Q4 2020 Boston Beer Company Inc Earnings Call
And <unk> and commitment to community that our company has demonstrated during this pandemic.
Thankful to our outstanding coworkers for their focus and diligence and our distributors and retailers and drinkers, all of whom and help the company achieve double digit volume growth for the 11th consecutive quarter.
We achieved depletions growth of 26% and the fourth quarter and 37% for the full year, we remain positive about the future growth of our diversified brand portfolio and we believe that our depletions growth is attributable to our key innovations the quality of our.
Products and our strong brand, we see significant distribution and volume growth opportunities in 2021 for our truly twisted tea and dogfish head brands, which remain our top priorities for 2021 early in 2021, we launch.
The <unk> truly ice tea hard seltzer, which combines of refreshing hard seltzer with real brewed tea and fruit flavor. The launch has been well received by distributors and retailers and drinkers, but it's too early to tell if it will be successful and we're working hard to further develop our brand support and messages.
For our Samuel Adams, and angry Orchard brands to position them for long term sustainable growth and the face the difficult on premise environment. We're excited about the response of the introduction and early 2021 of several new beers Samuel items with the hazy Samuel items with.
Could easy and Samuel Adams, and just the Hayes, our first non alcoholic beer as well as the positive reaction to our Samuel items. Your cousin from Boston advertising campaign, we're confident and our ability to innovate and bring and build strong brands that complement our current portfolio.
Leo and help support our mission of long term profitable growth.
I will now pass over to Dave for a more detailed overview of our business.
Okay. So thanks, Tim for everyone before I review of business results and I'll start with the usual.
Claimer as we've seen the earnings release of some of the information, we discuss and the release and then they come up on this call reflect the companys or managements expectations or predictions of the future such predictions and the like are forward looking statements. It's important to note that the companys actual results could differ materially from those projected in such forward looking statements additional.
Information concerning factors that could cause actual results to differ materially from those of the forward looking statements is contained in the company's most recent 10-K.
All of you advised that the company does not undertake the publicly update forward looking statements, whether as a result of new information future events or otherwise okay.
And now let me share a deeper and looked at our business performance, our depletions growth and the fourth quarter was the result of the increases in our truly hard seltzer and twisted tea brands, partly offset by decreases in our Samuel Adams, and angry Orchard and dogfish head brands.
The growth of the truly brand lift and I truly lemonade hard seltzer continues to be very strong and well ahead of hard seltzer category growth.
Truly lemonade was the most incremental and new product and the entire beer industry of measured off premise channels in 2020 the.
The truly bring and overall generated triple digit volume growth and 2020 and grew its velocity and its market share sequentially. Despite other national regional and local hard seltzer brands entering the category.
And 2020 truly increased its market share and measured off premise channels from two points to 26 points and was the only national hard seltzer of not introduced in 2020 to grow share the.
And the remaining many opportunities to expand package channel and geographic distribution and we expect the truly brand to continue to lead the growth of the business as it is kind of a stand for great tasting refreshing pure play current seltzer brands.
The early 2021, and we launched truly ice tea hard seltzer and.
And while it's still in the early stages. We are encouraged by the support our wholesalers are provided the trial, we are generating as a result of the brands established equity.
And the social media response from consumers.
We will continue to invest heavily and the broader truly brand and work to improve our position and the hard seltzer category as competition continues to increase.
Our twisted tea brand has benefited greatly from increased debt home consumption and continues to generate accelerating double digit volume growth, even as new entrants of and introduced and competition has increased.
Our Samuel Adams, angry Orchard, and darker share brands with the most negatively impacted by COVID-19, and the related on premise closures for.
For 2021, and we plan to build upon our success and work to drive our brands for the full potential with the particular focus on our truly and twisted tea brands.
We expect and all of our brands to grow in 2021 and for the growth rate of our operating expenses to be below our top line growth rate delivering leverage through our operating income.
During the fourth quarter as we increased our brand spend and we also made investments and our supply chain to ensure we're prepared for increased competitive activity and the hartzell share category with the.
Investment increase our can and automated variety pack capacity, but these capacity increases keep on getting the clicks fire depletions growth, resulting in higher than expected usage of third party and breweries.
We will continue to take advantage of the fast growing hartzell for category and deliver against the increased demand through the combination of internal capacity increases and higher usage of third party breweries. Although meeting these higher volumes through increased use of third party for rates has a negative impact on our gross margins and we've begun a comprehensive program.
And transform our supply chain for the goal of making our integrated supply chain more efficient reduce costs increase our flexibility to better react and mix changes and allow us to scale up more efficiently.
