Boston Beer Company, Inc.

Good afternoon and welcome. This is Mike Andrews, Associate General Counsel and Corporate Secretary of the Boston Beer Company. I'm pleased to kick off our 2025 fourth quarter earnings call. Joining the call from Boston Beer are Jim Cook, Founder, CEO, and Chairman, and Diego Reynoso, our 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 10Q and 10K. 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 it over to Jim to share his 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 Diego to discuss our supply chain, fourth quarter results, and 2026 financial outlook. Immediately following Diego's comments, we'll open the line for questions. As I look back on 2025, I'm pleased with how our operational discipline enabled us to deliver on our financial commitments in a challenging industry volume environment. Our 2025 depletions were down 4% in line with the overall beer industry. Our disciplined fewer things better innovation approach drove a successful national launch of Sun Cruiser, which is both revenue and margin accretive. Efficiency improvements across our breweries and our productivity agenda drove 410 basis points of gross margin expansion, allowing us to increase brand investment meaningfully. Our business continued to be highly cash generative with twenty twenty five free cash flow of two hundred and sixteen million dollars or nineteen dollars and seventy two cents per share, which allowed us to repurchase two hundred million dollars in shares in twenty twenty five. LOOKING AHEAD INTO 2026, WE EXPECT INDUSTRY VOLUME HEADWINDS TO CONTINUE. AS I PREVIOUSLY DISCUSSED, CONSUMERS ARE TIGHTLY MANAGING THEIR BUDGETS GIVEN ECONOMIC UNCERTAINTY, AND THERE IS PRESSURE ON THE HISPANIC CONSUMER. MODERATION TRENDS ARE ALSO HAVING AN IMPACT ON DEMAND, AND IN CERTAIN STATES, HEMP-DERIVED BEVERAGES ARE COMPETING FOR SHELF SPACE AND DRINKERS, DESPITE RECENT FEDERAL REGULATIONS, WHICH We continue to see long-term growth opportunities in the Beyond Beer category, which is 85% of our total company volume and where we are the industry's second largest player. From 2019 to 2025, driven by growth in hard tea and hard seltzers, the Beyond Beer category has doubled in volume and now represents 9% of total U.S. alcohol consumption. We expect that Beyond Beer's volume and share of the category will continue to grow as the drinker is younger and more diverse than traditional beer. We believe beer companies are the best positioned to service the Beyond Beer category as they have the production capabilities to produce these beverages and beer wholesalers have the infrastructure to service them. The Boston Beer Company's innovation capabilities Manufacturing infrastructure, best-in-class sales force, and strong wholesaler relations provide a meaningful competitive advantage. This is reflected in the performance of SunCruiser, which was among the top volume gainers in RTD Spirits in 2025 and quickly scaled into a top five RTD Spirits brand. However, we have seen greater competition and beyond beer as consumers seek variety and more players enter the category combined with economic uncertainty. This has been a headwind for our volume performance. We continue to believe that the macro economic environment is a significant driver of weaker alcohol consumption trends and the deceleration in our leading brand twisted T's performance. Our 2026 volume outlook a flat to down mid single digits assumes that macro economic headwinds persist. We are highly focused on controlling what we can maintaining or growing market share and investing behind our brands to position as well for when the environment improves. Our priorities for the year will be supporting our full portfolio brands through advertising and local in-market execution investments, developing margin-accretive innovation, and driving margin improvement through productivity. We continue to believe that sustained brand investment is the right strategy to drive volume improvement over time. Building on our initiatives, we began In 2025, we will continue reinvesting in our brands with new, creative, additional, compelling partnerships activation around key events, including the world cup and investing alongside our whole list sailors in local market activation. We're partnering with some of our wholesalers to increase local brand billing capabilities and improve execution on the shelf. This includes shared development of grassroots marketing plans and on-premise promotions, sampling local radio and billboard advertising. With respect to innovation, we continue to prioritize high growth margin accretive opportunities. In 2026, we are focused on scaling SunCruiser in its second year of national availability. while expanding the distribution of sinless vodka cocktails to additional states following a successful test launch in 2025. Sinless is a very lightly carbonated vodka-based RTD cocktail with zero sugar, zero carbs, and less than 100 calories per can. It is positioned as guilty of flavor, free of sugar and carbs, and targets incremental consumer segments that complement our core brand portfolio. We've made strong progress across our margin enhancement initiatives, which Diego will discuss further in his remarks. This has been a multi-year effort across the organization, and I'm pleased that we've delivered margin improvement faster than we expected in this difficult operating environment. In addition to margin improvement, these initiatives have enabled us to achieve record high customer service levels in 2025 and lower our inventory days on hand. Our efforts across procurement savings, brewery efficiency, and waste and network optimization will continue in 2026. And we're also in the early stages of adding revenue management