Global hop marketA local alternative to mass beer suggested by independent brewers has been successful and is now altering the global market. Beer is becoming more diversified, so transnational companies have to accept the new game rules and to switch focus to young and fast growing markets. All these processes increased the demand for aroma and bitter hop as well as their acreage expansion on two continents. However now there appeared a downward trend of alcohol consumption in the world, so even special sorts can soon turn to be sufficient. In this connection the dynamic American hop market is already facing some problems. EU hop producers have become more cautious, they are not racing to exceed the demand and look forward with more confidence, judging by the contract terms.
Hop Market in RussiaGermany still dominates the Russian market, yet over the recent two years one has been able observe a continuous success of Czech hop suppliers. Their expansion and growing popularity of hops from the United States became the drivers of supplies growth in 2016 despite the preceding modest harvest crop in the EU, as well as the factor of relative stability in 2017. In this connection, in 2017, the ratio of the varieties continued to shift towards the aroma ones, and the supplies of Magnum hop and other alpha varieties were reduced. However, the import of bitter hop pellets is partially replaced by extracts, especially from the major beer manufacturers. Total volumes of alpha acid supplies, according to our estimation, decreased by approximately 5% and returned to the level of 2015. Barth Haas Group continues dominating the hop products market; HVG also increased its weight. At the same time, Morris Hanbury significantly reduced the supplies in 2017.
10+1 trends of Russian beer market 2015-2017Despite of the moderately negative prognoses for 2017, the beer market can be stabilized soon. Yet the years of the negative dynamics have resulted in marketing being limited just to “optimization” and the art of balancing between price and volumes. Bigger supermarkets share means stronger trade marketing. These processes are connected to the majority of the described trends. At the same time, the federal brands inflation leads to searching for new tastes, sales channels and contact formats that expand the product range and diversify the beer market, but do not imply a substantial volume increase. Let us enumerate and further discuss the ten trends of the beer market we can see in 2015-2017 as well as the major event of 2017.
Beer market of Ukraine 2017In the first half of 2017, the Ukrainian beer market goes on decreasing slowly. Yet, the companies manage to compensate their lost volumes by raising prices and improving the sales structures. This results in the mid price market segment reduction while the sales of premium brands are rising. These processes are connected to position strengthening of companies Carlsberg Group and Oasis and the market share reduction of Obolon. Most of the novelties by the market leaders belong to craft or hard lemon categories.
Beer market of Russia 2016: PET goes to draftThe beer market of Russia was warmed up by the hot summer, but the preparation for large volume PET prohibition has already impacted it negatively. The year was successful for Efes, MBC and regional producers; Carlsberg’s positions were virtually stable but AB InBev and Heineken lost a part of market share having focused on the sales profitability. The dynamics of big brands was determined by how much the companies were willing to keep the prices down or by their promotional activity. In this context the economy segment of the beer market and sales of inexpensive draft beer were increasing. The premium segment started shrinking due to license brands migrating to the mainstream segment.
Craft Brewers Alliance Reports Third Quarter 2011 Results
Craft Brewers Alliance, Inc. (“CBA”) (Nasdaq: HOOK - News), an independent craft brewing company, reported net sales of $40.5 million and net income of $1.2 million for the third quarter ended September 30, 2011 as compared with net sales of $36.7 million and net income of $376,000 for the same quarter a year ago. We reported $0.07 earnings per share on a fully diluted basis for the third quarter of 2011 as compared with $0.02 per share for the same quarter one year ago.
Significant financial highlights for the quarter ended September 30, 2011 include:
•Net sales increased $3.8 million, or 10 percent, to $40.5 million compared with the third quarter of 2010
•Depletion growth for the third quarter of 2011 was nine percent
•Gross profit percentage increased 790 basis points
•Sales and marketing expense increased $2.3 million versus last year reflecting investments towards critical growth initiatives.
•Capital expenditures were $2.9 million as we continued to make strategic investments in systems and infrastructure
“Our primary focus remains on being true to our customers, by delivering the most diverse portfolio of high quality beers and brands in the industry, that provide unique beer experiences for all occasions,” said Terry Michaelson, CBA’s CEO. “Revenue, depletion and profit growth remain strong and demonstrate the continued success of our strategic marketing and sales initiatives. While we are pleased with the year-to-date growth, we believe there are further underlying strengths in our brands and strategy that have yet to be realized. In this ever-evolving market of craft beers, we have positioned ourselves well to generate ongoing sales and profit growth over the long term.”
Net sales for the third quarter ended September 30, 2011 were $40.5 million, an increase of $3.8 million, or 10 percent, from net sales of $36.7 million for the same quarter in 2010. The increase resulted from a combination of factors, including increased shipments to wholesalers, price increases for our beers sold to wholesalers, a decrease in master distributor fees and an increase in revenues earned from our restaurants and pubs following the merger with Kona Brewing Co., Inc. (“KBC Merger”).
Total shipments for the third quarter ended September 30, 2011 were 181,500 barrels, an increase of 16,100 barrels, or 10 percent, from 165,400 barrels for the same quarter of 2010, primarily reflecting the increase in shipments to wholesalers and growth in our contract brewing business.
