Boston Beer Company Inc (SAM) 2017 Q4 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to The Boston Beer Company Fourth Quarter 2017 Earnings Conference. (Operator Instructions). As a reminder, this conference is being recorded. Now I would like to welcome and turn the call to the Founder and Chairman, James Koch.

Thank you. Good afternoon and welcome. This is Jim Koch, Founder and Chairman, and I'm pleased to be here to kick off the 2017 fourth quarter earnings call for The Boston Beer Company. Joining the call from Boston Beer are Martin Roper, our CEO, and Frank Smalla, our CFO.

I'll begin my remarks this afternoon with a few introductory comments, including some highlights of our results, and then hand over to Martin, who will provide an overview of our business. Martin will then turn the call over to Frank, who will focus on the financial details for the fourth quarter and for 2017 fiscal year as well as our outlook for 2018. Immediately following Frank's comments, we will open the line for questions.

Although still negative, total company depletion trends showed continued improvement during the last quarter. We're still seeing challenges across the industry including a general softening of the craft beer and hard cider categories, more and more start-up brewers opening their doors and retail shelves that offer an increasing number of options to drinkers. Our leadership team continues to make strides to address these challenges by improving our cost structure and investing the savings into our brands, which we believe is contributing to the improvements in gross margin and depletion trends.

We're excited by the new media campaigns launched in late 2017 for both our Samuel Adams and Angry Orchard brands and by the early enthusiastic reception to our key innovations launching nationally in the first quarter of 2018. These include the launch of Sam '76, a uniquely flavorful and refreshing union of lager and ale. The launch of Sam '76 is being supported by new media, by launch events and other marketing programs to drive awareness of this revolutionary beer. To date, the response from our wholesalers, retailers and drinkers has been incredibly positive, but it's still too early to draw conclusions on the long-term impact.

Our other key innovations include Samuel Adams New England IPA and Angry Orchard Rose, both of which are generating excitement during the very early stages of their introductions. We believe that we are well-positioned to meet our longer-term challenges because of the quality of our employees, our beers, our innovation capability and our sales execution strength coupled with our strong financial position that enables us to invest in growing our brands and creating new growth opportunities.

As previously announced, we are delighted that Dave Burwick will join us as CEO. Dave has an established track record of innovation and business success in the beverage and consumer goods industries and has served on Boston Beer's board of directors since 2005. In his most recent role as CEO of Peet's Coffee, Peet's has significantly grown sales and profits over the past 5 years under Dave's leadership.

We expect Dave to join in the second quarter and Martin Roper, the company's current President and CEO, will step down as CEO and from the board at that time. We sincerely thank Martin, as under his 17 years of leadership as CEO the company has quadrupled, growing from scrappy up-and-comer to the most successful leader of the craft beer revolution and a leading player in the hard cider and high-end beer categories.

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.

Our reported fourth quarter depletions decline for the comparable 13-week period was primarily due to decreases in our Samuel Adams and Angry Orchard brands. These decreases were only partially offset by increases in our Twisted Tea and Truly Spiked and Sparkling brands.

We are encouraged by the improving quarterly company depletions trends since the first quarter of 2017 and are motivated further by a strong start in 2018. In the 2017 fourth quarter, Twisted Tea grew distribution and pull and Truly Spiked and Sparkling maintained its position as one of the leaders of the hard sparkling water segment.

Most of our volume declines for the quarter resulted from the continued underperformance of our Samuel Adams brand. Our plans to improve our Samuel Adams trends include our new Fill Your Glass integrated marketing campaign, which will be highly visible and amplified across media, digital and point-of-sale, along with a more focused sales execution on our primary Samuel Adams initiative, the national launch of Sam '76.

In the fourth quarter, we also saw declines in the cider category and in our Angry Orchard brand although these declines appear to be slowing. During the fourth quarter, we introduced a new media campaign designed to better educate drinkers on hard cider and the occasions to drink it while explaining the quality and uniqueness of Angry Orchard. We are pleased by the early reaction to the campaign and are excited by the national launch of Angry Orchard Rose Cider in 2018, which we believe can attract new drinkers to the category from wine and beer.

