Title

Presentation

The Boston Beer Company, Inc. misses on earnings expectations. Reported EPS is $1.64 EPS, expectations were $1.96.

Operator: Greetings, and welcome to The Boston Beer Company’s First Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Mike Andrews, Associate General Counsel and Corporate Secretary. Please go ahead.

Michael Andrews: Thank you. Good afternoon, and welcome. This is Mike Andrews, Associate General Counsel and Corporate Secretary of the Boston Beer Company. I’m pleased to kick off our 2026 first quarter earnings call. Joining the call from Boston Beer are Jim Koch, Founder, CEO and Chairman; and Diego Reynoso, our CFO. 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 that may come up on this call reflects the company’s or management’s expectations or predictions of the future. Such predictions are forward-looking statements. It’s important to note that the company’s actual results could differ materially from those projected in these forward-looking statements.

Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in the company’s most recent 10-Q and 10-K. The company does not undertake to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. I will now pass over to Jim to share his comments.

C. Koch: Thanks, Mike. I’ll begin my remarks this afternoon with an overview of our strategy and operating results before turning the call over to Diego to discuss our first quarter financial results and our financial outlook for the remainder of 2026. Immediately following Diego’s comments, we will open the line for questions. In the first quarter, we were encouraged to see some signs of improvement in the total beer and RTD category, which we estimate was flat in volume compared to a decline of 4% for the full year of 2025. Beyond Beer continues to outperform traditional beer in volume in measured off-premise channels with an increase of about 3% for the quarter compared to traditional beer, which slightly declined. While these trends represent modest industry progress, we continue to anticipate volume headwinds for 2026, given a dynamic macroeconomic environment and evolving geopolitical developments that may impact consumer spending.

With respect to the Boston Beer portfolio, we have not yet fully participated in the improvement in category trends. We are encouraged that Twisted Tea and Sun Cruiser together are growing depletions, driven by the strong performance of Sun Cruiser and some sequential improvement in Twisted Tea. Angry Orchard and Dogfish Head have now experienced 4 consecutive quarters of growth. However, Truly remains a meaningful portion of our mix and continues to lose share, and we’ve also seen some softness in Samuel Adams and Hard Mountain Dew. Our first quarter depletions were down 4%. As we expected, shipments trailed depletions at down 7%, reflecting first quarter 2025 shipments comparisons when distributors built inventory for our Sun Cruiser and Truly Unruly innovations.

Additionally, improvements in the responsiveness of our supply chain to meet consumer demand led to moderately lower distributor inventory of 4.5 weeks on hand at the end of the quarter versus 5 weeks on hand in the prior year period. We continue to make strong progress on our margin enhancement initiatives, delivering 49.3% first quarter gross margin, and we’re on track to achieve our planned full year 2026 savings. The business is generating strong cash flow, and we have repurchased over $30 million in shares year-to-date. Our priorities for 2026 continue to be supporting our category-leading brands to improve market share trends, launching strong innovation and continuing to expand our gross margins. We remain focused on controlling what we can control and executing in the marketplace, and I’m confident in our operating plans for the key summer selling season.

Incremental advertising support for our brands following a significant step-up in 2025 is on track, while maintaining flexibility to adjust toward the lower end of our financial guidance range of brand investments as we monitor the energy cost environment. With respect to our full year outlook, we expect the factors that I discussed on our last call, including tighter consumer budgets, pressure on the Hispanic consumer and moderation trends to continue. Based on year-to-date depletion trends and our latest outlook for the balance of the year, we are slightly narrowing our 2026 volume range to down low single digits to mid-single digits from our prior guidance of flat to down mid-single digits. As we look to the summer, we’re highly focused on executing our marketing plans with strong partnerships, programming for the U.S. men’s soccer team during the World Cup and local market activations.

We expect to slightly increase our total portfolio of shelf space this spring, while we continue to make progress on regaining lost display space. I’ll now provide an overview of our brand performance and plans. As I mentioned on our last call, a key priority for 2026 is to improve share trends and grow volume in the hard tea category through progress in Twisted Tea and the continued expansion of Sun Cruiser. On a combined basis, Twisted Tea and Sun Cruiser delivered depletion volume growth in the first quarter. As a reminder, to the extent that Sun Cruiser sources volume from Twisted Tea, this is revenue and margin accretive for us. Twisted Tea off-premise measured channel depletion trends improved sequentially in the first quarter, but are not yet where we want them to be.

Measured channel sales dollars declined 4% in the quarter compared to a decline of 9% in the fourth quarter against more difficult prior year comparisons. Twisted Tea continued to gain distribution and shelf space with lower velocities reflecting broader category headwinds, reduced feature and display activity, primarily due to the expansion of RTD spirits and some interactions with spirit-based hard tea. The declines are primarily concentrated in the original Lemon Tea and variety packs, particularly in 12-pack sizes, as previously discussed. Encouragingly, Twisted Tea Extreme and Twisted Tea Light are both growing and gained shelf space in the spring resets. We’re seeing much better trends in single-serve across the full brand portfolio, which indicates continued consumer engagement with the Twisted Tea brand.

