Boston Beer Company 2026 Q3 Earnings Call

Good afternoon, welcome. This is Mike Andrews, Associate General Counsel and Corporate Secretary of The Boston Beer Company. I'm pleased to kick off our 2026 third quarter earnings call. Joining the call from Boston Beer are Jim Koch, CEO, brewer and founder, and Matt Murphy, our interim 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 for some introductory comments.

Thanks, Mike. I'll begin my remarks this afternoon with an overview of our strategy and operating results before turning the call over to Matt Murphy to discuss the third quarter financial results and our financial outlook for the remainder of 2026. After Matt's comments, we will open the line for questions. Now, let's start with a look at industry trends. The overall beer market continues to face demand pressure, reflecting a range of factors, particularly the impact of higher gas prices and the cumulative effect of inflation on our consumers. We estimate that the combined total beer and beyond beer market declined approximately 3% in volume in the third quarter, and 2% year-to-date. Beyond beer continues to outperform traditional beer, with volume growing 1% year-to-date, compared with a 3% decline in traditional beer.

We expect continued macroeconomic pressure on consumers to weigh on industry volumes throughout the balance of 2026. With respect to The Boston Beer portfolio, our volume trends trailed the broader category in the third quarter, with mixed performance across our portfolio. Depletions and shipments declined 5% in the quarter, with total hard tea and lemonade depletions up slightly and growth in cider primarily offset by declines in beer and hard seltzer. On a more positive note, Sun Cruiser grew approximately 60% in tracked channels in the quarter. Angry Orchard grew for the sixth consecutive quarter, and on-premise trends were up low single digits across our portfolio. For the full year, we expect shipments to be slightly ahead of depletions. This reflects a prior year comparison to inventory reductions associated with our supply chain improvements that Matt will discuss further in his remarks.

Despite a soft industry volume environment, softer than we planned at the start of the year, we continue to make strong progress on our margin enhancement initiatives. Third quarter gross margin of 51.7% was up 90 basis points year over year and is our highest gross margin rate since 2017. Our savings agenda has enabled us to absorb higher aluminum, energy, and tariff costs, and we are tracking ahead of our planned full year 2026 savings. The business is generating strong cash flow, and we have repurchased $80 million in shares year to date through October 16, 2026. Today, we are narrowing our full year guidance ranges, which reflect our performance through the first three quarters of the year and our view of the industry trends, as I discussed earlier. We now expect depletions and shipments to be down mid-single digits, which is the low end of our prior range.

Based on our strong gross margin performance year to date, we are raising the low end of our gross margin and EPS guidance. This is particularly notable given continued elevated freight costs and reflects the productivity mindset we have built across the organization during the past several years. Our priority for the balance of the year remain: improving market share trends, launching strong innovation, and driving gross margin expansion. We continue to support our brands through strong partnerships, compelling programming, and effective local market activations in partnership with our wholesalers. At retail, we have made modest progress on increasing total portfolio shelf space, while display space remains an area of opportunity as it continues to over-index to RTD spirits.

Before I review our brand performance and upcoming plans, I'd like to take a moment to welcome Allison Stransky, who joined Boston Beer earlier this month as our new Chief Marketing Officer. Allison brings a unique blend of consumer brand building and data-driven digital marketing expertise. She has held prior positions at Google, Samsung, L'Oréal, and Johnson & Johnson, and she's also a big fan of craft beer. We're excited to have her on the team as we continue to strengthen and evolve our marketing capabilities. Now, turning to our brands. In the hard tea and lemonade category, we're continuing our work to improve share trends and grow total combined volume of our two leading brands, Sun Cruiser and Twisted Tea.

Sun Cruiser has become a top 4 spirits RTD in just over 2 years and continues to rank among the category's fastest-growing brands in combined measured on and off-premise channels. It also continues to be the leading RTD spirits tea and lemonade brand in the measured on-premise channel and has the highest growth in velocity among leading RTD spirits tea and lemonade brands in the off-premise channel. Sun Cruiser is building on its strong summer US Open golf championship activation as we reinforce its position as a year-round brand that will grow in both existing and new markets and across channels. Sun Cruiser continues to increase its media presence in sports and other events, including the PGA, Major League Baseball, the world champion New York Knicks, and sponsorship of numerous music concert series.

