Boston Beer Company, Inc. Class A Stock

Greetings, and welcome to the Boston Beer Company Third Quarter 2026 Earnings Call. [Operator Instructions]

As a reminder, this conference is being recorded. It's now my pleasure to introduce Mike Andrews, Associate General Counsel and Corporate Secretary. Please go ahead.

Thank you. Good afternoon, and welcome. This is Mike Andrews, Associate General Counsel and Corporate Secretary of the Boston Beer Company. I'm pleased to kick off our 2026 third quarter earnings call. Joining the call from Boston Beer are Jim Koch, CEO; Brewer and Founder; and Matt Murphy, our Interim CFO. Before we discuss our business, I'll start with our disclaimer. As we stated in our earnings release, some of the information we discuss and that may come up on this call reflect the company's or management's expectations or predictions of the future. Such predictions are forward-looking statements.

It's important to note that the company's actual results could differ materially from those projected in these forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in the company's most recent 10-Q and 10-K. The company does not undertake to publicly update forward-looking statements, whether as a result of new information, future events or otherwise.

I will now pass over to Jim for some introductory comments.

Thanks, Mike. I'll begin my remarks this afternoon with an overview of our strategy and operating results before turning the call over to Matt Murphy, to discuss the third quarter financial results and our financial outlook for the remainder of 2026. After Matt's comments, we will open the line for questions. Now let's start with a look at industry trends. The overall beer market continues to face demand pressure, reflecting a range of factors, particularly the impact of higher gas prices and the cumulative effect of inflation on our consumers.

We estimate that the combined total beer and beyond beer market declined approximately 3% in volume in the third quarter and 2% year-to-date. Beyond Beer continues to outperform traditional beer with volume growing 1% year-to-date compared with a 3% decline in traditional beer. We expect continued macroeconomic pressure on consumers to weigh on industry volumes throughout the balance of 2026. With respect to the Boston Beer portfolio, our volume trends trailed the broader category in the third quarter with mixed performance across our portfolio. depletions and shipments declined 5% in the quarter, with total hard tea and lemonade depletions up slightly and growth in cider primarily offset by declines in beer and hard seltzer. On a more positive note, Sun Cruiser grew approximately 60% in tracked channels in the quarter. Angry Orchard grew for the sixth consecutive quarter, and on-premise trends were up low single digits across our portfolio.

For the full year, we expect shipments to be slightly ahead of depletions. This reflects a prior year comparison to inventory reductions associated with our supply chain improvements that Matt will discuss further in his remarks. Despite a soft industry volume environment, softer than we planned at the start of the year, we continue to make strong progress on our margin enhancement initiatives. Third quarter gross margin of 51.7%, was up 90 basis points year-over-year and is our highest gross margin rate since 2017. Our savings agenda has enabled us to absorb higher aluminum energy and tariff costs, and we are tracking ahead of our planned full year 2026 savings. The business is generating strong cash flow, and we have repurchased $80 million in shares year-to-date through October 16, 2026. Today, we are narrowing our full year guidance ranges, which reflect our performance through the first 3 quarters of the year and our view of the industry trends, as I discussed earlier. We now expect depletions and shipments to be down mid-single digits, which is the low end of our prior range.

Based on our strong gross margin performance year-to-date, we are raising the low end of our gross margin and EPS guidance. This is particularly notable given continued elevated freight costs and reflects the productivity mindset we have built across the organization during the past several years. Our priority for the balance of the year remain improving market share trends, launching strong innovation and driving gross margin expansion. We continue to support our brands through strong partnerships, compelling programming and effective local market activations in partnership with our wholesalers. At retail, we have made modest progress on increasing total portfolio shelf space, while display space remains an area of opportunity as it continues to overindex to RTD spirits.

Before I review our brand performance and upcoming plans, I'd like to take a moment to welcome Allison Stransky, who joined Boston Beer earlier this month as our new Chief Marketing Officer. Allison brings a unique blend of consumer brand building and data and digital marketing expertise. She has held prior positions at Google, Samsung, L'Oreal and Johnson & Johnson. And she's also a big fan of craft beer. We're excited to have her on the team as we continue to strengthen and evolve our marketing capabilities.

Now turning to our brands. In the Heart and lemonade category, we're continuing our work to improve share turns and grow total combined volume of our 2 leading brands, Sun Cruiser, Twisted Tea. Sun Cruiser has become a top 4 spirits RTD in just over 2 years and continues to rank among the categories fastest-growing brands in combined measured on and off-premise channels. It also continues to be the leading RTD spirits and lemonade brand in the measured on-premise channel and has the highest growth in velocity among leading RTD spirits, tea and lemonade brands in the off-premise channel. Sun Cruiser is building on its strong summer U.S. Open Golf Championship activation as we reinforce its position as a year-round brand that will grow in both existing and new markets and across channels.

Sun Cruiser continues to increase its media presence in sports and other events, including the PGA, Major League Baseball, the World Champion, New York Knicks and sponsorship of numerous music concert series. Last month, the brand expanded its on-premise sports presence through a partnership with MetLife Stadium, the New York Jets and the New York Giants. Advertising support for Sun Cruiser includes content around the let the good times a campaign across television, paid social and digital advertising and key influencers and creators. Sun Cruiser is leaning into ski season with in-market displays, retail and on-premise POS material, branded hard goods such as snow suits and snowboards, partnerships with major ski areas and a winter-themed media campaign that begins in December.

We continue to see strong velocity and distribution opportunities for Sun Cruiser, giving us confidence in the brand's continued growth potential. continues to be the clear #1 brand in the malt-based hard tea market with more than 85% market share, while the tech's largest brand has only a low single-digit share. We believe the brand's volume declines reflect a combination of factors, including some interaction with spirits-based hard teas like Sun Cruiser, a shift in retailer display and feature focus towards RTD spirits and the brand's higher exposure to value-conscious consumers.

The largest volume headwind for Twisted Tea continues to be on 12 packs, which have been impacted by reduced FMB displays and shifting consumer purchasing behavior. From a share perspective, Twisted Tea singles, Twisted Tea Light and Twisted Tea Extreme all continue to grow share of the FMB category year-to-date. This year, we have increased advertising investment for Twisted Tea while adding new partnerships, launching new pack sizes and expanding Twisted Tea Extreme. We're continuing our disciplined test-and-learn approach to revenue management on the brand, including pricing, targeted pricing intents and smaller pack size offerings.

We will continue to assess their impact as we gather additional data. Twisted Tea has also launched a partnership with Realtree ammo, a popular brand of Campos clothing and outdoor gear that helps us deepen the brand's connections to outdoor drinking occasions and drive displays. There are 3 limited edition camera wrapped packs in the market now. We're backing this partnership with significant media as well as a field and stream sponsorship creator partnerships and shopper media support and C stores to drive conversion on Twisted Tea single-serve cans.

We are also capitalizing on football season, which is one of the brand's most important consumption occasions. We're running our high-performing tea drop ads on marquee football matchups continuing our title sponsorship of bar stools, Pardon Mitek and investing in shopper media to drive party pack conversion at retail. While there is some interaction between Twisted Tea and Sun Cruiser, they each play a role in our portfolio, and we believe their differentiated positioning provides an opportunity to improve the combined performance of the 2 brands over time, as we've mentioned previously, to the extent Sun Cruiser sources some drinker demand away from Twisted Tea it is still both revenue and margin accretive for us. Turning to hard seltzer, while Truly continues to face challenging trends it remains the #2 brand in the hard seltzer category. We continue to assess the brand strategy and are taking actions to improve its performance over time.

In the near term, we are reprioritizing 12 packs around our core best-selling flavors. We're rethinking our rotating variety packs and we're expanding packages around our core style, Truly Wild Berry. In cider, Angry Orchard is seeing growth across both core flavors and seasonal packs for the second straight year. The fall seasonal, the thriller variety pack, which launched in August has grown triple digits in measured off-premise channels. The brand's partnership the iconic screen or movie series includes screen and Angry Orchard integration across all marketing programs, Limited edition Crisp Apple and Crisp Imperial, single-serve packaging and celebrity media integration through Halloween.

Turning to beer, our Samuel Adams brand. This fall, we launched 2 new remastered vintage ads from our independent -- Since Forever campaign. They have tested extremely well with our consumers. We saw a strong improvement in Boston Lager velocity trends over the summer driven by America 250 program. October 1 season is underway featuring the launch of the new Samuel Adams nonalcoholic October Fest. Support includes a national partnership with Snyder's Pretzels, on-premise stein-hoisting events and major OctoberFest festival activations. For our Dogfish Head brand, we continue to expand our Grateful deBeer collaboration and invest behind the Minute series IPAs.

We have also recently introduced a new partnership with Rolling Stone magazine to further bolster our connection with music. And turning to innovation. We have multiple brands in development that are aligned with our strategy to develop high growth margin accretive opportunities. Rally Dog Vodka Ade is the newest ready-to-drink cocktail from our innovation incubator. Joining the emerging Vodka Ade space, it was launched last month in 4 states with unique packaging, easy-to-understand flavors, 100 calories per can and 5 ABV. Rally dog is expanding to 7 additional states over the next month with plans to go national in 2027. As we expand, we're focused on building awareness deepening distributor engagement and establishing a larger retail footprint as we head into next year.

Let electric coolers, which initially launched in 5 states has now expanded to an additional 18 states and will be available nationally in 2027. Lit is 15% ABV, malt-based and offered in 6 flavors in a resealable and recyclable 6.8 ounce package. This concept targets the pre-event occasion with potential to be largely incremental to our portfolio. Additionally, Lytt took home the 2026 best new alcoholic beverage high ABV award at the Annual National Association of Convenience stores show earlier this month. Same vodka cocktails continues in test sugar, ZeroCarb 100-calorie offering. These innovation brands are still in the early stages of development and are not expected to have a significant impact on our results this year, but we see an opportunity for innovation to become much more meaningful as we move into 2027.

In closing, despite a challenging operating environment, we made significant progress strengthening our operations and advancing our savings initiative. That progress is helping us offset significant unplanned commodity and freight inflation while maintaining our brand support and bringing new accretive innovation to market. We remain disciplined in how we manage the business, and we are working closely with our wholesaler partners to strengthen marketplace execution to drive sustainable long-term growth. I'd like to thank our Boston Beer team and our distributors and retailers for their continued support.

I'll now pass the call to Matt Murphy, who has assumed the role of Interim Chief Financial Officer and brings a deep financial knowledge of Boston Beer. The Board and I appreciate Matt, stepping into this additional role while we conduct a comprehensive search to identify our next CFO.

Thank you, Jim. Good afternoon, everyone. I'll begin with a discussion of our third quarter results, followed by an update on our savings initiatives and then turn to our updated full year outlook. Depletions decreased 5% and shipments decreased 4.9% compared to the third quarter of last year, driven by declines in Twisted Tea, Truly and Samuel Adams, partially offset by growth in our Suncruiser and Angry Orchard brands. Distributor inventory at the end of the quarter was 4 weeks on hand, slightly below the 4.5 weeks on hand at the end of the prior year quarter. Revenue decreased 3.2% with lower volumes being partially offset by favorable product mix and price increases. Product mix continues to benefit from strong growth in Sun Cruiser. Gross margin was 51.7%, our highest quarterly gross margin since 2017 and an increase of 90 basis points year-over-year.

The improvement was driven by higher brewery efficiencies, favorable product mix, procurement savings and price increases, partially offset by inflationary commodity and tariff-related costs. Advertising, promotional and selling expenses were flat year-over-year. This reflected $9.5 million in higher freight costs, with higher freight rates more than offsetting the benefit of lower shipment volumes and a $9.1 million reduction in advertising spend. General and administrative expenses decreased $2.1 million year-over-year, primarily due to lower salary and benefit costs.

Current quarter expenses included $400,000 of legal fees associated with the previously disclosed supplier dispute litigation. Brewery asset impairment expenses were $2.9 million, an increase of $1.5 million from the comparable period of 2025, reflecting higher noncash write-offs of equipment at owned breweries. Non-GAAP operating profit declined 6% year-over-year as strong gross margin performance and disciplined advertising spend were offset by lower volumes and freight rate inflation of over 50% year-over-year. The third quarter supplier dispute litigation expense of $1.8 million reflects post-judgment interest expense. Year-to-date pretax litigation expenses, including related legal fees, totaled $200.3 million. As previously announced, we intend to continue to produce all post-trial motions and appellate remedies that are available to us on the supplier dispute litigation.

We cannot estimate when or if damages or interest will ultimately be paid or when this matter will ultimately be resolved. But we do not expect it to have a material impact on our operating plans. These litigation expenses and related legal fees represent a $0.16 unfavorable impact to our third quarter GAAP EPS and a $14.51 unfavorable impact to our year-to-date GAAP EPS. Excluding the litigation-related expenses, third quarter non-GAAP EPS was $4.37. Now I'll provide an update on our ongoing productivity initiatives. We continue to make steady progress and remain on track to deliver our 2026 saving targets across the 4 buckets that we've discussed previously. I'll provide a few highlights on our initiatives within each bucket.

