PR Newswire | Oct 22, 2020 04:16PM EDT

10/22 15:15 CDT

Boston Beer Reports Third Quarter 2020 Results BOSTON, Oct. 22, 2020

BOSTON, Oct. 22, 2020 /PRNewswire/ -- The Boston Beer Company, Inc. (NYSE: SAM) reported third quarter 2020 net revenue of $492.8 million, an increase of $114.3 million or 30.2%, from the same period last year. Net income for the third quarter was $80.8 million, an increase of $36.0 million or 80.6% from the same period last year. Earnings per diluted share were $6.51, an increase of $2.86 per diluted share, or 78.4% from the third quarter of 2019. This increase was primarily due to increased revenue that was driven by shipment growth of 30.5%, partially offset by lower gross margins and increases in operating expenses.

Earnings per diluted share for the 39-week period ended September 26, 2020 were $12.90, an increase of $4.83 or 59.9% from the comparable 39-week period in 2019. Net revenue for the 39-week period ended September 26, 2020 was $1.275 billion, an increase of $327.0 million or 34.5% from the comparable 39-week period in 2019.

The Company began seeing the impact of the COVID-19 pandemic on its business in early March. The direct financial impact of the pandemic has primarily shown in significantly reduced keg demand from the on-premise channel and higher labor and safety-related costs at the Company's breweries. In the 39-week period ended September 26, 2020, the Company recorded COVID-19 related pre-tax reductions in net revenue and increases in other costs that total $14.2 million, of which $10.0 million was recorded in the first quarter and $4.1 million was recorded in the second quarter and $0.1 million was recorded in the third quarter. The total amount consists of a $3.4 million reduction in net revenue for estimated keg returns from distributors and retailers and $10.8 million of other COVID-19 related direct costs, of which $7.4 million are recorded in cost of goods sold and $3.4 million are recorded in operating expenses. In addition to these direct financial impacts, COVID-19 related safety measures resulted in a reduction of brewery productivity. This has shifted more volume to third-party breweries, which increased production costs and negatively impacted gross margins. The Company will continue to assess and manage this situation and will provide a further update in its fourth quarter earnings release, to the extent that the effects of the COVID-19 pandemic are then known more clearly.

In the third quarter and the 39-week period ended September 26, 2020, the Company recorded a tax benefit of $0.41 per diluted share and $0.78 per diluted share, respectively, resulting from the Accounting Standard "Employee Share-Based Payment Accounting" ("ASU 2016-0").

Highlights of this release include:

* Depletions increased 36% and 40% from the 13- and 39-week comparable periods in the prior year. * Shipments increased 30.5% and 34.1% from the13- and 39-week comparable periods in the prior year. * Full-year 2020 shipments and depletions growth is now estimated to be between 37% and 42%, an increase and narrowing from the previously communicated estimate of between 27% and 35%. * Gross margin was 48.8% for the third quarter, a decrease from 49.6% in the comparable 13-week period in 2019, and 46.9% for the 39-week period ending September 26, 2020, a decrease from 49.7% in the comparable 39-week period in 2019. The Company's full year gross margin target is between 46% and 47%, a narrowing down of the previously communicated estimate of between 46% and 48%. * Advertising, promotional and selling expense increased by $11.5 million, or 11.9%, in the third quarter over the comparable period in 2019 and increased $43.9 million, or 16.7%, from the comparable 39-week period in 2019. * Based on current spending and investment plans, full-year 2020 Non-GAAP earnings per diluted share1, which excludes the impact of ASU 2016-09, is now estimated at between $14.00 and $15.00 an increase from the previously communicated estimate of $11.70 and $12.70.

Jim Koch, Chairman and Founder of the Company, commented, "We achieved depletions growth of 36% in the third quarter. We believe that our depletions growth is attributable to our key innovations, quality and strong brands, as well as sales execution and support from our distributors. As the COVID-19 pandemic continues, our primary focus continues to be on operating our breweries and our business safely and working hard to meet customer demand. I am very proud of the passion, creativity and commitment to community that our company has demonstrated during this pandemic. We remain positive about the future growth of our brands and are happy that our diversified brand portfolio continues to fuel double-digit growth for the tenth consecutive quarter. We have planned some major innovations to be introduced in 2021 for all our brands. These include Truly Iced Tea Hard Seltzer, Samuel Adams' Just the Haze, our first non-alcoholic beer, Dogfish Head Scratch-Made Canned Cocktails and Angry Orchard Hard Fruit Cider. We are confident in our ability to continue to innovate and build strong brands to help support our mission of long-term profitable growth."

