Boston Beer Company Inc (SAM) 2013 Q2 法說會逐字稿

Good afternoon, my name is Hope, and I will be your conference operator today. At this time I would like to welcome everyone to the Boston Beer second quarter 2013 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. Mr. Jim Koch, Founder and Chairman, you may begin your conference.

Thank you, and good afternoon and welcome. This is Jim Koch, Founder and Chairman, and I am pleased to be here to kick off the 2013 second quarter earnings call for The Boston Beer Company. Joining the call from Boston Beer are Martin Roper, our CEO, and Bill Urich, our CFO. I will begin my remarks this afternoon with a few introductory comments, including some highlights of our results, and then hand over the microphone to Martin, who will provide an overview of our business. Martin will turn the call over to Bill, who will focus on the financial details for the second quarter, as well as a review of our outlook for 2013. Immediately following Bill's comments, we will open the line for questions.

We achieved depletions growth of 24%, and record total depletions in the second quarter. Depletions growth in the second quarter improved from our first quarter results of 16%, primarily due to the improved growth of our Samuel Adams seasonal program, and our Samuel Adams Boston Lager. We believe that our depletions growth is attributable to strong sales execution and support from our wholesale wholesalers and retailers, as well as our quality beers and strong brands.

We were also delighted to learn that for the fifth year in a row, our wholesalers ranked us the number one beer supplier in the industry in the annual poll of beer wholesalers conducted by Tameron Consulting, a consulting firm specializing in the alcoholic beverage distribution industry. This is a testament to the efforts of all Boston Beer employees to service and support our wholesalers business, and to the relationships we have built with them. We continue to innovate, and during the quarter we released Samuel Adams Boston Lager and Samuel Adams Summer Ale packaged in our new unique can, which has been well received by wholesalers and drinkers, and is generally in line with our expectations from a volume perspective.

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 discuss 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 that the Company does not undertake to publicly update forward-looking statements, whether as a result of new information, future events, or otherwise.

In the second quarter our depletions growth accelerated from prior trends, due to the health of our Samuel Adams beers, and the increased distribution of Angry Orchard, which was rolled out nationally during the second quarter of 2012. Our business is healthy, and we believe that the strength we see in our main brands may well reflect the response to our increased investments in media, local marketing, and point of sale, and the efforts of our increased sales force. Accordingly, we have increased our expectations for full year depletions growth to between 17% and 22% to reflect the current trends as we take advantage of the opportunities that we see, we are increasing our planned investment in our sales force and our support behind our brands for the remainder of the year.

We also continue to invest at a high rate in capital improvement in our brewing and packaging capabilities, to support our product innovation and brand growth. These improvements include our new can line that began production this quarter, and a new bottling line which started initial ramp-up late in the quarter. I would like to recognize the significant efforts of our brewery employees in supporting these start-ups and reacting to the brand acceleration that we have seen.

This growth has been challenging operationally, and we have had some product shortages and service issues at the end of the quarter. We have been operating at capacity during peak weeks and have increased our usage of third-party breweries above plan during the quarter as a reaction, but were unable to meet peak week demand. We expect that the new bottling line will help relieve these pressures as it comes up to speed during the third quarter.

Based on the accelerated growth and to address current capacity bottlenecks, we anticipate accelerating capacity and efficiency improvements at our breweries, and accordingly are raising our capital spend expectations for 2013 and 2014. We also expect a continued high level of brand investment as we pursue growth in innovation. We are prepared to forsake the earnings that may be lost as a result of these investments in the short term, as we pursue long term profitable growth.