In brewery performance, we continue to see improvements in OEEs driven by process improvements, which has increased our internal production capacity. In the third quarter, we produced 98% of our volume internally compared to 89% in the third quarter of last year. For the full year 2026, we continue to expect domestic internal production to exceed 90% compared to 86% in 2025. In procurement savings, our third quarter results benefited from lower negotiated pricing on certain packaging and ingredients. While our procurement savings initiatives are further along than other work streams, we do expect continued savings into 2027. In waste network and optimization, we continue to enhance our customer ordering and inventory management processes. These efforts have helped us maintain high customer service levels while reducing inventory and improving cash flow. Revenue management capabilities were added this year as part of our margin agenda.

These efforts are in the early stages in 2026 with a more meaningful contribution expected in 2027. Turning to our 2026 guidance. Given that 3 quarters of the year are behind us and our fourth quarter is a seasonally small quarter, we are narrowing our full year guidance ranges. Our updated volume expectation of down mid-single digits is at the lower end of our previous guidance and reflects the category trends that Jim discussed in his remarks. Fiscal week depletion trends for the first 42 weeks of '26 have declined 5% year-over-year, and our updated outlook assumes this trend largely continues in the fourth quarter. We expect shipments to be slightly ahead of depletions for the full year, with shipments meaningfully ahead of depletions in the fourth quarter. As we discussed on our last call, we implemented supply chain improvements in 2025 that enabled more consistent distributor inventory levels.

As a result of the impact of these changes on prior year shipment flows, together with the expected timing of orders in 2026, we currently expect modest shipment growth in the fourth quarter. We continue to expect price increases of between 1% and 2% and some additional benefit from mix. The strong productivity we have delivered year-to-date, along with our updated projection of lower tariff costs enables us to raise the low end of our gross margin and EPS guidance despite softer volume trends and higher freight costs. We did hedge commodities and have updated our cost assumptions for feet and aluminum to reflect the current pricing environment. We will continue to monitor commodity markets. Although the impact of further cost volatility on our full year outlook is more limited with only 1 quarter remaining in the year. Our updated gross margin guidance of 49% to 50% represents 50 to 150 basis points of margin expansion year-over-year. This reflects benefits from positive pricing, favorable product mix, productivity savings and lower shortfall fees.

These benefits are partially offset by headwinds from ongoing tariff costs commodity inflation and lower volumes. As a reminder, the majority of our freight expense is booked in advertising, promotional and selling expenses. Stronger productivity savings and lower tariff costs, including the benefit of a $3 million tariff refund in the third quarter are enabling us to raise the low end of our gross margin guidance even with lower-than-expected volumes. We now expect full year tariff costs of $18 million to $22 million compared with our previous guidance of $20 million to $30 million and a part of the year impact of $11 million in 2025. The lower outlook primarily reflects ingredient and packaging tariffs coming in below our previous estimate. Our guidance assumes the tariff rates currently being charged by our suppliers remain in place for the balance of the year. From a phasing perspective, the midpoint of our guidance, we expect year-over-year gross margin rate improvement to be the most pronounced in the fourth quarter, reflecting lower shortfall fees and higher shipments year-over-year.

We typically recognize the majority of our shortfall fees in the fourth quarter. The reduction in these fees combined with the fourth quarter being a seasonally smaller dollar quarter, results in an outsized favorable impact to the gross margin rate. We remain disciplined in our approach to advertising investment closely monitoring returns and adjusting spending accordingly. Based on this ongoing evaluation, we now expect advertising, promotional and selling expenses to be approximately flat which is at the low end of our prior guidance range. The estimate does not include any changes in freight costs for the shipment of products to our distributors. Importantly, we continue to invest meaningfully behind our brands with advertising building on a strong base following increases of $61 million in 2025 and $6.5 million in 2024. Fourth quarter advertising spend in 2026 is expected to decline year-over-year as we reduced investment levels in Truly and have difficult comparisons.

As we mentioned previously, the fourth quarter of 2025 included meaningful production costs associated with preparation of 2026. Fourth quarter 2026 spend is expected to be comparable to the spend in the fourth quarter of 2024. We continue to estimate our full year 2026 non-GAAP effective tax rate to be approximately 29% to 30%. We have raised the low end of our non-GAAP EPS guidance and narrowed the range to $9 to $10.50 compared to our prior range of $8.50 to $10.50. Turning to capital allocation. We ended the quarter with a $308 million cash balance and $150 million available on our line of credit. These balances, together with our projected future operating cash flows, enable us to maintain operating investments in our business and cash returns to shareholders as well as the potential litigation-related payment.

We expect capital expenditures of between $55 million and $70 million in 2026, a reduction from our previous estimate of between $60 million and $80 million. These investments will be primarily related to our owned breweries to build capabilities, improve efficiencies and support innovations. We will continue to be disciplined in our capital spending as we monitor the dynamic industry environment over the long term. During the 39-week period ended September 26, 2026 and the period from September 27, 2026 through October 16, 2026, we repurchased share in the amounts of $73.5 million and $6 million, respectively. As of October 16, 2026, we had approximately $149 million remaining on the $1.6 billion share repurchase authorization. This concludes our prepared remarks. And now we'll open the line for questions.

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

Jim, I wanted to go back to your initial comment on the category. Obviously, we started the year with some optimism in January and February. And then we really seen a material deceleration into the summer. You call some of the macro impacts and gas prices. How are you seeing those impacts evolving as you exit the quarter?

Have you see signs of slight improvement? I know you're expecting still soft in Q4, but any sequential improvement that you're seeing? And bigger picture, do you think next year, we could see a bit of an improvement relative to the easier comparison on a 2-year basis? Or how you think about the category evolving from here?

It's a really good question. I wish I had a crystal ball, but I'll just give you my observations. I don't -- again, I don't have any more expertise than some of my industry colleagues and peers that have commented on it. What we have seen as you alluded to, Filippo is the year began reasonably strong in the sense of a big improvement last year when it was down on the order of 4%. And it's deteriorated since then a little bit. I mean these are not huge numbers, but -- and our definitions may be different from other people's definitions. We sort of define as our addressable market, which is both beer as traditionally lined and then this fourth category of beyond beer type products.

And bottom line, they were in the beginning of the year improved. The numbers we're looking at is year-to-date, traditional beer down 3%, beyond beer up 1%, which should advantage us since about 80% to 85% of our volume is in the Boston Beer category depending on your definition. So we -- and 15% is traditional beer, which is the opposite of the rest of the beer industry. But in the third quarter, it looked like traditional beer which instead of being down 3% is down 4% and Boston Beer is up the same 1%, so much of the deterioration is in the traditional beer category. So we're looking at a situation where Q3 is noticeably worse than Q1. Whether that will continue to deteriorate, stabilize I don't know. If I were to think about last year versus this year, a couple of things have gotten better.

For example, we're no longer reading about alcohol causes cancer on a regular basis. So that idea is still stuck in a lot of people's heads, luckily, [indiscernible] in talking about the dietary guidelines mentioned that social isolation and loneliness are also not good for your health. And beer plays a part in bringing people together. So there's a more complex discussion of the health effects, the pressure on the Hispanic population from the -- from ICE and other agencies putting pressure on them has let up a little bit. On the other hand, the economy got noticeably worse, especially for kind of the bottom 80% of the population, which over-indexes in many ways on beer and their wages did not keep up with inflation, so pressure on their discretionary income.

GLP-1 drugs are still out there. Hemp is still out there. I don't know that those have changed that much since last year. So I guess the bottom line is the year has gotten worse rather than better, mainly due to something cyclical, which is the price of gas and inflation being above wage growth. Does that help?

Right. No, that's very helpful. And then I guess, Jim, I love your perspective on the vodka category. We've seen obviously a lot of launches there. You have route the Dog. How are you seeing this category evolve compared to prior one-day you've had strong success like ourselves or RT, it seems like it's very competitive, just very early in the development of the category, but just love your perspective on the process for the category and the competition there.

Yes. Again, I don't have a crystal ball, but my observation would be that this Vodka Ade category has exploded faster then Hard Tea, hard seltzer even RTDs like neutral and cut water and high noon. I mean those -- all of those were around for a year before they really hit everybody's radar screen and caused a land grab. Vodka Ade in a year has basically gone from this little curiosity primarily in New Jersey to the next big thing in people's minds. Now will it be like something that had a similar rocket ship curve, which was way back 10 years ago, hard root beer which was boom flat and disappeared all in a 24-month period. Hard to tell now. It feels like it's got more legs doesn't have the vulnerabilities at hard root your head where it had 320 calories and 12 ounces.

So I would -- I don't know how big it can get. But it's certainly gotten a lot of support from retailers. And so the next 12 months, there will be a lot of activity in it. I think I counted a dozen entrants, all of which have come in, in the last year or so. Pretty much everybody has an entrant, except Molson Coors and ABI. And I would guess that they will probably throw something or buy somebody. So I don't -- it's certainly going to be where a lot of the action is both at the retailer level and the wholesaler level as well as the supplier level over the next 12 months. How big is it going to get? Hard to know. I doubt that it would get as big as hard seltzer or Hard tea. If it did, that would make it a real player -- so we'll have to see. I mean, we're very happy with our entrant. It's called Rally Dog.

We've gotten significant commitments from major chains who are making it their #2 or 3 bets in the Vodka Ade category. It's distinctive in terms of its brand presentation. It's not a generic name. It's a personality. The flavor profile tests better than the competition. So we're confident in the quality of the liquid. And as opposed to just about anybody else, we have a track record of innovation with the retailers and the wholesalers, and we have a very large sales force that can execute at retail. So there's going to be a lot of number #4, #5, #6, #7, #8, #9 and #10 out there that, I think, will struggle to get the distribution and the prioritization at wholesale and retail with all these new entrants. So I think it will very quickly sort down to maybe 4 players and maybe down to 2 or 3 from there.

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

Hope you both are doing well. So I wanted to just shift through your profitability just in the context of a environment we've been in from a cost and volume standpoint, gross margin performance has been impressive, and you both kind of touched on the productivity mindset, but you've got it for mix, brewer efficiencies and other factories as well. And I just asked this in the context that it doesn't really seem like the inflationary backdrop or the volume backdrop is really shifting.

So how much more room is there for you to push on these other drivers to kind of keep gross margin expansion, especially now that you have internal production have north of -- I think you mentioned north of 95%.

Yes. Thanks, Peter. Great question. We've been on a voyage here, started around 42% margin. And over the last 3 years, we've taken it to where it is now, and we feel really good about being at or very near 50% on an annual run basis. We've absorbed some big headwinds, particularly this year. When you look to what we provided. We've had aluminum just this year, up $30-plus million, and we've been able to offset that negative. We've had to offset some higher freight costs as well. Those typically don't show up in our margin. They're mostly in AP&S as we present them. So we've been able to continue to demonstrate some great efficiencies at our breweries. Our supply chain has improved considerably.

And we keep -- we're not done for sure. We're going to keep trying to grow our margins. We'll see what the volume environment is. That's a big factor, as we've talked about before. We'll always have some level of co-packing, it's part of our model, and it makes a ton of sense when we're trying to provide product, particularly up in the West Coast. So we see -- we see opportunity. We'll come back to you in February with what we think will improve between '26 and '27, but we do see opportunity. And continued progress past the 50%.

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

Great. Thanks for the question, just wanted to, Jim, get your impressions and expectations for Sun Cruiser and the spirit based or vodka-based tea category. As we look to next year and we're in year 3 or your 2.5, you seem to be cycling the national distribution very well. But can you talk about puts and takes and what it will take to continue this growth in '27?

Yes. We think there is continued room for more than -- for double-digit growth in 2027. We believe we're going to get more shelf space both from the chains and from independent liquor. We're seeing a growth rate. It started as triple digits this year. I think in measured channels in the last 13 weeks, it's close to 60%. Obviously, it is coming down and will continue to come down. But we continue to believe that there is significant growth next year, both from expanded distribution and more of our SKUs in each store. So -- and we are probably the leader in the tea part of this vodka and lemonade. And we believe there is growth and we are seeing it now, stronger growth in lemonade piece of it.

Great. And then as you -- just turning to the cost side, Matt, I think that freight was something like the $9.5 million, $10 million year-on-year headwind in your AT&S line in the third quarter. How are you thinking about that for the fourth quarter? Do you think this is a reasonable run rate based on where freight rates are today? I know forecasting for next year is anybody's guess at this point.

But if we mark-to-market with where rates are today is kind of a $10 million year-on-year impact reasonable for the next couple of quarters.

Yes. We've projected out for the remainder of 2026 that it's going to continue. We use the high rates that we experienced in Q3. And in Q3, it grew $9 million. There's a little less volume in Q2. So maybe it's a little lower than that. We're always working on our on freight optimization. So maybe we get a little benefit from that. But in general, we're just assuming we have that same level of increase.

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

Everybody I guess a couple of questions. The first is with depletions down 5% advertising flat, like the history of the company has often been to accelerate advertising during sort of difficult times. And so I'm just curious, maybe it's because of also's arrival, it's better to sort of throttle back until there's enough time for own plant? Or is there something else going on with what the right level of advertising should be to try to turn overall top line around?

Kaumil, great question. Just I'll start off and then hand it off to Jim. Just we -- we had a big increase between '24 and '25, it was around $60 million. And we've been -- we're projecting flat between '25 and '26. We think we're at the right level right now. There's a little timing involved with -- we sort of front loaded the first half of the year and have because of the World Cup and other timing items. So we were down in the third quarter and will likely be down in the fourth quarter, and that will work to flat for the full year.

