The Boston Beer Company, Inc. — Q2 2015 Form 10-Q
Reporting period: Thirteen weeks ended June 27, 2015; year-to-date figures cover the twenty-six weeks ended that date. Comparisons are with the corresponding 2014 periods. Unless stated otherwise, dollar amounts are in millions.
Financial performance
| Metric | Q2 2015 | Q2 2014 | First half 2015 | First half 2014 |
|---|---|---|---|---|
| Net revenue | $252.2 | $231.6 | $451.7 | $415.5 |
| Gross profit | $136.2 | $123.1 | $235.8 | $213.6 |
| Operating income | $46.8 | $40.5 | $69.0 | $53.9 |
| Net income | $29.9 | $25.4 | $43.7 | $33.7 |
| Diluted EPS | $2.18 | $1.88 | $3.18 | $2.49 |
- Q2 net revenue grew 8.9%; total shipments rose 6.8% to 1.125 million barrels. Core-brand depletions grew approximately 5.9%. First-half net revenue grew 8.7%, shipments increased 6.5% to 2.014 million barrels, and core depletions rose approximately 6.7%.
- Core-brand net revenue per barrel increased 2% in both periods, primarily from price increases and product/package mix. Core gross margin was 54.1% in Q2 (53.1% prior year) and 52.3% year to date (51.4%).
- Q2 advertising, promotional and selling expense increased 8.3% to $71.4 million; first-half expense rose 3.5% to $131.6 million. General and administrative expense increased 8.1% in Q2 and 8.3% year to date, mainly due to compensation and consulting costs.
- First-half operating cash flow was $78.4 million, versus $38.3 million. Investing cash use was $38.9 million, versus $88.4 million; financing cash provided was $31.2 million. Operating cash flow included a $17.2 million IRS tax refund.
- Cash and cash equivalents were $147.0 million at June 27, up from $76.4 million at year-end. Current assets were $281.3 million and current liabilities $118.4 million. The company had no revolver borrowings and reported $471,000 of long-term debt and capital lease obligations.
Changes, outlook and risks
- Growth in Angry Orchard, Twisted Tea and Traveler more than offset declines in Samuel Adams shipments and depletions. Management said distributor inventory was at an appropriate level.
- Management maintained 2015 diluted EPS guidance of $7.10–$7.50, but lowered expected full-year depletion and shipment growth to 6%–9% from 8%–12%. Year-to-date depletions through July 18 were estimated up approximately 6%.
- Other 2015 targets: gross margin of 51%–53%; national price increases of 1%–2%; effective tax rate of approximately 37%, reduced from 38%; and capital expenditures of $70–$100 million, reduced from $80–$110 million. Planned advertising, promotional and selling investment was expected to increase $25–$35 million, including $10–$15 million for Traveler and other Alchemy & Science brands. Management cautioned that actual results and brand investment needs could vary, and increased spending may not generate volume growth.
- At June 27, non-cancelable purchase commitments totaled $138.7 million, including ingredients, equipment, advertising and bottles. The company reported no pending or threatened litigation expected to have a material adverse financial impact and no material off-balance-sheet arrangements.
- The company cited no significant change in interest-rate or foreign-currency exposure and does not use derivatives for hedging or trading. It identified forward-looking statements as subject to risks that could cause actual results to differ; additional risk factors are in its 2014 Form 10-K.
- Share repurchases totaled approximately $41.4 million during the first half and through July 24. The board increased the repurchase authorization to $400 million in May and to $475 million on July 29, after quarter-end.
Important facts for investors to verify
- Whether shipment and depletion growth can meet the revised 6%–9% range, particularly given continued Samuel Adams declines.
- Whether full-year EPS and gross-margin targets remain achievable as advertising and brand investment increase.
- The quality and sustainability of operating cash flow, including the one-time $17.2 million tax refund and working-capital movements.
- Execution of brewery capital spending and the company’s ability to meet growth needs within its stated capacity plans and purchase commitments.
- Repurchase activity and remaining authorization following the post-quarter increase to $475 million.