As the fifth-largest craft brewing company in the U.S., Craft Brew Alliance (BREW, Financial) 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 bringing authentic craft beers and brands to life through strategic partnerships with emerging brands. In 2014, it forged a partnership with Appalachian Mountain Brewery (HOPS, Financial), 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.
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.
The company reported record second-quarter results that boast of the strong top-line growth and gross margin improvement. It is reiterating its full-year guidance. It is anticipating incremental operational benefits in the second half of the year
Second-quarter performance
Net sales during the second quarter were $62.3 million, which marked an increase of $3.7 million or 6.4% from the prior-year quarter. This was driven by a 3.9% increase in revenue per barrel and a 3% increase in overall shipments.
Shipments of owned and partnership beers increased by 10,700 barrels, or 4.7%, to 239,000 barrels over the second quarter of 2015.
Depletions for Kona continued to outpace the growth of craft, increasing by 18% for the quarter and driving CBA’s overall depletion volume up by 3% for the quarter, compared to the same period in 2015.
The second-quarter gross margin rate increased by 100 basis points and was 32.9%, which was 31.9% during the prior-year quarter. This led to a $1.8 million, or 9.7%, increase in gross profit.
Beer gross margin rate increased by 70 basis points and was 35.3% in the second quarter (34.6% in the prior-year quarter).
Brewpub gross margin rate increased by 180 basis points and was 15.2% (13.4% in the prior-year quarter).
Selling, general and administrative (SG&A) expense as a percent of net sales decreased to 26.6% (which was 27.8%in the prior-year quarter).
SG&A expense for the quarter was $16.5 million, which represents a 1.8% increase over the second quarter of 2015.
Net income during the quarter was $2.3 million, which marked an increase of $871,000 or 63% from the prior-year quarter.
Diluted earnings per share for the second quarter were 12 cents (an increase of 5 cents from the prior-year quarter).
Year-to-date performance
Net sales increased by 1.3% from the prior-year period.
Shipments of owned and partnership beers decreased by 5,400 barrels, or 1.4% from the prior-year period.
Depletions for Kona increased by 19% while overall depletions were flat compared to the same time period in 2015.
Year-to-date gross margin rate is 28.8%, which marked a decrease of 100 basis points from 29.8% during the prior-year period.
Beer gross margin rate decreased by 140 basis points and was 31.2% (32.6% in the prior-year period).
Brewpub gross margin rate increased by 230 basis points and was 14.0%, (which was 11.7% in the prior-year period).
SG&A for the first half of 2016 increased by $1.3 million, or 4.3%, compared to the same period in 2015, due primarily to emerging business and international support and brand marketing.
Diluted loss per share for the first half was 5 cents, which was 1 cent during the prior-year period).
Expectations for 2016
| Ă‚ | Range |
| Full-year shipment growth | To be between 1% and 2% |
| Gross margin | To be between 31.0% and 32.5% |
| SG&A | To be between $58 million and $59 million |
| Capex | To be between $19 million and $23 million |
| Average price increases | To be 1% to 2% |
Focus
- Strengthening the top line by utilizing the growth potential of its “Kona Plus” strategy.
- Actualizing the future with strategic partners Appalachian Mountain Brewery and Cisco Brewers.
- Optimizing its brewery operations for long-term business health.
- Driving continual innovation in beer recipe development.
Conclusion
Craft Brew Alliance is a leading craft brewing company that brews, brands and markets some of the best-loved American craft beers. In addition to growing and nurturing distinctive brands rooted in local heritage, Craft Brew Alliance seeks to develop innovative new category leaders like Omission Beer, which is the No. 1 beer in the gluten-free beer segment, and Square Mile Cider, its tribute to the early American settlers who purchased the first plots of land in the Pacific Northwest.
The company expects the International business to contribute to its top-line objectives while the operational enhancements it absorbed this past quarter will generate significant efficiencies that will enable it to achieve gross margin targets and improve its bottom line.
The company has been able to deliver the largest net sales, depletions and shipments in its history while making steady improvements to the core business health, despite increasing competition and dynamic industry change. The company is doing well and has plenty of room to grow. Adding this company will reap shareholder returns.
Disclosure: I do not hold any position in the company.
Start a free seven-day trial of Premium Membership to GuruFocus.