Our full year 2017 depletions performance was below our expectations, but we were able to deliver ahead of targets on our cost-savings and efficiency projects, which provided us the flexibility to invest more in our brands in the fourth quarter to improve our trends and set us up well for 2018.

We believe we have strong brands in attractive categories and that the best long-term value creation is continued investment to return our brands to growth. With that perspective, we currently anticipate a return to volume growth in 2018. We are planning increased brand and organizational investments funded by continued progress on cost-savings and efficiency projects and some of the benefit of the recent tax changes. Our guidance ranges reflect some uncertainty on our volume outlook for 2018 that is more innovation-sensitive than in prior years and projecting full-year depletions volume and profitability will remain difficult until the success of our key initiatives is more visible likely towards the end of the second quarter.

Our priorities for 2018 remain unchanged. Our number one priority is returning both Samuel Adams and Angry Orchard to growth through continued packaging, innovation, promotion and brand communication initiatives while maintaining Twisted Tea's momentum and ensuring Truly Spiked and Sparkling's position as a leader in the hard sparkling water category.

Our second priority is a focus on cost-savings and efficiency projects to fund the investments needed to grow our brands and to build our organization's ability to deliver against our goals. Based on our visibility to opportunities in 2018, we are maintaining our previously stated goal of increasing our gross margins by an average of about 1 percentage point per year over the 3-year period ending 2019, before any mix or volume impacts, while preserving our quality and improving our service levels.

Our third priority is long-term product innovation where we continue to explore beverage areas compatible with our business model for delivering long-term shareholder value with an aim to generating a consistent cadence of interesting brand innovations. Based on information in hand, the year-to-date depletions reported to the company through the 6 weeks ended February 10, 2018 are estimated to have increased approximately 6% from the comparable weeks in 2017.

As previously announced during the second quarter, I am transitioning my responsibilities to Dave Burwick and I am stepping down as CEO of The Boston Beer Company. I am incredibly proud of everything that the employees of Boston Beer have accomplished over my 23-year tenure and I know that they and our leadership team are ready to work with Dave to continue to build on our current momentum. I am excited to see where Dave will lead the company.

Now Frank will provide the financial details.

Thank you, Jim and Martin. Good afternoon, everyone.

For the 13-week fiscal fourth quarter, we reported net income of $30.5 million, or $2.57 per diluted share, an increase of $0.82 per diluted share from the 14-week fiscal fourth quarter of last year. This increase was primarily due to a favorable one-time impact of $1.72 per diluted share related to the 2017 Tax Cuts and Jobs Act that was enacted in December 2017 and an increase in gross margins partially offset by the impact of lower shipments and higher brand investments.

Shipment volume was approximately 898,000 barrels, an 8% decrease compared to the fourth quarter of 2016. We believe distributor inventory as of December 30, 2017 was at an appropriate level. Inventory as of December 30, 2017 at distributors participating in the Freshest Beer Program decreased slightly in terms of days of inventory on hand when compared to December 31, 2016. We have approximately 79% of our volume from the Freshest Beer Program.

Our fourth quarter 2017 gross margin increased to 52.4% compared to 49.1% in the fourth quarter of 2016 primarily due to cost-saving initiatives in our breweries, product and package mix and price increases partially offset by unfavorable fixed cost absorption impacts due to lower volumes and higher ingredients and packaging costs.

Fourth quarter advertising, promotional and selling expenses increased $15.5 million compared to the fourth quarter of 2016 primarily due to increases in media and digital advertising investments for our new campaigns, production and market research costs and higher local marketing costs that were partially offset by decreases in freight to distributors due to lower volumes and rates.

