Q3 2024 Boston Beer Co Earnings Call
Speaker Change: Greetings and welcome to the Boston Beer Company 3rd Quarter 2024 earnings call.
Speaker Change: At this time, all participants aren't a listen only mode. A question and a suggestion will follow the formal presentation. If anyone should require operator assistance, please press star 0 on your telephone keypad. And as a reminder, this conference is being recorded.
Speaker Change: It is now my pleasure to introduce you Mike Andrews, Associate General Counsel and Corporate Secretary Thank you Mike, you may begin
Speaker Change: and the other.
Speaker Change: Thank you, good afternoon and welcome. This is Mike Andrews, Associate General Counsel and Corporate Secretary of the Boston Bureau Company.
Speaker Change: I'm pleased to kick off our 2024-3rd quarter earnings call.
Mike Andrews: Jordan and call from Boston beer, Jim Cook, founder and chairman, Michael Spillane, our CEO and Diego Reynoso, our CEO.
Mike Andrews: Before we discuss our business, I'll start with our disclaimer. As we state in our earnings release, some of the information we discuss and let me come up on this call reflects the companies or management to expectations or predictions of the future.
Mike Andrews: and the next predictions are forward looking state.
Mike Andrews: It's important to note that the company's actual results could defer materially from those projected in these forward-looking statements.
Mike Andrews: Additional information concerning facts that could cause extrasalves to differ materially from those in the forward looking statement to contain in the company's most recent 10Q and 10K. The company does not undertake to publicly update forward with statements, whether as a result of new information, future events or otherwise.
Speaker Change: I will now pass over to Jim for some introductory comments.
Jim Cook: Thanks, Mike. I'll begin my remarks this afternoon with a few introductory comments. And then hand over to Michael, who will provide his view of the business and the actions who are taking to position the company for improvement in 2025.
Speaker Change: Michael then turned the call over to Diego, who will focus on the financial details of our third quarter results, as well as our updated outlook for 2024. Immediately follow Diego's comments, we'll open up the line for questions.
Michael Spillane: I'd like to begin my remarks with an overview of the market environment. There are continues to be noise in month to month volume trends in the Alcoholics Bedbridge industry. We expect near-term industry volume tends to continue to move around month to month given the macroeconomic consumer environment.
Michael Spillane: Importantly, we're seeing the pricing environment remains stable and achieving price increases of approximately 2% which was at the high end of our prior guidance range.
Michael Spillane: from a Boston beer perspective, we mentioned on our last call that we undershipped demand in the second quarter as trends improved late in the quarter and we were not able to fulfill all orders.
Michael Spillane: By the end of the third quarter, our wholesaler inventory is normalized at approximately five and a half weeks, and shipments and depletion trends year to date are consistent at down 3%.
Michael Spillane: We've narrowed our volume guidance for the full year to reflect three quarters of results and a range of outcomes for the fourth quarter given the near term consumer environment.
Michael Spillane: From a long-term perspective, we continue to believe that there is a significant opportunity in the fourth category, as lines continue to blur beyond the traditional three categories of beer, wine, and spirits, and consumers seek newness and variety.
Michael Spillane: These fourth category beverages are typically sold in a can, need to be available in the cold box and are closer to beer in terms of pricing, margin structure and production requirements.
Michael Spillane: We believe Boston beer company is well positioned to take advantage of this growth, given our proven track record of creating new products and getting them into the hands of drinkers through both our best in class sales force and wholesale or relationships.
Michael Spillane: We have strong core brands and a strong innovation pipeline for 2025, including Sun Cruiser and Samuel Adams American White.
Michael Spillane: Our Marginan initiatives continue to show strong progress.
Michael Spillane: with Gross, Margin up 190 base this point to year to date.
Michael Spillane: The systems and infrastructure we built to support a diversified portfolio are showing results.
Michael Spillane: and there is significant long-term margin opportunity ahead as we continue to execute on our productivity plans, launching margin-accredivinivation and return to growth.
Michael Spillane: In summary, our priorities are to support our category leading brands to improve market share, nurture the innovation pipeline in a disciplined manner, and improve our execution to unlock revenue opportunities and lower costs.