We expect to complete this transformation over the next two to three years, while we anticipate the program to start delivering margin improvements of 2021 of our gross margins and gross margin expectations will continue to be impacted negatively for the.
Volume growth of stabilizes, while we're in a very competitive business. We're optimistic for continued growth of our current brand portfolio and innovations and we remain prepared to forsake short term earnings as we invest and sustained long term profitable growth in line with the opportunities that we see.
Based on information in hand, and year to date Depletions reports of the company through the six weeks ended February six 2021 are estimated to increase approximately 53% from the comparable weeks and 2020 now.
Now Frank will provide the financial details.
Thank you, Jim and Dave Good afternoon, everyone.
For the fourth quarter. The reported net income of $32 8 million for $2 and 64 per diluted share and increase of $1 52 per diluted share for 136% from the fourth quarter of last year.
This increase was primarily due to increased net revenue, partially offset by lower gross margins and higher operating expenses.
Shipment volume was approximately $1 94 million barrels of 54% increase from the fourth quarter of 2019.
Shipments for the quarter increased at a higher rate than Depletions and resulted in higher distributor inventory as of December 26, 2020, when compared to December 28 for 2019.
The company believes distributor inventory as of December 26, 2020 average of approximately five weeks on hand and was at an appropriate level of based on supply chain capacity constraints and inventory requirements to support the forecast of growth.
Our fourth quarter of 2008 2020 gross margin of 46, 9% decrease from the 47, 4% margin and realized in the fourth quarter of last year.
Similarly, as the result of higher processing costs due to increased production of third party breweries, partially offset by cost saving initiatives at our company owned breweries and price increases.
Fourth quarter advertising promotional and selling expenses increased by $48 1 million from the fourth quarter of 2019 pro.
Primarily due to increased investments and media and production increased salaries and benefits costs and increased freight to distributors because of higher volumes.
General and administrative expenses were flat from the fourth quarter of 2019, primarily due to nonrecurring dogfish head transaction related expenses of $2 $1 million incurred from the comparable 13 week period of 2019, partially offset by increases in salaries and benefits costs.
And again net income per diluted share of <unk>, $15, and 53 increased $6 and 37 or 70% compared to the prior year.
This increase was primarily due to increased revenue, partially offset by lower gross margins and increases in advertising promotional and selling expenses.
Our full year 2020 shipment volume was approximately $73 7 million barrels at 78, 8% increase from the prior year.
Looking forward to 2021 based on information of which we're currently aware we're targeting 2021 for earnings per diluted share of between $20 and $24, but actual results could vary significantly from the target.
This projection excludes the impact of ASU 2016 deaths are in line.
We are currently planning increases and shipments and depletions of between 35% and 45% were.
And we're targeting national price increases per barrel of between one and 2%.
Full year 2021 gross margins are currently expected to be between 45% and 47% of.
The decrease from the previously communicated estimate of between 46% and 48%.
We plan increased investments and advertising promotional and selling expenses of between 120 and $140 million for full year 2021 the.
<unk> from the previously communicated estimate of between 130, and $150 million and not including any increases and freight costs for the shipment of product store of distributors.
We estimate of full year 2021 effective tax rate to be approximately 26, 5%, excluding the impact of ASU 2016 desk the rmi.
And this effective tax rate also excludes any potential future changes to current federal income tax rates and regulations. We are not able to provide forward guidance from the impact of ASU 2016, the share of mind will happen and what 2021 financial statements and full year effective tax rate as the.
This will mainly depend upon unpredictable future events, including the timing and value realized upon exercise of stock options versus the fair value of those options for granted.
We're continuing to evaluate and 2021 capital expenditures and currently estimate the investments of between $300 million and $400 million.
The capital will be mostly spent on continued investments in capacity and the efficiency improvements at our off road race.
And we will now open up the call for questions.
Similar to the last couple of calls date will be the EMC on our site and coordinate the answers when needed since we are in different locations.
At this volume and conducting a question and answer session. If you would like to ask the question. Please press star one on your telephone keypad how come from.
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Participants using speaker equipment and made the necessary the pick up of your handset before pressing the star Keith one of all inclusive of the call for questions.
Our first question comes from the line of Bonnie Herzog with Goldman Sachs. Please proceed with your question.
Alright, Thank you hi, everyone.
I guess I was hoping you guys actually could talk a little bit further on your expectations for gross margin pressure from it.
And you touched on this but it certainly sounds like it's now expected to be a bit longer. So maybe you could share.
Share with us what is a realistic timeframe for when your gross margins will be back above 50%.
Is it possibly two to three years when you're finished with the transformation of your supply chain that you mentioned and.
And then also in terms of this transformation you did say, it's going to take two or three years, but I guess I'm wondering if there is an opportunity to celebrate.