General and administrative expenses increased by $3.1 million from the fourth quarter of 2016 primarily due to the $3.6 million reversal in stock compensation expense in the fourth quarter of 2016 resulting from Martin's planned retirement in 2018 partially offset by lower consulting fees in the fourth quarter of 2017.

Our full year net income increased $11.8 million, or $1.30 per diluted share, to $99 million, or $8.09 per diluted share, compared to the prior year. This increase is primarily due to the favorable one-time tax rate impact related to the Tax Cuts and Jobs Act of 2017 and the adoption of the new accounting standard employee share-based payment accounting or ASU 2016-09 as well as an increase in gross margin and a decrease in general and administrative expenses partially offset by the impact of lower shipments and higher brand investments.

Full year 2017 shipment volume was approximately 3.8 million barrels, a 6% decrease from the prior year. Full year 2017 gross margin increased to 52.1% compared to the 50.7% in the prior year. The margin increase was primarily due to cost-saving initiatives in our breweries, product and package mix and price increases partially offset by unfavorable fixed cost absorption impacts due to lower volumes and higher ingredients and packaging costs.

Full year advertising, promotional and selling expenses increased $14.4 million compared to the prior year primarily due to increases in media and digital advertising costs for our new campaigns, increased salaries and benefits costs and increased production and market research costs partially offset by decreases in point-of-sale costs and freight to distributors due to lower volumes and rates. Full year general and administrative expenses decreased by $4.9 million versus 2016 primarily due to decreases in consulting and legal costs and lower salary and benefits costs.

The full year effective tax rate decreased to 14.7% from the 36.3% rate in the prior year primarily due to the favorable one-time impact of $1.67 per diluted share related to the Tax Cuts and Jobs Act of 2017 and the favorable impact of ASU 2016-09 of $0.36 per diluted share.

Looking forward to 2018, based on information of which we are currently aware and reflecting the uncertain volume outlook, we're targeting 2018 earnings per diluted share of between $6.30 and $7.30, but actual results could vary significantly from this target.

We are currently planning a change in 2018 shipments and depletions versus 2017 of between 0 and plus 6%. We're targeting national price increases per barrel of between 0 and 2%. Full year 2018 gross margins are currently expected to be between 52% and 54%, which we expect to increase during the year due to progress on the cost-savings initiatives.

We plan increased investments in advertising, promotional and selling expenses of between $15 million and $25 million for the full year 2018, not including any changes in freight costs for the shipment of products to our distributors. We plan increased general and administrative expenses of between $10 million and $20 million due to organizational investments and anticipated new CEO stock compensation costs.

We estimate our full year 2018 effective tax rate to be approximately 28% excluding the impact of ASU 2016-09. We are not able to provide forward guidance on the impact that ASU 2016-09 will have on our 2018 financial statements and full year effective tax rate as this will mainly depend upon unpredictable future events including the timing and value realized upon exercise of stock options versus the fair value when those options were granted.

We are continuing to evaluate 2018 capital expenditures and currently estimate investments of between $55 million and $65 million. The capital will be mostly spent on continued investments in our breweries. We expect that our cash balance of $65.6 million as of December 30, 2017 along with future operating cash flows and our unused line of credit of $150 million will be sufficient to fund future cash requirements.

During the fourth quarter in the period from December 30, 2017 through February 16, 2018, the company repurchased approximately 179,000 shares of its Class A common stock for an aggregate purchase price of approximately $31.9 million. We have approximately $169.8 million remaining on the $931 million share buyback expenditure limit set by the board of directors.

We will now open up the call for questions.

(Operator Instructions) And our first question is from the line of Laurent Grandet with Credit Suisse.

I've got a question in regards to the depletion turnaround. So basically this year -- or last year was about minus 7% and it's going to be between 0 and 6% up this year. So could you be, please, a bit more granular as to tell us basically where you are thinking the growth will be coming from by brand? And how much of this will be coming from innovation like Sam '76?

