Article

CRAFT BREW ALLIANCE REPORTS 19% GROWTH FOR KONA BREWING AND COMPLETION OF MAJOR STRATEGIC BREWERY ENHANCEMENTS

May 4, 2016

First Quarter Results In Line with Internal Plan; Company Reconfirms Full-Year Guidance and Outlines Expectations for Remainder of the Year

Portland, OR (May 4, 2016) – Craft Brew Alliance, Inc. (“CBA”) (Nasdaq: BREW), a leading craft brewing company, today announced results for the first quarter ended March 31, 2016. The results, which were consistent with the guidance provided during CBA’s 2015 earnings call on March 3, 2016, underline the continued double-digit growth of Kona Brewing Co. and reinforce our confidence in achieving our full-year guidance.

CBA’s first quarter results were largely impacted by the temporary closure of our largest-volume brewery in Portland, which enabled the completion of multiple strategic operational projects to increase brewing capacity and gross margin. In addition to the Portland brewery expansion, we also kicked off the site preparation for the new Kona brewery and the launch of a new can line in Portsmouth to support our strategic partnerships with Appalachian Mountain Brewery and Cisco Brewers.

As previously disclosed, CBA expected the Portland brewery closure to result in a first quarter shipment decline of 15,000 to 20,000 barrels, along with commensurate impacts to first quarter revenue, gross margin, and capacity utilization. With key operations enhancement projects on track and first quarter results in line with management’s expectations, we are reconfirming full-year guidance and providing insight to CBA’s anticipated performance for the balance of the year.

Select first quarter financial highlights
• Depletions for Kona Brewing increased by 19% reflecting steady domestic and international growth despite continued market competition. CBA’s overall depletion volume declined 3% from the first quarter of 2015.
• In line with our expectations due to the temporary Portland brewery closure, shipments decreased by 18,100 barrels, or 10.8%, to 149,600 barrels, compared to the same period of 2015. The first quarter shipments decline, which conforms to our previously projected decline of 15,000 to 20,000 barrels, reflects a provisional increase to wholesaler inventories in the fourth quarter of 2015 as we prepared for the Portland brewery closure in early 2016.
• The anticipated decline in shipment volume resulted in a net sales decline of 6.0% in the first quarter, which was partially offset by strong revenue per barrel and improved Pubs sales. The estimated negative impact of the brewery shutdown on our net sales was approximately 890 basis points.
• Also in line with the projected impact of the Portland brewery closure, first quarter gross margin rate decreased 460 basis points to 22.2%, compared to 26.8% for the first quarter last year.

-Our Beer gross margin rate decreased 550 basis points to 24.2% in the first quarter, compared to 29.7% in the first quarter last year, due to the planned lower capacity utilization in our owned breweries as we completed the capital projects.
-Our Brewpub gross margin rate increased by 310 basis points to 12.8%, compared to 9.7% in the first quarter of 2015. The increase reflects the normalization of our Pub margins, which were impacted by a multi-week closure of our Koko pub in the first quarter of 2015 for a full remodel.
-The estimated impact of the brewery shutdown and related volume decline on our gross margin in the first quarter of 2016 was approximately 490 basis points.

• Selling, general and administrative (SG&A) expense for the first quarter was $13.9 million, a 7.5% increase over the first quarter of 2015, primarily due to emerging business and international support, brand marketing, and employee-related costs.
• Corresponding to the decrease in gross margin due to the Portland brewery closure, along with the increase in SG&A, our diluted loss per share for the first quarter of 2016 was $0.17, compared to $0.06 for the same period last year. Brewery shutdown-related volumes and the corresponding negative impact on gross margins represents $0.09 per share.

Trailing twelve-month financial highlights
To address the wide variances in quarterly results and provide a more representative view into our financial performance, we are sharing trailing 12-month comparisons for the periods ended March 31, 2016 and March 31, 2015.
• For those periods, our Beer shipments decreased 1.1%, depletions decreased 1%, and net sales increased 1.9%.
• Our Beer gross margin expanded by 40 basis points to 32.3% and Brewpubs gross margin expanded by 90 basis points to 13.5% for the same 12-month periods, for a combined gross margin expansion of 30 basis points to 29.6%, compared to 29.3%.