And as we've said, we're trying to optimize the spend and reduced some spend that was nonperforming, particularly around Truly, as we talked about in July. But we'll continue to look at it, try to optimize certainly Allison has joined and we're really excited about that and her skill set, so we're going to take a lot of time to think through what we need for look at where our volume projections are and what we need to support our brands and invest as we see.

Yes. And I'd add to that, if I may. Our approach to advertising maybe is a little different in that we think less in brand terms like, okay, we own these brands and each one of them has an advertising budget. We may start to year that way, but we will -- we're pretty fluid among brands, essentially depending on whether we believe the creative and the campaign is actually driving sales. And the effect of that approach is somewhat visible. And what you've seen this year, basically, we had what we thought was a good campaign behind Truly, especially with our sponsorship of the U.S. team in the World Cup and we had special ads around that and bottom line, they didn't work. The depletions did not respond.

So to the campaign that we have behind Truly. So we cut it significantly and reallocated that money some to Twisted Tea where the evidence we have is that people exposed to the ads will, in fact, increase their purchases of it. So in that sense, the advertising is working, though there's some category trends pushing things the other way. The advertising does seem to get a sales response, and we put some money behind items where we were also appearing to get a sales response as well as Angry Orchard. So that's what you saw was essentially, we cut advertising that wasn't working, and we reallocated it to where the advertising was working.

Got it. That's very useful. If I could also ask about -- you mentioned something very interesting earlier on display activity and maybe Twisted getting boxed out with so much focus on the vodka-based teas. How do we think about that in 2027 in the context of we're likely to have something similar happen with all the Ade, whether it's your own with Rally dog or maybe some of the others, it's probably going to be a big merchandising display feature category. And so how do you fit Twisted or trying to turn Twisted in that environment?

Yes. I think you're right. It's going to -- I don't know if it will be worse than this year because I do suspect that there is going to be a slowdown in like the Surfside Sun Cruiser market. and High Noon, which a couple of years ago was getting disproportionate of the big displays. High Noon appears actually to be in decline now, neutral sort of the same kind of thing. So I don't see it being worse for Twisted Tea in '27 and '26.

It will just be a different cast of characters that the retailers are going to be jumping on because it's growing. It will be the vodka aids, but I think those will largely take away from like the high noon, the neutrals, even the surf side and Sun Cruisers. So it being worse for Twisted Tea, just a different set of competitors grabbing the display space.

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

All right. I had a quick question on Truly. The brand continues to be quite pressured. So I guess I'd love to hear your strategy for the brand and maybe whether you're considering implementing bigger changes. You touched on this, Jim. You're pulling back a fair amount on advertising on the brand, but are there other things you could do like SKU rationalization on the brand? I guess I'm ultimately time to understand, do you think Truly volume can stabilize? Or will you maybe manage the brand to optimize margin and cash flow?

To answer your question directly, our approach would be to stabilize or even grow the brand. I mean it's just -- it's too big to give up on it. We could not easily replace that volume if we just liquidate it. That said, that essentially means that we're committed to do something. So doing nothing is not an option. And in that context, that sort of puts everything on the table beyond SKU rationalization and new tagline and stuff like that, it puts the liquid on the table. It puts the positioning, the packaging, the -- all elements of the brand identity are basically being reassessed in an effort that we started right after the World Cup.

And Allison is the first week, but it's on our top priorities is what is let's just open it up to any change in truly that would stabilize the brand and provide a longer-term basis to grow from there. In my point of view, it's unnaturally low in market share. You generally -- I mean we are, what, 1/4 or 1/5 of white club usually things stabilize at a leader and then the second biggest brand is roughly half of that size, and we're not seeing that kind of stability here. So, we basically have said, we're willing to do -- we're willing to look at everything and looking -- we're looking at turnarounds of other brands and what they have entailed. And you got to put even the liquid itself on the table. And so that's what we're asking ourselves, it's a 10-year-old category. It may be time and It's kind of -- hasn't been a lot of news. So our question is, is there a next generation of hard sales here.

That's interesting. No, that's helpful. And maybe just a quick follow on that. And thinking about the guidance and CapEx, you did lower it again. So -- just would love to hear from you how we should think about that decision and maybe what it suggests about either the growth outlook or the health of your business?

Yes, Bonnie, I'll take that. It's just timing. We have a number of projects in flight and there's details related to suppliers and availability of equipment and we just pushed out some spend into -- from 2026 to 2027 there's no -- we spend to -- our breweries to spend on innovation. We feel like we've been at this $50 million to $70 million range for a few years. We don't expect that to change dramatically, but there will be different points within that range each year as the projects come. We have a particularly large wastewater project in our Pennsylvania brewery and I think some of that has been pushed out. And the major factor for the call down this year.

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

Great. Jim, scoping out to total beverage alcohol, are you surprised that there hasn't been more consolidation among suppliers over the last few years? And if so, what do you think the reason is -- and looking forward, do you think that's going to change, i.e., more consolidation?

I think the lack of consolidation has come from the growth opportunities being taken by new entrants, smaller entrants or entrants from outside the beer category. So you've got people who are big players in beyond beer who are not in the traditional beer category. That would be like a SaaS or a Gallo or a state side or even a Boston Beer Company, so those would be hard to consolidate. ABI is not going to buy Gallo. And Molson Coors is not going to merge with [indiscernible], for example. I think you will see, going forward, some of these new players being bought.

I mean many of them, as you saw with Spike Aid, that followed a pattern you see in the nonalcoholic beverage business, where the entrepreneurs build the brands and grow them, but they grow and they sell them, and there are great synergies when it goes to a Pepsi or a Coke. So I suspect it's going to happen what you saw it spiked Ade, where the brand was sold for a very attractive return on the initial capital and it consolidated. You saw that with juice box that was built.

And the new is eventually going to be sold. It was going to be a legacy brand that they were going to pass down to their grandchildren or anything. When they were going to sell it, what they felt like was the peak. So I think you will get -- you're going to see brands built to do that long drink, same thing. So bunches of examples of consolidation. And in this case, it looks like the high-growth emerging companies being sold to the people who have the long-term synergies. I think that's what consolidation will be. I think the bar test is pretty consolidated.

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

I have 2, please. First, Jim, you always provide a really thoughtful diagnosis on what's driving the trends in the market. And at the start of the call, you called out gas prices and inflation being a key factor. Could you share specifics on how you're seeing this manifest in your different markets whether that's channel pack dynamics or other consumer behaviors?

And then my second question is with regards to pricing. You guys have maintained your guidance for 1% to 2% for the full year. As you look out over the next 12 months, various costs are increasing from inflationary pressures. What are your early expectations for pricing, whether for you or even just more broadly for the market in the next 12 months.

Yes. Let me go after the first question. I mean, some of the things that we have seen that reflect the pressures on the beer consumer would be, for example, in Twisted Tea and the convenience channel, singles are becoming a bigger part of our volume because the consumer might not have the money for a 12-pack. So we are -- second example would be dollar stores, where we got, I think, 4,000 points of distribution for a [indiscernible] for a pack of 16-ounce cans. So another sort of price pack architecture. So we're seeing -- that's how it's manifesting itself. We are seeing with Twisted Tea, again, some reasonable amount of spread in the shelf price range from $22.99 to $19.99 and $19.99 seems to be a price point. So we've had good responses from going from the over $20 price point to the price point, though not universally.

So that would be how I'm -- and I'm seeing it -- those manifest itself just in terms of raw consumer behavior, what we're seeing is real wages are going down. Inflation is higher than wages. So people -- and as a result, that disproportionately strikes discretionary income. So one of the things that people cut out, they just buy less alcohol in general. And this pressure is strongest on the bottom 80% of the income strata, and that's where a lot of our drinkers are. So that just pushes overall consumption down. In terms of pricing, I mean, we're seeing something interesting that we haven't seen for a while, which is a significant drop in the real cost of beer. I mean, if inflation is up 3.5%, and beer prices are up 1.5%, that's basically in real dollars, coming down 2%.

And long, long term, it's probably been 75 basis points of real price decline in beer, which can be absorbed through productivity. I think long term, brewers are not going to be able to take 2% of their cost structure out every year. And the -- you're not going to see 200 basis points in real price decline on beer. When that will happen, I don't know. I mean we're roughly 4% of the market. So we don't have any pricing power. It's a very competitive market. And if we have to eat cost increases and can't pass them on because it's such a competitive market, we -- there's nothing we can do about it. We eat them. But I do believe that can't go on for the next 5 years. Eventually, prices are going to have to reflect all of the cost inflation that we're seeing.

[Operator Instructions] And the next question comes from the line of Michael Lavery with Piper Sandler.

Just wanted to come back to some of the innovation. You talked about the Vodka Ade a good bit earlier. But late at the convenience store show was very prominent and you got a lot of attention just showing off how it can be displayed and banners and everything. And I guess, just curious maybe I would imagine some of that is just that it's a bit in the market a little further already. So maybe it's a timing -- a good moment to amplify its kind of message a little more, but how should we think about maybe that or Rally Dog and how big they could be? You touched on how important truly is just because of its size, how would these fit into your thinking for how much it can offset other declines? Or what the -- how those pieces come together and how big of a push you'll put behind or both of those?

Sure. Basically, we're going to push what moves. So if we see -- and we can't predict is something we're on to catch fire. It's just -- I've been doing this 42 years, and I've been wrong as much as I'm right in terms of looking out a year, but you can look out weeks and if something's moving, you know it. I would not -- for 2026, it is negligible. So you probably don't even need to put it in your model. For 2027, I don't see them getting to the place where Truly is now for several years, even if they're wildly successful. Lytt is kind of a unicorn. It's probably why it got so much excitement. It is extremely innovative product in multiple ways. It's not just a different liquid or anything like that.

It's strikingly, you just have to look at it and you go, that's pretty interesting. It puts a smile on your face, wow, boos in a light bulb, where did you think of that? And it sort of has some moats around it for that reason. You can't make it in a normal production facility. We had to create the capacity. There was not contract capacity out there to do this. Nobody makes conveyor belts to move little light bulbs along. They're set for things with various kinds of cylinders and having a round bottom is weird. Of course, having a screw top is not common among the normal set of contract producers. And it has to be merchandised differently. You can't put it on the shelves and it's -- so we take advantage of the fact that it is in the sweet spot for retailers. It is an incremental purchase.

People don't go to the liquor store to buy 3 light bulbs of Lytt. They see it, and they put 3 of them in their basket, but they didn't go there to buy Lytt. So it's an incremental purchase, and it's extremely high margin. The margins per case are extraordinary, both for the retailer and for the wholesaler. It might be -- the margin per case equivalent might be 5x what a normal beer is. So, similar margin for the retailer. So again, they don't need to sell tons of it. One ball maybe as much margin as they make of a 6 pack of a low-end beer, just one of those bulbs and there's 24 of them in a case and 40-something in a case equivalent. So it's a very out-of-the-box product.

It has to be made differently and distributed differently. The distributors got to put up suction cups. We have a variety of racks and dump bins and countertop displays that will support this instinctual buying. We asked for 3 points of interruption in an account that carries it rather than just one spot on the shelf. So I don't know if there's a lot that's new and interesting for it. And so we're going to find out but it has a lot of potential. And like I said, the margins are -- or multiples of everything else in our product mix. And the vodka ade category is a little more traditional. It's kind of priced at vodka RTDs, like Sun Cruiser, it fits on the shelf, you can merchandise it the same way. But it has gotten out of the gate faster than anything I've seen.

Okay. That's really helpful. One related follow-up, just talking about the color on how some of the setup for 4Q, you think shipments will be up how much of that might be pipeline fill related just given Rally Dog and Lytt both going national next year?

Yes. Thanks. It is very little is the simple answer. The impact of the higher inventory in Q3 2025 at wholesaler, we -- given the improvements in our supply chain, we reduced the levels, so we had less shipments in Q4 last year, we were down minus 7. So we're up against an easy comp, and we've had a consistent level of inventory at wholesalers. So, there's some impact of load in, probably more for Rally Dog than Lytt, but it's mostly that just the timing of shipments given our supply chain improvements.

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

Thank you all for very thoughtful questions today. And I look forward to speaking to all of you in February when we're going to have wrapped up 2026, and we'll have guidance for 2027. Cheers.

Cheers. Thanks, everyone.

This concludes today's conference. You may disconnect your lines at this time, and enjoy the rest of your day.

Okay. We're going to get started. It is always such a treat to close out our conference with Chairman, Founder, and Brewer, CEO, Jim Koch of Boston Beer. It's also a treat to have him pour a beer for me because not many people get to have that opportunity of a truly professionally poured beer.

So thank you again so much for joining us at the conference. It's always such a highlight. So Jim, over the last year or two, you've increasingly described Boston Beer less as a beer company and more as a participant in what you've described as the fourth category.

And you've been talking about the fourth category for a long time with more and more time dedicated to Beyond Beer.

So how do you define the company you're trying to build over the next decade, and what would success look like from here?

Well, let's see. When I think about that, I kind of -- I go back to our mission statement that we actually wrote in the 90s, early 90s, so we had a, I guess a portent of what the market was going to be like in 20 or 30 years.

Our mission is to seek long-term profitable growth by offering the highest quality products to the U.S. beer drinker. And we haven't really changed. That is our mission, it was our mission in 1992. It's our mission tomorrow.

And luckily, I think the future that we saw came true, that there were wonderful, delicious, desirable beverages that were out there, but nobody had yet made. And I think that opportunity continues to exist for us. We're really, as a company built around growth and finding it in many different ways.