Sure. As I think we look at the year, we are -- and even in the year-to-date numbers and you can see it in the Nielsen and IRI -- we're expecting Twisted Tea to continue to grow. We believe that Truly will continue to grow. And those are relatively reliable beliefs. Obviously, there's always uncertainty. And that our big challenges continue to be Angry Orchard and Sam Adams.

On the Angry Orchard side, I think as we went through the year, we saw the cider category decline starting to slow. And certainly as we look at the start of this year, we are excited by what we're seeing. I think one challenge in looking at the numbers is the IRI data year-to-date that we have available to us does not include some of the new innovations so that numbers are probably not representative of the 6% depletions growth year-to-date that we've seen. But those innovations are also just going in right now, and we're still building distribution towards target and I would expect to get to fuller distribution target levels sort of during Q2. So we're seeing a ramp-up, and it's really hard to read what's going on.

In our projection of 0 to 6%, we're anticipating that cider will benefit from the introduction of Rose. And certainly our hope would be to return the total brand to growth, but that obviously is uncertain. And that Sam Adams would benefit both from the switch back to Cold Snap that we did for our spring seasonal that we're already seeing benefits from relative to what happened last year, and then also the introduction of Sam '76. But I think our expectations are that Sam Adams probably will not get to growth this year, but certainly that's our goal a couple years out.

Do you think -- I mean when you say Sam would not go back to growth this year, is it without Sam '76 or is it with Sam '76?

Well, obviously the range of outcomes for Sam '76 is pretty wide so it's certainly possible that '76 and the other initiatives this year could get Sam Adams to growth, but I think in our planning that's not what we have as the midpoint.

Good luck for this year and good luck for your new chapter, as we say.

And our next question comes from the line of Judy Hong with Goldman Sachs.

So Jim, I guess I just wanted to get your thoughts on Dave Burwick's appointment as the CEO. Obviously he's been on the board so you know him pretty well. But just in terms of some of the skill sets he brings in to Boston Beer, particularly maybe around -- I guess he has the retail experience, he's got some international experience. So are those things do you think could be incremental? Or is it really more about sort of marketing and premium quality and sort of turning Sam Adams and Angry Orchard to growth?

Well I think time will tell on exactly which parts of his skill set prove to be the most useful. I think our focus in hiring was bringing on somebody who, while they didn't have the exact same skill set as Martin, could sort of fill the very large shoes that Martin has left. And Martin's skills have been quite broad. He's certainly demonstrated the ability to drive growth in a sales and marketing company.

So we believe Dave Burwick has demonstrated those skills as well. He does have international experience. He's got retail experience. He's got M&A experience. Those are really not areas that we currently see as growth areas, but Dave will bring his own perspective.

And to your point, in the CEO search we've had the luxury of time and the luxury of approaching this with maybe a different standard. We didn't have to say, "Well we're going to give ourselves a time frame. We're going to find the best person we can find in the next 6 months or whatever." We were able to say, "We're not going to stop looking until we find someone that we think can meet the very high standard that Martin has set." So I am very optimistic that the turnaround that you've seen in the numbers so far this year of real volume growth in the company that Dave will be able to continue this turnaround that Martin has led.

Got it. Okay. And then just on guidance for 2018; so first, it seems like pricing guidance is a little bit wider, so 0 to 2% versus kind of 1% to 2% that I think you typically guide. So just wanted to get a sense of why a little bit of a wider range.

And then the G&A investments that you called out, can you elaborate on the nature of those investments and how much is really sort of one-time in nature that goes away in '19?

And then on the tax rate, the 28% seems a little bit higher than your company being 100% domestic. So again, just wanted to get a little bit color. Is this an ongoing tax rate? Is there something in 2018 that pulls up the tax rate?

I'll -- go ahead, Martin.

Yes. Well, Jim, why don't I take pricing? And then I think Frank will take the questions on G&A and tax because it's sort of above my paygrade.

