The Boston Beer Company CEO Discusses Q3 2010 Results – Earnings Call Transcript

The Boston Beer Company, Inc. (

SAM

)

Q3 2010 Earnings Conference Call

November 4, 2010 5:00 PM ET

Executives

Jim Koch – Chairman and Secretary

Martin Roper – President and CEO

Bill Urich – CFO and Treasurer

Analysts

Philip Gorham – Morningstar

Andrew Kieley – Deutsche Bank

James Watson – HSBC

P

resentation

Operator

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Good afternoon. My name is Bonnie and I will be your conference operator for today. At this time I would like to welcome everyone to the Boston Beer Third Quarter 2010 Earnings Conference Call. (Operator instructions)

I would now like to turn the conference over to Mr. Jim Koch, Brewer and Founder. Please, go ahead, sir.

Jim Koch

Thank you. Good afternoon and welcome. This is Jim Koch, the Brewer, Founder, Chairman and I’m happy to be here to kick off the 2010 third quarter earnings call for the Boston Beer Company. Though I’m in airport, so if you hear something in the background about terrorist levels, don’t worry, it’s just normal airport chatter. Joining the call from Boston Beer will be Martin Roper, our CEO, and Bill Urich, our CFO.

I’ll begin my remarks this afternoon with few introductory comments including some highlights of our results, and then hand over the microphone to Martin, who will provide an overview of our business. Martin will then turn the call over to Bill, who will focus on the financial details for the third quarter as well as our outlook for the remainder of 2010 and our initial outlook for 2011. Immediately following Bill’s comments, we’ll open the lineup for questions.

We achieved depletions growth of 7% in the third quarter and total depletions grew to 8.5 million cash equivalents. This record third quarter for total depletions is due to our strong sales execution and continued support from our wholesalers and retailers. While we’re pleased with the results, depletions growth in the quarter slowed from the first half growth rates due to tougher year-on-year comparisons and a timing of certain promotional activities.

We continue to see expanded distribution of domestic specialty brands as well as local craft brands and that is increasing competition in the category. We’re happy with the help of our brand portfolio and remain positive about the future of craft beer.

We have started testing our Freshest Beer in Town program with two wholesalers to reduce wholesaler inventory and improve the freshness of our beers in those markets. Wholesalers typically carry approximately four or five weeks of packaged inventory and three to four weeks of draft inventory.

Our goals are to reduce this through better on time service forecasting, production planning and cooperation with our wholesalers. We believe that in the long-term, this program will improve the quality of our beer in the market and reduce cost and improve efficiencies at our breweries and in the distribution system. We’re excited by the opportunity of this Freshest Beer in Town program and intend to continue to learn and if successful, expand testing to cover more of our volume.

I’ll now pass it over to Martin for a more detailed overview of our business.

Martin Roper

Thanks, Jim. Good afternoon, everyone. As we state in our earnings release, some of the information we discuss in the release and that may come up on this call reflect the company’s or management’s expectations or predictions of the future. Such predictions and the like 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 in the company’s most recent 10-K and 10-Q. You should also be advised that the company does not undertake to publicly update the forward looking statements, whether as a result of new information, future events, or otherwise.

We believe we performed well in the third quarter and that the business continues to be healthy and maybe responding to our increased investments in local marketing and point of sale and increases in sales force personnel. We have been working hard to grow the business and have seen improving trends in September and October.

We have increased our expectations for full year depletions growth to between nine and 11% to reflect this improvement. We have continued to increase our investment in our sales force and other brand support activities in order to maintain our momentum.

Year-to-date depletions through October 2010 are estimated to be up approximately 11% from the same period in 2009 with one last selling day in the October 2010 period.

Shipments and orders in hand suggest the core shipments year-to-date through December 2010, will be up approximately 10% compared to the same period in 2009. Actual shipments may differ, and no inferences should be drawn with respect to shipments in future periods.

As we look forward to 2011, we expect to increase our sales force and brand support levels further to address the increasing the competitive activity and to grow our brands appropriately given the opportunities we see. It is possible that these decisions might result in slower earnings growth in 2011 as we may forsake some earnings in the short-term in order to build our organizational capabilities and support our brands at appropriate levels.

In our test of improving the freshness of our beers at wholesalers, we have successfully reduced the participating wholesaler’s inventories by approximately two weeks resulting in fresher beer being delivered to retail. Jim referred to this program as the Freshest Beer in Town program, but Bill and I may refer to it just as Freshest Beer program to keep it brief.

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