And I see the beer category or -- and the beyond beer category, as continuing to be both mature and dynamic.

So it's kind of like this box, and it's, you know, you look at it at the outside, it's the same height, width, depth, not really moving around or anything, but then you open it up and all hell is breaking loose in there.

So that's what I see going on. And if I were to like be more specific, you know, I've what I would use as our success metrics is that revenue growth and continued margin expansion and continuing to return cash to the shareholders.

Great. You have previously talked about a belief in the company's unique right to win in emerging beverage categories because of your existing manufacturing capabilities, distributor relationships, and route to market advantages.

How much of that advantage remains proprietary today versus 5 years ago? And particularly in the context of RTDs really proliferating and lines blurring at the distributors here.

Yes. I guess I'm not totally sure what proprietary means here. We don't have patent protections on anything, but so it's really kind of more know-how. But it, to build an innovation engine is not easy, particularly at any kind of scale.

And my experience in doing that is it's a combination of culture, processes, manufacturing capabilities, systems, habits. So it starts with a growth culture and a growth mindset, but then you've got to build a lot of different capabilities around that, and there's like speed to market and reading consumers and being close to the retailer.

I could go on, and it's not easy to duplicate all those, and it's a common phenomenon that big companies struggle to innovate, and the way they end up doing it is finding, you know, companies that are about to be successful and make them more successful, but they're internal.

And that's true in beverages, it's true in life sciences, you know, the big pharma companies, they're not that innovative, but they know how to buy technology. And in some ways, it's probably economically rational for them because their hurdle rate may be higher than the return rate from the entire ecosystem of small innovators.

So if we stick with the bigger picture, something else you've also suggested over time is that the future of alcohol will look more fragmented than in past decades. So inside the box.

Yes.

Chaos. You know, fewer mega brands, more premium niche brands, if that's right, and that's how the market continues to evolve. How does it change the way that Boston Beer allocates resources? Maybe it's, you know, not as much about a handful of billion-dollar brands, but rather, you know, a more fragmented and diverse portfolio.

Yes. I think that read is exactly right. And in some ways, it's inherent in premiumization. Premiumization generally means fragmentation, and maybe a model is the hard liquor market. And when I look at that and what the biggest brand in, you know, in spirits is Tito's, and Tito's is less than 4% of the volume.

And you add up like the top 20, and I don't think you get to 50%. You may be, when you add up the top 10, like down at the bottom of that list of the top 10, the first digit is 1%, maybe it's 1.5, but that's very fragmented.

And also, spirits has been really good at premiumizing over the last 40 years. So I'd think that is a model for the fourth category and probably all of alcoholic beverages. And to your question about how do we then allocate resources, this is, to me, a very advantageous market for us because something that is half a percent of the beer market is transformative for us.

If we can bring out a product that's a half a percent of the beer market, that's more than 10% growth just there. And we are -- so we're willing to overinvest in things that we know can't be the next Michelob Ultra. But if they're the next Sun Cruiser, that's a big deal for us. And we, as part of that philosophy, we would -- we lean very heavily towards making it margin accretive.

You know, for example, you know, Sun Cruiser, it's 30% higher price than Twisted Tea, and commensurately higher margins. So, if it's going to fragment, our philosophy would be it also has to premiumize.

Okay, okay. I haven't heard that before, this now, premiumization is fragmentation, but it's so true.

Yes.

So true. Okay, so in this vein, you've often described Boston Beer as a company willing to fail quickly, and that fits with your comment that like you'll overinvest in something that you think has that potential. How would you say your innovation process has evolved over the last several years? You know, whether it's focusing more on new-to-world concepts or brand renovation. But overall, how has the innovation process evolved?

That's a good question. I'm still sort of struggling with the idea of one of our special capabilities is our ability to fail. But I guess that's true.

[Technical Difficulty].

Okay, good. So we have, over the last 5 years, 3 years, spent a lot of time and effort structuring, building a system around the innovation capability. And so, you know, we have a dedicated team. For a company our size, it's quite large.

And we are adding capabilities to that team, things like today, really great AI-driven deep social listening, for example, to really highlight trends earlier is something we spent a lot of money on. And just having a very, you know, cadenced and structured process, which is basically the innovations team is, their job is to come up with a viable new product every 3 months, and with the expectation that 1 out of 10 will hit and become a Sun Cruiser type of product.

And for us, so that's failing whatever 9 out of 10 products, but having a lot of kind of shots on goal. And as a result, if we're successful like that, that is a, you know, I don't know, high single, you know, of high-mid, low-mid-digit volume growth rate for us, which, if the margins are also increasing, is a very successful compounding model of financial returns.

You've recently become more selective around advertising investment, including pulling back on about $20 million of lower return spend. Are there any new data sets or analytical tools that have helped you better understand where returns were subpar and what lessons, if there's like a through line, you know, on kind of where you've decided to dial back the spend, kind of what's the through line if there is one?

There are several. And the answer to your first question is yes, there is a new tool that we've been working on since 2012. So, it ended up being called the Holy Grail because it was quite a search. And it's essentially single source advertising research at scale. Single source means, you get a real individual and you measure what ads they were exposed to, and then you match that up with their purchase, their actual purchase behavior.

And that, for decades, I mean, it's been known that's the gold standard, but it's super expensive. And so you couldn't really afford to do it. But in today's world, and finally, this has all come together with big data meeting AI. But you could think of it like this. You have an IP address. And today, you know what ads got served to that IP address.

And today, that IP address is linked to loyalty card data and credit card data. And that covers 80-plus percent of the purchases in the grocery channels and the other measured channels that we serve. And so you can take that and you can look at an individual IP address, look at their purchase behavior before exposure to the ad and subsequent to exposure to the ad to determine the delta, the increase or lack of increase in their purchase behavior.

And with AI, you can match that set of people up to a theoretically identical clone that did not see the ad. And so the difference between the people who saw the increase in purchases from the people who saw the ad or were served the ad relative to the ones who didn't gives you a volume, you know, your gross profit.

You can calculate the incremental gross profit generated by the money you spent exposing people to the ads and get a legitimate ROI on that. And we're not the only ones, I'm sure, doing this, but it's something that we've been working on since 2012.

And some of the through lines on that are, most advertising doesn't work. Somewhere between 20% and 30% of CPG type advertising. So sophisticated, really quality advertising, 70% to 80% doesn't work, 20% to 30% works.

So that's one. I mean, so the odds are against you when you spend money on an ad. The second one is that changes our philosophy about where we put our money. Traditionally, you have an advertising budget for your product line and each brand gets this much advertising support. And there's a lot of thought, I'm sure, that goes into that and some politics and some judgment.

And so forth, but you're advertising against brands. Well, if only 20% or 30% of the advertising out there works, you shouldn't be doing that. You should be advertising against ads and ad campaigns that work and have an ROI. And as a result, you know, we've like taken out all the advertising support for brands until we can demonstrate that the creative actually generates incremental sales.

Okay. So how do you then balance, though, maximizing near-term returns and, like, maintaining a level of support, needing to keep them culturally relevant? So, like, because you remove all the ads, and maybe it's not incremental growth, but you still have to remain visible? So, or maybe you don't.

Maybe not -- not unless, if it's not generating, if it's not changing consumers' purchase behavior.

Yes.

It's a waste of money. I don't know what that means. Well, you need to be, awareness is good. But it has to be the right kind. So, in what we've done is then, if we had to take that money and invest in other things. It might be dealer loaders, it might be distributor incentives, it might be sponsoring a highly visible team. It's those kind of, it might be a sales force incentive. It might be really good point of sale material that will get displays built.

So you have to get into the really grassroots tactical stuff which works. It works very well. For us, a key way of creating visibility is our -- through our sales force, getting our products on-premise, where they are seen and where people can sample them.

Just being in the cooler today with this kaleidoscope of fragmentation isn't really going to get you visible, but because the cooler at a liquor store here in Boston or Massachusetts or a grocery store up in New Hampshire, there's just too many brands.

And the average consumer probably spends, I don't know, 30 seconds, maybe 60 seconds in the beer aisle in total. So, you know, can't get seen that easily there. But in a bar, they've only got, you know, 10 packaged beer and fourth category brands, maybe 12 or something. So, I'd rather be on that menu than be on the History Channel.

Okay, as an example.

Yes.

Okay, let's now drill down to talk about some specific brands. So, let's start with where you're seeing some great success, Sun Cruiser, which you mentioned earlier.

Clearly, the brand's exceeded expectations. But one thing that stands out is this discipline you've shown around keeping it really focused. As you think about the next phase of growth for Sun Cruiser, how do you balance optimizing near-term opportunities, but then still maintaining that long-term health of the brand?

Well, we generally are more focused on the long-term health of the brand because you can't get there without short-term health. So we've always, as I said with the mission statement, long-term profitable growth. And I think for Sun Cruiser in particular, this year was the first year where we were fully represented in the chains.

I mean, it's only effectively a 3-year-old brand. So, we have expanded opportunities for more SKUs in the chains, more packages, because we've proliferated packages to address certain needs rather than as much line extensions and flavors as we've done in the past.

So we're now -- we'll do 18 packs so that we can hit a price point at Costco. That creates a lot of visibility. So that's the kind -- we believe there is further upside next year, Sun Cruiser will roughly double this year. I mean, it's at retail, it's a kind of 0.5 billion-dollar brand from nothing 3 years ago. So I'm very happy about that because it demonstrates our continuing ability to successfully innovate new-to-world brands and create significant volume and gross margin dollars and so forth from thin air essentially.

But there's still -- and there's geographic -- the geography means the share that, vodka teas in general, and certainly Sun Cruiser in the Northeast is maybe multiples the size that it is on the West Coast, in California in particular. So there's a lot of growth still to be had geographically.

Okay. So when, I'm just curious to talk a little bit about the interaction with Twisted Tea. You talked about that there's been a little bit of some interaction between the two. How do you think about optimizing [Technical Difficulty] portfolio as a whole rather than, you know, looking at the brands individually?

Well, we kind of look at them individually. I'm a big believer in, I guess it was Steve Jobs. Steve Jobs aphorism about, well, if we don't cannibalize ourselves, somebody else will. So, go full blast on Twisted Tea. Don't worry about hurting Sun Cruiser and vice versa. Just maximize meeting consumer needs through the portfolio and recognize there's going to be interaction and don't hold back to try to protect one brand over another.

Okay. Great. So -- but in that sense, Twisted Tea has faced some headwinds the last couple of years. Your recent commentary has talked a bit about executional fixes, whether it's like pricing in certain markets, price pack architecture, supporting faster-growing line extensions.

Do you think that the path back to healthier trends for Twisted Tea is really a matter of execution? Or do you think that like consumer preferences have changed and you want to -- you need to rethink some of the positioning of the brand?

Both are true and I think what has happened is that it's not that Sun Cruiser stole a lot of Twisted Tea drinkers. We had reasonably good data on that, and it was like 20%. However, something subtler happened, which is the advent of vodka teas sort of de-positioned Twisted Tea and by that I mean, a lot of people thought Twisted Tea was from vodka, for example.

Even more people didn't care. It tasted good. And the vodka teas are 100 calories. So they raise questions about, well, what's in the Twisted Tea. And the exact same thing happened to Mike's Hard Lemonade. The exact -- their numbers track Twisted Tea.

People said, oh, it's malt and malt beverage. And that historically has meant like malt liquor and low-end stuff. So that was a de-positioning. And then the 100 calories, people said, well, what's in Twisted Tea? And the Twisted Tea Light's 110, but Twisted Tea original is 190. And it hit Mike similarly. I think they're like 230. So it was that de-positioning more than a direct migration of one drinker who was Twisted Tea replacing it with Sun Cruiser.

Okay. And so from here then, I know a couple of things. One is you started a Hispanic retail program -- oriented retail program this summer. So I'm just curious about how that's gone. Maybe it's a little too early to say, but any read on that consumer cohort and just execution things specifically that you may be doing on Twisted Tea. You mentioned Light, but things that you're doing to kind of try to get your brand back.

Yes. Well, the first question, from what I can see, the Hispanic consumer has come back a little bit. They're no longer sending their kid out to buy their groceries because they're worried that ICE is going to scoop them up.

So there's a little bit less of that concern. But they're also hit probably more badly than the rest of the population with the increase in fuel and basic staples. Then the second question was about executional things. And I think everybody in this conference is always worried about executional things.

You can always get better and they should be because -- and particularly for us, we're in a route-to-market business. So how we show up at retail, how we get the distributors to merchandise our product, all those kinds of things really matter.

And one of our issues is as this past summer and through this whole year as vodka teas took off, they became and other RTDs, they became the hot category.

So we lost display space. So we're always fighting for display space, the pricing kind of, in the shelf price in some markets got away from us. I mean, basically we were growing 20%, so we took price.

And then our distributors took even more price and the retailers. So we got to the point where Twisted Tea historically has been a more middle America type of brand. And it's got to the point where it was priced above Stella and Modelo and some of the bigger imports, and that's not really where it should be positioned.

So, you know, a $19.99 12-pack is the right price point. And we were at even $22.99 in some places. The margins were quite attractive and we tried to jawbone people down. We were successful in some markets and we actually saw the volume respond.

