Craft Brew Alliance Reports 2012 Results and Confirms 2013 Financial Outlook

Craft Brew Alliance Reports 2012 Results and Confirms 2013 Financial Outlook

PORTLAND, Ore.--(BUSINESS WIRE)-- Craft Brew Alliance, Inc. ("CBA") (NAS: BREW) , an independent craft brewing company, reported final 2012 financial results and confirmed 2013 guidance. CBA's successful strategic focus on building a national portfolio strategy over the last three years has positioned the Company to expect strong sales and profit growth in 2013 and take advantage of the dynamic craft segment to achieve long-term value for its shareholders.

Highlights of 2012 results include:

  • A strong close to 2012 highlighted by 10% growth in depletions for the fourth quarter

  • Full year top- and bottom-line results in line with guidance provided during the last quarterly update:

    • Sales growth of 13%, reflecting the continued strength of the Kona, Redhook and Omission brands, as well as continued repositioning of the Widmer Brothers brand

    • Depletion growth of 6%

    • Shipment growth of nearly 8%, reflecting new initiatives such as the launch of the Omission brand and international export

    • Gross margin rate of 29.6%, a reduction of 70 basis points from 2011, reflecting higher brewery variable costs on a per barrel basis, partially offset by improved fixed cost coverage and a shift in mix to our higher-end beers

    • Selling, general and administrative expense ("SG&A") of $44.9 million, an increase of $5.1 million from 2011, reflecting continued investments in brand development and sales capabilities

    • Diluted earnings per share ("EPS") of $0.13 versus 2011 EPS of $0.51; 2011 EPS included the one-time gain on sale of our equity interest in Fulton Street Brewery of $0.34 per share

    • Capital expenditures of approximately $9.1 million, reflecting continued investments in capacity, efficiency and quality initiatives


"As a follow-up to our release in late January, we want to confirm that we expect meaningful growth in both revenue and earnings resulting from the overall strength of our portfolio strategy, operating expense leverage and SG&A leverage in 2013," said Terry Michaelson, CBA's CEO. "As we enter the next phase in the development of our portfolio strategy, we are focusing on leveraging our recent investments, brand momentum and breadth, and geographic expansion, to deliver improved sales and profit growth. This is consistent with our phased approach to strengthening our model to ultimately deliver long-term value growth."

Components of anticipated 2013 results and developments

"We continue to believe our brand strategy is the most promising it has been in CBA's history. We expect strong growth tempered by unprecedented competition," said Terry Michaelson. Expectations for 2013 include (i) confidence in the continued growth in sales of Kona, Redhook and Omission, and clear positioning of Widmer Brothers offerings; (ii) expansion into new geographic markets for Kona and international expansion for all brand families; (iii) updates to packaging across all brand families, as well as introduction of unique can and bottle offerings; (iv) refined messaging on Omission beers, promoting the beer as specially crafted to remove gluten; (v) exploration of introducing additional or new brands to the CBA portfolio; and (vi) continued development of cross brand packages bringing the power of our portfolio to consumers in real and compelling ways.

"While we are providing full-year guidance for 2013, I want to emphasize that we anticipate significant differences in 2013 quarterly performance as compared to 2012," said Mark Moreland, CBA's CFO. "This is due to both normal changes to programs and new product timing, as well as uneven 2012 quarterly performance as a result of the implementation of new supply chain processes and systems that will drive improved supply chain control during 2013. Specifically, we expect relatively weak shipments in the first quarter of 2013 when compared to the volume generated by the 15% growth in shipments in the first quarter of 2012."

We are confirming previously provided anticipated full year 2013 results, as follows:

  • Depletion growth estimate of 7% to 11%, reflecting the continued strength of the Kona, Redhook and Omission brands and further stabilization of the Widmer Brothers brand

  • Average price increases of approximately 1% to 2%

  • Contract brewing revenue for 2013 will be approximately half of the 2012 level as a result of the mutual decision to unwind the Goose Island contract brewing arrangement

  • Gross margin rate of 28.5% to 30.5%, reflecting higher brewery variable costs on a per barrel basis, partially offset by better fixed cost coverage

  • SG&A expense ranging from $47 million to $49 million, reflecting leverage from the foundation built by more aggressive spending in prior years

  • Capital expenditures of approximately $11 million to $13 million, continuing our investments in capacity and efficiency improvements, quality initiatives and restaurant and retail

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, 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, 2012. 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 through 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.