Alchemy & Science, our craft beer incubator, continues to progress with its existing brands, which include The Angel City Brewery, Traveler Beer Company, and the Just Beer Project. To date sales from Alchemy & Science brands have not been significant. Our latest 2013 financial projection includes estimated brand investments attributable to existing Alchemy & Science projects of between $4 million and $6 million, and capital investments of between $4 million and $7 million. But these estimates could change significantly when new brands are added. There is no guarantee that the 2013 volume of Alchemy & Science brands will fully cover these and other expenses that could be incurred. We continue to look for complimentary opportunities that do not distract us from our primary focus on Samuel Adams, as we believe a portfolio of growing brands is a good outcome for our wholesalers and for us. We currently have 120 wholesalers representing over 65% of our volume in our Freshest Beer Program, and believe this could reach 75% by the end of 2013. We continue to evaluate whether we can reduce inventory levels further and to invest in the breweries to improve their support of the program, particularly during peak selling periods.

Year-to-date depletions through the 29 weeks ended July 20th, 2013 are estimated to be up approximately 22% from the comparable period in 2012. Now Bill will provide the financial details.

Thank you Jim and Martin. Good afternoon everyone. We reported net income of $19.7 million, or $1.45 per diluted share for the second quarter, representing an increase of $5.4 million, or $0.39 per diluted share from the same period last year. This increase was primarily due to shipment increases partially offset by increased investments in advertising promotion and selling expense. For shipment volume for the second quarter was approximately 837,000 barrels, a 21% increase over the second quarter of 2012. The increase in shipments is due primarily to increases in Angry Orchard, Samuel Adams, and Twisted Tea. Inventory at wholesalers participating in the Freshest Beer Program was lower by an estimated 267,000 case equivalents, compared to the end of the second quarter in 2012.

Our second quarter 2013 gross margin decreased to 53.6% from 54.5% in the second quarter of 2012. This was primarily driven by increased brewery processing and ingredient costs, combined with $3 million of customer program and incentive costs that are now recorded as reductions in revenue. In the second quarter of 2012, customer programs and incentive costs were recorded as advertising, promotion, and selling expenses. We are decreasing our full year gross margin target to between 52% and 54%, from previously between 53% and 55%, primarily due to increases in ingredient costs and product mix.

Second quarter advertising promotion and selling expense excluding 2013 customer programs and incentive costs of $3 million that were reported as reduction of revenues, were $6.1 million higher than costs incurred in the prior year. The combined increase of $9.1 million in advertising promotional and selling and customer programs and incentive costs was primarily the result of increased investments in local marketing and media advertising, costs for additional sales personnel and increased freight to wholesalers due to higher volumes.

General & Administrative expenses increased $2.1 million compared to the second quarter of 2012, primarily due to increases in salary and benefit costs. Our effective tax rate for the second quarter of 2013 was 38%. Based on information which we are currently aware, we are increasing our estimated 2013 earnings per diluted share to between $5.10 and $5.40, from the previously communicated estimate of between $4.70 and $5.10. Our actual 2013 earnings per diluted share could vary significantly from the current projection.

We now estimate 2013 shipments and depletions growth of between 17% and 22%, an increase from the previously communicated estimate of between 10% and 15%. We are targeting price increases per barrel of approximately 1% to partially offset anticipated increases in cost of goods. Full year 2013 gross margins are currently expected to be between 52% and 54%, due to anticipated price increases not fully covering cost pressures, and some product mix changes.

We intend to increase investments in advertising, promotional and selling expense by between $20 million and $26 million for the full year 2013, not including any increases in freight costs for the shipment of beer products to our wholesalers. We estimate costs of between $4 million and $6 for the continued investment in existing brands developed by Alchemy & Science, which are included in our full year estimate increases in advertising promotion and selling expenses. Additional projects yet to be developed or acquired may significantly increase investments in Alchemy & Science, and advertising promotion and selling expenses. We believe that our 2013 effective tax rate will be approximately 37%.

We are continuing to evaluate 2013 and 2014 capital expenditures. Based on information which we are currently aware, we have increased our estimated 2013 capital spending range to $100 million to $140 million, from the previously communicated estimate of $85 million to $105 million. Most of which relate to continued investment in our breweries, as well as additional keg purchases. Our wide range is a result of equipment currently anticipated to be delivered to the breweries in late December 2013 which could be delayed. In addition, we are increasing our initial estimate of 2014 capital expenditure range to between $100 million and $130 million from $30 million to $50 million. The actual money spent may be well different from these estimates; based on information currently available the Company believes that its capacity requirements for the remainder of 2013 can be covered by its company-owned breweries, and existing contract capacity and third-party brewers.

