Craft Brew Alliance in Decline

Craft Brew Alliance referred to the Kona Brewing Co. as its “cornerstone” brand even while the company as a whole dipped in sales and depletions in 2019.

Kona Brewing Unable to Save Craft Brew Alliance in 2019

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Craft Brew Alliance (CBA) referred to the Kona brand as its “cornerstone” while reporting the company’s fourth quarter and full-year 2019 earnings report Wednesday afternoon.

Beers from Kona Brewing, one of the brands part of the Craft Brew Alliance

Beers from Kona Brewing, one of the brands part of the Craft Brew Alliance

The Kona Brewing Co. continued to drive CBA’s business and creep toward the 500,000-barrel mark. Last year, the Hawaiian-themed craft beer brand shipped 474,800 barrels, an increase of 4.1%, while depletions tracked closely at 4%, which the company attributed to demand for Big Wave Golden Ale and Gold Cliff IPA. The company added that Kona’s domestic shipments and depletions each increased 5%.

“We grew Kona’s domestic depletions by a strong 5%, despite unprecedented market conditions where increased competition from hard seltzers further fragmented the consumer landscape,” Andy Thomas, CEO of CBA, said in a press release. “Within that market, Kona Big Wave performed exceptionally well, delivering double-digit growth in both the off-premise and on-premise channels. Looking ahead, we are excited to expand the Kona portfolio with two new offerings, Kona Light and Kona Island Seltzers, both of which are poised to gain strong momentum as they expand nationally in 2020.”

However, Kona’s growth couldn’t offset the declines of other CBA brands. As such, CBA’s depletions declined 1%, while shipments declined 1.9%. The company sold 733,700 barrels of product in 2019 and posted nearly $193 million in net sales, down about $12.9 million year over year, according to a 10K filing.

Although Kona continued to grow, the legacy Widmer Brothers and Redhook brands posted double-digit depletions declines, down 11% and 16%, respectively. Widmer shipment declines (-7.8%) were due to declines in Hefeweizen, while the increased shipments of Redhook’s Big Ballard IPA weren’t enough to offset the losses of Longhammer IPA, Brewers Choice Variety Pack, and ESB, leading to a 14.3% decline in Redhook’s portfolio-wide shipments.

Omission depletions also declined 5%, while shipments declined 5.6%.

All other brands — including Appalachian Mountain Brewing, Cisco Brewers, Square Mile, and Wynwood Brewing brand families — combined increased shipments (9.1%) and depletions (4%).

In the fourth quarter, CBA recorded $38.2 million in net sales, down from nearly $44 million in the fourth quarter of 2018.

Future Changes as AB InBev Deal is Pending

Due to CBA’s pending deal with Anheuser-Busch InBev, the company said it would suspend the practice of holding earnings conference calls and providing forward-looking guidance.

CBA shareholders voted to approve the sale to Anheuser-Busch InBev on February 25th by an overwhelming 98% majority. The deal was announced on November 11th, when A-B announced it would acquire the remaining 68.8% of CBA shares it had not already owned at $16.50 per share.

The companies’ relationship goes back more than two decades, but the merger was not inevitable. Last August, A-B declined to make a qualifying offer to purchase the rest of CBA at $24.50 per share, opting instead to pay a $20 million fee.

“The proposed agreement we reached with A-B in 2019 builds on one of the most distinctive partnerships in our industry and will drive significant value for our shareholders, who voted overwhelmingly in support of the combination earlier this year,” chief financial and strategy officer Christine Perich said.

Prior to the release of earnings, CBA stock (BREW) closed the trading day at $14.73.

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