Boston Beer reports volume increase in fourth quarter

Modern Brewery Age,  March 14, 2005  

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The Boston Beer Company, Inc. reports that it posted full year earnings per diluted share of $0.86 in 2004, a 22.3% increase over the prior year. The brewer reports that net revenue increased in the fourth quarter and for the full year 2004 over the comparable periods of the prior year, and net income increased for the full year by $1.9 million over the prior year.

According to Boston Beer, net revenue increased 9.9% in the fourth quarter and 4.5% for the full year, while shipment volume increased 6.0% in the fourth quarter and 2.5% for the full year. Net income in the fourth quarter was $2.8 million, down 21.4% from last year primarily due to increased advertising, promotions and selling expense. Net income for the full year was $12.5 million, an 18.4% increase over 2003. The Company earned $0.19 per diluted share for the quarter, versus $0.25 for the same period last year, and $0.86 per diluted share for the twelve months ending December 25, 2004 versus $0.70 earned during 2003.

"We were delighted with 4.6% depletion growth in the fourth quarter as we increased our brand support spending" said Jim Koch, founder and chairman of the company. "While pleased with our revenue and earnings performance for the full year and our strong fourth quarter sales performance, we believe that we can do better. We will introduce new brand communications very soon that we think will capitalize on the roots and essence of Samuel Adams' success."

Boston Beer said it currently expects earnings per share for the full year 2005 to be between $0.94 to $1.00, based on current plans and market trends. The Company expects earnings per share growth to be driven by continued volume increases and price increases of approximately 2.0% planned for the first quarter, offset by increased advertising, promotional and selling costs.

"We believe the Samuel Adams brand is stronger, as demonstrated by the level of growth in the fourth quarter," said Martin Roper, Boston Beer President and CEO. "However, on-premise trends were not as strong as off-premise in the second half of the year, and we are evaluating the cause and potential solutions. We are currently finalizing the strategy and communicating plans behind our new brand message. We are encouraged by the initial quantitative testing of the television commercials which indicates that this campaign is even stronger than our current work, and we will be evaluating its performance in market to determine appropriate investment levels. As a result, our full year projections of brand investment may change depending on campaign performance."

Bill Urich, Boston Beer CFO added, "During 2004, we have continued to achieve cost savings and efficiencies in our manufacturing and operating expenses, offsetting the increases in packaging and freight costs, which were primarily due to energy cost increases, that have placed pressure on our margins. We see these cost pressures continuing, but plan to offset them with planned price increases in the first quarter of 2005, coupled with continued initiatives against the efficiency of our spending. The $6.5 million Cincinnati brewery expansion project is an important part of these efforts."

For the fourth quarter, ended December 25, 2004, Boston Beer shipment volumes of Boston Beer Brands were up 5.9% and the net revenue of $55.8 million was up 9.9% or $5.0 million over the previous year. The company shipped 319,279 barrels in fourth quarter 2004, as opposed to 301,486 in fourth quarter 2003, an increase of 5.9%.

Distributor sales of Boston Beer brands to retail (depletions) during the 2004 fourth quarter totaled 351,000 barrels, approximately a 4.6% increase from the same period in 2003.

For the twelve month period ended December 25, 2004, Boston Beer recorded net revenue of $217.2 million, a 4.5% increase from the same period in 2003.The company said the increase in net revenue was primarily due to volume increases, price increases and product mix.

Boston Beer shipped 1,258,206 barrels in 2004, a 2.4% increase from 2003, when the brewer shipped 1,229,217 barrels. Contract volume was up 33.6% to 8,999 barrels from 6,734 barrels. Overall, shipments increased 2.5%. For the full year 2004 Boston Beer Brand distributor sales to retail (depletions) totaled 1,257,000 barrels, a 1.6% increase over 2003.

The company said the depletion increase for the full year was driven by growth in Boston Lager, seasonals, the "Samuel Adams Brewmaster's Collection" and Twisted Tea. The growth was somewhat offset by declines in Sam Adams Light.

The Company earned $12.5 million in net income or $0.86 per diluted share for the twelve months ending December 25, 2004 versus net income of $10.6 million.

Net revenue per barrel for the full year increased by 1.9% to $171.43. This increase was primarily due to net price increases and product mix.

Gross margin as a percent of net revenue increased to 59.5% as compared to 58.8% in 2003. The increase in gross margin was driven primarily by net price increases and operating efficiencies, and also reflects the non-recurring $1.5 million charge taken in the fourth quarter 2003 relating to certain precautions taken to secure long-term production supply prior to learning the favorable outcome of the arbitration proceedings with Miller Brewing Company. Advertising, promotional and selling expenses increased by $3.1 million, or 3.3%, for the full year 2004 as compared to 2003, primarily due to increases in promotional activities, advertising costs and freight cost, offset by higher costs in 2003 for new tap handles and glassware.