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(Boston, MA) – The Boston Beer Company announced its fourth-quarter and full-year results for 2012 this week. Let’s dig in…
OVERALL 4TH QUARTER & FULL-YEAR PERFORMANCE
Big quarter looking purely at depletions and shipments (16% and 9% respectively – extra selling week in ’11 explains difference). Depletions and shipments were up 12% and 10% on the year. Gross margin dropped from 55.5% to 54.3% for the full year.
CEO, Martin Roper, said on the conference call accompanying the earnings that Twisted Tea and Angry Orchard becoming a larger part of the product mix has had an impact on gross margin (“one for product cost reasons and the other for tax reasons”) as well as increased capital projects, some of which conclude this year.
MARKET REACTION
Share price dropped from an all-time high of $162.31 on Wednesday afternoon to $149.93 at the end of the trading day on Thursday, a 7.62% drop. One analyst, Zacks, lowered guidance from “outperform” to “neutral.”
2013 OUTLOOK
Depletions are estimated to be up 15% YTD through the first six weeks of 2013. Symphony IRI numbers show the brand family up 9% in case sales through the first four weeks of the year across all off-premise channels.
[Note: we don’t have access to on-premise figures for any of this analysis and the off-premise figures we do have are piecemeal so do your best to follow along…]
The company projects 10-15% depletions growth for the full year.
SAMUEL ADAMS BOSTON LAGER
The release notes that unspecified Samuel Adams styles (other than seasonals) declined. The brand saw a decline of 6.2% and 3.5% respectively in case sales and dollar sales for the full year 2012 in “multi-outlet” channels (primarily consisting of supermarkets, drug stores and mass-market retailers like Wal-Mart). Supermarkets seem to be where much of that decline is happening with both Boston Lager 12-pack and 6-pack sales down in that channel. 12-pack case sales dropped double digits.
Looking at end-of-2012 numbers, bleeding appeared to slow down in the fourth quarter after the company introduced a new look for all of its brands, including Boston Lager. For the first four weeks of 2013, across all channels (multi-outlet and convenience), Boston Lager has actually bounced back into the black, up 2.7% and 3.3% in case and dollar sales. Some energy will be pumped into the brand with the launch of Boston Lager 12-packs of cans. More on that below.
Roper says that competition for shelf space was among the factors for the brand declining in 2012. They are “not happy” with its performance and growing the brand is still the #1 priority for the company.
OTHER BRANDS & PACKAGES
Variety packs were up in the mid-teens across all SIG-tracked channels for the year with much of that growth being driven outside of supermarkets where case sales were up only mid-single digits. Samuel Adams Light and Cherry Wheat, some of the company’s leading brands in supermarkets, both declined double-digits in that channel in case sales.
SAMUEL ADAMS SEASONALS
The leading “SKU” for the company, the seasonal portfolio grew 11.1% and 14.6% in case sales and dollar sales in the multi-outlet channel. Growth has been softer (in the mid-high single digits) in the first four weeks when you factor in the convenience channel though that may be expected as Summer Ale is a stronger seasonal performer than Alpine Spring, which is available now.
TWISTED TEA
The brand grew 17.9% and 20.3% in case sales and dollar sales in the multi-outlet channel.
CEO, Martin Roper, says that they are still learning that drinker but have identified him/her as being more loyal than craft drinkers.
ANGRY ORCHARD HARD CIDER
Angry Orchard is virtually an overnight success with Angry Orchard Crisp Apple making its way into the top-selling 100 brands in supermarkets. It finished neck-and-neck with Woodchuck Amber Hard Cider, a brand that has been established for many years. If that doesn’t signify that it is time for other brewers to play in the cider category, what does?
Chairman and Co-Founder, Jim Koch, noted on the call that the cider market is still only “a third of a percent” of the total beer business.
ALCHEMY & SCIENCE
Outside of a relatively small investment of a few million, this operation didn’t have much impact on 2012. The first brand in this portfolio, Angel City, just opened its brewery in Los Angeles. The second brand, House of Shandy, will hit new markets in 2013. The company also just quietly launched its third brand, The Just Beer Project, in Vermont in December.
Update: Failed to call out that they could double spending this year.
CAPITAL EXPENDITURES
The company spent nearly $70 million on capital projects in 2012 and projects to up that to between $70-$85 million this year.
PRICING
CEO, Martin Roper, says that the company still doesn’t see much opportunity to raise prices in 2013. It’s a market-by-market thing but when they “roll it up,” it doesn’t look like they will be able to cover their cost increases.
He is interested by the introductions of products like Budweiser Black Crown that price between domestics and crafts. He wonders whether beer drinkers (not necessarily just craft consumers but everyone) will trade up or down. He thinks lower-priced entry-level crafts are good for the segment, in general, but says it is still too early to tell.
SHELF SPACE
Roper says they recognized a while ago that “they weren’t getting their fair share of shelf space” so they introduced some new packages to help take care of that. He acknowledged the growing SKU proliferation both from fellow crafts and the “big guys” and referred to the battle as “shelf wars.”
The introduction of cans for the summer season should get the brewer some incremental shelf space, says Koch.
CANS
Speaking of…you have probably read all about the Samuel Adams can launch. You can get a glimpse of the can labels here.
Koch says that they are putting a canning line in their Pennsylvania brewery. He cautioned that no one has ever mass-produced this particular style of can that they have developed nor have they filled it in mass quantities so there is still some uncertainty around timing and execution. He noted that distributors and retailers have welcomed it but didn’t address some of the mixed consumer feedback that the company received.
Roper figures that they will eventually get an improvement on gross margin on can sales but not initially due to upfront investment.
FRESHEST BEER PROGRAM
“While we did not achieve our goals in 2012, we currently have 89 wholesalers in the program and at various stages of inventory reduction and we remain committed to the program. We have over 59% of our volume on our Freshest Beer Program and believe this could reach between 65% and 75% by the end of 2013.”
For those enrolled in the program, Roper says they are seeing a slight improvement in “brand trends” and they think it ultimately lowers costs. Initial setup causes some supply chain issues which they are still working on.