, reflecting improvements in revenue management and lower federal excise taxes.
- Total gross margin rate of 32 to 35 percent, reflecting increases in net revenue per barrel, continued improvements in brewery operations, lower fixed overhead, and ongoing efforts to stabilize pub operations.
- SG&A expense ranging from $59 million to $61 million, as we continue to reinvest cost savings into our brands and expand our consumer and trade marketing programming.
- Capital expenditures of approximately $16 million to $19 million, which reflects continued work on the new Kona brewery and the addition of a new canning line in our Portland brewery.
- Effective tax rate of 28 percent, an increase of 100 basis points over the previously communicated tax rate guidance.