Dave Burwick, the Company's President and CEO stated, "Our depletions growth in the third quarter was the result of increases in our Truly Hard Seltzer and Twisted Tea brands, partly offset by decreases in our Samuel Adams, Angry Orchard and Dogfish Head brands. The growth of the Truly brand, led by Truly Lemonade Hard Seltzer, continues to be very strong and we expect the Truly brand to continue to lead the growth of the business into 2021. In early 2021, we will launch Truly Iced Tea Hard Seltzer, Truly Extra, a higher ABV version of Truly, and other new Truly flavors and package sizes, as we continue to lead innovation in the Hard Seltzer category. We believe that Truly Iced Tea Hard Seltzer, which combines the refreshment of hard seltzer with real brewed tea and fruit flavor at only 100 calories and 1 gram of sugar, will further strengthen our position in the category. Since early in 2020, Truly has grown its velocity and its market share sequentially despite other national, regional and local hard seltzer brands entering the category. Truly is the only national hard seltzer, not introduced earlier this year, to grow its share during 2020. We will continue to invest heavily in the Truly brand and work to improve our position in the hard seltzer category as competition continues to increase. We also will continue to invest heavily in our "Live Truly" advertising campaign that showcases, variety, colors and joy to hard seltzer drinkers. Twisted Tea has benefited greatly from increased at-home consumption and continues to generate consistent double-digit volume growth, even as new entrants have been introduced and competition has increased. Our Samuel Adams, Angry Orchard and Dogfish Head brands have been most negatively impacted by COVID-19 and the related On-Premise closures, but we are pleased that they all finished the month of September with strong growth in the measured Off-Premise channels compared to last September. For the remainder of 2020 and into 2021, we plan to build upon our success and work to drive our brands to their full potential, with a particular focus on our Truly brand. We've adjusted our expectations for 2020 full-year depletions growth and our earnings guidance to reflect our trends for the first nine months and our current view of the remainder of the year, which is primarily driven by the year-to-date performance of Truly. We are expecting all of our brands to grow in 2021 and are targeting overall volume growth rates to be between 35% and 45%. We have closely managed our operating costs through the COVID-19 pandemic and achieved our planned cost synergies from the Dogfish Head merger. In 2021, based on our current spending and volume assumptions, we are planning for the growth rate of our operating expenses to be below our top line growth rate, delivering leverage to our operating income."

Mr. Burwick continued, "We have been operating our breweries at full capacity for many months and, like our competitors, we have had out of stocks during the quarter. We expect wholesaler inventories to return to normal levels in the fourth quarter, as we recover from our summer seasonal peak. Improving our supply chain performance continues to be our top priority and we are in the process of doubling our internal and third-party brewery can packaging capacity for 2021. Our new can line at our Cincinnati Brewery began production late in the third quarter and we have recently added additional third-party brewery sleek can capacity. As reflected in our 2020 and 2021 capital spending guidance, we will continue to invest heavily to increase capacity as appropriate to meet the needs of our business and take full advantage of the fast-growing Hard Seltzer category. However, the increased usage of third-party breweries and an increasing percentage of variety packs in the Company's overall product mix come at a higher incremental cost. As a result, our gross margins and gross margin expectations will be negatively impacted until the volume growth stabilizes. We began a multi-year supply chain transformation project in 2020 to automate and change internal processes to increase efficiency and reduce costs. The timing of the benefits of this program will depend on the timing and amount of our future volume growth. We will continue to prioritize volume delivery over margin optimization in this high-growth environment. While we are in a very competitive business, we are optimistic for continued growth of our current brand portfolio and innovations and we remain prepared to forsake short-term earnings as we invest to sustain long-term profitable growth, in line with the opportunities that we see."

1 See "Outlook" below for additional information regarding non-GAAP forward-looking measures used in this press release.

3rd Quarter 2020 Summary of Results

Depletions increased 36% from the comparable 13-week period in 2019, reflecting increases in the Company's Truly Hard Seltzer and Twisted Tea brands, partially offset by decreases in its Samuel Adams, Angry Orchard brands and Dogfish Head brands.

Shipment volume was approximately 2.1 million barrels, a 30.5% increase from the comparable 13-week period in 2019.

