Q1 2020 Earnings Call
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It is now my pleasure to introduce your host Jim Koch founder and chairman for the Boston Beer Company. Thank you you may begin.
Thanks, Good afternoon, and welcome to everybody. This is Jim Koch founder and chairman and I'm pleased to kick off the 2021st quarter earnings call for the Boston Beer company, joining the call from Boston beer or Dave Berwick, our CEO and Frank Smalla our CFO.
In keeping with these times of social distancing, Dave Frank and higher in separate locations for this call.
I'll begin my remarks, this afternoon into the pure introductory comments, including some discussion on the open 19 pandemic and that highlights the by results and then hand over to Dave will provide an overview our business. They will then turn the call over to Frank will focus on the financial details of our first quarter results.
Neatly following Frank's comments, we'll open up the line where your question.
As the world grappling with the coping 19 pandemic. Our primary focus is on upgrading our beury's entered business safely and supporting our partners in the beer industry. We have a strong cash position in balance sheet and feel very fortunate to be in a position where we.
Can help others sporting the communities in which we live and work is one of our core values.
After all our business got it start in bars, and restaurants, and we recognize the role we can play right now and giving back.
Proud to share some of the initiative, we've gotten off the ground in a very short period of time, we hope will make a difference we've established Samuel Adams restaurants, strong bond and donated over $2.1 billion to support bar and restaurant workers that have been impacted by pandemic related closures.
In 20 stage. In addition were founding partner restaurant Relief America, which is committed to helping restaurant industry workers experiencing hardship in a week the scope at 19, both funds will distribute honored for Senator proceeds drew grants to bar and restaurant workers also to it.
Support our internal needs as well as local hospitals, we began production in hand sanitizer.
It should distillery in mountain Delaware.
Thankful for our outstanding coworkers distributors and retailers for their focus on our business experienced a little bit 19, and their diligence continue to operate and how much grow or Boston beer can think business.
The company's Depletions increased 36% in the first quarter of which 30 percentage from Boston Beer legacy brands and 6% is from the addition of drugs. They should brands our business in the first quarter was strong so they remain some significant uncertainties due to cope with 19.
These uncertainties include our continued ability to operate or birdies at a level of safety. The beach our standards. The continued ability to distribute to the off premise retail locations. The duration of the current on premise shut down and how long consumer pantry loading will continue in two weeks ahead.
We will continue to work hard throughout the Kobin 19, pandemic and prioritize safety above everything else I'm proud of the page and creativity and commitment to community that the Boston Beer company has demonstrated during this pandemic.
Now going to pass over to Dave for more detailed overview of our business.
Thanks, Jim Bloem, everyone.
Before I review, our business results I'll start with our disclaimer, which given the current circumstances, we modified.
As we've seen the earnings release somebody information, we discussed in the release and that May come up on this call like the companies are management's expectations or predictions of future such predictions and the like are forward looking statements.
Also note as we stated our earnings release and Frank will later discuss in more detail. The company is not the position to accurately forecast the future rest revenues and earnings resulting from the impact of disruptions another effects related to cope with 19 and has withdrawn its full year fiscal 2020 financial guidance.
All that said the company's actual results could differ materially from any results projected in such forward looking statements additional information concerning factors that could cause actual results to differ materially from those in the forward looking statements contained the company's most recent 10-K and first quarter 10-Q.
You should also be advised that the company does not undertake to publicly update forward looking statements, whether as a result information future events or otherwise okay. Now, let me not to be sure deeper look at her business performance.
The first quarter last year, our first quarter shipments volume was significantly higher than Depletions volume. That's we took active steps to ensure that our distributor inventory levels are adequate to support drinker demand.
Our depletions growth in the first quarter was result of increases in our truly hard shelter and twisted tea brands. In addition to the Doctor said brands. There were only partially offset by decreases in are angry Orchard and Samuel Adams brands.
The growth of the truly brand in the recently launched truly heart limiting has accelerated and continue to grow beyond our expectations.
Since early January truly has accelerated velocity and maintained its market share father national hard Seltzer brands have seen share.
Well continue to invest heavily in the truly brand in a ballpark brand communications watching.
Our positioning ourselves for category, even as more competitors enter.
We're ready to launch an exciting new truly advertising campaign, but of course prone to watch Jersey uncertainties surrounding koby patchy.
Twisted tea continues to generate double digit volume growth rates that are both for your 2019 traps.
We see significant distribution and volume growth opportunities for our Chilean twisted tea brands and are looking to continue to expand distribution of our doctors chef brands pursuing these opportunities and 2020 remains a top priority Sam Adams and angry Orchard volumes continued to decline as or more deeply impacted by the on premise shutdown.
We continue to work harder when turning these brands to grow.
But do not expect them to grow during 2020.
We've reacted decisively to cope with my team and continued to work to control what we can control with our primary focus being the safety of our co workers.
Distributors retailers inner drinkers worked aggressively to put in place many safety protocols that are breweries.
Putting entrance screening and temperature shacks base mass requirements. We organize you watch increase social distancing between and among ships in adding Queenie time gene shipped.
Additionally, we close over hospitality locations beginning on March 13.
We're working hard to rebalance our supply chain to address additional demand and cannonball packages and off premise retailers against very low demand for kids given the shutdown the bomb Pennsylvania.
The shift in volume mix is likely to come at a higher incremental cost due to the increased usage third party breweries, which negatively impacts our gross margin.
We deferred some of our new marketing campaigns as we closely assassin damage the situation.
Drinker demand for our brands continues to be very strong, particularly are truly and twisted tea brands.
Recall that our depletions growth through the nine week period ended February 29 was approximately 32% from the comparable period and 29 team and we saw further acceleration in demand for our brands beginning in the second half in March.
