What do you do when you post a whopping $51.8 million loss in the fourth quarter, one which more than wipes out a year-earlier profit of $32.8 million, or $2.64 a share? If you are a market leader, you point to all your successes.
And that’s just what Boston Beer Co. did during its fourth quarter earnings call. It acknowledged the loss, attributing it to “a more aggressive than expected wholesaler inventory reduction than expected,” a reduction caused primarily because Boston Beer officials misjudged the demand for Truly Hard Seltzer in the first half of 2021. They acknowledged the loss, the gross overestimation of Truly’s first half of 2021 sales prospects and moved on.
“While the hard seltzer category growth fell well short of our and the industry’s expectations, dampening our overall performance, Truly did generate 57% of all growth in the hard seltzer category during the quarter and dramatically closed the market share gap with the largest player in the category,” said Dave Burwick, president/ceo.
“Additionally, Truly grew its household penetration by 22% to make it the second-highest penetrated brand in all of beer. We have worked hard to level set our inventory levels and reset our growth model, and believe we are well positioned to benefit from future growth in this category, which we expect will be between flat to plus ten percent in 2022.”
All of Boston Beer’s brands grew depletions int he foruth quarter, said Chairman and Founder Jim Koch. “In fact, Twisted Tea was the fastest-growing of the top 25 brands in the fourth quarter with 31% growth in measured channels.” Likewise, Koch said, Samuel Adams, with 8% growth in measured channels in the fourth quarter, “was the fastest-growing national craft brand.
“Our 27% depletions CAGR over the past three years demonstrates that we have a broad, advantaged portfolio of brands, and our innovation pipeline continues to ensure we can meet consumer taste trends as they evolve. The first major launch of our 2022 innovation pipeline, Truly Margarita, is generating tremendous results and already has a 5.3% market share of hard seltzer with limited distribution thus far.
“With three innovations for 2022 announced today – Truly Vodka, the limited summer offering Truly Poolside, and an exciting new collaboration between Dogfish Head and Patagonia to launch an environmentally conscious pilsner – we remain confident that we can grow full-year volume between 4% and 10% in 2022, as our inventory levels continue to recover.”
The fourth quarter results include indirect volume adjustment costs of $52 million, before the related tax benefit, Boston Beer said. These costs include unfavorable absorption impacts at Company-owned breweries and downtime charges at third party breweries of $30.7 million, provisions for out-of-code or damaged products of $13.8 million, increased materials sourcing and warehousing costs of $5.7 million and other costs of $1.8 million. These total indirect costs of $52.0 million have been recorded in the fourth quarter financial statements as a $9.2 million reduction in net revenue and a $42.8 million increase in cost of goods sold.
Depletions for the 2021 fourth quarter increased 15% from the prior year, reflecting increases in the Company’s Twisted Tea, Samuel Adams, Truly Hard Seltzer, Angry Orchard and Dogfish Head brands.
Boston Beer said it believes as of Dec. 25, 2021, distributors had about five weeks on hand. That’s an appropriate level overall level, but included too much inventory for some packages and not enough for others. The company expects distributors will keep inventory levels below 2021 levels in terms of weeks on hand, as the need for peak season inventory prebuilds is greatly reduced due to the company’s increased production capacity. As a result, the company expects shipments will continue to decline in the first quarter of 2022 and then grow in the second quarter compared to 2021.
For 2022, Boston Beer projects depletions and shipments will increase between 4% and 10% this year, that it will raise prices nationally 3% to 5%.