We continue to maintain a strong cash position with $25.1 million in cash as of June 29, 2013, during the first half of 2013 we repurchased approximately 196,000 shares of our Class A common stock for a total cost of $29.6 million. From June 30th, 2013 through July 26th, 2013 we did not repurchase any additional shares of Class A common stock. Through July 26, 2013 we have repurchased a cumulative total of approximately 10.9 million shares of Class A common stock for an aggregate purchase price of $299.5 million, and had approximately $25.5 million remaining on the $325 million share buyback expenditure limit set by our Board of Directors. We will now open up the call for questions.

(Operator Instructions). Your first question is from the line of Judy Hong with Goldman Sachs.

Hi everyone.

Hi, Judy.

A few questions from my end. First, just looking at your Sam Adams performance in the quarter, clearly a sequential improvement from the first quarter. Can you just talk about how much the cans contributed in terms of your growth for Sam Adams trademark in the quarter? And then just broadly just the improvement on the lager and seasonal can you talk about what you think is really driving the sequential improvement, just because when you look at the mainstream beer category, you have actually seen a lot of weather and consumer related weaknesses, and it seems like you have seen trends actually improve sequentially?

Sure. Let me take some of that and then if Jim would like to comment, he can. I think we did see pretty good turnaround in trends on Sam Adams from the first quarter, sort of starting late in the first quarter. The cans launch occurred around May 1st, and I think the can volume as Jim indicated has met our expectation. I think a good proxy for that is the publicly available IRI data, which sort of suggests that cans are roughly 4% of our off-premise bottle business. And that is sort of what we have talked about sort of mid-single digits as a target for cans as a percent of bottles, and I think that is what we have seen. Obviously some of that will be cannibalization, how much don't know. It is hard to interpret how much of the growth of brands is coming from cans, but it is obviously just part of it, given there is some cannibalization and the brand trends, at least in IRI, which is publicly available information, ours is way faster than that.

With regard to your second question, which is what might be causing that, I think again we saw a pickup in trends in the off-premise starting late March. I think it is visible in the IRI data, and it doesn't seem to us to be pricing driven, and sort of feature ad driven, based on the data that we see. Of course it could be. I think it is reflective of the brand being healthy, and just what we are doing across all of our efforts, both our sales force, our marketing and media efforts, our wholesalers efforts, and good execution. And it just seems that we are currently back in a rising tide, and floating with it. The craft brewers reported their numbers, and I think we are pleases to have Sam Adams trending closer to those numbers than they have in the past.

Yes, and I guess I would just comment from many years of watching numbers go bounce around, this is only a quarter. We are very happy that the trends have improved on Boston Lager and our seasonals, both of which are crucial, but it is just a quarter. So we will see.

Okay. And then just if we look at your depletion guidance for the full year, at this point it still seems to be pretty wide range. In the back half I know the comparisons get a little bit more challenging. So maybe talk about puts and takes, in terms of the risk to the upside or downside, as you think about the back half of the year, either the continued performance on the Sam Adams brand, or the Angry Orchard, just trying to understand the wide range that you still have on the depletion guidance?

Sure, well the second half of the year is bigger for us than the first half of the year, and there are still a number of things here that I wouldn't pretend to say that we fully understand. The starting would be the Sam Adams trends, which we are obviously very pleased with, we are finishing Summer Ale up pretty clean. In fact Octoberfest conversions have already started, earlier than perhaps we would like, but that appears to be clean. The next two, three months are pretty critical for us from a volume as a percentage of the year perspective. Frankly until we have those behind us, we are not that excited about predicting Sam Adams ranges.