Not possible for us to estimate the amount of the new demand that's a temporary reaction to code 90.
Great dependent business, we're optimistic for continued growth of our current brand portfolio.
Being prepared to for sake short term earnings as we invest to sustained long term profitable growth in line with the opportunities that we see.
Based on information in hand year to date Depletions reportage the company through the 15 weeks ended April 11, 2020 are estimated to increased approximately 32% for the comparable weeks and 29 team.
Excluding the Doctor said impact completions increased 27%.
Now Frank will provide discussion details.
Thank you, Jim and Dave Good afternoon, everyone.
Well the first quarter reported net income $18.2 million, a $1.49 cents per diluted share.
Decreased 53 cents per diluted share in fourth quarter loss Yep.
Net income decreased as high a net revenue was more than offset by increases in operating expenses lower gross margin.
We began seeing the impact of the cobot 19 and dynamic on our business in early March.
Hi entered than we were on track to maintain on full year fiscal 2020 financial guidance.
Given the many rapidly changing variable it's related to the pandemic when currently not in a position to accurately forecast the future impact endemic and therefore withdrawing our full year fiscal 2020 financial guidance.
To date, the direct impact of the pandemic, that's primarily shown significant the reduced demand from the on premise channel and higher LIBOR on safety related cost at our brokerage.
And the first quarter of 2020 recorded cope with 19 pre tax related production net revenue.
Increases and other costs totaling $10 million.
This amount consist of a 5.8 billion dollar reduction in net revenue quest demand Tekmate Johnson distributed retail though.
And $4.2 million.
19, we need to direct cost of which $3.6 million recorded in cost of goods sold $600000 are recorded operating expenses.
In addition to these direct financial impacts Cobot 19 relate to safety measure resulted in a reduction of internal capacity.
This has shifted more volume to third party Brodie, resulting in increased production costs and lower gross margin.
We will continue to assess manage the situation and will provide further updates and all the second quarter earnings would need to the extent the effects of the cold Ninetyth endemic would then be known more clearly.
Shipment volume was approximately 1.42 million barrels as 32.2% increase in first quarter 2019.
Excluding the addition of the document bonds beginning July 3rd 2019 shipments increased 27, and a half the south.
Shipment volume for the quarter will significantly higher than Depletions volume and resulted in significantly higher distributor inventory as of March Twentyth 2020, when compared to March Thirtyth 2000 Lucky.
We believe distributor inventory as of March 28, 2020 averaged approximately six weeks and Alan and what it was at an appropriate level based on the supply chain capacity constrained inventory requirements to support the forecasted growth. So be it was a key brands over the summer.
We expect wholesaler inventory levels in terms, so we have something to return to more normal levels approximately four weeks and had the yet.
Our first quarter 2020, gross margin of 44.8% decrease 49.5% margin realized in the first quarter not yet.
The decrease was primarily a result, our processing costs due to increase production so probably brought me.
Hi, approximately constant finished goods kick inventory write offs that company on board.
Turning to offset a price increases in cost saving initiatives at company owned brokerage.
Excluding our current assessment of the impact of coal mine key cake return some other we need to direct costs first quarter gross margin was 46.8%.
First quarter advertising promotional and selling expense increased by $26.2 million in the first quarter 2019.
Merely due to increased investments in media production on local marketing the additional Doctor said, Brian related expenses getting too late third 2019.
Yes, salaries and benefits costs and increased freight to distribute does imply volumes.
General and administrative expenses increased by $3.6 million in the first quarter 2019.
Primarily due to increases in salaries and benefits thought on the additional darbyshire general and administrative expenses beginnings throughout 2000 line.
We drew down 100 million dollar some all existing line of credit in March 2020 to enhance our cash position and our ability to address the impacts of the cold and keep the damage.
We expect that on March 22020, cash balance of 129 in the outmoded dollar together with huge operating cash flows and the $50 million remaining them. All in line of credit what would be sufficient to fund future cash requirement.
Well now open up the call for questions.
Thank you.
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Our first question comes on line of Bonnie Herzog with Goldman Sachs. Please proceed with your question.
Alright, Thank you hi, everyone.
I am Bonnie Hi, I wanted to ask about your operations you touched on that front I'm. Just curious if you can give us a little more color on how fully.
Operations have been running.
I know, you're certainly being careful with safety for employees. So I'm curious you'll have you limit to the out worrisome to shift.
And then you know as such that the output is is more limited at this time, given everything I guess I'm just trying to get a sense of how much you've had scaled back and then I think you did give us your inventory that's on hand, right now, but I can make sure I heard that correctly.
Okay body. Thanks, Dave I think because we're in all different locations all I'll sort of active PMC is that kind of funnel of questions. I think this is quite good wants to work for refractory best.
Yeah. So so so Monte clearly the capacity what was impacted I mean, what the whole thing started very very much focused on the safety or coworkers in brief but also on keeping the breweries wanting.
It was critical to our what we did as we implemented.
Significant sanitation and safety measures in the breweries to make sure that they have very safe place to work and then we can keep on running them. Even if he had incident as result of that separated shifts for example, and put time between shifts so that the cruise don't meet each other and we both I think someone segmentation but of course.
He just so that the workstation Sabine sanitize before new ships thought that has reduced capacity now we haven't had any significant impact on the overall, but we have shifted more volume to third party glory, which as you know increase lower our cost and therefore Lois.
That is reflect that.
In the financial the part that that head like at the end of March.
It's not included in the 10 million that we spelled out as direct costs that 10 million, but we spent all.
It's literally direct costs related to catch up and extra cost that we acquired the company, but it doesn't include the indirect costs all for ship of capacity.
