Boston Beer Company Inc (SAM) 2011 Q3 法說會逐字稿

Good afternoon. My name is Stephanie and I will be conference operator today. At this time, I would like to welcome everyone to the Boston Beer Company third quarter 2011 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question-and-answer session. (Operator instructions) Thank you. I will now turn the conference over to Jim Koch, Founder and Chairman. Please go ahead, Sir.

Thank you. Good afternoon and welcome. This is Jim Koch, Founder and Chairman, and I'm pleased to be here to kick off the 2011 third quarter earnings call for the Boston Beer Company. Joining the call for Boston Beer are Martin Roper, our CEO, and Bill Urich, our CFO.

I'll begin my remarks this afternoon with a few introductory comments including some highlights of our results and then I will hand the microphone over to Martin who will provide an overview of our business. Martin will then turn the call over to Bill who will focus on the financial details for the third quarter as well as review our outlook for the remainder of 2011 and our initial outlook for 2012. Immediately following those comments, we will open the line for questions.

We achieved depletions growth of 11% and record total depletions in the third quarter. We believe our depletions growth is attributable to strong sales execution and support from our wholesalers and retailers as well as our great quality beers and strong brands. Depletions growth in the quarter improved from our first half results of 7% primarily due to the strength of our seasonal program. We're happy with the health of our brand portfolio and remain positive about the future of craft beer.

Our Freshest Beer Program is continuing to build on many of our past investments to help every Samuel Adams reach our drinkers with the same flavor and fresh taste that I enjoy when I have a Samuel Adams at one of our breweries. We are pleased with results so far and currently have over 25 wholesalers signed up and at various stages of inventory reduction. We believe that in the long term this program will deliver better, fresher Samuel Adams beer to our drinkers and should reduce costs that improve efficiency throughout the supply chain. We are still targeting that 50% of our volume will be on our Freshest Beer Program by the end of 2011 and believe that this could reach 70% by the end of 2012. I will now pass over to Martin for a more detailed overview of our business.

Thank you, Jim. Good afternoon, everyone. As we state in our earnings release, some of the information we discussed in the release and that may come up on this call reflect the Company's or management's expectations or predictions of the future. Such predictions and the like are forward-looking statements. It is important to note that the Company's actual results could differ materially from those projected in such forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in the Company's most recent 10-K. You should also be advised the Company does not undertake to publicly update forward-looking statements whether as a result of new information, future events or otherwise.

We've been working hard to grow the business and have seen improving trends in the third quarter and we are increasing our projection for full-year depletions growth to between 7.5% and 9% from 7% to 8% previously given. The business continues to be healthy and may be responding to our increased investments and brand support. Compared to the first nine months of 2010, we increased our sales force, local marketing expenditures, advertising and our point-of-sale as we invested to drive increased availability and visibility of our major style priorities. These planned investments coupled with increased freight costs significantly increased advertising, promotional and selling expenses for the first nine months of the year. As we review our opportunities we may forsake some earnings in the short-term in order to support our brands appropriately.

We continue to be excited by the results of the Freshest Beer Program and our participating distributors have seen real benefits including lower inventories, fresher beer, and easier logistics and planning. We estimate that inventory levels at the participating wholesalers at the end of the third quarter were approximately 266,000 cases lower than would otherwise have been anticipated. We believe that these inventory reductions are reflected in year-to-date shipments and we estimate that the Freshest Beer Program has negatively impacted net income per diluted share for the quarter by 0.2 per share.

Based on information in hand, we are estimating year-to-date depletions through October 2011 are up approximately 8% from the same period in 2010. Year-to-date shipments through October 2011 are up approximately 7% compared to the same period in 2010. Now Bill will provide the financial details.

Thank you, Jim and Martin. Good afternoon, everyone. For the three months ended September 24, 2011, we reported net income of $16.3 million or $1.19 per diluted share, representing an increase of $850,000 or $0.10 per diluted share from the same period last year. This increase was primarily due to an increase in core shipments which was partially offset by increased investments in advertising, promotional and selling expenses which includes freight costs to wholesalers. Third-quarter depletions increased 11% due to increases in Samuel Adams seasonals, Twisted Tea, and the Samuel Adams Brewmaster's Collection partly offset by declines in Samuel Adams Boston Lager and Sam Adams Light. Core shipment volume for the 3 months ended September 24, 2011, increased approximately 7% over the same period in 2010. Year-to-date depletions increased 8% while shipments on a year-to-date basis increased 6%. We believe that inventory levels at the end of the third quarter at those wholesalers who are not participating in the Freshest Beer Program were similar to the levels in the previous years.

