Craft Brew Alliance updates forecast after Anheuser-Busch declines to purchase

Craft Brew Alliance, Inc. will maintain its full-year 2019 guidance with the exception of shipments and depletions after Anheuser-Busch declined to buy the company outright in August. CBA’s stock declined from $12.96 before the deadline to $9.28 by the announcement, but the company still puts stock in its Master Distributor Agreement with A-B (which is still good despite the decision to not buy), plus the 300,000 barrels of contract brewing capacity for up to the next seven years.

Divestiture could still play a big part here, according to Thomas on the call: “With some of the restrictions lifted on dragging some of the blocks with us, that we would have an orientation to get rid of some of the blocks or change some of the blocks and that could take the shape of a total restructure of SG&A, it could take the shape of divestiture of some brands, it could take the shape of a lot of things.”

While shipments for portfolio anchor Kona Brewing Co. were up 10 percent in the first half of the year, significant retailer out-of-stock issues in key markets negatively impacted second quarter depletions and go-forward shipments. Additionally, lower-than-planned contract brewing shipments are continuing to dampen volume growth. As a result of these impacts, CBA is adjusting its shipments and depletions range downward to between flat and an increase of 3 percent (CBA originally projected growth between 5 percent and 8 percent during Q1).

“Since identifying the out-of-stock issue in early June, we’ve been actively focused on addressing the situation with positive results; however, barrels lost during that critical selling period cannot be recouped,” said Christine Perich, chief financial and strategy officer. “That impact, coupled with increasing pressure from the expanding hard seltzer category, led us to lower our shipments and depletions range for the full year. Looking forward, we remain buoyed by Kona’s continued momentum, our resilient gross margin, and the settlement costs of the Kona class action lawsuit being in line with the expenses we accrued in the first quarter.”

Adjusted financials for 2019

• Updating depletions and shipments to a range of flat to an increase of 3%.
• Maintaining average price increases of 1% to 2%.
• Maintaining gross margin rate of 34.5% to 36.5%.
• Maintaining SG&A range between $75 million and $79 million, which reflects a $4.7 million one-time expense related to the Kona class action lawsuit settlement.
• Maintaining capital expenditures range between $13 million and $17 million.
• Maintaining effective tax rate of 25%.