I think on a tea perspective, our tea was slower than we would have liked earlier in the year, but it seems to have picked up some velocity again. To Jim's point, we have got two data points a week, of growth first quarter and a stronger growth second quarter, and choosing which number to project out for the rest of the year can lead in a pretty significant range.

And then Angry Orchard obviously the comparisons are much, much harder in the second half of the year, but we are obviously pleased with how the brand has performed. I think if you look at again publicly available off-premise data, we now have the number one cider in the country in the off-premise, pure apple juice cider. So that is exciting although it is still a small category, and these are still relatively small numbers, we just don't know how that category is going to continue to grow. I think it is fair to say that a lot of the category growth seems to have accrued to our offerings, and obviously we would like the category to keep growing, but don't know how far that can be pushed. So we watch that and at this in time again, there is a very wide range of potential outcomes as to what that growth should be. So at this point in time with so much of the year still ahead of us, we would like to give us a range that we feel we can fall within.

Okay then my also question is just looking at the broader competitive landscape, you have had a lot of new products that were launched by the major companies, whether it is the value craft segments, or some of the CFMB products. I am just curious in terms of your observation, and how those brands are interacting if any, with either your brands or the broader craft segments? And to what extent it is cannibalizing more the mainstream domestic beer segments, and just given how challenging the broader industry volume has been so far, do you think there is risk of more price competition, or anything that you see as a risk in terms of the broader industry competitive dynamic?

Let me sort of split it into two parts, and I will give my perspective, and then again if Jim would like to weigh in he can. On the first part, there is a tremendous amount of competitive activity. And it is not just the big brewers with their introduction of higher priced items to try and build out there higher end portfolio. Obviously there have been several launches and a fair amount of muscle flex to get retail space and distribution, but it is also in the other imports and craft, where the number of new brewers again based on the Brewers Association numbers is still growing, and all of them are introducing new products.

I think the biggest impact for us is just the sheer variety of what is available to a retailer to put on the shelf or put on tap. And that is very challenging whereas ten years ago, we maybe had, I don't know, maybe a 10% share of SKUs in the craft space. I am going to guess we are down under 1% or 2% share of SKUs in the craft space now, given all this new activity, and then you have obviously got the big brewers who appear to be making big pushes to expand their high end.

So the biggest impact for us I think is the fight for shelf space and tap handles. And that sort of mirrors our belief in our sales force, and the quality of that team, and also the number of people we have, and we are committed to that, sort of addressing that by having people in the street, and supporting accounts stand supporting wholesalers as best as we can and hopefully the best in the industry. With regards to the pricing, you are seeing some of those introductions get introduced as trade downs to craft, which is obviously a concern, particularly if the retailers choose to, or are advised to place those brands next to ours in order to support them on that price trade down, so you are seeing some of that. Some of that has been successful, some of it hasn't been. You are also seeing other craft brewers attempt that as a strategy to revive brands that perhaps are not doing as well as they would like, so you are seeing a little bit of it.

I wouldn't say there is vast price discounting going on right now, but you are seeing people strategically trying to place brands at sub-craft pricing. A little unclear whether that is going to work or not, and what that is going to do to craft. I do think one thing it will to do is trade more people up, because it provides an easier ladder on the price ladder for folks. So as the big brewers move their price up for mass domestic beers, and create these steps for people to go to, I think long term it is positive and good for us, but short term don't have a good view on that, other than it is largely a retail space battle, and we can fight that as best we can at the size we are, and that is how we go to market.

Yes, I would build on that. It is essentially what you are seeing, Judy, everybody is seeing, is some weakness in kind of the mass domestic part of the beer category, and the excitement and growth coming out of the high end, not just better beers like crafts and imports and domestic specialties, but FMBs and now cider. And with that lots of opportunity brings lots of competition. And my point of view on it is that is a better place to be than not much opportunity and not much competition.