And this transformation and if so is it simply a function of greater investment or <unk>.
Theres something else. Thanks.
Yes.
This is Frank I am going to take the question on gross margin.
And so youre right it has to come down a little bit and the key reasons are.
Actually that we have a higher percentage.
And we had originally planned going externally.
The second thing is debt.
We're seeing great increases in the market.
And yes that is part of the impacting the materials and.
And the ingredients that are being shipped to our location.
And the third one is actually touching on your second question and I'm going to answer that in a minute.
A higher investments and our supply chain transformation program precisely to accelerate.
Those benefits and.
And get to a higher capacity and.
The integration and lower costs.
And.
The prospective from gross margins overall the.
Main reason what they are going down is literally because we are adding external capacity and are really.
<unk> pace and it's the bad news for margins and the short term.
But it is good news because we see the tremendous growth and the category and and full of brands and particular, so it's good news bad news and.
The strategy that we're following.
Debt our number one priority is to grow share.
Because as long as the category is growing.
And it's relatively easier to impact the share and to carve out of a part of the category. Once the Academy stabilizes. This is this is going to be harder, but if you of a larger share of debt will pay dividends for the long term, whereas.
And the negative impact on the margins is relatively short term until of the category stable items. When it stabilizes, we will relatively quickly get to EBITDA margin structure.
As we.
As we improve our supply chain and we know.
And really long term capacity and.
And.
The number of drivers one is that we will increase our share of internal production.
And we will better integrate we'll continue with our.
The co manufacturing partners of course.
But we will better integrate debt in our system and debt will be enabled by supply chain transformation and.
And then we will see significant benefits from the growth margin side.
And I think the important thing and Thats. The last thing to the growth margin I think the important thing is that the gross margin is not impacted by soft of pricing or anything like we are really we are building a strong brand here.
It's literally to get the product to the market and meet the customer demand of the consumer the map.
Okay that was helpful and it definitely makes sense and so yes.
Maybe just to clarify really quick and then I'll pass it on and is there a potential opportunity to accelerate then the investments you're making behind your supply chain or will it simply take the two to three years.
And the.
The potential to accelerate we are working through that it's really hard to give you. We know we're going to see benefits. This year from the supply chain transformation and the.
And the difficult part is we don't know exactly what we're going to end up in the ratio between the internal production and the extra production and we are adding significant capacity internally and externally and naturally we are and where we are prioritizing the internal capacity. That's what we are going to run flat out basically for the Europe.
And.
Again, good news bad news the.
The stronger the growth the higher the percentage of external.
Production and.
And while this has a negative impact on the margin and we'll definitely have a positive impact on the profit and as we as we see leverage throughout the entire P&L also on the operating income margin.
Okay. Thank you again appreciate it.
Hi, Bonnie let me throw one more piece.
And that May help, but one of the dynamics driving our gross margin down is.
And that.
Most of our growth.
Is humming and variety packs and Bruce and I have set up to make variety packs very efficiently, including ours. So all of the variety packs and you can look at the IRI numbers for what percent of truly is and variety packs, but it's somewhere between 80 and 90% right. So.
And that truly growth the vast majority of it requires this extra complicated handling step.
Which is not automated very well and add significant costs now we are we.
We've begun to automate that and we've implemented that and.
Our Pennsylvania brewery and we think we've been successful and that has actually helped that gross margin number from dropping as much as you might have predicted.
And we not done that and so we believe.
Over the next couple of years, we're going to be able to take the technology and the practices debt.
We.
And I have developed and continue to develop internally take that to our co packers, none of whom yet.
Of that cost reduction capability. So I think we believe that and the next two years.
We will.
And have almost all of our co Packers being able to do variety packs without.
And anything like the current upcharge as required.
Okay very helpful. Thanks again.
Our next question comes from the line of Adobe and Asia with Cowen. Please proceed with your question.
Hi, Thanks very much.
And given your comment that your gross margin outlook.
The key a greater proportion of.
The third party manufacturing and hard Seltzer, yet you've held your shipments and Depletions.
And guidance intact.
Are we doing for them that there has been kind of and underlying change to it.
To your expected growth in the hard seltzer and if Thats true.
And of the expenses.
Yes.
Moving and I don't think.
And the number of driver of this as I mentioned one is also of the freight. So there is a little bit of of change because we're building capacity as we speak of the timing varies a little bit.
The the <unk>.
Real change one of the and actually the full point that will reflect and we've given you the for.
Range is.
But we had a slight change and the phasing of how the different capacities coming on stream. That's part of it. So we don't see a dramatic change there.
And we held our depletions guidance of our volume guidance.
Non stem.
