Boston Beer Co Inc: Form 10-Q for the period ended Mar 29, 2025

The following is a discussion of the significant factors affecting the consolidated operating results, financial condition and liquidity and cash flows of the Company for the thirteen week periods ended March 29, 2025, as compared to the thirteen week period ended March 30, 2024. This discussion should be read in conjunction with the Management’s Discussion and Analysis of Financial Condition and Results of Operations, and the Consolidated Financial Statements of the Company and Notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2024.

RESULTS OF OPERATIONS

Thirteen Weeks Ended March 29, 2025 compared to Thirteen Weeks Ended March 30, 2024

Net revenue. Net revenue increased by $27.8 million, or 6.5%, to $453.9 million for the thirteen weeks ended March 29, 2025, as compared to $426.1 million for the thirteen weeks ended March 30, 2024 primarily due to increased sales volume impacts of $22.7 million, and increased pricing impacts of $5.9 million.

Volume. Total shipment volume increased by 5.3% to 1,677,000 barrels for the thirteen weeks ended March 29, 2025, as compared to 1,592,000 barrels for the thirteen weeks ended March 30, 2024, primarily due to increases in Sun Cruiser, Hard MTN Dew and Twisted Tea brands partially offset by declines in the Truly brand.

The Company believes distributor inventory as of March 29, 2025 was at an appropriate level for each of its brands and averaged approximately five weeks on hand compared to four weeks on hand at the end of the fourth quarter of 2024 and four and a half weeks at the end of the first quarter of 2024.

Net revenue per barrel. Net revenue per barrel increased by 1.2% to $270.64 per barrel for the thirteen weeks ended March 29, 2025, as compared to $267.55 per barrel for the comparable period in 2024, primarily due to pricing.

Cost of goods sold. Cost of goods sold was $139.90 per barrel for the thirteen weeks ended March 29, 2025, as compared to $150.53 per barrel for the thirteen weeks ended March 30, 2024. The 2025 decrease in cost of goods sold of $10.63, or 7.1% per barrel was primarily due to contract renegotiations and recipe optimization savings of $9.9 million, or $5.91 per barrel, improved brewery efficiencies of $9.9 million, or $5.91 per barrel, decreases in inventory obsolescence of $2.4 million, or $1.43 per barrel, and lower third-party production payment amortization of $1.6 million, or $0.98 per barrel, partially offset by inflationary impacts of $6.1 million, or $3.64 per barrel.

Inflationary impacts of $6.1 million consist primarily of increased raw material costs of $4.2 million and increased internal brewery costs of $1.9 million.

Gross profit. Gross profit was $130.74 per barrel for the thirteen weeks ended March 29, 2025, as compared to $117.02 per barrel for the thirteen weeks ended March 30, 2024.

The Company includes freight charges related to the movement of finished goods from its manufacturing locations to distributor locations in its advertising, promotional and selling expense line item. As such, the Company’s gross margins may not be comparable to those of other entities that classify costs related to distribution differently.

Advertising, promotional, and selling expenses. Advertising, promotional and selling expenses increased by $17.3 million, or 14.4%, to $137.5 million for the thirteen weeks ended March 29, 2025, as compared to $120.3 million for the thirteen weeks ended March 30, 2024. Brand and selling costs increased by $15.7 million primarily due to increased investments in media and local marketing, and freight to distributors increased by $1.6 million primarily due to increased shipment volumes.

Advertising, promotional and selling expenses were 30.3% of net revenue, or $82.01 per barrel, for the thirteen weeks ended March 29, 2025, as compared to 28.2% of net revenue, or $75.53 per barrel, for the thirteen weeks ended March 30, 2024. This increase per barrel is primarily due to increased investments in media and local marketing. The Company invests in advertising and promotional campaigns that it believes will be effective, but there is no guarantee that such investments will generate sales growth.