Our third-quarter 2011 and 2010 gross margin was 56%. Minor pricing increases and lower ingredients costs were partially offset by a slight change in our core product mix. We have continued our focus on cost savings initiatives at our breweries and are pleased with the improvements we have made here to date. Third-quarter advertising, promotional and selling expenses were $4.7 million higher than those occurred in the prior year primarily as result of higher costs for additional sales personnel and increased investments in local marketing as well as increased cost of freight to wholesale. General and administrative expenses increased $500,000 compared to the third quarter of 2010 due to increases in salary and benefit costs and stock compensation expense.

Our effective tax rate for the third quarter of 2011 was 38% versus 39% for the same period in 2010 as a result of higher pretax income but with no corresponding increase in non-deductible expenses. We have increased our projection for full-year 2011 earnings per diluted share to be between $3.60 and $3.90 from between $3.20 to $3.60 primarily due to increased volume and a $0.13 to $0.18 per diluted share estimated favorable impact of a state income tax settlement in the fourth quarter. Estimated full year 2011 earnings per share of $3.60 to $3.90 excludes the $0.92 per diluted share favorable impact of the recall settlement received in the second quarter and includes the estimated negative earnings per share impact of between $0.10 and $0.20 due to the reduced shipments related to the implementation of the Freshest Beer Program. Our actual 2011 earnings per diluted share could vary significantly from the current projection.

Revenue per barrel for the full year is currently expected to increase approximately 1% to 1.5%. If we successfully execute our Freshest Beer Program for 50% of the volume in 2011, we would expect shipment growth of between 7% and 8.5%. We will continue to focus on efficiencies at our breweries and are not currently anticipating any significant increases in cost of packaging and ingredients for 2011 beyond the anticipated increases in energy and freight cost. Full year 2011 gross margins are currently expected to be between 54% and 56%. We intend to increase advertising, promotional and selling expenses by between $14 million and $18 million for the full year 2011 which does not include any increase in freight cost for the shipment of beer product to our wholesalers. Approximately $12 million of this increase has been incurred in the nine months ending September 24, 2011.

We will increase our investments in brand support commiserate with the opportunities for growth that we see, but there is no guarantee such increased investments will result in increased volumes. We estimate our full year 2011 effective tax rate will be approximately 36%. This includes the favorable impact of a state income tax settlement in the fourth quarter of approximately $0.13 to $0.18 per diluted share. Based on information currently available, we estimate full year 2011 capital expenditures of between $21 million and $27 million, most of which relates to continued investments in our breweries and additional keg purchases. Looking forward to 2012, based on information of which we are currently aware, we are forecasting depletion growth in the mid to high single digits.

The Company does not expect shipments growth to significantly lag depletion growth as the estimated aggregate inventory reduction of wholesalers participating in the Freshest Beer Program is expected to be between 100,000 and 300,000 case equivalents at the end of 2012 versus 2011. We will continue to focus on efficiencies at our Company-owned breweries and are currently aware of significant increases in the cost of ingredients for 2012 primarily due to barley cost pressures which is currently estimated to add over $8 million in incremental barley cost. We continue to explore opportunities for price increases and believe the competitive pricing environment will continue to be challenging. We are targeting revenue per barrel increases of between 2.5% and 3.5% to help offset significant barley cost pressures from the 2011 crop. Full year 2012 gross margins are currently expected to be between 53% and 55% due to the anticipated price increases not fully covering cost pressures and some product mix changes.

