Boston Beer Company, Inc. — Form 10-Q Summary
Reporting period: Thirteen and thirty-nine weeks ended September 28, 2013; comparisons are to the periods ended September 29, 2012. The company sells Samuel Adams, Twisted Tea, Angry Orchard and other beverages in the U.S. and selected international markets. Amounts below are in millions unless noted.
Financial performance
| Metric | Q3 2013 | Q3 2012 | 39 weeks 2013 | 39 weeks 2012 |
|---|---|---|---|---|
| Net revenue | $216.4 | $166.4 | $533.7 | $427.2 |
| Gross profit | $115.4 | $93.2 | $280.3 | $235.4 |
| Operating income | $42.2 | $33.3 | $84.0 | $68.6 |
| Net income | $25.7 | $20.8 | $52.3 | $42.6 |
| Diluted EPS | $1.89 | $1.53 | $3.85 | $3.14 |
| Gross margin, calculated | 53.3% | 56.0% | 52.5% | 55.1% |
- Q3 net revenue increased 30.0%; year-to-date net revenue increased 24.9%. Core-brand shipments rose 29% in Q3 and 23% year to date; core-brand depletions rose approximately 26% and 23%, respectively.
- Core-brand net revenue per barrel increased 1.2% in Q3 and 1.6% year to date. Core-brand gross margin fell to 53.3% from 56.1% in Q3 and to 52.5% from 55.2% year to date, mainly due to higher brewery processing and ingredient costs and product mix.
- Advertising, promotional and selling costs rose 17.8% in Q3 and 15.0% year to date, excluding customer program costs reclassified as revenue reductions in 2013. Including those programs, related costs rose $11.8 million in Q3 and $28.0 million year to date. G&A increased 28.1% in Q3 and 23.6% year to date.
- Cash from operations was $66.9 million year to date, versus $64.8 million. Capital expenditures were $73.1 million, versus $49.5 million; investing cash outflow was $75.8 million. Repurchases used $29.6 million, contributing to a $30.7 million decline in cash.
Financial position and liquidity
- At September 28, cash and cash equivalents were $43.7 million, down from $74.5 million at December 29, 2012. Current assets were $173.4 million and current liabilities $125.1 million.
- Total debt and capital lease obligations were approximately $0.6 million. The $50 million revolving credit facility had no borrowings and was fully available; it expires March 31, 2015. The company reported compliance with its covenants.
- Property, plant and equipment increased to $248.4 million from $189.9 million. Inventory increased to $59.5 million from $44.4 million; management attributed inventory and receivables growth partly to higher finished goods, raw materials and international receivables.
- Non-cancelable purchase commitments totaled approximately $112.1 million, including hops and malt, equipment, and advertising commitments.
Outlook, commentary and notable items
- For 2013, management forecast diluted EPS of $5.05–$5.35, reduced from $5.10–$5.40 after a land impairment and increased brand investment; depletion growth of 21%–24%; gross margin of 52%–54%; and an effective tax rate of approximately 38%. Estimated capital expenditures were $100–$120 million.
- For 2014, management forecast depletion and shipment growth in the mid-teens, price increases of 2%–3%, gross margin of 52%–54%, and capital expenditures of $140–$180 million. It planned higher advertising and promotional investment; management cautioned that investment may not produce volume growth. The company expected existing owned and contracted brewing capacity to cover requirements through 2014.
- A $1.3 million impairment charge related to Freetown, Massachusetts land the company no longer intends to use for a brewery. The company also acquired substantially all Coney Island business assets for a preliminary $2.9 million purchase price.
- Environmental remediation liabilities and matching assets totaled approximately $3.2 million; management said additional costs above current estimates were not expected to materially affect financial position or results. The IRS was examining 2010 and 2011 tax returns. The company’s appeal concerning the High Falls brewery ownership dispute was denied; it reported no pending or threatened litigation expected to have a material adverse effect.
- Management said there were no significant changes in interest-rate or foreign-currency exposures and no off-balance-sheet arrangements. Forward-looking estimates are subject to risks and may differ materially from actual results.
Most important facts for investors to verify
- Whether shipment and depletion growth, especially in Angry Orchard, Samuel Adams and Twisted Tea, continued after the reported period.
- Whether higher ingredient, packaging, processing and freight costs continue to pressure gross margins, and whether planned pricing offsets them.
- Whether increased brand spending delivers expected growth and whether 2013–2014 EPS, margin and capital expenditure forecasts are met.
- Cash conversion and working-capital trends, given higher receivables and inventory, alongside substantial planned capital spending and share repurchases.
- Potential outcomes of the tax examinations and any changes in environmental remediation costs or other contingencies.