So far this year, we’ve increased advertising investment, added new partnerships and launched new pack sizes and Twisted Tea Extreme flavor innovation. This summer, we’ll be running our high-performing Tea Drop national ads complemented with in-store display programs and always-on media for Twisted Tea Extreme and Twisted Tea Light. We’ve expanded partnerships, including Barstool’s #1 sports podcast, Pardon My Take, and with Realtree Camo. Lastly, we continue to increase our investment in Hispanic and Hispanic language brand content, including new media and digital content to continue to widen the brand’s appeal. Our pack size innovations, including lower price point 4 packs, a 16-ounce can, and a 24 can value pack, and the Twisted Tea Extreme variety pack are now in market.

While it is still early, we believe these offerings will continue to provide more options for consumers to engage with the brand and benefit volumes over time. Sun Cruiser has quickly grown to Top 5 spirits RTDs and is the fastest-growing brand in the category by volume across combined measured and off-premise channels. Built in bars and restaurants, Sun Cruiser is the leading RTD spirits tea and lemonade brand in the measured on-premise channels. On-premise remains a key driver of trial, and we are investing in the channel alongside our off-premise expansion. We expect strong distribution gains for Sun Cruiser in 2026, but continue to expect measured off-channel — off-premise data coverage to be lower versus our other brands due to Sun Cruiser’s strong presence in on-premise and independents.

Advertising support for Sun Cruiser includes content around the Let the Good Times Cruise media campaign, which includes television, paid social and digital advertising and key influencers. We will be present where Sun Cruiser fits into our drinkers’ lifestyles with a particular focus on music and sports. And we recently announced a multiyear USGA partnership, making Sun Cruiser the official ready-to-drink cocktail of 2 of golf’s most noticeable championships, the U.S. Open and the U.S. Women’s Open. The partnership goes live this spring and programming includes retail and tournament activation, golf media influencers and experiential marketing programs as well as wholesaler incentives. Sun Cruiser will have continued media presence in sports, including the NCAA, the MLB, the NFL, and sponsorship of numerous music concert series.

From an innovation perspective, we’re maintaining a disciplined range of tea and lemonade styles while expanding package options, including new 19.2-ounce single-serve packages, single-style 8 packs, and tea and lemonade sampler 12 packs. We expect these offerings to broaden drinker occasions and support strong growth in 2026. Turning to hard seltzer. The overall hard seltzer category has continued to improve and grew slightly in dollars in measured off-premise channels for the first quarter. Truly has maintained its #2 share position in the category. However, share trends remain challenged. Our effort to improve our share during 2026 include investing in new equity building creative, capitalizing on the U.S. men’s soccer team participating in the World Cup, and continuing to expand Truly Unruly.

We’re continuing to build our communications platform of Make Your Dreams Come Truly, while leveraging our U.S. soccer partnership through our Drink Like A Believer program. Drink Like A Believer commercial activities launched in May and have been well received by major retailers. The programming includes displays and a U.S. soccer collector set of singles along with the soccer-themed Star Squad Rotator 12-pack and 24-pack. In addition, we will have significant local media and retail programming investment in the 11 host cities. High ABV offerings continue to be a growth driver in hard seltzer and Truly Unruly continues to grow both volume and distribution as our second highest volume 12-pack. In cider, Angry Orchard continues to grow, supported by new positioning, refreshed creative and strong retail programming, including our St. Patrick’s Day themed promotions and displays in the first quarter.

The new Angry Orchard Crisp Imperial 19.2 single-serve cans are a growth driver for the brand and overall Crisp Imperial volume has increased more than 40% in the first quarter in measured off-premise channels. For our Samuel Adams brand, we have recently updated our brand messaging around Independent Since Forever, and are excited to celebrate America’s 250th anniversary this summer. To support our Drink Like It’s 1776 retail programming and promotions, we have launched limited edition retro packaging. For our Dogfish Head brand, which returned to growth in 2025 and has grown for 4 consecutive quarters, we continue to expand Dogfish Head’s Grateful Dead Beer collaboration and invest behind the Minute Series IPAs. Turning to innovation. We continue to prioritize high-growth, margin-accretive opportunities.

Our Sinless Vodka Cocktails are full-flavored spirit-based cocktails with zero sugar and zero carbs. With approximately 100 calories per can, it is positioned as guilty of flavor, free of sugar and carbs, and targets incremental consumer segments that complement our core brand portfolio. Sinless was tested in a small number of states in 2025 and expanded to more than 30 states in March. Sinless is in the early stages of launch and initial feedback from wholesalers, retailers and drinkers has been positive. In closing, I’m encouraged to see modest improvements in category trends. While the macroeconomic environment remains dynamic, we are focused on executing our operating plans for the upcoming summer season. We’re acting with urgency to leverage the strengths of our brands, our innovation capabilities and our distributor relationships to improve performance and drive long-term value.

I’d like to thank our Boston Beer Company team and our distributors and retailers for their continued support. I’ll now pass the call to Diego for a detailed review of the first quarter and our 2026 guidance.