Okay that was helpful. UNFI as you think about this environment.
No one really knows how much longer it's going to last night I would imagine that is.
The overhang of fresh is going to continue so is there way for you to give us a sense of what percentage of your business maybe in the quarter without outsourced I think it was around maybe what 26 or 27% of your business.
Last year.
Jim that's gone up now.
Yes, So I mean, India has gone up as we've indicated also in the last call will provide you still provided guidance in February.
Because of volume is going forward significantly we're putting in additional capacity.
Yep.
Yeah, what in the new line in Pennsylvania, which is coming on stream pretty much now.
But the volume continues to outpace all capability, but what is pretty clear that Q1 was going to be a quarter of what we have significantly more external production. We don't we don't disclose those numbers what percentage is but it wasn't significant increase you hope at Copenhagen, and then I'd say well then March when we.
The meant that don't measure there wasn't incremental that shifted.
Shifted over.
That's a reasonable we don't provide guidance because we don't know exactly what's going to happen, but of course, we do our scenario planning and yes, we were super cautious and what we what we wanted to put the.
The measures and and I think we won't get better at it.
Well definitely been paid level of safety annotation, but we will yeah as with everything you're getting better with things that you continuously do them acute heart and so we think we will improve the capacity internally as we move throughout the year.
And in Bonnie This is a sad to see what Frank said, we we we jumped on this very early so were to talk about growing arch is making so while these changes. So we are down the work down the learning curve a bit on these things, but we've been doing the temperature checks.
Thanks mass everything from the very beginning so hopefully that gets better we just don't know how this pandemic, yes, because we don't want to commit waves, but we feel like we've got we've learned a lot.
And I'm pretty confident that we know what we're doing right now, but again I said, we can't control under control.
Understood Alright, thanks, I'll get out of the Q.
Thank you.
Thanks, Mike.
Our next question comes on the line of Vivien Azer with Cowen and company. Please proceed with your question.
Hi, good evening. Thank you.
All three do you guys are safe and healthy is correct yes.
Just a follow up on Bonnies question on capacity you called out the capacity build outs.
Yeah, and I heard days you pay the capacity will continue to ramp over the year.
Incremental capex.
Project.
And this year or was it just the one line.
Thanks.
Well, we've got I'll basis, we have we have a mine in Memphis that we'll be going in in the second quarter. We cities that set design is on schedule. So we feel good about that we've also what we haven't decided where to put the capital we have committed and got board approval internally to put more lines in either Pennsylvania.
We're in Ohio.
Time, starting very soon so we're continuing to move down that path as aggressively as we can even in this environment, where we're kind of looking at sort of some capital projects that may not be strategic are critical we're putting them off. This is one that we're going full steam ahead to build more capacity.
Okay. That's great. That's so good to hear that construction.
Continues hopefully broadly on Saturday.
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Hi, good returns.
Uh huh.
Our.
Just trying to think about what the second quarter impact.
Like.
50% of your kick back is there.
We didn't help.
So what we've had as Frank.
We have the process hasn't really started in artists from from an operational perspective, but what we've done that.
Yeah, we have a longstanding policy all any returns that we get.
For freshness reason, but we get from our distributor that we reimbursement for 50%. We've always had simple packages for KCS. We we are not intending to change that and we've communicate that to our distributor and we've looked at the inventory that we have at the distributors or we have looked at the inventories at the retailers.
Which is likely to come back through the distributors as well and based on that we have accrued for the cost in Q1, that's what you see that it's part of the.
The 10 minute, yet so 5.8 billion reduction that in revenue because we we have accounted for four the CAC inventory that we expect to come back and reimbursement 50%.
We believe is fairly good handle on that inventory. So we don't expect any any significant changes to to that.
Okay perfect. Thank you that's super helpful.
One for me and I'll jump back in the queue can you just remind us what your.
Right.
For the total company portfolio on premise versus off premise. Thanks.
Yes, we don't share that I think what we said, we do say somewhere we talk about our keg. That's present in total were just 12%.
So the kick the KEXIM cake sales or 12% of our mix, we don't we don't breakout.
As a result comes obviously this more than kensico into the on premise channel.
[laughter] suffice to say acumen and Thats really.
It is submitted this fits fair to say, it's de Minimis for truly has tremendous for twisted tea as well.
Okay. Thanks, so much.
Our next question comes from the line of Kevin Grundy with Jefferies. Please proceed with your question.
Thanks, Good evening, everyone I, just would echo I hope that you and your family loved ones are safe and healthy.
I want to start.
But bigger picture question for Jim and for Dave I understand there's still a lot known at this point, but I think what sort of maybe a little bit more increasingly known is there's a broader consumer shift at home consumption consumers will be working from home more frequently as well. It just seems like there will be some protracted him.
Locations from from social distancing, they're going to be with us for for some period of time and as a consequence, it would appear to be a lasting negative impact.
On the on premise channel, maybe agree or disagree with that but you know if that is indeed, the case it'd be I'd be interested to get your perspective on the longer term implications not just for your portfolio, but for the industry as well and overall alcohol consumption.
Thanks, Kevin I'll, let Jim I'll, let Jim jump on that one.
Yes.
We've seen.
So far.
Also complete devastation of our cake business, so it's damn near zero.
And it happened very quickly.
So.
It's hard to.
So that's what we know.
The locked down in the states, where it's been implemented has meant that.
Okay businesses a trickle.
How much of that will come back you know, it's anybody's guess I mean on in a normal year, there, there's a decent amount of turnover in restaurants anyway.
They they go out of business new ones take their place.
So.
There will be a lot the don't reopen some of those were probably going to close during the year anyway.
It is probably beyond my capacity to predict.