capabilities to provide further long-term margin benefit. I'll now provide an overview of our brand performance and plans for 2026. In terms of depletions, we're encouraged by the strong consumer reception to SunCruiser, a third consecutive quarter of growth in Angry Orchard and Dogfish Head, and positive drinker reception to our higher ABV offerings. Our larger brands continue to be impacted by the headwinds I discussed earlier, particularly Twisted Tea that over indexes with lower income households and Hispanic drinkers. After starting the 2025 year with growth, Twisted Tea was down 6% in dollar sales and measured off premise channels for the full year 2025 in an FMB category that was down 4%. The brand gained distribution in 2025, but declined in velocities, driven by category headwinds, a decline in features and displays, and some interaction with Sun Cruiser and its competitors. Single serve continues to perform much better than large packs, which tells us that consumer interest in the brand remains strong. We are working hard to ensure Twisted Tea maintains its fair share of display space. Numerator data shows approximately 20% of the drop in Twisted Tea is due to the vodka tea category, which includes Sun Cruiser. To the extent that Sun Cruiser sources volume from Twisted Tea, this is revenue and margin accretive for us. Despite some headwinds, Twisted Tea is the number 10 brand family in the overall beer market and remains the clear leader in malt-based hard tea with over 85% market share. We're encouraged by the performance of Twisted Tea Light and the high ABV Twisted Tea Extreme, which have seen growth in velocities and have room to gain additional shelf space. Our 2026 plans include increased advertising investment with strong creative and local activation, adding new partnerships and launching new pack sizes and Twisted Tea Extreme flavor innovations. Twisted Tea has unique and clear brand voice and attitude, and our advertising plans include continuing to run our high-performing T-Drop national ads across many category entry points, including sports, ski slopes, beaches, lake and pool, complemented with in-store display programs. We'll also be adding always-on media for Twisted Tea Lite and Twisted Tea Extreme. In 2026, we are expanding our partnerships that are most relevant to our drinkers, such as Barstools Pardon My Take, the number one sports podcast, DraftKings, WWE Wrestling, Country Music's Chase Matthew, NASCAR, AMA Supercross and Motocross Racing, and real tree camo. Lastly, we continue to increase our investment in Hispanic and Spanish language brand content, including new media and digital content to widen the brand's appeal. With respect to pack sizes, we're expanding the rollout of our entry-level price point for pack, launching a 16-ounce can for C-stores to add a lower price point in addition to the current 24-ounce can and adding a 24-can value pack. Building on the success of our high ABV offerings, we've added a Twisted Tea Extreme variety pack that was launched in early 2026. Twisted Tea Extreme Lemon and Blue Razz are the number one and number two largest FMB growth skews in convenience, and to further capitalize on the high ABV trend, we'll be launching new extreme singles flavors, Long Island Iced Tea, fruit punch and tropical punch. Our goal for 2026 is to improve share and grow volume in the overall hard tea category through showing progress in twisted tea and growing Sun Cruiser. We're very excited about the outlook for Sun Cruiser, which grew volumes over 300% from 2024 to 2025 and is expected to make a strong contribution to our hired tea portfolio this year. SunCruiser was built in the on-premise channel, where in some markets it represents over 40% of the brand's volume. We believe this is the right way to drive trial and build the brand and are pleased that SunCruiser is the leading RTD spirits and lemonade brand in on-premise bars and restaurants, according to Nielsen. Bartenders have been and continue to be a very important influer group for SunCruiser. Suncruiser continues to expand its off-premise distribution, but given its strong presence in on-premise and independence, measured off-premise data still only reflects a portion of the brand's total volume. Advertising support for Suncruiser includes building an organic following through social media, as well as more traditional content, around the let the good times cruise media campaign which includes television paid social and digital advertising and key influencers we'll be present where sun cruiser fits into our drinkers lifestyles across sports and music sun cruiser will have committed media presence in mlb the nfl and the sponsorship Of the music concert series, and in 2026, we'll add exciting golf and ski partnerships. Golf programming includes turn activations, golf, media, influencers and experiential marketing programs as well as wholesaler incentives. Additionally, SunCruiser is a key sponsor of Teton Gravity Ski Film Festival along with ski resort sponsorships and samplings that help reinforce its position as a brand for all four seasons. From a product innovation perspective, we intend to keep a disciplined number of tea and lemonade styles while continuing to expand package options In the first quarter of 2026, we had a new single serve 12.2 ounce packages and new tea and lemonade sampler 12 packs, which we expect will help expand drinker occasions and drive further growth in 2026. Turning to hard seltzer, the overall hard seltzer category declined 5% in dollars in measured off-premise channels for the full year 2025 as consumer preferences continue to shift towards more premium RTD spirits-based beverages. Our brand strategy for 2026 is to invest in new equity-building