Boston Beer 3rd quarter results – 2009
Boston Beer Reports Third Quarter 2009 Results
BOSTON, Nov. 5 — The Boston Beer Company, Inc. (NYSE: SAM) reported a third quarter core product depletions increase of 6% as compared to the third quarter of 2008. Net revenue for the third quarter of 2009 was $108.7 million, an increase of $7.6 million, or 8%, over the same period last year. Net income for the third quarter was $10.4 million, or $0.72 per diluted share, an increase of $10.7 million, or $0.74 per diluted share, from the third quarter of 2008, primarily as a result of increased core shipments and improved gross margins.
The third quarter 2008 results included the estimated after-tax negative impact on net income of $1.2 million, or $0.08 per diluted share, resulting from accruals for full year shortfall fees at other brewers as a result of volumes transferred to the Pennsylvania Brewery, and $1.2 million, or $0.08 per diluted share, resulting from additional costs of a product recall initiated in April 2008. Excluding these provisions, the Company’s third quarter net income increased $8.3 million, or $0.58 per diluted share.
Jim Koch, Chairman and Founder of the Company, commented, “Our 6% depletions growth in the third quarter exceeded our expectations. We believe that these results continued the improved trends that we began to see towards the end of the second quarter. While trends have improved, we continue to face increased competition from expanded distribution of domestic specialty brands and regional craft brands. We are happy with our sales execution, our brand strength and our position within the craft category and remain positive about the future of craft beer and our potential for future growth.”
Key highlights of the third quarter were:
- Depletions growth of 6% for the quarter and 2% year to date, adjusted for comparable selling days.
- The Packaging Services Agreement with Diageo North America, Inc. ended on May 2, 2009. The Pennsylvania Brewery is now dedicated solely to brewing the Company’s beers and is showing efficiency, capacity and cost improvements.
- Gross margins improved to 54% for the quarter and 51% year to date, but remain significantly lower than the gross margins realized prior to 2006, due to the significant brewery operating, packaging and ingredient cost increases experienced since then, which have not been fully offset with pricing.
- Estimate of earnings per diluted share for 2009 has been increased from previous guidance of $1.40 to $1.70 to between $1.75 and $2.05.
Martin Roper, the Company’s President and CEO, stated, “During the third quarter we experienced an improvement in our underlying brand volumes. The brands may have responded positively to the redesign of our packaging and the increased investment in media advertising and our sales force, but it is also possible that some of the drinkers of the competitive variety introduced in the last 24 months may be returning to our beers. Looking forward, we have no certainty that these trends will continue but we intend to continue our increased investment and sales activities levels. We feel we are in a good position to compete effectively through the strength of our brand and our sales force and are currently projecting that we should finish the year with depletions growth of approximately 2% to 3%. ”
Mr. Roper continued, “Our Pennsylvania Brewery continues to brew great Samuel Adams beer and has now completed its first full quarter dedicated solely to brewing our products. Our gross margins improved again, as the Diageo contract volumes were very low margin. We have also seen some efficiency gains as the brewery focuses on brewing and packaging beer.
The third quarter costs also benefited from increased utilization of capacity relative to prior quarters. We believe we are on the right track to bring the Pennsylvania Brewery’s economics closer to what we anticipated and to increase capacity to support future growth. We are focused on a multi-year program to identify and execute projects that will continue to reduce cost, drive efficiency and increase productivity at both our Pennsylvania Brewery and our Cincinnati Brewery.
Looking forward to 2010, we expect that continued improvement in the efficiencies at our breweries will contribute to improved gross margins compared to 2009 but that this will not return us to the gross margins experienced prior to the increases in brewery operating costs and packaging and ingredient costs since 2006. ”
3rd Quarter Results
Core shipment volume for the three months ended September 26, 2009 was approximately 538,000 barrels, a 7% increase versus the same period in 2008. Excluding the impact of the product recall in 2008, core shipment volume increased 6%. The third quarter depletions increase of 6% was primarily attributed to increases in Samuel AdamsÂ® Seasonals, the Twisted TeaÂ® brand family and the Samuel AdamsÂ® Brewmaster’s Collection, which were partially offset by decreases in Samuel Adams Boston LagerÂ® and Sam Adams LightÂ®.
Bill Urich, Boston Beer Company CFO, said, “Our third quarter 2009 gross margin of 54% represented an increase of 10 percentage points over our third quarter 2008 gross margin that included the impact of the 2008 product recall and shortfall fees. Excluding the impact of the recall and shortfall fees in 2008, our gross margin has increased by 6 percentage points. This increase is due primarily to price increases, improved costs of operating our breweries, driven by lower energy costs, and the impact of the low margin Diageo contract production in the third quarter of 2008, partially offset by increased costs of package materials.”
The Company’s net income of $10.4 million, or $0.72 per diluted share, for the three months ended September 26, 2009 represents an increase of $10.7 million, or $0.74 per diluted share, from the same period last year. The increase in net income is primarily due to increased core shipments, improved gross margin and lower advertising, promotional and selling costs, driven by lower freight costs, offset by an increase in the provision for income taxes.
Third quarter 2009 advertising, promotional and selling expenses were $1.3 million lower than those incurred in the third quarter of 2008, primarily as a result of decreases in freight expenses for shipping beer to wholesalers, driven primarily by reduced fuel costs, and the timing of certain marketing programs, offset by an increase in advertising and salary and benefit costs related to the addition of sales personnel.
Third quarter 2009 general and administrative costs were $1.0 million lower than those incurred in the third quarter of 2008, primarily as a result of reduced salary and benefit costs. The Company recorded a tax provision in the third quarter of 2009 of $6.8 million, compared to $0.9 million in the prior year. The Company currently expects its full year tax rate to be approximately 43%.
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