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Wall Street Breakfast

Redhook Ale Brewery (HOOK)
Q2 2007 Earnings Call
August 16, 2007 11:30 AM ET


Paul S. Shipman - Chief Executive Officer
Jay T. Caldwell - Chief Financial Officer
David J. Mickelson - President and Chief Operating Officer


Fred Malloy - Analyst
Alan Seymour - Columbia Management


Good day, ladies and gentlemen, and welcome to the Second Quarter 2007 Redhook Ale Brewery Earnings Conference Call. My name is Grace-Ann, and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today's conference. [Operator Instructions].

I would now like to turn your presentation over to your host for today’s conference, Mr. Paul Shipman. Please proceed sir.

Paul S. Shipman - Chief Executive Officer

Hello, it’s Paul Shipman here. Welcome to the Redhook Ale Brewery question-and-answer conference call to discuss our quarter ended June 30, 2007. I am here with Dave Mickelson. We are on the road. And Jay Caldwell is back in Woodinville. I am going to begin. Jay is going to start with some comments… actually start with the Safe Harbor statement.

Jay T. Caldwell - Chief Financial Officer

Hello, It’s Jay Caldwell. Welcome to Redhook's 2007 second quarter conference call. Redhook would like to remind everyone that this call may contain forward-looking statements which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guarantees of future performance, and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially from those expressed, implied or forecasted in any such forward-looking statements. Expressions of future goals or similar expressions reflecting something other than historical fact are intended to identify forward-looking statements. For a list of factors that could cause Redhook's actual results to differ materially from those described in the forward-looking statements, please refer to the Safe Harbor statements in Redhook's most recent filing with the Securities and Exchange Commission. Unless required by law, Redhook undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. A copy of Redhook's most recent filings with the Securities and Exchange Commission are available in the Investor Relations sections of Redhook's website located at


Paul S. Shipman - Chief Executive Officer

Okay. In January, as many of you know, Redhook announced the agreement in principle on a term sheet to join our Company with the Widmer Brothers Brewery of Portland, Oregon. We appreciate that our investors have been very patient while our management and directors have worked diligently in the best interest of our shareholders towards the merger of the two companies. These deals are complicated. Ours is further challenged by carefully working on details involving three companies due to the nature of Anheuser-Busch's investment in both Redhook and Widmer. Our existing partnerships between AB and Widmer remains solid. It just takes a lot of time to work through the various interest of all parties. We continue to work towards this goal and pledge to make a public statement as soon as we have something definitive to report.


David J. Mickelson - President and Chief Operating Officer

Thank you, Paul. Continued high levels of contract brewing had a significant impact on our second quarter results. Of the 19,800 barrel increase, 18,800 of the increase came from contract brewing. While total of the Company shipments excluding beer shipped under the contract brewing arrangements increased 1,000 barrels during the quarter, shipments in our Midwest and Eastern markets including Widmer Hefeweizen license, brewed under our licensing agreement increased 9.4% compared to second quarter of last year. And when we look at only shipments of Redhook branded products in these markets, we are very pleased with the 18.8% increase. Unfortunately, the improvement in the Redhook branded product shipments was reduced by an 8.2% decline in shipments of the Widmer Hefeweizen license in these.

Unfortunately, Redhook's business in the West serviced by Craft Brands alliance remains challenging after declining 5.2% in the second quarter. The Craft segment remained strong nationally by all indications. However, we saw evidence of some softening in the Northwest, according to scanning data that impacted the industry as a whole.

Additionally, we regularly evaluate pricing opportunities and took some increases earlier this year. It appears to have had a negative affect in a few markets, especially, Oregon where we saw a significant decline compared to a year earlier. This was further impacted by a loss of distribution in a few packages at chain stores as a result of the price increase.

Our Washington state home market remains extremely competitive. However, we did manage to grow this business by 0.5% off our largest base. Long Hammer IPA has been a successful re-branding effort with strong growth nationally. But we have continued to battle as competing for the attention we seek from our wholesalers in our secondary product. This was mostly evident in the west where the focus was on Long Hammer, but we ended up losing some ground on other products.

What has impacted our business in the East is with our licensed Widmer Hefeweizen. Our Hefeweizen category is getting increasingly more competitive but most within our existing wholesalers’ portfolios and from most other brewers, both domestic and Craft competing in this area. We must compete successfully for distribution growth and wholesaler attention. Jay?

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