Michael Spillane: We're focused on responding to and taking advantage of the trends we can control and implementing operating plans to position the company well in 2025.
Michael Spillane: The highly-cased, generative nature of our business and our strong balance sheet allows us to invest.
Michael Spillane: to return to long-term growth while continuing to return cash to shareholders. We've generated over $200 million in operating cash flow this year and have a cash balance of $256 million at the end of the third quarter with no debt.
Michael Spillane: based on our view of long-term growth prospects for the company and our philosophy of returning excess cash to shareholders. We've repurchased $191 million in shares year to date. And recently expanded our share repurchased authorization by $400 million.
Michael Spillane: To close, I'd like to thank our Boston beer team, our distributors and our retailers for their continued support. And now I'll pass the call to Michael.
Michael Spillane: Thanks Jim and good afternoon everybody.
Michael Spillane: As Jim just mentioned, we're managing through some headwinds with respect to consumer demand in our categories. In the third quarter, we were focused on rebuilding our inventories in market execution for the remainder of the summer season and continuing to refine our internal processes.
Michael Spillane: The work we are doing now to improve end and execution will make us better operators and ultimately lead to more sustainable long-term growth.
Michael Spillane: Our strategic priorities that I discussed on our last call remain unchanged.
Michael Spillane: will be focused on nurturing our core brands, developing margin-acredive innovation, leveraging the capital investments we have made in our brewery's and IT systems and driving efficiency in operating expenses.
Michael Spillane: There is significant opportunity ahead for our company despite the current headwinds. As I've reviewed the business for the last two quarters and work through our operating plans for next year with a team I see multiple opportunities.
Michael Spillane: First, we will be focused on opportunities to gain markets here across the portfolio. Taking back here will happen over time, but the opportunities are there.
Michael Spillane: Second, we'll continue to adjust the portfolio. In certain cases like truly, we've had too many line extensions.
Michael Spillane: Going forward we'll be more strategic as we add more styles and third we will use our powerful innovation engine in a disciplined fewer things better way.
Michael Spillane: as I discussed in our last call. And finally, we'll continue to modernize our supply chain and execute on the multi-year productivity initiatives across our three buckets. Procurement savings, waste and network optimization, and brewery performance.
Michael Spillane: All these efforts together are designed to position the company for improvement and operational and financial performance in 2025 and to drive quality to long-term revenue growth and higher profitability.
Michael Spillane: I'll now provide some color on the brand portfolio.
Michael Spillane: and Beyond Bear we play in Hard Tea where we have the clear number one Hard Tea Brandon twist a tea. The number two player in Hard Sels are in truly.
Michael Spillane: Hi, quality premium canned cocktail products in the early stages of brand building with sun cruiser and dog fish head can cocktails in our partner, hard mountain do. In beer, Samuel Adams has a strong craft legacy and we continue to focus on our seasonals.
Michael Spillane: adding more on-premise taps into our new life-beer innovation, Samuel Adams, American Light.
Michael Spillane: We continue to see hard tea as an attractive category with category volume up 18% and dollars up 20% for the year to date through the third quarter in measured channels.
Michael Spillane: Twisted T is a brand that was built over many years in a high quality way and has strong brand equities in an 85% market share. While many competitors have entered the category, the most successful competitive brand only has low single digit market share.
Michael Spillane: Twisted Tea's growth has decelerated somewhat naturally as it must grow off a larger base and contends with the macro consumer environment.
Michael Spillane: But the category remains attractive and we see multiple areas of growth for the brand.
Michael Spillane: with increased our investments behind Twisted Tea.
Michael Spillane: with our Twisted Team College Football Program that continues to generate excitement for the brand through the fourth quarter.
Michael Spillane: One of the largest opportunity is in points of distribution, particularly for twisted tea light, which is like highly incremental and we're launching more distinct packaging that makes it easier to find on shelf.
Michael Spillane: Additionally, there is still under penetration in certain consumer demographics.
Michael Spillane: Hiere VV Hardtay Innovation is always an area of opportunity that has in its early stages with twisted T Extreme performing well in the market with high repeat rates and lots of room for distribution wins.
