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 Brew Alliance Reports Third Quarter 2012 Results
Significant year-to-date highlights include:
Net sales increased $13.1 million, or 11%, to $127.4 million versus last year
Total beer shipments increased 6%, while depletions grew 5% for the period
Gross profit percentage of 30.4% as compared to 31.0% last year
Cash provided by operations increased to $10.0 million for the period compared to $5.0 million last year
Introduction of Omission beer, the first craft beer brand in the United States focused exclusively on brewing great tasting traditional craft beers that are specially crafted to remove gluten
Introduction of Kona Big Wave Golden Ale to the mainland, previously only available in Hawaii
Introduction of two brands in 12-ounce aluminum cans
Revised full year guidance calls for depletion growth of 6-8% and revenue growth of 11-13% with fully diluted EPS guidance of $0.12-$0.17
“We are pleased with the progress of our portfolio strategy and are looking forward to a strong 4th quarter,” said Terry Michaelson, CBA’s CEO. “While we had anticipated better financial performance during the third quarter, we feel strongly about our unique and advantaged strategy in the craft beer segment. Heading into the remainder of 2012, we are very encouraged by the current industry off-premise data which shows our Kona and Redhook brand families to be outpacing a number of our large craft beer competitors.”
Based on year-to-date and anticipated future performance levels, we are updating components of our 2012 guidance as follows. Full year selling, general and administrative (“SG&A”) and capital expenditure guidance remains unchanged.
Depletion growth estimate of 6% to 8%, reflecting the continued strength of the Kona, Redhook and Omission brands offset by softness in the Widmer Brothers brand. Previous guidance was 8% to 10%.
Sales growth of approximately 11% to 13%. Previous guidance was 13% to 15%.
Gross margin rate of minus 50 basis points to flat versus last year, reflecting brewery productivity and positive product mix offset by pressure from grain prices and distribution costs. Previous guidance was flat to plus 50 basis points.
SG&A expense ranging from $43 million to $45 million, reflecting continued investment in sales and marketing initiatives. No change from previous guidance.
Diluted EPS in the range of $0.12 to $0.17. Previous guidance was $0.20 to $0.25.
Capital expenditures of approximately $8.5 million to $9.5 million, continuing our investments in capacity and efficiency improvements, and quality initiatives. No change from previous guidance.
We will provide our full-year 2013 financial outlook as we complete our 2013 planning process within the next two months. In 2013, we expect meaningful growth in both revenue and earnings reflecting the overall strength of our portfolio strategy, operating expense leverage and SG&A leverage.
Net sales for the nine months ended September 30, 2012 were $127.4 million, an increase of $13.1 million, or 11%, from net sales of $114.3 million for the same period of 2011. A combination of factors drove the increase, including increased shipments, a decrease in master distributor fees, price increases for our beers sold to wholesalers and an increase in revenues earned from our pubs.
Net sales for the quarter ended September 30, 2012 were $44.6 million, an increase of $4.1 million, or 10%, from net sales of $40.5 million for the same quarter last year, primarily as a result of price increases for our beers sold to wholesalers and an increase in revenues earned from our pubs. Net income for the quarter ended September 30, 2012 was $0.9 million, or $0.05 per diluted share. This was a decrease of $0.3 million from our net income of $1.2 million, or $0.07 per diluted share, for the same quarter in 2011, primarily as a result of additional commercial operation spending targeted towards accelerating existing brands, introducing new brands, and continuing the build-out of our national sales team.
Total shipments for the nine-month period ended September 30, 2012 grew 6% to 549,700 barrels, an increase of 29,200 barrels, from 520,500 barrels for the same period of 2011, primarily reflecting the increase in shipments to wholesalers. Total shipments for the quarter also grew, up 7,800 barrels, or 4%, to 189,300 barrels from last year, also as a result of increased shipments to wholesalers. Partially offsetting the increase in the third quarter was a decline in contract brewing shipments as a result of terminating our contract brewing agreement with FSB.
Gross margin as a percentage of net sales declined 62 basis points for the nine months ended September 30, 2012, reflecting increased distribution and grain costs in the first nine months of 2012 as compared with the same period of 2011. These unfavorable factors were partially offset by decreased distributor fees and increased selling prices for our beers.
SG&A expense of $34.5 million for the nine-month period ended September 30, 2012 increased $4.0 million, or 13%, from $30.5 million for the same period of 2011. As discussed above, this increase reflects our continuing investment in commercial operation initiatives to remain a leader in the intensely competitive craft beer segment. The increase in SG&A was partially offset by lower packaging design and development costs.
“Our year-to-date sales growth of 11% along with strong cash flows demonstrate the fundamental strength of our business and strategy,” said Mark Moreland, CBA’s CFO. “We have revised our sales, gross margin and EPS guidance for 2012 as we were anticipating both faster traction from key in-market initiatives which have begun to generate results in the fourth quarter and higher second half gross margin. While not satisfied with our projected full year performance, we are confident that our investments in our brands, sales and operating infrastructure will drive significant long-term top-line growth and improved profitability.”
Cash Flow and Liquidity
Our cash and cash equivalent balance was $3.5 million, an increase of $2.9 million year-to-date. Cash provided by operating activities was $10.0 million for the nine months ended September 30, 2012 compared with $5.0 million for the same period of 2011. The $5.0 million increase was primarily due to improved working capital. Capital expenditures for the nine-month periods ended September 30, 2012 and 2011 were $7.8 million and $6.6 million, respectively. Capital expenditures in both periods included projects designed to increase our capacity and improve efficiency.
Statements made in this press release that state the Company’s or management’s intentions, hopes, beliefs, expectations or predictions of the future, including depletions and sales growth, the level or effect of SG&A expense, the amount of capital spending, and the benefits or improvements to be realized from strategic initiatives and capital projects, 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, 2011. Copies of these documents may be found on the Company’s website, www.craftbrew.com, or obtained by contacting the Company or the SEC.
About Craft Brew 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 and growing one-of-a-kind craft beers and brands, CBA was joined by Kona Brewing Company in 2010. Craft Brew Alliance launched Omission beer in 2012.
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. Omission beer is the first craft beer brand in the United States focused exclusively on brewing great tasting craft beers with traditional beer ingredients, including malted barley, that are specially crafted to remove gluten.
12 Nov. 2012