The Company conducts certain advertising and promotional activities in its distributors’ markets, and the distributors make contributions to the Company for such efforts. These amounts are included in the Company’s condensed consolidated statements of comprehensive operations as reductions to advertising, promotional and selling expenses. Historically, contributions from distributors for advertising and promotional activities have amounted to between 2% and 3% of net sales. The Company may adjust its promotional efforts in the distributors’ markets, if changes occur in these promotional contribution arrangements, depending on industry and market conditions.

General and administrative expenses. General and administrative expenses decreased by $2.4 million, or 4.8%, to $48.0 million for the thirteen weeks ended March 29, 2025, as compared to $50.4 million for the thirteen weeks ended March 30, 2024, primarily due to Chief Executive Officer transition costs incurred in the first quarter of 2024.

Impairment of brewery assets. There was no impairment of brewery assets during the thirteen weeks ended March 29, 2025.

Income tax provision. The Company's effective tax rate of 31.9% decreased from 33.0% in the prior year. The lower rate in the first quarter of 2025 was due to a decrease in the negative impact of non-deductible stock compensation expense.

LIQUIDITY AND CAPITAL RESOURCES

The Company’s primary sources of liquidity are its existing cash balances, cash flows from operating activities and amounts available under its revolving credit facility. The Company’s material cash requirements include working capital needs, satisfaction of contractual commitments, stock repurchases, and investment in the Company’s business through capital expenditures.

Cash decreased to $152.5 million as of March 29, 2025 from $211.8 million as of December 28, 2024, primarily reflecting repurchases of the Company's Class A common stock, and purchases of property, plant, and equipment, partially offset by net cash provided by operating activities.

Cash provided by operating activities consists of net income, adjusted for certain non-cash items, such as depreciation and amortization, stock-based compensation expense, and other non-cash items included in operating results, and changes in operating assets and liabilities, such as accounts receivable, inventory, accounts payable, and accrued expenses.

Cash provided by operating activities for the thirteen weeks ended March 29, 2025 was comprised of net income of $24.4 million and non-cash items of $15.0 million, partially offset by a net outflows for operating assets and liabilities of $37.5 million. Cash used in operating activities for the thirteen weeks ended March 30, 2024 was comprised of net income of $12.6 million and non-cash items of $32.8 million, offset by net outflows for operating assets and liabilities of $50.3 million. The increase in cash provided by operating activities for the thirteen weeks ended March 29, 2025 compared to March 30, 2024 is primarily due to higher net income.

The Company used $9.8 million in investing activities during the thirteen weeks ended March 29, 2025, as compared to $35.7 million during the thirteen weeks ended March 30, 2024. The decrease in investing activity cash outflows is due to a $20.0 million note receivable issued in the prior year. For both periods, capital investments were made mostly in the Company’s breweries to drive efficiencies and cost reductions and support product innovation and future growth.

Cash used in financing activities was $51.4 million during the thirteen weeks ended March 29, 2025, as compared to $52.4 million during the thirteen weeks ended March 30, 2024. The financing activity cash outflows in 2025 and 2024 comprised mostly of the repurchases of the Company's Class A common stock in the period.

During the period from December 29, 2024 through April 18, 2025, the Company repurchased and subsequently retired 248,109 shares of its Class A Common Stock for an aggregate purchase price of $60.5 million. As of April 18, 2025, the Company had repurchased a cumulative total of approximately 15.1 million shares of its Class A Common Stock for an aggregate purchase price of approximately $1.2 billion and had approximately $367 million remaining on the $1.6 billion stock repurchase expenditure limit set by the Board of Directors.

The Company expects that its cash balance as of March 29, 2025 of $152.5 million, along with its projected future operating cash flow and its unused line of credit balance of $150.0 million, will be sufficient to fund future cash requirements. The Company’s $150.0 million credit facility has a term not scheduled to expire until December 16, 2027. As of the date of this filing, the Company was not in violation of any of its covenants to the lender under the credit facility.

CRITICAL ACCOUNTING POLICIES

There were no material changes to the Company’s critical accounting policies during the three-month period ended March 29, 2025.

