Boston Beer Company, Inc. Class A Aktie

All right. Good morning, and welcome back, everybody. For this next session, it's my pleasure to welcome for the first time The Boston Beer Company to the Paris stage. And joining us is Chief Financial Officer, Diego Reynoso. Diego, it's very nice to have you here.

Thank you. It's been a pleasure.

All right. We'll use the duration of the session for Q&A. So let's dive right in. So I mean, maybe Diego, let's level set on just the broader beverage alcohol category. I mean you've talked about seeing some modest improvements relative to 2025, but stepping back, the demand environment obviously remains a bit challenged due to a host of different factors and macro drags. So just how are you thinking about the underlying health of the category from here over the balance of the year?

I think it has been a tough kind of 18 months. I think if you look back to the beginning of last year, we were all very hopeful. And I think quite a few things that have affected the consumer. I think the biggest one is just the demand for the cash that consumer has. And that's a little bit -- the gas prices are very high right now. Consumers are still holding in there, but they're starting to make decisions of you go out. So for example, in the category, we've seen a lot more pre-kind of gaming, which what we call in the U.S., which is you go drink first at the house, a couple of drinks before you go out because you can't afford necessarily to have those drinks outside.

So I do think the consumer is under pressure. But yet, we still see a high demand for new products, consumers want new things. So there's still the underlying elements of positivity in some parts of the industry. But overall, I think it's going to be a challenging year still until something changes and helps that consumer out a little bit.

Yes. No, that makes sense. But in that backdrop, I mean, Boston Beer has been very strong at figuring out the next big brand. So how do you see your portfolio positioned to -- like within both core craft beer and then in the beyond beer segment, like we're heading into the World Cup in a couple of weeks and the broader summer selling season. So how do you see your brands positioned?

We're really happy with the mix of our portfolio. You've heard some of the conversations with some of our competitors, and they're all talking about how Beyond Beer is a little bit where they want to be and they're small and they're growing. I mean that's always been our strength. I mean we used to be a -- 40 years ago, we started a beer company. Beer is less than 18% of our volume now. We're now mostly a beyond beer company. And I think that makes us really well positioned for where the growth is going.

The second thing that I think puts us in a really good position is our ability to innovate and innovate quickly. If you look across the last 6, 7 years -- most other companies have had to go buy companies at very high multiples to attack new trends versus our ability to come up with, for example, Sun Cruiser. Sun Cruiser 2 years ago didn't exist in the market. It went from idea to market in less than a year, and it's one of the fastest-growing brands in the U.S.

So I think what we need to do is we have a consumer now that I think it's a lot more fickled. And they have some basic loyalty, but they want to try new things. They want to find new things along the way to complement their portfolio, and we've been able to provide that. So we have 2 actually new brands on the market that we're testing right now. One is Sinless, which is a low sugar full flavor that we think is going to do really well. And we also have a single-serve high alc, which is part of the category that's doing really well that we're super excited about that's called Lytt. And I think those 2 things just show how we as a company can quickly find those ideas and implement them and use our relationships with the distributors to get a good feel of what we think that brand is going to be. And I think that's what's going to make company survive over the next few years in a challenging overall pie, right, finding those niches that are going to start to grow.

And then I guess I do want to pick up on Sun Cruiser. So I mean, it's been a standout success over the past 18-plus months. How do you think about the durability of that brand and durability of growth for that brand just over the next couple of years.

I think we're just starting. So over the next couple of years, I have no doubt that brand will continue to grow. And the reason I say that is because right now, even when you go out to some of the states like -- West states like California, Oregon, there's still areas where people really haven't heard as much about it as in other more developed markets. And so there's still kind of availability, awareness, distribution growth just easily in the next couple of years. But even past that, brands that resonate, and you can see them like within a short period of time being a top 5 growing brand, I think those brands have a much longer stay power.

And the other piece that I really like about our products and Sun Cruiser specifically, it's not only is it resonating with consumers, but it's actually accretive to our margin. So therefore, as we move more towards more accretive products like Sun Cruiser, it's better, obviously, for us.

Yes. And around that, I mean, a consistent topic over the past couple of months has been just the cannibalization between Twisted. You just mentioned it is accretive to revenue per barrel to margin. So it's not a net negative. But just how do we think about the interplay between your Twisted Tea, which had grown up pretty consistently over 20 years relative to Sun Cruiser, which is still a relatively nascent brand within the portfolio.

That's a great question. I must say that when we launched Sun Cruiser, we thought it was going to be a little bit less cannibalistic, right? But that being said, if you put them together, we're actually kind of winning in that segment of the market. And the way we look at it is if -- even if it's a little bit more cannibalization than we thought, first of all, it's much better to cannibalize yourself. And second of all, do we get a higher margin. So I think that's part of it.

The other one is the consumer is different. There is an overlay. I have young LDA drinkers in my family, one of my kids. And you can see like they're very Twisted Tea and tailgating and other pieces. And then you see other people in a beach environment on the boat, on camping, et cetera. It's a lot more Sun Cruisers. So I do think there's an overlay, and we can definitely see some of the cannibalization. But I also think there's different consumers there as well.

Got it. Okay. And then outside of the hard tea and ready-to-drink teas, can you just touch on the balance of the portfolio across craft beer, seltzer, cider. What do you -- how are you thinking about investment allocation between those less rosy growth stories?

I think over the last couple of years, one of the things that we've changed and I give credit to our previous CEO, Michael Spillane, is we really try to make sure that the brands find their own potential. And what I mean by that is saying, well, a good example is Angry Orchard. And a few years ago, it started not growing. We said, well, if this is the only product we had, it'd be growing, well, then let's make sure it can grow. And so the first thing we do is we say, okay, what's the potential of the brand? What does it need to get there?

The second piece is we look across innovation, we will always have a bucket for spend and innovation. And we have a bucket for support of things like Sun Cruiser, but we'll also have a bucket to try things. One of the things that we always do is we don't sacrifice our ability to try. So we try to try at least 4 brands in the market every year. So you probably haven't heard about 8 or 9 things that we've tested, but we test them really quickly. We failed fast, and we very quickly move on, but we always make sure that the allocation is there.

And then the third piece is we always make sure that our facilities and everything is at a place where we get the top products and the best that's still liquid. After that, everything else comes secondary, and that will depend on where we are, right?

Got it. And again, in some of those categories, like in, call it, like flagship Sam Adams or Dogfish, Truly, what do you think is needed to improve growth in those brands? Is it an execution issue? Or is it just a broad category.

Well, we're growing in a lot of our brands. So -- and gaining share is most of what we look at because there are some places where, yes, growth is gaining share, but in the categories for us, winning is share. So if you look at Dogfish Head, it's back to growth. And I think it's really been going back to the roots, the association with music, Grateful Dead, back to growth. Angry Orchard, as I mentioned, a great success story over the last 2 years, again, back to growth leader in its category.

And there, it's been a lot about the creativity that we brought to the brand. We've made a lot of associations with like Halloween. I don't know if you saw it, but we did a Friday the 13th tie-in that we did a promotion where a super fan got to be killed by Jason in the trailer, and it was one of the most successful things we've ever done, right? But it's going back to the basics, and it's winning, and it's growing. We look at Sam's within the craft category is still tough right now. But even within that, Sam's continues to perform, obviously, not well in total, but versus the category. And right now, we have the 250th anniversary of the U.S. And Sam Adams is kind of a core piece tied to that U.S. spirit. It's the name of our beer, right?

And so we have a great execution around Sam Adams. I think the challenge in craft is you see -- I get -- I mean, I'm sure you do as well, but I get a call every week about assets that are available or brands that are going down. And I think as you start trimming that tail, you'll see strong brands like Sam Adams take a bigger piece of the pie even if the pie shrinks a little bit. Where we do have challenges is Truly. And that one is we haven't been able to turn it around. A lot of it is a category piece. I mean, obviously, during the pandemic, seltzers exploded. And we all kind of thought it was going to be bigger than light beer, and it didn't end up being that way.

But even within that, we have work to do. Now why am I optimistic that we're getting close to the bottom, hopefully, is, one, high alc is really working. So we have Truly Unruly, which is our high alc version. So that's actually growing and growing well. So I think as people move more to high alc, that will help. The other piece is we have a really good activation program with the World Cup. And I tell people, it's less about what it does in the World Cup. It's less the association with the World Cup. What I think it's really important is the amount of displays and on-premise and off-premise that we're going to have that will really help reintroduce the brands to consumers. So I'm very hopeful that, that kind of reacquaintance with the brand will help the brand a little bit stabilize. But I'm very open in saying like, that's the one that I don't think we can say we've cracked. But I think the rest of the portfolio is actually doing really well versus their peers.

Yes. And just to pick up on that Truly point. I know it's still relatively early, but do you have any sense for how that activity is resonating.

We don't have the takeaway numbers yet. What we do have is that we're getting most like 80%, 90% of the displays we thought we were going to get. So pretty high number given the targets that we have. So the displays are up. We haven't gotten the takeaways yet. And we're still a little bit kind of ahead of the World Cup in those markets. But I'm optimistic that once on the floor, that will really help us.

And I mean, to the extent that the brand remains challenged or the broader alcohol category, seltzers within that remains challenged, in a couple of months, if you're not seeing the level of reengagement that you were hoping for, how do you think about further investment behind that brand just over the medium term?

Yes, that's a great question. And look, what we've said is we have a really strong plan for this year. But the reality is we need to see changes in the next 12 to 18 months. And that's not just Truly, that's across the board, but especially in Truly. I think this is a big year. And based on the results, we will act accordingly. So if we get the growth that we want, we might double down. If we don't, we might actually reduce and move that money to some of the other brands that are doing better.

One of the things that I think make us really good is we're very quick at making decisions on where to spend our money. As you know, we're an entrepreneurial spirit company. And therefore, we see something works, we'll double down. We see it won't work, we'll take it away. And we're keeping a really close eye on Truly. So that's going to be the -- the other thing I'd remind people is Truly used to be a humongous part of our business. It's now kind of teens to low, right? So yes, it's an important part still and we...

The headwinds are shrinking.

It's shrinking, but it's -- when you have -- when it's that size, the impact on the overall business and the size of the investment is relative, right? So it is very important. We definitely are focused on it. But if you look at the relative size of the impact, it's kind of not as big of a negative impact as it was before, and that allows us to grow some other stuff. But all our brands, we look at it constantly, but especially in the next 12 to 18 months to really decide where we want to double down.

Got it. And just a similar one around Twisted. I mean you've started to make some interventions like reset pricing in some markets, introduce some additional pack sizes, put more advertising to work. What are the key indicators that you're watching to judge whether these interventions are taking hold?

It's really interesting. Interested, I think we're still really strong with our core consumer. I think we picked up a lot of casual consumers over the last few years that are now potentially switching to things like Sun Cruiser. And therefore, we're doing 2 things, first and foremost. The first one is we're trying to expand our base. And how are we doing that? Well, we're going into Hispanic marketing. So we have now Hispanic spots, et cetera, that we've been talking about it for a few years, but really hadn't actioned until now. And we actually performed really well with the Hispanic consumer. We just weren't talking to them directly. So that's an area that I think will help us offset.

The other one you mentioned before is there's a very different perception of an established consumer up in the Northeast versus kind of new consumers in Texas. And one of the challenges we've had is kind of the relative pricing to domestics up in the Northeast. So we're looking at revenue management options, which is new packs, which packs you promote, et cetera, to really give our consumers the value equation that they're looking for. So those are some of the actions and interventions we're taking.

Now how do we measure the performance? Again, share. And for us is we want to win share. The combination of Sun Cruiser and Twisted Tea has to grow. And Sun Cruiser in itself is going to drive obviously a lot of the growth, but we also want Twisted Tea, especially in that core consumer to return a little bit to growth. we're okay if it loses some of those casual consumers, we want to keep that core and then use Sun Cruiser to really grow on top of that.

Got it. And then maybe just coming back to the innovation capability. You mentioned Sinless, you mentioned Lytt. Can you just maybe spend a moment or 2 around Boston Beer's capabilities in this space because it's arguably one of the defining competitive advantages of the company.

I think it starts with Jim. I think since he founded this company, one of our core principles is challenge the status quo. And look, we've all worked in different companies, and we all say the same thing. I can tell you, it's a real way of life of whatever we're doing today, whether it's good or bad, it doesn't mean anything, what's coming up next. And so that attitude permeates across the whole organization. Therefore, you're getting ideas all the time from the people in the marketplace. You have kind of reps saying, "Hey, I saw this trend or this flavor trend or this coming up and this is coming this way."

And the second piece is we have probably the strongest relationships with distributors built over 40 years. We have a distributor council, and we have a lot of people that help us figure out where the trends are going, where consumers are going, what's missing in the market. And they come to us because they know it won't take us 4 years to figure that out. We can very quickly try some concepts, fill them with them and see if they work. And so that's kind of the start of the process. The second piece that I mentioned before is we fail really fast. People don't realize how much -- how many brands we've tested, how many concepts we tested because we probably have one of the highest batting averages anywhere I've seen, but it's still like you're probably hitting 200, 300, right? And that means that you're missing a lot more. But we do it very quickly. We built upfront how much we're going to invest, what loss we're willing to take.

And we very quickly have the KPIs and the ability to say, is this going to resonate or not. And if it's not, we'll close it out, we'll move back, we'll move to the next one. And we want to continue to do that because that allows us to do all these in-house brands and not have to pay ridiculous multiples for other companies that it's the only other way you can get that growth in.

Yes. Just switching gears around the general reinvestment posture of Boston Beer. I mean, in the past, it's -- you've been very front-footed on investing for growth and again, to that innovation point you just spoke about. But in the current demand environment, how are you rethinking around that investment for growth versus protecting profitability if the category remains challenged for longer?

So we really want to make sure that we protect our profitability. So the way we've funded growth is through our savings program, which is really what you want to hear as a shareholder. So we've been able to generate almost $300 million of savings over the last 4 years. We still have some left, but we committed to take our gross margin up from 40s to high 40s. And we've taken about half of that to the bottom line, but we've taken half or more and reinvested about it in our brands, right?

So thanks to that, you have the Sun Cruiser going, thanks to that, you have Lytt launching and all those things that we can now afford. So right now, the way we've approached that is saying, okay, it's a falling market. We don't want to take away from the bottom line. We don't want to take away from other brands. So therefore, the only way we have to do that is to generate those funds internally, increase our efficiencies, increase our spend and create those cost savings so that we can really drive the business. And at least for the next couple of years, that's still the way we're going to operate.

Yes. And I do want to pick up on that, but maybe just more near term, I mean, you've reiterated 48% to 50% gross margin for 2026. What are the biggest puts and takes to that target? And I mean, what's determining the high end versus the low end? Obviously, you have aluminum headwinds and tariffs and you don't hedge on that kind of commodity exposure.

Yes. So look, I'm actually very proud of the work we've done because I think at the beginning, nobody believed we could get back to this number when we were at 40%, right? And so we've always said that we can get to high 40s regardless of volume. And given we didn't know there was going to be a war in the Middle East and a bunch of things. So I'm even more proud of our company, but we're still at high 40s despite that.

The big challenge for us to get past that and to get and maintain kind of closer to the high end is volume. Now we're getting to the point to break that barrier. We do need to stabilize the volume piece so that we can actually start leveraging some of those to get there. So I think, obviously, if gas prices go down and aluminum prices go down, that might also be the other piece. But we can't really count on that because we don't control that. What do we control? We control our savings, which we're delivering, and we control our top line to a point where we still have some work to do.

Got it. And then, yes, around your savings program, you've talked about the 4 buckets around brewery efficiency, logistics, revenue management, procurement. Can you maybe just touch on the runway across each of those buckets. I think procurement, you've mentioned is you've harvested a lot of the benefits from that already, but just across those other 3.

Yes. I would say procurement is the one that -- more than most of the benefits, I think we've gotten the biggest ones, right, like low-hanging fruit, like the biggest contracts, the biggest suppliers. That has driven a lot of the margin expansion from 40% to where we are now. The second one that I think the team has done an amazing job, the operations team is on brewery efficiency. I mean, I think this year, we've broken like 7 or 8 records of cases produced, OEEs, all those pieces. So I think our breweries are running really, really well.

Where we still have some work to do is in our footprint, our warehousing, our distribution. We put in Kinaxis last year. We're doing a lot of work to make sure our trucks are coming out full, exactly what's our optimum kind of warehouse configuration. I think those pieces, we still have some opportunities. And we just added this year revenue management because I think as we started kind of tapping out on the other ones, we needed a new one. Probably for this year, it's not going to be the biggest driver. I'm hoping for next year, it will start contributing.

And the reason I think revenue management is so critical for us in this industry right now is, again, you have a consumer that is going through really tough inflationary and economic times. And therefore, being able to provide the right packs for the right occasions at the right pricing is really becoming a key differentiator. And I think we have a lot of opportunities there. So we've started doing some of the work at Twisted Tea that you mentioned, but there's a lot more to do. And we expect that for 2027 and beyond to be one of the buckets that we start kind of looking at. So that one is kind of untapped yet.

Got it. And is that is -- those revenue management opportunities, how do you think about it across each of the different brands? Is it still relatively untapped across most of it or...

So they're all very different. And so for example, one of the opportunities is like how do you price high alc versus regular alc, is it the same thing. Do you have the same pack configurations? Do you not? One of the things that's really interesting for me is our RTDs are in 4 packs. And then you have malt-based on 6 packs. And if you ask 90% of the consumers, they don't know the difference. And therefore, like what's the right pack configuration, right?

The second one is, I think, the one that I think has a lot of opportunity across all brands for us is promotional effectiveness, really understanding -- there's so much data now and with AI coming in and having the ability to process it quickly to really understand like are you having the right frequency, depth for your consumer, if you're meeting them in the right places at the right level of promotions or not. And I think that's a huge opportunity for every industry, but especially for us.

And then I think the third one is we -- again, we have really good relationships with our distributors. We're just starting to integrate our planning with them and those pieces. And part of that is, well, what's our SKU kind of build that we want to do? What's the right SKU for the right places where the consumer and the occasions are there? Are we missing any packs? Is there a different pack that different brands should have given where we are? How much do you want to push on loose versus variety packs versus straight packs? All those pieces require a lot of data and analysis that I think the current tools that have come in even in the next couple of years and kind of this 12 months, every 6 months, you're getting all these new tools that I think can really give some power there.

Got it. And does -- how do you think about like the complexity from introducing all of these additional pack sizes, flavors, variety packs and whatnot?

It's really interesting. From an operations point of view, it's something that I've always been worried about. And yet we've broken every OEE record this year, and we have a more complex portfolio than we ever had. So kudos to the operations team. But so far, it hasn't affected our operations in any way. From a sales point of view, you just need to run it in a different way. And I think we're not there yet. I mean we can still improve a lot on how we allocate our time and our focus. But I think we do a pretty decent job. And as we grow, we have other competitors that have like Saur because they have so many much more ads than we do. So I don't worry about it yet. Maybe in 10 years, it would be an issue, but I think right now, we can pull it off.

Got it. That's good. Not a problem right now. And then just within operating -- we've spoken a lot about gross margin, but within operating expenses, obviously, we've spoken about the proclivity to reinvest behind your brands. But maybe just touch on your ability to -- like how quickly can you flex like the A&P lever, manage your overheads in the context of category growth and your own portfolio growth. And then just separately around the freight piece. I mean, that's not typically within your guidance, but oil has obviously moved higher and stayed relatively high since the Middle East conflict?

Yes. No, those are all good questions. So 3 different questions in there. So I'll break them out. From an investment into brand spend and kind of sales spend, as I mentioned, we're really quick at how we do things. I mean we might change our budget 6 or 7 times during the year and flex different areas, depends on reactions, growth, et cetera. So I mean, we always have a budget for the year, but I always say it's always written in pencil. And what makes us different is our ability to really flex it to where we see the opportunities.

On the structure and the manager level, we think we have the right structure. We have one of the biggest sales force in the industry, especially for our size and per case. We believe that makes us different and makes us really valuable to ourselves and to pretty much any brand would love to have our sales force, right? Now that being said, we also have to look at it from a financial discipline. And therefore, what we've said is we're committed to spending through the A&P lever for the next 12 to 18 months. Then we'll see where our performance is, where the market performance is. And at that point, we will reevaluate what we need going forward. But at this point, we think we have that -- that is actually a competitive advantage that we know because everybody kind of tells us that that's what makes us different. So I think next 12 to 18 months, we have the right structure in place. But again, we will reevaluate it at that point and figure out what we need going forward.

Got it. Okay. No, that's all very helpful. And maybe just touch on your performance across the on-premise versus the off-premise. I mean I know it's very -- your positions are very different across each of the brands, like Angry Orchard SKUs on, Sun Cruiser SKUs on, Twisted off. Can you just talk about the dynamics within those channels?

Look, we were stronger in off-premise a few years ago because that's really our bread and butter. We've had to kind of pivot a little bit in specific brands. And the biggest one is Sun Cruiser. And what I love about it is it's kind of proof that when we need to focus on all the channels a little bit more balance our focus, we're actually pretty good at it. So Sun Cruiser has really been kind of the tipping point for our on-premise approach. And some of the products that we're testing would go down that same route. So I think as we go forward, we'll have a little bit more growth on the on-premise side just because of our portfolio dynamics than our core strength that is really off-premise has always been kind of our core strength. And then if you look at the trends, I think -- again, Sun Cruiser is really doing really well in on-premise, but the on-premise is in general, the check size is down.

That's pre-gaming.

Yes, the pre-game is down. So the real secret for me is making sure that you meet consumers where they are. That means you meet them for the pregame, but you're also there when they go out to the bar. And then if you're going out on-premise, if you're having an RTD can, it's probably going to be a lot more economical and if it's a brand that you love and trust anyway than ordering a high-end spirit that's going to cost you significantly more of the time you order it.

So I think that's actually -- in the short term, I think that those brands are going to do really well, and we're seeing that. So I think we're happy -- but again, we have had over the last 2 years to invest more in the on-premise, and we're really happy with the results. And to your point of how we pivot, if other of our launches do really well, we'll move resources around pretty quickly. If the on-premise slows down, we'll move them back. And I think that, again, that's one of the things that makes us really good is our ability to just move resources around as needed.

And from your perspective, is there any bias from a margin perspective between the different channels? Or is it more or less?

That's more a distributor challenge. At the end of the day, you got to remember that in the U.S., the distributor sets the price, not the seller, right? So -- and they have the relationships. What really is important is that you have the relationships with the distributor, but also what is the role of your sales force. And I think that's where we're really well positioned because we have people that work directly with the on-premise and directly with like C-stores to help our distributors develop the brands in those markets, right? So I think companies that only have a distributor going into the on-premise are limited, we work with the distributor and be able to kind of really support our brands. So I think it puts us in a really good position.

Got it. And not to go off too far on a tangent, but we are in Paris. The international piece of your portfolio is relatively small, licensing opportunities. But can you just touch on like how are you exploring that? I think earlier this year, you mentioned you were -- prior to a lot of the tariff noise, you were ready to go in Latin America, but maybe just touch on how you see the international portfolio.

Yes. You're right. It's something the company really hasn't really focused on. I mean we sell ourselves in like 20, 30 markets, but it's just kind of people that want our brands. But it's really Canada. Canada, we do really well. We're the leaders in the market. It's -- I think it's 5% of our business now, and we're growing and we're the market leaders. I -- funny enough, I run international now. So I can answer that question directly. Part of the reason I took over international is because I think there's a humongous opportunity. In Mexico, particularly, it's a market I've run before and I know well, the brand recognition is already there.

Everybody in the north, like Monterrey, people cross over to Padre, South Padre, et cetera, they know Twisted Tea, they know the brand. So we did have some plants. We kind of hold on them. We're reactivating those plants. So I see Mexico potentially in the future as a test market. We'll see how it reacts. We'll see. The tax structure for our teas is really tough. So we're trying to figure that out, but I think that's going to be an opportunity. The Caribbean has actually been a good success for us. It's still small. But over the last 12 months, we've expanded our agreements into multiple islands.

We've put in Sun Cruiser in some areas like Twisted Tea was already doing well, but we're expanding. So I think the Caribbean is a good point to meet your U.S. -- also your U.S. consumers and also the local consumer. And I think those 2 are kind of the first place you go. After that, we have a little bit of Angry Orchard in the U.K. But I think Tea has an opportunity to move to other areas. It's not our focus, and we're trying to isolate a handful of people that work on it. So it doesn't really take away from 95% of who we are. But I think we have some smart people. So I do see in the next kind of 5-year period, us kind of slowly going into different markets and doubling down on the markets that resonate with our brands. I mean we're -- I mean, Twisted Tea is a 50 million case business roughly in the U.S. So again, markets like Mexico and Canada that have all this back-and-forth interaction just has such a big brand recognition in those markets.

Got it. Can we just touch around near-term consumption trends? I mean we said at the outset, it's been choppy with gas prices. Consumption trends are down pretty significantly over the early part of May, Memorial Day weather has been not great in the Northeast. But how are you guys thinking -- how does that like set you up? I mean, obviously, we're not through -- we're not into the peak summer selling season, but it's also not a great start to the summer either.

You know what, what's really frustrating is just when you think you're doing better, something happens, like we were in March, we're like, okay, things are looking better. And then suddenly, you hit April as an industry and you go like what happens when things are looking better, right? So I think we have to just admit that nobody really knows -- and the choppiness will continue. And therefore, what we have to do as a company is very quickly pivot on both investment opportunities and where our focus is.