And then we did some, we're just starting to dip our toe into revenue growth management. And that led us to say, well, we need a $9.99 price point, but the 6-packs aren't going to make that. So we had a 4-pack of 16-ounce, and that got us into several thousand dollar type of stores because it hit a $9.99 price point. So things like that.

Okay. Great. Just while we're on the topic of kind of closer-in trends and what's been going on with these brands. Any thoughts on how the balance of the summer trended versus your expectations? Obviously, we had an amazing few weeks for beer in Boston.

But do you think the World Cup might have -- I'm an optimist at heart, might have helped remind people that it's, like, fun to socialize and meet up with friends outside the home and enjoy fourth category or the beer category?

I mean, it obviously reminded us in Boston.

Yes.

That was a true story. The Tartan Army literally drank us out of Boston Lager at our taproom twice in one night. We had to send a bartender down to the brewery to load up his station wagon with more kegs twice.

We were pouring a Boston Lager every 12 seconds for a couple of hours there. So -- but to your point, I don't know if it carried over. I have to believe it did in some ways. But you're -- and hopefully, that expanded beyond the original 11 host cities.

So kind of -- at the headline, fun story level, it was very cool. I'm not -- it takes a lot to change fundamental habits that -- but I believe we're slowly rolling back the COVID slumber, and people are realizing -- and it is part of a happy lifestyle to have friends and to socialize with them.

And alcohol has been a part of that for at least 10,000 years. But it's going to take, unfortunately, more than just the World Cup. The summer did not improve, at least from our point of view. And I think that's -- there's -- nobody really knows what the real numbers are, but I think the trend has not been good.

Okay. So investors naturally spend most of their time talking about Sun Cruiser, Twisted Tea, and Truly. I was just curious what brand or business within the portfolio do you think is the most underappreciated today?

Well, Angry Orchard is sort of a sleeper, but it started growing again over a year ago. So -- and it's well over 40% of the hard cider category.

I mean, it's kind of Angry Orchard. There is no #2. So that's driving category growth for Angry Orchard. It's exciting to me because, again, it shows that we can take a 30-year-old category. We've been making hard ciders since, I think, '96 or something like that, and bring growth back to it.

And to me, a priority is to bring growth back to Sam Adams. I mean, craft categories struggled for a bunch of reasons, it's mature. There's 10,000 craft brewers. Everything got centered around IPA, and so there's not really other growth vehicles for it.

But I'm encouraged by some early green shoots with Sam Adams. We will see. I believe, we have very effective advertising. Our Holy Grail methodology is indicating that we're getting a 2:1 ROI on advertising expenditures, so we're going to be expanding that.

We actually -- and then we validated that in some mass-market testing, so I'm feeling much better about Sam Adams, though it hasn't shown up in the trends.

Okay. Let's shift gears and talk about the margin transformation, which has been a significant part of the story. Spoken about procurement savings, brewery efficiencies, network optimization, and now revenue management is another element.

As those earlier productivity areas mature, what do you see as the next wave of kind of self-help coming? Where does that come from over the next 3 to 5 years?

Well, I think all of them have some ways to go. There is still a lot of, you know, what the Japanese would call Muda waste in our systems. And I began my career as a manufacturing consultant. That was what I did for 7 years. I'd never -- I knew nothing about marketing, CPG and so forth.

But I knew a lot about foundries and things like that. And it is not unrealistic in today's world where Kaizen and continuous improvements and Six Sigma, all those, Lean Manufacturing, all those, they're basically variations of the Toyota Production System.

You sort of expect 3% real dollars to come out of your supply chain. So that in and of itself, I think, can continue to drive our margins up. I mean, I know there are some already significant savings for next year that are in our contracts, in pricing, like aluminum cans.

We had these extra warehouses outside of the breweries. At one point, we're spending $50 million on them. That is complete Muda and nothing good happens to beer when it's sitting in an unnecessary warehouse.

We will be fully out of those. We're out of them almost fully in Cincinnati and working on it in Pennsylvania. So -- and there's other things like can we use a different path. I mean, there's a lot of $1 million or $2 million items for -- that will continue with the momentum next year.

Beyond that, it may settle. We've been taking more than 3% out of our cost structure every year for a few years. And -- so, and that's where I want to end up is at least 3% a year out of the cost structure.

Okay. So one visible outcome of these productivity efforts has been a significant increase in the percentage of volume you're producing internally. As you continue optimizing the network, how do you think about balancing manufacturing efficiency against the flexibility that third-party production can give you in a business particularly where consumer trends can change so quickly?

We've always had backup capacity. I think of the third-party production, you know, you have to pay for it. You have shortfall fees or you buy equipment. There's lots of ways. We end up paying for it, but it's not free.

To me, some of it justifies itself because it's in -- I mean, we use a City Brewery outside of, what's in Los Angeles. We don't have any breweries close to Los Angeles. The closest one is Cincinnati. Otherwise, it's Pennsylvania.

So that justifies itself. Then there are capabilities that we don't have. I mean, we just set up 2 manufacturing sites to make a new -- our newest innovation product, which is called Lytt. It's a little out there. It's a light bulb. It's like a 60-watt -- think of a little light bulb, and that little light bulb has 200 milliliters of 15% alcohol liquid.

The concept is pre-gaming, which, our kids have done, but now you have adults doing it. Because before you go out and you're in a bar where you're buying $18 cocktails, you get a head start or if you're going into a venue where, I forget what Sam Adams at Fenway is, maybe it's over $20.

You might sneak in a Lytt. It's the equivalent of 2 light beers. And it's also -- it tastes delicious. It's a really good mixer. And consumers are taking, we put out capabilities and then they figured out how to use them.

So consumers are just mixing it with LaCroix or Polar to make -- what tastes like a mixed drink. It's a lot of fruit base in most of them, though there's even, we're working on a milk base like an espresso martini. It's very pliable in terms of the flavor profile that we can create in those.

I don't know if it will -- how big it will be, but we have now -- we're set up to accommodate a reasonably significant demand with 2 facilities, and it's like $15 million worth of equipment. But we didn't want to put them in our brewery because it's just so different. Nobody's got conveyors to convey light bulbs.

And it's different. We're set up to bring in cans and fill them. This stuff, you bring in little plugs and injection mold them into the container itself. So when there's weird things like that, that we don't want to mess up otherwise quite efficient breweries with -- we will do that with a co-packer.

Okay, great. We only have a few minutes left, so just before we conclude today, and hopefully everyone here will join us outside for some delicious Boston Beer beverages, we'd just love to get your perspective on what you think investors are most likely underestimating today about the business.

I would say our ongoing capabilities that set us apart and make us kind of different. I mean, it's a lot of different things. I mean, we still have an entrepreneurial culture after 40 years. I'm still there driving things and working with an incredibly talented team.

We have a clearly very strong, if not best-in-class, innovation capabilities. We are becoming the low-cost producer of our very complex product mix.

We have a product mix that would cripple one of the big breweries because they're set up for long runs, and economies of scale and everything. We're set up to be flexible, adaptable, but not lose efficiency. We've got what is almost universally acknowledged as the best sales force in the business.

That gives us a route-to-market, especially through on-premise and through independents that nobody else has.

We have a great distributor network. We have been handpicked and really great relations with them. Everybody -- I don't know if anybody in this room has heard of the Tamarron survey, but beer distributors rate their suppliers every year. I think they've done it for 18 years and we've been rated as the #1 supplier. I believe, 14 of those 18 years. And this is a route-to-market business. Distributors are super important.

We have a very healthy balance sheet. We've never borrowed money. We generate cash. So we're not distracted by the financial things that characterize most companies. We're not good at it and maybe we should have been more leveraged, but we don't have distractions like that. We're just focused on growth.

Great. Well, thank you so much for being here again this year. Everyone, please join me in thanking Jim and the rest of the Boston Beer team for being with us.

Thank you.

Greetings, and welcome to the Boston Beer Company's Second Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.

It's now my pleasure to introduce Mike Andrews, Associate General Counsel and Corporate Secretary. Please go ahead.

Thank you. Good afternoon, and welcome. This is Mike Andrews, Associate General Counsel and Corporate Secretary of the Boston Beer Company. I'm pleased to kick off our 2026 second quarter earnings call. Joining the call from Boston Beer are Jim Koch, Founder, CEO and Chairman; and Diego Reynoso, our CFO.

Before we discuss our business, I'll start with our disclaimer. As we stated in our earnings release, some of the information we discuss and that may come up on this call reflects the company's or management's expectations or predictions of the future. Such predictions are forward-looking statements. It is important to note that the company's actual results could differ materially from those projected in these forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in the company's most recent 10-Q and 10-K. The company does not undertake to publicly update forward-looking statements, whether as a result of new information, future events or otherwise.

I'll now pass over to Jim for introductory comments.

Thanks, Mike. I'll begin my remarks this afternoon with an overview of our strategy and operating results before turning the call over to Diego to discuss our second quarter financial results and our financial outlook for the remainder of 2026. Immediately following Diego's comments, we will open the line for questions.

In the first half, the overall beer market improved modestly, although demand was uneven throughout the period. The category was nearly flat in the first quarter before softening in the second quarter, with May proving particularly challenging. Trends improved in June as consumer demand benefited from increased drinking occasions around the World Cup and Americas 250th anniversary celebrations. We estimate the combined total beer and beyond beer market was down 2% in volume in the first half compared to a decline of 4% for the full year of 2025. Beyond Beer continues to outperform traditional beer in volume in measured off-premise channels decreasing 1% for the first half compared to traditional beer, which declined 4%. We anticipate industry volume headwinds for the remainder of 2026 as consumers remain under pressure from the cumulative effects of inflation and a significant increase in gas prices.

With respect to Boston Beer portfolio volume trends, our performance continues to lag the pace of improvement in the broader category. In the second quarter, we delivered triple-digit depletion growth in Sun Cruiser, continued growth in Angry Orchard and strong on-premise results across the portfolio as major events helped drive incremental drinking occasions. However, Twisted Tea and Truly continue to face declines and market share challenges. Our second quarter depletions were down 6% and shipments were down 4.5%. First half shipments were down 5.6% and modestly trailed depletions at down 5%. For the full year, we expect shipments and depletion trends to be broadly aligned improvements in our supply chain that we activated in the second half of last year have enabled us to reduce wholesaler inventory levels consistently to approximately 4 to 4.5 weeks while reducing quarter-to-quarter variability. These improvements will affect the timing of shipments compared to the prior year across the third and fourth quarters. Diego will provide additional detail on the shipment timing dynamics in his remarks.

We continue to make strong progress on our margin enhancement initiatives, delivering 50.4% second quarter gross margin despite higher aluminum energy and tariff costs, and we are on track to achieve our planned full year 2026 savings. The business is generating strong cash flow, and we have repurchased over $55 million in shares year-to-date. Our priorities for 2026 remain focused on strengthening our category-leading brands to improve market share trends launching strong innovation and driving continued gross margin expansion.

With a significant number of key summer selling season weeks still ahead, we are focused on executing our plans with urgency to improve our share performance. We have maintained our earnings guidance while navigating a dynamic demand environment and cost inflation headwinds. Based on our evaluation of the category environment, and the return on our brand investments year-to-date, we have decided to reduce our planned incremental advertising investment range by $20 million by eliminating some lower performing advertising. Even with this adjustment, we continue to invest in our brands at levels well above historical averages reflecting the meaningful step-up in support we made last year, while continuing to take a disciplined approach to additional investment, we remain focused on delivering our marketing plans through strong partnerships compelling program and effective local market activation in partnership with our wholesalers. At retail, we have slightly gained shelf space this year, but lost display space.

I'll now provide an overview of our brand performance and plans. As I mentioned on our last call, a key priority for 2026 is to improve share trends and grow volume in the hard tea category through progress in Twisted Tea and the continued expansion of Sun Cruiser. On a combined basis, Twisted Tea and Sun Cruiser volume is very slightly positive and revenue is growing year-to-date through 29 weeks. Sun Cruiser is revenue and margin accretive for us, and the brand continues to expand distribution and recruit new drinkers. Twisted Tea continues to dominate the malt-based hard tea market with an over 85% share and no single competitor having more than a 5% share.

However, Twisted Tea is facing volume and share pressures with lower velocities, reflecting broader FMB category headwinds, reduced feature and display activity primarily due to the expansion of RTD Spirits and interaction with spirits-based hard teas. The largest volume headwind continues to be concentrated in 12 packs, which have been impacted by reduced displays in the FMB category together with consumer purchasing behavior away from larger pack sizes across the Twisted Tea portfolio, Twisted Tea Singles, Twisted Tea Light and Twisted Tea Extreme all grew share in the FMB category. So far this year, we've increased advertising investment, added new partnerships, launched new pack sizes and expanded Twisted Tea Extreme offerings and distribution. We are also taking a disciplined test-and-learn approach to revenue management on the brand including targeting pricing adjustments and smaller pack size offerings. These initiatives are still in the early stages, and we will continue to assess their impact as we gather additional data.

Recent promotional activity included sponsorships of Pardon My Take's Tahoe week. Pardon My Take is Barstool's #1 sports podcast and Twisted Tea was front and center across all content during Tahoe Week, including customer merchandise and advertising. Late in the second quarter, we launched a Hispanic summer retail program across key markets that includes Spanish language sweepstakes and point of sale, complementing our Hispanic summer media campaign and focused on growing household penetration, awareness and relevance with Hispanic drinkers.

