Three key storylines for Craft Beer Alliance following 2017 earnings call

A few years ago, it seemed like financial analysts weren’t sure about the future of the Craft Brew Alliance, but the results lately have them all straightening their monocoles and happily flipping nickels to their shoe shiners. Craft Brew Alliance closed out a decent 2017 with a solid fourth quarter, according to the company’s earnings call for investors last week.

Here are the key storylines for the company heading into 2018.

Kona continues to crush

The “Kona-plus” strategy, as it was dubbed, keeps on paying off, delivering a 10 percent increase in depletions globally for the full year 2017. Kona flagship Big Wave Golden Ale posted a 23 percent increase in depletions in 2017, which includes 60 percent depletions growth internationally. Hanalei Island IPA, which Kona debuted nationally in 2017, ended the year in the top five of all new craft brands in the United States as measured in grocery sales by Nielsen.

Expanding the AB partnership, new contract brewing deal

When AB InBev started getting more serious about its “crafty” portfolio, it strengthened its partnership with CBA. In 2017, the two accomplished multiple strategic growth objectives, including aligning CBA brands in AB’s wholesaler planning processes, starting up brewing operations in AB’s Fort Collins brewery to drive incremental cost savings and continuing to expand Kona distribution in select global beer markets.

The two have signed a new contract brewing arrangement, announced in a Form 8-K filed with the Securities and Exchange Commission. Through the new agreement, AB will leverage CBA’s craft production capacity and capability in its owned breweries, resulting in improved operational efficiencies and capacity utilization for CBA.

Move away from acquisitions, focus on fundamentals

The CBA showed net sales growth of 2 percent, gross profit improvement of 9 percent and record gross margin of 31.5 percent which includes a beer gross margin of 35.3 percent.

The company explained it like this: “We achieved these improvements while simultaneously accelerating our brewery footprint evolution with the closure and sale of our Woodinville brewery, balancing production between Portland and Portsmouth, ramping up brewing operations in AB’s Fort Collins brewery and reducing wholesaler inventories by more than a third. In 2018, we will continue to leverage our headway in cost reduction and operating efficiencies to reinvest in our sales and marketing infrastructure.”

Meanwhile, in that aforementioned SEC filing, the CBA noted the end of its emerging business division and the exit of the head of that unit, John Glick. So, it seems the CBA’s expansion dreams have ended and the focus will stay on its core brands.

Forecast for 2018

In 2018, the head honchos anticipate continued growth for Kona, bolstered by the national launch of its new 99-calorie Kanaha Blonde Ale, combined with increasing contributions from partner brands Appalachian Mountain Brewery, Cisco Brewers and Wynwood Brewing Co., as well as the ongoing stabilization of legacy craft brands Widmer Brothers and Redhook in the Pacific Northwest.

“Our 2017 financial performance reflects the realization of our long-term strategy. We’re seeing real improvement in gross margins as a result of healthy revenue per barrel growth and meaningful operational and cost improvements,” said Joe Vanderstelt, chief financial officer, CBA. “As we enter 2018, we are focused on continuing to improve our financial fundamentals and ability to invest in our brands.”

• Depletions and shipments each ranging between a decline of 2 percent and an increase of 3 percent, reflecting continued progress as CBA stabilizes its supply chain.
• Average price increases of 1 to 3 percent, reflecting improved revenue management capabilities and lower federal excise taxes.
• 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 its pub operations.
• SG&A expense ranging from $59 million to $61 million, primarily reflecting reinvestment of cost savings into its sales and marketing infrastructure, as well as expanded consumer and trade programming.
• Capital expenditures of approximately $16 million to $19 million, including its new Kona brewery and the addition of a new can line in its Portland brewery to address consumer demand.
• Effective tax rate of 27 percent.