Diego Reynoso: Thank you, Jim. Good afternoon, everyone. Depletions in the first quarter decreased 4% and shipments decreased 6.9% compared to the first quarter of last year, primarily driven by decreases in our Twisted Tea, Truly, Sam Adams, and Hard Mountain Dew brands, partially offset by increases in our Sun Cruiser, Angry Orchard, and Dogfish Head brands. Consistent with our plans, shipments declined at a higher rate than depletions in the quarter, with shipments lapping strong growth in the prior year to load innovation. Distributor inventories at the end of the quarter was 4-1/2 weeks on hand, which was approximately 1/2 of a week lower compared to the end of the quarter last year. This decrease in distributor inventory was due to the timing of innovation and supply chain improvements, as Jim mentioned earlier.

Revenue for the quarter decreased 4.4% due to lower volume, partially offset by price increases and favorable product mix. Our first quarter gross margin of 49.3% increased 100 basis points year-over-year. Gross margin performance primarily benefited from procurement savings and brewery efficiencies. The positive impact of pricing and product mix were offset by inflationary commodities and tariff costs. Advertising, promotional and selling expenses for the first quarter of 2026 increased $2.5 million or 1.8% year-over-year due to higher freight rates, partially offset by lower volumes. Brand investments were flat, lapping mid-teens increases in advertising investments in the first quarter of 2025. General and administrative expenses increased $4.4 million or 9.1% year-over-year.

Excluding legal costs related to the onetime litigation expense, general and administrative expenses increased by $0.4 million from the first quarter of 2025, primarily due to increased consulting costs. We recorded $216 million in total pretax litigation expenses in the quarter. As we previously disclosed, this amount is related to a supplier contract dispute, and we intend to pursue all available post-trial motions and appellate remedies. We cannot estimate when or if damages or interest will ultimately be paid, but do not expect this issue to have a material impact on our operating plans. The total impact of these litigation expenses represented a $15.52 impact to our first quarter GAAP EPS. Excluding the litigation-related expenses, we reported non-GAAP EPS of $1.64 per diluted share.

Now I’d like to provide an update on our ongoing productivity initiatives. We continue to make progress and are on track to deliver our 2026 savings target. As I noted on our fourth quarter call, we expect year-over-year gross margin improvement in 2026, although at a lower rate than that of 2025, given strong performance in 2025. We believe the multiyear operational improvements that we have made in our supply chain better positions us to manage variability in volume, product mix and the tariff and commodity environment. For the remainder of 2026 and beyond, we continue to expect contribution from all 4 savings buckets, as I discussed on the last quarter call. I’ll now provide some highlights on our initiatives in each bucket. In brewery performance, we continue to see improvements in OEEs driven by process improvements, which helped to increase our internal production capacity.

In the first quarter, we produced 95% of our domestic volume internally compared to 85% in the first quarter of last year. For the full year 2026, we continue to estimate domestic internal production will be over 90% compared to 86% last year. In procurement savings, our first quarter results benefited from lower negotiated pricing on certain packaging and ingredients. As discussed previously, procurement savings have been a significant contributor to our gross margin improvements over the last 2 years. While we expect some continued benefits in 2026, the impact is expected to moderate versus 2025. In waste and network optimization, we’re continuing to enhance our customer ordering and inventory management system. These efforts helped us achieve high customer service levels, lower inventories and improved our cash flow.

In addition, we reduced obsolete inventories 36% in the first quarter. Revenue management capabilities were added this year as part of our margin agenda. These efforts are in the early stages in 2026 with a more meaningful contribution expected in 2027. Turning to our 2026 guidance. As Jim mentioned earlier, our volume guidance range of down low-single digits to down mid-single digits reflect year-to-date depletions and market share performance and our latest outlook for the balance of the year. Fiscal week depletion trends for the first 17 weeks of 2026 have declined 4% year-over-year, a sequential improvement from down 6% in the fourth quarter of 2025. As a reminder, the summer selling season is a significant driver of our full year volume performance, and we will have more visibility on market trends as we move through the summer.

Since our last earnings call, we are seeing additional inflation in energy and aluminum that could impact the balance of the year. We do not hedge commodities and are closely watching recent market cost increases driven by macroeconomic factors. As a result of these 2 factors, we are narrowing our full year non-GAAP EPS guidance to $8.50 to $10.50 from our prior guidance of $8.50 to $11. This EPS outlook embeds our latest volume and energy cost projections as well as productivity and cost mitigation efforts. We also expect to maintain flexibility to reduce incremental advertising spending, if needed, to offset further headwinds from the macroeconomic cost pressure. We will update our EPS outlook if commodity inflation continues to increase.

We continue to expect price increases of between 1% and 2% and some additional benefit from mix. We continue to expect full year 2026 reported gross margins to be between 48% and 50%. Our outlook expects tailwinds from positive pricing, favorable product mix, productivity savings and lower shortfall fees with headwinds from tariffs and commodity inflation. As a reminder, the majority of our freight expense is booked in advertising, promotional and selling expenses. Our 2026 guidance reflects a full year tariff cost estimate of $20 million to $30 million versus a partial year in 2025 of $11 million. These tariff cost estimates are based upon tariffs that we are currently being charged by our suppliers and that what we expect to continue going forward.