Later this quarter, we'll be running our high-performing Tea Drop National College football themed ads complemented by our Game Day variety packs, college football team specific packaging, in-store display programs and always-on media for Twisted Tea Extreme and Twisted Tea Light. Also beginning this fall, we are expanding our partnership with Realtree Camo and we'll be launching Twisted Tea Realtree Camo themed national packaging and promotion.

Sun Cruiser has quickly grown to a top spirit RTD and is among the fastest-growing brands by volume in the category across combined measured on and off-premise channels. Built in bars and restaurants, Sun Cruiser is the leading RTD spirits tea and lemonade brand in a measured on-premise channel, where we are continuing to invest. The brand is also seeing strong growth as it further expands in off-premise with the highest growth in velocity in comparison to leading RTD spirits, tea and lemonade brands. We expect strong distribution gains for Sun Cruiser in 2026, but continue to expect measured channel off-premise data coverage to be lower versus our other brands, due to Sun Cruiser's strong presence in on-premise and off-premise independence.

Advertising support for Sun Cruiser includes content around the Let the Good Times Cruise media campaign, which includes TV, paid social and digital advertising and key influencers and creators. Our key influencers content includes our summer long partnership with Creator TV personality and outdoor enthusiast Dylan Efron with events and promotions built around the simple idea of enjoying getting outside with friends and drinking Sun Cruiser.

Sun Cruiser continues to have a growing media presence in sports this summer, including the PGA, the MLB, the World Champion New York Knicks and sponsorship of numerous music concert series. Our multiyear partnership with the USGA made Sun Cruiser the official ready-to-drink cocktail of 2 of golf's most notable championships, the U.S. Open and the U.S. Women's Open. We continue to see strong velocity and distribution opportunities for Sun Cruiser and we're committed to keeping a disciplined level of tea and lemonade styles as we continue to grow our volume. We expect the brand will continue to grow for the remainder of 2026 with further runway for long-term expansion.

Turning to Hard Seltzer, Truly has maintained its #2 share position in the Hard Seltzer category. However, volume and share trends remain challenged. Within the Truly portfolio, high ABV Truly Unruly and the Wild Berry flavor continue to significantly outperform our other styles. The investments we made in new brand creative and soccer-related promotions have improved our marketplace presence, particularly in display activity. However, the impact on consumer demand has not yet met our expectations. We are adjusting the level and timing of our investments in Truly as we reassess the most effective approach to accelerating brand performance. We maintain our focus on strengthening the brand and we'll continue to refine our marketplace approach while taking a disciplined approach to investment.

In Cider, Angry Orchard grew for the fifth consecutive quarter behind our lead styles, Angry Orchard Crisp and Crisp Imperial. Crisp Imperial volume has increased more than 60% in the second quarter in measured off-premise channels. Angry Orchard growth is supported by its brand positioning around don't get angry, get Orchard, a refreshed creative and strong retail programming. Angry Orchard will continue to focus on building the momentum behind its successful Halloween programming and its recently announced partnership with the iconic Scream horror movie series.

For our Samuel Adams brand, to support and help celebrate America's 250th anniversary, we launched limited edition, retro packaging and drink like its 1776 retail programming and promotions. In our home market of Boston, we had record sales at our tap rooms this summer as soccer fans from Scotland and all over the world, celebrated and discovered Samuel Adams Boston Lager and our Samuel Adams Summer Ale.

For our Dogfish Head brand in the second quarter, we slightly lost share and had our first quarter of decline after 4 consecutive quarters of growth. We continue to expand Dogfish Head's Grateful Dead beer collaboration and invest behind the Minute series IPAs while bolstering our connection to music by introducing a new partnership with Rolling Stone Magazine that was activated earlier this quarter and includes event activation and co-branded packaging for 2027.

Turning to innovation. We continue to prioritize high-growth margin accretive opportunities that complement our core brand portfolio. Sinless Vodka Cocktails have launched in over 30 states and is a full flavored liquor based cocktail with 0 sugar and 0 carbs and 100 calories per can. Also, we have launched a new RTD cocktail brand named LYTT Electric coolers in over 5 states. LYTT is 15% ABV malt-based and offered in 6 flavors in a distinctive resealable 6.8 ounce single-serve package, both Sinless Vodka Cocktails and LYTT are in the early stages of launch. Thus far, we're encouraged by the positive response from wholesalers, retailers and drinkers but Sinless and LYTT are not expected to contribute meaningfully to our 2026 volumes.

In closing, while the operating environment remains challenging, we are seeing some signs of improvement in the category and remain focused on building momentum through the balance of the year. We are managing the business with discipline, investing behind our category-leading brands advancing our innovation agenda and working closely with our distributor partners to drive long-term value creation. I'd like to thank our Boston Beer Company team and our distributors and retailers for their continued support.

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

Thank you, Jim. Good afternoon, everyone. Depletions in the second quarter decreased 6% and shipments decreased 4.5% compared to the second quarter of last year, primarily driven by decreases in our Twisted Tea, Truly, Samuel Adams, Hard Mountain Dew and Dogfish Head brands that were only partially offset by increases in our Sun Cruiser and Angry Orchard brands.

As Jim noted earlier, were down 5.6% shipments declined at a slightly higher rate than depletions in the first half. Distributor inventories at the end of the quarter was 4.5 weeks on hand and was consistent with the weeks on hand at the end of the second quarter last year.

Revenue for the quarter decreased 3.3% due to lower volume, partially offset by price increases and favorable product mix. Pricing was below our full year guidance range in the second quarter as list price realization was moderated by the timing of distributor incentives related to the World Cup programming. Positive product mix was driven by strong growth in Sun Cruiser.

Our second quarter gross margin of 50.4% increased 60 basis points year-over-year. Gross margin performance primarily benefited from our brewery efficiencies, favorable product mix, procurement savings and price increases, partially offset by inflationary commodity and tariff costs.

Advertising, promotional and selling expenses increased $26.2 million or 16.4% year-on-year, resulting from increased local brand marketing and point-of-sale investments of $17.5 million and a slightly higher-than-planned freight cost increase of $8.6 million, with higher rates, partially offset by lower volumes.

General and administrative expenses increased $3.1 million primarily due to increased legal fees and salaries and benefit costs. These increases included $1.4 million of legal fees related to the previously discussed supplier dispute litigation.

Operating profit reflected strong gross margin performance offset by significant advertising investment and freight rate inflation, which increased more than 35% year-over-year. The supplier dispute litigation expense adjustment of $19.3 million consists of a favorable adjustment to prejudgment interest of $21 million and post-judgment interest expense of $1.7 million. Year-to-date pretax litigation expenses plus related fees totaled $198.1 million.

As previously announced, we continue to intend to pursue all post-trial motions and appellate remedies that are available to us on the supplier dispute litigation. We cannot estimate when or if damages or interest will ultimately be paid, but do not expect this issue to have a material impact on our operating plans. The impact of these litigation expenses and related legal fees represent a $1.31 favorable impact to our second quarter GAAP EPS and a $14.27 unfavorable impact to our year-to-date GAAP EPS. Excluding the litigation-related expenses, second quarter non-GAAP EPS was $3.65.

Now I'd like to provide an update on our ongoing productivity initiatives. We continue to make progress and are on track to deliver our 2026 savings target across the 4 buckets that I've discussed previously. I'll now provide some highlights on our initiatives in each bucket. In brewery performance, we continue to see improvements in OEEs driven by process improvement, which helped to increase our internal production capacity. In the second quarter, we produced 84% of our domestic volume internally compared to 76% in the second quarter of last year.

For the full year 2026, we continue to estimate domestic internal production will be over 90% compared to 86% last year. In procurement savings, our second quarter result benefited from lower negotiated pricing on certain packaging and ingredients.

As discussed previously, procurement savings have been a significant contributor to our gross margin improvement over the last 2 years. While we expect some continued benefit in 2026, the impact is expected to be more moderate versus 2025.

In waste and network optimization, we are continuing to enhance our customer ordering and inventory management system. These efforts helped us achieve high customer service levels, lower inventories and improve our cash flow. In addition, we've reduced obsolete inventories 42% in the first half of this year.

Revenue management capabilities were added this year as part of our margin agenda. These efforts are in early stages in 2026 with a more meaningful contribution expected in 2027.

Turning to our 2026 guidance. We are maintaining our full year volume guidance range of down low single digits to down mid-single digits. Fiscal week depletion trends for the first 29 weeks of 2026 have declined 5% year-over-year. Our volume range reflects varying assumptions for the pace of improvement in the second half. Based on our current total company trends, we would expect full year performance towards the lower end of the range. We believe our operating plans can drive improvement from current trend levels. However, the high end of the full year range would require stronger category and market share trends. In the second half, we expect continued strong growth from Sun Cruiser.

Additionally, adjustments to the timing of our Samuel Adams seasonal transition as well as slightly more contribution from our innovation and international brands are expected to be volume tailwinds in the second half. We continue to expect price increase of between 1% and 2% and some additional benefits from mix.

While managing through a dynamic volume and commodity environment, we are raising the low end of our full year gross margin guidance and maintaining our non-GAAP EPS guidance, driven by strong cost savings delivery and disciplined adjustments to our planned advertising investments. We do not hedge commodities and have updated our cost assumptions for freight and aluminum to reflect the current pricing environment. We are closely watching market cost changes and we'll update EPS outlook as we move through the year if commodity inflations continue to increase.

Our updated gross margin guidance of 48.5% to 50% reflects tailwinds from positive pricing, favorable product mix, productivity savings and lower shortfall fees with headwinds from tariffs and commodity inflation.

As a reminder, the majority of our freight expense is booked in advertising, promotional and selling expenses. Our 2026 guidance continues to reflect the full year tariff cost estimate of $20 million to $30 million versus a partial year in 2025 of $11 million. These tariff cost estimates are based upon the tariffs that we are currently being charged by our suppliers and that we expect to continue going forward.

As Jim noted, we've updated our outlook for advertising, promotional and selling expenses and now expect them to be flat to up $20 million versus the prior year compared to our previous expectation of an increase of $20 million and $40 million. This amount does not include any changes in freight costs for the shipment of products to our distributors. We may choose to spend at a lower end of our range, depending on the commodities and energy cost environment and the returns we are seeing on our investments. We estimate our full year 2026 non-GAAP effective tax rate to be approximately 29% to 30%, with non-GAAP EPS of $8.50 to $10.50.

As you model out the year, please keep in mind the following factors. In 2025, we implemented supply chain improvements that enable more consistent distributor inventory levels. The impact of this change on prior year quarterly shipment flows combined with our expected timing of shipments to meet our customer demands in 2026 will affect the quarterly phasing of shipments in the second half of the year. We currently expect shipments in the third quarter to decline low to mid-single digits followed by a modest shipment growth in the fourth quarter.

Due to the typical seasonality of our business, we expect the fourth quarter to have the lowest absolute gross margin over the year. However, year-over-year gross margin rate improvement is expected to be the most meaningful in the fourth quarter, driven by lower shortfall fees and volume performance. We typically expense the majority of our shortfall fees in the fourth quarter. The timing of this benefit, together with the fact that the fourth quarter is smaller dollar quarter has an outsized favorable impact on the gross margin rate.

Advertising investment levels are expected to decline year-over-year in the fourth quarter as we've reduced investment levels in Truly and we are lapping high investment levels in the fourth quarter of 2025 which included a meaningful production costs associated with preparation for 2026 program.

Turning to capital allocation. We ended the quarter with a cash balance of $266 million and $150 million of availability in our credit line. These balances together with our projected future operating cash flows enable us to maintain operating investments in our business and cash returns to shareholders as well as the potential litigation-related payments. We expect capital expenditures of between $60 million and $80 million in 2026, a reduction from our previous estimate of between $70 million and $90 million. These investments will be primarily related to our own breweries to build capabilities, improve efficiencies and support innovations. We will continue to be disciplined in our capital spending as we monitor the dynamic industry environment over the long term.

During the 26-week period ended June 27, 2026 in the period from June 29, 2026, through July 17, 2026, we repurchased shares in the amount of $48.5 million and $5.6 million. As of July 18, 2026, we had approximately $174 million remaining on the $1.6 billion share repurchase authorization.

This concludes our prepared remarks, and now we'll open the line for questions.

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

So maybe, Jim, to start, I'd love to get your perspective on the volatility that we've seen in the industry. Obviously, gas prices had an impact in May. You've seen a bit improvement in June, but you mentioned also some of the events. Like just a big picture level, what are your expectation as you think about the balance of the summer and the balance of the year? Any signs of underlying improvement in July that give you some more optimism at the industry level? Just love to hear your thoughts on the broader environment.

Sure. To me, all alcoholic beverages are under some pressure. Beer is certainly in that category. We're seeing so far this year, basically traditional beer being down 2%, maybe 3%, depending on which data you're looking at. Beyond beer doing better, again, depending on the data, maybe down 1%, maybe flat. And then with the bright spot, which is especially relevant to us of RTD spirits like Sun Cruiser. So -- and I think the big picture, we've seen some improvement in things that drove the category down 4% last year. So I don't think that will be repeated this year. We've seen less pressure on the Hispanic community, the sort of drumbeat of health issues, beer causes cancer. That's been a little bit lessened with the new dietary guidelines. Hemp is still there and will be depending on what happens legislatively. It may go away, and I think most people are betting that's going to happen in the middle of November, though there's some kind of rescue efforts, and it's a very volatile environment. So the fundamental pressures are less, but they're still there.

