US: Tax provision slaps down Boston Beer Q3 profits

The Boston Beer Company has posted a sharp fall in operating profit for its third quarter, despite a healthy lift in sales.

The brewer, which owns the Samuel Adams lager brand, said yesterday (6 November) that operating profit for the three months to the end of September slid to US$3.6m from $8.2m in the corresponding quarter a year earlier. Sales for the quarter increased, however, to $97.2m from $83.9m, on the back of a volume rise to 476,000 barrels against 432,000 barrels in Q3 2006.

Net income followed operating profit, down to $3.2m from $5.9m.

The profit damage comes primarily following a warning from the Federal Alcohol and Tobacco Tax and Trade Bureau, whose ongoing audit has suggested the brewer could owe between $3.9m and $9.3m in outstanding taxes. Consequently, Boston Beer made a $3.9m provision in the third quarter.

For the first nine months of 2007, operating profit and net income were flat, at $22.7m versus $22.9m and at $15.7m from the same figure last year, respectively. Sales for the year so far rose to $279.2m from $234.2m.

Earlier this year, the company announced that it will purchase a brewery in Pennsylvania from Diageo North America. Boston Beer said it has now completed its due diligence on the Lehigh Valley Brewery and has paid into escrow the further deposit of $9m. "Based on current plans, the company anticipates taking control of operations of the brewery in June 2008," Boston Beer said. The total purchase price will come in at around $55m, with $3.4m, which the company had spent on a fall-back Massachusetts brewery project, being written off.

"We feel very positive about … the continuing strength of the craft beer category," said company founder and chairman, Jim Koch. "This was our seventh successive quarter of double digit increases. While the craft category continues to get more competitive, I believe that the quality and variety of distinct beers that Samuel Adams brews positions us well to compete in this challenging market, and the addition of the Lehigh, Pennsylvania Brewery should provide us with the capacity and capability to meet this demand."

Looking forward, Boston Beer warned that full-year earnings should come in between $1.40 to $1.65 per share, versus a previous guidance range of $1.42 to $1.70 per share, due to the excise tax issue, and increased cost pressures, particularly for barley, hops, glass and freight.