We continue to estimate that our investments in advertising, promotional and selling expenses will increase between $20 million and $40 million. This amount does not include any changes in freight costs for the shipment of products to our distributors. As I mentioned earlier, we may choose to spend at the lower end of the range depending on the commodity and energy cost environment. We are estimating our full year 2026 non-GAAP effective tax rate to be approximately 29% to 30%. As you model out the year, please keep in mind the following factors: our business is impacted by seasonal volume changes with the first quarter and the fourth quarter being lower absolute volume quarters and the fourth quarter typically our lowest absolute gross margin rate of the year.

We expect first half shipments to decline towards the lower end of our full year volume guidance with better shipment performance later in the year. This is due to higher shipment comparisons in the first half of the year as the company shipped ahead of depletions in 2025 to support innovation and build distributor inventories as well as 2026 innovation launches, which are second half weighted. Additionally, improvements in the company’s supply chain responsiveness, that enables modestly lower distribution inventory levels, are expected to have a more meaningful impact on the first half and begin to be lapped throughout the second half. During the full year 2026, we estimate shortfall fees and noncash expenses of third-party production prepayments in total will negatively impact gross margin by 40 to 60 basis points.

We expect year-over-year gross margin rate improvements to be the most meaningful in the fourth quarter. We typically expense the majority of our shortfall fees in the fourth quarter. We expect lower shortfall fees in 2026 and the timing of these benefits, together with the fact that the fourth quarter is a smaller dollar quarter has an outsized favorable impact on the gross margin rate. Incremental advertising investment is expected to be weighted to the second and third quarters to support the key summer selling season. Turning to capital allocation. We ended the quarter with a cash balance of $164 million, and $150 million of availability on our line of credit. These balances, together with our projected future operating cash flow, enables us to maintain operating investments in our business and cash returns to shareholders as well as the potential litigation-related payments.

We expect capital expenditures of between $70 million and $90 million in 2026. These investments will be primarily related to our own breweries to build capabilities, improve efficiencies and support innovation. We will continue to be disciplined in our capital spending as we monitor the dynamic industry environment over the long term. During the 13-week period ended March 28, 2026, and the period from March 30, 2026, through April 24, 2026, we repurchased shares in the amount of $23.8 million and $7.4 million. As of April 24, 2026, we had approximately $197 million remaining on the $1.6 billion repurchase authorization. This concludes our prepared remarks. And now we’ll open the line for questions.

Receive real-time insider trading and news alerts

Operator: [Operator Instructions]. And your first question comes from the line of Eric Serotta with Morgan Stanley.

Eric Serotta: Jim, I wanted to get your perspective on Twisted from here. You made a number of interventions last year, including some selective pricing adjustments or certain packs in certain channels. The brand still seems to be stubbornly declining. Can you talk about how you’re looking at the outlook from here? I know you talked about some innovation in packaging, new packaging coming. But do you think you need something sort of a little bit more of a reset or something a little bit more, I don’t want to say drastic or extreme, but more expensive to get the brand back to where you want and need it to be?

C. Koch: Yes. To answer your question, I don’t think it needs a drastic reset, but it does need some levers. What I think is going on is, the success in the rise of vodka-based teas has certainly eaten into the Truly (sic) [ Twisted Tea ] volume. No question about it. It’s happened in a bunch of ways. One is it took a lot of display space in 2024. In the first half of 2025, we were getting significant display space for Twisted Tea. We lost some of that last summer to sort of the new shiny penny, which was brands like Sun Cruiser and Surfside. And in total, our Twisted Tea and Sun Cruiser volume is actually up this year. And of course, but the shift is we lost volume in Twisted Tea, made it up in Sun Cruiser, which happens to be margin and revenue accretive in that shift.

So our volume in hard tea is actually up a little bit, but there’s movement from FMB tea like Twisted Tea to Sun Cruiser and Surfside in the vodka-based teas. What we’re doing with Twisted Tea, there’s a bunch of sort of smaller levers. One of them is trying to reset some of the pricing. There are markets where it’s up at Stella pricing or Modelo pricing, and it’s traditionally lived a little bit below FMB pricing because of a more kind of blue collar, but upscale blue collar clientele for Twisted Tea. Second, we’ve actually gained shelf space for Twisted Tea in the resets. And a lot of that went to Twisted Tea Extreme, which is growing triple digits. Then we are putting more advertising dollars into it and things that don’t show up as advertising dollars like Pardon My Take, which is the #1 sports podcast in Barstool.

So we’re adding more advertising money and pushing it towards NASCAR, Realtree Camo, those kind of partnerships that refresh our connection to our original or blue-collar drinker base for Twisted Tea. And then we’ve introduced some new packs to give us a better price pack architecture, things like a 4-pack of 16-ounce for under $10 because even the 6-pack pricing has gotten over $10. So this gives us an entry point. And then at the other end of it for value, some 24 packs. So those are the things we’re doing with it. And within FMB hard tea, I think Twisted Tea is holding or perhaps gaining share, because the new entrants that have come in the last 5 years from like Monster and Belgium and even Lipton are kind of falling away. So like those are the actions that we’ve taken, none of them is a drastic reset, but there’s a bunch of tweaks.