We intend to increase advertising, promotion and selling expenses by between $5 million and $10 million for the full year 2012 which does not include any increases in freight costs for the shipment of beer products to our wholesalers. We intend to increase our investment in our brands in 2012 commiserate with the opportunities for growth that we see, but there is no guarantee such increase investments will result in increased volumes. We estimate our full year 2012 effective tax rate will be approximately 38%. We are currently evaluating 2012 capital expenditures and based on current information our initial estimates are between $25 million and $35 million, most of which relate to continued investments in our Company-owned breweries as well as additional keg purchases. Based on information currently available, we believe that our capacity requirements for 2012 can be covered by our Company-owned breweries and existing contract capacity at third-party brewers. We will provide further 2012 guidance when we present our full-year 2011 results.

We continue to maintain a strong cash position with $48.1 million in cash as of September 24, 2011. During the nine months ended September 24, 2011, we repurchased approximately 611,000 shares of our Class A common stock for a total cost of $50.9 million. From September 25, 2011, through October 28, 2011, we repurchased an additional 125,000 shares of our Class A common stock for a total cost of $9.6 million. On October 27, 2011, the Board of Directors approved an increase of $25 million to the previously approved $250 million share buyback expenditure limit for a new limit of $275 million. Through October 28, 2011, we have repurchased a cumulative total of approximately 10.5 million shares of Class A common stock for an aggregate purchase price of $249.5 million and have approximately $25.5 million remaining on the $275 million share buyback expenditure limit set by our Board of Directors. We will now open up the call for questions.

(Operator instructions) You're first question comes from the line of Judy Hong with Goldman Sachs.

Thanks. Hi, everyone.

Hi Judy.

Hi. First on the pricing side, so it looks like in the quarter you got 1.3% pricing. Can you just talk about how much pricing you've taken in the quarter and then as you think about the 2.5% to 3% pricing that you are targeting for 2012, just talk to us about how challenging that might be. You talked about the competitive backdrop. Is the risk that you don't get that sort of pricing in 2012?

Sure, Judy. It's Martin. I will try and handle that. I think the third quarter pricing was sort of continuation of the pricing actions taken in sort of the first and second quarter. There wasn't any specific pricing action. Q3 pricing is sort of representative of what we had going through the first and second quarter or in the second quarter. There was nothing specifically taken. As we think about next year we have plans in place that seem to suggest to us that we could get between 2.5% and 3.5% and some of those plans are achieving executed in October, November, but many are actually waiting until January, February. At this point in time all we know is we have plans to take pricing up and we intend to do that to cover all the cost pressures we face not least of which is the barley cost pressure that Bill alluded to. Whether it sticks or not, we don't know.

Obviously plan is to go up and our intent would be for it to stick, at this point in time it is pretty unclear what other parties intend to do. No one has sort of formally come out other than obviously the big brewers who took their pricing sort of in the last month and seemed to be pretty firmly committed to taking regular pricing increases. Both Heineken and Corona haven't really clearly indicated what they are going to do. I think our belief is that many small brewers will move pricing around us on the crop side, but whether that applies to all the craft and to all the (inaudible) specialties we don't know and until we execute we won't know until we would really have a sense for whether the pricing will stick and be acceptable to all concerned until we actually execute it, so that's obviously our plan.

Okay and then on the cost side, can you give us a little bit more color first on the barley side, how much your cover at this point? And then you also talked about maybe other cost pressures. Is your gross margin target for 2012 accounting for the other cost pressure that you might see? And then is there potential for maybe better brewery utilization. You talked about maybe as you increase capacity you could get margin improvement on the brewery side, so is there some offset that could get you a better gross margin in 2012?

Sure. So on the cost side the biggest cost driver we see heading into next year is the barley. Some of that relates to when we bought barley last year and so I think last year we had a pretty good timing from a barley commitment perspective. We are looking at barley prices up 30% plus and it obviously depends what time you look at this. If we'd been chatting the end of August we'd have said that's pretty firm, there has been some softness on the commodity prices since, it hasn't flown through to the barley we buy yet, but maybe it will. We are not fully covered. I think we indicated previously that we have chosen to not be fully covered so certainly if there is some continuing weakness on commodities side then we wouldn't see that full barley impact, but at this point in time barley does not appear to have followed some of the other commodities down. It appears to be still sitting up high.

