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Craft Brew Alliance Reports Second Quarter 2013 Results

Craft Brew Alliance , Inc. (“CB A ”) (Nasdaq: BREW), an independent craft brewing company, today reported its financial results for the second quarter ended June 30, 2013. CB A ’s focus on building a national portfolio strategy has positioned the Company to expect strong sales and profit growth in 2013 and to take advantage of the dynamic craft beer segment to achieve long-term value for its shareholders. The results for the second quarter are in line with management’s expectations and the Company confirms 2013 guidance.

Significant second quarter and year-to-date financial highlights include:

  • Depletion volume grew 12% over the second quarter of 2012 and 9% year-to-date compared to the same period last year, reflecting the continued success of our portfolio strategy.
  • Net sales and branded beer shipments increased 10.7% and 13.5%, respectively, in the second quarter due to the continued organic growth of our portfolio and the launch of new products, including Redhook Audible Ale, Kona Big Wave Golden Ale, Omission Beer and cross-brand variety packs. Year-to-date net sales and branded beer shipments grew 3.4% and 5.6%, respectively, compared to the first half of 2012.
  • Our gross margin rate increased 40 basis-points to 30.5% in the second quarter compared to 30.1% for the second quarter last year as a result of supply chain optimization efforts implemented in the first quarter of the year. Our year-to-date gross margin rate declined to 27.9%, a decline of 240 basis points from the same period in 2012, due to lower capacity utilization.
  • As a percentage of net revenue, our selling, general and administrative expense (“SG&A”) decreased to 26.4% in the second quarter of 2013 from 27.6% in the second quarter of 2012 as we have continued to leverage the strength of our brands. SG&A expense of $24.7 million year-to-date includes the continued investment in our portfolio strategy.
  • Diluted earnings per share (“EPS”) for the second quarter of 2013 was $0.06 compared to $0.03 for the same period last year. 2013 year-to-date loss per share was $(0.04) compared to 2012 year-to-date EPS of $0.07.
  • For the first six months of 2013, we reported capital additions of approximately $6.1 million for restaurant updates and continued investments in beer-related capacity, efficiency and quality initiatives.

“We are pleased with our depletions growth of 12% for the second quarter and 9% year-to-date. Our second quarter results are in line with our expectations and demonstrate the positive trend we are anticipating for the full year,” said Terry Michaelson, CB A ’s CEO. “For the second half of 2013, we remain focused on driving improved sales and profit growth by leveraging the strengths of our dynamic brand portfolio and continuing to realize benefits as a result of the investments we made in the first quarter to improve gross margin and SG&A.”

Components of anticipated 2013 results and developments

We are confirming previously issued guidance regarding our anticipated full year 2013 results, as follows:

  • Depletion growth estimate of 7% to 11%, reflecting the continued strength of the Kona, Redhook and Omission brands and further stabilization of the Widmer Brothers brand.
  • Average price increases of approximately 1% to 2%.
  • Contract brewing revenue for 2013 at approximately half of the 2012 level as a result of the termination of the Goose Island contract brewing arrangement.
  • Gross margin rate of 28.5% to 30.5%, primarily due to pressure from distribution and packaging component costs, partially offset by improved brewery productivity.
  • SG&A expense of $47 million to $49 million, reflecting leverage from the foundation built by more aggressive spending in prior years.
  • Capital expenditures of approximately $11 million to $13 million, reflecting our continued investments in capacity and efficiency improvements, quality initiatives and restaurant and retail remodeling projects.

“Our improved second quarter gross margin and earnings reflect significantly better alignment of our shipments and depletions as a result of the supply chain adjustments we made in the first quarter,” said Mark Moreland, CB A ’s CFO. “While the first quarter adjustment suppresses our year-to-date earnings performance, we expect to accelerate our top-line momentum building off of our strong second quarter results with commensurate expansion in our gross margin and earnings throughout the remainder of the year.”

Developments and expectations for 2013 include: (i) confidence in the continued growth in sales of Kona, Redhook and Omission, and clear positioning of Widmer Brothers offerings, (ii) expansion into new geographic markets for Kona and international expansion for all brand families, (iii) updates to packaging across all brand families, as well as introduction of unique can and bottle offerings, (iv) refined messaging on Omission beers, promoting the beer as specially crafted to remove gluten, (v) exploration and introduction of new brands to the CB A portfolio, including the new Redhook brand Game Changer developed in collaboration with Buffalo Wild Wings, (vi) the introduction of the Square Mile Cider brand, and (vii) continued development of cross-brand packages, bringing the power of our portfolio to consumers in innovative and compelling ways.

Forward-Looking Statements

Statements made in this press release that state the Company's or management's intentions, hopes, beliefs, expectations or predictions of the future, including depletions and sales growth, the level or effect of SG&A expense, the amount of capital spending, and the benefits or improvements to be realized from strategic initiatives and capital projects, are forward-looking statements. It is important to note that the Company's actual results could differ materially from those projected in such forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained from time to time in the Company's SEC filings, including, but not limited to, the Company's report on Form 10-K for the year ended December 31, 2012. Copies of these documents may be found on the Company's website, www.craftbrew.com, or obtained by contacting the Company or the SEC.

About Craft Brew Alliance

CB A is an independent, publicly traded craft brewing company that was formed through the merger of leading Pacific Northwest craft brewers – Widmer Brothers Brewing and Redhook Ale Brewery – in 2008. With an eye toward preserving and growing one-of-a-kind craft beers and brands, CB A was joined by Kona Brewing Company in 2010. Craft Brew Alliance launched Omission beer in 2012.

When Kurt & Rob Widmer founded Widmer Brothers Brewing in 1984, they didn’t confine their brewing exploration to strict style guidelines. To this day, Widmer Brothers continues to create craft beers with a unique and unconventional twist on traditional styles that are award winning and please a wide range of craft beer lovers. Redhook began in a Seattle transmission shop in 1981 and those colorful roots are reflected in the brand’s personality to this day. The eminently drinkable beers consistently win awards and please crowds across the United States. Kona Brewing was founded in 1994 by the father and son team of Cameron Healy and Spoon Khalsa, who dreamed of crafting fresh, local-island brews with spirit, passion and quality. As the largest craft brewery in Hawaii, Kona personifies the laid-back, passionate lifestyle and environmental respect of the Hawaiian people and culture. Omission beer is the first craft beer brand in the United States focused exclusively on brewing great tasting craft beers with traditional beer ingredients, including malted barley, that are specially crafted to remove gluten.

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