You're right, we haven't had a great start to the year, and we actually trimmed our guidance down because we saw it. And I think everybody saw it. Some people didn't really know if it was going to stick or not. We felt pretty clear where it was going. So we trimmed our guidance down. And we just -- you keep your eye on the ground. You're talking to distributors all the time. Again, we've tied in our replenishment systems to them so we can see what's moving or not. I'm hopeful for really good weather. I mean they were talking about El Nino being one of the strongest this year and bringing a lot of heat waves. I'm still kind of waiting for it in Chicago. I live in Chicago, and I'm still waiting for it.

But I think it's a soft answer to say weather, but it is a true answer. I think that will help a lot. And if we can get gas prices and just people feeling a little bit better about going out, going to the on-premise and spend a little bit more, I think it will go a long way to help the whole industry. And within that, our brands are really well positioned. So I just think it's going to be choppy. And one of the things that I've learned since last year is not to get too excited when we have like 1 or 2 good months because every time it's -- it's like good weather in Chicago, right? Like you're in April and suddenly, you see 75 degrees and you put away your jacket and it's snowing a week afterwards. It's like you learn not to do that until you get to May, right? I think that's what the industry is like right now is you see kind of the one good point and you say, okay, let's see 2 or 3 before we pivot. And I think that's going to be a challenge for all of us.

Great. And we've got a couple of minutes left. So I do want to talk about capital allocation. So we spent a good amount of time talking about reinvestment in the business, innovation. But can you just discuss CapEx priorities that's been coming down pretty meaningfully over the past couple of years as you've optimized the structure, that and alongside just repurchase activity and just uses of cash going forward?

Yes. CapEx is a good example of reading the market, right? Like we saw this early, we saw kind of the market trends changing, and we decided to say, look, we want to focus on anything we need to do to make sure our breweries can perform the savings that we've agreed on and can put out the best possible products. That's our priority #1. The priority #2 is really giving value to our shareholders. We've had a very consistent buyback program. We have announced we're going to continue it the way we've continued this quarter. And I think that's something that we all feel it's a really good way of returning value to our shareholders, especially where our share is today.

And then after that, I think as we mentioned before, is investing in growth, but it's a different view that most people have. Sometimes when you think about growth, you think about do I put in a new line or something like that. Because we have third-party co-packers, we can easily flex. If tomorrow, we grew 10%, we'd have capacity because we have it outside. And different to some of our competitors, we didn't go build a $1 billion facility that we are not using, right? We have a mixture of in-house. So when I say growth, I mean CapEx for innovation. So Lytt, which you haven't seen because we're testing in other markets than New York, but it's kind of a light bulb, you've seen light bulb shape, et cetera. It's like, well, that's not easy to do, but requires capital. That's CapEx that we're...

It stands out.

Yes, that's CapEx that you're willing to invest because it's growth, but you're not building capacity you don't need, it's a very specific innovation capacity. So that's the way we look at the capital allocation and the cash. I remind people, I don't know a lot of companies that have no debt and are generating $200 million plus of cash every year. If I look at the cash to price multiple, even just looking at that, we're such a steal, right? Because we're really good at producing cash. We've been really good at improving our margins. And again, we have a super solid balance sheet. So despite that, we are very careful with our kind of CapEx, and we're not going to spend it if we don't think it's going to give a really good payback.

Great. And maybe just to close, if you had to give investors one key takeaway on Boston Beer's trajectory over the next few years, what would that be?

I go back to what I just said is like strong balance sheet, no debt, 40 years proven record of being the best innovative company in the most profitable spirits market in the world. I just think it's the right place to be. Everybody in this conference, all our competitors have talked about beyond beer, how do you get in beyond beer, how do you get innovation, how expensive it is to buy companies. We're doing it ourselves. We're the leader in beyond beer. We have the best distributor relationships. If you want to play in the U.S. market, I think we're the right place.

Great. All right. With that, we are just at time. Thank you, Diego, for the time, and thank you, everyone, in the room for joining.

Good afternoon, everyone. So thanks for joining us today. It's a pleasure to introduce the last speaker of our conference this year, Jim Cook, who is the Co-Founder and Chairman of the Boston Beer Company.

It's been another an exciting and challenging year for Boston Beer as the company drives growth and innovation in Beyond Beer, one of the fastest-growing alcohol segments, led by its fast-growing Sun Cruiser brand while navigating a return to long-term sustainable growth by stabilizing Twisted Tea and Truly. Now not forgetting its roots, Boston Beer also sees areas of opportunity to drive growth beyond its core Sam Adams, Angry Orchard and Dogfish Head brands, which remain an important part of Sam's portfolio.

So with that, I'm very pleased to welcome Jim back to our event. So thank you, Jim.

Thank you for having me.

Just trying to think how many years it's been for you. Thank you. I should have known it.

I believe 20.

I was thinking maybe more, but yes.

You guys Goldman took us public in 1996.

And we've been doing this conference long before me. So thank you.

Whenever you ask, we've showed up.

I appreciate it. I'm glad we get to have a beer. Okay. All right. So I wanted to kick things off with, I guess, a big picture on the landscape in beer. You just had your earnings a couple of weeks ago, and I would say that there were some encouraging signs about the category during Q1. And then I kind of want to frame that in the context of your portfolio.

But could you first talk to some of the early signs of improvement we've been seeing with the category this year through Q1? But to be honest, things seem to have not been going so well in April, maybe a little bit in May. Any idea as to what's going on there? And then kind of frame that within your portfolio.

Okay. So we -- when we look at the category, we have -- and the growth of it, we define it a little differently because for us, we put RTDs in with beer because they actually -- while they're spirits-based, they operate in the real world through the channels as beer does. They're in the beer cooler, they're about the ABV of beer. They're largely in beer occasions. They go through beer wholesalers. So -- and you can make -- they tend to be made in a brewery, not in a distillery. So to us, they operate like beer.

We put that in with the overall beer category, which means for us, we view our sort of addressable market as a couple of points better than the overall beer category. And for us, the trends have improved a little bit. We were down 6% in the first quarter of last year and down 4% year-to-date. But the whole category got a whole lot better. Last year, we actually gained share relative to beer. This year, we're losing share. So we were -- I mean, we put a good face on it, but that did not meet our expectations.

What do you think some of the drivers of that were, Jim? And then from a strategic perspective, are there changes that you're making?

Not fundamentally. I mean, we've always recognized that growth is not cheap, and we view ourselves as a growth company. And we are willing to invest for the long term. What -- and now we're seeing the growth not happening in the traditional beer market. It's happening in what people call -- there's a bunch of names. It's beyond beer. I like to think of it, I call it the fourth category because not just beyond beer, it's beyond liquor, it's beyond wine.

And for us, that's attractive because you can innovate in that environment. It creates opportunities that might -- I mean, to me, traditional beer -- and I think I said this at a conference 10 years ago and people thought I was a trader, but I said traditional beer is not going to grow again in our lifetime. And it hasn't.

I know.

But there are these other opportunities, and that's what we've been focusing on. I started with Sam Adams, we're the Boston Beer Company. Beer is our middle name. But today, beer is 15% of our volume. And we've, over all these years, gotten to where we are by finding opportunities.

All of them, they have some characteristics in common. One is they taste good. And we spend a lot of time on the flavor developments. And the second is they're premium products and have higher margins. So that's our niche is developing against those.

To that point on premiumization, I do feel like that's been one of the areas in broader, whether it's beer, beyond beer, the premiumization opportunities, which I think is still happening, but maybe not to the same degree as what we saw.

Almost. Within beer itself, you're right. All the growth has been in craft and imports for decades. But if you factor in the RTD opportunities, if you do well there, as we saw with our friends at Anheuser-Busch, it has a certain amount of magic to it.

And when you're talking about premiumization -- and you've probably seen this, but here is a great example of it. This is LYTT. It's obviously, not anything you've seen before, comes in a lightbulb. It's 15% alcohol. It's about 7 ounces here. And so -- and they sell for $3.99. So it's -- we will see.

We just announced that. For those listening, it's a 7-ounce shaped like a lightbulb.

Very high flavor intensity.

Glows in the dark, I believe, right? The packaging.

And it's resealable. There's [ buzzballs ].

It is.

But you open it, and you can't reseal it. These, you can reseal, you can recycle them and it's very flavor intensive. So we'll see, but I think it's -- so it sells for -- on a case equivalent basis, 2.5x, even something like Truly or Hard Seltzer. So yes, premiumization is still out there and possible. I think consumers will pay for this.

And just in time for the summer, so that's rolling out.

These are for your children.

Oh yes. Thank you.

No, it's not for you, Bonnie.

No, no. All right. Well, or me. Thank you. That's exciting. So we'll see how that does.

Let's see how your kids like it.

Yes. I will, and I'll report back. So in terms of the beer category, more recently, you are seeing a slowdown. How would you -- or how are you seeing within Beyond Beer? Are you also -- at least I'm thinking of the scanner data, we are seeing just kind of a broad slowdown, whether it's April and May. Any thoughts as to what's driving that, other than maybe gas prices, the pressures on the consumer?

I don't know. I guess I'm the wrong person to ask. These are all like noise. I mean, I'm really worried about how is the year going to end, but it's hard to read these tea leaves. I like to try to stay focused on bigger picture.

What you can control.

Yes, exactly.

Well, then let's talk about heading into the summer. We've got Memorial Day around the corner. We've got a couple of events, whether it's World Cup and then our country's 250th anniversary. I think about that as more drinking occasions. What is it, I don't know, specifically that you're doing to kind of leverage these upcoming events? And how are you thinking about that?

Yes. I guess we look at it, I don't think there's going to be a burst of consumption. It would be a big deal if it went up 1%. We look at it differently. What we're looking at is they changed the retailers' strategies and approaches.

So for us, we think the World Cup will be important for Truly because we're -- but it will happen because we're sponsoring them and the soccer team. So -- and that will give the retailers a reason to put Truly on the floor. That will drive Truly volume. Not the World Cup per se, but the fact that given our sponsorship, our teams, the POS, the retailers now have a reason to build a big stack of Truly instead of White Claw.

So that -- and from our consumer research, White Claw is more top of mind. Truly sells. We do a BOGO at Publix, it's enormous. But we're not as top of mind as we would like to be. So we'll use the World Cup really as a way to get displays. The same thing with Sam Adams. What beer are you going to put on the floor for America 250? It's not going to be Corona. So this -- so we look at it from the retailers' lens backwards.

Okay. Speaking of Truly because I know that's a big initiative and focus for you, and it has been to stabilize the brand. To be honest, are we -- it's in decline. Is it 3 or 4 years now, I believe, of the decline?

Yes. Almost 4.

And what, I don't know, structural changes are you maybe making to this brand and to have it better compete against some of the spirit-based RTDs? And then in conjunction with that, I definitely want to get into the topic of increased advertising spend and investments, the cost of growth. At what point do you make the decision potentially to kind of pull back maybe on spend levels behind Truly?

Sure. Truly continues to be important in our portfolio. Fortunately, it's a big enough brand. It's important to our wholesalers and our retailers, so they would like to see it stabilize. And it's hard for us to grow as a company. Truly is declining mid-teens.

So it's -- I don't have -- but I'll be honest, I don't have an answer. We're trying to sort out -- is there some -- there's nothing fundamentally wrong with the brand, but White Claw has become kind of the default brand in that category. So we're trying to figure out, do we differentiate ourselves in some way? Obviously, the World Cup sponsorship will help, but that doesn't fix any problems. That just gives us a little more time. So we're trying to understand that. And we -- honestly, we failed to do so in the last 4 years.

I know. And we talked about this. For a few -- you've changed the flavor profile. You've leaned in, but that hasn't necessarily been enough. So you haven't discovered maybe what it is that's not resonating and keep working at it, I guess.

All right. So then is there a decision that you're making in terms of the dollars spent behind Truly? Because I know you're still stepping up incremental advertising. Is there going to be less money focused towards Truly and more on behind Sun Cruiser, maybe LYTT?

Well we look at our advertising spend differently. Basically, I mean, we're advertising against the creative content that we're putting on that media. So we don't say, well, Truly is going to get this much money because it's this percent of our volume and we have these goals.

We basically have -- I mean, today, you can get pretty good data about is the advertising actually working. In all the direct-to-consumer stuff, it's very, very good. In businesses, consumer products, less good because it goes through these other channels. But just in the last year or 2, a few problems have been solved by -- that allow you to get all the way to the consumer and see if an exposure to the ad changed their purchase behavior.

Because now different players here are integrating loyalty card data with the IP address. And so you know what social and digital went into that home. You know their IP address, and you've got loyalty card data. And then AI allows you to set up a control group not exposed to the ads. And you can actually get similar to DT to DTC data on, all right, how much did this ad cost to serve it to these 10,000 IP addresses and how much did the purchase behavior change?

So that gives us a much better -- and we've been working on this for 12 years. So we -- basically, we advertise against creative that works on media that works, and we are somewhat brand-agnostic.

Okay. So you feel like with these capabilities, maybe you're getting smarter, more efficient. And then ultimately, as you step up advertising spend, I think the goal is to drive accelerated top line growth. But how do you eventually kind of balance that with being able to deliver on the bottom line, the cost of growth?

We're starting to get better ROI. I mean, all right, we spent this much, $1 million on social digital on Truly. What purchase change did we get? I mean, frankly, the answer has been so far, not much. And we've taken over the last 3 years, a lot of the advertising off of Truly and put it against Twisted Tea where it worked and Sun Cruiser where it worked.

Okay. I want to go to your guidance. You made the decision recently during your Q1 call to narrow your volume range to down low-single digits to mid-single digits. It prior was flat to down mid-single digits. So just trying to understand if that reflects in part you sort of being prudent or the environment that we're seeing today with the broader consumer and maybe the broader category? And then what would need to happen to put you at the low end of that range? And then how realistic would it -- I know. Better. Yes.

Yes. I'll answer your first question. It was somewhat prudence, but it was -- to be honest, we were disappointed by where we were. So in that sense, it was prudent to sort of tweak it a little bit. What would have to happen would be -- I mean, there's a number of different pathways. One would be that being more visible with Truly over the summer begins to mitigate the declines, like maybe. It would have to -- I mean cutting them at half would by itself get us closer. That's one possibility.

We're -- Sun Cruiser is continuing to grow triple digits. It's the fastest growing RTD right now. And I think right now, it's the #4 RTD in 2 years from nothing. So for me, that's been a -- more than just the volume, it's been an affirmation of our innovation capabilities to continue to develop meaningful innovation. We're sort of counting on that growth diminishing, but coming in fairly high. So I mean, that's all happening.

I guess the other thing would be we're working -- and we're working on Twisted Tea and trying to reduce the declines there. And Twisted Tea, it's a big number. It's our biggest brand by far. We're throwing a lot against it. We've got new packages, both at the 24 unit value pack and then a 4x16 unit that hits a $9.99 price point for the Dollar Store. So for both of those things, we actually increased our distribution points and the resets because of the success of Twisted Tea Extreme. So we got new points of distribution for that and really didn't lose much because Truly is still pretty big brand. We're reinforcing some of our sort of more blue-collar base with NASCAR, with Barstool Sports, with Stagecoach and with Realtree Camo, so refreshing that base.

So there's a bunch of things, but -- and adjusting our price point. Some markets, it's priced at Stella pricing, which kind of was growing 25% a year. Everybody, including the distributors and the retailers, pushed their margins up. So we're couponing some of that back. So there's a bunch of tactical things with Twisted Tea.

And at the end of the day, our share of hard tea -- well, Twisted Tea and Sun Cruiser is actually up a little at better margins and better pricing. So again, Twisted Tea, the decline is mitigating significantly, that would do it. And then we haven't really factored in the innovations like Sinless, which is a vodka cocktail. And then LYTT was just announced yesterday. So we haven't factored those in, either one of those.

That's not even -- that could be upside on. So when I think about the high end of your guidance, which is down, right, low single digits. So your point is if Truly declines or, I don't know, cut in half and then Twisted declines or mitigated or stabilized, then you could hit that in addition to...

I mean if all 3 of those hit, we could be positive.

Okay. Have you -- in the context of all this, okay, I guess -- if I go back, maybe I should go back to like Twisted Tea because like you mentioned that it's interesting because now it is your largest brand. It wasn't so long ago that Truly was. And put together, they are still very big.

And then you touched on this, and I definitely want to get into Sun Cruiser and the amazing success you've had there. Is that, I assume, also contributing to some of the pressure you've seen on Twisted, meaning it's cannibalizing to some extent?

Yes.

Right?

It's cannibal -- yes. The answer is yes. It's cannibalizing it in a funny way. It's harder to see in the data because when you think you're cannibalizing, you think, well, somebody is drinking Twisted Tea and now they're drinking Sun Cruiser. That's only like 20% of the decline in Twisted Tea. But it's been -- it's more subtle than that, I think.

What the advent of vodka tea did is allow people to question, well, what's Truly made out of? And then that's like, oh, it's malt. People don't know what malt is. And the only thing they know is malt liquor. And it's -- oh, so this is malt liquor with tea. So it, in a way, depositioned Twisted Tea as having an inferior ingredient. Yes, that would be my theory of what's happening.

No, that's interesting. That could very well be without the understanding from the consumer. Yes. In terms of Twisted Tea innovations, you touched on both Extreme and Light. How have they been contributing right now? And then do you think to some extent, those can create a halo effect just for, I don't know, the Twisted Tea family based on potential success of those innovations?

Yes. The answer is yes, but probably only at the retailer and the wholesaler level, where it's important. I'm not -- I don't see it tailing for the consumer. But for the retailer, it's like, oh, all right, it's an important brand. It's generating -- I mean, Twisted Tea Extreme is triple-digit growth. So we got more shelf space this year than we had last year.

For's Twisted, right?

For Twisted.

Okay. So it's interesting as I sit here, we've been talking about Twisted for a number of years. And within reason, you were sort of the only player, right? And you crave the category and their success. So of course, what happens? Competition.

Well it's not the FMB. No. Yes, it brought in competition. None of it stuck. I mean, when it brought in Arizona, not a factor. It brought in Lipton, not a factor. It brought in Monster, not a factor. So probably, there's one other one other, brought in AB with Hoop Tea.

Yes, that's right.

Not a factor. Oh, New Belgium with Hardcharged. None of those have really stuck. I wouldn't be surprised if today, our percent of the FMB tea is bigger than it was 2 years ago. It's really the, a, the depositioning; and b, the vodka tea, I think.

Okay. That makes sense. And so is there more innovation coming on Twisted, other than what you've announced potentially in the back end?

Nothing in the pipeline, but it will probably happen. I don't know what it will be.

And then you mentioned this a little bit, this spring for shelf space, that you've got more space for Twisted. Remind us, I think you said you expect slightly or to slightly increase your shelf space this spring. That's happening in total? And primarily, is that -- is it for across the board? Or is it more Twisted?

It's Sun Cruiser, Twisted Tea Extreme, a few other -- a little more cider.

Is it -- but then is Truly losing, but total company is [ up ]?

Yes. Total company is up. Truly is losing.

And was that in line with your internal expectations? Or did that surprise you a little? I mean, in totality, that you were thinking?

Pleasantly surprised that we were up.

Okay. All right.

I think we were 1 of 3 suppliers at Walmart that got more shelf space because -- I mean, beer shelf space is under a lot of pressure.

Yes. Yes, which is, I guess, understandable given what we talked about with the category. You touched on Sinless. Can you share a little bit more about Sinless vodka cocktails? What do you see as the opportunity for the brand?

Yes. it's -- what it offers to the consumer is you can have a vodka cocktail instead of a cosmo or something like that in a bar. You know you're only getting 100 calories. You know you're getting no carbs, no sugar. And you know how much alcohol you're getting in. You don't have a bartender free pouring, and you end up with 2 shots in there and don't expect it.

So those are the -- and then that's on-premise. And off-premise is portable. You can take it. It's hard to have a mixed drink on the beach. You don't bring it, but there's a lot of people that want that experience. So that's what it offers. It kind of fits in with no sugar, healthier, portable, convenient. We'll see.

You touched on on-premise channel. How is that channel been trending so far this year? And do you still see that as a big opportunity for some of the brands that we've been talking about?

Yes. We're up on-premise, sort of low- to mid-single digits. So -- and that's always been a strength for us. And we believe that's where brands are built. So Sun Cruiser, in its most successful markets, is 30%, sometimes 40% on-premise. So that's -- I mean, 5 years ago, I would have said it can't happen. Why would a bar sell a $6, $7 vodka tea instead of pouring it from their well of vodka and having it cheaper and being able to start a premium?

But the on-premise places have been surprisingly receptive to it, partly because labor costs are higher, harder to find good bartenders. And they make all the money on those nights when they're just cranking and they got 2 bartenders. And they can put a dozen Sun Cruisers on the service tray in the time it takes them to do 2 mixed drinks. So they -- and consumers have been very accepting of it, and it's much more controllable. You know what your costs are going to be, how much they're putting in the drink and those things. So I've been surprised that retail -- the on-premise accounts have not been resistant.

Yes. No, that's interesting. And I definitely want to talk a little bit more about Sun Cruiser because it really has been a standout, another one from you. since the launch 2 years ago. So what is your outlook for Sun Cruiser's performance? I mean if we're sitting here, I don't know, 2, 3 years from now, is this going to be one of your bigger brands in your portfolio?

It's a good question. I don't -- I see -- look, the answer is probably not -- it's not going to be Twisted Tea. It's not going to be Hard Seltzer. I think what we're seeing is when you get into beyond beer, where there's exciting growth, it's also very fragmented.

So we're -- there may never be, again, something like Bud Light was in its heyday, where it had 20-plus percent of the market. We're going into a more of a liquor world. I mean, I don't know what's the biggest liquor brand, Fireball or Tito's. I think they have 6%, something like that. So I don't -- as we -- as things premiumize, they fragment.

So to that point, I mean, some innovation. So should we expect in the next 2, 3 years, just more innovation or organic growth from you? And/or would you consider M&A ever?

Probably not. This was a unique -- I mean, Sam and I have been friends for a long time. He brought a lot of cultural stuff. And he was willing to take a lower price, and we were probably willing to pay more. But that one worked for a bunch of intangibles.

I guess my view of it is when these brands come up, it's an auction. All right. So you know what your odds are in an auction. The winner is going to be the seller 80% of the time. The loser is going to be the buyer 80% of the time. So -- and we're not set up to do that. We don't have M&A capabilities, post-merger integration.

What we do have is, I believe, unmatched innovation capabilities. We are built for that. We've structured. We have different kind of people in place. I could go on. But -- so for us, that's the most efficient way of doing it.

Yes. That honestly makes sense. And again, we'll see, and you've had great success. Your track record is incredible. So in terms of gross margins, kind of switching gears again, you recently maintained your margin guidance of 48% to 50%. But now we talked about you do see a little bit more downside risk on volumes this year. So just trying to understand the confidence you have in achieving that gross margin range, especially in light of rising cost of oil and everything else?

So far, we're pretty confident. I mean, we have a plan and agenda. The savings are coming in as we expected. And I think we -- our supply chain people have done a great job and our finance people have done a great job of bringing those savings in. And I see them continuing for this year.

But I mean, who the hell knows? They could start bombing everything in sight in the Persian Gulf. And we could lose whatever it is, 13 million barrels of oil a day, all the -- 10% of the -- 20% of natural gas and 10% of the aluminum. If all -- all bets are off if that happens.

Yes, that's -- and you don't hedge, right? So there's some...

We don't hedge.

All right. We have a couple of minutes left, and I wanted to ask my final question for you is I would love to hear your thoughts about the broader consolidation trends in this challenging industry. For example, Brown-Forman, what an iconic American company, fifth generation of family involvement. In discussions recently, may or may not still be in discussions with Pernod, a French company.

So do you think that this is just an acknowledgment that it's really difficult to go it alone when the pie is shrinking and not growing? How do you think about that for the broader alcohol industry? Think about for your company.

Yes. That's kind of out there in the stratosphere with me. I mean, it's just a normal evolution when the pie is not growing and people need EPS growth out of it, you merge, you strip out overhead. That's a smart thing to do.

I guess our view just for Boston Beer, which is what I know about, I mean, I believe we're in a unique position in the beer industry in that we are big enough to have the capabilities that we need to succeed. We're important to our distributors. We're important to retailers. And we have internal scale and capabilities against the things that matter to us. We have the largest sales force in the beer business, which gets us into -- we can execute on-premise because retailers -- I mean, because distributors don't really do that, but we've got salespeople that go into bars.

And we've got a very large innovation capability. It's not just 1 or 2 people anymore. There's -- it's a fairly big effort. So we are at scale in the things that we need to be at scale. And I believe we have a different culture. And I started my career working for big companies many years ago at BCG, and I realized that they're culturally handicapped in lots of ways. And so I don't know that we would be better off inside of a corporate culture.

Okay. That's helpful and interesting. Well, best of luck, Jim. So nice seeing you. And thank you again for your time. Appreciate it.

Always a pleasure. You always have good questions.

Yes. Well, thanks. Nice seeing you. Thanks, Jim. Thanks, everyone, for joining us today.

Welcome. This is Mike Andrews, Associate General Counsel and Corporate Secretary of the Boston Beer Company. I'm pleased to kick off our 2026 first quarter earnings call.

Joining the call from Boston Beer are Jim Koch, 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 reflect 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 10-Q and 10-K. 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 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 first quarter financial results and our financial outlook for the remainder of 2026. Immediately following Diego's comments, we will open the line for questions.