Michael Spillane: Twisted T Extreme fulfills high-ABV occasions that drink is previously had to exit the brand to purchase.
Michael Spillane: Our vodka-based tea innovation, Sun Cruiser, which was launched late in the summer season, is performing well and bringing new consumers to our hard tea portfolio. Sun Cruiser launched first in the New England Atlantic regions and continues to expand to additional regions.
Michael Spillane: Sales per point.
Michael Spillane: and the early off-premise regions continue to trend positively and Sun Cruiser is also performing well in the on-premise channel.
Michael Spillane: We're encouraged by the feedback from wholesalers, retailers and drinkers, and what point out that sun cruises overall performance trends are not fully reflected in third-party data at this point due to a significant presence in non-measured channels.
Michael Spillane: We expect Sun Cruiser to be an important addition to the portfolio long term, but no from a timing perspective we are now entering the lower seasonality months. The larger opportunity for distribution wins is in the shelf lease that will occur in the spring of 2025.
Michael Spillane: Turning to Hard Selser, we are continuing to see declines in the Hard Selser category with Hard Selser, category declining 11% in category volume and measure channels in the third quarter and truly underperforming the category.
Michael Spillane: As I mentioned on the last call, there's bifurcation with the light flavors performing ahead of bolder flavors and will continue to focus the portfolio to those lighter flavors.
Michael Spillane: As example, the Wildberry 24-ounce can is grown here to date measure channels with particularly strong growth and convenient stores.
Michael Spillane: We think there is an opportunity to regain share with our lighter flavors and continuing our rotator pack strategy. There is also opportunity in the higher ABV segment, which is resonating with consumers and driving traffic in single-serve.
Michael Spillane: Truly, on Rueley, our 8% ABV offering is showing promise and is expected to be a contributor and improving the trajectory of Rueley.
Michael Spillane: Over all, we are not satisfied with the performance of truly in our taking steps to reposition the product portfolio in a just our marketing strategy to improve the trajectory of the brand in 2025 and beyond.
Michael Spillane: With respect to hard mountain dew we saw depletion trends turn positive in the third quarter.
Michael Spillane: I'll know off a small volume base. We're currently selling through our wholesale or network and states where we've transitioned from blue cloud and are continuing to work through regulatory approval and distribution agreements in additional states.
Michael Spillane: We continue to believe there is opportunity for hard-mountain due across expanded pack sizes and channels including convenience stores. But those efforts will take time and have a more positive impact on our 2025 results.
Michael Spillane: For our Sam Adams brand, we'll support our seasonal offerings that are award-winning, not alcohol, just the Hays while focusing on expanding the successful launch of our distinctly American craft-lager American light.
Michael Spillane: American light is made with high quality American ingredients and recently earned the title of Best Light Beer in America in the World Beer Awards.
Michael Spillane: The product is targeted to craft anchors who want a drink light beer with quality ingredients and is enjoying a promising consumer acceptance in its early markets of New England, Florida and Texas.
Michael Spillane: We pursued a measured launch strategy in test markets starting in independence and moving into large format and on premise. Based on the encouraging early reads, the American light will be expanding nationally in early in 2025.
Michael Spillane: and summary, we're working hard on supporting our core brands as well as supporting our innovation engine to drive volume and revenue improvements in a discipline manner.
Michael Spillane: In addition to our plans to improve volumes and market here, we're also continuing our efforts to modernize or supply chain and expand our margins.
Michael Spillane: We're seeing good progress on our productivity initiatives across the three buckets of priorities that had mentioned earlier. Procurement savings, waste.
Michael Spillane: and Network Organization as well as brew performance. These efforts allow us to realize gross margin expansion in the third quarter to spite soft volume and environment.
Michael Spillane: We expect the investments we've made in systems such as planning tools and automated customer ordering systems to enable continued progress on inventory management in 2025.
Michael Spillane: Lina Fischer's E-Rex remain a work in progress and will take some time to achieve consistent and reliable performance, particularly in peak periods.
Michael Spillane: The timing and ultimate amount of volume that we enforce will be dependent on our progress in our own breweries, as well as the product and geographic mix of ourselves.
Michael Spillane: in addition to gross margin we're focused on investing in our brands.