So it comes with the territory and our solution to that has always been over investment in long term brand health year after year for Sam Adams, and now tea and cider. And I think maybe we are seeing some of the pay off from that long term year after year investment in brand health for Sam Adams, as there are retailers who are being inundated with so many brands, and consumers being inundated with so many brands, and a few retailers realizing that the strong stable brands that consumers know are what they need to sell, and so we are seeing some of the leading edge retailers pulling back a little bit on kind of on the beer of the day mentality, and making sure that they have they have the staples of the craft category, like Sam Adams available all of the time, because the drinkers do have brand loyalties that we built for many years.

Got it. Okay. Thank you very much.

Thanks, Judy.

Your next question comes from the line of Vivien Azer from Citi.

I wanted to circle back on the pricing discussion, and just ask for a little bit more color on your revised guidance for net revenue per barrel growth, which has come down from plus 1 to 2 to plus 1, and whether that is more a function of mix shift in your own portfolio, or your outlook for category pricing or the competitive landscape?

That is a good question, and I think it is obviously a little bit of both. But I would say more of it is mix shift within our product portfolio. It is pretty subtle. And some of it is also the downward pressure on pricing from some of these lower priced beers that are trying to hit a price point below craft. So it is a little bit of both.

Just to follow up on that then, if we look at the outlook of category pricing, I mean ABI reported earlier today their net price realization continues to be, on a per hectoliter basis, continues to be pretty good, but certainly it seems to be weighing on volumes across the board. To the extent they end up taking less pricing to drive volume growth, how much does that limit your ability to price?

I think as we said before, it is always helpful if the big players are moving on price, but ultimately our price gets determined by what the craft beer drinker will pay for craft beer, which is obviously a slightly different drinker decision point, than perhaps they are dealing with for the vast majority of their volume. So certainly it is useful from a timing perspective, if they are going that we can go and everyone gets to work on pricing at the same time period. But we will be looking at what is our view on the craft drinker, what is our view on their demand for our beer, what is their support of our beer? To Jim's point, is our brand investment building stronger brand loyalty, and will that support better pricing, we will also be looking at all of our cost impacters, and it is a little early to know what those will be, because the agricultural components of those aren't yet finalized, and won't be until harvest. So this is something we will have a much better feel for when we talk to you in October.

Okay. That is fair. Absolutely. Thank you very much.

Thank you.

(Operator Instructions). Your next question comes from the line of Caroline Levy, CLSA.

Hi everybody.

Hey Caroline.

A couple of questions on the cider, and I was a few minutes late hopping on the call, so I don't know if you addressed this. What percent of your volume is cider, and then separately what percent is tea at this point nationally?

Hi Caroline. We, I think as you know historically, have chosen not to disclose that, and we would just direct you to sort of the publicly available IRI or Nielsen data for a good proxy.

Okay. So is cider equally popular on-premise would you say versus off-premise, or more so on-premise?

I would say that cider looks like from a development perspective, it is sort of following similar trends to craft beer, which obviously are distinct from mass domestic beer, so there is an on-premise component to it. I think it is fair to say that the category is still new, so we don't yet know how that mix will work out. And there are still some distribution opportunities, and again it is a small category. So we are still trying to work out and find out what those stable ratios on/off premise are.

Do you think there is a big opportunity from flavor innovation within cider, so you could do apple plus? Is that an opportunity you are looking at?

I think there are some real challenges in sort of cider, and how it is made, and what you can do to it within the existing sort of tax structure, that make it quite challenging to do those sorts of things at the brewery, as opposed to in the on-premise or at the home. There is some mixology going on of mixed drinks being made, of cider and things added in the on-premise, which is sort of interesting, not sure whether it is a fad or more permanent, and I would imagine that people are doing similar things at home. But as it relates to cider flavor innovation, it is a little harder than in beer, where effectively as long as we are using barley and hops, that we have a lot of things we can do from a flavor perspective, cider is a little tougher.

Moving onto your distribution, did I hear you say that you think you only have 1% of SKUs displayed, and is that an on-premise or off-premise comment?