In the first quarter, we were encouraged to see some signs of improvement in the total beer and RTD category, which we estimate was flat in volume compared to a decline of 4% for the full year of 2025. Beyond beer continues to outperform traditional beer in volume in measured off-premise channels with an increase of about 3% for the quarter compared to traditional beer, which slightly declined. While these trends represent modest industry progress we continue to anticipate volume headwinds for 2026, given a dynamic macroeconomic environment and evolving geopolitical developments that may impact consumer spending.

With respect to the Boston Beer portfolio, we have not yet fully participated in the improvement in category trends. We are encouraged that Twisted Tea and Sun Cruiser together are growing depletions driven by the strong performance of Sun Cruiser and some sequential improvement in Twisted Tea. Angry Orchard and Dogfish Head have now experienced 4 consecutive quarters of growth. However, truly remains a meaningful portion of our mix and continues to lose share, and we've also seen some softness in Samuel Adams and Hard Mtn Dew. Our first quarter depletions were down 4%. As we expected, shipments trailed depletions are down 7% and reflecting first quarter 2025 shipments comparisons when distributors built inventory for our Sun Cruiser and truly unruly innovations.

Additionally, improvements in the responsiveness of our supply chain to meet consumer demand led to moderately lower distributor inventory of 4.5 weeks on hand at the end of the quarter versus 5 weeks on hand in the prior year period. We continue to make strong progress on our margin enhancement initiatives, delivering 49.3% first quarter gross margin and we're on track to achieve our planned full year 2026 savings. The business is generating strong cash flow, and we have repurchased over $30 million in shares year-to-date. Our priorities for 2026 continue to be supporting our category-leading brands to improve market share trends, launching strong innovation and continuing to expand our gross margins we remain focused on controlling what we can control and executing in the marketplace, and I'm confident in our operating plans for the key summer selling season, incremental advertising support for our brands following a significant step-up in 2025 is on track while maintaining flexibility to adjust toward the lower end of our financial guidance range of brand investments as we monitor the energy cost environment. With respect to our full year outlook, we expect the factors that I discussed on our last call, including tighter consumer budgets, pressure on the Hispanic consumer and moderation trends to continue.

Based on year-to-date depletion trends and our latest outlook for the balance of the year, we are slightly narrowing our 2026 volume range to down low single digits to mid-single digits from our prior guidance of flat to down mid-single digits.

As we look to the summer, we're highly focused on executing our marketing plans with strong partnerships programming for the U.S. men's soccer team during the World Cup and local market activations. We expect to slightly increase our total portfolio shelf space this spring while we continue to make progress on regaining lost display space.

I'll now provide an overview of our brand performance and plans. As I mentioned on our last call, a key priority for 2026 is to improve share trends and grow volume in the Hard Tea category through progress in Twisted Tea and the continued expansion of Sun Cruiser. On a combined basis, Twisted Tea and Sun Cruiser delivered depletion volume growth in the first quarter.

As a reminder, to the extent that Sun Cruiser sources volume from Twisted Tea, this is revenue and margin accretive for us. Twisted Tea off-premise measured channel depletion trends improved sequentially in the first quarter but are not yet where we want them to be measured channel sales dollars declined 4% in the quarter compared to a decline of 9% in the fourth quarter against more difficult prior year comparisons.

Twisted Tea continued to gain distribution and shelf space with lower velocities, reflecting broader category headwinds reduced feature and display activity primarily due to the expansion of our TD spirits and some interactions with spirit-based RT.

The declines are primarily concentrated in the original lemon tea and variety packs, particularly in 12 pack sizes, as previously discussed. Encouragingly, Twisted Tea Extreme and Twisted Tea Light are both growing and gain shelf space in the spring resets, we're seeing much better trends in single-serve across the full brand portfolio with -- which indicates continued consumer engagement with the Twisted Tea brand.

So far this year, we've increased advertising investment, added new partnerships and launched new pack sizes and Twisted Tea Extreme flavor innovation. This summer, we'll be running our high-performing Tea Drop national ads complemented with in-store display programs and always on media for Twisted Tea Extreme and Twisted Tea Light. We've expanded partnerships, including bar stools #1 sports podcast, Pardon My Take, and with [ Realtree Camel ].

Lastly, we continue to increase our investment in Hispanic and Hispanic language brand content, including new media and digital content to continue to widen the brand's appeal. Our pack size innovations, including lower price 0.4 packs, a 16 ounce can and a 24 can value pack and the Twisted Tea extreme variety pack are now in market. While it is still early, we believe these offerings will continue to provide more options for consumers to engage with the brand and benefit volumes over time.

Sun Cruiser has quickly grown to a top 5 spirits RTDs and is the fastest-growing brand in the category by volume across combined measured and off-premise channels. built in bars and restaurants, Sun Cruiser is the leading RTD spirits, tea and lemonade brand in the measured on-premise channels on-premise remains a key driver of trial, and we are investing in the channel alongside our off-premise expansion.

We expect strong distribution gains for Sun Cruiser in 2026 and but continue to expect measured off-channel off-premise data coverage to be lower versus our other brands due to Sun Cruiser's strong premise in on-premise and independence. Advertising support for Sun Cruiser includes content around the Let The Good Times Cruise media campaign, which includes television, paid social and digital advertising and key influencers.

We will be present here Sun Cruiser fits into our drinkers lifestyles with a particular focus on music and sports. And we recently announced a multiyear USGA partnership making Sun Cruiser the official ready-to-drink cocktail of 2 of golf's most noticeable championships, the U.S. Open and the U.S. women's open.

The partnership goes live this spring and programming includes retail and tournament activation, golf media, influencers and experiential marketing programs as well as wholesaler incentives. Sun Cruiser will have continued media presence in sports, including the NCAA, the MOB, the NFL and sponsorship of numerous music concert series.

From an innovation perspective, we're maintaining a disciplined range of tea and lemonade styles while expanding package options, including new 19.2 ounce single-serve packages single-style APAC and tea and lemonade sampler 12 packs. We expect these offerings to broaden drinker occasions and support strong growth in 2026.

Turning to hard seltzer. The overall hard seltzer category has continued to improve and grew slightly in dollars and measured off-premise channels for the first quarter. Truly has maintained its #2 share position in the category. However, share trends remain challenged. Our effort to improve our share during 2026 and include investing in new equity building creative, capitalizing on the U.S. men's soccer team participating in the World Cup and continuing to expand truly an ruling.

We're continuing to build our communications platform of make our dreams come truly while leveraging our U.S. soccer partnership through our drink like a believer program. drink like a believer, commercial activities launched in May and have been well received by major retailers. The programming includes displays and a U.S. soccer collector set of singles along with the soccer-themed Star Squad Rotator 12-pack and 24 pack.

In addition, we will have significant local media and retail programming investment in the 11 host cities. High ABV offerings continue to be a growth driver in hard seltzer and Truly Unruly continues to grow both volume and distribution as our second highest volume 12-pack.

In cider, Angry Orchard continues to grow, supported by new positioning, refreshed creative and strong retail programming, including our St. Patrick's Day themed promotions and displays in the first quarter. The new Angry Orchard Crisp Imperial 19.2 single-serve cans are a growth driver for the brand and overall Crisp Imperial volume has increased more than 40% in the first quarter in measured off-premise channels.

For our Samuel Adams brand, we have recently updated our brand messaging around independent since forever and are excited to celebrate America's and 50th anniversary this summer. To support our Drink Like At 1776 retail programming and promotions, we have launched limited edition retro packaging. For our Dogfish Head brand, which returned to growth in 2025 and has grown for 4 consecutive quarters, we continue to expand Dogfish Head's Grateful Dead beer collaboration and invest behind the Minute series IPAs.

Turning to innovation. We continue to prioritize high-growth margin accretive opportunities. Our sinless vodka cocktails our full flavored spirit-based cocktails with zero sugar and zero carbs. With approximately 100 calories per can, it is positioned as guilty flavor free of sugar and carbs and targets incremental consumer segments that complement our core brand portfolio.

Sinless was tested in a small number of states in 2025. We and expanded to more than 30 states in March. Sinless is in the early stages of launch and initial feedback from wholesalers, retailers and drinkers has been positive.

In closing, I'm encouraged to see modest improvements in category trends. While the macroeconomic environment remains dynamic, we are focused on executing our operating plans for the upcoming summer season. We're acting with urgency to leverage the strengths of our brands, our innovation capabilities and our distributor relationships to improve performance and drive long-term value. I'd like to thank our Boston Beer Company team and our distributors and retailers for their continued support.

I'll now pass the call to Diego for a detailed review of the first quarter and our 2026 guidance.

Thank you, Jim. Good afternoon, everyone. Depletions in the first quarter decreased 4% and shipments decreased 6.9% compared to the first quarter of last year. primarily driven by decreases in our Twisted Tea, Truly, Sam Adams and Hard Mtn Dew brands, partially offset by the increases in our Sun Cruiser, Angry Orchard and Blackfish Head brands.

Consistent with our plans, shipments declined at a higher rate than depletions in the quarter, with shipments lapping strong growth in the prior year to load innovation. Distributor inventories at the end of the quarter was 4.5 weeks on hand, which was approximately 0.5 of a week lower compared to the end of the quarter last year. This decrease in distributor inventory was due to the timing of innovation and supply chain improvements, as Jim mentioned earlier.

Revenue for the quarter decreased 4.4% due to lower volume, partially offset by price increases and favorable product mix. Our first quarter gross margin of 49.3% increased 100 basis points year-over-year. Gross margin performance primarily benefited from procurement savings and brewery efficiencies. A positive impact of pricing and product mix were offset by inflationary commodities and tariff costs.

Advertising, promotional and selling expenses for the first quarter of 2026 increased $2.5 million or 1.8% year-over-year due to higher freight rates, partially offset by lower volumes. Brand investment were flat, lapping mid-teens increases in advertising investments in the first quarter of 2025.

General and administrative expenses increased $4.4 million or 9.1% year-over-year. Excluding legal costs related to the onetime litigation expense, general and administrative expenses increased by $0.4 million from the first quarter of 2025, primarily due to increased consulting costs. We recorded $216 million in total pretax litigation expenses in the quarter.

As we previously disclosed, this amount is related to a supplier contract dispute, and we intend to pursue all available post-trial motions and appellate remedies. We cannot estimate when or if damages or interest will ultimately be paid, but do not expect this issue to have a material impact on our operating plans. The total impact of these litigation expenses represented a $15.52 impact to our first quarter GAAP EPS. Excluding the litigation-related expenses, we reported non-GAAP EPS of $1.64 per diluted share.

Now I'd like to provide an update on our ongoing productivity initiatives. We continue to make progress and are on track to deliver our 2026 savings target. As I noted on our fourth quarter call, we expect year-over-year gross margin improvement in 2026, although at a lower rate than that of 2025, given strong performance in 2025.

We believe the multiyear operational improvements that we have made in our supply chain better positions us to manage variability in volume, product mix and the tariff and commodity environment. For the remainder of 2026 and beyond, we continue to expect contribution from all 4 savings bucket.

As I discussed on the last quarter call, I'll now provide some highlights on our initiatives in each bucket. In brewery performance, we continue to see improvements in OEEs driven by process improvements, which helped to increase our internal production capacity.

In the first quarter, we produced 95% of our domestic volume internally compared to 85% in the first quarter of last year. For the full year 2026, we continue to estimate domestic internal production will be over 90% compared to 86% last year. In procurement savings, our first quarter results benefited from lower negotiated pricing on certain packaging and ingredients.

As discussed previously, procurement savings have been a significant contributor to our gross margin improvements over the last 2 years. While we expect some continued benefits in 2026, the impact is expected to moderate versus 2025. In waste and network optimization, we're continuing to enhance our customer ordering and inventory management system. These efforts helped us achieve high customer service levels, lower inventories and improved our cash flow.

In addition, we reduced obsolete inventories 36% in the first quarter. Revenue management capabilities were added this year as part of our margin agenda. These efforts are in the early stages in 2026 with a more meaningful contribution expected in 2027.

Turning to our 2026 guidance. As Jim mentioned earlier, our volume guidance range of down low single digits to down mid-single digits reflect year-to-date depletions and market share performance. and our latest outlook for the balance of the year. Fiscal week depletion trends for the first 17 weeks of 2026 have declined 4% year-over-year, a sequential improvement from down 6% in the fourth quarter of 2025.

As a reminder, the summer selling season is a significant driver of our full year volume performance and we will have more visibility on market trends as we move through the summer. Since our last earnings call, we are seeing additional inflation in energy and aluminum that could impact the balance of the year. We do not hedge commodities and are closely watching recent market cost increases driven by macroeconomic factors.

As a result of these 2 factors, we are narrowing our full year non-GAAP EPS guidance to $8.50. Two, $10.50 from our prior guidance of $8.50 to $11. This EPS outlook embeds our latest volume and energy cost projections as well as productivity and cost mitigation efforts. We also expect to maintain flexibility to reduce incremental advertising spending if needed to offset further headwinds on from the macroeconomic cost pressure. We will update our EPS outlook if commodity inflation continues to increase. We continue to expect price increases of between 1% and 2% and some additional benefit from mix. We continue to expect full year 2026 reported gross margins to be between 48% and 50%.

Our outlook expects tailwinds from positive pricing, favorable product mix, productivity savings and lower shortfall fees with headwinds from tariffs and commodity inflation. As a reminder, the majority of our freight expense is booked in advertising, promotional and selling expenses. Our 2026 guidance reflects a full year tariff cost estimate of $20 million to $30 million versus a partial year in 2025 of $11 million. These tariff cost estimates are based upon tariffs that we are currently being charged by our suppliers and that what we expect to continue going forward. We continue to estimate that our investments in advertising, promotional and selling expenses will increase between $20 million and $40 million. This amount does not include any changes in freight costs for the shipment of products to our distributors.

As I mentioned earlier, we may choose to spend at the lower end of the range, depending on the commodity and energy cost environment. We are estimating our full year 2026 non-GAAP effective tax rate to be approximately 29% to 30%. 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, in the fourth quarter, typically our lowest absolute gross margin rate of the year.

We expect first half shipments to decline toward the lower end of our full year volume guidance with better shipment performance later in the year. This is due to higher shipment comparisons in the first half of the year as the company shipped ahead of depletions in 2025 to support innovation and build distributor inventories as well as 2026 innovation launches, which are second half weighted.

Additionally, improvements in the company's supply chain responsiveness that enables modestly lower distribution inventory levels are expected to have a more meaningful impact on the first half and begin to be lapped throughout the second half.

During the full year 2026, we estimate shortfall fees and noncash expenses of third-party productions prepayments in total will negatively impact gross margin at 40 to 60 basis points. We expect year-over-year gross margin rate improvements to be the 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 season.

Turning to capital allocation. We ended the quarter with a cash balance of $164 million and $150 million of availability on our line of credit. These balances together with our projected future operating cash flow, enables us to maintain operating investments in our business and cash returns to shareholders as well as the potential litigation-related payments. We expect capital expenditures of between $70 million and $90 million in 2026. These investments will be primarily related to our own breweries to build capabilities improve efficiencies and support innovation. We will continue to be disciplined in our capital spending as we monitor the dynamic industry environment over the long term.

During the 13-week period ended March 28, 2026, and the period from March 30, 2026 through April 24, 2026, we repurchased shares in the amount of $23.8 million and $7.4 million. As of April 24, 2026, we had approximately $197 million remaining on the $1.6 billion repurchase authorization. This concludes our prepared remarks.

And now we'll open the line for questions.

[Operator Instructions]. And the first question comes from the line of Eric Serotta with Morgan Stanley.

Great. Thanks so much for the question. Good afternoon, everyone. Jim, I wanted to get your perspective on twisted from here. You made a number of innovation a number of interventions last year, including some selective pricing adjustments or certain packs in certain channels. The brand still seems to be stubbornly declining. Can you talk about how you're looking at the outlook from here? I know you talked about some innovation and packaging new packaging coming. But do you think you need something sort of a little bit more of a reset or something a little bit more I want to say, drastic or extreme, but more expensive to get the brand back to where you want to need it to be?

Yes. There's not -- to answer your question, I don't think it needs a drastic reset, but it does need some levers. What I think is going on is the success and the rise of vodka-based teas has certainly eaten into the Truly volume. No question about it.

It's happened in a bunch of ways. One is it took a lot of display space in for in the first half of 2025. We were getting significant display space for Twisted Tea. We lost some of that last summer to sort of the new shiny penny which was brands like Sun Cruiser and Surfside. And in total, our Twisted Tea and Sun Cruiser volume is actually up this year. And of course -- but the shift is -- we lost volume in Twisted Tea, made it up in Sun Cruiser which happens to be margin and revenue accretive in that shift.

So our volume in hard teas actually up a little bit. but there is movement from FMB, like Twisted Tea to Sun Cruiser and Surfside in the vodka-based teas. What we're doing with Twisted Tea, there's a bunch of sort of smaller levers. One of them is trying to reset some of the pricing in the markets where it's up at Stella pricing or Modelo pricing, and it's traditionally lived a little bit below F&B pricing because of a more kind of blue collar but upscale blue collar clientele for Twist and tea.

Second, we've actually gained shelf space for Twisted Tea in the resets. And a lot of that went to Twist Extreme, which is growing triple digits. Then we are putting advertising, more advertising dollars into it and things that don't show up as advertising dollars like Pardon My Take, which is the #1 sports podcast in Barstool. So we're adding more advertising money and pushing it towards NASCAR, Realtree Camel, those kind of partnerships that refresh the our connection to our original or blue-collar drinker base for Twisted Tea.

And then we've introduced some new packs to give us a better price pack architecture, things like a 4 pack of 16-ounce for under $10 because even the 6-pack pricing has gotten over $10. So this gives us an entry point. And then at the other end of it for value, some 24 packs. So those are the things we're doing with it. And within F&B hard, I think Twisted Tea is holding or perhaps gaining share because the new entrants that have come in the last 5 years from like Monster and Belgium and even Lipton are kind of falling away. So those are the actions that we've taken by none of them is a drastic reset, but there's a bunch of tweaks.

And for Diego, look, your gross margin performance over the past year has really been in very impressive, especially in light of commodity pressure and some of the volume deleveraging. It looks like you're basically maintaining the gross margin guidance. for this year and the EPS guidance more or less despite the incremental costs since the war. Can you help us unpack some of the gross margin drivers from here? I know you don't give specific quantifications, but kind of order of magnitude what you're expecting for incremental cost headwinds, LME aluminum is quite is up quite a bit since the war, I believe you don't hedge. So if you could help us understand the moving pieces there would be great.

Yes, sure. So first of all, thanks for the comment. Look, our margin agenda, as always said, look, we think we can get high -- and the difference between high 40s and 50s is that to get to [ 50 ], you need the external kind of situation to kind of whether it's volume or geopolitical to help. And I think that's where we've gone to where we're still delivering the savings. But to your point, those savings are being used to offset some of the challenges that we have.

So if we look at Q1 for the moment, you can see that like just in aluminum for the quarter, which is a small volume quarter, we got like $4.3 million of aluminum tariff costs, which is the biggest piece of the tariffs. We also have some POS costs in there and some ingredients, we've been able to offset some of those. We think for the rest of the year, we'll be able to take our continuous agenda, which is procurement savings, brewery efficiencies, we're 95% in-house versus out of our production facilities.

And the other piece is the positive mix that Jim mentioned when we're talking about things like Sun Cruiser and some other innovations that we're launching this year that are accretive to our margins. All of those things are helping us offset some of these external pieces that have challenged our cost structure.

Now in order for us to actually improve our gross margin even less, what we need to do is maintain those opportunities and savings. And hopefully, as those headwinds disappear, hopefully, in the future, we'll be able to maintain those and that would be the only way we could drive our margin even higher.

The next question comes from the line of Robert Ottenstein with Evercore ISI.

This is Greg on for Robert. I just had a quick question about Sun Cruiser. Maybe if you could talk a bit about how the ACV and the brand's penetration differs between the East and the West Coast and sort of like as you build the brand across the country where you see the biggest opportunity still for TDP games.

Yes, it's strongest in New England. I mean it's been sort of game changing in some ways in New England. It's the size of twisted at a higher margin. So our distributors are quite delighted with the performance there. Mid-Atlantic is fairly strong. And you do see differences in penetration like Twisted Tea, the last major market was California, and it was almost 15 years behind New England. So there is that regional gap. And with Sun Cruiser you have the added complexity of the state tax rates and the distribution limitations because it's vodka based. So you have much bigger variations than we have with Twisted Tea and the states where you have to buy it from a state liquor store, like in New York for example. So it's not readily available cold. It's not in the same distribution channels in Texas. You have to go through a different class of distributors to get to the bars. So there's just much bigger in Washington State, there's a huge tax on any spirits-based products. So there's no really great potential like Washington State that we would have in Massachusetts or Connecticut. So there are these big differences. If you try to boil it down, I think we probably -- we do have ACV upside if we look at it versus high noon, which is highly developed, there is definite upside, maybe another 50% ACV. But we're -- and we were -- we did not pitch it to change this time last year. So we didn't get on the stats quick enough.

But now we are. And so we weren't on the shelves a year ago. but we had successful distribution drives this year. So in the shelf sets this year, there's going to be significantly more Sun cruiser and some of the chains we got 1 item, and now we're getting 3 or 4. So I see a nice bump in the next 3 or 4 months and then a long-term continued upside as the category gets more and more developed.

Our next question comes from the line of Peter Grom with UBS.

Great. So Jim, you touched on the category improvement. Can you maybe just give us a sense for how you see category growth evolving from here? And maybe just some perspective around why you think category trends are getting better?

Sure. With the kind of have a caveat. My crystal ball is no better than anybody else's. But we can look at the numbers so far this year. And there's been an improvement. It's -- there's no precise number we people don't agree on what's in the beer category. When you look at a lot of numbers, for example, hard ciders in there.

But overall, what we're seeing is when we look at traditional beer and hard cider, it's down this year, maybe 1.5%, something like that as opposed to 5, 5.5 last year. So that's a significant improvement. If I try to attribute that to something, I would say, that some of the big factors last year, like the health publicity. A year ago, we were reading about her causes cancer. Now we're hearing wait a minute. Beer is an important social lubricant an important element of sociability and it's a mitigation of the loneliness, epidemic and Dr. Als talked about it helps people and create social connections, and we know that there's more and more evidence that those social connections are an important part of longevity in beer is an important part of that, and the dietary guidelines came out and they basically said it's okay to have a beer now and then might just be a good thing.

So the health dialogue has become much more hospitable hemp with the changes in the legislation and the basically a federal ban on hemp-based THC products, including the beverages, that has taken a fair amount of the excitement around the hemp-based beverage is becoming 5%, 10%, 20% of beer. That looks like that's off the table. There's still a lot of them out on the shelves. I think a lot of retailers are waiting to see maybe the loophole has been extended, but it looks -- and I think the farm bill got out of the house today without an extension of the loophole. So it's an uncertain legislative landscape, but things look much more difficult for hemp-based THC replacing beer. And finally, less pressure on the Hispanic community. We don't have as good a data as constellation. So they're better authority than we are, but we're seeing a little bit less pressure on that.

So that's where -- and that's where I would see the improvement. It's somewhat subject to the macroeconomic environment, which is probably worse right now than it was 6 months ago, but very uncertain consumer confidence is very unpredictable, but the price of gas can't help and tea stores are hurting a little bit. So that's if I had to attribute this improvement, which is real, that's where I would go with it.

And then finally, I'd add in from us, we view our kind of accessible market as being traditional beer, cider beyond beer and a certain part of the spirits-based RTD type beverages. Last year, when we ran our numbers that looked like it was off about 4% versus 5%, 5.5% with beer. This year, it's probably slightly down, but significantly better than the 1.5% to 2% the traditional beer is suffering, so closer to flat.

And the bad news is our volume is still up 4%. We think there's a lot of things in the pipeline that will affect our trends over the next 9 months in the back half of the year. So we are planning on that getting better. But right now, as opposed to last year when we held share, right now, we've actually lost share of what we consider our addressable market.

That's very helpful color. And then Diego, you made a comment around updating the EPS outlook if commodity inflation continues. So just curious if you could maybe unpack what inflation assumptions underpin the outlook today. And then just on the offset, you mentioned to Eric's question, mix and kind of the savings initiative, are you meaning more or leading in here further or the benefits of these items greater than what was originally contemplated. Just trying to understand whether the shift in cost pressures changes your perspective around where you would expect to land in the gross margin guidance?

Okay. Perfect. Let me unpack that. So first, let's start with inflationary costs. So as you can see in our 10-Q, for the quarter, we've got about $12.5 million of inflationary impacts out of which most of that was aluminum. And in that piece of aluminum, you got $4.3 million of tariffs. The rest is kind of the underlying cost of aluminum. We are forecasting that to continue mostly through the back end of the year. So we're not expecting any big shifts like either up or down. We're just projecting our current situation and assuming that, that will continue. So that's kind of our base assumption of where we're going.

The second part of your question is in the buckets we've kind of laid out, I think -- in general, we're a little bit better than we thought in total of the savings that we could deliver. Some buckets have delivered more, some less. I think -- but the big difference has been the speed at which we've been able to go after it. So our procurement savings that we've kind of laid out a 5-year road map, we've pretty much stopped out in 3.5 years. Some of our other buckets like our brewery efficiencies, again, are ahead of schedule. The one that I think it's lagging a little behind and it still has some room to deliver is our footprint. So I'd say, overall, in total, they are going to deliver a little bit more than we thought, but it's more the speed of the delivery that has changed.