With regards to other cost pressures, I think when we put the planning -- the plan together we sort of assume what we know today and so we have assumptions in there based on pretty much today's oil price and, therefore, energy price and freight prices. We are seeing some cost pressures on the freight side related to truck availability and service levels that we need and then obviously on the oil part of that transportation too, and certainly the fluctuations on the oil price from mid $90s to low $80s maybe into the $70s and back again make it very difficult for us to actually hold our plan firm given that that is -- has a swing on our freight costs. So our gross margin number that we put out there is currently planning is based on everything we know as of probably yesterday and then all of that is subject to change based on pressures and the movement in the overall markets. Now, that gross margin number that we're putting out there for next year takes into account our expectations for all the cost elements that we've talked about and the pricing increases that we've talked about and the brewery of operating efficiencies that we expect that we sort of built into the plan based on what we've accomplished this year, commitments made and then also just the pure volume leverage. So that gross margin number that you're looking at, Judy, includes our best estimate of all those things. The other thing going on is hitting that is just a mix effect. We have tea growing a little faster than Sam and tea has a different gross margin structure, slightly lower price point whether they are for different gross margin structure or at least currently, so that also can be a slight depression on the gross margin and so for all those reasons we are not forecasting gross margin to increase next year.

Okay. That's helpful, thank you.

You're next question comes from the line of Caroline Levy with CLSA.

Wonder if you could talk a little bit about Boston Lager which is still, I think by far, your biggest part of the business and how much was it down, was it just a tiny bit, and what's the plan, do you think he can get it back to growth and is that essential or between Seasonals and Twisted can you keep growing without that growing?

Sure, Carolyn, it is Martin again. Let me sort of touch up on that on the numbers and then Jim can maybe comment. I think my starting point would be that year-to-date Lager is up and that for us is healthy. Indicative of healthy brand trends I think the number you're looking at is just a quarterly number and frankly the Octoberfest seasonal for us was just huge in the third quarter from a strong growth perspective and when we have a big seasonal gain we tend to see a little bit of Lager weakness. I think that's all we were seeing. So, overall, I think we're very happy with Lager year-to-date. We put a number of programs against it through the course of the year and I think we are delighted that it is still growing after 27 years and obviously we're committed to try to keep doing that. And maybe I will just let Jim comment a little bit if he wants to.

Sure. Boston Lager is our flagship, our largest volume brand and it remains our focus. We think that because of that we've been able to keep it healthy. It is up for this year in a year of explosion of SKUs and brands in the craft beer category. It is, we think, a tribute to the health of the brand that despite that explosion, Lager is still up a little bit this year and we do, I think, look forward and with the commitment to Lager as the flagship and also the recognition that we will probably get at least in the next year or two more growth from Seasonals, other varieties of Sam Adams and some new beers that will meet the consumer's appetite for variety and new styles, but the base for Boston Lager we are very happy that is showing the health that it has demonstrated despite lots more choices, let's more draft handles, lots more fete of craft SKU's on retailer shelves.

That's very helpful. Could you also just discuss in terms of distribution and availability, that you still think there's opportunity on the base Lager and opportunity on the other brands and is there any way for us to get a sense of that, any stories you could tell about where you are gaining distribution?

Sure. One of the biggest areas for opportunity for increased distribution of Boston Lager is the largest channel for beer in the United States which is convenience stores and they have been the last significant channel that has now entered craft beer category. They have, on average, maybe 100 SKUs so craft is not going to get a full door, but for us what has been good is in a convenience store they are going to carry the lead brands like Sam Adams and the first thing they are going to put in typically is the lead style of craft beer which is Sam Adams Boston Lager. So we are getting increased penetration in C stores. We're also seeing increased penetration of draft lines, again into those bars that haven't really offered craft beer in the past and as they see the growth of the craft category, the first craft beer that they are likely to put in is Sam Adams Boston Lager because of the brand awareness, it is the largest selling craft SKU so that tends -- we tend to be the first craft beer though hopefully they bring in more.

That's great. I have one last question. G&A growth rate. Any guidance (technical difficulties) more than sales?

Bill, why don't you handle that?

Sure. Caroline, our G&A growth rates have been indicative of inflation. We've had changes in G&A costs relative to historical legal suits like the OI situation where we had completed that suit this past year. So I would expect that inflation and any growth in the business that impacts G&A will continue to grow G&A.

