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Mrinalini Chaudhuri
Mrinalini Chaudhuri
Articles (498) 

Investors Should Consider Adding Beer Company to Their Portfolios

Craft Brew Alliance reports strong 3rd quarter and boasts of consistent double-digit growth

December 29, 2015 | About:

As the fifth-largest craft brewing company in the U.S., Craft Brew Alliance (NASDAQ:BREW) is a leader in brewing, branding and bringing to market some of the world’s best-loved American craft beers.

It has a passion for growing authentic craft beers and brands to life through strategic partnerships with emerging brands. In 2014, it forged a partnership with Appalachian Mountain Brewery (HOPS), expanding the alliance with the first craft brewery established in Boone, North Carolina. The company is making plans to address the shifting beer landscape and meet the increasing consumer demand for authentic local brews.

Over the years, it has evolved for an ever-changing industry. It posted strong third-quarter results. The company continued to make steady forward progress in the third quarter, posting strong results despite facing unprecedented competition and market challenges. The gross margin initiatives taken by the company delivered a 15% increase in gross profit while continuing to take meaningful steps toward building a future with the addition of the newest strategic partner, Cisco Brewers.

Strong third quarter

Net sales and total beer shipments increased by 5.0% and 2.2% compared to the third quarter of 2014. The net sales increase reflects increased shipment volume and pricing, higher pub sales and a shift in package mix from draft to bottles and cans, which have a higher selling price per barrel than draft.

The beer gross margin rate increased by 320 basis points to 33.3% in the third quarter, which was 30.1% in the prior year quarter. This increase was primarily due to pricing, lower distribution costs and better brewery balance and performance. Pub gross margin rate decreased by 40 basis points to 15.8%, which was 16.2% in the prior year quarter. As a result, the combined third-quarter gross margin rate increased by 270 basis points to 30.8%, which was 28.1% during the prior year quarter.

Owned capacity utilization was 75% in the third quarter of both 2015 and 2014.

As a percentage of net sales, selling, general and administrative expense increased to 28.3% in the third quarter, which was 26.0% in the prior year quarter, due to planned increases in labor, marketing and other expenses, offset by lower-than-anticipated net sales.

Diluted income per share for the third quarter of 2015 increased to 4 cents, which was 3 cents in the prior year quarter.

International business continued to grow with international shipments increasing by 120% over the third quarter of 2014, driven by the continued strength of the Kona brand family.

Kona, now a top 10 national craft beer brand and the lead brand in its portfolio, and Omission, the No. 1-selling beer for consumers seeking to avoid gluten, delivered solid depletion growth in the third quarter. Kona grew depletions by 16% over the third quarter of 2014, and Omission delivered 7% depletion growth over the third quarter of 2014.

Projections for 2015

The company expects the following:

  • Owned beer shipment growth between 1% and 3%.
  • Average price increase of 1% to 2%.
  • Contract brewing revenue is expected to be flat compared to 2014.
  • Gross margin rate to be around 30.5% to 31.5%.
  • SG&A expense to be around $58 million to $61 million.
  • Capital expenditures of approximately $16 million to $19 million. The company expects capital expenditures of approximately $17 million to $21 million in 2016.

Positive attributes

  • More than three decades of craft beer experience.
  • Powerful national infrastructure.
  • Gross margin.
  • Consistent double-digit growth.
  • Disciplined pricing.

Focus

The company is focusing on the following:

  • Maintaining a healthy balance between overall depletions and shipments.
  • Enhancing gross margin.
  • Driving tighter cost management.
  • Improving the financial returns on investments.

Management

On Dec. 14 the company announced that its board of directors elected David R. Lord board chairman, effective Jan. 1, 2016. Lord has been a member of the Craft Brew Alliance Board of Directors since its inception in 2008 and has been involved with the company since 2003, having previously served on the Redhook Brewery Board of Directors from 2003 until 2008. He will succeed Kurt R. Widmer, who is retiring as chairman at the end of this year.

(Source: Company Website)

On a concluding note

The company is home to three of the earliest pioneers in craft beer: Redhook Ale Brewery, Washington’s largest craft brewery founded in 1981; Widmer Brothers Brewing, Oregon’s largest craft brewery founded in 1984, and Kona Brewing Company, Hawaii’s oldest and largest craft brewery founded in 1994. As part of Craft Brew Alliance, these craft brewing legends have expanded their reach across the U.S. and more than 15 international markets.

Craft Brew Alliance is a leading craft brewing company that brews, brands and markets some of the world’s most respected and best-loved American craft beers. In addition to growing and nurturing distinctive brands rooted in local heritage, Craft Brew Alliance is committed to developing innovative new category leaders, such as Omission Beer, which is the No. 1 beer in the gluten-free beer segment, and Square Mile Cider, a tribute to the early American settlers who purchased the first plots of land in the Pacific Northwest.

The company is doing well and has plenty of room to grow. Investors should consider adding it to their portfolios.

Disclosure: I do not hold any position in the company.


Rating: 4.0/5 (2 votes)

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