Now what we have done is we've added a fourth bucket that hasn't really started delivering yet, but we expect it to start delivering 2027, which is revenue management. So as we've been able to accelerate some of our cost savings buckets, we're making sure that we keep adding new things that we think can maintain that gross margin or potentially help it depending on volume and inflation, and that would be the bucket that we're adding.

So I'd say it's mostly acceleration, although in total, we will deliver a little bit more savings that we thought we could deliver of current buckets, and we're adding a new bucket to try to offset from those pieces. So hopefully, that answers both parts of your questions.

The next question comes from the line Philip Bolone with Citi.

Jim, I was hoping you can give us your perspective on the expectation heading into the summer especially with the big events come in with the FIFA World Cup, Americas [ 250 ]. How are you thinking the consumption occasions will evolve, especially the interaction between traditional beer and as you call it the 4 category and the RTD space, do you see that more of an occasion for more traditional beer? Or how do you think you can get consumers into your core portfolio for that. I know you have the sponsorship with Truly, but maybe you can expand a little bit more on how you're planning to capitalize on those occasions.

Yes. We have a number of things that we're paying. The big one is with Truly, and that is our sponsorship of the U.S. men's soccer team. And we have gotten good reactions from retailers. I mean, basically, we're using that to get on the floor to get big displays theme displays around the U.S. soccer team. We have a soccer ad that we're running about and a whole sort of campaign around you believe in the U.S. soccer team.

So that's the biggest thing we've done with truly in a number of years. So we're looking -- and we've gotten good reception from retailers. So we think that will have at least temporary effect on bending the trends on truly. With Samuel Adams, we are using it more in a PR sense. We're having a 0.25 million person toast to America's birthday for the 250,000 people who raise a Sam Adams is also as we go into the summer, we benefit from just the seasonality of Sun Cruiser and hard tea in general. So we expect the fact that Sun Cruiser is the fastest-growing significant RTD out there, and it's heavily seasonal product so that, that growth of Sun Cruiser is going to mean a lot more in Q2 and Q3 than it did in Q1.

So those are the big summer-oriented promotions. How much more are they going to benefit traditional beer more than the fourth category. I don't know. I don't think it they will. I mean, we are seeing Gen Z accepting the beyond beer category as being as attractive in some ways more attractive than traditional beer. So in traditional beer is much stronger in people over 40, people under that are quite accepting a fourth category as a beverage that they would consume in an occasion that 15 years ago was dominated by beer.

Great. That's very helpful. And then Diego, maybe on the cost front and the commodity front, can you remind us a bit of your hedging policies. Looking through your filings, it seems like most of the hedging on some of the brewing ingredients like ops, maybe on the packaging side, is it more on the spot rate? Should we think about it that way on the Midwest premium? And then maybe any comment on transportation cost as well, that would be helpful.

Excellent. Well, first of all, we do not hedge. So in general, our policy is not to hedge. And some of our suppliers will decide to hedge for us, but we do not directly hedge. So the Midwest premium kind of directly goes through our numbers. And we feel like overall, over time, that's actually a better approach than spending on hedge.

So from that point of view, that's why you're seeing kind of the movements in the Midwest premium in our first quarter, and that's why we're kind of disclosing what assumptions we're taking for the rest of the year. So that's kind of the piece that we'll see during the year, if the Midwest premium comes down, we will be able to improve kind of our P&L.

On the second piece, as you know, we book most of our distribution costs through SG&A. We do kind of see the impact of EASL like everybody else is doing. And although it hasn't materially impact our numbers, we've been able to offset it through other pieces I do think that is going to be a challenge for everybody as the year continues in 2 fronts.

From an impact on the actual fuel cost can be -- right now, we're probably thinking kind of mid-single digits in millions, but it will depend on the mix. But the second one is we're also seeing the availability of truckers being a challenge. Given some of the policies implemented. So I think as we go through the year, especially in the high season, that's something that we're working very close to our supply chain team to ensure that we can minimize the impact to our P&L. But that is definitely something that it's going to impact pretty much every CPG company as we go into the summer.

The next question comes from the line of Kaumil Gajrawala with Jefferies.

Good job on getting my name correct. So I just want to ask a couple -- a question on Dogfish Head and Angry Orchard it's great to see that you're delivering growth once again. So what would you point to as the key drivers for this level of improvement for the brands? Is it new customer additions? Or are you growing more penetration with younger drinkers. And on a go-forward basis, how do you think about like how do you see this playing out for the remainder of the year? And do you expect to sustain this level of growth that you're currently seeing?

Yes. Let me talk about those brands. I think the growth with Angry Orchard has come partly from us focusing on a little bit and focusing on the core, we did a year ago, a push on Angry Orchard Draft that gave us a bunch of draft lines, some of them stuck. And some of it's just consumers are sort of swinging back to cider they're open to non-beer experiences. So in some ways, this is like a fourth category.

And cider has -- it kind of belongs in beer occasions. It comes out of a draft line, you drink it into pint glass. It happens to be gluten-free, and it's very friendly to drinking where you're in a group drinking craft beer, and it's very fruit forward like a lot of fourth category products, it's sweet -- so it sort of bridges traditional beer and fourth category products. And that's given it's some underlying consumer-driven growth, and then we focused a little more on it. cleaned up the portfolio. We have an effective advertising campaign underneath it, don't get angry, get orchard. And we had a very successful Halloween promotion with the Friday the 13th character, and we're repeating that this year. So I might think it will sustain itself repeating them with screen, another Halloween franchise. So I think that will sustain itself with Dogfish Head, again, we went in, sort of cleaned up the brand, cleaned up the clarity of the product line around 30 minutes, 60 minutes, 90 minutes, which was very easy for consumers to understand.

And we're getting growth from Dogfish at spirits. Dogfish has -- was one of the original craft distillers over 20 years ago. So they've got a history of being a distiller and a line of just delicious canned cocktails that they sell at a price premium over a cut water, a similar product. So they have a higher-end niche. So I think those are the things that have made both of those brands grow.

The next question comes from the line of Michael Lavery with Piper Sandler.

Just I was wondering if you could start by unpacking some of the shelf space -- shelf resets and display upside you've talked about. I don't know if you could quantify some of that or maybe clarify on some of the displays, either timing or how temporary or relatively permanent they might be? And just how to think about that retail distribution piece of the equation?

Yes. Overall, we were one of maybe 2 or 3 suppliers that gained shelf space. I think the beer category was a little bit stressed given its performance last year, nobody was really eager to add a significant amount of beer and beyond beer fourth category shelf space. we were fortunate enough to be one of a couple of suppliers who did that was driven on the upside by, as I talked about earlier, a lot more shelf space for Sun Cruiser.

In 2024, we didn't really pitch Sun Cruiser are very strongly. And so we didn't get a lot more shelf space. But last year, we did, and we're reaping the benefits of that this year. So we -- Kroger had 1 SKU. Now they're going to have 3, some stores 4, some changes didn't put it in at all and are now giving us multiple SKUs.

I mean, because mean Sun Cruiser is the fastest-growing brand in probably the fastest-growing category in the RTD spirits-based RTDs. So we're getting that Twister Tea actually gained shelf space because they found a place for Twisted Tea Extreme. So we got a lot more shelf space for Extreme that more than offset where we lost a peach or raspberry and that works out advantageously to us because the SKUs that we lost have a lower rate of sale than Twisted Tea Extreme. So there's kind of a double benefit. We got more space, and it's going to be more productive where we lost and lost significantly was on Truly and a little bit on Sam Adams. But the net of it was not only more points of distribution for our portfolio, but even more an increased share of the available shelf space.

Okay. That's great color. And just on a brand that doesn't get as much attention, but can you maybe walk us through Hard Mtn Dew and just a little bit of maybe what hasn't worked there. It seems like when it first launched in the states where it launched through Pepsi's distribution, it had sort of a 2-ish share of FMBs, but it doesn't seem like it's held or gotten to that with the broader distribution from your system and it's soft now. Can you just help us maybe understand what happened there and kind of how -- it seems like -- I'm assuming that didn't come out just as much as you would have expected. Maybe just a little bit of a review of how to think about what happened with that brand?

Yes. I would say, overall, the hard sodas that came out have not had the appeal on an enduring basis that I think a lot of us thought they would. And they've actually struggled against sort of new-to-world purpose-driven brands. And that's across all of the hard sodas, whether it's Fresco or some of the other extensions like Simply and so forth.

Hard Mtn Dew is -- our experience with it. It's a very strong brand I'm not sure that we've found our niche with it. So we are looking at -- is there -- where is the core Hard Mtn Dew consumer? And what is his or her occasion for Hard Mtn Dew, which has very strong attributes. It's sort of -- has some energy drink attributes in it. And we want to see if there's a way to bring those to the 4 as the hard soda category. And then there have been some distribution issues where the bottlers, the remaining independent bottlers have been able to block it coming into their territory. And that has then made it difficult to get chain distribution and it's difficult to get wholesaler support when the Pepsi bottlers territory doesn't have the same footprint as our wholesaler and so our wholesaler only has it in part of their territory, which makes it harder for them to give day in and day out support to it.

So that's some of the underlying issues. But at the end of the day, we continue to believe it's a really strong brand, and we continue to work to try to figure out how do we find a good niche that's based on all the brand equity of Hard Mtn Dew, which is unique.

[Operator Instructions]. And the next question comes from the line of Chris Barnes with Deutsche Bank.

Jim, recently, Brown-Forman and the Brown family put their coat in the water on a merger process that ultimately didn't materialize. But I'm just curious to hear your thoughts on why you think they evaluate a transaction down here. Clearly, the investment community thinks the alcohol profit pool is evaporating. So is consolidation and the related synergy capture increasingly becoming survival strategy that alcoholic beverage companies need to more seriously consider today?

That's a question that investment bankers and frankly, the brain power of the people on this call is much greater than mine. So I'm going to -- that's up there in the strategy. We're just down here going from bar to bar drink, trying to sell more product. I don't there's clearly a consolidation going on. I think we feel like -- in some ways, we're in a unique position in that we've gotten over the hump as a supplier to the point where we're important to our wholesale partners and we're important to our retailers. And we are and that importance is amplified for a typical, an average wholesaler, we may be 10% of their gross profit. So that's a meaningful when they're top 5 suppliers.

So we're important to them. And that's somewhat amplified by -- historically, we've been a bigger part of their growth. And we have a great innovation track record. We're very happy with our pipeline. Again, the success of Sun Cruiser in the last year has validated our continuing ability to bring new-to-world brands to our wholesalers that they don't have to pay for and buy from somebody else. So we continue to be big enough to get the attention that we need.

So I don't feel like we're disadvantaged. I think like we're in the sweet spot of -- we're big enough to innovate and bring successful new products to market with a strong 550-person sales force bigger than any other sales force in our category. And then -- but we're small enough to be nimble, move quickly, be innovative, and continue to grow against the opportunities that we're finding today, which primarily are in the fourth category, which is now 85% of our volume. So it's where we've proven our capability is bringing new strong brands to our wholesalers and our retailers.

I would also add that I think as investors, when you -- when there's a segment that drops value like alcohol in general has, obviously, there's a lot of people that see the value there and see it as an opportunity to jump in I think part of the reason you're not seeing some of those mergers materialize is because people see the opportunity in the future and therefore, hold on it.

So I still think it's an industry that has a lot of value. But I do think that people see an opportunistic time given that last year, on average, most companies have gone down to jump into something they see value in the future. So I think the value will continue in the industry, and I think we're really well positioned to play in that.

Great. Thanks very much for the perspective, both.

Thank you. This concludes the question-and-answer session. And I would like to turn the call back over to Jim Koch for closing remarks.

Thanks to everybody for joining us this afternoon, and it's an exciting time to be in this business. both lots of challenges and opportunities, and I look forward to talking to you in a few months.

Greetings, and welcome to The Boston Beer Company Fourth Quarter 2025 Earnings Call. [Operator Instructions] And please note that this conference is being recorded.

I will now turn the conference over to Mike Andrews, Associate General Counsel and Corporate Secretary. Thank you, Mike. You may begin.

Thank you. 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 Koch, 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 10-Q and 10-K. 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 2025 free cash flow of $216 million or $19.72 per share, which allowed us to repurchase $200 million in shares in 2025.

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 restrict their availability after November 2026.

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 Seltzer, 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 Sun Cruiser, which was among the top volume gainers in RTD Spirits in 2025 and quickly scaled into a top 5 RTD Spirits brand. However, we have seen greater competition in 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 macroeconomic environment is a significant driver of weaker alcohol consumption trends and the deceleration in our leading brand, Twisted Tea's performance.

Our 2026 volume outlook of flat to down mid-single digits assumes that macroeconomic headwinds persist. We are highly focused on controlling what we can, maintaining or growing market share and investing behind our brands to position us well for when the environment improves. Our priorities for the year will be supporting our full portfolio of 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 wholesalers in local market activation. We are 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 Sun Cruiser 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 0 sugar, 0 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 multiyear effort across the organization, and I'm pleased that we 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 Sun Cruiser, 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 in measured off-premise channels for the full year 2025 in an F&B 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 #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 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 innovation.

Twisted Tea has unique and clear brand voice and attitude, and our advertising plans include continuing to run our high-performing key 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 Light and Twisted Tea Extreme.

In 2026, we are expanding our partnerships that are most relevant to our drinkers such as Barstool's, [ Pardon My Cake ], the #1 sports podcast, [ DraftKings ], WWE Wrestling, Country Music's [ Chase Matthew ], NASCAR, AMA Supercross and Motor Cross Racing and [ Realtree 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 4-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 Raz are the #1 and #2 largest FMB growth SKUs in convenience and to further capitalize on the high ABV trend, we'll be launching new extreme singles flavors, Long Island Ice 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 hard tea portfolio this year. Sun Cruiser is 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 Sun Cruiser is the leading RTD Spirits and Lemonade brand in on-premise bars and restaurants according to Nielsen.

Bar tenders have been and continue to be a very important influer group for Sun Cruiser. Sun Cruiser continues to expand its off-premise distribution, but given its strong presence in on-premise and independents, measured off-premise data still only reflects a portion of the brand's total volume. Advertising support for Sun Cruiser 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 AEG music concert series. And in 2026, we'll add exciting golf and ski partnerships.

Golf programming includes [ Turner ] activations, golf media influencers and experiential marketing programs as well as wholesaler incentives. Additionally, Sun Cruiser is a key sponsor of [ Keton Gravity ] ski film festival along with ski resort sponsorships and samplings that help reinforce its position as a brand for all 4 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 added 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 on ruling. 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 3 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 the 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 offering. 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 multiyear 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 continued progress for Boston Beer in a dynamic industry environment. Disciplined execution and supply chain efficiencies enabled us to meet or exceed our financial commitments, including very strong gross margin outperformance. This margin upside enabled 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 onetime 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 Hard Seltzer and Sam Adams brands that were partially offset by growth in the Sun Cruiser, 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 Sun Cruiser continues to show strength, but at a lower contribution in the fourth quarter due to seasonality. We believe distributor inventory of 4 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 volumes, partially offset by increased pricing and 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 increased in short volume.

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 3 buckets of multiyear 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 helped 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 production increased to 86% of our volume compared to 74% last year. In 2026, we expect to continue increasing the rate of in-sourced 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 2 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 inventory 71% in the fourth quarter and 48% for the full year. In addition to our 3 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 tons for the first 8 weeks of 2026 have declined 3% from 2025. We are currently planning 2026 depletions 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 growth broadly offset increased tariff costs. 2026 reflects a full year tariff cost estimate of $20 million 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 brands. 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 freight costs for the shipment of products to our distributors. 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 shipment comparisons in the first quarter and the first half of the year as we shipped ahead of depletions in 2025 to build wholesale inventory of our product innovation, which included Sun Cruiser and Truly Unruly. We currently expect the first quarter and first half shipments to be down towards the lower end of our full year volume guidance, but with better shipment performance later in the year.

During full year 2026, we estimate shortfall fees and noncash 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 season.

Turning to capital allocation. 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 return cash to shareholders through our share buyback program.

For the full year 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, and the period from December 29, 2025 through February 20, 2026, we repurchased shares in the amount of $200 million and $14 million, respectively, for a total of $214 million of repurchase 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.

[Operator Instructions] And the first question comes from the line of Peter Grom with UBS.

So 2 questions from my end. Maybe one on the gross margin outlook. I would love to understand what you're embedding or expecting as it relates to kind of underlying inflation. I'm sure you're aware of one of your competitors outlined as it relates to aluminum and the Midwest premium. So just curious what impact that may be having on your margin target looking ahead?

Yes. Thank you for the question. So as you probably know, we do not hedge in aluminum. We've seen the aluminum Midwest premium continue to grow. So we are expecting a little bit of inflation, but not as much as we've had in the past. And that's kind of what we built into next year's margins.

Okay. Great. And then I was hoping to get some perspective just on the year-to-date performance and just it's running a bit better than what you delivered last year as it relates to depletions, certainly better than what you saw in 4Q. So just as we -- just based on what we've seen, do you have a view on why the category seems to be doing better thus far? And maybe just as we think about the path forward, what are you expecting in terms of category growth from here?

Okay. So I'll start giving you our numbers, and then I'll hand it off for Jim for the category view. So in our case, the biggest difference at the beginning of the year is the improvement in trends for Twisted Tea. And we're continuing our support of the brand and our investments, and we feel pretty good about how we started the year.

From a category point of view, I'll hand it over to Jim to give his perspective.

Thank you. Peter, it's -- the category has clearly gotten better in the last, call it, 2 months, maybe it started in December. And we're basically seeing beer category trends maybe 2 or 3 points better than they were in 2025. 2025 was just, in some ways, kind of a black swan year. I don't think anybody in the industry expected beer to be down over 5%. And I think we all went into the year thinking it was kind of going to be down 2%, which would be consistent with the previous 5 years of up and down through COVID, and then it turned out to be down a whole lot more without [indiscernible] clear has clear explanations for it.

So I'd have to say that the improvement is certainly welcome. I wish I could tell you what was going on. I think there's been some moderation in the clamor around health and alcohol causes cancer. We had the government guidelines come out and be pretty much consistent with previously. It said it's okay to drink, just don't drink too much. I think that might have been helpful. Maybe the Hispanic community has adjusted to some of the new realities and found ways to come back and be visible and go to the stores and not send their kids to buy things.

So there's some of that perhaps. I think the balloon is a little bit off the rose with hemp, partly because of what happened in November and the [ hemp blu pole ] so-called being closed. So that might have contributed to it. So those are the best explanations I could come up with, but the numbers are the numbers. The category trends are down -- have improved by about 300 basis points. And I would like to tell you that our depletions are up -- have improved by that same amount, and it's all this great stuff that we did. But a lot of it is the whole category is healthier than it was 3 months ago.

And the next question comes from the line of Rob Ottenstein with Evercore ISI.

Terrific. Two questions. One, can you talk a little bit about the improvement at Twisted Tea? It sounds like what you're seeing there may be a little bit more due to your own interventions rather than the category. So just love to understand why Twisted Tea is doing a little bit better and if those particular actions are things that you expect to see follow through for the rest of the year? And then second, if you could talk about what's going on with shelf space, both at the kind of category or macro level, given all the declines that the industry has had, is the overall industry holding shelf space? And then how are you doing on the shelf space side, particularly in terms of both beer as well as the beyond beer area and the key brands?

Jim, would you like to take the first part of that?

Absolutely. I think we do feel good about some of the actions that we started taking towards the end of last year with respect to Twisted Tea. We did some diagnosis, and we found that our pricing might have been too aggressive in certain markets, in certain packages, in certain channels, primarily 12 packs in supermarkets and maybe 20%, 25% of the markets, and we've worked with our wholesalers to fix those. Typically, it might be we were at $22 a 12 pack and $19.95 is a really significant price point reduction. So we addressed places where we were up at [ Stella Artois ] type pricing. And that does seem to have helped us in those places. We have also been more aggressive in pushing Twisted Tea Extreme and Twisted Tea Light, both of which are growing pretty nicely. And a little bit of just trying to get displays back because we lost some displays to RTDs, and we've been mildly successful in doing that.

So there have been some direct actions, and those will continue in 2026. in addition to working with our wholesalers to do more local market support in terms of our sort of share the burden program with them where for every $3 we put into additional local marketing, they put $1 in. And so that's also been helpful both in terms of the actual spend itself and getting our wholesalers involved in making sure that Twisted Tea remains a strong and hopefully growing brand going forward. It's -- Twisted Tea is the #10 brand in beer. And for a lot of our wholesalers, it's in the top 5 or 6 brands. So it's important to them, and they've gotten engaged with that.

In terms of your second question of shelf space, roughly -- well, for the industry, there has been some erosion of shelf space, though the erosion of beer shelf space has gone to RTDs. And while they are liquor-based, they kind of live and operate as beer, the same type of packages, same sort of price points. They're sold out of the cold box. So if beer loses some shelf space to RTDs, most of those are coming today from beer suppliers and beer distributors.

So net-net-net, from all of that, there is not a -- to my -- from what I've seen, not a significant erosion of cooler space to beer. The possible exception would be in those states where hemp-based beverages have become really strong. They're not a lot of states, but you do have places like Louisiana, Tennessee, South Carolina, Minnesota, where they're reaching 5%, even 10% of beer dollars, and they're in the cooler. And they have taken some beer shelf space and in places like total wine, beer displays as well. And while the jury is still out, I think my betting is that the repeal of the hemp blue pole will probably stand in Congress. And so the impact of the hemp-based beverages will diminish and won't go away. There's -- you can still have it at a state level. It just has some federal restrictions to it. But I believe we'll get some shelf space back from that in 2026.

And the next question comes from the line of Filippo Falorni with Citi.

So maybe first, Jim, can you talk a bit about the plans for year 2 on Sun Cruiser and like where are the incremental distribution opportunities there? Obviously, you made a big push in 2025, but there's still quite a bit of white space. And then maybe some of the flavor innovation that you launched, what are the results, early results? And like is there potential to further expand into flavors?

Sure. Sun Cruiser had a great 2025. It grew almost 400% firmly established itself within the RTD category. It's about the #5 RTD from kind of nowhere 1.5 years ago. So we were very happy with the success of Sun Cruiser. And a lot of that success happened without getting chain authorizations. We really didn't kick in with Sun Cruiser until the last quarter of 2024, which means we missed the window of presenting it to the chain. So we didn't get shelf placements in many chains. We did very well in Walmart. They really got behind it. But most of the other chains were very limited, 1 SKU, no SKUs. And that's now changing in 2026. So we're getting strong distribution support from a lot of the big chains, [ Albertsons Safeway ], Kroger and on down that list. So we're going to be well represented in accordance with being the #5 RTD.

So and we're going to continue very high level of support, even add to our spending on Sun Cruiser. Some of it is things like national advertising and national programs and sponsorships. A lot of it is more local sponsorships, local billboards, lots of sampling, brand ambassadors, a lot of really grassroots work, especially on-premise, something like 40% of Sun Cruiser's volume is on-premise, and we believe that's how brands are built. And so we're going to -- they may not deliver the same volume of off-premise, but the volume that they deliver is much more brand supporting, if you will, for having it in a bar than buying a 6-pack in a convenience store.

So we are not slackening at all. We're actually putting more fuel on the fire for Sun Cruiser, and we're looking forward to -- it's not going to grow 300% or 400%, but we're looking for it to be a major contributor, hopefully, to overall company growth in 2026.

In terms of flavor innovation and that kind of that pipeline, I guess the big news is one of our flavor innovations in 2025 has proved very successful. And so we are rolling it out. It's not entirely national, but it's 30-plus states. So it's close to national. And that innovation is a vodka cocktail, very, very lightly carbonated. It's called Sinless. It's 100 calories. So it enables you to have a spirits cocktail and still have the sort of gilt-free, no carbs, no sugar that you would get from a seltzer, but get a much bigger flavor profile. So we will see how that does, but we're optimistic enough to roll it out in the majority of the country.

And then further up in the pipeline, we have things like -- just Hard Squeeze, which is a 10% juice product. It's alcoholic. We have a Social Pop, which is a kind of new wave soda with alcohol and Wild Leaf, which is an upscale version of Twisted Tea with lower calories, lower sugar and more leaning into the quality of the tea in the product. Those are still just in a handful of test markets. So I really don't have anything significant to report. But I can say that from our pipeline in 2025, we have a new quasi national launch in Sinless.

Great. That's very helpful. And maybe a quick follow-up for Diego on Peter's question on the Midwest premium and aluminum. Can you give us a bit of sense of how you source aluminum, just given the big rise in the Midwest premium, it would imply that there's maybe a little bit more impact on the inflationary side in 2026, but maybe is there some sourcing, some hedging? Can you give us some sense of why it's not a big impact for you guys?

Yes. So what we have is we have contracts with our suppliers that have a pass-through of the Midwest premium as part of the price. So -- and since we don't hedge it, we will get the pass-through as the premium moves during the year. So again, to the question, our expectation is there's going to be a little bit of inflation on the premium, but not. If that is different, you'll see that going through our P&L given that we don't have a hedge in place.

And the next question comes from the line of Kaumil Gajrawala with Jefferies.

Diego can I just follow up on that because I'm confused. If it's a pass-through, wouldn't that mean you get hit with fully of the big spike that we've had in the increase already?