Thanks so much.

You're next question comes from the line of James Watson with HSBC.

Good afternoon, everyone.

Hi, James.

First question is on the higher CapEx. You guys raised this year's guidance and next year's even higher. I was wondering what prompted it, if this was capacity related or have you guys seen better cost savings opportunities than you'd previously anticipated?

Yes, great question, James. I think that certainly since we last spoke we've seen some volume acceleration that sort of pushes us closer to some capacity bottleneck next year, we obviously got some contract options to handle them. But some of the stuff that we are doing is opportunity related to the growth or related to the growth so putting in for manners to support Twisted Tea and mix blend systems to support the efficient production of that actually has pretty significant deliver gross margin benefit so it is sort of supporting volume and could be viewed as capacity, but also has some delivered gross margin benefits. There's other projects we have going on that relate to Freshest Beer and also have some capacity benefits. One of our conclusions on Freshest Beer is we need to have a little excess packaging capacity to be able to flex it to what the drinker is drinking, so we have investments going on there. But certainly as we look out, we're pretty comfortable with the sort of spend rate we have on a per item basis right now. There are some bigger projects for tankage as we cross some sort of capacity threshold, but at this point in time we don't see those sort of at least being executed in the early part of next year.

Okay. And in terms of you mentioned Freshest Beer. Have you seen much in the way of cost whether it is CapEx or sort of IT related or anything like it really coming through yet?

I think we haven't seen a huge amount in cost. I think we sort of benefited from some of the work we've done in quick changeovers and inventory reduction on our side. We have implemented some computer systems. They weren't significant. I think as we bring on more wholesalers we're looking and thinking about creating, again as I said, better capacity on the packaging side to flex and also some more potentially tanks to have beer available to support that flex, and that may involve some capital and that would perhaps be incremental to what we are currently looking at because we haven't committed to it yet but, to date, the cost for Freshest Beer from our side has been frankly pleasantly surprising as we actually optimize our own planning and changeover issues. I think we've been surprised we've been able to reduce our cost as we chase that, as we add more wholesalers it is unclear to us whether that would continue to be the case, but obviously that would be a goal.

Okay. And I just want to switch over to pricing for just a second. When you look at your ability to take pricing and have it stick, how important is it to have other imports versus other craft beers take pricing. I say that thinking perhaps it is a little more likely the craft of segment would take a pricing versus imports, but is there swing versus who takes up pricing, if they do?

James, it is very market specific depending on the competition in that market and also the retailer environment in that market as to what happens. So it is very hard to say generically. I do think that over the last five, six years with the pricing we've taken we are less attached to sort of a big import pricing than perhaps we were five, six years ago and we are still pretty attached to craft pricing so that would be my expectation. But, again, on the market by market specific basis, the nature of the competition and the retail pressure that might be exerted are very different.

Okay, and just following on you mentioned taking pricing, your pricing in place now, how long does it take you to kind of get a sense of whether it is taking, is it something where you're putting it into place now by the fourth quarter call you got a good idea whether people are following, whether consumers are responding?

Yes. I think based on our historical experience and obviously this time may be different. Many of our pricing increases will likely take effect February 1, January 1. We do have a little bit going on right now. It probably takes two to three months to actually see if there's a trend that is disturbing both in terms of our own volume which is really what we would look at and then try and dissect whether it was something we were doing or whether it was pricing driven and then if it was concerning, is it appropriate to react and what the reaction would be. So for most of the pricing that we are talking about on the forward-looking statements I think we are talking about first quarter so we're likely talking about when we talk to you end of April, May having a better sense as to what -- whether it is sticking or not.

Very helpful, thank you.

You're next question comes from Andrew Kieley with Deutsche Bank.

Hi guys. I was wondering if you could talk about the gains by Octoberfest. Did that go in to any new channels or why that was so strong this quarter. And, secondly, the plans you have for Seasonal the next few quarters is there anything new we should be aware of, is it the regular rotation, if you could talk a little bit about that?

