Boston Beer Company, one of the leading craft breweries in the U.S., is turning millions of dollars of expired beer into ethanol to recoup some of its lost sale. The company has USD5.8 million in beer returned by retailers and distributors during its first quarter.
Jim Koch, founder and chairman of Boston Beer, told CNBC today that it will distill the returned beer into ethanol, so it can be blended into gasoline.
Boston Beer Company reported on Wednesday its first quarter 2020 results. The company began seeing the impact of the COVID-19 pandemic on its business in early March. Prior to then, the Company was on track to maintain its financial guidance for full-year fiscal 2020.
In May 2019 the company announced to merge its business with Dogfish Head Brewery, 13th-largest craft brewery in the United States (inside.beer, 9.5.2019).
Depletions through the 9-week period ended February 29, 2020 are estimated by the company to have increased approximately 32% from the comparable period in 2019. Excluding the Dogfish Head impact, depletions increased 26%.
In the first quarter of 2020, the company has recorded COVID-19 pre-tax related reductions in net revenue and increases in other costs that total USD 10.0 million. This amount consists of a USD 5.8 million reduction in net revenue for estimated keg returns from distributors and retailers and USD 4.2 million of other COVID-19 related direct costs, of which USD 3.6 million are recorded in cost of goods sold and USD 0.6 million are recorded in operating expenses. In addition to these direct financial impacts, COVID-19 related safety measures resulted in a reduction of internal capacity. This has shifted more volume to third-party breweries, which increased production costs and negatively impacted gross margins.
Net revenue in the first quarter 2020 amounted to USD 330.6 million, an increase of USD 78.9 million or 31.4% from the same period last year, mainly due to an increase in shipments of 32.2%. Net income for the first quarter was USD 18.2 million, or USD 1.49 per diluted share, a decrease of USD 5.5 million or USD 0.53 per diluted share from the first quarter of 2019. The decrease in net income reflects that the company's higher net revenue was more than offset by increases in operating expenses and lower gross margins.
Given the many rapidly changing variables related to the pandemic, the Boston Beer Company is currently not in a position to accurately forecast the future impacts of the pandemic and is withdrawing its full-year fiscal 2020 financial guidance. To date, the direct impact of the pandemic has primarily shown in significantly reduced keg demand from the on-premise channel and higher labor and safety related costs at the company's breweries.
Boston Beer Company will continue to assess and manage this situation and will provide further updates in its second quarter earnings release, to the extent that the effects of the COVID-19 pandemic are then known more clearly.