Michael Spillane: We are focused on improved execution and coordination of our brand investments and sales programs to maximize brand impact through two consumers.
Michael Spillane: with respect to non-avortizing selling and brand costs, we're continuing our efforts to better align internal costs with revenue. We're committed to supporting all of our brands with appropriate levels of advertising investment from both brand awareness and in store marketing.
Michael Spillane: Our investments are across the portfolio with a particular emphasis on twisted T, Sun Cruiser, and Hard Mountain Dew.
Michael Spillane: To summarize, I believe there are multiple areas of opportunity ahead for Boston beer. I'm pleased with the progress we are making to be more focused and that we have had delivered Gross Margin expansion despite weaker volumes.
Michael Spillane: We still have work to do in becoming sharper in our execution.
Michael Spillane: We'll be spending the next few months finalizing their plans to position the company for improved performance in 2025 and return to long-term high quality growth.
Speaker Change: I look forward to discussing our 2025 operating plans and financial guidance with you in February on our fourth quarter earnings call. I'll now pass the call to Diego for a detailed review of the third quarter in our updated 2024 guide.
Diego Reynoso: Thank you, Michael. Good afternoon, everyone.
Diego Reynoso: The police in the third quarter decreased 3% and shipments decreased 1.9% from the prior year. Primarily due to declines in truly hard-seller that were partially offset by growth in our twisted tea, sun cruiser and hard-mounted doobracks.
Diego Reynoso: We begin the quarter with an average of three and a half weeks of distributor in Benchries on hand.
Diego Reynoso: which, as we discussed in our second quarter call, was lower than our target levels.
Diego Reynoso: As of September 28, 2024, the Struiner and Bentry was approximately 5 and a half weeks on hand. We would slightly higher than our target levels of between 4 and 5 weeks.
Diego Reynoso: We expect to return to our target's levels during the fourth quarter, which will be a slight headwind to our fourth quarter shipment volume.
Diego Reynoso: Reynoso for the quarter increased 0.6% due to pricing increases and lower returns.
Diego Reynoso: Partially offset by lower volumes.
Diego Reynoso: Our third quarter gross margin of 46.3% increased 60 basis points from the 45.7% margin realized in the prior year.
Diego Reynoso: Gross margin primarily benefited from pricing crisis, procurement savings and lower returns, which more than offset high inventory of sold essence and increase inflationary costs.
Diego Reynoso: Exlearning shortfall fees and third party production prepayments.
Diego Reynoso: that we've discussed in prior calls, Gross Margin was 47.4%.
Diego Reynoso: Abbotizing promotional and selling expenses for the third quarter of 2024, decrease $4.6 million or 3% from the third quarter of 2023.
Diego Reynoso: primarily due to law and freight costs as a result of both improved efficiencies and law of volumes.
Diego Reynoso: Grant Spend in the third quarter was consistent with prior years.
Diego Reynoso: General and administrative expenses increased $1.6 million or 3.7% year over year, primarily due to increased professional fees.
Diego Reynoso: The third quarter, in the third quarter, we recorded a $42.6 million non-cash impairment charge, or $2.49 per diluted share.
Diego Reynoso: Primarily for the dog fish head brand that resulted from the company's annual impairment in an else.
Diego Reynoso: The impairment that termination was primarily based on the latest forecasts of Brad Performance, which were below our earlier projections.
Diego Reynoso: Beginning in the fourth quarter of 2024, we will be amortizing the remaining intangible dog fish head brand asset of 14.4 million or a 10 year life and we do not expect any future impairments related to the dog fish head brand.
Diego Reynoso: We reported non-gaped EPS of $5.35 per diluted share, an increase of 68 cents or 15% compared to the third quarter of the last year.
Diego Reynoso: Both periods exclude non-cash brand impairments.
Diego Reynoso: The year over year increase was driven by high-roenew and gross margins and lower-fraits.
Diego Reynoso: Now, all the scuffs are 2024 guidance.
Diego Reynoso: Our fiscal week completion trends for the first 42 weeks of 2024 have decreased 2% from 2023.
Speaker Change: As Jim mentioned in his remarks, we are narrowing our 2024 volume guidance to reflect the first nine months performance and a range of outcomes for the remaining fourth quarter.
