Boston Beer Company, Inc. — FY2021 Form 10-K
Reporting period: 52 weeks ended December 25, 2021; comparison is with the 52 weeks ended December 26, 2020. This is an annual filing, not a standalone fourth-quarter report.
Business context
Boston Beer sells alcoholic beverages primarily in the United States, including Truly Hard Seltzer, Twisted Tea, Samuel Adams, Angry Orchard, Dogfish Head and Bevy Long Drink. It competes across High End beer and “Beyond Beer” categories and relies on independent distributors, company breweries and contract production facilities.
Key financial results
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Net revenue | $2,057.6 million | $1,736.4 million | +18.5% |
| Gross profit / margin | $797.8 million / 38.8% | $814.5 million / 46.9% | Margin down 8.1 percentage points |
| Operating income | $8.0 million | $244.2 million | −96.7% |
| Net income | $14.6 million | $192.0 million | −92.4% |
| Diluted EPS | $1.17 | $15.53 | Down substantially |
| Operating cash flow | $56.3 million | $253.4 million | −$197.1 million |
| Capital expenditures | $147.9 million | $140.0 million | +$7.9 million |
Shipments were 8.504 million barrels, up 15.4%; distributor depletions rose approximately 22%. Net revenue per barrel increased 2.7% to $241.97, primarily from pricing, partly offset by package mix. Cost of goods sold per barrel rose 18.4% to $148.15. The filing does not provide a clear standalone Q4 revenue or earnings figure in the supplied text; it reports Q4 shipment volume down 24.5% year over year while depletions increased 15%.
At year-end, cash and cash equivalents were $26.9 million and restricted cash was $39.5 million, for total cash, cash equivalents and restricted cash of $66.3 million. Current assets were $345.3 million and current liabilities $255.1 million. Total liabilities were $403.4 million and stockholders’ equity $983.4 million. No credit-facility borrowings were outstanding at year-end. The company had a $150 million revolving facility; management stated that $20 million had been drawn as of the filing date and was expected to be repaid in Q2 2022. The company said available liquidity and expected operating cash flows should fund needs over the next 12 months and longer term.
Material changes and unusual items
- The hard-seltzer market’s volume growth slowed from approximately 158% in 2020 to 13% in 2021. The company reported $102.9 million of direct costs related to the slowdown, including inventory charges, contract termination costs and project impairments, plus $93.5 million of indirect costs. These costs, alongside higher materials and operating expenses, sharply reduced profitability and cash generation.
- Advertising, promotional and selling expenses increased 35.6% to $607.0 million, driven by higher brand investment and freight. Cost of goods sold increased 36.6% to $1,259.8 million.
- The 2021 income tax benefit was $7.6 million, compared with a $52.3 million provision in 2020; the filing attributes the change primarily to stock-option tax benefits and lower pretax income.
- Distributor inventories averaged about five weeks on hand at year-end. Management expected lower inventory levels than in 2021 and shipment declines in Q1 2022, followed by growth in Q2.
- The company expects approximately $38 million in third-party production shortfall fees under current volume projections, including $6 million in 2022, $15 million in 2023, $11 million in 2024 and $6 million in 2025. If volumes over the remaining contract terms were zero, contractual shortfall fees could total approximately $210 million.
Outlook, risks and contingencies
Management targeted 2022 shipment and depletion volume growth of 4%–10% and planned capital investment of $140 million–$190 million. New initiatives included Hard Mountain Dew, Sauza Agave Cocktails and a Patagonia co-branded beer; management forecast the combined newly licensed brands would represent less than 4% of 2022 net revenue. The company also planned limited cannabis-beverage sales in Canada during Q3 2022.
Key risks include intense competition and uncertainty in hard seltzer demand; supply constraints and inflation in cans, ingredients, freight and other inputs; production dependence on third parties (City Brewing represented about 32% of 2021 shipment volume); possible contract shortfall fees; and execution risks from product and operational complexity. COVID-19 effects and supply-chain disruptions remained uncertain. Two class actions were pending: securities litigation and a consumer false-advertising case concerning Truly product labeling. Potential losses were not estimable. The company reported effective internal controls and received unqualified audit opinions on its financial statements and internal control over financial reporting.
Most important facts for investors to verify
- Whether 2022 volume guidance was achieved, particularly after the expected Q1 shipment decline and distributor inventory adjustments.
- Whether gross margins and operating profitability recovered after the $196.4 million of disclosed direct and indirect hard-seltzer slowdown costs.
- Actual cash generation, capital spending and liquidity, including repayment of the $20 million post-year-end facility draw.
- Production commitments, shortfall fees and the recoverability of third-party production prepayments and inventory reserves.
- Progress and economics of the licensed product launches, and the outcomes or financial exposure from the pending lawsuits.