“While on the surface our first quarter results reflect the disproportionate impact of the temporary Portland brewery closure, the significant accomplishments we made to fortify our foundation set us up for a strong 2016 and beyond,” said Andy Thomas, chief executive officer, CBA. “From Kona’s steady acceleration as a top 10 national craft brand, to continued strong pricing, to our ability to complete multiple strategic expansion projects while delivering the quarter we said we would, I am confident that we will achieve our full-year guidance.”

Select anticipated financial results for the remaining three quarters of 2016 to support full-year guidance
• April through December 2016 shipment growth of 4% to 5%, reflecting increased volume growth during the peak selling season and continued acceleration of Appalachian Mountain Brewery, Cisco Brewers, and contract partnerships.
• Gross margin of 33.0% to 34.5% by leveraging the increased efficiencies related to the successful completion of operational enhancements in the first quarter, as well as improved overall volume and cost leverage, and other ongoing strategic margin improvement projects.

Anticipated financial results for the full year 2016
We are reconfirming previously issued guidance regarding our anticipated full year 2016 results, as follows:

• Full-year shipment growth between 1% and 2%, which reflects the planned first-quarter decrease due to the Portland brewery closure, offset by volume growth during peak selling seasons and ramp up of partner volumes, including Appalachian Mountain Brewery, Cisco Brewers and Pabst Brewing.
• Average price increases of 1% to 2%.
• Gross margin of 31.0% to 32.5%.
• SG&A ranging from $58 million to $59 million as a result of tighter cost controls and our commitment to improved leverage. Increases compared to 2015 are primarily focused against our sales team, our growing international business, and strategic marketing investments.
• Capital expenditures between $19 million and $23 million as we continue to make investments in strategic gross margin initiatives, quality, safety, sustainability, and our Brewpubs. The increase in 2016 expenditures compared to last year’s guidance reflects the carry over impact of lower spend on active projects in 2015.

“The anticipated benefits from the increased capacity and efficiency in Portland, combined with continued acceleration of our Appalachian Mountain Brewery and Cisco Brewers partnerships, reinforce our confidence in delivering on the plan for the balance of the year,” said Joe Vanderstelt, chief financial officer, CBA.

Forward-Looking Statements
Statements made in this press release that state the Company’s or management’s intentions, hopes, beliefs, expectations or predictions of the future, including shipments and sales growth, price increases, and gross margin rate improvement, the level and effect of SG&A expense and business development, anticipated capital spending, and the benefits or improvements to be realized from strategic initiatives and capital projects, are forward-looking statements. It is important to note that the Company’s actual results could differ materially from those projected in such forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained from time to time in the Company’s SEC filings, including, but not limited to, the Company’s report on Form 10-K for the year ended December 31, 2015. Copies of these documents may be found on the Company’s website, www.craftbrew.com, or obtained by contacting the Company or the SEC.

About Craft Brew Alliance
CBA is a leading craft brewing company, which brews, brands and markets some of the world’s most respected and best-loved American craft beers. We are home to three of the earliest pioneers in craft beer: Redhook Ale Brewery, Washington’s largest craft brewery founded in 1981; Widmer Brothers Brewing, Oregon’s largest craft brewery founded in 1984; and Kona Brewing Company, Hawaii’s oldest and largest craft brewery founded in 1994. As part of Craft Brew Alliance, these craft brewing legends have expanded their reach across the U.S. and approximately 30 international markets.

In addition to growing and nurturing distinctive brands rooted in local heritage, Craft Brew Alliance is committed to developing innovative new category leaders, such as Omission Beer, which is the #1 beer in the gluten-free beer segment, and Square Mile Cider, a tribute to the early American settlers who purchased the first plots of land in the Pacific Northwest.

Publicly traded on NASDAQ under the ticker symbol BREW, Craft Brew Alliance is headquartered in Portland, OR and operates five breweries and five pub restaurants across the U.S. For more information about CBA and its brands, please visit www.craftbrew.com.

Media Contact: Investor Contact:
Jenny McLean Edwin Smith
Craft Brew Alliance, Inc. Craft Brew Alliance, Inc.
(503) 331-7248 (503) 972-7884
jenny.mclean@craftbrew.com ed.smith@craftbrew.com

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ed.smith@craftbrew.com

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