Eric Serotta: And for Diego, look, your gross margin performance over the past year has really been very impressive, especially in light of the commodity pressure and some of the volume deleveraging. It looks like you’re basically maintaining the gross margin guidance for this year and the EPS guidance more or less despite the incremental costs since the war. Can you help us unpack some of the gross margin drivers from here? I know you don’t give specific quantifications, but kind of order of magnitude, what you’re expecting for incremental cost headwinds. LME aluminum is up quite a bit since the war. I believe you don’t hedge. So if you could help us understand the moving pieces there, it would be great.

Diego Reynoso: Yes, sure. So first of all, thank you for the comment. Look, our margin agenda has always said, look, we think we can get to high 40s. And the difference between high 40s and 50s is that to get to 50%, you need the external kind of situation to, whether it’s volume or geopolitical, to help. And I think that’s where we’ve gone to where we’re still delivering the savings. But to your point, those savings are being used to offset some of the challenges that we have. So if we look at Q1 for the moment, you can see that like just in aluminum for the quarter, which is a small volume quarter, we’ve got like $4.3 million of aluminum tariff costs, which is the biggest piece of the tariffs. We also have some POS costs in there and some ingredients.

We’ve been able to offset some of those. We think for the rest of the year, we’ll be able to take our continuous agenda, which is procurement savings, brewery efficiencies, where we’re 95% in-house versus out of our production facilities. And the other piece is the positive mix that Jim mentioned when we’re talking about things like Sun Cruiser and some other innovations that we’re launching this year that are accretive to our margins. All of those things are helping us offset some of these external pieces that have challenged our cost structure. Now in order for us to actually improve our gross margin even less (sic) [ more ], what we need to do is maintain those opportunities and savings. And hopefully, as those headwinds disappear, hopefully, in the future, we’ll be able to maintain those, and that would be the only way we could drive our margin even higher.

Operator: The next question comes from the line of Robert Ottenstein with Evercore ISI.

Gregory Porter: This is Greg on for Robert. I just had a quick question about Sun Cruiser. Maybe if you could talk a bit about how the ACV and the brand’s penetration differs between the East and the West Coast, and sort of like as you build the brand across the country where you see the biggest opportunity still for TDP gains?

C. Koch: Yes. It’s strongest in New England. I mean, it’s been sort of game changing in some ways in New England. It’s the size of Twisted Tea at a higher margin. So our distributors are quite delighted with the performance there. Mid-Atlantic is fairly strong. And you do see differences in penetration. Like Twisted Tea, the last major market was California, and it was almost 15 years behind New England. So there is that regional gap. And with Sun Cruiser, you have the added complexity of the state tax rates and the distribution limitations because it’s vodka based. So you have much bigger variations than we have with Twisted Tea in states where you have to buy it from a state liquor store, like in New York, for example. So it’s not readily available cold, it’s not in the same distribution channels.

In Texas, you have to go through a different class of distributors to get to the bars. So there’s just much bigger — and in Washington state, there’s a huge tax on any spirits-based products. So there’s no really great potential like in Washington state that we would have in Massachusetts or Connecticut. So there are these big differences. To try to boil it down, I think we probably — we do have ACV upside if we look at it versus High Noon, which is highly developed. There’s definite upside, maybe another 50% ACV, and we did not pitch it to chains this time last year. So we didn’t get on the steps (sic) [ shelf sets ] quick enough. But now we are. And so we weren’t on the shelves a year ago, but we had successful distribution drives this year.

So in the shelf sets this year, there’s going to be significantly more Sun Cruiser. In some of the chains, we got one item, and now we’re getting 3 or 4. So I see a nice bump in the next 3 or 4 months, and then long-term continued upside as the category gets more and more developed.

Operator: Our next question comes from the line of Peter Grom with UBS.

Peter Grom: So Jim, you touched on the category improvement. Can you maybe just give us a sense for how you see category growth evolving from here? And maybe just some perspective around why you think category trends are getting better?

C. Koch: Sure. With the kind of the caveat, my crystal ball is no better than anybody else’s. But we can look at the numbers so far this year, and there’s been an improvement. There’s no precise number. People don’t agree on what’s in the beer category when you look at a lot of numbers, for example, hard cider is in there. But overall, what we’re seeing is when we look at traditional beer and hard cider, it’s down this year, maybe 1.5%, something like that as opposed to 5%, 5.5% last year. So that’s a significant improvement. If I try to attribute that to something, I would say that some of the big factors last year like the health publicity. A year ago, we were reading about beer cause of cancer. Now we’re hearing, wait a minute, beer is an important social lubricant, an important element of sociability, and it’s a mitigation of the loneliness epidemic and Dr. Oz talked about it helps people create social connections.

And we know that there’s more and more evidence that those social connections are an important part of longevity and beer is an important part of that, and the dietary guidelines came out and they basically said, it’s okay to have a beer now and then, might just be a good thing. So the health dialogue has become much more hospitable. Hemp, with the changes in the legislation and basically a federal ban on hemp-based THC products, including the beverages, that has taken a fair amount of the excitement around the hemp-based beverages becoming 5%, 10%, 20% of beer. That looks like that’s off the table. There’s still a lot of them out on the shelves. And I think a lot of retailers are waiting to see maybe the loophole has been extended, but it looks and I think the Farm Bill got out of the house today without an extension of the loophole.