Yes. We -- like we get hit through the pass-through, and we did last year, and that was part of the reason that our costs went up in materials, but we were able to offset it by savings. So we do get hit by the premium as we go through the year.

I see. Okay. Maybe it was implied that you have less of an impact, but okay, I get it now. Jim, I guess, as you talked about the marketing, you laid out a lot of things. And it's hard for us to perhaps get scope on is this higher or lower than perhaps where you were last year? I believe ad spend might have been up double digits last year and it's expected to be up again this year.

But when you put this all together, it seems like there's some big increases in investment. We haven't really seen volumes turn yet. So is that lack of idea? Do you feel like maybe you're investing in the wrong places? Is that course corrected for '26? Or maybe just trying to make that connection between the increases in investments and still having sort of declines on volumes?

So really good question. Let me see if I can sort of clarify it, maybe simplify it. When we think of investing behind our brands, it's -- sometimes we use media as a term, but more appropriately, you should think of it as brand support, of which media is a component, but -- and probably the biggest, but there's a whole lot of other stuff that we have, which you could think of as more sort of local market execution including salespeople and including the point of sale that they put up and that accompanies them as an expense. It includes a lot of local sponsorships. It includes things like sampling teams, brand ambassadors, distributor incentives. It's a fairly long and diffuse list of things.

And media is only, I don't know, depending on how you want to run the numbers, 25%, 30%, 35% of it. But the other is a whole bunch of little -- what is meaningful to us that drives local market execution. And that's -- our brands have kind of been built with a lot of grassroots efforts since day 1 when I was selling the beer from bar to bar.

I mean to get to your second question, well, how come we're spending all this additional brand support money and we're still declining. I think it's a really good question. And believe me, it's one that I asked and to make sure that we're not wasting a lot of money on this. I guess in total, we were down last year 4%. The overall beer category was down a little more like 5%, 5.5%. So I think some of it was spent to do that. And a significant amount of the increase in 2025 was spent behind Sun Cruiser and I view Sun Cruiser as it's a strong brand now in a category that's growing double digits. And in my world, that's kind of in the old BCG matrix, that's a star. That's a place where you overinvest to get growth and you keep doing that as long as the categories got high single digits, low double digits growth.

So we definitely overinvested in Sun Cruiser. Did that pay off? I have to say, yes, it did. I mean we went from kind of nowhere to the #5 brand, kind of close to where neutral is, which is a really great brand from [ Anheuser-Busch ] that they've built over the last 4, 5 years. and we were able to do that in 1.5 years.

And the next question comes from the line of Eric Serotta with Morgan Stanley. My apologies, Nadine Sarwat with Bernstein.

Two for me. First one on tariffs. I know you guys guided to the $20 million to $30 million of costs for this year. Can you just remind us what items are driving this? And then how that impact is going to be phased throughout the year?

And then second question on gross margins. If I remember correctly, I think you guys said to get to the 50% or above point would require top line growth. So it is a pleasant surprise to see that 50 included at the top end of the range here. Could you just give us the building blocks for the gross margin guidance in particular? Where -- what would you need to get to the high end of the range versus the low end? You guys went through a similar exercise for the top line for us, which was very helpful. So any color on that for gross margins would be appreciated.

Perfect. So let me start by tariffs. So we -- as we laid out 20% to 30%, if you remember last year, we had bought a lot of products already. So the big impact of tariffs last year was in the back end of Q3 and Q4. So therefore, the impact -- the year-over-year impact will be bigger at the beginning of the year, particularly in Q2, just given the size of the volume.

If you break down what included in that is aluminum is a big piece of that. And as of now, that's still in place. POS coming particularly from China is a piece of that. And we also have ingredients, sugar and for our RTD, for example, that are coming from other countries, specifically Canada that are part of it. So that's why we've decided to leave as the tariffs at the beginning of February until we see exactly what pieces might change. As I mentioned right now, the aluminum piece, for example, which is the biggest piece has not changed. So that's -- we will provide better guidance once we have more clarity on what's going to be the tariffs going forward.

The second piece is you're correct. I think we're very happy with our performance in our savings agenda. I think the operations team have done an amazing job working in the buckets we laid out. As we included in our statement before, we are adding revenue management as another bucket. We are going to set it up in the back end of 2025, we started, but 2026 will -- we're really going to invest against it, and we believe we're going to get some benefits this year, but really for 2027. That will help our margin profile.

The second piece, as you mentioned, tariffs is a big piece of it. So how those go forward will be the second part. And then the third piece is really being able to leverage volume. So right now, if we're in the top end of our guidance, that will help us get closer to the top end of our margin guidance because volume absorption is a big piece of where the opportunity lies going forward, given that we are producing a lot of it internal at this point in time.

Yes, I'll add my two cents worth on that, which is probably literally two cents. I would just observe that in the past, our gross margin has been as high as 52%. So it was sort of pre the takeoff and the chaos of doubling our production during the Truly boom. And it's my aspiration to get back into that low 50%. It's not easy, but I believe we have the best supply chain team that we've ever had. We are still kind of in the middle, maybe in year 3 of a 5-year lean manufacturing journey, which is showing very good results. We continue to look for high ROI capital investments in the breweries. We obviously are not cash starved. So if there's -- we are actively looking for high ROI manufacturing investments. And then on the other side, in the sales, we are looking to have the majority of our growth come from margin accretive products. So my aspiration is more than just the high 40s, and we've been there before. So I don't think it's unrealistic.

And the next question comes from the line of Eric Serotta with Morgan Stanley.

Nadine beat me to the punch on the detailed tariff question. One quick follow-up, housekeeping on that. And then another question. On the tariff piece, are you including in tariffs only the direct impact from tariffs? Or would higher Midwest premium, which is kind of indirectly driven by tariffs be included in your tariff bucket? I know it's a little bit of semantics, but maybe it would help us get a handle around some of this confusion around your Midwest premium exposure?

And the second question would be in terms of how you're thinking about sort of midterm growth potential for Sun Cruiser, perhaps learnings from other RTDs in the space. And clearly, Truly didn't grow to the moon, how you're thinking about sort of a maturation curve for Sun Cruiser and then, Jim, how you're thinking about what the next big thing is, which I think always tends to be on your mind or lots of little things that may become the next big thing.

Okay. I'll take the first one, and then I'll give Jim the second one. So it's hard to break out exactly which is tariffs versus the premium, but the approach we've taken to break it out is we know what the tariff percentage is. So we know right now, there's like a 50% tariff on aluminum. We'll take that tariff and count that as tariff. Any other movement in the Midwest premium will take us inflation. So although they're both related one to each other, that's how you break it out as you quantify the tariff based on the actual tariff percentage and assume the rest of the movements in the Midwest premium are inflation-based. They both end up in cost of goods, but that's how we break them out when we give the tariff point of view.

I'll hand it off for the second part.

Great. Eric, you asked about midterm prospects for Sun Cruiser, and we believe that there is certainly 1 more year, maybe 2 more years, but 1 more year of really strong growth in Sun Cruiser. We got a late start in the category. And we believe that the category itself of vodka and lemon -- vodka tea and lemon-based products, that category has probably got another year of strong growth. And we were -- we started late, so we also believe that we're going to pick up share in 2026 in the category given that we're getting disproportionate increases in our shelf space. We're getting into chains that we weren't in at all last year.

And the -- with respect to next big thing, honestly, if I knew what it was, we'd already be putting it into the market. But we do pride ourselves on being an innovative company. We're sort of built for that. We have a growth mindset. We're staffed for it. We have a very -- the largest sales force in the beer business. We have a very large product and flavor development team. So there's a lot of stuff that we come up with and we're generally putting things in the pipeline, 3 or 4 a year and hoping that something is going to come out.

So this year, we're looking for Sinless to see if that can become the next Sun Cruiser, but it's hard to predict. And we're looking at some package innovation as well that we're not sure if we can make it work. So there is just this -- it's in our nature to innovate and approach things as the company we are, which is smaller and more entrepreneurial.

And the next question comes from the line of Michael Lavery with Piper Sandler.

Just wanted to dig into Truly a little bit. It still had some struggles even as white claw momentum has recovered and improved. Can you give a sense maybe just what your hopes for that brand are? And can it also get back to growth? Is it just managing it kind of to moderate or to some of the declines? Or how do you see it positioned? And what's the opportunity for its -- any trajectory change there?

I'll take that one. We look at Truly as having the potential of being a strong and viable #2 in the category, which it remains. There's really -- there's White Claw, which is the clear #1 in the category. We have been kind of, honestly, a weak #2. And so -- and I believe Hard Seltzer is a viable category. I believe it can be stable. White Claw's volume has actually grown. So they've done a great job, and you can see the payoff from that. We would like to get Truly to the point where it's no longer absorbing the category losses and where maybe it's growing low single digits a year and continues to remain a big enough product to be meaningful to our wholesalers and our retailers, which it certainly is today and off of that base, grow low single digits.

So we're actually investing more in it this year than we did last year. The U.S. soccer team partnership is a very big deal. And we've got promotions around the 11 cities that are -- where the games are being played. They represent a big part of the U.S. population, those 11 metros -- so we'd like to get it to be a stronger #2 than it is now with low single-digit growth.

No, that's helpful. And just one more on some of the innovation, looking at the drift towards some higher ABV products, both in your portfolio and more broadly. Can you give a sense, it's typically appears -- it's a better value for the consumer, kind of more bang for the buck. If just hypothetically or assuming the consumer isn't looking to get more intoxicated, it would have a headwind to your volumes for the same amount of alcohol in the liquid even if the liquid is less. Is there enough of a mix benefit to offset that? Or like how do you manage that trade-off? And I realize there's competitive dynamics that drive a lot of it. But is there a way to make that trade-off work that's not as maybe apparent from a distance?

I don't know of it. I think you raised a good point, but it's clearly -- our experience would say it's not a one-for-one trade-off as we get disproportionate growth with Twisted Tea Extreme, we are also growing the lower ABV Twisted Tea Light. So there is that trade-off. Do people drink more liquid because if they're drinking Twisted Tea Light because it's 4% ABV, Probably. Do they drink less with Twisted Tea Stream, which is 8% ABV? Probably. But -- so ultimately, I don't -- I can't give you a really good number, but it's certainly -- those trade-offs are manageable. And as we're going into vodka-based liquor-based products, there is some expectation of maybe slightly higher ABVs. And hopefully, we are sourcing that volume from Spirits. So it's -- there's probably some -- you have to be right, there's some downward effect, but it's not really noticeable in the noise of the numbers.

And the next question comes from the line of Bonnie Herzog with Goldman Sachs.

I just have a couple of quick follow-up questions to some earlier points. I guess, Jim, I've talked to you about this in the past just about the cost of growth, which is increasing. So I guess in the context of that, I did want to ask about gross margin improvements. They've been impressive so far. So congratulations on that. But how should we think about the sustainability of your margins going forward, I guess, in the context of no volume growth. I mean you're guiding at the high end flat.

So I'm just trying to think through that. And should we just think about, I don't know, last year, maybe this year still just big investment years as you kind of really invest in your business with the goal of returning to volume growth. I'm curious if you have a time line of when we could expect to see that.

Okay. So I'll take the first part of the margin question, and then I'll give Jim the volume part. So as we mentioned before, we had 3 buckets of savings. We've really kind of -- 2 of them are really far ahead. We still have some opportunities we're going after this year and next for our footprint. We're also adding revenue management. So we believe those pieces will be able to, in the short term, help us continue to improve our gross margin to be high 40s, close to 50 despite where volume goes. And I think I've always been straightforward in saying like we can get there without volume to get past it, volume is important.

Now below gross margin, we are investing last year in this and we're doing the same this year in our brands because we believe that gaining share like we did last year, and we're planning to do this year in the current market is the best way to set ourselves up for success and continue to innovate. And I think that's where we believe it's the right thing to do right now for the future.

Now I will hand it off to Jim to give an idea of where he sees that going forward.

To me, there is both onetime savings on the cost of goods sold which we're seeing those come in almost surprisingly strongly this year. And our plans for next year are not quite as big, but they're still pretty aggressive. And then -- but the onetime savings will eventually will exhaust those. But I believe the -- there should be significant, call it, 3% a year input productivity savings which I think you would find in most of the manufacturing sector, even in highly developed countries, there are just always more efficiencies to be gained. It's just productivity in the economy goes up every year and manufacturing productivity goes up faster than service productivity.

So it's not out of the question to say we can take 3% out of our manufacturing costs forever. So that's how I would view that. It has given us fuel last year and this year, these onetime savings to increase our brand support. The rough numbers, you're talking maybe $50-plus million in 2025 and maybe 30 in 2026, so $80 million or so. And that in some ways is the cost of growth. We are, as a company, just [indiscernible] mentally and structurally oriented to try to drive growth. And you and I have talked about it. Growth is -- I guess, my view is growth is not cheap, but decline is really not cheap. So that's how I think about it.

Sorry, I was going to add at the end, Bonnie, is obviously, as we go forward in the next few years, how we see that trend, we have the ability to change that strategy, either double down or back off. So I would say it's the right thing that we believe for right now, and that's why we're guiding to where we're guiding. But it doesn't mean that as we go forward based on where the industry is and we are a company, we have the ability to go one way or the other.

That's an important statement, actually, Bonnie, that Diego just made. If we came to believe that there was no possibility of growth in our category and our business, then a lot of costs come out.

Okay. And at this point, there are no further questions. So that concludes our question-and-answer session. I would like to turn the floor back over to Jim for any closing comments.

Well, thank you to everybody for joining us this afternoon, and we look forward to talking to you in, I guess, it's about 2 more months. So thanks, and I hope everybody is dug out of the snow.

Ladies and gentlemen, that does conclude our conference today. Thank you for your participation. You may disconnect your lines at this time.

Greetings, and welcome to the Boston Beer Company Third Quarter 2025 Earnings Call. [Operator Instructions]

And as a reminder, this conference is being recorded. It is now my pleasure to introduce to you Mike Andrews, Associate General Counsel and Corporate Secretary. Thank you, Mr. Andrews. Please go ahead.

Thank you. 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 third quarter earnings call. Joining the call from Boston Beer are Jim Koch, Founder, CEO and Chairman; and Diego Reynoso, our CFO.

Before we discuss our business, I'll start with our disclaimer. As we stated in our earnings release, some of the information we discuss and that may come up on this call reflect 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 10-Q and 10-K. 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 for some introductory comments.

Thanks, Mike. I'll begin my remarks this afternoon with an overview of our strategy, operating results and brand updates and then turn the call over to Diego, who will focus on our supply chain and the financial details of our third quarter results. as well as our updated financial outlook for 2025. Immediately, following Diego's comments, we'll open the line for questions. I would like to start by thanking Michael [indiscernible] for his service as CEO and for continuing to provide counsel to me as a member of our Board of Directors. While I've now stepped back into the CEO role, our company priorities remain unchanged. They continue to be innovation, supporting our full portfolio of brands with advertising investment and focused execution and driving margin improvement. I'll personally be particularly focused on our high-impact areas, including our innovation pipeline and ensuring that we are appropriately investing in our brands through both advertising and local end market execution.

We've made strong progress on our margin improvement initiatives and to help continue those efforts [indiscernible] has been named Chief Operating Officer. Bill has 30 years of operations experience in consumer packaged goods at Carlsberg, Mondelez and Kraft Foods, and he has led our supply chain efforts for the last 3 years. His team has delivered strong efficiency improvements in our breweries, which have positively impacted our gross margins. In his new role, Bill will continue to report to me and will focus on continuing to improve execution across all functions and implementing our previously announced margin enhancement initiatives. I'm excited to be back in the CEO seat and to partner with our highly experienced executive leadership team to execute our plans to improve volume trends and create long-term shareholder value.

Now turning to the current industry environment. I mentioned on our last call that we were experiencing a challenging macroeconomic environment. And those trends continued into the third quarter. Economic uncertainty that has consumers more tightly managing their budgets as well as pressure on Hispanic consumers continues to impact consumer demand negatively across the overall beer industry moderation trends are also having an impact on demand and in certain states, hemp-derived beverages are competing for shelf space and drinkers. Despite these current industry headwinds, we continue to see long-term growth opportunities in the beyond beer category, also known as the fourth category. Beyond Beer represents more than 85% of our volume. We believe that the Beyond Beer category share will grow as the drinker is younger and more diverse than traditional beer. Our brands are well positioned to participate in this growth and our strong innovation culture allows us to move quickly to add to the portfolio as consumer trends evolve. The latest example is Sun Cruiser, which was one of the top volume gainers in RTD Spirits so far this year.

We're continuing to innovate and invest across our portfolio of brands to position us well for when the industry environment improves. As Diego will discuss in his remarks on our guidance, we are reinvesting some of our gross margin over delivery into additional advertising spend. This includes media spend as well as a new local market activation program. As part of this local activation, we're investing alongside our wholesalers to support local sponsorships, local radio, sampling teams, brand ambassadors and grassroots events support. With respect to innovation, we're currently testing a number of brands, and our goal is to further expand Sun Cruiser in 2026 and launch an additional innovation brand.

With that as context, let's move on to our results and brand performance. In the first 9 months, our depletions were down 3% and compared to an overall beer industry that we estimate to be down over 4% in volume. In the third quarter, our depletions were down 3% and and as we expected, shipments were significantly below depletions at down 14%. As we mentioned in our last call, this was mostly driven by shipping ahead of depletions in the first half of the year due to the timing of wholesaler demand for Sun Cruiser as well as lower than target wholesaler inventory levels last June. In terms of depletions, we're encouraged by the strong consumer reception to Sun Cruiser a second consecutive quarter of growth in Angry Orchard and positive drinker reception to our higher ABV offerings. However, industry headwinds are impacting our larger brands, particularly Twisted Tea, which are likely to persist for some time.

Despite a softer volume environment that we planned at the start of 2025, we have delivered strong margin expansion and grown our EPS for the first 9 months of the year. This was primarily driven by continued progress on our profitability initiatives, which Diego will discuss in his remarks. And to a smaller extent, a positive product mix from our new product innovations. These efforts have allowed us to raise our gross margin guidance for the year, while we continue to absorb tariff costs. We also hit record high consumer service levels and reached over 50% gross margin in the third quarter, which is our highest gross margin since 2018. Our business generated over $230 million in operating cash flow in the first 9 months which enables us to both invest in our brands and repurchase over $160 million in shares year-to-date.

I'll now provide an update of our brand performance and plans. Twisted Tea had strong growth for many years and is the #10 brand family in the overall beer market with over $1.2 billion in annual retail sales in measured off-premise channels. Going into the year, we planned the brand to growth consistent with an FMB market that grew 7% in dollar sales in measured off-premise channels during 2024. During 2025, the brand has gained distribution but has declined in velocity and retail displays and features. Year-to-date, in measured off-premise channels, Twisted Tea is down 5% in dollar sales and losing share in an F&B category that is down 3%. We continue to believe that the macroeconomic environment is a significant driver of weaker alcohol trends and the deceleration in Twisted Tea performance. Inflation and general economic uncertainty below the middle income consumers has resulted in lower traffic at retail and fewer social occasions. The Twisted Tea drinker profile is particularly sensitive to these impacts as they typically have less household income than breakers of our other brands. Hispanic consumer buying rates remain challenged across the industry. Twisted Tea is slightly over-indexed with Hispanic shoppers compared to overall alcoholic beverage shoppers. They are a sizable portion of the Twisted Tea drinker base and have an impact on the brand's volume performance.

In addition to these macro factors, we believe the Twisted Tea retail displays are being impacted negatively by retailers making additional space for RTD Spirits, which are currently their key category growth driver. As I mentioned on our last call, according to numerator data, approximately 20% of the drop in Twisted Tea is due to the Vodka tea category, of which Sun Cruiser is one of the brands. To the extent that Sun Cruiser sources volume from Twisted Tea. This is revenue and gross margin accretive for us. Twisted Tea brand equities remained strong with growing distribution of very large organic social following and the highest organic engagement among the top 10 beer brands. It is a clear leader in multi-based HRT with over 85% market share in measured off-premise channels. So far this year, single-serve is performing much better than large packs which tells us that the consumer interest in the brand remains strong.

We believe that softness in larger pack sizes is driven by its higher absolute price point with more cost-conscious shoppers. To address this, we will refine our pricing in certain markets as necessary. In addition, in certain markets, we have recently added an under $10 for package 16-ounce pack to help increase lower price points and drive demand. Twisted Tea light and Twisted Tea Extreme are growing shelf space and velocities our packaging redesign has improved sales per point of Twisted Tea light, Twisted Tea Extreme Lemon and Blue Raz are still the top 2 growth SKUs in the convenience channel among all FMBs. To meet drinker demand, we're planning to add a Twisted Tea Extreme variety pack early in 2026. The we expect Twisted Tea Light and Twisted Tea Extreme to be growth drivers for the brand for the remainder of 2025 and beyond. We have strong advertising plans for the rest of the year to position the brand for future growth.

Key campaigns to drive awareness for the balance of the year include our high-performing key drop ads along with our college football and [indiscernible] programs with spends across ESPN, ABC and CBS during key college football matchups. Our college football program includes in-game advertising, sponsorships with ESPN and expanded retailer programs with team specific packages in key markets. In the coming months, we're adding other promotions, key programs and partnerships and media that resonate with our drinkers, including country music, NASCAR and WWE Wrestling, as well as NFL-related promotions. And lastly, we're increasing our investment in Hispanic and Spanish language brand content, including new media and digital content to continue to widen the brand's appeal to more drinkers.

In summary, Twisted Tea is our largest brand, and we're continuing to support it with advertising investment and innovation. We continue to believe that despite near-term challenges, these actions, coupled with an improvement in the macroeconomic environment will return the brand to growth in the long term.

Moving to Sun Cruiser now, which launched last summer and went national in January of this year. Sun Cruiser has been very well received by wholesalers, retailers and drinkers, particularly in the highly visible on-premise channel. Many consumers were introduced to Sun Cruiser in this channel, and we believe it is the right place to build the brand. According to Nielsen data, Sun Cruiser is the leading RTD spirits tea and lemonade brand in on-premise bars and restaurants. Sun Cruiser has quickly grown to become the fourth largest brand in the RTD spirits category, continues to increase distribution and has one of the highest velocities of the leading RTD spirits brands. It is now on shelf in larger national chain retailers and has tripled its points of distribution compared to earlier in the year. This expanded presence is beginning to be reflected in measured off-premise channel data. However, given Sun Cruiser's strong presence in on-premise and independence measured off-premise data still only reflects a small portion of the brand's total volume.

We believe Sun Cruiser will be the next iconic brand for our company and an important growth contributor for the beyond beer category. We are focused on building the brand's distribution, displays and retail promotion while investing in media and key sponsorships that keep the brand relevant throughout the 4 seasons of the year. From a product innovation perspective, we intend to keep a disciplined number of tea and lemonade styles while continuing to expand package options. Sun Cruiser will be available in the 19.2-ounce can format in New England this month, which will be expanded nationally in early 2026. Advertising support for Sun Cruiser is built around the let the good Times cruise brand campaign as well as sponsorships of sports and music venues, including NFL, PGA Golf and MLB media and sponsorship of the AEG music concert series. The media campaign also includes paid social and digital advertising and key influencers Additionally, Sun Cruiser's presence in AVP Beach volleyball and the World Surf League further reinforce its positioning as a brand for sun, sand and fun.

In summary, it is early, but we are very excited about the outlook for Sun Cruiser and its contribution to our hard tea portfolio. We will continue to increase investment in both Sun Cruiser and Twisted Tea with our goal for 2026 being to increase our share and grow volume in the overall R&T category. Turning to Hard Seltzer. The overall hard culture category declined 4% in dollars in measured off-premise channels in the third quarter as consumer preferences continue to shift towards more premium RTD spirits-based beverages, while Truly continues to be a top 2 hard seltzer brand and top 4, the on beer brand year-to-date, we're not satisfied with its performance. We are focused on improving Truly's brand message and relevance, promoting our lead flavor wildberry, bringing variety through seasonal rotator packs and building on the momentum of our high ABV innovation truly Unruly.

Our new creative platform we recently launched is built around, make your dreams come truly. This includes new creative content and a significant investment in regional media in key markets and new retailer campaigns. Truly will continue to leverage its relationship with U.S. soccer as it's beyond beer sponsor and its recently announced sponsorship of the American Outlaws, the official fan club of U.S. soccer. Truly will launch a U.S. soccer collector set of singles to help promote the year-long lead up to the 2026 World Cup which will take place in North America for the first time in more than 3 decades and include 11 cities and over 100 matches. High ABV offerings continue to be a bright spot in hard seltzer. Truly Unruly has grown to a 3% volume share of Hard Seltzer and the Truly Unruly variety pack is the number 1.12 pack share gainer in Hard Seltzer in the last 12 months. Our second variety pack Truly Unruly lemonade launched in April and is helping Truly Unruly build momentum and gain shelf space. In cider, Angry Orchard has returned to growth behind the consumer trend back to more flavorful options. Depletions grew in the third quarter and year-to-date, driven by a higher level of focus across the organization including increased investment and new sponsorships.