Speaker Change: As you model out the remainder of the year, please keep in mind that the fourth quarter is typically our lowest absolute gross margin rate of the year.
Speaker Change: We now expect 24 depletions and shipments to decrease low single digits versus our prior guidance of a decrease of low single digits to flat.
Speaker Change: We now estimate price increases of approximately 2% which is at the high end of our prior guidance.
Speaker Change: Gross margin of between 44% and 45% versus prior guidance of 43% to 45%.
Speaker Change: Reflecting the progress we have made on delivering productivity.
Speaker Change: Contractural showfell fees and production prepayment our modesty that we've discussed on previous calls will have a negative impact on full year 2024 gross margins of between 160 and 180 basis points.
Speaker Change: As these contractual turn to expire, we will reassess our capacity needs and commitments with our third party production partners.
Speaker Change: Our investments in advertising, promotional and selling expenses will range from a decrease of $5 million to an increase of $15 million.
Speaker Change: This does not include any changes in freight costs for the shipment of products to our distributors.
Speaker Change: Our estimated tax rate will be 30%, which is higher than our prior estimate of 28.5%. And is due to the impact of the third quarter non-cash-brand impairment charge, which decreases estimated for your pre-tax income.
Speaker Change: but did not significantly change our estimated full year in non-deductible expense.
Speaker Change: Our non-gap earnings per shirt guidance of $8 to $10, excludes the impact of the non-cashbren impairment charge of $42.6 million or $2.49 per diluted share.
Speaker Change: This projection is highly sensitive to changes in volume projections and supply chain performance.
Speaker Change: In summary, the changes to our guidance reflect a somewhat softer volume environment I'll set by strong rose margin performance.
Speaker Change: We've been able to maintain the midpoint of our prior EPS guidance while investing in our brands in absorbing the higher tax rate.
Speaker Change: Turning to capital allocation, we ended the quarter with a cash balance of $255.6 million and an unused credit line of $150 million.
Speaker Change: which provides us with the flexibility to continue to invest in our base business.
Speaker Change: Fund Future Growth Initiative and we turn cash to shareholders to our share by back program.
Speaker Change: For the full year 2024, primarily due to the timing of spend on current projects, we've spent capital expenditures of between 80 million and 95 million dollars.
Speaker Change: a decrease from our prior estimate of between 90 million and 110 million dollars.
Speaker Change: These investments will be directed primarily to our own breweries to build capabilities and improve efficiencies.
Speaker Change: During the 39 week period ended September 28, 2024 and the period of September 30, 2024 through October 18, 2024, we repurchased shares in the amount of $176 million and $15 million.
Speaker Change: We recently increased our share-reported authorization to $1.6 billion, which is an increase of $400 million.
Speaker Change: As of October 18, 2024, we had approximately $436 million remaining on the offer station.
Speaker Change: This concludes our prepare remarks and now we'll open the lines for questions.
Speaker Change: Thank you. We will now be conducting a question and answer session.
Speaker Change: If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation told will indicate that your line is in the question queue. You may press star 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys.
Speaker Change: One moment please, will we pull for questions?
Speaker Change: and the
Speaker Change: And the first question comes in a line of Michael Lavory with Piper Sandler. Please proceed with your question.
Michael Lavory: Thank you, good evening.
Michael Lavory: Just wanted to come back to how to think about for Q. I knew you've got the full-year volume guidance that gives us a good.
Michael Lavory: Some guardrails on how to think about it. But you had been talking about some new distribution pipeline fill for hard not-and-do driving some...
Michael Lavory: and potential upside against cell-through. It sounds like the inventory build in three cue more than makes up for that, and maybe some of the other new innovations getting ready to go out in...
Speaker Change: Early 2025, is that the right way to think about it? And can you just talk about some of the puts and takes besides just the current inventory level?
Speaker Change: Yeah, I think as we've laid out before, two-four is our smallest quarter and therefore a very sensitive
Speaker Change: to volume moves.
Speaker Change: So we're currently on our planning hour of 2025. Planner right now will come back and talk about it next quarter. But as we look at that, we're looking at what are the dates that we're launching in different markets, hard mountains, do.