creative, capitalize on the World Cup, launch new pack sizes and varieties, and continue to expand truly unruly. Our advertising plans include leveraging our sponsorships of U.S. soccer as its Beyond Beer sponsor with targeted World Cup activation, along with our new creative platform that we recently launched called Make Your Dreams Come Truly. The 2026 World Cup which will take place in North America for the first time in more than three decades, includes 11 cities, over 100 matches, and 4 billion global viewers. Our truly World Cup plans, which have been well received by major retailers, include driving visibility and displays and launching a U.S. soccer collector set of singles, along with a World Cup-themed rotator variety 12-pack. In addition, we have significant local investments in the 11 host cities, including local media and retail program. High ABV offerings continue to be a bright spot in hard seltzer, and Truly Unruly has grown to a 3% volume share of hard seltzer. Based upon drinker demand, we added a new Truly Unruly variety 24-pack in 2026. In cider, Angry Orchard has returned to growth. behind a combination of new positioning and creative and a strong Halloween program, which included Friday the 13th movie-themed advertising, promotions, packaging, and displays. Importantly, Angry Orchard's success comes from driving growth of the core offerings. Our beer brands, Samuel Adams and Dogfish Head, have combined to hold share in a challenging craft beer category. During the first quarter, we are excited that Samuel Adams will begin programs and promotions as well as launch limited edition packaging to help celebrate America's 250th anniversary. For Dogfish Head, we're particularly pleased that Dogfish Head's Grateful Dead beer collaboration and the brand's Minute Series IPAs have helped fuel Dogfish Head's return to growth. In summary, I'd like to thank our Boston beer team and our distributors and retailers for their continued support. I'm encouraged by the progress we made in 2025 amid a dynamic environment. While consumers remain cautious, And the near term outlook is still challenging. I'm confident in our operating plans for 2026. We're continuing to invest in our brands. We're building a strong innovation pipeline, and we're highly focused on our multi-year productivity initiatives. Importantly, we're focused on controlling what we can control. We're executing in the marketplace to improve share trends and expand our margins. These efforts, along with our innovation capabilities, strong sales force, and unique culture position us well for a successful long-term future. I'll now pass the call to Diego for a detailed review of the fourth quarter and our 2026 guidance.

Thank you, Jim. Good afternoon, everyone. 2025 was a year of continuous progress for Boston Beer in a dynamic industry environment. Discipline execution and supply chain efficiency enabled us to meet or exceed our financial commitments, including very strong gross margin outperformance. This margin upside enables increased investment in advertising support for all our brands while still delivering EPS ahead of our guidance. Cash conversion was strong with $270 million in operating cash flow, and we ended the year with $223 million in cash and no debt. 2025 revenue was down 2.4% year over year, driven by shipments down 4.7%, and 2.3 percentage points of positive price and mix. Price realization for the year was within our prior guidance of 1% to 2%, with the remainder being positive mix. We delivered 410 basis points of gross margin expansion, with gross margin reaching 48.5%, inclusive of $10.1 million in tariff costs. Excluding contractual prepayments and shortfall fees, the gross margin was 50%. This is the highest full year gross margin rate since 2019. EPS of $9.89 was up 4.7% year-over-year, excluding prior year impairment and one-time contract settlement charges. This EPS growth was inclusive of a $61 million increase in advertising spend while general and administrative expenses were flat. Turning to the fourth quarter results, depletions decreased 6% and shipments decreased 7.5% year-over-year, primarily driven by declines in our Twisted Tea, Truly Hot Seltzer, and Sam Adams brands that were partly offset by growth in the Subcruiser, Angry Orchard, and Dogfish Head brands. As we expected, Volumes slowed sequentially in the fourth quarter from the third quarter. Twisted tea volumes continue to be soft, and SunCruiser continues to show strength, but at a lower contribution in the fourth quarter due to seasonality. We believe distributor inventory of four weeks on hand as of December 27, 2025, is an appropriate level for each of our brands. Revenue for the quarter decreased 4.1%, due to lower volume, partially offset by increased pricing in favorable product mix. Gross margin of 43.5% increased 360 basis points year over year. Gross margin primarily benefited from improved brewery efficiencies, procurement savings, price increases, and product mix, as well as lower inventory obsolescence. These factors were partially offset by inflationary and tariff costs, and increase in shortfall. Advertising, promotional, and selling expenses increased $8.4 million, or 6.0% year over year, primarily due to incremental brand, media, and local marketing investments of $8.0 million, with the remainder driven by higher freight costs. General and administrative expenses for the fourth quarter increased $4.5 million, or 9.4% year over year, primarily due to increased salaries and benefits costs. We are continuing to execute on our three buckets of multi-year savings projects ahead of our initial timing expectations. We saw significant benefit in 2025 and have more savings to come in 2026, albeit at a lower rate. To be specific, In