But we are we keep the margin for the statement within that range.
Okay understood. Thank you for that clarification and then just one follow up for me then please.
And just wanted to dive into your comment around expectations for growth across your whole portfolio and just if I think about beer specifically you clearly have a lot of innovation.
And in <unk>.
But how big of a role does a return of the on premise play and you're actually achieving the aspirations of growth this year.
Is it in the state I'll take that one so I think yes. So for sure we're looking the trulia.
True interest to see that and drive.
Sort of growth as we discussed with the other brands or is the benefit from our kind of coming back on.
The delay of assumptions about that.
They're a great degree of data over the course of the year of the comes back on and more fully by the fourth quarter. But in addition, we've got first of all of the and the off premise of the core brands all of the core risk and that will start the shed and European Chris We're seeing growth with Covid. So there is some momentum and OPEC.
Household penetration and increase across all of those brands. So we see.
And they have better momentum with on premise also of the innovation, we expect to play a big role and Jude.
And we have to have the number of things out there and what can hazy as out their network and hazy Wicked easy, obviously and that on slide 12%, just launched ACO and darker shaky and cocktails angry Orchard has is true.
The two different for salaries Peach mango strawberry so the Queen.
<unk>.
And the momentum that we've generated over the last call it nine months and the off premise for the core brands.
Top of that the innovation that we pulled out and this year across all three of those brands and then on top of that our premise coming back.
Over the course of the year, we think that net debt and our plants that adds up to a positive growth for each of those three each of those three brands.
Understood. Thanks, so much.
Sure.
Our next question comes from the line of Eric <unk> with Evercore ISI, Please see what the questions.
Thank you.
First a quick housekeeping question the.
The year to date Depletions up 53%.
Do you of any ballpark as to how much retail inventory building was in there for.
And for truly ice T and some of the new products and then bigger picture could you talk a bit about your visibility into shelf space and distribution growth.
Across the portfolio for 2021.
Particularly for truly any early read on the spring shelf set resets, which were delayed for a year.
And.
And ill pause there thank you.
And I'll take the first question on the from the inventory.
We have I mean, clearly we are building inventories we started building inventory because we know we don't have the capacity for peak and that's pretty much in line.
And with what we have done and the previous two years, we started building the inventory and December not exactly to the extent that we had originally planned but it was higher than what we had from the previous year and the key driver of behind that was.
And the truly ice tea launch rich.
Compared to eliminate when we launched eliminate that was a pretty new idea for the new product.
And so people want it and we're careful and taking that and whereas the the truly iced tea launch there was a lot of goodwill for.
From the wholesale is the retailer and the consumer so so we knew the launch was going to be bigger. So we had to build a little bit more and thats what you saw.
And year end, we had about a week more and wholesaler inventory and.
And then what we had the prior year. Since then we haven't really built much to be honest because we we continue to build and we will build pretty much into March April, but it's gradual and it's broadly in line with what we have done and the previous year.
The here and I'll take on the on the shelf space the question.
And we look and we're expecting part of about 50%, maybe more increase and shelf space and obviously.
Obviously, it's been the variance by channel by customer for on average last year. If you look at large format.
The stores grocery stores.
On average 70, and maybe 7% gave us the 7% of the cubic feet for hard seltzer for the category, we see that going up to 11 12, 13% of the sheer sort of say, 50% plus the terms of space.
Great and then just the follow up and.
Jim last quarter, you guys expressed some confidence that the overall hard seltzer category could double again this year.
And sort of tied into your last comments on the shelf space increase.
Are you still looking for the category doubling again this year I know your guidance doesn't doesn't count on truly doubling but just wondering how youre thinking of overall category growth.
Yes.
Subsidy of I'll take that one I think and we spent a lot of time thinking about this over the last since we last spoke.
One of the lot of changes out there and we looked at the ability of lot of different things. We've looked at actually a lot of folks on this call to the conduct of the rone analyses to look at that category mix of roof and make your own predictions, we talked to the number of industry experts to get their assessment of where they thought the category and was going the bulk of Williams of the World and then we're of course, we've been we sell into our own data.
We spent a lot of time looking at the airport.
Put our points of distribution.
The growth potential for <unk>.
Also the potential household penetration of where it is where it's going the buy rate, we looked and our innovation like <unk> and other things.
We look at some of maybe some of the lost cases last year, because because sequentially couldnt deliver the cases, we also Doug of the numerator data, which I know some of you guys looked at and also IRI data and the.
And of the came out at the end of the of that exercise, where the range of about 70% to 100%. So I think last time, we missed the 80 to 100.
We're pretty confident the category will grow based on all of the work we did the based on the work of a lot of you've done somewhere in that 70% to 100% range and that would translate into.