No, this is more a comment of, there are 2,000 craft breweries out there, each of them have five or six beers, and if you multiply that out, we only have 50.

If you think about shelf space, are you getting your fair share do you think, or more than your fair share, because you talked about your excellent sales force, which is definitely conformed in talking to industry players, but do you feel that you have your fair share of shelf space, or you are doing good enough job on that?

We never feel like we have our fair share.

That was a stupid question I knew that. I knew that, sorry.

I would add to it if you go back ten years and looked at it, you would have said, Sam Adams has a share that is roughly proportional to our share of the category, I think that if you went out today, you would say, Sam Adams doesn't have a share in proportion to the category. And I think that is one of the dynamics that has changed over the last seven years, that as retailers have added more space to the category, it has been very hard for us to maintain our share of that space.

Right. Then it just begs the question though, because you do have a reputation for a great sales force, but what do you think can be done to get back to fair share?

I think we are going through a time period where retailers are trying to figure out the balance between the strong brands that they are going to sell, and then this tsunami of variety that is hitting their stores. The category is still growing. There is a lot of stuff in flux. So it hasn't really sorted itself out yet. And it is not surprising imports went through this in the 1980s, where there is just a whole bunch piled into the market, some of them survived because they had great quality, and great brands and lots of support, and others washed away while those strong brands continued to grow. And I think retailers are just trying to figure out how much variety is just right, and some of them have too much, some may have too little.

Thank you.

I would add to that there certainly has been a pendulum swing to more variety, and whether that is right amount or not, I would leave to each individual retailer who knows their customers better. But as they have added variety, they have reduced pack out, and so what you do see is either demands on the wholesaler for much higher levels of service and delivery, and greater frequency, or you see out of stocks of sort of the key brands. I would hazard a memory that imports went through the same thing in the 1990s, that the import category was hot, lots of new imports came, in the import category was divided up into smaller imports, the big imports had lots of out of stocks. Ultimately the retailers went through that process and made the right decisions for each retailer based on the market, what the correct allocation of space was to the bigger core brands that needed the pack out, versus the smaller brands which were there for choice and diversity, and I think at this point in time we are still in a stage with craft, where basically the pendulum is swinging to variety.

My last question is just quickly on margins, if I might ask. At what point do you think you will really be able to get operating leverage, because I know you are investing heavily in sales, marketing, even in G&A. Do you see a point in the near future where you can actually leverage the topline growth?

Well, I think it is fair to say we would like to. I think the growth obviously has surprised us a little bit, and we have got some catch up going on, and we have got some inefficiencies in our breweries, in just dealing with that acceleration that are happening. And I can't give you a great answer as to when that will finish. I think our number one priority is trying to support our wholesalers, and keep them in inventory, and keep the breweries running safely, but we are still pursuing the growth opportunity. We have this opportunity that seems to have arrived, where we are getting returns on the brand investments, and we are going to continue to try and charge through that opportunity and take advantage of it as well. So certainly long term we would like to see leverage. It is something that we talk about a lot; in the short term, we seem to be struggling to actually produce leverage, and I think it is down to all those factors.

Thanks so much.

(Operator Instructions). Your next question comes from the line of Marc Riddick, Williams Capital.

Hey Marc.

Good afternoon guys how are you. Congratulations on a great quarter. I wanted to get into one of the things you had mentioned about Octoberfest. And if I recall correctly last year, and this might have just been my observation as far as the timing of it, it felt, as a consumer at least, like Octoberfest seemed to hit the shelves quicker than normal, maybe a little bit earlier in the calendar than normal last year. I think maybe the benefit really was a function of the benefit of the Freshest Beer Program. And if I was wondering that there seemed to be a little of a commentary that was earlier about the timing of Octoberfest, I was wondering if that might be something that we might see happen again this year, and then I have a couple of follow-ups?

