Skip to main content



) -- Shares of

Craft Brewers Alliance

( HOOK) fell sharply early Monday after the little-known craft beer maker posted seemingly lukewarm quarterly results.

Net profits of $1.7 million, or 10 cents per share, were flat year-over-year. The key news was not in the numbers, however, according to Bryce Peterson, founder and president of

Washington Street Investments


As craft and artisanal beer consumption gains momentum in the U.S. --

picking up market share

from the likes of industry titans

Anheuser-Busch Inbev

(BUD) - Get Free Report


SAB Miller


Molson Coors Brewing

(TAP) - Get Free Report

in the process -- there has been speculation that Anheuser-Busch would make a buyout offer for Craft.

Vote: Is Anheuser-Busch Angling to Acquire Craft Brewers Alliance? >>

Peterson says such speculation is premature, but conceded the Budweiser brewer "might think it's smart to buy a strong brand in the craft area and use its incredible distribution and marketing strengths to grow the acquired business."

Washington Street owns about 2.5% of Craft.

Craft already has a distribution agreement with Anheuser-Busch for which it paid $5.8 million last year, and $3 million in the first half of 2010. Craft said Friday that, as of August 12, Anheuser-Busch agreed to reduce that fee by nearly 30% which will result in additional annual top-line savings of $1.6 million. Craft said it expects to reinvest all of the savings from those fees into the development, marketing and support of its brands.

"Boils down to BUD agreeing to fund a marketing campaign for HOOK," Peterson explained.

In other words, Anheuser-Busch sees major national growth potential in several of Craft's beers -- namely Widmer Drifter and Kona Longboard Island Lager, according to Peterson -- and could benefit in the long run if Craft's value, and the value of the beer brands it produces, increases.

It's a more notable point when considering that Craft shares

hit a fresh 52-week high of $6.14 last Wednesday

at quadruple their trailing 30-day average volume, and that trading volume spiked again Friday

ahead of its earnings release


>>Craft Brewers Alliance Taps 52-Week High

It was suggested that Craft's big share price move last week could have been the result of someone trying to accumulate the stock in anticipation of a takeover. "Craft beers represent a niche that larger brewers would no doubt like to get in on," said Scott Rothbort, president of

Lakeview Asset Management

and frequent contributor to


, conceding that he hadn't heard such speculation from any other sources.

Vote: Is Anheuser-Busch Angling to Acquire Craft Brewers Alliance? >>

Big-name brewers like Anheuser-Busch and Molson Coors have

lost market share to smaller brewers

like those operated by Craft and

Boston Beer

(SAM) - Get Free Report

. During 2009, craft beer shipments increased 7.9%, up from the previous annual growth rate of 5.9%, pointing to an accelerating trend. As a percentage of total beer shipped, Craft crept up from 4% to 4.3% in 2009.

"There's no doubt the craft beer industry is a growing sector," Rothbort said.

Craft, a collection of regional breweries including Redhook, Widmer Brothers, Goose Island and Kona, said Friday it grew second-quarter revenue by 4.5% to $37.2 million, despite flat earnings. Peterson said Craft's EPS of 10 cents per share was negatively affected by a 2 cent per share loss from the disposal of beer that did not pass quality control tests. Craft also spent about 3 cents per share more than Peterson expected on marketing and promotional costs. Excluding those combined 5 cents, earnings would have been 15 cents per share.

"They ramped-up the spending to build future growth," Peterson said. "I think HOOK's management sees they have two fast-growing beers in Widmer Drifter and Kona Longboard Island Lager, plus many great seasonal beers, and decided to invest money today to build the brand for tomorrow."

Anheuser-Busch own 35.6% of Craft, according to an April 9 filing with the Securities and Exchange Commission. Brothers Kurt and Rob Widmer, founders of Widmer Brothers beer, own a combined 18% of Craft shares.

Craft announced earlier this month that Kona Brewing, a craft brewer based in Hawaii, would become its wholly-owned subsidiary for the purchase price of $13.9 million.

Shares of Craft fell 3.7% to $5.74 at midday, off earlier lows.

Do you think Budweiser is developing a taste for Craft Brewers? Take our poll below and see what readers of



-- Reported by Miriam Marcus Reimer from New York.


>>Castle Brands Hit by ForEx Hangover

>>Anheuser-Busch Scores With World Cup

>>Craft Brewers Alliance Taps 52-Week High

>>Boston Beer: High Volume Movers

>>Molson Coors Sees Earnings Spike

>>See our new stock quote page.

Follow Miriam Marcus Reimer on


and become a fan of TheStreet on


Get more stock ideas and investing advice on our sister site,

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.