Maybe for <unk>.
Maybe 15% plus share of total beer within the IRI or Nielsen universe.
Terrific all of them pass it on and thank you.
Okay.
Our next question comes from the line of Kevin Grundy with Jefferies. Please proceed with your question.
Hey, great. Thanks, Good evening, guys and congratulations on the strong year.
Dave maybe we could just start I guess with where you left off and the last one just sort of building to the to the category growth.
Because the category, while still at really strong levels. It's decelerated here in January and February So how do you see the cadence of this playing out for for the category of if sort of the bogey that you guys are setting as it is going to grow 70% to 100%.
And the comp year over year comparisons are going to be difficult. How do you see this playing out as this additional capacity coming on to help you know Marc Anthony brands and among.
Among others as new product innovation, how do you see this playing out that we go from the deceleration here and early part of the year and we accelerate to get to the high end of the range and then and then I have a follow up.
Yeah sure I think.
So I think you kind of if you can kind of have some of the answer and there I think of it.
The innovation will continue to drive interest and the category.
We don't think theyre going to be the supply challenges at least for the top players because it was a year ago.
Also as you know things did slow down the end of the year. When you look at it and the whole beer and distribute look at the was the other issues of Covid shutdowns and uncertainty about the political environment Covid relief.
Et cetera et cetera.
And.
Yes, we see of change and if you look at the pace of what Youre looking at some of this category. Some of you guys look of Nielsen. So the guys look at IRI, but generally of the category is growing like 90% right now and as the.
The soft shoulder and we just think that as everything gets going.
It is truly see the example, I mean, if you look at the non alcoholic business, it's about a $10 billion business of retail so that kind of dwarfs, what I'm going to I'm sure eliminates the $100 million.
And it's probably not so the significant category and we think innovation like that and there are others of course from not just tried to talk about our renovation, but use. It for example innovation like T. We think is going to bring more people of the category. So we think we think things will start to accelerate the get even as we get toward.
On the through the summer of two when we get the overlap with Covid.
Last year. So again, if you look at the trends you look at the growth of household penetration. If you look at the trend of the growth and frequency and compare it to a great beer.
And it's 50% less household penetration of the light beer, we think as we think it can get there and we put a range on it so it's not and maybe it won't be 100, but we think it will be at least 70 and whatever it is our tendency is to grow faster than whatever that number ends up being.
Alright, and then just to just to be clear on that the expectation is that youre going to maintain market share and the category is that what you are planning or is the expectation that truly is going to gain share which is reflective of what we see in the Nielsen data and recently, yes, yes, our expectation of we're going to gain share.
Look at it and the denser.
Our goal and and that's we won't be happy of US would you. If you look at go back go back to September maybe deals when you look like IRI, Let's go back of September and IRI truly has been outgrowing. The category. Since then by about 40 or 50 points since that time and that was before the innovation of started the kick in and so we feel we feel good.
Development now and obviously, it's early and.
And there's a lot.
And as a lot more chapters to half of this year, but we feel like we're in a position where if things play out the way, we expect will growth, we will outgrow the category and we will catch up.
Sure.
And it makes sense. Thanks for that just a quick follow up could and then Jim maybe it'd be good to get your thoughts here as well just comment it seems like the product is off to a strong start understanding it's still really early.
How has it performed relative to your expectations, where do you think.
And so again, it's early and any read on repeat purchase rates at this point and then I can and pass it on thank you.
Yes.
Jimmy why did you want to jump.
Sure sure.
Sure.
And.
We didn't really know.
And how big.
<unk> was going to be so my expectations were and then it would be a little bit less than lemonade.
In the.
And alcoholic beverages.
Certainly and <unk>.
<unk> eliminated bigger than key.
So the gap is closing.
But on the other hand as Dave pointed out.
<unk> more.
And I see drinkers out there than there are eliminated from peers.
By factor of two or three or four.
So I guess I would say I've been pleasantly surprised by the strength of T. But it's.
It's just way too early.
Retailers were very supportive of them because they saw the success of eliminated last year, I mean true eliminated with particularly the biggest thing to come into the hard seltzer category and.
Their expectations for quite high we got tremendous support from retailers and we got tremendous support from our distributors, but it's still in the middle of February and we have not yet seen the innovations.
The hitting the market fully from.
And how does the bush with there.
Bud light eliminate seltzer and air Bud light.
Our T cell <unk> and.
And similarly from white claws so.
I think we will have a pretty good handle on it.
And at the next earnings call, but so far to to answer your question.
It's actually done better than I thought.
Yes.
Just to really quickly and build on that I think we can say definitively is that there is there has been very very high trial and the repeat Kevin to your point the last quest.