On the pricing, we've done our initial pricing plans and we've walked through with the wholesalers. I think we're seeing slightly less opportunity for pricing than we've seen historically. Some of that is maybe being driven by some over-capacity in the craft categories and some more aggressive positions as the growth stops, and we're seeing sort of pricing options on different pack sizes that may be -- although we think are likely to put some pricing pressure down, we also anticipate that the other areas that we're playing in like with Truly and with Angry Orchard will be more competitive than they have been in past years. So I suppose as we look at it, we're not as positive on pricing. That doesn't mean to say that we are not trying to lead and to realize price, but in our guidance I think we're suggesting that we expect the outcome to be potentially lower than in previous years.

And then I'm going to pass on to Frank to share what he can on the G&A and the tax question, Judy.

Yes, Judy. So a high level on the G&A -- and it's really the first time that we guided to it. That's partly related to the CEO change. And as you recall, last year we reversed some variable compensation charges that we had in the P&L because of the planned retirement. And that's just like how the compensation structure for the CEO was structured with a relatively high variable component. We didn't have that in the P&L last year. We really didn't have that, to a large extent, in the P&L this year. Now with a new CEO coming onboard, that will come back into the P&L and this will be an ongoing component, clearly.

Then the other piece to it is that we will make some investments into capabilities into our organization that fall into the G&A area. We have done that last year primarily in the selling area. Now this year will be partly in the G&A area. So those are the key drivers that you see on the G&A side. Clearly, this will change the base a little bit, but we are also working on reducing that over time, the investment piece.

And then the tax rate?

On the tax rate.

I'm sorry. Can you repeat the question on the tax rate?

So I think you're guiding to 28% for 2018. And I guess with the tax reform, sort of federal at 21%, maybe the states at sort of 3% to 4% incremental, so I think I was getting closer to 24%-25%. So the 28% seems a little bit high. So I just wanted to get clarification on that.

Well, so we have reflected essentially on the tax rate everything that we know from the tax reform, all the impacts. And naturally, what you see is the federal decrease that's falling through. But we had some manufacturing credit benefits that are going away with the tax reform. So there were some benefits that we had in our 37% tax rate that will not carry over with the new tax reform. And then there's some other changes where you look at officers' compensation above $1 million that has a bit of an impact as well. So the 28% is pretty much comparable to the 37% that we had guided to before, before the tax reform.

And our next question is from the line of Vivien Azer with Cowen.

So I wanted to turn back to the Sam Adams brand, please. I fully appreciate that you guys have a lot in the hopper for 2018. But as you reflect back on brand performance by like sub-line, if you will, over the course of '17, can you just comment on kind of the dichotomy in terms of the brand performance? To me, it's a little bit surprising to see that your seasonal business has really responded to the packaging upgrades and to the advertising, but at the same time, if I look at core Boston Lager in dollar terms in Nielsen-tracked channels, the magnitude of the dollar sales declines has been accelerating for most of the year. But I would have thought that there might have been a brand halo. So if you could just comment on that more broadly, I'd appreciate it.

Sure. I think we're still watching this, and certainly the excitement and the pull behind our spring seasonal is showing up very strongly and obviously against easy comparables. I think we would have expected some potential halo, but there's also some potential that the problems that we had last year caused sort of more lager consumption. Because we certainly think one of the issues last year was familiarity with the offerings and people weren't familiar with Hopscape and Fresh as Helles and maybe were challenged by them or didn't find them on the shelf and could well have migrated to lager. So it's certainly muddy and is tough to read. And we certainly aren't seeing sort of the lager sort of accelerate as the seasonals accelerate. So they're certainly not linked.

That being said, I think as we look at the trends since we started Fill Your Glass, I think we are slightly encouraged. I wouldn't say incredibly encouraged, but it's still pretty early. And because of this muddiness around the seasonal transition back to Cold Snap plus the launch of '76, it's very hard to sort of read what is going on. And again, in the numbers that you're seeing, certainly in the IRI and Nielsen, we're not -- I don't believe '76 is being reported and so it's very hard to draw conclusions on the very recent data.