Sure, Andrew. Why don't I take sort of the Octoberfest question and I will let Jim talk about the seasonal rotation because, yes, there is a change that's coming. I think Octoberfest for us has always been a very strong Seasonal. One, it is a beautiful beer that we all love and I think our drinkers do the same. We did have very good sales execution against it this year with a number of partnerships with key retailers for features and stuff, but nothing that I would say was it at higher levels than last year? Yes, but it was at the levels that we would expect and we didn't do anything unusual, I just think that it is a great beer and there is a demand for great beer and we make it available through the programs that we have.

And then as we think about how we build on that we have big focus on converting the business to winter Lager which is right now available at a store near you or a bar near you and making sure the conversions are timely and clean and we hope to build on the distribution gains and the feature activity that we had for Octoberfest and have it roll through winter Lager and, indeed, all of our other seasonal. And historically we would've gone from winter Lager to Noble Pils, but we've been talking to our wholesalers about a change and I will let Jim just talk about that.

Yes, to answer your question about any changes in seasonal rotations, Andrew. In the spring of 2012 we are going to be introducing a new seasonal called Samuel Adams Alpine Spring. It is an unfiltered Lager with bright sort of citrusy hop character and we are going to be making Noble Pils our 2011 and 2010 spring seasonal in to a year-round beer so that's going to become year around in February and we will have a new spring seasonal.

It seems like the spring season is the one that is least attached to a specific beer style. Obviously in the fall Octoberfest is a natural style, in the winter a winter beer like winter Lager, heartier spiced beer is appropriate and in the summer the summer ale has always been very strong. The spring season is one that I think Boston Beer Company and most other craft brewers have often changed to bring something more exciting, something newer to the drinker. It just seems like after the holidays beer drinking goes into a lull so we're going to give beer drinkers a brand new spring seasonal called Alpine Spring.

Okay, and then secondly I just want to ask about seen some data points about Walmart expanding maybe space or selection in the category specifically on craft so I know you don't want to talk about a single customer, but maybe can you talk about that big box sort of retailer channel in general? Are there still opportunities for you guys in that channel?

Yes, I'd be happy to talk about the channel. I think we've been very proud of our relationship with those customers and gradually increasing our penetration into them. There's still plenty of room. I think we've been very happily surprised with the volume that comes from those accounts and are actively promoting and supporting additional SKUs beyond just Lager or just Lager seasonals and I think as far as we can tell those suggestions are being received favorably and it is just a slow process for us to get all the distribution points. So, yes, we are excited, we are happy. We think there is growth, it is perhaps not as high as the seasonal class that Jim was referring to earlier, but it is definitely a growing class for us.

Okay, and then I just want to go back to capacity utilization quickly. Maybe if you can give us a sense of where it is now coming out of 2011? How much volume growth you think he can support with incremental CapEx and then the rate of growth as it has picked up. Does it change your thinking at all about you sort of Greenfield capacity in the future?

Sure. We are getting close to peak month capacity. We still have a little bit of room but we are starting to see some of the tensions that starting to run a brewery at 100% capacity sort of flow through but we are not at 100%, maybe we're at 90%, something like that. For most of the months, we are not even close to that. Sort of we look at it as to can we support the business, do we have contract relationships outside of our existing breweries to support the peak month for those set up and are we set up to do that and we think we are in good shape for next year.

As we look forward, if our growth continues obviously the peak months get spread out over more months that we are operating at what I would call tight capacity and that then leads us to looking at investments and the primary investments I think we think we need are tanks, it is not like we need new brew houses or even a Greenfield new brewery, our need sort of look like tanks for awhile and then a packaging line and then tanks for awhile. So as we look out certainly over the next five years we don't see any strong need for Greenfield breweries and other locations. We do see need for investments for tanks and maybe a packaging line, but those are sort of manageable and are not the sort of nine figure significant investments that a Greenfield brewery would be.

Okay, sorry, just one detailed question for Bill maybe. The tax settlement in Q4, is that -- will that be a cash item?

No.

Okay. Thank you.

You're next question comes from the line of Marc Riddick with Williams Capital.