<unk>.
And the repeat it just takes a while to really to really know so as Jim pointed out. The next earnings call. What are the better it will have a better handle of repeat looks like and well.
We will have proxy that we can look at we can look at.
First of eliminate and look at this and other new.
New brands of the category and what level of better handle and what's the what's the trajectory will be for us for team.
That's great. Thanks for the time guys. Good luck.
Thanks.
Our next question comes from the line of Wendy Nicholson with Citigroup. Please proceed with your question.
Hi, My question has to do with premise.
Really for sell for specifically I assume in 2020, because of Covid and all of the shutdown of on premise.
And teeny teeny tiny low single digit percentage of the overall truly franchise.
Do you think it will be in 2021 are you gaining a lot of distributions from.
And part of the start to open back up.
And how quickly you think that can ramp and and what's the receptivity of the on premise locations been truly so far.
Right.
And Jim you want to take that one.
Sure.
On the premise has lagged the.
The off premise.
And so Theres no question about that and that was true scheme of it for.
Covid.
It is still lagging from it because you got to go in and sell it in and.
And the on premise operators are not that receptive to lots of sales calls in.
In these times so.
And again, it's not a product that has had a lot of traction on draft that we've tried to generate it. So if I had the guess.
It was seltzer will be smaller and smaller percent of it is volume will be on premise then.
The rest of the the beer and cider category, which tends to be maybe 18% on premise I would guess seltzer would be a lower number than that.
For the next year of two anyway.
Because that got it.
Much of the very much so thats, great I, just want to make sure you weren't forecasting so much of our success.
And then my second question just has to do with all of the cash on the balance sheet and I know you've got Capex.
And.
To build out of your capacity, but youre still generating a ton of cash so and what are you going to do with that cash what's your appetite about thinking about another beer acquisition.
Dogfish and has worked out fine but are there any more craft beer brands like the.
Expand it seems like anything you'd bump it would actually be dilutive to your growth. So I don't know that that makes sense that you are stockpiling cash and just curious how you think about that.
Okay.
So I.
And I can take the cash question and then I'll let.
Jim and talk to the acquisitions I guess.
And the Geo point, and we have of highly cash generative business, which is which is very beautiful.
And if youll CFO.
But we are also investing into the business and the growth of the business you saw the capital.
The debt that we're projecting of three and the two $400 million.
We want to maintain the flexibility and.
And those projections the base of the growth that we have given and as we've said before.
So far we opened for <unk>.
For the category growth and we just want to make sure that we stay really really close that we built the capacity that we need and then as I as I mentioned before.
When it when it flattens out the we're going to create the network the supply chain network that gets to significantly lower our cost and for that we want to have the flexibility. So that's the number one priority and it follows our.
Long term.
Strategy that the business comes for US and then we'll see where we are going to the west.
Of the.
Of the cash.
And the business is clearly supporting the growth at this point.
And Jim I don't know if you want to talk too good and the acquisition for sure.
Yes, I don't think at this point we have.
Any plans or appetite.
For.
Another craft beer acquisition.
Obviously it depends on.
What the company and what the situation is I would say the.
Hey, Doug Fischer.
Acquisition was.
And somewhat unique.
Because of the synergies with the boundaries and we view.
Sam and Maria.
And as unique assets there was a very common culture and a very strong working relationship.
That I've had with both of them over the years in the head of unique brand with a unique and very strong positioning.
And as well as.
And kind of the same creative and innovative juices that we have and those were.
The sort of soft assets.
The the synergies worked out we're now merged our distributors for about 85% of our volume is going through common distributors. So the numbers worked out in terms of being accretive but the big driver. There was not just the numbers, but the <unk>.
<unk> ship and the culture and.
And the sort of soft synergies of innovation and creativity.
Got it that's helpful. Thank you very much.
And once again and as a reminder, if you'd like to ask a question. Please press star one on your telephone keypad. Once again, if you would like to ask the question. Please press star one on the until the.
Okay.
Our next question comes from the line of the rent Granda with Guggenheim. Please share with your question.
Hey, good evening guys.
And the congrats for getting true eliminate the the most incremental and new product in there and tell you of the industry that's steady.
And Jim Thank you and just interest.
The comment I am more bullish than you on on truly not for according to our Martin.
The.
The category and F&B was twice as big as Lemonade before truly lemonade was long so.
And anyway.
Two questions like.
Yes.
Sorry about the marketing expense.
You significantly spend more in the in the fourth quarter that the UK.
Did you say the 19th of sort of third quarter earnings.
You will spend of 55% to 65 million neurons and you ended up on the spending in the 90 to 92 million more so that's 30 million more so what's the rationale there and also you reduce by 10 million of them.