Cost of sales as a percentage of net sales improved 790 basis points in the third quarter of 2011, reflecting the elimination of costs related to the Kona Brewing alternating proprietorship, improved quality and capacity utilization and an increased selling price for our beers. These favorable factors were partially offset by increased shipping costs due to higher fuel prices in the third quarter of 2011 as compared with the same quarter a year ago.
Selling, general and administrative (“SG&A”) of $10.5 million for the third quarter ended September 30, 2011 increased $2.8 million, or 37 percent, from $7.7 million for the corresponding quarter a year ago. This increase reflects our investment in critical new selling and marketing initiatives that have led to sales and profit growth. The overall SG&A increase was also driven by costs related to the operations acquired in the KBC Merger. We expect that the rate of increase in SG&A spending for the remainder of the year will not be as significant as that seen during the first three quarters.
“Compared to the third quarter of 2010, this quarter’s results benefited from improved quality and efficiency, the ongoing trend of increased volumes and the favorable impact of amending our distribution agreement, in spite of higher transportation costs,” said Mark Moreland, CBA’s CFO. “Based on the positive brand health and profitability impacts we’ve seen from our sales and marketing investments, we expect to continue to invest in sales and marketing initiatives at per barrel rates similar to those in 2011.”
Cash Flow and Liquidity
Cash provided by operating activities decreased $3.8 million to $5.0 million for the nine-month period ended September 30, 2011 compared with $8.8 million for the same period in 2010 primarily caused by a one-time working capital fluctuation related to our sale of our investment in Fulton Street Brewery in May 2011. Capital expenditures for the nine-month periods ended September 30, 2011 and 2010 were $6.6 million and $1.6 million, respectively. The capital expenditures for 2011 include projects designed to enhance and target the core brand offerings and package variety produced in our breweries, and improve our quality assurance and information technology systems, including continuing investments towards a company-wide demand planning and order management system. For the full year 2011, we anticipate capital expenditures of approximately $8.0 million to $8.5 million for these projects.
We remain confident that our targeted investments into our brands, marketing and sales resources, in conjunction with our innovative, high-quality craft brewing capabilities, will support continued volume and revenue growth while generating improved bottom line results.
We project the following results for the full year 2011:
•Depletion growth of 5.5% to 6.0%. We expect some moderation in depletion growth in the fourth quarter as a result of pricing actions in key markets.
•Sales growth in the range of 11% to 12%.
•Gross margin rate ranging from 30% to 31%.
•SG&A of $39 to $40 million as a result of our concerted sales and marketing investment initiatives.
•Earnings per share ranging from $0.49 to $0.51, which includes the $0.34 earnings per share from our gain on sale of Fulton Street Brewery, LLC.
•Capital expenditures of approximately $8.0 to $8.5 million reflective of investments in capacity, efficiency, quality and cooperage projects to support 2012 growth.
Our initial views of 2012 financial performance reflect the following:
•Depletion growth in the high single digit percentage to low double digit range reflecting both continued strength of our brands and continued growth of the craft category.
•Sales growth of approximately 10% to 12%.
•Gross margin rate approximately 100 basis points lower than 2011, reflecting pressure from grain prices and assuming fuel prices remain relatively consistent with recent levels.
•SG&A ranging from $42 to $44 million, reflecting continued investment into sales and marketing initiatives.
•Earnings per share in the range of $0.20 to $0.25.
•Capital expenditures of approximately $8.5 to $9.5 million, continuing our investments in capacity and efficiency, and quality initiatives.
Statements made in this press release that state the Company's or management's intentions, hopes, beliefs, expectations or predictions of the future, including the level or effect of increased SG&A expense, the amount of capital spending and the benefits or improvements to be realized from those capital projects, and the increase in sales revenues resulting from reduced distribution fees payable to A-B, 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 31, 2010. Copies of these documents may be found on the Company's website, www.craftbrewers.com, or obtained by contacting the Company or the SEC.
About Craft Brewers Alliance
CBA is an independent, publicly traded craft brewing company that was formed with the merger of leading Pacific Northwest craft brewers – Widmer Brothers Brewing and Redhook Ale Brewery – in 2008. With an eye toward preserving one-of-a-kind beers and brands by giving them an opportunity to shine and grow, CBA was joined by Kona Brewing Company in 2010. When Kurt & Rob Widmer founded Widmer Brothers Brewing in 1984, they didn’t confine their brewing exploration to strict style guidelines. To this day, Widmer Brothers continues to create craft beers with a unique and unconventional twist on traditional styles that are award winning and please a wide range of craft beer lovers. Redhook began in a Seattle transmission shop in 1981, and those colorful roots are reflected in the brand’s personality to this day. The eminently drinkable beers consistently win awards and please crowds across the United States. Kona Brewing was founded in 1994 by the father and son team of Cameron Healy and Spoon Khalsa, who dreamed of crafting fresh, local island brews with spirit, passion and quality. As the largest craft brewery in Hawaii, Kona personifies the laid-back, passionate lifestyle and environmental respect of the Hawaiian people and culture.
16 Nov. 2011