Good afternoon folks. A couple of questions I wanted to go over, one of which I guess we can start with Octoberfest and the strength that you were able to see there. Was there any discernible difference as far as on premise versus off premise because if you sort of look at the marketing and that type of thing, Octoberfest was very prominently featured. So I was wondering from the standpoint of the benefit that you end up getting, does there tend to be much of a difference as far as channels? And then I have a couple of follow-ups.

I think the on and off premise trends of any brands swing around based on what promotional activity is going on. I'd say that Octoberfest did well in both and I don't have the data in front of me to tell you which was stronger. I do know for the quarter that we benefited from some off premise programming as a business, but that our on premise trends are very healthy.

Okay, great. And one of the things that we've spoken about in prior quarters was the increase of the sales force earlier in the year that you took on and sort of wanted to get a sense of sort of where you felt that was as far as maybe how much of a benefit that was in the strong quarter that you delivered here or whether there is still more of a ramp-up to go in the folks that you brought on earlier in the year?

Sure. We are big believers in having great quality people representing our brands and selling to our accounts. It obviously takes a little while to ramp up training and sort of understanding of what was selling and how we are selling and what our priorities are. I think we are very happy with how our sales force is performing and certainly we are digesting that pretty big slug of additional people that we've put on the team in the last 18 months to digest and also to make sure that it is operating correctly. I think they certainly take a lot of credit for a very strong quarter with some great execution across a number of elements, but I think the beer also has to take credit too.

Okay, and one last thing to go over that I thought was very interesting. I think the last time when Noble Pils came around that was sort of, and quite frankly I'm very happy to hear that it will be offered year around because that's actually one of my favorites, but one of the things when that came around that was one of the things that had been tested throughout various craft beers and fairs throughout the country and if I remember correctly it had won one of your contests and that was part of how it sort of came to be. I was wondering if you sort of touch on I guess the offering of Alpine Spring which will be coming next year and how that offering came to be and maybe some of the things that went behind that?

I think as we look at what happened this year we were very happy with Noble Pils' performance, seasonal performance in the first quarter, but we struggled a little bit in the transition the summer and our learning from it was that we perhaps will be better off in the first quarter with a new seasonal. I think if you look back at our quarterly numbers, the introduction of Noble Pils as a new seasonal actually lifted our numbers quite significantly. There's a lot of trial, you actually can build distribution with a new seasonal quite significantly and I think we came to the conclusion that, that was probably a good call to make as it relates to our complete seasonal rotation. The first quarter would be a time to launch a new seasonal if we were going to do so and we were torn this one because Noble Pils is such a great beer, we all love it, and the only obvious conclusion we could take was to make it year round.

I couldn't agree more with that decision. One other thing to bring up and this will be the last one for me. Can you sort of touch on some of the other collections and maybe how they are being received as far as the ability to gain shelf space because certainly having new product, and Jim alluded to this earlier, is something that's been helpful, but maybe if you could talk about the ability of some of the other collections to gain shelf space at this point?

Jim, would you want to take that?

Sure. I think what we are seeing now is a substantial increase at the retail level in the shelf space that they are willing to give craft beer. They are looking at their beer portfolio and the only area of growth in volume and margin is in craft beer. So they are opening up space and we see that as an opportunity to broaden our portfolio of beers in a number of directions. In the last year or two that has included things like more variety packs, seasonal, shifts in the variety packs including in each variety pack two new beers that you cannot get anywhere else, and it has also included expanding our offering into higher price points like the Imperial series which is about a $10 shelf price for a 4-pack of beers, bigger, richer beers. And then just recently we have rolled out some more markets our Barrel Room collection, that's a champagne cork finish on a 750-milliliter approximately bottle that sells for about $10 a bottle. And in the last month the series called Single Batch series that is roughly a $5 price point for a 22-ounce bottle of unique styles that will rotate so they are things like a chocolate chili and oat barley wine, a red IPA with Tasmanian hops and Imperial IPA and we see those rotating. And I think the overall theme here is Boston Beer and Sam Adams expanding our range of products in terms of prices and flavors to meet this consumer demand and almost craving for variety and new flavors and tastes and styles of beer and we want to be there when they are looking for that.

Okay, great, thanks.

You're next question comes from the line of [Gary Albanese] with [Arega].

Thanks, guys. Thanks for taking my call. Can you remind me what percentage of your cost of goods barley is?