Understood. On freight, while I recognize that your guidance doesn't include any freight inflation, down here at CAGNY that has certainly been a big topic of discussion. So kind of just directionally how are you guys thinking about freight costs? Because it seems like for most of CPG that's going to be inflationary this year.

Yes. I think -- obviously, we don't provide guidance on it and for us we're reporting it in SG&A and only report it sort of on an annual basis in the 10-K. As we looked at it, we were planning some increase based on rates and other knowledge that we had back in sort of the October time frame when we put the plan together. But we did expect to see some offsets based on mix and shipping lanes. So we probably weren't planning that big of an increase in net.

I think it's fair to say that our ops people are commenting on our current rates being squeezed. And not really squeezed; it's the negotiated rates. Perhaps the truckers aren't available as much as they were so we're going to the next second tier and third tier rates. And so that's sort of started and it's a little unclear what that's going to look like. It's certainly on our radar screen as a potential risk to the year and if the shortages and/or price pressures, availability pressures continue that it could be a significant risk. But again, it's unclear where we are in that cycle from a seasonality point of view.

We certainly, with our sort of demands on freshness and trying to manage inventory, we need reliable freight carriers who show up on the appointment time. And so we need that reliability. And certainly this is something we're watching and thinking about as a risk for the year.

And my last question, just to double back on pricing. Your comment around the challenges in kind of craft beer as a complex make a lot of sense in terms of lowering kind of the low end of your pricing outlook. I am curious, while I recognize the price points are far, far apart, in mainstream beer, so I would call that kind of premium lights and economy, there's been a material step-up in competitive activity. It largely looks to be driving just the interaction between those 2 price segments where economy discounting I personally think is driving some cannibalization in premium lights. But is that at all informing your change in pricing outlook?

I'd say that we don't really look at what is going on at that -- in that segment. When we think about pricing, we're thinking about competitive activity, what is going on in the segments that we're directly competing in. So I would say no, that isn't going into our thinking nor do we sort analyze it in particular.

I think we still believe trade-up is going on generally by the growth of imports and the growth of craft and even sort of trade-ups to maybe Michelob Ultra. So I think we still believe that trade-up is going on and therefore drinkers are heading in our direction and therefore we're not worried so much about price gaps. Not that we look at them particularly closely if at all, but what we do do is look at competitive situations market by market and category by category.

(Operator Instructions) And our next question comes from the line of Kevin Grundy with Jefferies.

Yes, so a question -- I'd like to stick on pricing if that's okay. So the question is for Jim and Martin. And I guess I ask this in the context of as we go back years and there's sort of been the much discussed proliferation of breweries and everyone is sort of looking at the same charts and it's just sort of been a rocket ship. And the risk being that if/when the category slows, and that's sort of where we are now, that the market forces of supply and demand sort of kick in, and do we have sort of a soft landing or a hard landing with respect to pricing? And do we have an orderly or disorderly sort of rationalization in the marketplace with all of these breweries?

So just to stick with the pricing piece, Jim, and particularly given all the history you have in the industry, how worrisome is this? Is this sort of the proverbial canary in the coalmine where we're first starting to see some of the difficulty with pricing and that potentially it gets a little bit uglier from here? So any sort of thoughts there would be helpful. And then I have a follow-up.

Yes. I think we're seeing just a little wiggle. I don't think that craft pricing is likely to face big downward pressures if for no other reason than a lot of the smaller craft brewers on the shelves aren't that profitable and don't have really large EBITDA margins. And you can look at the handful of public craft brewers over the years, but their margins are much, much less than you would see for Sam Adams and other industry players.

So I think there's a little bit of downward pressure primarily actually coming from larger pack sizes. 15-packs have been introduced over the last few years and that seemed to be putting a little bit of downward pressure. But when you look 6-pack to 6-pack, 12-pack to 12-pack, there hasn't been a lot of wiggling in the price. It's been close to that 1% to 2% level. So I don't think we're hearing a canary in the coalmine just yet.