How much.
Lower the on premise business will be in the short term as a long term no other than to say, it's going to be lower and it's going to be significantly lower in if I had to guess you know its.
Some of its driven by shutdown a lot of its just driven by who wants to go out and run by almost with a lot of people until there is a vaccine or an effective treatment or therapy. So.
We are anticipating that yes. The on premise business is not damages snap back and it may be.
Matter of a year or two.
Before it gets anywhere near what it was.
At the.
End of February.
We do feel like.
As opposed to many other craft Brewers.
We have developed a portfolio and a business model.
Is able to.
Prosper even in.
This this new.
Normally.
We and you know the.
Strong sales results.
So far this year I think validate that business model that is built on on strong brands on successful innovation on the support of our distributor network and our.
Our best in class Salesforce, So we see.
The result, so far this year.
As a validation of our of our strengths and and because we.
Our pretty confident in.
Our business model and our position in the marketplace, we're willing to invest aggressively in programs and in media, when and where we can drive continuing double digit growth.
And we're going to make the.
Capital investments as anyone asked about.
That are necessary to support that growth.
Primarily.
In house, but also investments.
At.
Our contract brewing partner, and we're also going to invest capital.
To increase our gross margins from their current level with they've been declining for several years, even as we scaled up and that's that's just not.
Not natural or even healthy so we think we can get.
It was significant improvement in gross margin over the next couple of years and you're going to invest the capital that's necessary to do that.
And.
Does that answer your question.
Yeah, Yeah. Thanks for all that Jim I appreciate it just.
Interest a a time that I do want to touch on smelters, if that's okay as well as to conquer the questions to be asked obviously understanding understanding what what we don't know necessarily with respect to magnitude of pantry loading and the timing around how long it's going to take consumers to de stock maybe you could talk about I guess kind of what.
What we do know and maybe what you've learned over the past three months since last we spoke with respect to new customers and sort of a frequency you consumption among existing customers and strength of the branding consumer loyalty because as you guys rightly pointed out the brand has held up a truly that.
It is pretty well.
Light of some of the new entrance, so maybe talk a little bit about some of the brand equity and once you have learned about the core consumer and even new consumers over the past three months and I'll pass it on thank you guys very much.
Okay. Thanks, Kevin actually I think I'll, maybe I'll jump in on that and should we want.
To answer that question for me, taking about an hour I'll try to try to be about prefer.
Thank you first of all ahead I feel like what we did in the end of the fourth quarter last year to prepare for the on slots we call the way walkers coming at US in January we feel very confident and said that.
The Reformulations increased media spend fourth quarter to build some brand awareness ready lemonade for launch.
What where we are right now is that.
Truly right now is only hard seltzer branch or to grow share sequentially. Since the beginning January so started beginning this year, we only want to grow now granted.
Hi, 20 to 22.1, it's only sent them sharepoint, but we'll take it in the growth rates have sustained strong given over 200% last 13 weeks.
Look about 13 last four last one to 10 to 32 18. So it's growing I think we also look at we look at sales per point really important it's accelerating so over the last four months in sequence.
Plus 65, plus 71, plus 89, plus 99, and now truly lemonades coming in about five to share which is significant so.
No no consumer perspective, what we've learned and it's been really interested have other players can makers and you can see you see where the shares going from two to which branch, which brand and we will we get to the panel data and generalists Nielsen. We're starting to work we will do with Numerators won't just kind of interesting.
But do you look at Neal said, you see let's compare.
Truly to white caused by the way what caused phenomenal ramped up very respectful of the gold that Brad Hughes comparison.
Weve truly has higher income households on younger buyers more diverse ethnically buying households, more sourcing from wine and spirits 51 of your nine higher basket ring I repeat rate actually now for six to 34.
We're seeing that.
The public Seltzer entries has skewed a little bit older more income similar although we'll get more diverse but similar to waikele in many respects.
And so we were we've carved out we believe is a different it's a different consumer what's most interesting to me if you look at the last month.
We expose Kobe, which is sort of the daily I would like first we can March the first week in April.
Truly.
Penetration doubled in that time between step between between that that February March timeframe and repeat grew by 25%. So we're seeing.
And you guys have all seen it took the growth rates are continuing its category and people, bringing home. The we're getting opportunity to get five among a lot of new consumers 40 more presented to consumers.
Tried truly the last month were new to the brand so.
We feel pretty good then that's going to sales and it's getting along on the household penetration is continuing to grow significantly for the category. So 75% over the latest 52 weeks away costs with reset which was a two seven but over the last four weeks I think is around seven seven.
So it's almost where we think hard seltzer can be honest way to eight 910% of appear all during that time. So that does that's those are the headlines and I'll I'll begin with that.
I appreciate all the time, thank you guys and good luck.
Okay. Thank you.
Our next question comes on the line of Steve Powers with Deutsche Bank. Please proceed with your question.
Hey, guys. Thanks, Thanks for the question.
Maybe first real quick.
The on premise attending a question I think for Frank Frank in the queue, if I read it right.
He talks about reimbursements to distributors on the order of about $8.2 million I guess the question is that inclusive of 5.8 million that you've called out as kobin related or is the the cobot number additive to the point too.
No. This is Mike Im not sure the of the 8.2 the cat we try to.
Cost of the reduction in revenue is 5.8 million.
That's the number with some other cost related.
Two.
To the coding.
Impact, which is like mainly the buoyed and that's the balance due to the 10 billion, that's about the consultant and operating expenses, but but outside of the 5.8 billion yen.
Like 3.6 million also the gross margin line, if you're well, but those are direct expenses, there's been no no additional cost to that.
Right Okay. So.
Okay, I can follow up offline.