And what we've seen starting early in the -- maybe late in the first quarter, early in the second quarter this year is just the economic pressure resulting from events in the Middle East and the loss of discretionary income, people's wages this year have not kept up with inflation, which means it has an amplified impact on discretionary income. And that has offset some of the macro trends. How long those economic pressures are going to be around. We don't know. I think a lot of people are kind of assuming that they'll lessen before election day, but that's just anybody's guess. So bottom line, there may be 1% or 2% chronic long-term downward pressure on per capita consumption, somewhat offset by continuing premiumization. Does that help?

Great. That's helpful. That's helpful. And then maybe one follow-up for Diego. You mentioned that on shipments and depletions, you're tracking towards the lower end of the range, closer to the mid-single for the year. Does that imply also towards the lower end on EPS? Or should we think margin, there's an opportunity to offset some of the pressure on top line?

Yes. Thank you for the question. Just to clarify, I think my comment is if current trends continue, yes, and top line will be in the lower end. Not necessarily the same thing on EPS, and that's why we took our guidance slightly up on gross margin. I think we continue to deliver our savings. And we have the ability to flex some of the things like our investments in the back end of the year. So I would say those are a little bit -- yes, they're related, but they're a little bit independent guidances.

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

Great. Maybe just some perspective on kind of the World Cup, 250th Anniversary of United States. Just heading into the year, there was a lot of optimism from the industry around kind of the uptick in beer volume that these events could provide. So just maybe love some perspective maybe how it all played out relative to your expectations? At least in the tracked data, it doesn't seem like there was a big uptick, maybe just in perspective in terms of what you saw on-premise, which Jim, you kind of alluded to. So maybe I'll just start there.

And then the second question just would be -- it's more of a housekeeping. Just kind of the cadence of the shipments and depletions versus the back half of the year. Maybe what are you assuming from a category perspective? And is the fourth quarter improvement simply just kind of the cadence of shipments and what you're kind of lapping.

Sure. I'll take the first half of that, Peter, and then hand it off to Diego. In terms of the big events of the summer, World Cup and America 250, I think there was a fair bit of optimism and that was justified in the piece of the business that was affected by those events. I mean take the World Cup. And in Boston, on-premise, we saw tremendous numbers like 30% increase. So that's very exciting. But when you step back, you got to remember, for us, on-premise is 12% of our business. So that's exciting, but it doesn't really affect the other 88% of our business. And in terms of the World Cup, it was affected, I think, 11 major metros in the U.S. that were order of magnitude maybe 30% of the U.S. volume. So was a really significant event for on-premise in the 11 host cities.

Now that piece is, what, 12% of 30%. So you've got 3.6%. And let's say that happened over, I don't know, 6 weeks, so 1/8th of the year. So when you do the arithmetic on it, you are looking at less than 0.5% of the annual business. And if that's up 30%, that's exciting and nice for a while, but it's not global across the whole beer business. And in fact, the off-premise numbers for those 6 weeks were not particularly exciting. They were down. So I think it had a big impact in a small part of the year and a small part of the total business. And I think that was roughly true for America 250. It was a big weekend. For us, it fell more in Q3 than Q2. So it's not in the Q2 numbers. Our Sam Adams trends were better during the last 4 weeks. So it did have a significant impact on a small part of the business.

And the second part, I'll take the second part of the question. So within that, your first question is what are we assuming. As I mentioned before, if we keep our current trends, we'll be in the lower end of our guidance. So we don't want to be in the lower end of our guidance. We want to improve. So we are expecting our relative performance to improve and some improvement in the category, but that is not the key driver of the shipment component. The key driver of the shipment component between Q3 and Q4 and the reason Q4 is a little better is we're lapping the shipments from prior year when we were installing our automated replenishment system. We have easier Twisted Tea comps in the second half. We also have innovation that we're launching this year that will help on the back end, which is Sinless and LYTT and a little bit more international volume in H2. So yes, there's a little bit of -- the better the depletions do, obviously, the better the shipments do. But between Q3 and Q4, it's more -- those are more of the items that are driving the Q4 uptick in shipments.

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

Great. Jim, can you talk a bit about how you're thinking about Sun Cruiser growth in the second half as you cycle the national distribution expansion, which I guess, went in place largely before the summer of last year? And then can you talk a bit about sort of the initiatives that you're thinking that you have on tap for next year for Sun Cruiser to sort of keep the growth going in year 3 or year 2.5?

It's a good question. so far this year for Sun Cruiser, it's up triple digits with that rate deteriorating slowly over the course of the year. It's still up not that far off of triple digits for the last 13 weeks, it's basically at triple digits. But we do expect that will come down. Sun Cruiser is something that's not captured in the syndicated data. So it's much bigger than the syndicated data indicates. It's very strong on-premise, which we think indicates fundamental brand strength.

And the majority of it is sold in independent accounts, many of whom are not tracked. So we see continued upside for it. We will continue to invest against Sun Cruiser. It has both -- it's got linear TV behind it. It's got a digital, social, YouTube advertising behind it, and we will continue to invest at a high level. The reductions that we made, we mentioned in the earnings release are not particularly affecting Sun Cruiser. We are continuing to feed the growth. I think 2027. There will be some downshifting because this year, we got into a lot of chains. In 2025, we really came to the -- we had to get the distribution sold in, in the summer and fall of 2024, and we just weren't in a position to do that. So that but we got a lot more distribution from the chains based on 2025 presentations, and that manifested itself from like February till May with the resets.

We don't see such a big opportunity in 2027. I would certainly anticipate well into the double digits next year. And one of the ways I look at it is what is our volume between Twisted Tea and Sun Cruiser. And essentially, the volume this year that we've lost with Twisted Tea, we have slightly more than offset with Sun Cruiser and Sun Cruiser is a little over 25%, maybe closer to 30% higher revenue per case than Twisted Tea. So it is revenue accretive as well as margin accretive.

And then just in terms of a follow-up, you've tried a lot on a lot of different things on Twisted over the past 18 months from marketing to some extensions on the Light and the extreme side to some of the pricing and price pack architecture stuff that you've been doing. It doesn't really seem to be moving the needle in the environment of certainly a lot of pressures outside your control. So I guess what are you thinking about or how are you thinking about the playbook for improving Twisted from here? Pricing doesn't seem to be doing a lot in terms of stimulating volumes on margins. So I guess what are kind of some of the things on tap for the second half there?

Yes. One big element here is we believe that a lot of the loss volume out of Twisted Tea went into the RTD spirits-based hard tea, particularly Sun Cruiser and Surfside. So as those slow down, we anticipate that means a slowing of the loss of drinkers of Twisted Tea that has gone into the spirits-based hard teas like Sun Cruiser and Surfside. So as that slows down, I think it will relieve some of the pressure on Twisted Tea. We have had some success with getting the pricing fixed and particularly in the markets where it really just got way higher than it should where in markets where a 12 package Twisted Tea was more expensive than a 12-pack of Stella, for example, so in those markets, and there haven't been that many of them, we have seen trends turn from negative to positive, particularly on the 12 packs.

Our singles business is -- which is our second biggest package is pretty strong. And the volume that we're getting, we're growing with the Twisted Tea Extreme and Twisted Tea Light. Those are actually growth. So we have some significant pockets of growth within Twisted Tea, which indicates to me that there is -- the brand health is pretty good. The singles volume is pretty close to flat. And next year, again, we probably will be very modest in price increases on the 12-pack. So try to stabilize that and reduce the times where we just got out -- where the pricing just got way above what the brand has historically commanded. So that's -- those are the things I would see for the back half of the year. We do believe our advertising is good. We haven't changed the ad campaign, and we're still continuing to advertise at the higher levels that we put in place in 2025.

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

I guess maybe I had a quick question on your guidance. You talked about, I guess, pointing to the low end of your depletion and shipment guidance for the full year. And then your depletions were down 5% year-to-date through last week. So I guess I'd love to hear from you how big of a risk do you see for your depletions to possibly decrease further in the next several months, especially considering the incremental $18 million in advertising spend during Q2, I'm not sure it necessarily drove the improvements you were looking for. So -- and then now you're planning on, I guess, pulling back on spend or don't expect any incremental spend in the back half. So just trying to reconcile that.

Yes. So look, we can't control what the market will do. We've seen some improvements in the last couple of weeks that we think will help the market and now will also help the company. Sun Cruiser continues to drive very strong performance. We've seen some improvement in reaction to our Twisted Tea promotions and price adjustments. We have strong partnerships coming up in the back end of the year. So all of those pieces tell us that there is an opportunity for improvement.

Now that being said, if current trend continues, we are on the low end, and that's why we've kind of laid it out that piece. But we also have 2 big innovations that we're really happy with, with LYTT and Sinless coming in the back end of the year. There's a couple of other things we haven't announced that we're working on. So if you put all those pieces together, I think we feel comfortable where we are today. Now if the market were to improve significantly or deteriorate significantly, we would have to make that correction. But at this point, I think we're comfortable with where we are, which is -- this is our guidance. And yes, we can improve, but we don't believe there's right now, a big risk of that deteriorating.

And I would add, for we now have better metrics on the return on our advertising investment by brand and by media channel, if you will. So the cuts that we made were to the low-performing media, the ones where we just weren't seeing any significant sales response, which primarily Truly to be direct about it. So it was almost $20 million we cut but it was almost all from basically nonperforming advertising.

Yes. And finally, I would add in the back end of the year, our AP&S is still planned to be up year-on-year. We might not take all the investment that we thought it to be any other year. But the back end of the year will still be an increase versus the previous year in spend in marketing and sales.

Okay. And I was actually just going to ask about that. So that's helpful to understand. I'll pass it on.

[Operator Instructions] And the next question will come from the line of Bill Kirk with ROTH Partners.

Jim, you mentioned when you were outlining innovation pipeline, you obviously mentioned Sinless and you mentioned LYTT. I guess, first, what do you need to see in those products to decide to take them into more markets. And then in the, call it, Vodka segments, I believe you have some plans and some labels out there for our products to play in that space. Is there anything you're willing to share on the innovation pipeline in that subsegment?

Sure. I'll start with Sinless. We're in about 30 states. It's -- and in most of those states, it is a whole new category. We are the first mover in those states. Carbliss has been in the upper Midwest for many years. We're not focusing Sinless on those states. Carbliss has established, I think, a very nice market position, but we're more -- we think we'll get more volume from opening new territory, but it is a new category in almost all of those 30 states. So we believe it will take some development. But so far, we've seen enough traction to be happy with opening 30 states on it. We don't -- we're not going to expand it until we see more. So that wouldn't be until next year to add to those 30 states, and it might not be until the second half of next year.

With LYTT, it's just way too early to tell. Launching something in June or July, as you know, in this business, the distributors have already set their programs, and they are just busy capitalizing on the summer volume. So I think in August, September, October, we will begin to see more attention from our wholesalers. We view LYTT as a hand sell type of product. It's not a chain product. So -- and it's -- you can't merchandise it the way you merchandise pretty much everything else in a liquor store. It needs special racks. It needs inserts into the coolers, so that you can hang the bottles. They won't -- you can't just feed them down the gravity racks. So it's a lot of sort of hand-to-hand combat to get it in as easy, but you've got to make it easy for a consumer to buy it. So it needs to be in the cooler and then you need to have some sort of short displays in 2 or 3 places in the store. The retailers are supportive of that because the profit is really high. So -- and we're getting wholesaler support. The margins are 2 or 3x what you'd get even from a higher end beer. So I think that's, again, a slow burn. And we'll know more. We won't -- it will be early next year before I think we're going to see a reliable read on either Sinless or LYTT.

Excellent. And if I could follow up on one other thing you said. You mentioned the intoxicating hemp ban or it's the looming ban there. You have experience in Canada with Cannabis. So how do you think about the opportunity in the U.S. for similar products? And would you want intoxicating hemp beverages to see a carve-out from the looming ban?

I'll give you the first part of it, which is we have had a THC business in Canada for maybe 5 or 6 years. It's small because beverages are only, I don't know, maybe 5% of the THC delivery in Canada, but we've got a strong position in that with TeaPot. And so we have a product and a brand and experience in Canada, where we've been reasonably successful within this small niche in the Canadian THC business. So we are kind of locked and loaded, and we are waiting for the federal government to tell us, is this stuff legal or not? And if it's legal, we will, to the extent wholesalers and retailers want a product from us and are willing to support it. And I think we can probably check those boxes. We do see some opportunity with TeaPot in the U.S.

In terms of support it, don't support it, we just make beer. I'm not here to set federal policy on THC. We will wait to see what the government tells us is legal or not legal to do and respond accordingly.

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

Well, thanks, everybody, for joining us. And what I hope is a beautiful summer day wherever you are. So one thing we did learn from the World Cup is that, there's a lot of joy in going out and drinking some alcohol and having the social lubricant effect. So I will remind you in this America 250 year, to paraphrase Samuel Adams' drinking buddy, Benjamin Franklin, beer is the best proof we have that God loves us and wants us to be happy. So cheers.

Thank you. This concludes today's conference. You may disconnect your lines at this time. And we thank you for your participation.

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

Thank you. It's been a pleasure.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The headwinds are shrinking.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

That's pre-gaming.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

It stands out.

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

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

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

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

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

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

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

Thank you for having me.

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

I believe 20.

I was thinking maybe more, but yes.

