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CRAFT BREW ALLIANCE REPORTS STRONG FIRST QUARTER RESULTS FUELED BY INCREASES IN NET SALES, GROSS MARGIN, AND EPS

May 9, 2018

Kona Big Wave continues to outperform craft segment with 22% depletions growth 

Portland, Ore. (May 9, 2018) – Craft Brew Alliance, Inc. (“CBA”) (Nasdaq: BREW), a leading craft brewing company, today announced financial results for the first quarter ended March 31, 2018 and reconfirmed guidance for the full year. CBA delivered net sales growth of 7% in the first quarter, along with strong revenue per barrel increases and improvement in beer-related costs per barrel that generated a 310-basis point expansion in gross margin over the first quarter in 2017. These improvements, coupled with disciplined cost management, helped drive a 112% increase in CBA’s first quarter operating income.

Harnessing the Power of Kona’s Liquid Aloha

As more breweries and brands compete for consumers’ share of mind, Kona’s flagship Big Wave Golden Ale continued to outperform the craft market, with global depletions up 22% in the first quarter. Kona’s overall depletion growth of 3% reflects continued strong demand both domestically and internationally, for Kona’s distinctive portfolio that addresses consumer demand for both flavor and sessionability. In the first quarter, Kona also introduced a new year-round offering, Kanaha Blonde Ale, a refreshing 99-calorie beer with a hint of mango that is available nationwide.

Unlocking Value through our AB Partnership

We continued to leverage our enhanced agreements with Anheuser-Busch (“AB”), with CBA brands participating in key wholesaler focus programs to support the upcoming summer selling season as we realized ongoing cost efficiencies through producing and shipping beer from AB’s Fort Collins brewery.

Leveraging Improved Financial Fundamentals

CBA delivered first quarter net sales growth of 7%, gross profit improvement of 19%, and gross margin of 31.7%, including beer gross margin of 35.5%. These results reflect the significant operational achievements we completed last year to optimize our brewery footprint with the transition out of Memphis, closure and sale of our Woodinville facility, and start-up of brewing operations in Fort Collins, while simultaneously reducing wholesaler inventories by over 30%. As a result of our successful cost management and improved financial fundamentals, we are now able to increase investment behind our brands to further strengthen the top line.

Select financial highlights for the first quarter 2018:

  • Depletions for Kona grew 3% in the first quarter, while overall CBA depletions were down 4% for the quarter, compared to the same period in 2017.
  • CBA’s shipments increased 9%, reflecting a soft comparison to lower shipment volumes in the first quarter of 2017 due to a significant effort to reduce our wholesaler inventories by more than 30%.  The health of our first quarter 2018 shipments, achieved while maintaining optimum wholesaler inventory levels, supports our distribution partners who are addressing complexity and space constraints associated with today’s competitive market, while giving CBA further flexibility to meet demand.
  • Net sales increased 7% to $47.5 million in the first quarter, primarily attributed to increases in shipment volume and average unit pricing and partially offset by the non-recurrence of a $1.7 million contract brewing volume shortfall fee received from Pabst in the first quarter of 2017.
  • Gross profit increased by 19%, to $15.1 million, and gross margin increased by 310 basis points to 31.7% compared to the first quarter in 2017. Our beer gross margin expanded to 35.5%, primarily due to increases in average unit pricing and shipment volume, as well as improved operating efficiencies as a result of our brewery footprint optimization.
  • Selling, general and administrative expense (“SG&A”) for the first quarter was $14.7 million, a 5% decrease compared to the first quarter of 2017, which primarily reflects the impact of a $0.5 million gain realized on the sale of our Woodinville facility completed in the first quarter this year, as well as timing of sales and marketing initiatives.
  • Diluted earnings per share was $0.01 for the first quarter, an improvement of $0.10 over the first quarter diluted net loss per share of $0.09 in 2017, reflecting an effective tax rate of 27.8%.

“CBA’s solid first quarter results underscore the improved health of our company by combining sustained strength for Kona, anchored by a 22% increase in flagship Big Wave, with exceptional company-wide cost management and efficiency gains,” said CBA CEO Andy Thomas. “We are now in a stronger position than ever to increase investments behind our Kona plus strategy as we explore new avenues for growth in this transformed and ever-changing competitive marketplace.”

Anticipated financial highlights for 2018:

As CBA’s first quarter performance was in line with our expectations, we are reaffirming our 2018 guidance as follows:

  • Total CBA depletion change ranging between a decline of 2% and an increase of 3%.
  • Shipments ranging between a decrease of 2% and increase of 3%, which reflects ongoing progress to align our supply chain.
  • Average price increases of 1% to 3%, reflecting improvements in revenue management and lower federal excise taxes.
  • Total gross margin rate of 32.0% to 35.0%, reflecting increases in net revenue per barrel, continued improvements in brewery operations, lower fixed overhead, and ongoing efforts to stabilize pub operations.
  • SG&A expense ranging from $59 million to $61 million, as we continue to reinvest cost savings into our brands and expand our consumer and trade marketing programming.
  • Capital expenditures of approximately $16 million to $19 million, which reflects continued work on the new Kona brewery and the addition of a new canning line in our Portland brewery.
  • Effective tax rate of 27%.

“We’re seeing the building blocks of CBA’s financials come together in a way that truly reinforces the strengthening of our company as an outcome of the team’s hard work,” said CBA CFO Joe Vanderstelt. “These results could not have come together at a more important time in our business as we look for opportunities to grow the topline by strategically investing in our brands in an otherwise challenging segment.”

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 depletions, 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, our effective tax rate, 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, 2017. 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

Craft Brew Alliance (CBA) is an independent craft brewing company that brews, brands, and brings to market world-class American craft beers.

Our distinctive portfolio combines the power of Kona Brewing Company, a dynamic, growing national craft beer brand, with strong regional breweries and innovative lifestyle brands, Appalachian Mountain Brewery, Cisco Brewers, Omission Brewing Co., Redhook Brewery, Square Mile Cider Co., Widmer Brothers Brewing, and Wynwood Brewing Co. CBA nurtures the growth and development of its brands in today’s increasingly competitive beer market through our state-of-the-art brewing and distribution capability, integrated sales and marketing infrastructure, and strong focus on partnerships, local community and sustainability.

Formed in 2008, CBA is headquartered in Portland, Oregon and operates breweries and brewpubs across the U.S. CBA beers are available in all 50 U.S. states and 30 different countries around the world. For more information about CBA and our brands, please visit www.craftbrew.com.

Contact: Jenny McLean, Director of Communications, Craft Brew Alliance, Inc., (503) 331-7248, jenny.mclean@craftbrew.com

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