Yes.
I guess.
Stepping back maybe to build on what you just said Dave around the filter category. If you I guess I'm thinking through is do you think the disruption of the category is facing now that.
Industry space now it will have lasting impacts good bad or in different on how the category develops the filter category that is.
If you said, you're getting new trial, right now as folks stay home and and try and pantry load I guess as you as you go forward, though the good news is you got this new trial period on the other hand, just social gathering in general will probably be limited for some time.
Think of sell through the as a source social occasion type of beverage, maybe that's wrong, but just how do you think about the go forward impact is on this category, specifically and how it how it how it was developing and how this may change how it develops over over the next over the remainder of the year into next year.
Okay, and as I said, another another I want to predict I would say I mean, obviously the one benefit.
Category has that really that it doesn't exist an on premise, but it's not very significant so well on premise to shutdown and as Jim talked about coming back.
Kevin what did you put very slowly.
It does much less of an attack on this category that people, who are who have stocked up a lot actually we're seeing the numbers to suck up really.
There's replenishment, Brian that's almost at the same rate of growth as a stock up so it's come down a little bit for silicon and significant growth as you know across the entire beer business certainly within within sensors as well. So I think anytime you have a new products you category you brand, it's getting a lot of trial the as a while appeal to it.
It's kind of benefit and I think we're just we're getting basically I think we're getting a lot of incremental trial. We meeting the whole category is getting a lot of incremental trial that it would not have gotten.
And another situation. So to me if I would have to that I would bet that this bit this.
Sub segment of the beer category will fall to has further and faster than it would have had had at this terrible situation not that occurred as it terms of the social piece I think we've looked at on the almost all of your social occasion waste was probably cancels out.
And I think on.
However, before winter I mean, I guess the winter hasn't changed over the last couple of years I think this is still the same to one part of the category.
Yes, great great. Okay, I'll leave it there thanks so much.
Sure.
Our next question comes on the line of Nik Modi with RBC capital markets. Please proceed with your question.
Yes, thanks, good afternoon, everyone.
Good.
Yes, like when when you think about capacity situation and obviously you guys are investing to expand lines, but well just given what's going on across the competitive set I'm. Just curious like do you see any opportunities out there can you know either have unique partnerships to produce more fully on a lower cost and that would.
Potentially doing with co Packers are you going acquiring capacity out right.
That's the first question and then the second question is really coming down to what you just talked about this amazing.
An acceleration trial that you've seen in the category that probably we would never seen and private club 19, and how you can to marketing digital on television I Hadnt. How can you creates stickiness with those consumers that have been trying on the category in the brand.
Over the last several weeks.
Great. Thanks, Nick I'll defer the first question to Jim and then maybe I'll come back and answer the second question.
Oh, it's right into the second one day.
Nick.
First question.
Yes. The first question. The first question Jim is really about capacity and while you guys are okay back to extent like we see opportunities out there combined capacity.
You know we are.
Always looking at.
Opportunities.
We are we would prefer to own our own capacity if the economics are equal, but we have been fairly agnostic.
The economics are superior so within that framework.
You are we.
We do anticipate there will be.
Opportunities they haven't yet surface, but I think there are craft borrowers who borrowed money and expanded.
You know as you probably know for craft Brewers, we that part of Boston beer business and craft, bringing in general skews weigh more heavily on premise sort of order of magnitude, 30% versus maybe 18 for the industry. So there will be craft Brewers.
Uhhuh overextended and now don't have demand will be under some pressure and.
As those.
Communities arise, we will look at it but.
What's happened to our business is.
When we have this very very strong growth, but it's all in cans and.
12% or a business was in tags, we've more than offset that with cans, but that means we don't need more keg capacity and we don't really need the brewing capacity. So.
Capacity that would be useful to us would have to.
To be canning capacity and Thats generally not what craft breweries have so we will look at those things if there are opportunities where a the total economics of purchasing and maybe building out putting or can line are better than doing it within.
Im one of our.
Breweries or one of our or its city our primary contract brewing partner, we would do that so it may happen, probably not but it's it's not out of the question.
Okay, and so hey, so Nick I'll jump into the second question, I think which which was about how he built the Brad to last I think we'd look at the category. We said it from beginning really believe this category is going to be about a few mega brands, it's going to play more like soft drinks and look more like the branding from soft drinks and it does look like craft beer per se.
And we'll see we'll see it plays out that way so early to tell but I think for US. We're looking just looked really like for like a four things, they're kind of sort of the fundamentals creative brand awareness right and we we don't have the ones that we need to have but you get that you all sorts of media.
Differentiation is critical to we Reformulating as we have is important had the best tasting product. That's that's just the beginning we have to differentiate the brand and other measures through corporate communications platform. We do have a campaign that we're very excited about that was due to launch in April and actually we front loaded notice next.
First we spend we plan to spend at the beginning this year because we knew the competition was coming we're going to wait till the summer on we have new campaign ready to go in April now obviously, it's not the right time to be launching a campaign to make sure that the consumer sentiment is is open to bring something new that that we have but that's certainly have another way that we plan to.
To build the brand I think innovation were seen with Lemonade, we think Roger something here, where there's a way to you know we're basically trying to redefine what would hard seltzer can be versus just next watermelon TV flavor is that something is wrong or other more substantial platforms. We can build the route I think innovation will be another way, we don't want to over the before.
During the they either but it will be way to differentiate and set our set our brand apart inelastic comes down to execution and you have to our wholesaler network.
Reference we have relationships there so to the other guys too and then do a tremendous job executing their so upside and look at our distribution across channels, particularly convenience stores.