The new campaign don't get angry, get Orchard, and our sponsorship of WWE Wrestling, positively impacted results and helped the brand gain shelf space. The brand's current programming is focused on owning Halloween, and we are executing an exciting program featuring Jason from Friday the 13th movie-themed advertising, promotions, packaging and displays for Halloween and the peak fall cider season. Our beer brands, Samuel Adams and Dogfish Head have combined to hold share in a challenging craft beer category. We are excited that in early 2026, Samuel Adams will begin programs and promotions as well as launch limited edition packaging to help celebrate Americas 250th anniversary. For Dogfish Head, we are particularly pleased that Dogfish Head grateful dead beer collaboration has helped fuel Dogfish Head's return to growth.

In summary, I'm confident we have the right strategies and team in place. We're continuing to invest in our brands. We're building a strong innovation pipeline, and we're highly focused on our multiyear productivity initiatives. Importantly, we're focused on controlling what we can control. we're executing in the marketplace to improve share trends and to expand our margins. I'd like to thank our Boston Beer team, our distributors and our retailers for their continued support and remaining agile in a dynamic operating environment. I will now pass the call over to Diego to review our third quarter financial results and 2025 guidance.

Thank you, Jim. Good afternoon, everyone. As expected and as Jim noted, during the third quarter, our shipments rebalanced relative to our depletion, which unfavorably impacted third quarter shipments and revenue. Depletions decreased 3% and shipments decreased 13.7% compared to the third quarter of last year, primarily driven by declines in our Twisted Tea, Truly Hard Seltzer and Samuel Adams brands, that were only partially offset by growth in the company's Sun Cruiser and Angry Orchard brands. We believe distributor inventory of 4.5 weeks on hand as of September 27, is an appropriate level for each of our brands. Revenue for the quarter decreased 11.2% due to lower volumes, partially offset by increased pricing and favorable product mix. Our third quarter gross margin of 50.8% increased 450 basis points year-over-year, and it's the highest level we've had since 2018. Gross margin primarily benefited from procurement savings, improved brewery efficiencies, price increases and product mix as well as a favorable comparison against higher inventory obsolescence in the prior year. These factors were partially offset by increased inflationary and tariff costs.

Advertising, promotional and selling expenses for the third quarter of 2025 increased $16.8 million or 11.3% year-over-year primarily due to $20.9 million in increased brand media and local marketing investments that were partially offset by lower freight costs. General and administrative expenses for the third quarter increased $1.1 million or 2.5% year-over-year, primarily due to increased salaries and benefit costs. For the first 9 months of the year, the strong progress we have made in our supply chain initiatives enabled us to deliver 49% gross margin and generate $11.82 of EPS. Our 3 buckets of multiyear savings projects, which we are executing ahead of our initial timing expectations are positioning us to respond better to potential changes in the volume environment, product mix and tariffs. We are continuing to execute projects across all 3 buckets, which I'll now discuss. In brewery performance, we continue to see improvements in OEs driven by process improvements, which helped to increase our internal production capacity.

In the third quarter, we produced 90% of our domestic volume internally compared to 66% in the third quarter of last year. Year-to-date, our domestic internal production increased to 83% of our volume compared to 71% in the first 9 months of the last year. In our procurement savings, our third quarter results benefited from lower negotiated pricing on certain packaging and ingredients. Our efforts year-to-date have resulted in procurement savings more than offsetting inflationary impact. In waste and network optimization, we're continuing our efforts to improve our customer ordering and inventory management system that we implemented last year. These efforts resulted in a 28% reduction in obsolete inventories year-to-date.

Turning to our guidance. Given that 3 quarters of the year are behind us and our fourth quarter is seasonally smaller quarter, we are narrowing our volume guidance range and raising our gross margin and EPS guidance for the full year, inclusive of higher investment spending in our brands. We now expect our volumes to be down mid-single digits for the year. Our depletion trends for the first 42 weeks of 2025 have decreased 4% from 2024. We continue to expect price increases of between 1% and 2%. Based on strong gross margin performance year-to-date, combined with a lower-than-expected impact from tariffs, our gross margin guidance for the year is now 47% to 48%, up from 46% to 47.3% previously. We now expect tariffs to have an unfavorable impact of $9 million to $13 million, which is a gross margin headwind of 40 to 60 basis points. The change to our tariff estimate is due to lower-than-anticipated tariffs primarily on material source from Canada and exempt from the tariffs as a U.S. MC compliant goods.

In the first 9 months, we have incurred $7.1 million in tariff costs. Given our strong margin performance, we are using some of the upside to increase our advertising investments in our brands in the fourth quarter. We now expect increases in advertising, promotional and selling expenses to range from $50 million to $60 million, an increase from our previous estimate of $30 million to $50 million. This does not include any changes in freight costs for the shipment of the products to our distributors. We are revising our full year 2025 EPS guidance range inclusive of tariffs to $7.80 to $9.80, up from $6.72 to $9.54. Tariffs are expected to have an unfavorable impact of $0.60 to $0.80 on earnings per diluted share. As you model our fourth quarter, please keep in mind the following factors. Due to seasonality, the fourth quarter is our smallest revenue quarter with the lowest absolute gross margin rate of the year. Meaningful improvement in our gross margin performance beginning last year's fourth quarter, which we will be lapping. Additionally, we expect volume deleverage in the fourth quarter combined with a higher year-over-year shortfall fees.

Turning to capital allocation. We ended the quarter with a cash balance of $250.5 million and an unused credit line of $150 million, which reprise us with flexibility to continue to invest in our base business, fund future growth initiatives and return cash to our shareholders through our share buyback program. For the full year 2025, we are lowering our capital expenditure guidance range by $20 million to between $50 million and $70 million, with a portion of the reduction driven by timing. We continue to focus our spend on supporting our productivity programs. During the 13-week period ended September 27, 2025, in the period from September 27, 2025, October 17, 2025, we repurchased shares in the amount of $50 million and $12.1 million, respectively. As of October 17, 2025, we had approximately $266 million remaining on the $1.6 billion share repurchase authorization. This concludes our prepared remarks. And now we'll open the line up for questions.

[Operator Instructions] And our first question comes from the line of Nik Modi with RBC Capital Markets.

A couple of questions, just clarifications. Maybe Diego, Jim, if you guys can talk about the timing of some of the spend you talked about promotional spend, perhaps behind Twisted Tea. I'm assuming that would be more behind the 12 pack. And then some of this local marketing spend, Jim, that you discussed at NBWA, just -- is this year thing? Or is this going to bleed also into next year? So that was the first question.

And I guess the broader question is, given kind of what's going on with consumers and affordability I hear a lot of pack size innovation coming from Boston Beer, but what about smaller pack sizes? I think the carbonated soft drink industry has had a lot of success with 8-ounce can. Even Constellation has done some stuff with 7.5-ounce bottles. Just curious on your thought process there as it relates to maybe putting some of your core brands and some of those pack sizes?

Thank you, Nik. I'll start the question a little bit with the numbers and then I'll hand it off to Jim to talk a little bit more about the spend and where we're doing it. So I think if you remember at the beginning of the year, we said this year, we're really going to take up our spend and really support our brands. And so we've started this year -- you've seen in our results, how part of it has already been in our numbers, and we're going to double down in the balance of the year, and that's why we're taking up a little bit our A&P spend guidance. We're working on next year's plan, but there's no reason why we wouldn't continue to invest in our brands, given some of the things that we're seeing in some of the innovation like Sun Cruiser and some of the great results we've had there.

So I would say we'll come back in more detail for 2026, but definitely in the back end of this year, and we expect to kind of keep going into next year. We'll continue to support our brands, and we like the results we've seen coming back from Jim, I'll hand it off to you a little bit more in the detail of what we're doing around that.

Sure. Good questions around pack size. And we are figuring how to surgically implement some more promotional spending on Twisted Tea. So we are -- one thing that we've announced is a 4 times 16-ounce to a 4 pack of 16-ounce cans that will come under $10. It will be depending on the market, $8.99 to $9.99. So a more attractive entry point. And then on the 12 packs, which is the biggest source of weakness. Singles are okay, but 12 packs in certain markets are notably weak and we believe that the pricing got pushed up well beyond the traditional space where Twisted Tea has lived, which is kind of in between mass domestic peers and above them, but below crap, below imports and below many of the other FMBs to we have a more blue-collar drinker. So in some markets. I've been in markets where we were actually -- the 12 packs were priced above Modelo or Stella even. And that's probably the wrong price point.

So we're going to be surgical about trying to bring puts the price point on a 12 pack under imports under craft and in some cases, under other FMBs. With respect to like smaller sizes in beer, they're not that appealing. They don't represent much value. Consumers 10 to 12 ounces. And from a margin side, you start doing like the Coronado is a 7-ounce bottle the costs are not that much less than a 12-ounce bottle. So per ounce, they're significantly more expensive. So in terms of the price pack architecture, we're looking ways to deliver comparable or more value. So on one hand, we'll have a lower entry point with a 460-ounce cans. And then on the other side, we will have right markets 18 packs and 24 loose paths that will present to the consumer more value.

And the next question will come from the line of Filippo Falorni with Citi.

I wanted to talk on the gross margin performance, very strong performance again. So congratulations on that expansion. Maybe like what levels were you able to extract considering the volume deleverage this quarter that came in better than you expected? And then just more broadly, Diego, maybe like you talked about the high 40%, low 50% gross margin target in the next couple of years. Are you feeling better in terms of getting there maybe a little bit faster than you initially anticipated? And maybe what are the drivers of potentially getting to the target.

Thanks for your question, Philip. First, just to clarify, I think I've always said high 40s, so I'm not sure I went to low 50s. But I look to -- we're really happy with gross margin. I mean we haven't had a quarter like this in a long time. And it's a result of constant projects, savings agendas and deliveries by our operations team and the rest of the organization, price mix, revenue management. So as we laid out a couple of years ago, we said, look, we think we can get to high 40s despite or in spite of volume changes because we had 3 big buckets, which was procurement savings, which was brewery efficiencies and with was our distribution footprint. And the reality is, what you're seeing now, it's a little bit of an acceleration of how long we thought we were going to take to deliver on some projects, but it's those same areas that are delivering.

So I feel very comfortable of our ability to get to and maintain high 40s. Now in order to get past that line, then you do have some other things that we have to take into account volume being one of them. and then tariffs, for example, being another one where this year, we only have a fraction of what the wraparound would be if nothing changes. So what I would say is we internally we definitely want to go past high 40s and get to 50s. But to get there, we need to, one, continue down the projects that we're currently running in our savings agenda. But two, we do have now at that level, we do have some dependencies with volumes and costs and inflation. So we will ensure that we get to the highest number that we can. But right now, we're very, very happy with where we are today.

Great. That's helpful. And then maybe just did you offset the shipment deleverage this quarter maybe were the levers that you were able to pull to kind of offset the negative this quarter?

Yes. That's a great question. And one of the things that I think it's important to remind people is it's really hard to look at quarter-to-quarter because although we talk about shipments and depletions, there is one other volume that we don't talk enough about, which is production. And therefore, it's not just how much you ship, but it's also how much you produce. And we had a strong production numbers, especially in our own footprint. So if you look at our percentage internal and external, it was up significantly versus last year. And therefore, that helped us that plus the brewery efficiencies plus the other buckets that I mentioned, helped us offset that from a volume point of view. So if going back to some of the numbers we had 90% in Q3, internally, we had 66 last year, as just as a matter of how we plan out the volume. So that helped us in the quarter.

And the next question comes from the line of Peter Grom with UBS.

So I wanted to get some perspective on just how you see the top line growth evolving within your portfolio as you look out over the next 12 to 18 months. Obviously, some cruiser momentum has been impressive this year. You've been able to partially send the declines that you're seeing interested in truly. But you highlighted some of the challenges which that are likely to linger. It seems like truly could be under pressure as well. So just as you think about the path forward, and I know we'll get guidance ever. But just how do you think about the move pieces as you look ahead given what we know today? And maybe specifically, whether you think the growth or the contribution from Sun Cruiser can be as strong next year versus what we're seeing this year.

Perfect. Thank you for the question. I'm going to start the answer, and then I'm going to hand it off to Jim. So as you've mentioned, we're working on our 2026 plan. But there are things we're very happy with. Sun Cruiser we're very happy with. It's 1 of the top brands, and we still think it has a lot of runway. So from that part of your question, yes, we still have strong hopes for the brand. We also have other innovations and things that we feel strongly about. But it's also important where the total market is. We like our portfolio. We like the ability to win share, but there is a question of where the market is going to go, and I think that will be a piece of it. So in that tone, I'm going to hand it off to Jim and Jim, please, if you can share your view.

Yes. In general, we are looking to at least maintain share for each of our brand families within their segment, if you will. So Sam Adams and Dogfish Head has said in Craft Beer, which we were able to do this year, Angry Orchard and Hard Cider, it's actually gaining share as it grows, our issues are Twisted Tea and Truly to be honest. Twisted Tea surprised us. It was couple of months of 2025 that was positive by -- it was growing maybe 5%. And then it's relatively quickly in this business flipped and if you look into kind of in the last 13 weeks, it's gone from plus 5% to down double digits. So our view of twisted is it ought to be able to maintain share within the FMB category. It's one of the two largest brands in that category. It's got significant marketing support ranging from what we believe are effective national advertising campaigns to a lot of local marketing and support with our wholesalers. So we would look to get that back to holding share within the category.

And the same thing with Truly. It is, in fact, been losing share in Hard Seltzer. And we've seen some growth from both styles in Truly Unruly. So we're -- that's growing as a part of our portfolio, but we would like to get that close to the category. And we are, as you can see, ramping up brand support in all the different levers that we have with Truly, we're the sponsor of the U.S. soccer team. So we believe that the World Cup will be a major event in the U.S. We're doing special things in the 11 cities and our wholesalers and retailers are very excited using Truly as the World Cup ramps up and takes up a lot of the summer. So that's how we look at those 2, and that leaves Sun Cruiser, which we believe has significant runway.

Next year, we will have full presence in chains. This year, we really missed most of the chain sets in the spring and how it kind of limp in during the fall resets, but next year, we will have a full across all of the major chains, full representation. We're very happy with the performance this year just didn't have distribution, but we were the #1 in tea, vodka lemonade in Walmart, where we did have good distribution. So we think we'll have a full year in market next year. We are focusing on some underpenetrated markets in the that Atlantic area that are big butt markets where we're not where we think our share should be. So we see another year certainly grown double digit, maybe even triple-digit growth for Sun Cruiser in 2026.

Great. And then just on the brand support, you mentioned -- how do you think about the balance of reinvestment versus kind of allowing savings to flow to the bottom line? I just -- I understand you have more flexibility and you want to support the brand longer term, but it doesn't seem to be shifting the depletion performance in the near term. So just how should we think about that moving forward?

Go ahead, Jim.

You should think of us as having a bias towards growth. That is how we look at the world. We believe that we should be growing our revenue as a company we are heavily weighted away from traditional beer towards what people call beyond beer, I like to call it a fourth category because it's not just beyond beer, it's beyond liquor, beyond wine. And the there's a bunch of different ways to define that beyond beer. But the way we're looking at it, it is -- there's a big growth gap between traditional beer, which this year looks like it's off by maybe 5.5%. We'll see where the numbers come in at the end of the year. And then beyond beer, which is down maybe 1 or 2. So there's a 4% gap. And we are thinking next year, it won't be down were 5.5% for the overall beer category we're thinking it will be down less, but we don't have a crystal ball. And we're thinking that the fourth category will return to a very modest growth next year.

So we play in a part of the total beer and beer like SKUs much more heavily than the rest of the traditional beer industry. So we believe that we are playing in what will be a growth category over the long run, and we're investing accordingly.

Yes. I will also build on -- I will build on Jim's point just to clarify. If you look -- if you go back -- if you just look at this year, yes, you can say, well, the split between how much has gone to profit versus the brands. But if you look back 2 or 3 years, we've actually generated savings for both, right? We've improved our profitability, and we've invested in our brands. So I think what we've shown that we are very good at is reacting to the market. So the market conditions and where our brands are, I think we're doing the right thing. But we're also -- as we go forward and plan for next year, I think where things are working, we'll invest more, where we feel like we should drop to the bottom line or invest in something else, we will. So we will continue to share our capital allocation as we go forward with you guys.

And the next question comes from the line of Eric Serotta with Morgan Stanley.

Great. A couple of housekeeping items. First on the year-to-date, I think it's 42-week depletions were down 4% versus down 3% through the 39 weeks. Is that just rounding and maybe a case of down 3%, 4% versus down 3.6%? Or did the business slow in October?

So I mean, the numbers are very close. So it's not there was a significant change in the last period. It's to your point, more about where the numbers end up.

Okay. And then, Diego, your comment on the higher volumes and your own production footprint in the quarter and the higher production volumes overall. Do you see that as sustainable into the fourth quarter and early next year? And more broadly, where do you stand in terms of reconfiguring the third-party production that you guys have put in place several years ago now?

Okay. Let me break that into the different parts of the question. So no we don't foresee that going into the fourth quarter, and our guidance reflects that. As we've said before, the fourth quarter is our lowest production volume of the year. And because of that, the lowest margin quarter by far. They're so we're also lapping, for example, Sun Cruiser had already started a little bit last year in the fourth quarter. So no we're not projecting in our guidance for that production strength to continue into the fourth quarter. But that's why we focus on the full year guidance because quarter-to-quarter, it can easily move without it being significant to the full year guidance. 2026, we'll come back and we'll talk a little bit more when we give guidance for 2026.

And the third part of your question is we are constantly updating our relationships with our third-party, but I do want to remind people that the volume need is not the only reason why we have co-packers. Part of it is also it has allowed us not to have to build a facility for any type of emergency or any reason we would have to stop our production in our own facility. So we always have a backup and then we feel that's important. And it's also geographically advantageous for some of our products. So we are continuing to review that, and we -- every couple of quarters, we look at upcoming renewals of contracts, and we'll brief you as those come up.

Great. And then just one last housekeeping item. I believe you gave the shortfall fee outlook in the Qs the latest, but can you just remind us the amortization of the prepaid expense, does that step down next year? And sort of what's the magnitude there?

Yes, you are correct. Like there's 2 pieces to the shortfall fees. So the amortization does go away, but we continue to have the regular short part piece. So you can see in our 10-Q, you can see year-by-year what our forecast is for each one of the shortfall fees. And I'm happy to send it to you need.

I could check the Qs, but thank you.

And the next question comes from the line of Robert Ottenstein with Evercore ISI.

This is Greg. This is Greg on for Robert. I was wondering if you could just talk a little bit about the impact from both hemp beverages and then the Hispanic consumer on your products. You talked about them both on like a higher level -- but have you guys done any work into like how much of this 5% to 5.5% decline in the beer category is due to the weaker Hispanic consumer and then how much you think hemp beverages is impacting demand to your products?

Jim, would you like to answer that question?

Sure. There isn't really great data on these things. So I'm going to be pulling numbers out of the air. I think for us, the -- about 20% of our drinkers for Twisted Tea are Hispanic, and that's broadly reflective of the total market. I would -- the biggest -- to me, the biggest 4 things are basically the overall macroeconomic situation, which kind of broadly is okay. But for the 80% of the population in the bottom quintile it's not good. And that's -- those are heavily beer drinking. So that's weak. The second is health concerns. So those to me are the 2 biggest things. There's just lots of media on alcohol causes cancer despite income of sciences and their more considered opinion. So we have that -- those 2 big things going on.

Hemp it's smaller, maybe of that 5.5%. It might be 1% because it's limited to only a smaller number of states and availability. And I guess so that's the economy and the health issues, I think, are the 2 biggest things, and maybe those represent over half of that 5.5% and then the Hispanic community and then hemp. And after that, you have a little noise things, GLP-1 and things like that. Does that help?

Yes. That's great. And then just maybe within the hemp beverages, when you guys see consumers like moving towards some of those products and like which of your products do you think are most exposed to those market share losses?

I don't think we have that level of detail, to be honest, just by each one of the brands because to Jim's point, it's such an evolving legal framework and category like every day you wake up and a state is in, it's out, et cetera. So that would be a hard question to answer. But as we go forward and things clarify, we can share that.

Thank you. And our final question comes from the line of Bill Kirk with ROTH Capital Partners.

So I asked a very similar question last quarter, but now year-to-date EPS is almost $12 a share. Full year guidance implies a 4Q loss of $4 a share to $2 a share. So when you look at 4Q, is there really no scenario where you see positive EPS. And I asked because before 2021, was always a positive earnings quarter. Since 2021, it hasn't been positive once, I don't think. But I guess, what changed with the earnings seasonality that makes 4Q a negative earnings quarter?

So well, clearly, you didn't like my answer last time. But I think -- look, we've been very clear how the fourth quarter is always the lowest quarter. But one of the things we did do this year and we -- from the beginning, we said is we were really going to try to produce a head of demand to avoid some of the issues that we saw in the summer last year and at the end of the year. And also, we had very high hopes for Sun Cruiser. So again, from a production shipment point of view, we went ahead -- and you saw our days kind of grow in the second quarter and start coming down in the third quarter. So there has been a change in our production and shipment pattern from previous years as we've really tried to make sure that our distributors and our customers had access. That would be one.

The other one is we took up our guidance for marketing spend. for the full year and that -- a lot of that will come in the fourth quarter. So we are going to invest significantly more in the fourth quarter than we did last year in our investments. So I think if you put those things together, that's why the full year guidance is we're improving it in total, but Q4 has a different shape than the year before.

Bill, I can give you a little more color. Essentially, what's happened over the last, whatever it is, 5 or 6 years, our mix has moved to -- from primarily craft beer and hard cider to primarily Truly and Twisted Tea. That means we've moved more to very summer-oriented beverages like Truly, tea and now Sun Cruiser away from Sam Adams and Angry Orchard and Sam Adams was always a trade up, much like the fourth quarter is the biggest quarter for spirits. It was a trade-up to Sam Adams when people were entertaining, they were out, on-premise was strong. And per Angry Orchard October and November are the biggest months because it's big Halloween, Thanksgiving, Apple Harvest those kind of things. So our primary products move from more summer oriented away from more Q4 or reacted.

That makes a lot of sense. And then a few years ago in Vermont, right? They put spirit-based RTDs next to the Malt products. At the time, I would guess that you wouldn't have supported that change. But now with Sun Cruiser, where does Boston Beer stand on channel access initiatives for spirits or even tax equivalency proposals? And are there any large legislative changes out there that are possible in the near term?

Jim, I will hand that over to you.

Yes. Our position hasn't changed. We think that historically, I mean, going all the way back to, I think, 1794, the first sort of broad taxes in the U.S. that were not import duties, we're on whiskey. So spear and not on beer, beer did not get a federal tax to believe it or not to fund the civil war, which was a little while ago, but the tax hasn't gone away. So we support the historical tax structure and availability structure that's served the alcohol industry quite well since prohibition. So our position on equivalency hasn't changed. We believe there's a difference between beer is the beverage moderation and our friends over in the spirits industry. We're still with the Beer Institute on this.

And at this time, there are no further questions. And now I'd like to turn the floor back over to Jim Cook for any closing remarks.

Thank you all for joining us, and I'm looking forward to talking to you again in February when we can sum up this crazy year in the beer business.

Thank you. And this does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.

We're going to get started. It's wonderful to have Chairman, Founder, Brewer and CEO, Jim Koch, joining us in Boston once again. Jim, as you know, and I say it every year, enjoying a beer with you on stage is the highlight of my September and a wonderful way to end the conference. So thank you so much for being here again and prioritizing this event for us and for Barclays.

So it's your first time in the CEO seat in nearly 25 years, but obviously, you've remained highly active in the company and the industry since founding Boston Beer in 1984. How would you say your leadership style has evolved? What are you doing to ensure a strong succession plan?

Yes, you're right. It's the first time in this century that I've been CEO, I've sort of avoided it for a long time. And it hasn't been a big change. It's not like I left. I mean I've been engaged more than full time all through the executive Chairman type thing. To answer your question, evolved, I think I've learned to delegate more and I very much focus my role, not on things that come with the title, but on sort of a matrix, a 2x2 matrix of can I add value or not? Yes or no. And -- is it important to the company's success, yes or no. So I try to focus on the upper right-hand quadrant. And don't do things and maybe I should do like meet with analysts or something like that, where I'm not really adding any value to the company.

So does that make sense? And I am -- I don't want to do this for a long time. So it's going to be a few years, but I'm working on developing multiple CEO candidates internally because my experience has been -- and the statistics are very much in favor of internally promoted CEOs. I believe the success rate internally promoted CEOs success defined as are they still here in 18 months is about 80% and for external hires, it's 50%.

Okay. Yes. Okay. That's great. I can't [indiscernible] it was my second question, but I am. The debate among the investment community around soft U.S. alcohol consumption and whether it's cyclical or structural, we've been trying to wait until like the 10 minutes or so the conversation.

We worry about it too.

We're jumping right in. Yes. So when we were here together last year, you were probably the most direct and open-minded, frankly, of any of the other CEOs or leaders in the alcohol industry around the chance that there are some things here that are sustaining. And you, at the time, talked about the various structural headwinds is amounting to like a 1- to 2-point drag to the industry to consumption, maybe some offset from population growth. How do you think about these puts and takes today? We've got a year later, we've got this challenged Hispanic consumer base that could weigh on population growth and social behaviors over the next couple of years. So how your thinking evolved?

I think those are real. It's -- the issues -- last year, I felt like they're not going away, and we should recognize them. I think that's still true. The -- and I don't know whether you categorize them as cyclical or structural. There's definitely nonstructural is that we had -- the weather sucked in the second quarter, okay? And we're seeing a little bounce back from decent weather. But there are -- and maybe to simplify it, we can think of 3 ages. The most important is health. The dialogue on the alcohol causes cancer is at a much higher and more pervasive level than it was a year or 2 ago for -- and that to me is probably the biggest thing, but the pressure -- social economic pressure on the Hispanic population, which was the contributor to population growth has probably reversed.

