The Boston Beer Co. Inc., Boston, reported first quarter 2013 net revenue of $135.9 million, an increase of $22.7 million or 20 percent, compared with the same period last year, which it says is mainly due to core shipment growth of 18 percent.
Net income for the first quarter was $6.9 million, or $0.51per diluted share, a decrease of $0.6 million, or $0.05per diluted share, from the first quarter of 2012. This decrease was primarily due to higher cost of goods and increased investments in advertising, promotional and selling expenses that were only partially offset by net revenue increases and a favorable tax settlement in the first quarter of 2013, it reports.
The company also reported that depletions for the 13-week period ending March 30grew 16 percent from the comparable 13-week period in the prior year ending March 31, 2012. This was primarily due to increases in Angry Orchardand Twisted Tea brands that were partially offset by declines in Samuel Adams.
Core shipment volume was approximately 632,000 barrels, an 18 percent increase compared with the first quarter of 2012, it reported.
The company reports that it believes wholesaler inventory levels at March 30 were at appropriate levels. Inventory at wholesalers participating in the Freshest Beer Program was lower by an estimated 112,000 cases at March 30, compared with March 31, 2012.
Gross margin decreased to 50 percent compared with 55 percent in the first quarter of 2012, it stated. Increased brewery processing and ingredient costs, combined with $2.2 million of customer programs and incentive costs that are now recorded as reductions in revenue, were only partially offset by pricing increases, it added. In the first quarter of 2012, customer programs and incentive costs were recorded as advertising, promotional and selling expenses.
Advertising, promotional and selling expenses, excluding 2013 customer programs and incentive costs of $2.2 million that were reported as reductions in revenue, were $5 million higher than costs incurred in the prior year, according to the company. The combined increase of $7.2 million in advertising, promotional and selling expenses and customer program and incentive costs was primarily a result of the timing of planned brand investments compared with the prior year, increased costs for additional sales personnel, increased investments in advertising, and increased freight to wholesalers due to higher volumes, it reported.
“I am pleased that The Boston Beer Co. achieved record depletions in the quarter as the health of our cider and tea brands offset slight softness with Samuel Adams,” said Jim Koch, chairman and founder of Boston Beer Co., in a statement. “This is a testament to the hard work of our employees and wholesalers and our continued brand innovation efforts. While we continue to experience increased competitive activities from both domestic specialty and craft beer brands that have made it challenging to grow Samuel Adams as fast as we would like, we remain positive about the future of craft beer and our potential for long-term growth.
“I am pleased to report that Samuel Adams Boston Lagerpackaged in our new unique can will be available at wholesalers and retailers in May,” he continued. “Over the last two years, we undertook a significant research effort to see if we could create a can that we felt was worthy of holding Samuel Adams beer. I wanted to ensure that the can we developed would deliver the same quality drinking experience as Samuel Adams in a glass or a bottle and would protect the balance and flavors of our beers. I look forward to enjoying Samuel Adams beer this summer in locations where bottles are not allowed.”
Martin Roper, president and chief executive officer stated: “In the first quarter, our depletions growth benefited from the strength in our Angry Orchard and Twisted Tea brands, offset by a slight decline in our Samuel Adams brand, primarily due to our seasonal program not meeting our expectations during the quarter. Despite this softness, we still accomplished the conversion from our spring seasonal to summer ale in most markets in March due to the improved inventory planning allowed by our Freshest Beer Program. To address increased competition and to take advantage of positive brand momentum, we again increased our investment in our sales force and our support behind our brands. We also are making capital improvements in our brewing and packaging capabilities to position us well for long-term growth. Specifically, in support of the new Samuel Adams can launch, we recently installed a can line capable of filling this unique can design and, in support of our long-term packaging needs, we will add more bottling capability this summer in preparation for peak volumes later this year. We anticipate the capital investments and high level of brand investments to continue as we pursue growth, innovation, efficiency improvements and address certain capacity constraints. We are prepared to forsake the lost earnings that may result from these investments in the short term as we pursue long-term profitable growth.”
Roper continued: “Alchemy & Science, our craft brew incubator, continues to progress with its existing investments and explore potential opportunities. It has had minimal sales to date, but our 2013 financial projection includes increased estimated brand investments attributable to existing projects of between $2 million and $4 million. This estimate could change significantly if new projects are added, and there is no guarantee that Alchemy & Science volume and revenues will fully cover these expenses and others that could be incurred. We continue to look for complementary opportunities that do not distract us from our primary focus on Samuel Adams, as we believe a portfolio of growing brands is a good outcome for our wholesalers and for us.”
Commenting on the company's Freshest Beer Program, Roper said: “We currently have 92 wholesalers representing over 60 percent of our volume in our Freshest Beer Program and believe this could reach between 65 percent and 75 percent by the end of 2013. We continue to evaluate whether we can reduce inventory levels further and to invest in the breweries to improve their support of the program.”