In total and grocery there's still opportunities for us to drive that so it's a combination of all those things coming together I think importantly, we need to come forward and hopefully people re when they never do coupled with new campaign that were were presented a brand with a distinct point of view that's relevant to 21 through five rules.
Right that's what they appreciate it.
Okay.
As a reminder, ladies and gentlemen, it is star one to ask your question. Our next question comes from the line of Laurent Grandet with Guggenheim Partners. Please proceed with your question.
Yeah. Good evening, everyone, Hi, surety I mean, my first question would be a put up from a from your previous response, Dave I'm not.
Donaldson company does that come with a strong be up brands.
Uh huh.
It up I cannot facility there on sub brands.
Do you think it's an advantageous.
And why I mean to have a standard owned brands versus competing against me not those have been via brands dot that off flourishing right. Now so could you could you could it spending some of marketing watch your feet, that's and that's on page for you.
Yes, I do I do think having a pure play brand in the category, but any categories more powerful because I think it's just of its just some more singular idea what a brand is about and I think consumers using consumers to want to buy.
You know Swiss Army knife, they want they want the best life the best for the best when they can get and they've got to and I think the greatest started very smart they're going to go to break choose brands that they believe deliver on the category benefits and the positive the category and they don't want to be confused I was just my point of view and have you been Pepsico and I know you.
We're too I'm responsible for for doing the opposite of that and I think I've learned from my mistake said generally not going to do that now I must say that these other line extensions will work because these are obviously pretty powerful brands, but my if I wouldn't use.
I would now I would prefer to have a brand that is not a line extension.
Okay. Thanks, Dave.
The next question I mean Korea clarification squeeze that was Frank.
You, Dave but.
It seems that you'll numbers in depletion oppressed 56 to science on your shipments is plus 32%. So in my view based on facilitate your growth seems like depletion growth has been a higher than shipments growth.
So.
So we trust in my view in the.
Not really I mean your goal at the beginning of the your oil I misunderstood you at the time.
But.
Yeah, what where I'm getting getting to read what is the the person I mean does the number of weak so fell off a inventories you mentioned six weeks, that's a reset US press wholesaler level is it's a on how these does compare to a two last year.
On the their riskier based on tremendous grows from from Sri That's we may read giving us some lots of stock you thought you set is continue to be as such.
Okay, No honest Frank I I can take the question on shipments versus depletion.
If you recall in.
February we said that because we had capacity constraint well pre build inventory.
For for truly intensity. So dollar can business before can maximize the capacity that we have and then it's very similar to what we did last year and typically we keep on building inventory at wholesale.
To kind of the middle.
To make too.
Second quarter and Thats, where.
Shipman typically outpace deflation.
Now what happened with Cowen that we've started building the inventory at the beginning of Q1, all the way into March than coal would happen and there was significant pantry loading as you've seen many with many parts of many stable so.
The whole tenants were able to deeply into the retail because we have built the preeminent inventory went down so lucky that had enough inventory.
But it has changed a little bit that and that makes because in the second half of first quarter, we didnt need at more.
Then we had expected so as a result, the prepared that we had planned for this reached the level that we had thought no there might be little phasing in there that that is going to hit Q2. We don't know this will need to guidance, we don't know that exactly.
If it continues this ball there will be nets prebuilt than we had anticipated and we'll find at all.
At this point, we believe we have enough capacity, maybe not everything internally, but if you look at in turn next.
Due to meet today, Matt, but it all comes down but the final demand will be maybe platforms, but so far but that won't pick out, but that's really the dynamic that happened in the first quarter, we're trying to better more.
Inventory at the whole set out to be prepared for the summer, but the cold crisis.
Increased the Depletions beyond our planning and that's that's what we didnt achievable goal of the inventory build.
To your question on the on the level.
No in terms of weeks of supply as we've mentioned we are at about six weeks that yet.
Both the level of over at lot, Yeah, maybe a little maybe a few days more but but less than half a week.
It is below the level that we get targeted.
In absolute terms of course, the inventory is significantly higher because the business has grown tremendously.
As you know it where.
We're looking at doubling the you can imagine that hasn't been it's a pre build the absolute number thats significantly higher than last year, but about at the same level in terms of weeks of supply outlook, that's not yet.
Yes, you're right to add.
One other.
Dynamic.
And thinking about.
How much inventory.
Prebuilding and how are we going to get through the summer.
We have.
Two new full can lines.
One.
The became operational like two weeks ago, it's come up really well.
That's in Pennsylvania, So we added.
A full can line there and a also a coal can line in Memphis.
Which will be coming up.
And next month, so going into this summer we're gonna have a two new.
Totally size the operational can line.
Service the summer peak.
And the continued growth that we're anticipating in the back end the year.
That's a significant.
Expansion of our can capacity.
How much in person pitch I mean, that's would present goes to two new line. So Jim Yeah, you could sort of think about.
In the first quarter, we had kind of three can lines. I mean, this is a rough equivalency because two of them in our facility and then we have a contract with Sydney burrowing bat.
Or more complicated, but you could probably think of it is.
Three can lines in the first quarter and in the second quarter, we're gonna have five.
[laughter] so.
Your percentage at 67%.
Yes.
Okay. Thank you I think your documents once you guys could you do the good work excellent work I should say on divestitures on thank you.
Okay. Thank you.
Our next question comes on the line of Camille Guards Your Walla with Credit Suisse. Please proceed with your question.
Everybody. Thanks for taking the taking a question a mail a lot of hey, Jim I want to back and forth on capacity. If I can try to simplify I believe the goal towards the end of last year was to double your capacity.
We are you still gonna get there is there a delay in getting there is the number now the 67 you. Just you just provided can you just.
I was trying to simplify where you have intended.
It was to double our capacity of course, sleek cans, which is what truly.
