SAM

Industry & Portfolio Overview

• The overall combined beer and beyond beer market declined 2% in H1 2026, an improvement from the 4% full-year 2025 decline. Beyond Beer outperformed traditional beer, down 1% H1 vs. a 4% decline for traditional beer. Demand was uneven: the category softened in Q2 (particularly May) before improving in June driven by World Cup and U.S. 250th anniversary drinking occasions. Industry volume headwinds are expected for the remainder of 2026 due to persistent inflation and rising gas prices pressuring consumer discretionary income.
• Boston Beer's portfolio performance lags broader category improvement. The company has reduced wholesaler inventory to a stable 4-4.5 weeks on hand (in line with year-ago levels) following 2025H2 supply chain improvements, reducing quarter-over-quarter shipment variability.

Margin & Capital Performance

• Q2 2026 gross margin reached 50.4%, up 60 basis points YoY, driven by brewery efficiency gains, favorable product mix, procurement savings, and price increases. This result beat expectations despite higher aluminum, energy, and tariff costs. The company is on track to hit its full-year 2026 productivity savings target, and has delivered strong operating cash flow, with over $55 million in share repurchases year-to-date.

Product & Marketing Initiatives

• Hard Tea Portfolio: The 2026 top priority is improving Twisted Tea share and growing combined hard tea volume. Twisted Tea has added new marketing partnerships, pack sizes, and distribution for Twisted Tea Extreme, and is testing disciplined revenue management including targeted pricing adjustments. Upcoming initiatives include national college football-themed campaigns, game day variety packs, and a fall expansion of the RealTree Camo partnership. Sun Cruiser continues to receive heavy marketing investment including a multi-year USGA sponsorship, PGA/MLB sports partnerships, music concert series, and influencer activations, with ongoing distribution expansion expected in 2026.
• Truly: Management is adjusting investment levels and timing as it reassesses the most effective strategy to reverse negative volume and share trends, maintaining a disciplined approach to spending.
• Angry Orchard: The brand will leverage momentum from ongoing growth to build out its annual successful Halloween programming, including a new partnership with the Scream horror movie franchise.
• Innovation: The company prioritizes high-growth, margin-accretive innovation that complements its core portfolio, with Sinless (zero-sugar vodka cocktails) and Lit (15% ABV malt-based coolers) in early launch stages.
• Advertising Discipline: Management cut $20 million in planned incremental advertising spend by eliminating low-performing campaigns (primarily for Truly), while still maintaining overall brand investment well above historical averages.

• Full-year 2026 volume guidance is maintained at a range of low single-digit to mid-single-digit decline. Current trends point to full-year performance landing toward the lower end of the range, with stronger improvement required to hit the high end of the range.
• Gross margin guidance is updated to 48.5% to 50%, raising the low end of the prior range, driven by stronger-than-expected cost savings and disciplined advertising cuts. Tariff costs are expected to total $20 million to $30 million for the full year (up from $11 million partial-year in 2025).
• Non-GAAP EPS guidance is maintained at $8.50 to $10.50, with the full-year non-GAAP effective tax rate projected at 29% to 30%. EPS and volume guidance are independent; cost discipline and flexible spending can offset mild top-line pressure.
• Advertising, promotional, and selling expenses are now expected to be flat to up $20 million YoY, lowered from the prior guidance of up $20 million to $40 million. Excluding freight costs, management may spend at the lower end of the range depending on commodity cost trends and investment returns.
• Capital expenditure guidance is reduced to $60 million to $80 million, down from the prior $70 million to $90 million range, with investments focused on brewery efficiency and innovation capabilities.
• Quarterly shipment phasing: Q3 2026 shipments are expected to decline low to mid single digits, followed by modest shipment growth in Q4 2026. Q4 gross margin is expected to see the largest year-over-year improvement due to lapping high 2025 shortfall fees, even though it will remain the lowest absolute gross margin quarter of the year due to seasonality.

The Boston Beer Company's Q2 2026 total revenue decreased 3.3% year-over-year, driven by lower volume partially offset by net price increases and favorable product mix. Depletions decreased 6% and shipments decreased 4.5% YoY; H1 2026 shipments are down 5.6% and depletions are down 5% YoY. By brand segment:

