Business context and reporting period
The Boston Beer Company, Inc. sells alcoholic beverages in the U.S. and selected international markets, including Samuel Adams, Truly, Twisted Tea, Angry Orchard and Dogfish Head. This unaudited Form 10-Q covers the 13 weeks ended March 26, 2022; comparisons are with the 13 weeks ended March 27, 2021. Dollar amounts below are in millions unless stated otherwise.
Key financial results
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue before excise taxes | $457.3 | $581.7 |
| Net revenue | $430.1 | $545.1 |
| Gross profit / margin | $173.0 / 40.2% | $249.6 / 45.8% |
| Operating income (loss) | $(2.2) | $76.6 |
| Net income (loss) | $(2.0) | $65.6 |
| Diluted earnings (loss) per share | $(0.16) | $5.26 |
| Operating cash flow | $(41.0) | $19.8 |
| Capital expenditures | $23.8 | $39.3 |
Shipments declined 25.1% to 1.705 million barrels; distributor depletions declined approximately 7%. Net revenue per barrel rose 5.4% to $252.27, primarily due to price increases. Cost of goods sold per barrel increased to $150.83 from $129.71, which pressured gross margin. Advertising, promotional and selling costs were $130.6 million, or 30.4% of net revenue, versus 25.8%; general and administrative costs rose 24.3% to $39.7 million.
Financial position and liquidity
At March 26, 2022, cash and cash equivalents were $15.8 million, down from $26.9 million at fiscal year-end; restricted cash was zero versus $39.5 million at year-end. The company had $15.0 million outstanding on its $150 million revolving credit facility, with $135 million available, and reported covenant compliance. The $15 million balance was repaid on April 11, 2022. Total liabilities were $405.1 million and stockholders’ equity was $984.9 million. The company received a $40.8 million federal tax refund on April 8, 2022.
Operating cash use reflected the quarterly loss and working-capital movements, including increased receivables. Investing cash use was $23.7 million, primarily for brewery capital investments. Financing provided $14.2 million, mainly from net revolver borrowings.
Material changes, outlook and risks
- Management attributed the shipment decline to lower volumes across Truly, Twisted Tea, Angry Orchard and Dogfish Head, partly offset by Samuel Adams increases. It said distributor inventory averaged approximately five weeks and was appropriate.
- Higher supply-chain and materials costs increased cost of goods sold per barrel. Management noted that lower shipments reduced advertising and promotional spending less quickly than volume declined.
- The company recorded $4.8 million of contract termination costs for ending a third-party production arrangement; management said this eliminated estimated future shortfall fees under that contract. Separately, it expects approximately $40 million of shortfall fees under other production arrangements at current volume projections ($6 million for the remainder of 2022, $16 million in 2023, $12 million in 2024 and $6 million in 2025). The stated contractual fees would total approximately $198 million if volume were zero for the remaining contract terms.
- Management expected cash, future operating cash flow and available credit to fund requirements. No quantified full-year revenue or earnings guidance is provided in the filing. The credit facility was due to expire March 31, 2023; the company said it was negotiating an extension and expected an agreement in Q2 or Q3 2022.
- Two securities class-action lawsuits alleging misleading statements about business and prospects remained pending; a potential loss range was not estimable. A proposed consumer false-advertising case concerning Truly labeling was settled during the quarter for an amount not material to the financial statements.
- Commitments for ingredients and packaging, brand support, equipment and other items totaled $327.7 million, with most due in fiscal 2022. The filing also highlights uncertainty in demand and production volumes, which may affect shortfall fees and liquidity.
Important facts for investors to verify
- Whether shipment and depletion trends stabilize, particularly for Truly, and whether pricing offsets volume pressure.
- Whether higher materials and supply-chain costs continue to compress gross margin.
- Actual production volumes, shortfall-fee charges and the recoverability/expense timing of $80.6 million in third-party production prepayments.
- Progress on extending the revolving credit facility and cash generation following the tax refund and repayment of the $15 million borrowing.
- Developments in the securities litigation and any change in the estimated production-fee exposure.