Your guidance and marketing spend for for for this year. So.
<unk> spending in the fourth quarter and I'd like to turn to some directional of white spending more in the fourth quarter and Thats Whats your plan and.
And.
And for less and less each year.
Thanks.
Yes.
On the.
The marketing spend our brand spend and Aps.
Q4 was the big Q4 for US I mean, Thats, where we are.
And we spent like.
The 50 more than 50% of more of them and.
And the previous year west for the average.
Year was 26%.
And that has to do a little bit of a phasing.
We were going into 2020, and then really strong plans for the first half.
And that.
Was impacted by Covid Covid happened and.
And we didn't execute couldnt execute everything as we had planned for.
Also of volatile and marketing plans and as I mentioned in previous calls.
We have marketing plans, but we also are pretty adaptable and flexible and see what's working and what's not working and when our confidence increases we just spending more and when we don't have the level of confidence that's needed and we're reducing our <unk> spend. So I think Q4 is an expression of two things one of the law.
For the phasing.
And the second thing is we feel much more confident and our programs and Thats why we invested and we also wanted to have the strong start going into into.
Into 2021 across all brands, primarily was true related but it was also a fee and it was also Sam Adams.
And then there was a liberal of phasing as well and the production.
And we get some some production and we've done a little earlier, so that happened as well and Q4 as to 2021.
There was a little bit of phasing, but also when we gave you the initial numbers.
In October and quite a few things are in flux and you get a bit of handlers and your plans and the the effectiveness of the plants and Thats just the firm up of the plant is not the change and.
A dramatic change in direction of our strategy at all.
Okay.
Yes.
The second question is about.
Packaging expansion I mean, you said and your printer market.
And to expand packaging so.
You said in.
You would have been much greater arm and shelf space and in grocery.
And once you understand I'm not in Covid.
The store specifically, what's the number of on average can you you've got right now and the how much how you're planning to have an NAV.
And in 'twenty one.
And is the growth will be coming from the single serve primary which are more profitable for.
Or will be coming from truly extra which I'll show them. The senior share so like terms of sandy. Thank you.
Okay.
And I'll take that and I think it depends it really depends on the channel and Youre talking about but I think we're looking to expand space see.
And so everywhere I think yes, and large format is really getting extended and truly see a variety of pack initiative.
For Kalydeco.
Perfect. Thanks, a lot of impact after elimination of the goal is to have part of the sulphide and variety of attacks and every large format store. So so for grocery and Ken as most of the as Jim said, it's like it's a variety of packaging and that's where the plane. We think in convenience stores. We have there is a lot of opportunity on single serve and on variety pack. So right now typically we have moving.
What are two of variety packs per convenience store, we want to have some of the three were also adding single serve across the board. So again, it's not just you were talking truly now for as much is true.
Lots of opportunity for <unk> in particular.
More and more.
Packages and that and that channel as well.
Yes, okay, well, thanks, guys and.
And over the next year, we should see to EPS.
The most the incremental products in the.
The industry Okay.
Sure.
For this year.
Thank you.
Our next question comes from the line of Nik Modi with RBC. Please proceed with your question.
Yes, good evening everyone.
And just a few questions.
And the release, you talked a little bit about geographic expansion for.
For the current Brandon I just wanted to clarify did you mean internationally did you mean just from the U S. Can you just provide some context around that and then I wanted to I wanted just to ask about.
And from a category of stabilization for hard Seltzer, and I'm curious, where you see that going and you talked about a 15% number of items I wasn't clear, but that was like next year next two years or kind of longer term, but.
We think the category of can get some of between 17 and 20% of overall beer based on our math so.
So I'm just curious what you think about think about those numbers.
Yes.
Stripping the effects I think first of all of the geographic expansion, we were talking in the us. So there's still about a six point gap Inc.
Basically ECB distribution between white claw and truly so we think there are definitely pockets of the U S kind of different different teams.
Also convenience stores, the big opportunity for us and we're very close and the share perspective from the grocery, but we were much too distant and convenience. So we're talking.
The U S on that one.
And the second part of order book was.
And sort of where the category goes I think we're not we don't want to.
We don't want to forecast the camping out of this year quite honestly I think for us at 15%, we're thinking maybe 15 plus percent share of beer this year and 2021.
And that being obviously the of the IRI or Nielsen universe.
Senior senior analysis going forward.
And some of those assumptions and they seem positive sales.
Pretty reasonable to me.
And what you did but we didn't want to come out here and sort of how.
Talking about anything beyond 2021, because.
We just we just don't know.
And so.
And we do think we see continued growth in Europe for <unk>.
