Craft Brew Alliance, Inc. (BREW)

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Craft Brew Alliance, Inc. (BREW)

Q3 2012 Earnings Call

November 8, 2012 11:30 AM ET

Executives

Terry Michaelson – CEO

Mark Moreland – CFO and Treasurer

Andy Thomas – President, Commercial Operations

Analysts

Tony Brenner – ROTH Capital Partners

Joe Munda – Sidoti & Company

Jim Cole – Lombard Securities

Doug Thomas – JET Investment Research

Steve Olson – Private Investor

Presentation

Operator

Welcome to the Third Quarter 2012 Craft Brew Alliance Incorporated Earnings Conference Call. My name is Ellen and I will be your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we’ll conduct a question-and-answer session. Please note that this conference is being recorded.

I will now turn the call over to Terry Michaelson, Chief Executive Officer. Mr. Michaelson, you may begin.

Terry Michaelson

Thank you and good morning, everybody. I’m pleased to present the Craft Brew Alliance investor conference call to discuss our results for the third quarter of 2012. I will be addressing the general business environment; Andy Thomas, our President of Commercial Operations, will provide detailed commentary and insight into the industry; and Mark Moreland, our Chief Financial Officer, will comment on the financial results. We will then open up the call for questions.

Before we begin, I will ask Mark to read our Safe Harbor statement.

Mark Moreland

Thanks and good morning, everybody. As a reminder, this call may contain forward-looking statements. 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 described in any such forward-looking statements. The Risk Factors section on our most recent Form 10-K lists some of the factors that can cause Craft Brew’s actual results to differ materially from the forward-looking statements made on this call. Craft Brew undertakes no obligation to update publicly any forward-looking statements except as required by law. Terry?

Terry Michaelson

Thanks Mark. We are very positive about our continuing progress in developing our brand portfolio strategy and delivering consistent sales growth. We’ve been very aggressive over the last few years investing in the short and long-term development of our brand and our sales organization in order to establish our national footprint.

This investment has been targeted towards what we consider is the foundational development of our new portfolio strategy. The initial results have been encouraging and we believe have substantially strengthened our market position and ability to complete – to compete successfully in the Craft segment long-term. We are extremely pleased with some of our recent trends, specifically highlighting the National IRI SIG data, which shows that over the last 16 weeks, both Redhook and Kona growth rates have been higher than other top national Craft competitors.

This is especially rewarding for Redhook, which continues a remarkable and robust turnaround to now be one of the top growth Craft brands in the U.S. However, as positive we are with our current portfolio sales trends and our long-term growth opportunities, we are disappointed that we have not been able to deliver the short-term earnings increases we had anticipated. We are operating in a very competitive market and although our increased investment in 2012 has had positive impact on sales trends, they have not increased as fast or substantially as we had planned, and the net result is our increased spend has had a negative impact on earnings.

At this juncture in our strategy development and our business development, we felt it was necessary to be very aggressive investing in initiatives that position us well for short and long-term growth. We believe our 2012 investments have strengthened our market position substantially and have established a very strong platform to deliver both in sales and profit growth in 2013.

Several of these investments are completely new initiatives that will add to our business strategy growth potential. We invested in the development and the initial rollout of Omission, our new gluten-free beer. Omission is the first U.S. gluten-free beer to be in national distribution that is brewed with traditional beer ingredient and to utilize a process to remove gluten that meets the international gluten-free standard.

We believe Omission is positioned very well in a strong emerging category. We also have made an investment in an export strategy that will allow us to leverage our existing portfolio in new countries and provide a strong sales and profit growth contribution over the next five years. These investments are indicative of our strategy to be aggressive in developing new initiatives that leverage our assets and strengthen our ability to increase value for our shareholders. I want to thank our CBA team for their commitment and tremendous work in continue to build our unique national portfolio strategy. I look forward to finishing 2012 with positive momentum and a very successful year of growth for CBA in 2013.

With that, I will now turn it over to Andy to provide further details on our performance.

Andy Thomas

Thanks, Terry, and good morning, everyone. While still not at the level of our expectations, Q3 was a solid and significant commercial step forward for CBA both relative to Q2 and in absolute terms. CBA enters Q4 with the strongest momentum we’ve had in years and for the first time ever, with three of the four brand families in our portfolio all posting significant growth and making sizable contributions to our commercial progress. A central reason for our being, our complementary portfolio of authentic Craft brands continues to strengthen and provide a strong foundation for future growth.

As with prior calls, I’d like to begin first with a walk through of the hard numbers and then provide a bit of context and highlight some nuances. Given the shift in number of selling days between Q3 2012 and Q3 2011, I’ll share rolling 13-week numbers ending September 30, 2012 to ensure that trends are not misleading, exaggerated or amplified. Also, as this continues to be a journey in activating the overall CBA portfolio strategy and in some cases turning around brands, where possible, I’ll be more explicit in helping bridge the progress made from prior calls and will overtly reference comments we’ve made in the past.

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