Is in and we are we've done I mean, we're about to when the next one.
Comes up and Memphis.
In may so yeah double sleep.
Cans and we've actually we believe a little more than doubled it because we've got more efficiency out of existing line. So that gives us the ability to more than double our production.
Truly.
Okay. Okay, great. Thank you. That's a good segue are you seeing any any bottlenecks in the raw material and supply side. It looks like you capacity is getting there, but there's slim cans are tight sounds like Seo too is now getting tight any other bottlenecks, we need to be thinking about.
We did a preliminary look at exactly that question where is there any unexpected stuff.
Out there like like CEO to me, who would have thought that yeah.
Less mileage being driven would affect the supply chain for burley, but a fair bit in the CEO to comes from the ethanol plants in the upper Midwest with our production system, we are fairly.
Close to self sufficient in Seo too.
We've always is not wanted to Ben.
Carbon dioxide ended the atmosphere.
So we spent a fair bit of money on capture systems to.
Capture the CEO to in our breweries scrub it.
And then reintroduce it into the beer. So we're we're very confident about our CFO to supply we don't need that much in if we really had to we couldn't be more frugal with how we use it and probably be close to fully self sufficient.
We have looked at other items mall hops.
<unk>.
Not an issue.
We keep several years worth the hops and flavors, we're fine with so.
General, we don't see issues and.
Our first tier suppliers.
We don't have a really complicated supply chain like the car company, where you Gotta go two or three tiers.
The thing that.
We have worked very hard on is making sure we have adequate supply of cans, even to cover our upside forecast, particularly sleek cans and we've been assured from our can suppliers that are they are.
Ready willing and able to supply the projections that we've given them. So we feel pretty good about that.
Okay. Great spur final question, if we could shift to be or one of the things, it's become becoming more and more evident in the in the Dan as we're seeing pantry loading.
National craft brands, such as yourself, but also you know Sierra Nevada, and others have really shifted the arc of there what where share losses for a long period of time in volume declines for a long period of time.
And is.
The real really the question is that something that you see as perhaps more permanent in a in a shift that.
Probably for seven years, that's been going in one direction or do you just believe it's as simple as the fact that at the moment larger brands have spot.
And I.
I wouldn't want to predict.
You know a overnight change in a seven year trend.
I do think it might bending the arc a bit but you know we're very focused on trying to get Sam Adams back to growth and we're not going to assume that some.
Twist to fade is going to change that we feel like we need to do it.
Ourselves.
Certainly happy that in these difficult times consumers a pickup as Sam Adams said, because they know it to reliably rewarding.
Beer drinking experience so.
Possibly we'll be able to build on it but I wouldn't want to.
Count on everything changing just the because of something that will eventually pass.
Yes, it can be I'll jump I'll jump on top of Jim's comment just really because I do think I agree with what you've said I think again, we're just dig into the numerator data and getting the last month.
40% to 42%.
Well the buyers it came to tip off all possible I think we'll do so that's good so again like.
Okay, just like all the categories this opportunity to drive trial to reach while brands, but to Jim's point, that's not enough subjects have been that to bend the arc necessarily so we have been in fact, our support for the time. This crisis began until now has really been behind Sam Adams and restaurant strong program that.
Jim referenced in his in his opening remarks, because we feel it that's something we're doing something for restaurant workers as she appropriate thing for us to do what size for history, we are as a company or values and so we have been spending media dollars to support that it's been well received that's an example of what eight years an opportunity to do that you something good and also our recognition that we have to keep.
You have to keep doing stuff to get to turn the to turn the brand. So that's that's something that's happening that's out there also you can imagine when however on premise opens.
We have the largest and we believe the best on premise sales team.
In the industry and we will be ready to go back in and support the same people that were supporting to the restaurant struck program that we're going to use every every resource our exposure to help manage to drive business. Once off premise comes back as well and there are other things as well. So again I think it's a it's on its a corporate fate.
All these brands are in a better place I think the challenges now what do you do about it.
You know too much now three months from now six months from now.
That's useful appreciate it that's all for me. Thank you everybody.
Thanks, Thank you.
Our next question comes on the line of showing King with you'd be US. Please proceed with your question.
Yes. Thanks My question I know you don't disclose the total portfolio exploring it on premise, but maybe you could share how much of your marketing and promotional spend is directed to the on premise or many who are unable to unpack that maybe you could share how much of the spend mixes directed towards your over indexing on premise brand like Sam Adams and angry Orchard.
Sean This is Frank we don't disclose any of those of those numbers, we manage the entire portfolio.
We are.
You know, we take our priorities during the year up like how we support the brand and we support the pretty the Brian.
Evenly sard program, so, we do and promise but.
And the on premise, Brian as you can imagine that Sam Adams Dangour Orchard, that's what we have more private rather than the other Brian. So if you look at on premise there, we see more on premise spend better than others, but we don't disclose details.
The other thing that I want to become the question came up earlier on like your percentage of profit as you can imagine that is changing has changed over the years and if yes of course changing dramatically at the moment right now we're talking about your wallet, but the question is like.
To come back.
So yes.
We don't we don't we don't.
Before.
Yes, Sean maybe I can I can add one thing as it relates that I do think that like I imagine pretty much everyone is doing this but they're booking.
Just future after we as we ended the space, we simply like to be the three goals, but the first we both want to manage the crisis right answer crisis, consistent with our values and make sure we're making the right assisted to keep our people save to keep the keep our people employed and keep the breweries operator, I know we've talked about uncle Bobs separate pieces. It's essential that we have also the same.