brewery performance, we continue to see improvements in OE driven by process improvements, which help to increase our internal production capacity. In the fourth quarter, we produced 99% of our domestic volumes internally compared to 85% in the fourth quarter of last year. Full year 2025 domestic internal productions increased to 86% of our volume compared to 74% last year. In 2026, we expect to continue increasing the rate of in-source production, but at a smaller year-over-year benefit due to achieving a high in-source percentage in 2025. In procurement savings, our fourth quarter results benefited from lower negotiated pricing on certain packaging and ingredients. As discussed previously, procurement savings initiatives are the area where we have made the most progress over the last two years. While we expect some continued benefits in 2026, the impact is expected to be moderate. In waste and network optimization, we're continuing to enhance the customer ordering and trade inventory management system that we implemented last year. These efforts helped us achieve record high customer service levels that resulted in lower inventories internally and which helped improve our cash flow. In addition, We reduced obsolete inventories 71% in the fourth quarter and 48% for the full year. In addition to our three buckets of savings, we are beginning to add revenue management capabilities as part of our margin agenda. These efforts are in early stages in 2026 with a more meaningful contribution expected in 2027. Turning to our 2026 guidance, Our fiscal week depletion funds for the first eight weeks of 2026 have declined 3% from 2025. We are currently planning 2026 depletions and shipments to be flat to down mid-single digits. Where we land within this range will be impacted by the pace of improvement in the overall consumer environment and the time it takes for our brand investment initiatives to drive market share improvement. We expect price increases of between 1% and 2% and some additional benefit mix. Full year 2026 reported gross margins are expected to be between 48% and 50%. Our outlook expects that we cover commodities and non-tariff related inflation with pricing and that the lower shortfall fees and prepayment amortization broadly offset increased tariff costs. 2026 reflects a full-year tariff cost estimate of $20 to $30 million versus a partial year in 2025 of $11 million. These tariff cost estimates are based upon tariffs in place prior to the February 2026 Supreme Court ruling. We will continue to drive our savings initiatives to help buffer any volume deleverage. Our long-term gross margin target continues to be in the high 40s. with any individual year dependent upon volumes, commodity inflation, and tariff environment. As Jim discussed earlier, we expect to increase our advertising levels to support our brand. The investments in advertising, promotional, and selling expenses are expected to increase between $20 million and $40 million. This does not include any changes in big costs for the shipment of products to our district. We estimate our full year 2026 effective tax rate to be approximately 29% to 30%. We are currently targeting a full year 2026 earnings per diluted share of between $8.50 and $11. As you model out the year, please keep in mind the following factors. Our business is impacted by seasonal volume changes, with the first quarter and the fourth quarter being lower absolute volume quarters and the fourth quarter, typically, our lowest absolute gross margin rate of the year. We have difficult shipments comparisons in the first quarter and the first half of the year, as we shift ahead of depletions in 2025 to build wholesaler inventories of our product innovation, which included subcruiser and truly unreal. We currently expect the first quarter and first half shipments to be down towards the lower end of our four-year volume guidance. but with better shipment performance later in the year. During full year 2026, we estimate shortfall fees and non-cash expenses of third party production prepayments in total will negatively impact our gross margins by 40 to 60 basis points. We expect year over year gross margin rate improvement to be most meaningful in the fourth quarter. We typically expense the majority of our shortfall fees in the fourth quarter We expect lower shortfall fees in 2026, and the timing of this benefit, together with the fact that the fourth quarter is a smaller dollar quarter, has an outsized favorable impact on the gross margin rate. Incremental advertising investment is expected to be weighted to the second and third quarters to support the key summer selling. Turning to capital allocations. We ended the quarter with a cash balance of $223 million and an unused credit line of $150 million, which provides us with ample flexibility to continue to invest in our base business, fund future growth initiatives, and retain cash to shareholders through our fair buyback program. For the full year of 2026, we expect capital expenditures of between $70 million and $90 million. These investments will be primarily related to our own breweries to build capabilities and to improve efficiency. We will continue to be disciplined in our capital spending as we monitor the dynamic industry environment over the long term. During the 52-week period ended December 27, 2025, in the period from December 29, 2025 to February 20, 2026, we repurchased shares in the amount of $200 million and $14 million, respectively, for a total of $214 million of repurchases since January 2025. As of February 20, 2026, we had approximately $215 million remaining on the $1.6 billion share repurchase authorization. This concludes our prepared remarks, and now, We'll open the line for questions.