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The Boston Beer Co. Inc., Boston, reported a net revenue increase of 28 percent to $231.6 million in the second quarter of 2014, up $50.3 million from the prior-year period. This growth was supported by core shipment growth of 25 percent to nearly 1.1 million barrels in the second quarter of 2014, the company says.
Net income for the second quarter was $25.4 million, or $1.88 per diluted share, representing an increase of $5.7 million or $0.43 per diluted share from 2013, primarily due to shipment increases, partially offset by increased investments in advertising, promotional and selling expenses.
In addition, depletions grew 23 percent in the second quarter and 28 percent in the first half of the year, compared with the respective prior-year periods, primarily due to increases in the company's Angry Orchard, Samuel Adams and Twisted Tea brand products.
However, gross margin in the quarter decreased to 53.1 percent from 53.6 percent in the prior-year period. The margin decrease was a result of product mix effects and increases in packaging and ingredient costs that were only partially offset by price increases, the company says.
The Boston Beer Co. reports that distributor inventory levels as of June 28 were at appropriate levels. Inventory at distributors participating in the Freshest Beer Program increased slightly in terms of days of inventory on hand when compared with June 29, 2013. The company has more than 65 percent of its volume invested in the Freshest Beer Program, and it projects that this could be expanded to 70 percent by the end of the year.
"We achieved depletions growth of 23 percent and record total depletions in the second quarter,” said The Boston Beer Co. Chairman and Founder Jim Koch in a statement. “I am tremendously proud of the efforts of our employees in achieving this record while maintaining a focus on brewing quality and innovation. We believe that our depletions growth is attributable to strong sales execution and support from our distributors and retailers as well as our quality beers and strong brands. … Overall, our brand portfolio is healthy and we remain positive about the future of craft beer."
President and Chief Executive Officer Martin Roper added in a statement: "In the second quarter, our depletions growth benefited from the strength of our Samuel Adams, Angry Orchard and Twisted Tea brands. We believe that the growth we see in our main brands reflects a response to our increased investments in media, local marketing and point of sale and the efforts of our increased salesforce, even as we face a more competitive environment. Accordingly, we have increased our expectations for full-year depletions growth to between 20 percent and 24 percent to reflect the most recent trends. We are planning continued increases in investments in advertising, promotional and selling expenses behind existing brands in an attempt to maintain the momentum, as well as in innovation, commensurate with the opportunities and the increased competition that we see.
"Our supply chain performance still remains below our expectations but is improving,” he continued. “The high demand levels and the large number of expansion and efficiency projects ongoing during the quarter caused us to experience higher operational costs than we had originally expected. We are also seeing pressure from our transportation suppliers and experiencing increased freight costs to secure the performance and capacity that we need. Despite our best efforts, we had some continued product shortages and service issues during the quarter. Many of our major capital projects were completed during the last 45 days, allowing us to focus more on training, process improvement and predictable operations. We are appreciative of the tremendous effort of our brewery and engineering teams to complete these projects successfully while we operate at peak levels. Looking forward, we expect a continued high level of brand and capital investments, as we pursue growth and innovation. We are prepared to forsake the earnings that may be lost as a result of these investments in the short term, as we pursue long term profitable growth."