For more information, visit: www.craftbrew.com.

Craft Brew Alliance, Inc.

Condensed Consolidated Statements of Income

(In thousands, except per share amounts and shipments)

(Unaudited)

Three Months Ended

December 31,

Years Ended

December 31,

2012

2011

2012

2011

Sales

$

44,897

$

37,558

$

182,018

$

161,000

Less excise taxes

2,961

2,631

12,731

11,803

Net sales

41,936

34,927

169,287

149,197

Cost of sales

30,579

25,142

119,261

104,011

Gross profit

11,357

9,785

50,026

45,186

as percentage of net sales

27.1

%

28.0

%

29.6

%

30.3

%

Selling, general and administrative expenses

10,388

9,253

44,890

39,742

Operating income

969

532

5,136

5,444

Interest expense

(167

)

(171

)

(663

)

(918

)

Gain on sale of equity interest in Fulton Street Brewery, LLC

34

10,432

Income from equity investments, interest and other, net

1

4

734

Income before income taxes

802

396

4,477

15,692

Income tax provision

481

152

1,951

6,041

Net income

$

321

$

244

$

2,526

$

9,651

Earnings per share:

Basic and diluted earnings per share

$

0.01

$

0.01

$

0.13

$

0.51

Weighted average shares outstanding:

Basic

18,874

18,845

18,862

18,834

Diluted

18,940

18,942

18,934

18,931

Total shipments (in barrels):

Core Brands

168,000

141,400

675,300

623,300

Contract Brewing

7,200

10,700

49,600

49,300

Total shipments

175,200

152,100

724,900

672,600

Depletion growth rate (over the same period from the prior year)

10

%

4

%

6

%

6

%

Craft Brew Alliance, Inc.

Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)

December 31,

2012

2011

Current assets:

Cash

$

5,013

$

795

Accounts receivable, net

10,512

13,326

Inventories

11,749

9,446

Deferred income tax asset, net

1,250

894

Other current assets

3,809

2,816

Total current assets

32,333

27,277

Property, equipment and leasehold improvements, net

102,852

100,725

Goodwill

12,917

12,917

Intangible and other non-current assets, net

17,562

17,989

Total assets

$

165,664

$

158,908

Current liabilities:

Accounts payable

$

12,255

$

10,994

Accrued salaries, wages and payroll taxes

5,267

4,524

Refundable deposits

7,896

7,400

Other accrued expenses

1,066

1,436

Current portion of long-term debt and capital lease obligations

642

596

Total current liabilities

27,126

24,950

Long-term debt and capital lease obligations, net

12,440

13,188

Other long-term liabilities

17,903

16,261

Total common shareholders' equity

108,195

104,509

Total liabilities and common shareholders' equity

$

165,664

$

158,908

Craft Brew Alliance, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

Years Ended

December 31,

2012

2011

Cash Flows From Operating Activities:

Net income

$

2,526

$

9,651

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

Depreciation and amortization

7,369

7,204

Income from equity investments

(691

)

Gain on sale of equity interest in Fulton Street Brewery, LLC

(10,432

)

Deferred income taxes

1,458

5,025

Other, including stock-based compensation and excess tax benefit from employee stock plans

(138

)

331

Changes in operating assets and liabilities:

Accounts receivable

2,396

(1,976

)

Inventories

(1,855

)

(640

)

Other current assets

(994

)

418

Other assets

(495

)

Accounts payable and other accrued expenses

1,269

(2,773

)

Accrued salaries, wages and payroll taxes

743

471

Refundable deposits

331

635

Net cash provided by operating activities

13,105

6,728

Cash Flows from Investing Activities:

Expenditures for property, equipment and leasehold improvements

(9,138

)

(8,488

)

Proceeds from sale of property, equipment and leasehold improvements and other

37

120

Proceeds from the sale of equity interest in Fulton Street Brewery, LLC

418

15,527

Other

(28

)

Net cash provided by (used in) investing activities

(8,683

)

7,131

Cash Flows from Financing Activities:

Principal payments on debt and capital lease obligations

(596

)