Last month, the brand expanded its on-premise sports presence through a partnership with MetLife Stadium, the New York Jets, and the New York Giants. Advertising support for Sun Cruiser includes content around the Let the Good Times Cruise media campaign across television, paid social and digital advertising, and key influencers and creators. Sun Cruiser is leaning into ski season with in-market displays, retail and on-premise POS material, branded hard goods such as snow suits and snowboards, partnerships with major ski areas, and a winter-themed media campaign that begins in December. We continue to see strong velocity and distribution opportunities for Sun Cruiser, giving us confidence in the brand's continued growth potential. Twisted Tea continues to be the clear number 1 brand in the malt-based hard tea market, with more than 85% market share, while the next largest brand has only a low single-digit share.

We believe the brand's volume declines reflect a combination of factors, including some interaction with spirits-based hard teas like Sun Cruiser, a shift in retailer display and feature focus towards RTD spirits, and the brand's higher exposure to value-conscious consumers. The largest volume headwind for Twisted Tea continues to be on 12-packs, which have been impacted by reduced FMB displays and shifting consumer purchasing behavior. From a share perspective, Twisted Tea Singles, Twisted Tea Light, and Twisted Tea Extreme all continue to grow share of the FMB category year to date. This year, we have increased advertising investment for Twisted Tea while adding new partnerships, launching new pack sizes, and expanding Twisted Tea Extreme. We are continuing our disciplined test and learn approach to revenue management on the brand, including targeted pricing adjustments and smaller pack size offerings. We will continue to assess their impact as we gather additional data.

Twisted Tea has also launched a partnership with Realtree Camo, a popular brand of camouflage clothing and outdoor gear that helps us deepen the brand's connections to outdoor drinking occasions and drive displays. There are 3 limited edition camo-wrapped packs in the market now. We are backing this partnership with significant media as well as a Field & Stream sponsorship, creator partnerships, and shopper media support in C-stores to drive conversion on Twisted Tea single-serve cans. We are also capitalizing on football season, which is one of the brand's most important consumption occasions. We are running our high-performing Tea Drop ads on marquee college football match-ups, continuing our title sponsorship of Barstool's Pardon My Take, and investing in shopper media to drive party pack conversion at retail.

While there is some interaction between Twisted Tea and Sun Cruiser, they each play a role in our portfolio, and we believe their differentiated positioning provides an opportunity to improve the combined performance of the two brands over time. As we've mentioned previously, to the extent Sun Cruiser sources some drinker demand away from Twisted Tea, it is still both revenue and margin accretive for us. Turning to hard seltzer, while Truly continues to face challenging trends, it remains the number 2 brand in the hard seltzer category. We continue to assess the brand strategy and are taking actions to improve its performance over time. In the near term, we are reprioritizing 12-packs around our core best-selling flavors. We're rethinking our rotating variety packs, and we're expanding packages around our core style, Truly Wild Berry.

In cider, Angry Orchard is seeing growth across both core flavors and seasonal packs for the second straight year. The fall seasonal, the Thriller Variety Pack, which launched in August, has grown triple digits in measured off-premise channels. The brand's partnership with the iconic "Scream" horror movie series includes Scream and Angry Orchard integration across all marketing programs, limited edition Crisp Apple and Crisp Imperial single-serve packaging, and celebrity media integration through Halloween. Turning to beer, our Samuel Adams brand, this fall, we launched two new remastered vintage ads from our independent Since Forever campaign. They have tested extremely well with our consumers. We saw strong improvement in Boston Lager velocity trends over the summer, driven by America 250 program. Oktoberfest season is underway, featuring the launch of the new Samuel Adams Non-Alcoholic Oktoberfest. Support includes a national partnership with Snyder's Pretzels, on-premise stein-hoisting events, and major Oktoberfest festival activations.