So it’s an uncertain legislative landscape, but things look much more difficult for hemp-based THC replacing beer and finally, less pressure on the Hispanic community. We don’t have as good a data as Constellation. So they’re better authority than we are, but we’re seeing a little bit less pressure on that. So that’s where I would see the improvement. It’s somewhat subject to the macroeconomic environment, which is probably worse right now than it was 6 months ago, but very uncertain. Consumer confidence is very unpredictable, but the price of gas can’t help and C-stores are hurting a little bit. So if I had to attribute this improvement, which is real, that’s where I would go with it. And then finally I’d add in from us, we view our kind of accessible market as being traditional beer, cider, beyond beer, and a certain part of the spirits-based RTD-type beverages.

Last year, when we ran our numbers, that looked like it was off about 4% versus 5%, 5.5% with beer. This year, it’s probably slightly down, but significantly better than the 1.5% to 2% that traditional beer is suffering. So closer to flat. And the bad news is our volume is still off 4%. We think there’s a lot of things in the pipeline that will affect our trends over the next 9 months in the back half of the year. So we are planning on that getting better. But right now, as opposed to last year when we held share, right now, we’ve actually lost share of what we consider our addressable market.

Peter Grom: That’s very helpful color. And then, Diego, you made a comment around updating the EPS outlook if commodity inflation continues. So just curious if you could maybe unpack what inflation assumptions underpin the outlook today. And then just on the offsets you mentioned to Eric’s question, mix and kind of the savings initiatives, are you leaning more or leaning in here further? Or are the benefits from these items greater than what was originally contemplated? Just trying to understand whether the shift in cost pressures changes your perspective around where you would expect to land in the gross margin guidance?

Diego Reynoso: Okay. Perfect. Let me unpack that. So first, let’s start with inflationary costs. So as you can see in our 10-Q, for the quarter, we’ve got about $12.5 million of inflationary impacts, out of which most of that was aluminum. And in that piece of aluminum, you got $4.3 million of tariffs. The rest is kind of the underlying cost of aluminum. We are forecasting that to continue mostly through the back end of the year. So we’re not expecting any big shifts like either up or down. We’re just projecting our current situation and assuming that, that will continue. So that’s kind of our base assumption of where we’re going. The second part of your question is, in the buckets we’ve kind of laid out, I think in general, we’re a little bit better than we thought in total of the savings that we could deliver.

Some buckets have delivered more, some less, but the big difference has been the speed at which we’ve been able to go after it. So our procurement savings that we’ve kind of laid out a 5-year road map, we’ve pretty much tapped out in 3.5 years. Some of our other buckets like our brewery efficiencies, again, are ahead of schedule. The one that I think is lagging a little behind and it still has some room to deliver is our footprint. So I’d say, overall, in total, they are going to deliver a little bit more than we thought, but it’s more the speed of the delivery that has changed. Now what we have done is we’ve added a fourth bucket that hasn’t really started delivering yet, but we expect it to start delivering in 2027, which is revenue management.

So as we’ve been able to accelerate some of our cost savings buckets, we’re making sure that we keep adding new things that we think can maintain that gross margin or potentially help it depending on volume and inflation, and that would be the bucket that we’re adding. So I’d say it’s mostly acceleration, although in total, we will deliver a little bit more savings than we thought we could deliver of current buckets, and we’re adding a new bucket to try to offset from those pieces. So hopefully, that answers both parts of your questions.

Operator: The next question comes from the line Filippo Falorni with Citi.

Filippo Falorni: Jim, I was hoping you can give us your perspective on the expectation heading into the summer, especially with the big events coming with the FIFA World Cup, America’s 250th. How are you thinking the consumption occasions will evolve, especially the interaction between traditional beer and, as you call it, the fourth category and the RTD space. Do you see that more of an occasion for more traditional beer? How do you think you can get consumers into your core portfolio for that? I know you have the sponsorship with Truly, but maybe you can expand a little bit more how you’re planning to capitalize on those occasions.

C. Koch: Yes. We have a number of things that we’re playing. The big one is with Truly, and that is our sponsorship of the U.S. men’s soccer team. And we have gotten good reactions from retailers. I mean, basically, we’re using that to get on the floor, to get big displays, theme displays around the U.S. soccer team. We have a soccer ad that we’re running about and a whole sort of campaign around Believe in the U.S. Soccer Team. So that’s the biggest thing we’ve done with Truly in a number of years. And we’ve gotten good reception from retailers. So we think that will have at least temporary effect on bending the trends on Truly. With Samuel Adams, we are using it more in a PR sense. We’re having 0.25 million person toast to America’s birthday where 250,000 people who raise the Sam Adams.

As we go into the summer, we benefit from just the seasonality of Sun Cruiser and Hard Tea in general. So we expect the fact that Sun Cruiser is the fastest-growing significant RTD out there, and it’s heavily seasonal products. So that growth of Sun Cruiser is going to mean a lot more in Q2 and Q3 than it did in Q1. So those are the big summer-oriented promotions. How much more — are they going to benefit traditional beer more than the fourth category? I don’t know. I don’t think they will. I mean we are seeing Gen Z accepting the beyond beer category as being as attractive, in some ways more attractive than traditional beer. And traditional beer is much stronger in people over 40, but people under that are quite accepting of fourth category as a beverage that they would consume in an occasion that 15 years ago was dominated by beer.