Okay. Thanks for that, Jim. I appreciate it. And just a couple of clean-up questions on the guidance. So the depletions outlook moves up a bit. I think it was low-single before and now it's 0 to plus 6%, so modestly up. Call it a point or 2 maybe at the midpoint. And Martin, just to be clear -- and it looks like the depletions number year-to-date off to a good start, albeit against some soft comps in the prior year. But what very specifically sort of drove the modestly better outlook?

Well without confirming that the outlook is modestly better because obviously (inaudible) is to interpret it, I obviously appreciate the question. Let me just sort of comment that we're very early in the launch of some of our key initiatives for the year. We're still building distribution. We still don't have -- the sets for a lot of the chains, don't complete until the March-April time period. But those new innovations plus strength in Twisted Tea and Truly are driving the plus 6% year-to-date. But we're still early in that process and I think that strong a start led us to provide the guidance we did. But there's a lot of uncertainty as to whether these items stick.

I think depletions, as you know, measure wholesaler excitement into retail. And I think it's fair to say and I think we indicated that we're getting good wholesaler excitement and wholesalers are helping us. And I think we think we're getting retail excitement too, but until you get that pull out of retail, the depletions doesn't really help you any; it just loaded the channel. So it's still very early to tell and that's sort of why we're sort of conservative on the downside.

Okay. Thanks, Martin. And one more for Frank just on the gross margin piece. So the outlook there also modestly more favorable. So with the moving parts there, that year-to-date progress on cost savings may be a little bit better, maybe operating leverage is modestly better than you thought it was going to be, and maybe partially offset by a little bit less pricing. Is that the right way to think about the change in the gross margin outlook?

Yes. So the outlook is going back to when we had our investor conference where we said we'd go a little bit -- we go 1 point on average by year, which is really driven by the cost savings, as you said. We get a little bit of leverage, but we're looking at the entire range and then investing back. So broadly, the algorithm is there, but we feel fairly good about the cost savings that we have achieved so far. Naturally, the pace is going to decline a little bit, but largely the algorithm that you have is correct.

And I would just add that I think in '17 we made very significant progress, maybe ahead of our expectation and were able to pull some projects in and ideas in. So '17 certainly represents a huge accomplishment by everybody in the company that worked on it. And I think we probably accelerated some of it so we're expecting slightly less in '18. And I'm looking to Frank to confirm that's how to think about it.

Yes. That's definitely what the guidance reflects, yes.

But we're still optimistic we can meet the long-term target.

And our last question comes from the line of Caroline Levy with Macquarie.

It's Andrew for Caroline. Sorry to push on the 6% year-to-date growth. But other than the seasonals, are you seeing any -- is any of that growth coming from your other beer brands?

And secondly, was Cold Snap launched earlier in the season this year versus prior year and could that have anything to do with the increased growth?

Yes. So I think our growth in beer brands, to answer the first part of the question, certainly Sam Adams, which is one of our beer brands, is benefitting from Cold Snap, but it's also benefitting from '76. Right? So there's a couple of things going into that. I assume that's really what you're asking. Because we would also classify within our beer brands Twisted Tea as a beer and Truly as a beer, but I don't think that's what you're referring to. But those brands remain strong.

With regards to Cold Snap, the cut-over to Cold Snap was pretty similar to what we had for Hopscape last year and actually pretty similar to what we had for Cold Snap 2 years ago. So I don't think there were any significant timing differences on the cut-over that's causing any sort of structural changes.

(Operator Instructions)

If there are no further questions then I would suggest we call an end to the call. I'd just like to thank everyone for covering us and obviously for working with most of you for the last 17 years. And certainly the leadership team looks forward to talking to you in April and there's a chance I'll be there too. Cheers.

Cheers. Thank you, Martin.

And with that, ladies and gentlemen, we thank you for participating in today's conference. This concludes the program and you may all disconnect. Have a wonderful day.