Time talking about how we plan to head for the future. So a better future. So we come out stronger our people are more engaged and bad debt, Rob and our businesses that Robin I think what are the things related to that as we're looking at all of our spend across channels across brands for the balance of the year and we're trying to wind that up with what are the out.
Opportunities, where its worst of consumers had at where can we make an impact. Unlike as we've always thought we will we see the opportunities. We think we've got a good investment at the right time.
Whenever whenever that is as it may as of June was July we don't know yet, but if we see the opportunities we're going to invest and we're going to we're going to we're going to best as much we plan to invest that come into this year. If however, we don't think it makes sense because we're not going to get a return or is there they're different things going on Blake investing maybe behind on premises.
Well, it's not coming back then we won't do that so lot of flexibility to in terms of what we spend what we don't spend but I think our philosophy is that it's going to be consistent which is if we think we can build brands for the long term to increase and create growth we'll do it.
But we but because it will change so dramatically we're table print a whole new lands on everything and that's what the teams.
Thank you are looking out right now.
Great and very helpful color. Thanks, a lot.
Thanks.
Our next question comes on the line of Eric Serotta with Evercore. Please proceed with your question.
Good evening, I hope everyone as well.
A quick question.
Going into the year, you talked about a pretty big plan to expand the sales force.
Just wondering if that's all on track and on on schedule. How much of that has been done already I guess, how much of that as carryover from last year website, <unk> dot fish recession.
[laughter].
There has to Dave Yeah, we're doing we're going forward, we fill a number of roles.
I'd say by sale, we talked about on over 125, plus rolls, let's say.
At this rosenfield already we're we're looking to fill them all that we're not going up people come in.
You're right away. So we know what's going on here, but we haven't current situation has not to turn us from doing this we see this big opportunity.
Fortunately, we have great balance sheet as Fred talked about where it would have good position.
To continue with these plans. So so we're not we had to put a whole too we could certainly because there's more work to be done, but we're going we're going full steam ahead on us.
Great to hear and then we've heard a number of reports about retailers and distributors.
Prioritizing high volumes skews, just wondering what you've seen in terms of the impact on your business and.
How do you expect that to evolve over the coming months, whether you think some of those skews, they're going to come back into the system.
Or whether this kind of be though long awaited shake out or an acceleration of the shake out that we've been saying.
So when it well I guess starting that much and finished because I'm sure. Jim has one point of view about this I think in the media in the short term and there's no question that said our wholesalers. It starts with obviously with retailers who is dedicated to the wholesalers pretty quickly and then to us they're looking to drilling for the power skews the core brands and.
As you probably noticed the large pack sizes too so whether it be third 30 packing up 24 pack cans both that cans.
Well established brands, that's what's getting the space now because they nobody wants to run out of stock and so they accomplished the long tail it's bit has.
As far as one of the larger crops.
Your company's is dealt with that has benefited us some also references benefit in Sierra and inducted as well.
And so we're we're basically because only go we're going with a flow here and when and what our customers want we're going to deliver and so we're seeing in Iraq, we're seeing turnaround almost brands, including angry orchard by the way as well to being tortured crest, which is considered a core brand never any worker in the southern kind of gross kind of so 50 556 year. So in the short.
Term that's worth going.
I'll have Jim has pointed you Jim as the is this is clear brands, we might have a perspective on the long term work goes.
Ever thought about that.
It's very consistent with what you said.
What's happened is retailers kinda like the fact that they could get more volume with fewer skews.
And wholesalers were very happy about it as well so the channels I think will kind of.
I want us keep this going if they can.
What would.
You know yank, everybody back to the status quo anti.
More skewed lower volume per skew more difficult.
You know product mix to manage to keep in stock.
No it's going to take the consumer requesting it I don't think I.
I don't think it will automatically snapped back to the way it was because both retailers and wholesalers have benefited economically from this new state of affairs. So it really will depend on the consumer will the consumer.
Require that same you know kaleidoscopic assortment of brands that you'd see.
On a 12 foot run of of craft beers, we just don't know.
Great well, thanks as always from your perspective.
As a reminder, ladies and gentlemen, it has started one to ask your question. Our next question as a follow up question from a line of Kevin Grundy with Jefferies. Please proceed with your question.
Hey, I appreciate you guys, taking the follow up this one's probably for Craig it's a little bit in the weeds, but.
Frankly, my back of the Napkin math is correct here so the depletions.
For the 13 weeks ended for the quarter X dog fish for 30% and then you also disclose year to date for the 15 weeks was 27%, which implies it depletions were kind of in the seven 8% range. In early April is that right and if so maybe you can unpack that a little bit understanding the big pantry look dynamic.
In the month of March.
So.
So we of course, we don't we don't give you the.
Number.
[music].
But the.
Lets pantry, though and then put up and they pick a pan pretty low with its coming back, but what we're seeing indications and what you don't see an IR why is the on premise business, which literally came to a screeching halt back from one day to the next.
We're not selling any tags anymore or anything else that typically went to the bars include bottle.
And I would say that that is the big impacted the slowdown.
From what you see.
When you look at quarter end about 36% and then they yesterday in the fall.
Huh.
The we're still trying to figure out what the what the pantry no impact is but we hard to tell so Paul we have seen a dramatic impact, but maybe we are expecting something there.
But we don't know we don't know exactly what it is.
Okay, all right and it's also you ravenswood of effect from the Easter being a week later this year in east due to a.
Pretty big holiday for the craft beer industry.
Okay.
There are no further questions in the queue I'd like to hand, the call back to Mr. Cook for closing remarks.
Right well thanks, everybody for.
Being on the call with us and a year forbearance of our being at all different places and we look forward to talking to again after the second quarter.
Stay safe everybody.
Thank you say help ladies.
Ladies and gentlemen, this does conclude todays teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.