The Boston Beer's CEO Discusses Q2 2012 Results - Earnings Call Transcript

The Boston Beer Company (SAM)

Q2 2012 Earnings Call

August 1, 2012 5:00 p.m. ET


Jim Koch – Chairman

Martin Roper - President and CEO

Bill Urich – CFO and Treasurer


Kaumil Gajrawala - UBS

Judy Hong - Goldman Sachs

James Watson - HSBC Securities

Michael Lavery - CLSA

Andrew Kieley - Deutsche Bank



Good afternoon. My name is Hope and I will be your conference operator today. At this time I would like to welcome everyone to the second quarter 2012 earnings conference call. (Operator instructions)

Thank you. Mr. Jim Koch, Founder and Chairman, you may begin your conference.

Jim Koch

Thank you. Good afternoon and welcome, this is Jim Koch, founder and chairman and I am pleased to be here to kick off the 2012 second-quarter earnings call for The Boston Beer Company. Joining the call from Boston Beer are Martin Roper, our CEO, and Bill Urich, our CFO.

I’ll begin my remarks this afternoon with a 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 second quarter as well as a review of our outlook for 2012. Immediately following Bill’s comments, we’ll open up the lines for questions.

I am pleased with our overall depletions growth of 7% for the quarter and 9% for the first half of the year. We believe that craft beer will continue to grow and that we are well positioned to share in that growth through the quality of our beers, our innovation capability, our sales execution, and coupled with our strong financial position that gives us the ability to invest in our brand.

For the fourth year in a row, our wholesalers ranked us the number one beer supplier in the industry, in the annual poll of beer wholesalers conducted by Tamarron Consulting, a consulting firm specializing in the alcoholic beverage distribution industry. Our wholesalers ranked us first in all but two of more than a dozen categories that Tamarron uses to evaluate performance. This is an important testament to all the efforts by all The Boston Beer Company employees who service and support our wholesalers' business and to the relationships we have built with our wholesalers.

I am proud that we continue to be a leader in the craft industry in both innovation and variety as well. During the quarter, we introduced several exciting new beers including Porch Rocker, small batch brews Samuel Adams Verloren and Samuel Adams Norse Legend, and our Hopology, a unique twelve pack of six distinctly different IPA styles.

As we enter the third quarter, we are updating the packaging for all Sam Adams styles and have introduced the next evolution of our brand communication which builds on our previous messaging. We remain confident about the long term prospect for the craft category and our Samuel Adams brand.

I will now pass over to Martin for a more detailed overview of our business.

Martin Roper

Thank you 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. 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.

In the second quarter our depletions growth benefited from strength in our Samuel Adams Seasonal, Twisted Tea and Angry Orchard brands, offset by some slight decline in some of our other Samuel Adams brand styles. Highlights in the quarter include the continued success of our Samuel Adams Seasonal program and increased volume and distribution due to completing the national rollouts of our Twisted Tea and Angry Orchard brands.

Based on the strength of these rollouts, we have increased investments in our sales force and our Samuel Adams brand, and have built a stronger Boston Beer brand portfolio for our wholesalers, retailers and drinkers. Based on what we are seeing, we are increasing our projection for full year depletions growth. As we look forward, it is likely we will increase investments in advertising, promotional and selling expenses in existing brands and in innovation, commensurate with the opportunities and the increased competition that we see.

Specifically, we are investing in systems and capital equipment to enable us to manage the increasing complexity effectively and expand the capacity and capabilities of our breweries. We plan on adding over 30 sales positions and making other investments to address specific needs in the market. We are prepared to forsake some earnings in the short-term as we make appropriate investments in brand-building activities and capital improvements in our brewing and packaging capabilities to position us well for long-term growth and continued efficiency gains.

Alchemy & Science, our craft brew incubator, is in the early stages of two exciting projects. Its House of Shandy brand successfully launched its Curious Traveler Shandy in draft package in 13 markets this year and will be adding a new style as well as bottles in the third quarter. Angel City Brewery brewed and packaged its first kegs and re-launched in the Los Angeles market. These projects have had minimal sales to date.

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