Filippo Falorni: Great. That’s very helpful. And then, Diego, maybe on the cost front and the commodity front, can you remind us a bit of your hedging policies? Looking through your filings, it seems like most of the hedging is on some of the brewing ingredients like hops. But maybe on the packaging side, is it more on the spot rate? Should we think about it that way on the Midwest premium? And then maybe any comment on transportation costs as well, that would be helpful.

Diego Reynoso: Excellent, Filippo. Well, first of all, we do not hedge. So in general, our policy is not to hedge. Some of our suppliers will hedge for us, but we do not directly hedge. So the Midwest premium kind of directly goes through our numbers. And we feel like overall, over time, that’s actually a better approach than spending on hedge. So from that point of view, that’s why you’re seeing kind of the movements in the Midwest premium in our first quarter, and that’s why we’re kind of disclosing what assumptions we’re taking for the rest of the year. So that’s kind of the piece that we’ll see during the year. If the Midwest premium comes down, we will be able to improve kind of our P&L. On the second piece, as you know, we book most of our distribution costs through SG&A.

We do kind of see the impact of diesel like everybody else is doing. And although it hasn’t materially impact our numbers, we’ve been able to offset it through other pieces. I do think that is going to be a challenge for everybody as the year continues in 2 fronts. From an impact on the actual fuel cost can be — right now, we’re probably thinking kind of mid-single digits in millions, but it will depend on the mix. But the second one is we’re also seeing the availability of truckers being a challenge given some of the policies implemented. So I think as we go through the year, especially in the high season, that’s something that we’re working very close to our supply chain team to ensure that we can minimize the impact to our P&L. But that is definitely something that is going to impact pretty much every CPG company as we go into the summer.

Operator: The next question comes from the line of Kaumil Gajrawala with Jefferies.

Kaumil Gajrawala: Good job on getting my name correct. So I just want to ask a couple — a question on Dogfish Head and Angry Orchard. It’s great to see that you’re delivering growth once again. So what would you point to as the key drivers for this level of improvement for the brands? Is it new customer additions? Or are you growing more penetration with younger drinkers? And on a go-forward basis, how do you think about — like how do you see this playing out for the remainder of the year? And do you expect to sustain this level of growth that you’re currently seeing?

C. Koch: Yes. Let me talk about those brands. I think the growth with Angry Orchard has come partly from us focusing on a little bit and focusing on the core. We did a year ago, a push on Angry Orchard Draft that gave us a bunch of draft lines, some of them stuck. And some of it’s just consumers are sort of swinging back to cider. They’re open to non-beer experiences. So in some ways, this is like a fourth category. And cider has — it kind of belongs in beer occasions. It comes out of a draft line, you drink it in a pint glass. It happens to be gluten-free, and it’s very friendly to drinking when you’re in a group drinking craft beer. And it’s very fruit forward. Like a lot of fourth category products, it is sweet. So it sort of bridges traditional beer and fourth category products.

And that’s given it some underlying consumer-driven growth. And then we focused a little more on it, cleaned up the portfolio, we have an effective advertising campaign underneath it, Don’t Get Angry, Get Orchard. And we had a very successful Halloween promotion with the Friday The 13th character, and we’re repeating that this year. So I think it will sustain itself, repeating it with Scream, another Halloween franchise. So I think that will sustain itself with Dogfish Head. Again, we went in, sort of cleaned up the brand, cleaned up the clarity of the product line around 30 Minute, 60 Minute, 90 Minute, which was very easy for consumers to understand. And we’re getting growth from Dogfish Head Spirits. And Dogfish Head was one of the original craft distillers over 20 years ago.

So they’ve got a history of being a distiller and a line of delicious canned cocktails that they sell at a price premium over Cutwater or a similar product, so they have a higher-end niche. So I think those are the things that have made both of those brands grow.

Operator: The next question comes from the line of Michael Lavery with Piper Sandler.

Michael Lavery: Just was wondering if you could start by unpacking some of the shelf resets and display upside you’ve talked about. I don’t know if you could quantify some of that or maybe clarify on some of the displays, either timing or how temporary or relatively permanent they might be? And just how to think about that retail distribution piece of the equation?

C. Koch: Yes. Overall, we were one of maybe 2 or 3 suppliers that gained shelf space. I think the beer category was a little bit stressed given its performance last year. Nobody was really eager to add a significant amount of beer and beyond beer fourth category shelf space. We were fortunate enough to be one of a couple of suppliers who did. That was driven on the upside by, as I talked about earlier, a lot more shelf space for Sun Cruiser. In 2024, we didn’t really pitch Sun Cruiser very strongly. And so we didn’t get a lot more shelf space. But last year, we did, and we’re reaping the benefits of that this year. So where Kroger had 1 SKU, now they’re going to have 3, in some stores 4. Some chains didn’t put it in at all and are now giving us multiple SKUs, I mean, because Sun Cruiser is the fastest-growing brand in probably the fastest-growing category in the spirits-based RTDs. So we’re getting that.