So I don't know whether -- I don't know how you classify that. We get a new administration, maybe the current one satisfied and they let up. But that's not something that's going to go away next quarter. And that's affected everybody. And then there's hemp and that's very spotty. It depends on what state you're in, but you get places like Minnesota, Louisiana, where it's clearly taken mid-single digits or something like that out of beer. It's different than marijuana. Weed is not sold in the beer cooler, but hemp based THC is in some states. And it's -- I mean, and it just ranges this gamut here in Massachusetts, the government just said, it doesn't matter where the THC comes from. We don't care about the farm bill. You're selling THC, it's got to go through a dispensary. So it's out of the mainstream. It's not on your shopping trip. You got to be -- make a special trip to a dispensary.

And when you get there, they don't have big coolers. They don't have space. They want to sell bud, they want to sell gummies. Take Louisiana or New Jersey and New Jersey in a total wine, you may see 30 feet of hemp-based THC products and they're totally unregulated. You literally could sell a can of hemp-based THC with 100 milligrams of THC in there next to the crayons at a Toys "R" Us and put it in your child's lunch box and they could share it with their friends.

It is -- that's the range that you have. And it's very uncertain. There's a lot of flip-flopping. We've all watched Texas. First, it was legal and then tenant Governor Patrick went after it, and they passed the bill to the House and Senate, got to Governor Abbott's desk to just ban it, the same as any other THC. Abbott decided no, we'll regulate it. We'll call a special session back. And then they decide they're going to redistrict and THC gets off the -- and they never really revisited it. So it's it went from unregulated and legal to banned and regulated and all the way back to unregulated and legal. So it's hard for us to deal with that kind of stuff. I don't know is that structural? Is it cyclical? It's out there and it's real, but it could go away tomorrow.

Yes. So we had health, Hispanic, hemp. We're missing one.

No, just 3.

I thought I said 4. That's great. No.

I could make up one.

Okay. Thinking about medium-term growth for beer versus beyond beer or as you put it, the fourth category, how do you think about that?

I think traditional forms of the 3 traditional alcoholic beverages, beer, wine and liquor I think they are all 3 going to be under some pressure for a bunch of reasons. One is they've been around for a long time, and so they're a little stable, but you need innovation within those. The other is they're inherently acquired tastes. They all have a flavor structure that our physiology evolved to not like.

Beer is bitter. It's supposed to be bitter. It's got hops. First time you taste beer, that's bitter, particularly a good beer because evolution-wise, things that were bitter tended to be bad for you. So we evolve not to like it, but you can overcome that and begin to appreciate it. Same thing with wine. It's panic and it's acidic. Your first sip of wine is not, again, what we evolved as humans to like. And of course, liquor has that ferocious ethanol attack on your pallet that you reject your first swing of vodka, it's not something enjoyable. And the -- and liquor maybe was the first ones to figure out, well, let's not sell them liquor. Let's sell them mixed drinks where you have a whole different flavor profile drinking a margarita than a swing of a shot of tequila. And that enables the producer to make things that people are wired to like, which is basically -- I'm oversimplifying it, but sweet and fruity. We're kind of wired to like sweet and fruity.

And in the fourth category, that's -- you're getting as a maker, I can make -- I'm not limited by the structure of the base underlying alcoholic beverage. I can make things of almost infinite flavor plasticity and adapt to consumers and move with consumer taste. So to me, the fourth category is inherently advantaged in terms of innovation. And it's -- for us, we came to recognize this quite early, 20, 30 even years ago and began evolving in addition to craft beer, we've made hard cider, which was once the biggest form of alcohol in America before the civil war. And it's sweeter and fruitier though it does have some tannins in it, but they're modified and then Twisted Tea and so forth.

So -- and today, that's by far the biggest part of our volume base is this fourth category, which is this year, will it grow? Not sure, but it's going to outgrow traditional beer. It's going to outgrow traditional wine. It's going to outgrow traditional liquor.

And finally, those products want to be sold -- they want to be made and sold by brewers. Because there -- they have the price structure, they're in the cooler, you need efficient logistics. A beer wholesalers truck carries 1,000 cases, a wine wholesalers truck carries 300. I mean the logistics, the economics, and you want to produce them in a place that has high-speed can lines, has mixed blend technology and maybe has pasteurization. Only brewers have all this stuff. So brewers should win in the fourth category. And so that's where we've focused.

Okay. Great. The beer industry is on track for a mid-single-digit decline this year following a few years of outsized declines even before 2025. How would you assess the industry's response to the slowdown? What more can or should be done from an industry standpoint?

A couple of things. One goes back a long way. For many years, the beer industry funded an institute at Johns Hopkins, whose mission was research, medical research in alcoholic beverages. And we were a tiny, tiny part of it. It was based on your volume. So we were like 1% of it. Most of it was the big brewers. And it produced a lot of studies. Some of them said alcohol is good, some said alcohol is bad I'm oversimplifying it. But that was the whole point is fund studies so that there is neutral research out there.

And 11 years ago, the beer industry stopped doing that. And we are now kind of seeing the results because the research and the health effects of alcohol has basically been funded by anti-alcohol groups and gone to researchers who were more likely to produce negative stuff based on their previous research. So there's been an absence to me, of balanced research, and that's a self-inflicted wound that the beer industry did to save a trivial amount of money. So that's I think we should be thinking about that, and that's not going to make a difference for the next 4 years, but all of our -- at least I care about where we're going to be.

I'm not going to be in another company in another job. So -- and I think there are other people in this industry that feel the same way. So maybe it's -- we can get it revived. The advertising needs to be good. And I think just continuing to execute at retail. And I think the industry has gotten a little bit away from that into marketing, social media, but they've pulled back and the distributors same way. They pulled back their resources from executing at retail, especially on-premise, which is where fun happens, where people build great memories, where brands get built. Wholesalers in COVID discovered it's only 10% or 15% of our volume, but it takes up 30% of our sales force time making a call -- make a call on this hotel, it's a couple of hour call.

And if you really -- and there's 4 people you got to see. There's a guy who runs the bars. There's a person who runs catering, which is actually the biggest. There's the one that stocks the mini bars, and there's somebody else who does the restaurants. There's I mean -- and the volumes aren't that huge. So I think the industry has -- and this is more true at the distributor level has withdrawn support for the on-premise. And we've stepped up our sales force. We've tried to fill some of that gap. And we very much focus on on-premise. Sun Cruiser in New England is very successful, and it was built on-premise. We went there first. And it's more expensive, but it builds a stronger brand.

Okay. Great. Just closer in for a moment. I know we talked about the terrible weather in June, you mentioned earlier. But overall, what would you say about the U.S. consumer environment through the end of the summer? Do you think more promotion is needed to drive volume improvement if the consumer backdrop deteriorates if we get the anticipated inflation broadly coming off of tariffs as we go through the end of the year?

I will preface this with -- I'm not the expert on this. I mean we don't do tons of research at that level. We just read what everybody else has read. I live in Newton and Palm Beach. I mean that's a bubble. So I'm opining about a world that I don't necessarily see. So with that caveat, my sense is the top quintile of the income spectrum is doing reasonably well, has confidence. The other 80%, which is a lot of our drinkers is uncertain, anxious. I mean there's just -- there's a lot of turmoil in our country right now. We're really not sure where we're going to be. Trump puts in tariffs and then the court says, well, you don't have the authority to do that, but then it's going to go to another court. I mean these things are -- there's a lot of instability that causes fear, uncertainty, doubt at the consumer level. And especially, I think, in the 80% that is less economically secure. I mean I do see that when you're calling on retailers, there is that fear.

You mentioned Sun Cruiser, so I want to talk a little bit about that. You've had great early success with it. I'm curious how you're applying lessons learned from Truly. Truly had a really rapid rise, but then a subsequent decline. So how do you apply lessons learned from the Truly experience to Sun Cruiser?

There's a couple of lessons. One of them is build it from the bottom up, put roots down. So we're -- with the rollout of Sun Cruiser, we're not doing it with like national advertising and national programs. We're doing it -- we're looking market by market in the 30 major metros that make up probably 70% of our demand. So it's -- we're looking at what's going on in Orlando and why is that different from what's going on in Jacksonville. And south of Delray, you got to -- we're seeing a different set of circumstances than we are in Broward and Palm Beach counties. So -- and we're very focused on on-premise, which I think gives it more durability.

Second, we are being more hesitant about SKU proliferation, flavor proliferation. We basically got with Truly at its peak, I think we had 7 different flavor families. We've got 2 lemonade and tea with Sun Cruiser.

Okay. Great. And then on the flip side, Twisted Tea has carefully scaled that brand over several decades now but more recently has had some challenges. Can you talk a little bit about the action plan to optimize Twisted Tea's pricing and retail presence to get back to that historical growth rate and also preserving brand equity while you address these dynamics?

Yes. Well, we're not -- Twisted Tea was a very long-term build. It grew double digits for over 20 years. I don't think we're going to grow at double digits, just too big at this point. It's, I think, the #10 brand in beer. And to be totally honest, we were surprised by the slump. I mean we came into this year with it's growing in high single digits. And in 6 months, it's down to low single digits. So I mean, honestly, it caught us by surprise. So we spent the last couple of months trying to sort out what's going on, the responses that we have are multiple.

One, we need to strengthen even in these hard times, the Hispanic connection. So we have now a Hispanic Twisted Tea ad in -- literally in Spanish. We have a sponsorship with Boxing, which over-indexes among Hispanics, particularly Mexican Hispanics. We are extending it for the Anglo population, we're renewing our sponsorship with NASCAR that was the first real big sponsorship, and then we moved on to college football. We're going to -- we're adding, as I said, boxing for Hispanics and NASCAR for the traditional Twisted Tea blue-collar base. And we -- in some markets, raised price too high and too fast, particularly on 12 packs. I mean what we're seeing is singles are fine, but 12 packs are off 15%, 18%, 20%, depending on the weakened Circana you look at. And that tends to happen most where the price went over $20 a 12 pack, and we got close to craft beer pricing.

Historically, it's been lower than that. So we're looking at those markets where we got -- I mean, it was growing 20%. If you can't raise price when you're growing 20%, when are you going to raise price. So now we're going back and addressing those markets where the gap between mass domestic and Twisted Tea got almost as big as the gap with mass domestic and craft and tea needs to be in the middle there. It trades off against mass domestic, Bud, Bud Light, Coors, CoorsLight and the gap got too big in some markets. So we're going to surgically set that back to where it was the gap was earlier.

Okay. And do you have a sense for time horizon for that, so when people can sort of expect or I guess, gauge whether or not that is the answer.

Yes. Well, when we simulate it, you can do that with numerator data and so forth. It's like 20% of the answer, 15% of the answer. It's not the full answer, but it's a lever we can pull. We'll start and we'll meet with our distributors, explain it, show them the data and get their consent and agreement on it because we don't just reduce the price to the wholesaler and they pocket it. So it will take a little while to undo it measured in months. But I mean the rest of the -- so that's a fraction that's one package in maybe 1/3 of the markets. But we do believe -- I mean that's -- it's clear in the data that we overreached.

So I -- I mean we're starting these actions now and we'll see them. And we lost display activity because frankly, RTDs took it. I mean you go into a store and there'd be a display of High Noon and Lucky One and Sun Cruiser and Surfside and a smaller display of Twisted Tea. A year ago, we had that display. So hopefully, we're going to focus over the summer of '26 for getting those big displays back.

Okay. Great. So gross margins have emerged as a key achievement and you recently raised the 2025 margin guidance. How do you plan to sustain and build upon these gross margin improvements this year while still addressing challenges that you have like the 70 to 100 basis point hit from tariffs, ongoing inflationary pressures. So maybe talk about ongoing some of the productivity programs and initiatives that you're focused on.

Yes. Those obviously have been a significant success and fueled a lot of the resources to support the brands. I think there's still significant savings to come out. They're sort of in 3 buckets. One is procurement. And we're now -- we're just getting out of some of the legacy contracts especially for cans that we put in place 5 years ago when there was a can shortage. We were bringing seltzer exploded. We were literally bringing in cans from China. I mean we're shipping 40-foot containers are basically air. There's maybe 300 pounds of aluminum in there, rest of it was air. So those contracts are rolling off. So you're seeing some of that, and there's still some more to be done on that.

The second is just production efficiencies in the breweries. Again, there's a lot of this after effect of Truly. I mean our volume doubled in 3 years. We weren't worried about cost effective or anything. It was once literally in a lifetime opportunity, this explosion of hard seltzer. So I've always said our margins can get into -- can get over 50%, maybe even in the mid-50s. So I believe there's still some run room there. And then there's these network optimizations. It's a bunch of stuff, but we -- the truly explosion, we need outside warehouses. And so things get handled lots of times. We'll make it in the brewery in Pennsylvania, but then we load it on a truck and ship it to a DHL warehouse 10 miles away where it sits and gets handled and then gets back on a truck and gets shipped back to the loading dock of the brewery and goes out.

So over the next couple of years, we're going to get rid of all of that and begin -- and that's a lot of money. We have that in all of our breweries. We believe we'll get out of those warehouses in the next 6 to 12 months in Ohio completely and then Pennsylvania comes after that, and we have the same things at City. So there are still significant pockets of savings. And what we do with that is maybe a little different, but we believe and have demonstrated over our 40 years of existence, I mean we're a growth company. We've been able to find growth when nobody -- when it was rare in the beer business that's been driven by effective innovation and by the largest sales force in the beer business that can execute innovations at retail.

So we're built around growth. And the fuel for that is continued cost savings that will enable us to properly to realize the potential of our existing brands and to get incremental growth on top of that through innovation. So that's kind of my standard is in our core brands, we should hold share. And in general, we're weighted to the fourth category, so holding share is pretty healthy. And in our innovation brands, that should give us volume on top of that.

Yes. Okay. And to this point, you're increasing advertising investment meaningfully this year, which I think is largely driven by Sun Cruiser and then the Truly refresh. How are you measuring return on investment? And should we think about 2025 as an elevated year? Or is this a reset to a more appropriate run rate level of support?

Think of it as the latter. And yes, we spent a lot of money on Sun Cruiser, but we got a payback. So it didn't fall the bottom line, but we suddenly got a significant new brand without having to invest more than the gross margin. So I consider that if you're the first real year of national rollout where you're investing in advertising heavily, yet it still has some small contribution to the bottom line, that's very successful. We believe we have a pipeline that is -- that has similar potential. Sun Cruiser was a holy s*** thing, but we believe that we can generate further innovations.

Now, we have lots and lots of failures. We're -- I mean hopefully, you haven't heard of Loma Vista or general admission. No? Okay. That's good. In market now, we have -- what do we have? We have a product called Sinless, which is vodka cocktails with no carbs. So you can get a cocktail knowing it's 100 calories. It's 4.5% alcohol, tastes great and it's carb-free. We have -- just hard squeezed, which is a 10% real juice product. We'll see. We've got social pop, which is an alcoholic version of poppi. And these are just -- they're in test market. And I guess from my point of view, if we do 10 of those and 1 becomes a 10 million case, $250 million brand, I'm good with that.

So -- and we're kind of built around regular failure as a company. We're built to generate those. We're overweighted in the skill sets that it takes to do that. But growth is expensive. So we will take most of those savings and put them behind maintaining share in our existing brands and growing the overall volume of the company, not just share and then, yes.

Great. We have time for one more question. So I wanted to end talking about capital allocation. You repurchased 110 million of stock in the first half of the year and recently announced a 50 million share buyback through the end of this year. How are you thinking about the priorities in terms of uses of your healthy cash balance?

I mean I'm the biggest shareholder. So I tend to want to think as a shareholder. And so to me, it's like, okay, we have -- we're cash generative. We have a pretty good model that way. We have no debt, and we're generating a 9-figure number of cash, which we then return to shareholders. But the needs of the business come first. And when we get to the point where we say, I don't know if we're going to get a payback on this $20 million investment in sponsorships for Twisted Tea or advertising for Sam Adams. And so we don't spend that. And we -- if the proposal comes to me and I don't see a payback, it's okay. Let's give it to the shareholders, and we believe the share buyback is the most tax-efficient way to do that.

Okay. Great. We're going to wrap it there. We're going to have our traditional annual closing reception/breakout outside. Boston Beer has provided us with some drinks. So please join us outside and join me in thanking Jim and the rest of the team for being here.

Thank you.

Greetings, and welcome to The Boston Beer Company Second Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mike Andrews, Associate General Counsel and Corporate Secretary. Thank you. You may begin.

Thank you. 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 second quarter earnings call.

Joining the call from Boston Beer are Jim Cook, Founder and Chairman; Michael Spillane, our CEO; and Diego Renato, 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 reflect 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 10-Q and 10-K. 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 for some introductory comments.

Thanks, Mike. I'll begin my remarks this afternoon with a few introductory comments and then hand over to Michael, who will provide an overview of our operating results. Michael will then turn the call over to Diego, who will focus on the financial details of our second quarter results as well as our updated financial outlook for 2025. Immediately, following Diego's comments, we will open the line for questions.

As I mentioned on our last call, we are operating in a challenging and unpredictable macroeconomic environment. There are near-term factors such as economic uncertainty and household budget tightening, along with pressure on Hispanic drinkers that are negatively impacting consumer demand across the overall beer industry.

Additionally, the second quarter had especially poor weather in key selling weeks. Despite these industry headwinds, we see long-term growth opportunities in Beyond Beer, which we often call the fourth category. Beyond Beer represents more than 85% of our volume and is outperforming the legacy 3 categories of beer, wine and spirits.

We have strong brands. And over the last year, 1 in 3 beer drinking households in the U.S. have purchased at least 1 Boston Beer product from our diverse portfolio. We built a culture of innovation for over 40 years, which allows us to quickly move to where consumer demand is going. The latest example is Sun Cruiser, which is one of the top volume gainers in RTD spirits so far this year.

With that as context, let's move on to our results and our updated 2025 outlook. In the first half, our depletions were down 3%, and we gained share compared to an overall beer industry that we estimate to be down over [indiscernible] in the second quarter, our depletions were down 5%. And as expected, shipments were significantly ahead of depletions at down only 1%. This was mostly driven by the timing of wholesaler demand for our Sun Cruiser [indiscernible] and Truly Unruly innovations, along with lower-than-target wholesaler inventory levels last June. Despite a weaker-than-expected volume environment [Audio Gap] While growing depletions on 4 of our 7 brands.

We also hit a record high in customer service levels and reached nearly 50% in gross margin. As Jim noted, the macroeconomic environment is dynamic, and as such, our depletions have softened since the last earnings call. Beginning in May and accelerating into June, we saw higher-than-expected industry declines in the FMB category, which in measured off-premise channels was down 3% in dollar sales year-to-date after growing 7% for the full year in 2024.

Our current assessment is that economic uncertainty is driving lower traffic at retail as well as fewer social occasions. Also, while we remain underpenetrated with Hispanic consumers, they are a sizable portion of the consumer base for alcoholic beverages and do have some impact on our volume performance. We've maintained healthy points of distribution for our portfolio and gain shelf space in the spring resets for Twisted Tea, Sun Cruiser, Samuel Adams, Angry Orchard and Hard Mountain Duke. However, traffic levels are down across retail channels and consumers have become somewhat more focused on absolute dollar spend.

This has slowed velocity on our larger brands, Twisted Tea and Truly, which are more exposed to overall economic trends and generate a higher percentage of their sales mix from larger pack sizes. Given these trends, we've lowered our volume forecast for the year as Diego will further discuss in his remarks.

Now I'll provide an update on our brand performance and plans. Twisted Tea held share of the overall FMB category with dollar sales declining 4% in measured channels last quarter. As we expected, Twisted Tea shelf space increased mid-single digits in the spring resets as retailers began trimming their assortments. Twisted Tea brand equities remains strong with a very large organic social following and some of the highest engagement among the top 10 beer brands.

The Twisted Tea portfolio continues to grow households and has improved its penetration with Hispanic consumers. While that has not provided the growth we initially expected in 2025, it should benefit the brand in the long term. Twisted Tea Lite and Twisted Tea Extreme are growing shelf space and velocities. Our packaging redesign has improved sales per point of Twisted Tea Lite. Twisted Tea Extreme Lemon and Twisted Tea BluRaz are still the top 2 growth SKUs in the convenience channel among all FMBs. Twisted Tea Lite and Twisted Tea Extreme will be growth drivers for the brand for the remainder of '25 and beyond.

We have strong advertising plans for the rest of the summer to position us well when the overall category improves. Campaigns include high-performing tea drop ads and our annual American parties with tea program. We will also come back in the fall for the fourth year of our college football program. This program now includes in-game advertising, sponsorships with ESPN and expanded retailer programs with team-specific packages in key markets.

In summary, Twisted Tea is our largest brand, and we're continuing to fully support it with advertising invest and innovation. We continue to believe that despite near-term challenges, these actions, coupled with an improvement in the macro environment will return the brand to growth for the long term.

Moving to Sun Cruiser, which launched last summer and went national in January of this year, Sun Cruiser is a gross margin accretive and has been very well received by wholesalers, retailers and drinkers. Sun Cruiser has quickly grown to a 4 share of the RTD spirits category and continues to grow volumes week-over-week as distribution expands. While Sun Cruiser mainly sources from other RTD spirits, it does have some interaction with Twisted Tea.

After an initial regional launch focused on independent and on-premise accounts, Sun Cruiser is now on shelf in larger national chain retailers. This has helped us triple our points of distribution this summer compared to earlier in the year. As these placements drive volume, we expect a greater presence for Sun Cruiser in measured off-premise channel data. It's worth noting that through the first half, only a small portion of Sun Cruiser's total volume was captured and measured off-premise channel data.

We believe Sun Cruiser will be the next iconic brand for the company and an important growth contributor for the beyond beer category. Many consumers discovered it in the on-premise channel, which is a great place to build brands. It is putting up great trial and repeat numbers. It's also showing up on paid social and digital advertising as well as big sports moment television advertising and music and sports venues, sponsorships like [indiscernible] Concert Series and Madison Square Garden.

Additionally, Sun Cruiser's presence in the AVP Beach Holly Ball and the world Surfli further reinforce its positioning as a brand for sun, sand and fun.

Turning to hard seltzer. The overall hard seltzer category declined 7% in dollars in measured off-premise channels in the second quarter as consumer preferences shift towards more premium RTD spirits-based beverages. While Truly continues to be a top 2 hard seltzer brand and a top 4 Beyond Beer brand, we're not satisfied with its performance. We're refreshing our marketing strategy and continuing to support the truly unruly high ABV innovation as we want to stateside the brand.

We will be launching a new creative platform with a significant investment in regional media and key markets later in the third quarter. Truly will continue to sponsor U.S. soccer as we begin the year-long lead up to the 2026 World Cup, which will take place in North America for the first time in more than 3 decades. Truly also will continue to sponsor Barstool sports broadcast, [indiscernible] and Chicks in the Office and activate strong retail campaigns.

High ABV offerings continue to be a bright spot in hard seltzer. Truly Unruly has grown to a 3% volume share of hard selzer, and the Truly Unruly variety pack is the #1 doll 12-pack share gainer in Beyond Beer in the last 12 months. Our second variety pack, Truly Unruly Lemonade launched in April and is helping Truly Unruly build momentum and gain shelf space.

Our beer brands, Samuel Adams and Dogfish Head, continue to be important parts of our portfolio. Samuel Adams American Light launched in glass bottles to support its positioning as the most premium light beer in America American Light is also featured in our summer patriotic program, along with Sam Adams Summer Ale. These initiatives have helped the Samuel Adams brand family gain shelf space even while overall craft beer shelf space declines.

Dogfish Head grew depletions in the second quarter for the first time in many years behind the successful launch of Grateful Dead [indiscernible] This is the largest launch in Dogfish Head's 30-year history and continues to build volume and distribution, especially in music venues and other key on-premise accounts. Partnering with the Grateful Dead has allowed our team to gain distribution not only in our core dog fish markets, but beyond, including the Sphere in Las Vegas for the Company conference. We also developed a limited edition Grateful Dead's 60th anniversary single-serve package that will be sold at the Dead & Company Concert Series in San Francisco next month.

In cider, Angry Orchard has also returned to growth behind the consumer trend back to more flavorful options. Depletions grew in the second quarter, driven by a higher level of focus for the organization, including increased investment in new sponsorships. The new campaign Don't Get Angry, Get Orchard and our sponsorships of WWE wrestling positively impacted the results and helped the brand gave shelf space.

Later this summer, we're launching an exciting program featuring Friday the 13th movie the advertising, promotions, packaging and displays for Halloween and the peak fall cider season. With respect to Hard Mountain do, we're encouraged to see positive depletions for a fourth straight quarter. Hard Mountain Duke Code Red, which was released earlier this year, is now distributed in single-serve.

Earlier this month, we launched a cross-merchandising partnership with that is being utilized to help support further growth. We continue to expect growth for Hard Mountain -- do this year but it will be a multiyear effort for this product to become a meaningful part of our volume mix.

In closing, we continue to make progress as an organization. We're executing our commercial plans to take advantage of the rest of the summer selling season, and we're continuing our longer-term innovation and productivity initiatives. While current industry trends are challenging, we continue to believe we will create long-term value for shareholders through innovation, focused execution and margin improvement.