Speaker Change: What the growth of Sun Cruiser is.
Speaker Change: at the beginning of the year.
Speaker Change: So those would be the two branded.
Speaker Change: Driven pieces that might change the volume between Q4 and Q1 a little bit. And then the third one is the one you mentioned, our inventories are a little bit long, not a lot, but that can drive a handful of points up and down. So those three things are the reason why you see a little bit of a bigger kind of a bigger range in Q4 just because of the rough of those three things.
Speaker Change: Oh, got that, that's helpful that makes sense. And I just follow up on Twisted Extreme and truly unruly youth.
Speaker Change: got a few things that are going from a 5 to an 8-8% ABV with some of these extensions. I think you mentioned some competitive offerings that drove some of the thinking there, but is that?
Speaker Change: is that also just a consumer that's seeking value and wants the bang for the buck or how do you think about just where the consumer's head is and how they approach that and what the initial read is on traction.
Speaker Change: We're very pleased with the results of the product that we have in the market and they can similar as reacting in a very positive way. So it's probably a little bit of everything, but we see that definitely as an important part of our growth as we go forward.
Speaker Change: And the next question comes in the line of Rob Artonstein with Evercore ISI. Please proceed with your question.
Rob Artonstein: Great, two questions, one just wanted to give us any kind of early sense of how October
Rob Artonstein: Looks, things getting a little bit better. I understand some pricing came into the market in certain areas, any reactions to that. And then second, if you kind of go into twisted tea and in a little bit more, more depth.
Speaker Change: at least in the scanner data, you know, it's slow to bet velocities.
Speaker Change: seem to be down and wondered what your kind of diagnostic is for that and maybe we're not reading the data right but that's what we're seeing and how do you think about the momentum of the end going into 2025. Thank you.
Speaker Change: So, perfect. So, I'm the first part, I think as we laid out the last 42 weeks.
Speaker Change: and the number has been 2%. So it's a little bit better than the year today at the end of the quarter. That being said, just given again, the relative seasonality and the low side of Q4, I think it's a little bit too soon to tell, but it's a little bit better if you look at the two numbers we've laid out.
Speaker Change: Yeah, and on the second part of the question regarding twisted T.
Speaker Change: and one where I'm working off a much larger base this year, but secondly, it was a year that a fair amount of...
Speaker Change: Competition came in to the space seeing.
Speaker Change: The great success that we've had and we built this brand over a long period of time.
Speaker Change: It's built in a very sustainable way. We feel like what's ahead for us is to claw back that long tail that had kind of come in.
Speaker Change: and there was a lot of trial and moving on. So we feel confident that going in next year will be on track with TOOST-TEE for growth.
Speaker Change: Next time I'm Andrew Feudlitz, ask a question, please press star 1 on your telephone keypad, a confirmation to indicate that your line is in the queue. The next question comes from the line of Eric Sarada with Morgan Stanley, please proceed with your question.
Eric Sarada: Yes, good afternoon everyone. I'm hoping you could talk a bit about some cruise air.
Eric Sarada: and we talked about what your expectations are in terms of shelf space for next year. And where do you expect that space to come from in accounts that are able to sell both multi-spend spirit space?
Eric Sarada: and then at the consumer level, what are you seeing in terms of interaction between some cruiser and twisted, obviously significantly incremental, but for the part that does overlap, what kind of trade-off are you seeing at the consumer level?
Eric Sarada: and then a quick follow-up.
Speaker Change: So we see it as an incremental proposition to twist it. We haven't seen any really.
Speaker Change: and the panelialization of that franchise with it.
Speaker Change: We're looking at...
Speaker Change: Both from a product standpoint it's a higher margin product force which is, you know, as we've talked about in past calls, we're looking to introduce innovations that's margin and creative which it is. It's part of a highly focused, calm cocktail strategy.
Speaker Change: and so you know we're looking at this as it's taking from other vodka based.
Speaker Change: Ken Beverage is so as you look around the story you can see who the dominant players there are and we feel confident that we can grow a business at the expensive others versus ourselves.