The Company believes distributor inventory as of September 26, 2020 averaged approximately 2 weeks on hand and was lower than prior year levels due to depletions outpacing supply constrained shipments. The Company expects wholesaler inventory levels in terms of weeks on hand to remain between 1 and 4 weeks for the remainder of the year.

Gross margin of 48.8% decreased from the 49.6% margin realized in the comparable 13-week period in 2019, primarily as a result of higher processing costs due to increased production at third party breweries, partially offset by cost saving initiatives at Company-owned breweries and price increases.

Advertising, promotional and selling expenses increased $11.5 million from the comparable 13-week period in 2019, primarily due to increased investments in media and production, increased salaries and benefits costs and increased freight to distributors because of higher volumes.

General and administrative expenses decreased by $1.1 million from the comparable 13-week period in 2019, primarily due to non-recurring Dogfish Head transaction-related expenses of $3.6 million incurred in the comparable 13-week period in 2019, partially offset by increases in salaries and benefits costs.

The Company's effective tax rate for the 13-week period ended September 26, 2020 decreased to 20.8% from 24.1% in the comparable 13-week period in 2019. This decrease was primarily due to a higher tax benefit from stock option activity recorded in accordance with ASU 2016-09.

Year to Date 2020 Summary of Results

Depletions increased 40% from the comparable 39-week period in 2019, reflecting increases in the Company's Truly Hard Seltzer, Twisted Tea brands and the addition of the Dogfish Head brands that were only partially offset by decreases in the Samuel Adams and Angry Orchard brands. Excluding the addition of the Dogfish Head brands beginning July 3, 2019, depletions increased 38%, from the 39-week comparable period.

Shipment volume was approximately 5.4 million barrels, a 34.1% increase from the comparable 39-week period in 2019.

Gross margin at 46.9% decreased from the 49.7% margin realized in the comparable 39-week period in 2019, primarily as a result of higher processing costs due to increased production at third party breweries and higher processing costs and finished goods keg inventory write-offs at Company-owned breweries, of which $7.4 million was direct costs related to COVID-19, partially offset by cost saving initiatives at Company-owned breweries and price increases.

Advertising, promotional and selling expenses increased $43.9 million from the comparable 39-week period in 2019, primarily due to increased investments in media and production, higher salaries and benefits costs, the addition of Dogfish Head brand-related expenses beginning July 3, 2019, and increased freight to distributors due to higher volumes.

General and administrative expenses increased by $5.5 million from the comparable 39-week period in 2019, primarily due to increases in salaries and benefits costs and the addition of Dogfish Head general and administrative expenses beginning July 3, 2019, partially offset by the Dogfish Head transaction-related fees of $5.6 million incurred in the comparable 39-week period in 2019.

Impairment of long-lived assets increased $2.6 million from the comparable 39-week period in 2019, primarily due to write-downs of brewery equipment at the Company's Cincinnati Brewery.

The Company's effective tax rate for the 39-week period ended September 26, 2020 decreased to 21.1% from 24.1% in the comparable 39-week period in 2019. This decrease was primarily due to a higher tax benefit from stock option activity recorded in accordance with ASU 2016-09.

The Company expects that its September 26, 2020 cash balance of $157.1 million, together with its future operating cash flows and the $150.0 million unused balance on its line of credit, will be sufficient to fund future cash requirements.

During the 39-week period ended September 26, 2020 and the period from September 27, 2020 through October 16, 2020, the Company did not repurchase any shares of its Class A Common Stock. As of October 16, 2020, the Company had approximately $90.3 million remaining on the $931.0 million share buyback expenditure limit set by the Board of Directors.

Depletion estimates

Year-to-date depletions through the 42-week period ended October 17, 2020 are estimated by the Company to have increased approximately 39% from the comparable period in 2019. Excluding the Dogfish Head impact, depletions increased 37%.

2020 Outlook

The Company currently projects full year 2020 earnings per diluted share to be between $14.00 and $15.00. This projection excludes the impact of ASU 2016-09. The Company's actual 2020 earnings per share could vary significantly from the current projection. Underlying the Company's current 2020 projection are the following full-year estimates and targets:

* Depletions and shipments increase of between 37% and 42% of which between 1% and 2% of this growth is due to the addition of the Dogfish Head brands. * National price increases of between 1% and 2%. * Gross margin of between 46% and 47%. * Increased investments in advertising, promotional and selling expenses of between $55 million and $65 million, a change from the previously communicated estimate of between $70 million and $80 million, primarily due to lower selling expenses. This does not include any changes in freight costs for the shipment of products to the Company's distributors. * Non-GAAP effective tax rate of approximately 26%, excluding the impact of ASU 2016-09. * Estimated capital spending of between $160 million and $190 million, a change from the previously communicated estimate of between $180 million and $200 million, most of which relates to continued investments in the Company's breweries.