The mix makes sense and the assortment, while the relate beer right. So it's not sort of crazy five.
And for that we can and the surface of what's going to happen this year.
Great and then if I can just slip one more and on RTD.
And obviously not core for Boston beer for Dogfish head does have.
Our small business there. So I'm curious just given how much retailers are expanding space and in that particular area of.
The beverage alcohol market.
And if you're thinking about perhaps making a bigger plan for that segment organically or through M&A.
Yes, so I think as we work and we are launching and March for let the Doctor second cocktail of three Skus.
And we ended the process of amazing, we're very excited about and I think right now that's our.
Our first foray into that space and we'll see how it goes I mean, the growth is obviously I think the sort of plays of the premium at the high end of part sales for a few relative price points for us too much higher.
It could potentially be of hiring into this.
For the wholesale for category in a way.
And we believe and the product because we believe in the brand we will see how it goes and then we'll decide from there.
As you know we still the distribution for US is it sounds like snap your fingers.
And I'm truly T and with all of the distributors and carriers necessarily so we have to.
And with the problem of distribution as we go and we'll see what happens, but we like and it makes sense right and the consumers are.
There is the blurring between between white spirits and beer. This is one of the outgrowth of that flooring and.
We do think it's something that sort of is worth pursuing.
And we're pursuing it.
And right now with the artificial we'll see I guess, what's kind of see how that goes and go from there.
Thanks, so much for the perspective.
Our next question comes from the line of Steve Powers with Deutsche Bank. Please poll for questions.
Yes, hey, thanks, good evening.
Two questions from me. The first one is another geographic based question. This one specific the truly T.
As youre thinking about that offering.
Do you think that will ultimately have.
And sort of relatively even national appeal as it scales up.
Sensors for the rest of the franchise or do you see it resonating more regionally ultimately and if so is that influencing how you're you're targeting your investment spending as it does ramp up.
I'll take that all.
Okay.
Yes.
Yes.
Our experience with twisted tea has been that.
It is somewhat regional though it's definitely becoming less so it's been a 20 year process of rolling out.
The key.
And the <unk> has not been what you would have expected.
Yes.
You would have expected like in places like the south where there's a lot of tea consumption twisted tea would of.
<unk> had its strongest.
And demand and it turned out that it was more northern states from Maine, all the way across new and rest of the new England in Michigan and Montana.
And then.
Places like that so.
We think that <unk> is now more widely accepted everywhere.
Don't see it being particularly focused in places that are big tea drinking places like the south.
And we think.
Sure.
Have the slow rollout debt twisted tea did and therefore will more closely follow.
And whatever regional pattern, which is fairly weak that youre seeing with hard seltzer.
The answer your question, Yes, that's perfect that's perfect. Thank you.
And then.
Paul you had mentioned.
Talked a little bit about higher inbound freight costs as it relates to Cogs earlier I guess just curious if you can put some maybe some parameters around what you're expecting for your own outbound freight cost of the distributors maybe on the volume mutual basis, just to give us the.
Base understanding and if I could just as we're talking about supply chain to net supply chain dynamics and the K I noticed some sort of supply disruption in glass and that impacted you and the fourth quarter or is that is that behind us now or does that have carryover of implications for early early 'twenty one. Thank you.
Yeah, Steve let.
Let me talk of the freight so when you look at 2000 22020, we have for the full year, we didn't really have the significant.
Right and increase of course, we had for.
The increase due to volume, but not not not very significant mutual weighted if you look at the full year.
But what happened is that with the slight decline.
<unk> and the significant increase in Q4, and the freight market tightened quite a bit of across the U S and.
Q4, and we saw significant increases there.
And.
And we see debt rolling into 2021.
And the increase is pretty much the same that we see for inbound freight and outbound freight and it's really availability of trucks the mall.
And it's tightened too and extensive and many more give seven loans for one product and.
And that normally is.
Below volume so we have seen that and we expect the increases that could reach from the rate perspective, 20%.
Sure.
Okay, that's perfect and any color on the the.
And the glass supply.
Issue that I read about the clean okay.
The glass supply issues should be behind us.
The bit of tightness of the glass and the three with adjusting we were adjusting to certain of.
The plants that we have but that is behind us.
Thank you very much appreciate it.
Alright.
And once again as the final reminder, if you would like to ask a question. Please press star one on the telephone keypad once again and feel like to ask a question. Please press star one on the telephone keypad one moment. Please.
Yes.
There seems to me and no further questions left and the queue and I would like to turn the call back over to Mr. Jim Koch for any closing remarks.
Thank you everybody for joining us this evening and we'll talk to you again and a couple of months cheers.
With that this concludes today's teleconference. You may now disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.
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