Speaker Change: and then just a quick follow-up for Diego or housekeeping item. I think you called out higher obstiless and caused what was that related to in terms of the product line or brand?
Speaker Change: and with your picture on echo and foliage.
Speaker Change: Yeah, so if you look at...
Speaker Change: Quarter by quarter we were still kind of in line to what we think so it's not a key driver. I think as we are moving some of the innovation to have a lower piece it's not a brand of piece.
Speaker Change: So from a branded point of view, we're kind of where we want. Now the only specific thing in the quarter that we called out was shop.
Speaker Change: Otelissons, then that's very specific of us just looking at the types of beers going forward and rebalancing our hot sports folio. So that's it's not brand related, it's hot related.
Speaker Change: Great, very helpful, help pass it on and come back to the future. Thank you.
Speaker Change: and the next turn comes to the line of Bonnie Herzog with Goldman Sachs. Please proceed with your question.
Bonnie Herzog: Alright, thank you, hi everyone. I had a question on truly. You mentioned, you know, you're not satisfied overall with truly performance. So I guess I'm hoping for some more color on some of...
Bonnie Herzog: You're initiative, you know, first
Bonnie Herzog: You know, you mentioned adjusting your marketing strategy, so I'd love to hear maybe some of the changes you've been making. And then second you mentioned success with lighter flavors, so could you give us a sense of, you know, what percentage of Tulli's mix is lighter right now and then.
Bonnie Herzog: I guess by me, you also talked about possible pruning, so again, hoping maybe for a little bit more color on that and what percentage of pruning you might consider this continuing. Thanks.
Speaker Change: Yeah, thanks, Bonnie. I think one we've basically taken 24 as a year to reassure.
Speaker Change: The flavor profile of what's in front of the consumer. And we're driving more lighter flavors. We're also seeing as we've mentioned the higher the AB 2 and really has some nice momentum. We're looking to drive those as well as
Speaker Change: The numbers in terms of where we are, I would say we're heading in the right direction and...
Speaker Change: you know, in terms of the marketing stand, we're elevating our stand and we also we have we want to announce yet it'll probably be for fourth quarter but some kind of dynamic part that we think can help charge the business.
Speaker Change: and then maybe a quick follow-up.
Speaker Change: If you're, I guess in fact, you know, seeing a bunch of groups of pure unable to stabilize or revive it.
Speaker Change: and you think Twisted and then, you know, possibly Sun Cruiser next year will be enough to offset and your volumes can return to growth. Is that, you know, just trying to think through this if some of these efforts aren't successful. On truly, thank you.
Speaker Change: Well, our expectation is that we're going to be successful with truly an our expectation is for all of our businesses to grow one of the things we've been talking about.
Speaker Change: is all of our businesses reaching their potential and really driving our full portfolio. And we think there's opportunity across our entire business.
Speaker Change: Okay, I'll pass it on. Thank you.
Speaker Change: The End.
Speaker Change: And the next question comes on the line of Philippo for Lorna with City. Please proceed with your question.
Speaker Change: I want to ask a broader question about the beer industry. We've clearly seen some softness here into the summer, particularly a bit of an improvement.
Philippo Lorna: even if you include the fourth category, as you guys talked about. How you've seen the evolution for the balance of the year and into next year? You think this was like more of a temporary headwind in 24 that would, with my lapi to 25 or you see any more structural headwinds than my continuing to next year. Thank you.
Speaker Change: Yeah, there are structural headwinds.
Speaker Change: to the beer industry. None of them.
Speaker Change: is very big, it's hard to isolate and measure any one of them, but you've got things like
Speaker Change: You know, cannabis.
Speaker Change: Ozenbeck, you know moderation, health concerns, and pricing over the last four years that has been an excess of inflation.
Speaker Change: and none of them is big enough but you put them all together and you've got a beer industry that's down 2% maybe 2.5
Speaker Change: would ever the number of the week happens to be but it's between two and three and that's about where our depletions.
Speaker Change: have been.
Speaker Change: for the year.
Speaker Change: I don't see any of those necessarily going away except the pricing. At this point, your pricing looks like it's actually, at least for us and then.
Speaker Change: It's been a low inflation even at 2%.
Speaker Change: So we've been able to recover our cost increases and also have our price come down in real terms.
