Boston Beer(SAM) - 2024 Q2 - Quarterly Results

Financial Highlights Despite revenue and depletions declines, the company achieved gross margin improvement and increased net income Q2 2024 Financial Metrics | Metric | Q2 2024 | Change (YoY) | | :--- | :--- | :--- | | Depletions | -4% | N/A | | Shipments | -6.4% | N/A | | Net Revenue | $579.1 million | -4.0% | | Gross Margin | 46.0% | +60 bps | | Net Income | $52.3 million | -9.8% | | Diluted EPS | $4.39 | -7.0% | YTD 2024 Financial Metrics | Metric | YTD 2024 | Change (YoY) | | :--- | :--- | :--- | | Depletions | -2% | N/A | | Shipments | -3.4% | N/A | | Net Revenue | $1.005 billion | -0.8% | | Gross Margin | 45.0% | +260 bps | | Net Income | $64.9 million | +32.3% | | Diluted EPS | $5.41 | +35.9% | - The company repurchased $127.0 million of its Class A Common Stock from January 2, 2024, to July 19, 2024[2][26] Management Commentary Management revised volume guidance but maintained EPS guidance, focusing on execution, innovation, and margin expansion - CEO Michael Spillane stated the company is revising volume guidance due to softer category performance and product launch timing, but maintaining EPS guidance supported by transformation efforts, focusing on optimizing execution and launching accretive innovation[3] - Chairman Jim Koch highlighted that gross margin improvement initiatives are working, with a year-to-date expansion of over 250 basis points and strong cash flow, noting that while depletions were soft in April, they improved through the quarter[17] Detailed Financial Results Despite revenue declines, gross margins significantly improved in Q2 and YTD, driven by price increases and savings Second Quarter 2024 Performance - Q2 shipment volume was approximately 2.2 million barrels, a 6.4% decrease from the prior year, mainly due to declines in Truly Hard Seltzer, partially offset by growth in Twisted Tea and the new Sun Cruiser brand[18] - Q2 gross margin increased to 46.0% from 45.4% year-over-year, benefiting from price increases and procurement savings, though negatively impacted by $3.0 million in shortfall fees (50 bps) and $6.2 million in non-cash expense of third-party production pre-payments (110 bps)[5][21] - Advertising, promotional and selling expenses decreased by $5.1 million (3.4%) due to lower freight costs and reduced brand media spend[6] - General and administrative expenses rose by $3.1 million (7.0%) primarily due to inflation in salaries and benefits[22] - The effective tax rate for Q2 was 28.6%, up from 27.5% in the prior year, due to an increase in non-deductible stock compensation expense[7] Year-to-Date 2024 Performance - YTD shipment volume was approximately 3.8 million barrels, a 3.4% decrease from the prior year, reflecting similar brand trends as Q2[23] - YTD gross margin increased significantly by 260 basis points to 45.0%, driven by price increases, procurement savings, and lower returns and obsolescence costs[9][17] - YTD advertising, promotional and selling expenses decreased by $10.3 million (3.7%) due to lower freight costs and reduced brand media spend[10] - YTD general and administrative expenses increased by $9.8 million (11.1%), primarily due to CEO transition costs and inflation[34] - YTD net income increased by $15.9 million to $64.9 million, primarily driven by higher gross margins that offset lower revenue[11] Financial Position and Cash Flow The company maintains a strong financial position with cash and no debt, generating operating cash flow and returning capital - The company ended the quarter with $219.3 million in cash and cash equivalents and no debt[16][17] - Distributor inventory as of June 29, 2024, was below target at approximately 3.5 weeks on hand, compared to a target of 4 to 5 weeks for the peak season[19] Cash Flow Activity (YTD 2024) | Cash Flow Activity (YTD 2024) | Amount (in thousands) | | :--- | :--- | | Net cash provided by operating activities | $91,116 | | Net cash used in investing activities | ($56,067) | | Net cash used in financing activities | ($114,245) | - The company repurchased $127.0 million in shares year-to-date through July 19, 2024, with approximately $140 million remaining on its share buyback authorization[26] Full-Year 2024 Outlook The company revised full-year depletions and shipments guidance, while maintaining gross margin and EPS targets Full Year 2024 Guidance | Full Year 2024 Guidance | Current Guidance | Prior Guidance | | :--- | :--- | :--- | | Depletions & Shipments % Change | Down low single digit to zero | Down low single digit to up low single digit | | Price Increases | 1% to 2% | 1% to 2% | | Gross Margin | 43% to 45% | 43% to 45% | | GAAP EPS | $7.00 to $11.00 | $7.00 to $11.00 | | Capital Spending ($ million) | $90 to $110 | $90 to $110 | - Year-to-date depletions through the 29-week period ended July 20, 2024, are estimated to have decreased approximately 2% from the comparable period in 2023[36] - For the full year 2024, the company estimates that shortfall fees and non-cash expenses from third-party production prepayments will negatively impact gross margin by a combined 135 to 185 basis points[29] Appended Financial Statements The release provides unaudited condensed consolidated financial statements, detailing income, balance sheets, and cash flows Condensed Consolidated Statements of Comprehensive Income Condensed Consolidated Balance Sheets Condensed Consolidated Statements of Cash Flows