MARKET CONDITIONS AND TRENDS

Based on the information currently available and tariff programs announced by the U.S. government as of April 2, 2025, the Company estimates tariffs will have an unfavorable cost impact for the full year 2025 of approximately $20 to $30 million or $1.25 to $1.90 earnings per diluted share. These estimates include an unfavorable gross margin impact of between 50 to 100 basis points.

FORWARD-LOOKING STATEMENTS

In this Quarterly Report on Form 10-Q and in other documents incorporated herein, as well as in oral statements made by the Company, statements that are prefaced with the words “may,” “will,” “expect,” “anticipate,” “continue,” “estimate,” “project,” “intend,” “designed” and similar expressions, are intended to identify forward-looking statements regarding events, conditions, and financial trends that may affect the Company’s future plans of operations, business strategy, results of operations and financial position. These statements are based on the Company’s current expectations and estimates as to prospective events and circumstances about which the Company can give no firm assurance. Further, any forward-looking statement speaks only as of the date on which such statement is made, and the Company undertakes no obligation to update any forward-looking statement to reflect subsequent events or circumstances. Forward-looking statements should not be relied upon as a prediction of actual future financial condition or results. These forward-looking statements, like any forward-looking statements, involve risks and uncertainties that could cause actual results to differ materially from those projected or anticipated. Such risks and uncertainties include the factors set forth below in addition to the other information set forth in this Quarterly Report on Form 10-Q and in the section titled “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 28, 2024.

Since December 28, 2024, there have been no significant changes in the Company’s exposures to interest rate or foreign currency rate fluctuations. The Company currently does not enter into derivatives or other market risk sensitive instruments for the purpose of hedging or for trading purposes.

As of March 29, 2025, the Company conducted an evaluation under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer (its principal executive officer and principal financial officer, respectively) regarding the effectiveness of the design and operation of the Company’s disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) were effective as of March 29, 2025 to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the requisite time periods and that such disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to its management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

There were no changes in the Company’s internal control over financial reporting that occurred during the thirteen weeks ended March 29, 2025 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

In addition to the other information set forth in this report, careful consideration should be given to the factors discussed in Part I, "Item 1A. Risk Factors" in the Company’s Annual Report on Form 10-K for the year ended December 28, 2024, which could materially affect the Company’s business, financial condition or future results. The risks described in the Company’s Annual Report on Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known to the Company or that it currently deems to be immaterial also may materially adversely affect its business, financial condition and/or operating results. There has been no material change in the risk factors described in the Company’s Annual Report on Form 10-K for the year ended December 28, 2024, with the exception of the addition of the following risk factor:

The Company may be adversely impacted by recently announced tariff programs

The Company sources some of its goods and services from countries impacted from the tariff programs announced by the U.S. government as of April, 2 2025 and expects these tariffs to have an adverse effect on the Company’s business and financial results during the 2025 fiscal year and possibly beyond. The Company has reviewed its supply chain and business and based on information currently available, the Company believes the primary impact of these tariffs will be higher costs of ingredients, packaging, promotional materials and capital equipment which are currently sourced from China, Mexico, Canada, Chile, United Kingdom and European Union. The Company has estimated the higher costs due to tariffs and the impact to its statement of operations in the 2025 fiscal year will be between $20 million and $30 million. These estimates could materially change and the Company will closely monitor the tariff environment and continue to evaluate and explore opportunities to mitigate these negative impacts but there is no guarantee that these efforts will be effective.

In addition, 6% of the Company’s revenue is from countries outside the United States with the majority of this revenue in Canada. The Company currently produces most of its Canadian volume in Canada and currently estimates that its supply chain in Canada is not expected to experience significantly higher costs due the recently announced tariff programs.

The Company’s U.S. and international businesses could also be negatively impacted if tariffs result in changes in consumer demand or cause currency related impacts. The Company’s estimate of the impact of tariff costs does not reflect any potential impacts of tariffs on consumer demand or currency related impacts.