Year in Review: Craft Brew Alliance

Calla is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Craft Brew Alliance's (NASDAQ: BREW) year can be split into two parts: the part where everything went well, and the part where everything sputtered. In 2011, CBA shares popped on rumors that Anheuser-Busch (NYSE: BUD) would buy the company. Instead, the beer giant bought the Fulton Street Brewery, a relatively small holding of CBA, handing CBA a nice $16.3 million and cheaper margin fees for beer distributed through the Anheuser-Busch distribution network. As rumors of an Anheuser-Busch buyout died down, the share price declined and the company came into 2012 around $6 a share.

Quarterly Turbulence

In March, CBA’s annual report showed increases across the board: sales were up 13% to $149.2 million, adjusted net income was up 94% to $3.2 million, and EPS was up 70% to 17 cents. CBA also paid off nearly half its long-term debt. While the company’s shares increased slightly after the annual report was released, its ticker name change a week later precipitated a 15% rally. Mr. Market may have been a tad irrational, but BREW really is a lot catchier than HOOK.

CBA’s first quarter results, released in May, painted a picture of a growing company with growing margins, and shares hovered around $8 for a couple months. However, fortunes turned in August, when the company released second quarter results showing a decline in gross profits and operating income compared to the same quarter in 2011, even after removing the 2011 Fulton Street Brewery sale from the analysis. Despite reassurances from management that the drop was temporary and the result of internal changes that would bring long term gains, the share price quickly dropped by 10% and for the most part stayed below $8 through the fall.

CBA released underwhelming third quarter results and downward guidance in mid-November, sending the stock down 22% within one week. The third quarter filing and conference call reported a decline in net income over the previous year and a continued decline in the sales and shipments of the core Widmer brand, with increased sales and shipments of Redhook and the smaller Kona and Omission brands barely offsetting Widmer’s losses. Finally, management updated 2012 guidance to $.12-$.17 EPS, down from $.20-$.25. Unsurprisingly, the share price crashed.

Opportunities

CBA announced two new ventures this past fall. First, the company released its new Omission brand, a gluten-free line of beer. Unlike most gluten-free beers, which are made from wholly gluten-free alternatives like rice and sorghum, Omission is made with standard beer ingredients like malted barley and gluten is removed from the beer after brewing. Omission joins Widmer, Redhook, and Kona as CBA’s fourth brand. Second, the company announced a partnership with exporters CraftCanTravel to export all four brands to Europe and Asia. The partnership is still in the exploratory phase. The market reacted agnostically to both ventures, with moves of several percent on each announcement.

In December, share prices recovered somewhat from November’s sell-off, and will likely end the year around $6.50, or an 8% gain from Jan. 3’s price of $6.01. CBA will go into 2013 with a PE of 50, the highest valuation of any publicly-traded American beer company. CBA has an array of growth opportunities in front of it as one of two public American craft beer companies, however, it remains to be seen whether the company can take advantage of those opportunities in 2013.


CallaMarie owns shares of Craft Brewers Alliance. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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