• Sun Cruiser: Delivered triple-digit depletion growth, continued strong distribution expansion, and is revenue and margin accretive. It is a top 5 spirits RTD and the leading RTD spirits tea/lemonade brand in the on-premise channel, contributing strongly to positive product mix. Sun Cruiser has ~25-30% higher revenue per case than Twisted Tea, and has more than offset Twisted Tea's volume decline year-to-date.
• Twisted Tea: Faces ongoing volume and share declines, concentrated in 12-packs due to category headwinds from spirits-based hard tea expansion, reduced display activity, and consumer shift away from larger packs. However, Twisted Tea singles, Twisted Tea Light, and Twisted Tea Extreme grew share year-to-date, and the brand still holds over 85% share of the malt-based hard tea category. Combined Twisted Tea and Sun Cruiser volume is slightly positive with growing revenue year-to-date.
• Truly: Maintained the number 2 share position in the hard seltzer category, but volume and share trends remain challenged. High ABV Truly (Unruly) and the Wildberry flavor outperformed other offerings in the portfolio, but recent marketing investments have not met demand growth expectations.
• Angry Orchard: Grew volume for the 5th consecutive quarter, led by Angry Orchard Crisp and Crisp Imperial (which grew over 60% in Q2 measured off-premise channels).
• Samuel Adams: Q2 volume declined, but limited-edition 250th anniversary programming drove improved trends in the final weeks of Q2, with record taproom sales in the Boston home market.
• Dogfish Head: Lost slight share and posted its first quarterly volume decline after 4 consecutive quarters of growth.
• New innovations: Sinless Vodka Cocktails launched in over 30 states and Lit Electric Coolers launched in over 5 states. Both are in early launch stages and are not expected to contribute meaningful 2026 volume.

• Persistent macroeconomic pressures: Cumulative inflation and rising gas prices have reduced consumer discretionary income, creating ongoing industry volume headwinds that have offset easing fundamental category pressures. The timing and magnitude of future economic improvement is uncertain.
• Uncertain regulatory outlook for intoxicating hemp: A looming federal ban on intoxicating hemp is creating uncertainty for potential future THC beverage opportunities in the U.S., with the outcome expected in mid-November.
• Category pressures on core brands: Twisted Tea faces sustained volume pressure from expansion of spirits-based hard teas and reduced category display activity, while Truly continues to struggle to reverse negative share trends despite marketing investment.
• Litigation uncertainty: The company is pursuing post-trial motions and appellate remedies for an ongoing supplier dispute litigation. While management does not expect the issue to materially impact operating plans, year-to-date pre-tax litigation costs and fees total $198.1 million, and future potential damages or interest payments create lingering uncertainty.
• Commodity cost volatility: The company does not hedge commodity exposure, and rising aluminum and freight costs could pressure margins if inflation reaccelerates.

Q: Asked Jim Koch for perspective on broad industry demand volatility, and any early July trends that change expectations for the rest of the year. / A: Koch noted that overall beer is down ~3% year-to-date, while Beyond Beer is down ~1% to flat, with RTD spirits (such as Sun Cruiser) as a clear bright spot. Fundamental category pressures that drove a 4% industry decline in 2025 have eased, but new economic pressures from Middle East events and lagging wage growth relative to inflation have offset improvement, and the duration of these pressures is uncertain. There is likely a long-term 1-2% annual downward pressure on per capita beer consumption, partially offset by continuing premiumization.

Q: Asked if full-year performance tracking to the lower end of the volume guidance range implies EPS will also track to the lower end of its range, or if margin improvements can offset top-line pressure. / A: Reynoso clarified that volume and EPS guidance are relatively independent. While continued current trends would push volume to the lower end of the range, delivered cost savings and flexible ability to adjust back-half investment protect EPS outcomes, which is why management raised the low end of the gross margin guidance while maintaining the full non-GAAP EPS range.

Q: Asked about Sun Cruiser growth expectations for the second half of 2026 and 2027 after major national distribution expansion was completed before summer 2026. / A: Koch noted Sun Cruiser remains up triple-digit year-to-date, with growth slowing only modestly, and is much larger than syndicated data indicates due to its strong on-premise and independent off-premise presence. Reductions in overall advertising investment do not impact Sun Cruiser, which will continue to receive heavy spending. While large chain distribution gains will slow in 207, the brand is still expected to deliver double-digit growth, and remains strongly revenue and margin accretive.

Q: Asked about the plan to improve Twisted Tea performance after prior initiatives have not reversed volume declines amid broad category pressures. / A: Koch explained that much of Twisted Tea's volume loss has come from consumer switching to spirits-based hard teas including Sun Cruiser, so slowing growth of that category will ease pressure on Twisted Tea. The brand already has pockets of growth in singles, Twisted Tea Light, and Twisted Tea Extreme, and targeted price corrections in markets where 12-pack pricing got out of line with brand value have already turned negative trends positive in those markets. No major changes to advertising are planned, with investment remaining at 2025 elevated levels. The company plans very modest 2027 price increases for 12-packs to further stabilize pricing.

Q: Asked how much downside risk there is to full-year depletions after pulling back on incremental advertising investment. / A: Management noted recent trend improvements in both the overall market and for Twisted Tea following recent promotions and price adjustments, with strong planned back-half partnerships and two new innovations supporting performance. The advertising cuts were almost entirely to low-return non-performing campaigns for Truly, not high-performing investment for growth brands. Management still expects back-half marketing spend to be up year-over-year, and does not see significant further downside risk to current guidance at this time.