2021 Outlook

The Company is completing its 2021 planning process and will provide further detailed guidance when the Company presents its full-year 2020 results. The Company is currently using the following preliminary assumptions and targets for its 2021 fiscal year:

* Depletions and shipments percentage increase between 35% and 45% * National price increases of between 1% and 2%. * Gross margin of between 46% and 48%. * Increased investments in advertising, promotional and selling expenses of between $130 million and $150 million. This does not include any changes in freight costs for the shipment of products to the Company's distributors. * Non-GAAP effective tax rate of approximately 26%, excluding the impact of ASU 2016-09. * Estimated capital spending of between $300 million and $400 million, which could be significantly higher, if deemed necessary to meet future growth.

Non-GAAP effective tax rate and Non-GAAP earnings per diluted share are not defined terms under U.S. generally accepted accounting principles ("GAAP"). These Non-GAAP measures should not be considered in isolation or as a substitute for diluted earnings per share and effective tax rate data prepared in accordance with GAAP, and may not be comparable to calculations of similarly titled measures by other companies. The Company's projection for its Non-GAAP effective tax rate and Non-GAAP earnings per diluted share exclude the impact of ASU 2016-09, which could be significant and will depend largely upon unpredictable future events outside the Company's control, including the timing and value realized upon exercise of stock options versus the fair value of those options when granted. Therefore, because of the uncertainty and variability of the impact of ASU 2016-09, the Company is unable to provide, without unreasonable effort, a reconciliation of these Non-GAAP measures on a forward-looking basis.

About the Company

The Boston Beer Company, Inc. (NYSE: SAM) began in 1984 brewing Samuel Adams beer and the Samuel Adams brand is currently recognized as one of the largest and most respected craft beer brands. Our portfolio of brands also includes Truly Hard Seltzer, Twisted Tea, Angry Orchard Hard Cider and Dogfish Head Brewery as well as other craft beer brands such as Angel City Brewery and Coney Island Brewing. For more information, please visit our investor relations website at www.bostonbeer.com, which includes links to all of our respective brand websites.

Forward-Looking Statements

Statements made in this press release that state the Company's or management's intentions, hopes, beliefs, expectations or predictions of the future are forward-looking statements. It is important to note that the Company's actual results could differ materially from those projected in such forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained from time to time in the Company's SEC filings, including, but not limited to, the Company's report on Form 10-K for the year ended December 28, 2019 and subsequent filings made prior to or after the date hereof. Copies of these documents may be found on the Company's website, www.bostonbeer.com, or obtained by contacting the Company or the SEC.

THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands, except per share data)

(unaudited)

Thirteen weeks ended Thirty-nine weeks ended

September 26, September 28, September 26, September 28,

2020 2019 2020 2019

Barrels sold 2,080 1,594 5,425 4,045

Revenue $ 525,249 $ 402,691 $ 1,358,563 $ 1,008,893

Less excise 32,457 24,225 83,068 60,369taxes

Net 492,792 378,466 1,275,495 948,524revenue

Cost of goods 252,207 190,631 677,313 477,147sold

Gross 240,585 187,835 598,182 471,377profit

Operatingexpenses:

Advertising,promotional and 108,023 96,570 306,250 262,372selling expenses

General andadministrative 30,340 31,429 87,054 81,552expenses

Impairment of 441 - 2,796 243assets

Totaloperating 138,804 127,999 396,100 344,167expenses

Operating income 101,781 59,836 202,082 127,210

Other income(expense), net:

Interest(expense) (20) (138) (169) 472income, net

Other income 190 (764) (222) (818)(expense), net

Totalother income 170 (902) (391) (346)(expense), net

Income beforeincome tax 101,951 58,934 201,691 126,864provision

Income tax 21,183 14,205 42,548 30,585provision

Net income $ 80,768 $ 44,729 $ 159,143 $ 96,279

Net income percommon share - $ 6.61 $ 3.70 $ 13.05 $ 8.16basic

Net income percommon share - $ 6.51 $ 3.65 $ 12.90 $ 8.07diluted

Weighted-averagenumber of common 9,846 9,136 9,663 8,797shares - Class Abasic

Weighted-averagenumber of common 2,308 2,862 2,451 2,899shares - Class Bbasic

Weighted-averagenumber of common 12,333 12,150 12,259 11,823shares - diluted

Net income $ 80,768 $ 44,729 $ 159,143 $ 96,279

Othercomprehensiveincome, net oftax:

Foreigncurrency 61 1 (10) 43translationadjustment

Definedbenefit plans 1,117 - 1,117 -liabilityadjustment

Total othercomprehensive 1,178 1 1,107 43income, net oftax

Comprehensive $ 81,946 $ 44,730 $ 160,250 $ 96,322income

THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)

September 26, December 28,

2020 2019

Assets

Current Assets:

Cash and cash equivalents $ 157,130 $ 36,670

Accounts receivable 93,809 54,404

Inventories 123,831 106,038

Prepaid expenses and other 22,214 12,077current assets

Income tax receivable 3,041 9,459

Total current assets 400,025 218,648

Property, plant and equipment, net 588,977 541,068

Operating right-of-use assets 59,991 53,758

Goodwill 112,529 112,529

Intangible assets 103,994 104,272

Other assets 46,820 23,782

Total assets $ 1,312,336 $ 1,054,057

Liabilities and Stockholders' Equity

Current Liabilities:

Accounts payable $ 108,600 $ 76,374

Accrued expenses and other 115,604 99,107current liabilities

Current operating lease 7,735 5,168liabilities

Total current liabilities 231,939 180,649

Deferred income taxes, net 89,170 75,010

Non-current operating lease 61,184 53,940liabilities

Other liabilities 11,513 8,822

Total liabilities 393,806 318,421

Commitments and Contingencies

Stockholders' Equity:

Class A Common Stock, $.01 parvalue; 22,700,000 shares authorized;9,868,649 and 9,370,526 issued and 99 94outstanding as of September 26, 2020 andDecember 28, 2019, respectively

Class B Common Stock, $.01 parvalue; 4,200,000 shares authorized;2,307,983 and 2,672,983 issued and 23 27outstanding as of September 26, 2020 andDecember 28, 2019, respectively

Additional paid-in capital 594,427 571,784

Accumulated other comprehensive (562) (1,669)loss, net of tax

Retained earnings 324,543 165,400

Total stockholders' equity 918,530 735,636

Total liabilities and $ 1,312,336 $ 1,054,057stockholders' equity

THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASHFLOWS

(in thousands)

(unaudited)

Thirty-nine weeks ended

September 26, September 28,

2020 2019

Cash flows provided by operatingactivities:

Net income $ 159,143 $ 96,279

Adjustments to reconcile net income tonet cash provided by operating activities:

Depreciation and amortization 48,937 41,841

Impairment of assets 2,796 243

(Gain) loss on disposal of (173) 449property, plant and equipment

Change in ROU assets 5,465 2,734

Credit loss expense 746 53

Stock-based compensation expense 10,735 9,043

Deferred income taxes 14,160 14,047

Changes in operating assets andliabilities:

Accounts receivable (39,775) (26,532)

Inventories (23,072) (16,847)

Prepaid expenses, income tax (4,043) (1,173)receivable and other current assets

Other assets (17,827) (12,730)

Accounts payable 33,020 22,388

Accrued expenses and other 18,024 14,949current liabilities

Change in operating lease (1,887) (2,270)liability

Other liabilities 2,671 207

Net cash provided by 208,920 142,681operating activities

Cash flows used in investing activities:

Purchases of property, plant and (100,341) (66,760)equipment

Proceeds from disposal of property, 72 144plant and equipment

Investment in Dogfish Head, net of - (165,517)cash acquired

Other investing activities 392 (10)

Net cash used in investing (99,877) (232,143)activities

Cash flows provided by financingactivities:

Proceeds from exercise of stock 14,015 8,437options and sale of investment shares

Cash paid on note payable and finance (906) (246)leases

Cash borrowed on line of credit 100,000 97,000

Cash paid on line of credit (100,000) (97,000)

Payment of tax withholdings onstock-based payment awards and investment (1,692) -shares

Net cash provided by 11,417 8,191financing activities

Change in cash and cash equivalents 120,460 (81,271)

Cash and cash equivalents at beginning of 36,670 108,399year

Cash and cash equivalents at end of period $ 157,130 $ 27,128

Copies of The Boston Beer Company's press releases, including quarterlyfinancial results,

are available on the Internet at www.bostonbeer.com

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SOURCE The Boston Beer Company, Inc.