Yes, our typically target to run out of wholesaler for Summer Ale, and this is like most of the wholesalers is end of July. And I think it is fair to say, and I will apologize to those wholesalers now if they happen to be listening or following these remarks, that we ran out of Summer Ale earlier than that. And that is partly due to the acceleration that we are talking about. And so I think in my earlier remarks, I said that we were anticipating a slightly earlier conversion to Octoberfest. Now what you see at retail is typically delayed a week or so from when the wholesaler runs out, and some of the wholesales like the retailers run out before they put two seasonals on the shelf. But I do think it will be earlier this year because of that, because of that acceleration that we saw, that basically we obviously hadn't planned for and didn't have the liquid to support through to the end of July. So we have been shipping Octoberfest. I know some of it is in retail already. I don't know where you shop, but I am sure we could let you know where to find it, if you would like to.

Well, it is always an issue when you run out of beer. So that is a sad statement for all occasions. One of other things I wanted to get into from that standpoint then, is with the roll out with Angry Orchard for instance, it is actually interesting, is there a seasonal approach that you are looking at taking with that as well, because it seems as though maybe some of the things that I came across in trades, that there seem to be perhaps the opportunity to have a little bit of a seasonal approach, similar to what you do with a flagship?

Well with Angry Orchard we did introduce a variant, Elderflower, a variant which was quite delightful it sort of reminded me of growing up in the UK, drinking Elderflower juice, which we used to make from a tree in our neighbor's yard. And that did well for us. And we are in the process of replacing that with our fall cider, which is sinful cider, Angry Orchard. And so, yes, we are already doing that. It is not big volume. Could it be, again the category is so small and it is still very early stages of whatever its development is, that we just don't know, but certainly there seems to be some interest in like a variety of pack of cider, and so we have got some ciders in there, and one of them has a seasonal element to it.

Okay. And one other thing, as far as the hiring that you talked about, and you do historically of course reinvest in your brands throughout the year, which is great to see. I was wondering if there was any particular focus this year, as opposed to last year as to the hiring trends that you are trying to target? I mean is it a similar mix of folks you are bringing on as far as function, or is there any particular area that you would really like to be aggressive on there?

I think obviously we the accelerated capital planning we have been in the last 12 months reasonably aggressive trying to add engineering capabilities and project management capabilities and also start up commissioning capabilities. And given the projects that we expect to do in the next 18 months, I would expect that area of focus to remain high. Obviously with this sort of growth, there are all areas of the Company are stressed, and so I am sure that we will look at all areas, but fundamentally we have always believed that feet on the street is what sort of can really impact the business, and so I would expect that to remain a primary focus too. Having said that, we haven't yet developed our target plans for next year, so I really can't talk any specifics.

Okay. One last thing. I wanted to sort of go off topic a little bit, because as far as the investment in advertising and promotional spending, what is really interesting is that it seems for a long time you have been very big advertisers, especially within the sporting area, and I was wondering if there is any opportunity to maybe get maybe best bang for the buck is the best way to put it, when you are dealing with some of those, given that the current environment there, we currently know some of the things that have taken place with ESPN. We know that they have a competitor coming up. As a buyer of advertising in sports areas, is there an opportunity for you to maybe get a better return on your investment there?

Well, there may be. We have had long relationships with a number of the networks and properties that we have been very pleased with. Our approach to buying media has always been pretty analytical, and sort of value based. Certainly we participate in the upfront media process, and that process isn't yet closed this year. So it is still a little early to understand how some of the things that you mentioned may effect those commitments. But certainly we welcome new networks to talk to that fit our demographic, and can meet our economic needs. With all that said, we obviously spend a lot of money for a brewer our size, but we are still spending very significantly less money than the big guys. So we are on the fringe of some of these discussions.

Okay great. Thank you very much gentlemen.

Thanks.

There are no further questions at this time.

Great. We very much appreciate everyone joining us, and for your support of our products, and we encourage you to have a beer tonight. Cheers, and look forward to talking to you soon.

Cheers.

Cheers.

Thank you. This does conclude today's conference call, you may now disconnect.