Speaker Change: i
Speaker Change: believe that the beer industry will
Speaker Change: will get disproportionate volume from the fourth.
Speaker Change: category. I think, you know, the fourth category is
Speaker Change: kind of in the wheelhouse of beer for a bunch of reasons that, you know, that I talked about.
Speaker Change: So I see that coming back.
Speaker Change: You know, the rhythms of our volume over 2024.
Speaker Change: was pretty good, then the industry went into a slump kind of after Easter, and you look at the same syndicated data I do, it's come back over the last six weeks. These aren't huge movements, a point or two, but we are at this point on an upswing over
Speaker Change: six weeks and as Diego mentioned, you know, our shipments
Speaker Change: but year-to-date.
Speaker Change: going backwards from today are a little bit higher than they were at the end of the third quarter, so almost mathematical necessity, our October numbers are coming in better.
Speaker Change: I don't have a crystal ball.
Speaker Change: I don't know whether that will continue. There are headwinds. They're not major for the beer industry, and I'm hoping that as an industry, you know, we can pick up share of alcohol as the fourth category becomes more important and if we can out-compete wine and spirits for that volume.
Speaker Change: Great, thank you. I'll pass it on.
Speaker Change: And as a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the queue.
Speaker Change: The next question comes from the line of Bill Kirk with Roth Capital. Please proceed with your question.
Speaker Change: almost negative two dollars in EPS for 4Q.
Bill Kirk: Looking back at the model, that's one of the lowest 4Qs I can see. Is that math right? Am I missing something in the comparables or something? Or if it is right, can you help us better understand some details that would drive such a loss in 4Q?
Speaker Change: So, first of all, the reason we have a range is, again, as I mentioned before, Q4 is relatively small and therefore very
Speaker Change: Susceptible.
Speaker Change: to movements, short term movements back and forth, right? That's why we tend not, we don't love seeing our business in a Q by Q point of view, because any movements in between inventories, borders, loading in products, yes or no, makes a big difference.
Speaker Change: And we're still laying out when we're going to ship out some of the innovation next year, for example, what pieces we're going to move. That's one. The second one is Q4 is usually when we have our shortfall piece.
Speaker Change: And therefore, that is a direct hit to the margin profile of Q4 versus the rest of the quarters. And that's something that consistently will happen because that's where we tend to fill in our factories instead of using some of our external capacity. So there's not an underlying reason that changes either the trends of the brands.
Speaker Change: or any specific one-time things coming in. It's more of the sensitivity to the volume, the shortfall fees, reducing the margin, and just how sensitive it is to those pieces.
Speaker Change: And on that external, you know, capacity comment,
Speaker Change: year-to-date it shows that 68% of your needs have been in-house production. I think the full year goal was 76% in-house production. So is there a big step up in in-house production in 4Q or is 76, I guess asked differently, is 76 still achievable?
Speaker Change: So, two pieces. So, first of all is again, and I think I said it last in the last call, we adjust
Speaker Change: what we want to do internally and externally, partially where the orders come.
Speaker Change: So, we might have a goal given our forecast, but if we have more volume, for example, in California where we don't have our own facilities, we'll move product into the out-facilities. So, missing the goal is not necessarily good or bad. It's just that we made an adjustment.
Speaker Change: The second part of the answer is yes, we have a significant piece of the volume in Q4 in our facilities.
Speaker Change: because that's when we we have a kind of a lower volume and therefore we can do a bigger percentage of that volume. So yes the answer but the fact that we're off the goal doesn't necessarily mean it's it's a good or bad thing it just means that our our regional mix has changed. The other piece is as we've grown international
Speaker Change: like that that is a piece that's also a little bit separate because it grows and we're doing it outside our facility so that growth also kind of distorts a little bit the internal versus internal so overall we're very happy with with our plan
Speaker Change: Thank you, Diego.
Speaker Change: There are no further questions at this time and I would like to turn the floor back over to Jim Cook for any closing comments.
Jim Cook: Thank you all for joining us this afternoon and we look forward to telling you how the year closed out in February. Thanks.
Speaker Change: Thank you ladies and gentlemen. That does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.
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