I'd like to thank our team for all their hard work executing the summer season and for remaining agile in a dynamic operating environment.

I'll now pass the call over to Diego to review our second quarter financial results and 2025 guidance.

Thank you, Michael. Good afternoon, everyone. Depletions in the second quarter decreased 5% and shipments decreased 0.8% compared to the second quarter of last year, primarily driven by declines in the Truly Hard Seltzer and Sam Adams brands that were only partially offset by growth in the company's Sun cruiser and Dogfish Head brands.

As Jim noted earlier, shipments were higher than depletions in the quarter due to the timing of wholesaler demand for our Sun Cruiser and truly unruly innovations as well as lower than target wholesaler inventory levels last June. We believe distributor inventory of 4.5 weeks on hand as of June 28 is an appropriate level for each of our brands. Revenue for the quarter increased 1.5% due to increased pricing and favorable product mix, partially offset by lower volumes.

Our second quarter gross margin of 49.8% increased 380 basis points year-over-year. Gross margin primarily benefited from improved brewery efficiencies, procurement savings price increases and product mix, which were partially offset by increased inflationary and tariff costs. Late in the second quarter, we did experience some tariff costs, which negatively impacted gross margin. Advertising, promotional and selling expenses for the second quarter of 2025 increased $15.5 million or 10.7% year-over-year, primarily due to increased brand investment in media.

General and administrative expenses for the second quarter decreased $2.3 million or 4.7% year-over-year, primarily due to a decrease in salaries and benefits costs from lower incentive compensation. We reported EPS of $5.45 per diluted share, an increase of 24.1% compared to the prior year. Our strong EPS performance was driven by higher gross margins and lower share count, partially offset by lower volumes and increased investments in our brands.

For the first half of the year, we grew revenue 3.6%, delivered a 49.1% gross margin and generated $7.58 of EPS. These results reflect shipment growth that was ahead of our depletions. As we discussed in our last call, we expect shipment trends to rebalance with depletions in the second half of the year. Post our last earnings calls, depletion trends have softened and we have updated our volume guidance to reflect a more dynamic industry environment. Our depletion trends for the first 29 weeks of 2025 have decreased 3% from 2024. We now expect our volume to be down high single digits to down low single digits for the year. We're providing a wide volume range as there are still many weeks of the summer selling season ahead of us and the timing of any improvements in the overall beer industry remain uncertain. We continue to expect price increases of between 1% and 2%.

Our strong gross margin performance year-to-date has enabled us to raise our gross margin guidance for the year to 46% to 47.3%, up from 45% to 47% previously. Our updated guidance now includes the impact of tariffs, which we estimate to be a headwind of 70 to 100 basis points. Significant progress on our ongoing productivity initiatives have been key to raising our gross margin guidance even as we absorb the impact of tariffs.

Now I'll provide an update on our initiatives across our 3 buckets of multiyear saving projects, which are positioning us to better respond to potential changes in the volume environment, product mix and tariffs. We continue to expect contributions from all 3 buckets, as I discussed on our last call. In brewery performance, second quarter performance was better than we expected, driven by benefits from higher line efficiencies. Our brewery performance targets for the full year of 2025 include continued improvements in OEE, driven by process improvements on our breweries and continue to increase our internal production.

In the second quarter, we increased our domestic internal production to 76% of our volume compared to 69% in the second quarter of last year. In our procurement savings bucket, we continue to see opportunities on packaging and ingredients primarily due to price negotiations and recipe optimization. Our second quarter results benefited from lower negotiated pricing on certain packaging and ingredients. -- which we expect will continue throughout 2021.

In waste and network optimization, we're continuing our efforts to improve our processes and systems. The automated customer ordering and inventory management system that we implemented last year continues to help us further reduce waste and optimize our network.

Turning to our advertising spend and EPS guidance. We continue to expect increases in advertising, promotional and selling expenses to range from $30 million to $50 million. Most of the increase occurred in the first half of the year. This does not include any change in freight costs for shipments of our products to our distributors. Exclusive of our estimated impact of tariffs, we are reiterating our full year 2025 earnings per diluted share of between $8 and $10.50.

Including tariffs, full year 2025 earnings per diluted share is expected to be between $67 and $9.54. Based on the information currently available and based on tariff programs announced year-to-date, we estimate that tariffs will have an unfavorable 2025 cost impact of approximately $15 million to $20 million or $0.96 to $1.28 earnings per diluted share. These estimates include an unfavorable gross margin impact of between 70 to 100 basis points for the full year, giving expected buying patterns and inventing currently on hand.

We expect most of the negative impact from tariffs in the second half of the year. We'll continue to closely monitor the tariff environment and are looking across our operations for opportunities to mitigate some of the tariff headwinds. As you model out the year, please keep in mind the following factors. Our business is impacted by seasonal volume changes. For the fourth quarter, typically our lowest absolute gross margin rate of the year. Shipments were ahead of depletion trends for the first half, which we expect to reverse in the second half.

The third quarter is a much larger volume quarter than the fourth quarter given the seasonality of our business. As you may recall, in the prior year, we were not able to fully ship to meet demand in the second quarter and caught up in the third quarter as a result of seasonality and the comparison to prior year we expect most of the 2025 shipment reversal to occur in the third quarter, with shipments declined as expected to be in the low to mid-teens.

As I mentioned earlier, the increase in brand investment has occurred mostly in the first half of the year. Our reinvestment in brand spend began in the fourth quarter of 2024. So as a reminder, the fourth quarter of 2025 will be lapping a high base of prior year brand investments.

Turning to capital allocation. We ended the quarter with a cash balance of $212.4 million and an unused credit line of $150 million, which provides us with the flexibility to continue to invest in our base business, fund future growth initiatives and return cash to our shareholders through our share buyback program.

For the full year of 2025, we are lowering our capital expenditure guidance range by $20 million to between $70 million and $90 million and are focusing our spend on supporting our productivity program. During the 13-week period ended June 28, 2025 and the period from June 29, 2025 through July 18, 20 2025, we repurchased shares in the amount of $50 million and $11.3 million.

As of July 18, 2025, we had approximately $317 million remaining on the $1.6 billion share repurchase authorization.

This concludes our prepared remarks. And now we'll open the lines for questions.

[Operator Instructions] Our first question comes from the line of Filippo Falorni with Citi.

So obviously, the summer was off to a pretty soft start in the beer category. And it does seem like that the July, the early July data continues to be solved. So maybe can you give us an update on kind of the accelerate of your business? What are your thoughts as you enter to your point into the key Q3 quarter from a depletion standpoint. And then from a brand standpoint, obviously, the biggest slowdown we've seen is in test net of the contribution from Sun Cruiser -- so can you help us understand how you see the evolution of the 2, like in terms of the decline of Twist net of some of the distribution gains and contribution from Sun Cruiser going forward.

Yes. Let me answer that one. Your instincts are right that the start of the summer was quite slow through the whole industry. It looks like the industry is off 4% or 5%, us a little bit less. So we have gained volume and dollar share this year. My take on it is we started this year thinking it was going to be down 1%, 2%. And there were some drivers behind that, the moderation, health concerns, sociability, a little less cannabis through D9 and just the overall macroeconomic uncertainty.

I think things got a little worse in the second quarter because on top of those factors, the weather was just bad -- in the Northeast, there were 13 consecutive weekends that had some rain. And then there was also added pressure on the Hispanic community and people going out last and both of those increased the pressures on the beer business. So the second quarter was worse for us than the first. As you can see from our 9-week results versus the 26%. We're still down the same 3%. So you can do the arithmetic on that, but the added 3 weeks didn't not push down our year-to-date number.

so that's how I would look at the industry. You asked about Twisted Tea and Sun Cruiser and the interaction there. Broadly speaking, we're about flat for the hard tea category. Twisted Tea tends to respond as the rest of the FMB category does to consumers, Sun Cruiser's a premiumization of the tea category. So to the extent we're swapping some Twisted Tea drinkers for Sun Cruiser drinkers, it's margin and revenue accretive. We we would hope that as the year goes on, the momentum that we have behind Sun Cruiser will more than make up for what's going on with Twisted Tea.

And there isn't that much interaction between the 2. When we run numerator data, it looks like Twisted Tea is about 20% of the drop in Twisted Tea is attributable to the vodka tea category, which is not just Sun cruiser but also some high noon, surf side, some smaller happy to add kind of things, a good buy, smaller entrants. So our efforts are really trying to evaluate what's going with Twisted Tea.

It's a brand that's grown for several decades, and we think some of the decline is fixable through -- there are places where the gap between Twisted Tea and mass domestics has gotten significantly bigger over the last 4 years. So we may have push the price up during COVID and the preceding couple of years, higher than sustainable. So we may have to make some adjustments there. And hispanic component of Twisted Tea is the highest of anything in our portfolio.

Our data suggests about 20%. So we think some of that loss is not permanent. And as things normalize, some of that will come back.

We've also seen increases in Twisted Tea Light and Twist Extreme has been successful. And as we stated on the last call, we expect it to pick up additional points of distribution in shelf space as last year was a big year for smaller competitors to come in. The good news is we held them off, and we were getting that space back. And again, net-net, we basically held market share, so despite the decline. So there's -- as we spoke to, we will continue to invest heavily in Twisted Tea and make adjustments and continue to drive innovation through the family.

Our next question comes from the line of Peter Grom with UBS.

I kind of wanted to just follow up on Filippo's question. And I guess, recognizing that summer has not been off to the best start from a category standpoint, but you alluded to it in the release, year-to-date depletions are 3%. So -- what I'm trying to understand is the updated guide seems to imply trends get a lot worse sequentially. So can you maybe just help us understand why that may be the underlying assumptions embedded in that? Is that simply being conservative? Or is there a reason that you would expect depletion to decelerate further from here?

Well -- So the reality is we started from the beginning of the year and saying, look, we want to be ready to support our brands in the summer. This is even before the slowdown in depletion. And from that, we accelerated our production versus last year. We shipped a little bit ahead of last year and we said, look, eventually, the shipment and depletions will come back in balance in the back end of the year.

Now what has changed from the last conversation to now as we just discussed, the depletion started a lot softer for the industry in the second quarter than we expected. And therefore, that rebalance is going to be a little bit harder than we saw at the same depletion forecast. So it's not necessarily that the forecast changes per se. But because we have a softer then that means it's going to be the rebalancing, it's going to be a little bit bigger as we went into Q3 and Q4. So that's the biggest driver of the piece. It's the knock on effect that the Q2 depletions more than anything else.

Okay. And then, Jim, I was maybe hoping to get -- to go back to your response and just in terms of how category growth has evolved. You pointed to kind of the structural headwinds that led to your view that the category would be down 1% to 2% this year.

And you kind of touched on the weakening trends year-to-date. I think you mostly alluded to unfavorable weather, what's been going on with the Hispanic consumer. And this may be hard to parse that. But when you look at what's happening from a category perspective, are the impacts related to moderation or the structural headwinds. Are those playing out as you would have anticipated? Or are they actually maybe worse or having a bigger impact on the category than what you thought entering this year?

I would say playing out about as I expected maybe D9, the THC has become a bigger thing, but the GLP scare that we all had I think has mitigated. It turns out that 70%, 80% of the people who take it regain all the weight back in the 12 months after they stop. But basic answer is those sort of long-term structural headwinds have been about what I thought.

And the greater decline has come from I think, from the weather and the pressure on the Hispanic community. And we've had better weather for the last 3 or 4 weeks. So I think that's actually improved things by a point or two.

Our next question comes from the line of Nadine Sarwat with Bernstein.

Two for me. One straightforward, I know you called out lowering the estimate for the dollar impact of tariffs. Could you just give us the moving parts on that -- and then maybe a second bigger picture question on Sun Cruiser. You called out the belief that it will be the next big growth driver for the business. the RTD space is already quite crowded though still growing strongly. And we've seen boom and bust cycles in the past and beyond beer in the fourth category space.

So -- all this to say, it's really great to see the strong performance of Sun Cruiser and another brand offering up some real growth for the group. But how do you think of the brand's long-term room for growth given those considerations and what we can learn from history in these categories?

Let me take the second part of that, and then I'll pass it back to Diego. So I think one of the things, as a company, Jim talked about Twisted Tea and that was kind of a 20-year overnight sensation, where it was a long, steady healthy growth trajectory, and it's got a solid foundation because we make truly and we experienced the truly spike, and that was built very differently because that was built with a lot of brand extensions it came down, and it's still sort of -- we're still trying to find balance in that portfolio. So we've taken those lessons with Sun Cruiser.

And the most important thing we did here was we built this on-premise to start as Jim noted that there's a lot of great exposure to consumers and they, therefore, go out and purchase it off-premise as they enjoy the product. So we've started really strong there, and we've rolled it responsibly across the country. It hasn't been a spike. It is -- we're just getting into measured channels now. And it is the fastest ramping product we've ever done, but we're doing it in a very measured, controlled way. So we've learned a lot of lessons here.

We've done a lot of things right. We've certainly made all the mistakes in the world as well, but we're building this on a strong foundation. And I think for the people that taste the product, it comes back as best-in-class. And so typically, that is what has always worked for Boston Beer is that we make the best product and tell great stories around it and the consumer finds it. So we're confident. We know it's a long run. We will continue to invest heavily -- and you heard some of that, but we're going to stay on-premise as well as in arenas around music and sports. So this will be a long-term play for us. And we like what we see so far. So I'll pass it to Diego.

On a tariffs point of view, as you know, the tariffs have multiple elements. So it's the tariff assets currently announced, it's also the timing of when the products are coming in. And the third piece is some of the mitigating actions. So if you look at where we were a quarter ago to now, a few things have changed aluminum actually went the other way. But for example, our POS material estimates on tariffs went down significantly with some of the changes in the tariffs in the last few months.

So it's a constant up and down depending on the different countries and different pieces. The third piece is we've actually worked with some of our suppliers, especially around POS to mitigate some of the POS impact for this year. So that's the third reason why we made the adjustment. So it's a combination of up downs and timings of the announcements.

Understood. And just to confirm, you said that tariff impact is net of mitigation.

Yes. That is not a mitigation. Let me be very specific. It's net of mitigation within our suppliers. Now there's a lot of things we're doing in our gross margin and other things that are going to provide savings and that's why we're taking our gross margin guidance up. But direct mitigation, it's net of mitigation.

Understood. That's very helpful and clear. I will pass it on.

Our next question comes from the line of Eric Serotta with Morgan Stanley.

I want to come back to gross margins a bit. It's been a long time coming that you guys have been driving to get back to the high 40s, low 50s and your you did it 1 quarter doesn't -- nobody is declaring victory after 1 quarter, but I have to give you credit. So the question then becomes where to from here.

How are you thinking about the next year midterm gross margin potential with the productivity improvements that you've made to date? And then I sort of just wanted to clarify are current margins benefiting at all from any hedges in aluminum or Midwest premium, if we sort of mark-to-market with where input costs are today, would there be more pressure?

No problem. Yes, we're -- I'll start by saying I think our operations team in our procurement team has done a great job in gross margin. So we appreciate your comments. I think the challenge that we're seeing is, as well as all the initiatives that we're doing are going, we're also having headwinds with tariffs -- we're having headwinds with some of the volume reductions we've taken.

So I think overall, we're still very happy with the guidance that we're giving that will take us to that kind of high 40s number. Now if that changes in the future, and we have to see a reduction in tariffs, we can -- we see some of the incremental volumes that we think we'll get in the future, then we'll revise our kind of midterm target. But right now, I think we're very happy with the performance, not only that, but it's allowed us to offset some of the tariffs that we've seen so

far. And I think the third piece that I'd add through that process is -- we're also getting a little bit of benefit from mix from Sun Cruiser, which is something that we really like. So again, I think as we go into 2026, those are the 3 things that we're going to be looking at when we come back at the end of the year and give us -- and give you guys the guidance for 2026, is how all those things come together for our gross margin target for next year.

Great. And then a question on Twisted. You've seen a bit more tentative than I can remember in terms of twisted potential and figuring out sort of exactly what's going on. I know this year has been clearly disappointing. But sort of as you as you diagnose the issue, how are you sort of handicapping the prospects of getting back to the historical low double-digit rates reading between the lines, we sound pretty confident earlier this year. But on this call, you've recognized more interaction with Sun Cruiser. And overall seemed a bit more tentative.

Yes. So I'll start here, and then I think I'll pass it to Jim. But I think one of the things that we've said here as a company all along is regardless of what happens in the macro environment, we see ourselves holding or gaining market share. So that regardless of what happens, we feel like we're going to compete.

The bigger the business is for us, the more likely we are to track to the overall macro situation. And traffic is down across most of the channels we need to sell it. So we -- there are bright spots in there, as we said, both light and extreme are performing better than the balance of the portfolio. So Jim constantly reminds us is that we're controlling what we can control.

Twisted Tea, so our investments will remain strong. We are leaning into it. We think it's really important to convert the consumers that are shopping and give them a great proposition when they are in the store. So we're staying strong and aggressive there. But the macro environment is something that we can't control.

Yes. I would sort of break the problem down. I'd start with -- the brand looks healthy. And I say that because our singles, which is a big part of the volume is flat to slightly up. And the issue is in 12 packs. And that is a bunch of things going on there.

I did allude to one of them for maybe 1/3 of that volume we push the price up close to the price of Sam Adams. So it was -- and historically, it's been kind of in between a regular domestic beer, where it has a lot of interaction and craft beer, and we pushed it up closer to craft. So we may have been overly aggressive in a piece of that volume.

So -- and we're also -- we don't have a really good handle on it yet, but we lost a lot of display space in the last few months between Memorial Day and today, because we got pushed off the floors, I was really surprised when I've been out in the market to see how the retailers have swung towards RTD displays, which would be things like big displays of Sun Cruiser but also of things like, well, Gallo, who we never really thought we were competing for beer display space with Gallo had big high noon displays and big displays for their new Vodka lemonade So displays that last year, went to Twisted Tea didn't go there, and that may correct itself going forward.

So that gives me some optimism. We've got a healthy brand, and you will continue to support it at very high levels and continue -- and we got an increase in our distribution this year. So those retailers still have confidence in it. It's a big brand for our wholesalers. So we're continuing to get support from them. So I feel more comfortable about the long term than the last few months.

Our next question comes from the line of Bonnie Herzog with Goldman Sachs.

I wanted to circle back with a few questions just on your shipment and depletion guidance. I guess first, I'd be curious to hear why you've widened the ranges so much, especially considering only 5 months left in the year. I understand everything you talked about and the pressures that are out there, but what has changed with your visibility -- and then trying to understand your shipment guidance, which does imply shipments will be down low double digits at the midpoint in the second half.

So why so negative, especially when you suggest wholesaler inventories are in a pretty good place. And then finally, I might have missed this, but I assume you no longer expect Twisted to grow low single digits this year? And should we expect a decline of low single digits for Twisted. Is that what's implied in your guidance?

Okay. Perfect. So thank you for your question. So I'll take the first one, and then I'll pass it on if anybody wants to add something. So the first piece is, I think we've talked a lot on the questions and on the call of how drastically depletions changed over the last 8, 9 weeks.

And therefore, I think right now, nobody in the industry can accurately tell you what the market is going to do. And I think for that reason, I think we've widened our range of the depletion targets because we know what we can control, but we're still -- again, there's the weather. There's a bunch of other things that have been happening that are outside our control.

So I think it's the prudent thing to do is to expand our range in a more volatile environment. But the shipments is a direct consequence of the depletion range. because at the end of the day, we want to make sure that we maintain the right level of inventories. So if our depletions improve in the second half of the year, our shipments will improve in the second half of the year. But what we don't want to do is set a shipment target that will increase our year-end inventories if the depletions don't actually improve.

So again, for me, the prudent thing is we're doing everything we can to be on the higher end of our range. And I think the actions we're taking from a brand investment point of view, from an execution point of view or great. What I -- what we do not have is a key visibility of how the market is going to behave in the next weeks. And although you're right, we're in the middle of the year, the highest piece of our selling season in July and August are still to come. So we'll know more in the next few weeks when we see the July results and see what August comes in. But right now, I think the prudent thing is to expand that range. Do you want to add.

I'll say we don't usually give guidance by brand, but I'll look to Michael and if you want, they want to add something on to set.

Yes. I would just anticipate that we continue to maintain our market share and grow where the opportunity presents itself. But given the macro headwinds, it's really hard to predict.

Our next question comes from the line of Rob Ottenstein with Evercore ISI.

I mean your deflation have been weak [Technical Difficulty]

We have a little trouble hearing you, Rob, you're breaking up. You sound a little robotic.

Is this a little better?

A lot better. Thank you.

Right, right. So beer depletions have been weak for a number of years now, they seem to be getting worse -- and we can throw out the weather, the Hispanic consumer. I mean it's a long litany. So the question is, number one, in terms of the industry, how much longer can this go without more strategic actions, consolidation, given the high fixed costs of large parts of the industry.

And then tied to that, Jim, are you thinking any differently now about more strategic moves like whether to get into energy drinks or do anything fundamentally different you have been doing given these headwinds, structural headwinds that seem to keep getting greater and greater.

Let me take that one. We are always looking for opportunities. And to be honest, yes, 3 years ago, we probably didn't look at anything outside of alcohol. Now our innovation team is starting to poke opportunities there.

We certainly haven't found anything that we think is attractive and that we're good at, and we recognize that in the non-ALC space or some of the best marketing and best marketing companies in the world and best innovators. Lord knows how many energy drinks come out every year. It's beyond dozens. So it's super competitive. So we're just looking at it not knowing whether it's the right place for us. But we are always looking at innovations. And in terms of M&A, that's kind of above my pay grade, there's lots of investment bankers thinking very diligently about who should buy whom and that's really not in the cards for us.

But do you think we will see some of that, not naming names, but do you think the industry will see some sort of consolidation either on the beer side, beverage alcohol or beverages in general.

I'd have to say my opinion is uninformed and non-China, I mean I don't know what Miller is going to buy, or is somebody of gallow Coca-Cola or Krig. -- there's -- people on this call are much smarter than I am about that. So I wouldn't even venture an opinion.

Much too humble. But thank you.

[Operator Instructions] Our next question comes from the line of Bill Kirk with ROTH Capital Partners.

I want to round out that guidance range conversation just because year-to-date EPS is already above the low end of the full year range. So is negative earnings -- is that really a possibility for the back half of the year?

So look, fourth quarter is always our lowest quarter and that's definitely a possibility. I think in Q3, it really is going to depend on the depletions of July and August. So if the market continues to be down 10% for the summer, yes, the math would say that is a possibility. Now -- we've seen some changes in the trends in July.

We haven't seen the final July numbers, but I'm hopeful that, that's a low probability. But it's still a chance if we don't see a change in the industry trends.

Okay. And then, Jim, you mentioned D9 maybe being bigger than you initially expected. And you obviously have a history of being very quick with innovation as these adjacent segments kind of materialize -- so do you have any D9 plans for the U.S. market? And separately, given your comment on displays at retail, are you seeing the D9 folks buy and like slot for shelf space at retailer and pay the retailers, which obviously alcohol can't do. Are you seeing any of that?

Let's see, I'll break it in half. We do have a cannabis business in Canada. So it's something that we dipped our toe in with the idea of being ready if something developed in the United States. And until hemp-based to THC, we didn't really see a lot of opportunity in the U.S., and nobody is really making a lot of money in that business. Consumers don't go to dispensaries.

So -- now the hemp-based THC currently in a handful of states is a different proposition. It's basically selling in the beer cooler. So you don't have to go to a dispensary to get it. It's right there in front of you as an alternative to beer. And it's getting real traction in a very small percentage of the country. You're talking about Minnesota, recently, Tennessee in the last 12 months, Louisiana places where there is some kind of regulatory framework around it.

My overall assessment of the opportunity is it's it was created by the farm bill. And the politics of it are a mass completely volatile, change from day to day if anybody is following like what's going on in Texas, so we don't even know if that's going to be a business in 6 months. There's people handicapping it when a distributor said, their information was 50-50 that it will get ki*led.

The Meccano and like-minded people who never intended to create this blue hole will shut it down completely. So given how subject, all of this is to a political process that is extremely volatile and is sorting itself out and takes place at a state level, at a federal level. If you poke at it, the FDA could shut it down. They have a regulatory authority over the ingredients and beverages -- so you don't just have the farm bill as a threat.

So it's too volatile right now for us. But to your point, we have been pretty quick to capitalize on opportunities. So -- and we have experience in it. and capabilities that we could apply to it. But right now, I wouldn't put us down for any volume this year. And that could change tomorrow.

And are they paying slotting fees at retail? Like are those beverages buying cooler space, the D9 guys?

That's a really good point. And the current regulatory suggested regulatory practices from our friends and our trade organizations, the BA, the BI, even the general MBWA position have not really focused on trade practices as a regulatory requirement.

I think they ought to be, it would be really a bad thing if they were allowed to buy all the shelf space they want and bring in refrigerators and coolers and buy doors and so forth. I have not seen that. The players that you find out there it's very fragmented, very fragmented and nobody is making a lot of money to go out and spend away a red ball or Monster wood in sucking up all that shelf space.

We have reached the end of the question-and-answer session. I would like to turn the floor back to Jim Koch for closing remarks.

Well, thank you all, and I hope you enjoy and drink a lot of beer in the remaining months of summer, and we'll talk to you after the third quarter closes. .

Thank you. And this concludes today's conference, and you may disconnect your lines at this time. We thank you for your participation.