Craft Brew Alliance Reports 3rd Quarter Results

Portland, Ore. (November 6, 2013) – Craft Brew Alliance, Inc. (“CBA”) (Nasdaq: BREW), an independent craft brewing company, today reported its financial results for the third quarter ended September 30, 2013. CBA’s continued activation of its national portfolio strategy has positioned the Company to expect strong sales and profit growth in 2013 and take advantage of the dynamic craft beer segment to achieve long-term value for its shareholders. The results for the third quarter are in line with management’s expectations and the Company reconfirms previously reported 2013 guidance.

Significant third quarter and year-to-date financial highlights include:
• Depletion volume grew 14% over the third quarter of 2012 and 11% year-to-date compared to the same period last year, which we attribute to the continued activation of our distinctive portfolio strategy.
• Net sales and branded beer shipments increased 10.7% and 12.5%, respectively, in the third quarter due to the continued organic growth of our complementary portfolio of time-tested and new beers such as Redhook Audible Ale and Game Changer, Kona Big Wave Golden Ale, Omission Beer and cross-brand variety packs. Year-to-date net sales and branded beer shipments grew 6.0% and 8.0%, respectively, compared to the same period of 2012.
• Our gross margin rate decreased 50 basis points to 30.1% in the third quarter compared to 30.6% for the third quarter last year, which reflects relatively flat beer margins and margin rate decline in our restaurant segment driven by the renovation of our Woodinville pub. Our year-to-date gross margin rate of 28.7% declined 170 basis points from the same period in 2012 primarily due to product mix and distribution costs in our beer business and lower restaurant business margin as a result of our Woodinville pub remodel.
• As a percentage of net revenue, our selling, general and administrative expense (“SG&A”) decreased to 23.5% in the third quarter of 2013 from 26.7% in the third quarter of 2012. SG&A growth of 5% to $36.3 million year-to-date reflects the continued investment in our portfolio strategy.
• Diluted earnings per share (“EPS”) for the third quarter of 2013 was $0.10 compared to $0.05 for the same period last year. 2013 year-to-date EPS was $0.06 compared to $0.12 for the same period of 2012.

“We are very pleased with our depletions growth and are especially proud to see that the strategies and prioritization we communicated earlier in the year are driving the kind of results we anticipated. The record growth and momentum we’re seeing – across brands, channels and geographies – reflects the exceptional teamwork and passion of the entire CBA family, including our wholesaler and retailer partners, and I want to congratulate all of them on these results,” said Terry Michaelson, CBA’s CEO. “As we look ahead, we remain committed to continue driving strong sales and profit growth, while keeping a close eye on our margins. And with our 2013 performance to date as an indicator, I am confident that our focus will enable us to deliver on the power of CBA’s highly competitive, proven strategy.”

Components of anticipated 2013 results and developments

We are confirming previously issued guidance regarding our anticipated full year 2013 results, as follows:• Depletion growth estimate of 7% to 11%, reflecting the continued strength of the Kona, Redhook and Omission brands and ongoing stabilization of the Widmer Brothers brand.
• Average price increases of approximately 1% to 2%.
• Contract brewing revenue for 2013 at approximately half of the 2012 level as a result of the termination of the Goose Island contract brewing arrangement.
• Gross margin rate of 28.5% to 30.5%, primarily due to pressure from distribution and packaging component costs, partially offset by improved brewery productivity.
• SG&A expense of $47 million to $49 million, reflecting leverage from the foundation built by more aggressive spending in prior years.
• Capital expenditures of approximately $11 million to $13 million, reflecting our continued investments in capacity and efficiency improvements, quality initiatives and restaurant and retail remodeling projects.

“In the third quarter, our top line growth continued to reflect strong consumer demand for our brands in both new and existing markets. The increase in volumes created a challenging operating environment for our beer business during the quarter that resulted in the slight decrease in gross margin, compounded by lower margin in our restaurant segment,” said Mark Moreland, CBA’s CFO. “However, as Terry stated, we are confident that by increasing our focus on gross margin rates and continuing our supply chain optimization efforts initiated earlier in the year, we will close out 2013 with strong fourth quarter earnings and set ourselves up for long-term success.”

Developments and expectations for 2013 include: (i) confidence in the continued growth in sales of Kona, Redhook and Omission, and clear positioning of Widmer Brothers offerings, (ii) expansion into new geographic markets for Kona and international expansion for all brand families, (iii) updates to packaging across all brand families, as well as introduction of unique can and bottle offerings, (iv) refined messaging on Omission beers, promoting the beer as specially crafted to remove gluten, (v) exploration and introduction of new brands to the CBA portfolio, including the new Redhook brand Game Changer developed in collaboration with Buffalo Wild Wings and KCCO Black Lager developed in collaboration with The Chive and Resignation Brewery, (vi) the introduction of the Square Mile Cider brand, and (vii) continued development of cross brand packages, bringing the power of our portfolio to consumers in innovative and compelling ways.
.