Twisted Tea actually gained shelf space because they found a place for Twisted Tea Extreme. So we got a lot more shelf space for Extreme that more than offset where we lost a peach or raspberry. And that works out advantageously to us because the SKUs that we lost have a lower rate of sale than Twisted Tea Extreme. So there’s kind of a double benefit. We got more space, and it’s going to be more productive. Where we lost, and we lost significantly, was on Truly and a little bit on Sam Adams. But the net of it was not only more points of distribution for our portfolio, but even more an increased share of the available shelf space.

Michael Lavery: Okay. That’s great color. And just on a brand that doesn’t get as much attention, but can you maybe walk us through Hard Mountain Dew and just a little bit of maybe what hasn’t worked there. It seems like when it first launched in the states where it launched through Pepsi’s distribution, it had sort of a 2-ish share of FMBs, but it doesn’t seem like it’s held or gotten to that with the broader distribution from your system and is soft now. Can you just help us maybe understand what happened there and kind of how — it seems like — I’m assuming that didn’t come out just as much as you would have expected. Maybe just a little bit of a review of how to think about what happened with that brand?

C. Koch: Yes. I would say, overall, the hard sodas that came out have not had the appeal on an enduring basis that I think a lot of us thought they would. And they’ve actually struggled against sort of new-to-world purpose-driven brands. And that’s across all of the hard sodas, whether it’s Fresca or some of the other extensions like Simply and so forth. Hard Mountain Dew is — our experience with it, it’s a very strong brand. I’m not sure that we’ve found our niche with it. So we are looking at, where is the core Hard Mountain Dew consumer, and what is his or her occasion for Hard Mountain Dew, which has very strong attributes. It sort of has some energy drink attributes in it. And we want to see if there’s a way to bring those to the fore as the hard soda category.

And then there have been some distribution issues where the bottlers, the remaining independent bottlers have been able to block it coming into their territory. And that has then made it difficult to get chain distribution, and it’s difficult to get wholesaler support when the Pepsi bottler’s territory doesn’t have the same footprint as our wholesaler and so our wholesaler only has it in part of their territory, which makes it harder for them to give day in and day out support to it. So that’s some of the underlying issues. But at the end of the day, we continue to believe it’s a really strong brand, and we continue to work to try to figure out how do we find a good niche that’s based on all the brand equity of Hard Mountain Dew, which is unique.

Operator: [Operator Instructions] And the next question comes from the line of Chris Barnes with Deutsche Bank.

Christopher Barnes: Jim, recently, Brown-Forman and the Brown family put their toes in the water on a merger process that ultimately didn’t materialize. But I’m just curious to hear your thoughts on why you think they’d evaluate a transaction down here? Clearly, the investment community thinks the alcohol profit pool is evaporating. So is consolidation and the related synergy capture increasingly becoming a survival strategy that alcohol and beverage companies need to more seriously consider today?

C. Koch: You know, that’s a question to investment bankers, and frankly, the brainpower of the people on this call is much greater than mine. So I’m going to — that’s up there in the stratosphere. We’re just down here going from bar to bar trying to sell more product. There’s clearly consolidation going on. I think we feel like, in some ways, we’re in a unique position in that we’ve gotten over the hump as a supplier to the point where we’re important to our wholesale partners, and we’re important to our retailers. And that importance is amplified. For an average wholesaler, we may be 10% of their gross profit. So that’s meaningful. When they’re top 5 suppliers, so we’re important to them, and that’s somewhat amplified by — historically, we’ve been a bigger part of their growth.

And we have a great innovation track record. We’re very happy with our pipeline. Again, the success of Sun Cruiser in the last year has validated our continuing ability to bring new-to-world brands to our wholesalers that they don’t have to pay for and buy from somebody else. So we continue to be big enough to get the attention that we need. So I don’t feel like we’re disadvantaged. I think that we’re in the sweet spot of we’re big enough to innovate and bring successful new products to market with a strong 550-person sales force bigger than any other sales force in our category. But we’re small enough to be nimble, move quickly, be innovative and continue to grow against the opportunities that we’re finding today, which primarily are in the fourth category, which is now 85% of our volume.

So it’s where we’ve proven our capabilities of bringing new strong brands to our wholesalers and our retailers. I would also add that I think as investors, when there’s a segment that drops value like alcohol in general has, obviously, there’s a lot of people that see the value there and see it as an opportunity to jump in. I think part of the reason you’re not seeing some of those mergers materialize is because people see the opportunity in the future and therefore, hold on it. So I still think it’s an industry that has a lot of value, but I do think that people see an opportunistic time given that last year, on average, most companies have gone down to jump into something they see value in the future. So I think the value will continue in the industry, and I think we’re really well positioned to play in that.

Operator: Thank you. This concludes the question-and-answer session. And I would like to turn the call back over to Jim Koch for closing remarks.

C. Koch: Thanks to everybody for joining us this afternoon, and it’s an exciting time to be in this business. There’s both lots of challenges and opportunities, and I look forward to talking to you in a few months.

Operator: This concludes today’s conference. You may disconnect your lines at this time, and enjoy the rest of your day.

Receive real-time insider trading and news alerts