We haven't actually disclosed that, Gary.

Okay. Second, with the shareholder purchases, I mean the share repurchases, you've been fairly aggressive with that. At what point do you start thinking about market liquidity and possibly using that cash for other purposes?

We talk about appropriate uses of the cash on a regular basis with our board and make recommendations and it is a serious discussion as to what's appropriate use of cash between investing in the business and other forms of returning cash to shareholders. That's an ongoing discussion that reflects changing times, the environment, what's going on in the market, what our needs are and all we can really say about it is that our track record speaks for itself, but we review it regularly and it may change, but our track record speaks for itself.

Okay. And just looking at the guide, not the specific guidance, last quarter you brought it down, this quarter you are bringing it back up. How do internally get your arms around some of the streakiness or clumpiness with the depletion levels in the industry?

I'm not sure I understand the question.

Last quarter the depletions were lower, this quarter they are picking up. Last quarter is below I think what everybody was expecting and this quarter it is above, so it seems a little bit clumpy in terms of where the market and what the market does quarter to quarter.

I think we think underlying demand for a crop year is very healthy. We think an aggregate craft domestic specialties are growing very healthy and you can see that in the IRA numbers. I think as it relates to our performance, I think our performance over the last nine months has blown hot or cold by month depending on some specific executional issues and how certain beers were received. I think we've already talked on this call about Octoberfest being well received and maybe Noble Pils sort of lagging a little in the summer ale conversion and you see us reacting accordingly.

So our take is the category that we are he and is remarkably healthy and is growing. We are getting some of that growth, but we're not necessarily getting as much as some of the others and there's obviously explosion of competitors and complexity going on in the category but, overall, we are very happy with the fact we've been able to grow our lead styles and also our focus brand priorities and we continue to tweak and change our beer selections and also our promotional efforts to try and ensure that we get our fair share of that growth.

Okay. Thanks, guys.

(Operator instructions). We have a follow-up from Judy Hong with Goldman Sachs.

Thanks for taking the follow-up. My question was in terms of your depletion guidance for 2012, the mid to high does imply a bit of a slowdown than what you are targeting for this year, so I'm wondering are you expecting that to soften because of pricing that you are anticipated to take? Are you expecting a bit of a slowdown from a crop category perspective? I just want to get a little bit of color in terms of your depletion outlook?

Sure, I think obviously it is very hard to come up with accurate estimates of what's going to happen, but we are very positive about the category. The category this year has had a very strong year. It would be great if it had a similarly strong year next year, have no idea whether that's going to happen.

Our performance within the category were obviously delighted with our position year-to-date. I think would be very happy if we can duplicate that trend next year. It obviously gets tougher, particularly with a larger price increases and maybe that's not as likely and that's a factor and then obviously our base is that much bigger but that sort of growth of that sort of base gets a little harder too. That said, we've got some good things going on with a number of beers and our brands and we are happy, we think we should go next year based on that and as we think about guidance, high single digits is sort of -- the guidance we gave is sort of our best estimate of what it is and obviously we will have a much better feel for it when we talk at the end of February.

Okay. And, Martin, just one final question on pricing. So you've talked about maybe your pricing versus the imports have become less relevant in the last five years. Really watching more the craft pricing is more important at this point. Within craft is it sort of the bigger guys like Blue Moon and Shock Top or is it more the independent craft brewers?

Again, I think it depends on market and both the competitive dynamics and also the retail environment. I think we have some markets where its craft, we have some markets where it's Blue Moon, I'm not sure so much Shock Top in any market, but it does vary and, again, as we take pricing what happens to our volume trends and we certainly believe that the quality of the beer deserves a better price and we have to see whether the drinkers share that belief with us and then react accordingly either through more investment or through tactical price position in the marketplace.

Okay, thank you so much.

(Operator instructions). At this time, there are no additional questions. I would like to turn it back over to management for closing remarks.

Thank you, everybody, and we apologize that the three of us are all in different locations, but we would all like to thank you for your participation and we look forward to talking to you and the new year what we have our full-year results, so cheers.

Cheers.

Thank you. This concludes today's conference. You may now disconnect.