Dive Brief:
- Boston Beer Company's net revenue was $306.9 million this quarter, an increase of 24.2% from the same quarter last year, according to the company's earnings release. The company said the jump can be attributed to a 23.5% increase in shipments.
- Net income for the third quarter was $38 million — or $3.21 per share — an increase of $4.3 million from the third quarter of 2017. This was slightly higher than expectations leading up to the earnings release. The increase was primarily caused by rises in net revenue and lower income taxes, but was balanced out by increased advertising and promotional expenses as well as lower gross margins.
- The company's shipments of beverages increased to 18% this quarter, pushed up by growth within its non-beer portfolio, including Truly Spiked & Sparkling, Twisted Tea and Angry Orchard brands. This growth was offset by decreases from its Samuel Adams brand.
Dive Insight:
Boston Beer — which at one time was the top beer supplier in the industry — now relies on its non-beer beverages to lift its sales figures.
Truly Spiked & Sparkling, Twisted Tea and Angry Orchard brands continue to be bright spots in its earnings. Angry Orchard’s growth was led by its new Angry Orchard Rosé, which launched in February. But this growth was only able to partially offset the decreases in beer.
"We believe that both Truly and Angry Orchard Rosé are attracting new drinkers to their categories from wine and spirits," said Dave Burwick, the company's president and CEO, said in the earnings call.
The company's struggles follow a storyline that is facing all of the beer industry. A new report found that U.S. beer volume has declined for five years straight as drinkers have been moving away from domestic lagers. As a result, total beer shipments dropped by 1.3% last year. As these decreases have hit the industry, brewers have tried launch low-calorie and no- or low-alcohol beers to grab up consumers interested in different beverages.
Boston Beer might look to further tap into that market in the future, but isn't making any plans for growth now. Burwick said in the Thursday night report that Boston Beer is in a competitive business, but still remains optimistic for long-term growth in its current brand portfolio.
"We remain prepared to forsake short-term earnings as we invest to return to long-term profitable growth, commensurate with the opportunities that we see," Burwick said.
And they aren't giving up on beer yet. The brewer continued its strong marketing push to put its beer products back on top, which caused it to miss earnings expectations last quarter. This quarter, Boston Beer introduced a new Samuel Adams advertising campaign and continued to work on Samuel Adams brand messaging. Advertising, promotional and selling expenses increased by $24.1 million from the third quarter of last year. The company again invested heavily in media advertising and local marketing, but have seen the Sam Adams Seasonals program return to growth this year.
"We plan to invest in this campaign in the coming months with the goal of improving trends and eventually returning Samuel Adams back to growth," Jim Koch, founder and chairman of Boston Beer, said in the earnings call. "We remain positive about the future of craft beer and are happy that our diversified brand portfolio continues to fuel double-digit growth."
During the quarter, the company's operating expenses increased significantly, which they said was a result of planned brand investments. To make up for that in the rest of the year, the company said brand investment will decrease for the fourth quarter. Higher salaries and benefits costs, increased freight to distributors and less efficient truck utilization also hurt earnings this quarter. With growth challenges and beer industry headwinds of higher packaging and transportation costs, the company reduced its expectations for 2018 gross margins.
Boston Beer, which started as just a beer company in 1984, still brews more than 60 styles of Samuel Adams. Although the company continues to push advertising of Samuel Adams and isn't giving up on its origin just yet, continued growth and investment in non-beer could be the future of this beer brand.