The Boston Beer Company, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 26, 2020 (52 weeks). The filing also reports fourth-quarter results. Boston Beer sells hard seltzer, flavored malt beverages, craft beer and hard cider, led by Truly, Twisted Tea, Samuel Adams, Angry Orchard and Dogfish Head.
Financial performance
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Revenue before excise taxes | $1,851.8 million | $1,329.1 million | 39.3% increase |
| Net revenue | $1,736.4 million | $1,249.8 million | 38.9% increase |
| Barrels sold | 7.368 million | 5.307 million | 38.8% increase |
| Gross profit / margin | $814.5 million / 46.9% | $614.2 million / 49.1% | Margin down 2.2 percentage points |
| Operating income | $244.2 million | $144.9 million | 68.5% increase |
| Net income | $192.0 million | $110.0 million | 74.4% increase |
| Diluted EPS | $15.53 | $9.16 | Increase |
| Cash from operating activities | $253.4 million | $178.2 million | Increase |
| Capital expenditures | $140.0 million | $93.2 million | Increase |
Growth was primarily driven by Truly Hard Seltzer and Twisted Tea, with an additional contribution from Dogfish Head. Samuel Adams and Angry Orchard shipments declined. Net revenue per barrel was essentially flat at $235.67, versus $235.51. Cost of goods sold per barrel rose 4.5%, mainly from greater use of higher-cost contract brewing, production costs and keg inventory write-offs.
Fourth quarter: Net revenue was $460.9 million, gross profit $216.3 million, operating income $42.1 million and net income $32.8 million. In Q4 2019, the comparable figures were $301.3 million, $142.8 million, $17.7 million and $13.8 million, respectively.
Liquidity, debt and balance sheet
- Cash and cash equivalents were $163.3 million at year-end, up from $36.7 million; working capital was $153.8 million, versus $38.0 million.
- Total assets were $1.379 billion and stockholders’ equity was $957.0 million.
- No borrowings were outstanding under the $150 million revolving credit facility at year-end; the facility expires in March 2023. The company reported no covenant violations.
- Long-term obligations were reported as $129.9 million in selected financial data; this includes obligations other than funded borrowings. Operating lease liabilities totaled $67.4 million.
Material changes, outlook and risks
- Distributor depletions increased approximately 37% in 2020. The company estimated early-2021 depletions were up about 53% for the six weeks ended February 6, 2021.
- COVID-19 reduced on-premise keg demand: kegs fell to 3% of shipments from 11% in 2019. The company recorded $16.0 million of COVID-related pretax revenue reductions and costs, including $1.8 million in Q4. Brewery safety measures reduced productivity and shifted more production to contract brewers, pressuring gross margin.
- Management targeted 2021 shipment and depletion growth of 35%–45%, non-GAAP diluted EPS of $20–$24, price increases of 1%–2%, and gross margin of 45%–47%. The EPS target excludes the effect of stock-compensation accounting standard ASU 2016-09. These are targets, not assurances.
- Planned 2021 advertising, promotional and selling expense increase: $120–$140 million. Planned 2021 capital expenditures: $300–$400 million, mainly for brewery capacity and efficiency. Management said available cash, expected operating cash flow and the unused credit line should fund requirements.
- Packaging shortages—particularly cans, cardboard wraps and glass—disrupted Q4 production schedules. Management expected sufficient 2021 supply, but growth, supplier concentration and production capacity remain execution risks. City Brewing supplied 33% of 2020 shipment volume; the company has minimum-volume commitments and potential contractual shortfall fees.
- Other notable items included $4.5 million of asset impairment charges, primarily on brewery equipment, and a $2.0 million expense related to termination of a union pension plan. No material pending or threatened litigation was reported. The auditor issued unqualified opinions on the financial statements and internal controls; valuation of the Dogfish Head brand name was identified as a critical audit matter.
Important facts for investors to verify
- Whether high growth in Truly and Twisted Tea continues and offsets declines in Samuel Adams and Angry Orchard.
- Whether capacity investments and contract brewing can meet demand without further margin deterioration or supply interruptions.
- Whether 2021 growth, margin, EPS and capital-spending targets are achieved; the EPS outlook is non-GAAP and excludes a potentially variable stock-compensation effect.
- Whether the Dogfish Head brand’s projected revenue supports its $98.5 million carrying value; its estimated fair value was 117.7% of carrying value in the 2020 impairment test.
- Whether distributor inventory levels, customer incentives, stale-product returns and production commitments remain appropriate as demand and channel conditions change.