You guys Goldman took us public in 1996.

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

Whenever you ask, we've showed up.

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

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

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

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

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

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

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

I know.

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

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

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

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

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

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

Very high flavor intensity.

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

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

It is.

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

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

These are for your children.

Oh yes. Thank you.

No, it's not for you, Bonnie.

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

Let's see how your kids like it.

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

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

What you can control.

Yes, exactly.

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

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

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

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

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

Yes. Almost 4.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Yes.

Right?

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

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

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

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

For's Twisted, right?

For Twisted.

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

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

Yes, that's right.

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

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

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

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

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

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

Yes. Total company is up. Truly is losing.

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

Pleasantly surprised that we were up.

Okay. All right.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

We don't hedge.

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

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

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

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

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

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

Always a pleasure. You always have good questions.

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

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

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

Before we discuss our business, I'll start with our disclaimer. As we state in our earnings release, some of the information we discuss and that may come up on this call reflect the company's or management's expectations or predictions of the future. Such predictions are forward-looking statements. It's important to note that the company's actual results could differ materially from those projected in these forward-looking statements.

Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in the company's most recent 10-Q and 10-K. The company does not undertake to publicly update forward-looking statements, whether as a result of new information, future events or otherwise.

I will now pass over to Jim to share his comments.

Thanks, Mike. I'll begin my remarks this afternoon with an overview of our strategy and operating results before turning the call over to Diego to discuss our first quarter financial results and our financial outlook for the remainder of 2026. Immediately following Diego's comments, we will open the line for questions.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

As I mentioned earlier, we may choose to spend at the lower end of the range, depending on the commodity and energy cost environment. We are estimating our full year 2026 non-GAAP effective tax rate to be approximately 29% to 30%. As you model out the year, please keep in mind the following factors. Our business is impacted by seasonal volume changes with the first quarter and the fourth quarter being lower absolute volume quarters, in the fourth quarter, typically our lowest absolute gross margin rate of the year.

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

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

During the full year 2026, we estimate shortfall fees and noncash expenses of third-party productions prepayments in total will negatively impact gross margin at 40 to 60 basis points. We expect year-over-year gross margin rate improvements to be the most meaningful in the fourth quarter. We typically expense the majority of our shortfall fees in the fourth quarter. We expect lower shortfall fees in 2026 and the timing of this benefit, together with the fact that the fourth quarter is a smaller dollar quarter has an outsized favorable impact on the gross margin rate. Incremental advertising investment is expected to be weighted to the second and third quarters to support the key summer selling season.

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

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

And now we'll open the line for questions.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Great. Thanks very much for the perspective, both.

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

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

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

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

Thank you. Good afternoon, and welcome. This is Mike Andrews, Associate General Counsel and Corporate Secretary of The Boston Beer Company. I'm pleased to kick off our 2025 Fourth Quarter Earnings Call. Joining the call from Boston Beer are Jim Koch, Founder, CEO and Chairman; and Diego Reynoso, our CFO.

Before we discuss our business, I'll start with our disclaimer. As we state in our earnings release, some of the information we discuss and that may come up on this call reflects the company's or management's expectations or predictions of the future. Such predictions are forward-looking statements. It's important to note that the company's actual results could differ materially from those projected in these forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in the company's most recent 10-Q and 10-K. The company does not undertake to publicly update forward-looking statements, whether as a result of new information, future events or otherwise.

I will now pass it over to Jim to share his comments.

Thanks, Mike. I'll begin my remarks this afternoon with an overview of our strategy and operating results before turning the call over to Diego to discuss our supply chain, fourth quarter results and 2026 financial outlook. Immediately following Diego's comments, we'll open the line for questions.

As I look back on 2025, I'm pleased with how our operational discipline enabled us to deliver on our financial commitments in a challenging industry volume environment. Our 2025 depletions were down 4%, in line with the overall beer industry. Our disciplined Fewer Things Better Innovation approach drove a successful national launch of Sun Cruiser, which is both revenue and margin accretive. Efficiency improvements across our breweries and our productivity agenda drove 410 basis points of gross margin expansion allowing us to increase brand investment meaningfully. Our business continued to be highly cash generative with 2025 free cash flow of $216 million or $19.72 per share, which allowed us to repurchase $200 million in shares in 2025.

Looking ahead into 2026, we expect industry volume headwinds to continue. As I previously discussed, consumers are tightly managing their budgets given economic uncertainty and there is pressure on the Hispanic consumer. Moderation trends are also having an impact on demand. And in certain states, hemp-derived beverages are competing for shelf space and drinkers despite recent federal regulations, which restrict their availability after November 2026.

We continue to see long-term growth opportunities in the Beyond Beer category, which is 85% of our total company volume and where we are the industry's second largest player. From 2019 to 2025, driven by growth in Hard Tea and Hard Seltzer, the Beyond Beer category has doubled in volume and now represents 9% of total U.S. alcohol consumption. We expect that Beyond Beer's volume and share of the category will continue to grow as the drinker is younger and more diverse than traditional beer. We believe beer companies are the best positioned to service the beyond beer category as they have the production capabilities to produce these beverages and beer wholesalers have the infrastructure to service them.

The Boston Beer Company's innovation capabilities, manufacturing infrastructure, best-in-class sales force and strong wholesaler relations provide a meaningful competitive advantage. This is reflected in the performance of Sun Cruiser, which was among the top volume gainers in RTD Spirits in 2025 and quickly scaled into a top 5 RTD Spirits brand. However, we have seen greater competition in Beyond Beer as consumers seek variety and more players enter the category combined with economic uncertainty, this has been a headwind for our volume performance. We continue to believe that the macroeconomic environment is a significant driver of weaker alcohol consumption trends and the deceleration in our leading brand, Twisted Tea's performance.

Our 2026 volume outlook of flat to down mid-single digits assumes that macroeconomic headwinds persist. We are highly focused on controlling what we can, maintaining or growing market share and investing behind our brands to position us well for when the environment improves. Our priorities for the year will be supporting our full portfolio of brands through advertising and local in-market execution investments developing margin-accretive innovation and driving margin improvement through productivity. We continue to believe that sustained brand investment is the right strategy to drive volume improvement over time.

Building on our initiatives we began in 2025, we will continue reinvesting in our brands with new creative, additional compelling partnerships, activation around key events, including the World Cup and investing alongside our wholesalers in local market activation. We are partnering with some of our wholesalers to increase local brand billing capabilities and improve execution on the shelf. This includes shared development of grassroots marketing plans and on-premise promotions, sampling local radio and billboard advertising. With respect to innovation, we continue to prioritize high-growth margin accretive opportunities.

In 2026, we are focused on scaling Sun Cruiser in its second year of national availability while expanding the distribution of Sinless vodka cocktails to additional states following a successful test launch in 2025. Sinless is a very lightly carbonated vodka-based RTD cocktail with 0 sugar, 0 carbs and less than 100 calories per can. It is positioned as guilty of flavor free of sugar and carbs and targets incremental consumer segments that complement our core brand portfolio. We've made strong progress across our margin enhancement initiatives, which Diego will discuss further in his remarks. This has been a multiyear effort across the organization, and I'm pleased that we delivered margin improvement faster than we expected in this difficult operating environment.

In addition to margin improvement, these initiatives have enabled us to achieve record high customer service levels in 2025 and lower our inventory days on hand. Our efforts across procurement savings, brewery efficiency and waste and network optimization will continue in 2026, and we're also in the early stages of adding revenue management capabilities to provide further long-term margin benefit.

I'll now provide an overview of our brand performance and plans for 2026. In terms of depletions, we're encouraged by the strong consumer reception to Sun Cruiser, a third consecutive quarter of growth in Angry Orchard and Dogfish Head and positive drinker reception to our higher ABV offerings. Our larger brands continue to be impacted by the headwinds I discussed earlier, particularly Twisted Tea that over-indexes with lower-income households and Hispanic drinkers.

After starting the 2025 year with growth, Twisted Tea was down 6% in dollar sales in measured off-premise channels for the full year 2025 in an F&B category that was down 4%. The brand gained distribution in 2025, but declined in velocities, driven by category headwinds, a decline in features and displays and some interaction with Sun Cruiser and its competitors. Single-serve continues to perform much better than large packs, which tells us that consumer interest in the brand remains strong. We are working hard to ensure Twisted Tea maintains its fair share of display space. Numerator data shows approximately 20% of the drop in Twisted Tea is due to the Vodka Tea category, which includes Sun Cruiser. To the extent that Sun Cruiser sources volume from Twisted Tea, this is revenue and margin accretive for us.

Despite some headwinds, Twisted Tea is the #10 brand family in the overall beer market and remains the clear leader in malt-based hard tea with over 85% market share. We're encouraged by the performance of Twisted Tea Light and the high high ABV Twisted Tea Extreme, which have seen growth in velocities and have room to gain additional shelf space. Our 2026 plans include increased advertising investment with strong creative and local activation, adding new partnerships and launching new pack sizes and Twisted Tea Extreme flavor innovation.

Twisted Tea has unique and clear brand voice and attitude, and our advertising plans include continuing to run our high-performing key drop national ads across many category entry points, including sports, ski slopes, beaches, lake and pool complemented with in-store display programs. We'll also be adding always-on media for Twisted Tea Light and Twisted Tea Extreme.

In 2026, we are expanding our partnerships that are most relevant to our drinkers such as Barstool's, [ Pardon My Cake ], the #1 sports podcast, [ DraftKings ], WWE Wrestling, Country Music's [ Chase Matthew ], NASCAR, AMA Supercross and Motor Cross Racing and [ Realtree Camo ]. Lastly, we continue to increase our investment in Hispanic and Spanish language brand content, including new media and digital content to widen the brand's appeal. With respect to pack sizes, we're expanding the rollout of our entry-level price point 4-pack, launching a 16-ounce can for C-stores to add a lower price point in addition to the current 24-ounce can and adding a 24 can value pack.

Building on the success of our high ABV offerings, we've added a Twisted Tea Extreme variety pack that was launched in early 2026. Twisted Tea Extreme Lemon and Blue Raz are the #1 and #2 largest FMB growth SKUs in convenience and to further capitalize on the high ABV trend, we'll be launching new extreme singles flavors, Long Island Ice Tea, Fruit Punch and Tropical Punch.

Our goal for 2026 is to improve share and grow volume in the overall Hard Tea category through showing progress in Twisted Tea and growing Sun Cruiser. We're very excited about the outlook for Sun Cruiser, which grew volumes over 300% from 2024 to 2025 and is expected to make a strong contribution to our hard tea portfolio this year. Sun Cruiser is built in the on-premise channel, where in some markets, it represents over 40% of the brand's volume. We believe this is the right way to drive trial and build the brand and are pleased that Sun Cruiser is the leading RTD Spirits and Lemonade brand in on-premise bars and restaurants according to Nielsen.

Bar tenders have been and continue to be a very important influer group for Sun Cruiser. Sun Cruiser continues to expand its off-premise distribution, but given its strong presence in on-premise and independents, measured off-premise data still only reflects a portion of the brand's total volume. Advertising support for Sun Cruiser includes building an organic following through social media as well as more traditional content around the Let The Good Times Cruise media campaign, which includes television, paid social and digital advertising and key influencers. We'll be present where Sun Cruiser fits into our drinkers' lifestyles across sports and music. Sun Cruiser will have committed media presence in MLB, the NFL and the sponsorship of the AEG music concert series. And in 2026, we'll add exciting golf and ski partnerships.

Golf programming includes [ Turner ] activations, golf media influencers and experiential marketing programs as well as wholesaler incentives. Additionally, Sun Cruiser is a key sponsor of [ Keton Gravity ] ski film festival along with ski resort sponsorships and samplings that help reinforce its position as a brand for all 4 seasons.

From a product innovation perspective, we intend to keep a disciplined number of tea and lemonade styles while continuing to expand package options. In the first quarter of 2026, we added new single-serve 12.2-ounce packages and new Tea and Lemonade Sampler 12 packs, which we expect will help expand drinker occasions and drive further growth in 2026.

Turning to Hard Seltzer. The overall Hard seltzer category declined 5% in dollars in measured off-premise channels for the full year 2025 as consumer preferences continue to shift towards more premium RTD Spirits-based beverages. Our brand strategy for 2026 is to invest in new equity building creative, capitalize on the World Cup, launch new pack sizes and varieties and continue to expand truly on ruling. Our advertising plans include leveraging our sponsorships of U.S. soccer as its Beyond Beer sponsor with targeted World Cup activation, along with our new creative platform that we recently launched called Make Your dreams Come Truly. The 2026 World Cup, which will take place in North America for the first time in more than 3 decades, includes 11 cities, over 100 matches and 4 billion global viewers.

Our Truly World Cup plans, which have been well received by major retailers include driving visibility and displays and launching a U.S. soccer collector set of singles along with the World Cup themed rotator variety 12 pack. In addition, we have significant local investments in the 11 host cities, including local media and retail program. High ABV offerings continue to be a bright spot in Hard Seltzer and Truly Unruly has grown to a 3% volume share of Hard Seltzer. Based upon drinker demand, we added a new Truly Unruly variety 24 pack in 2026.

In Cider, Angry Orchard has returned to growth behind a combination of new positioning and creative and a strong Halloween program, which included Friday, the 13th movie-themed advertising, promotions, packaging and displays. Importantly, Angry Orchard's success comes from driving growth of the core offering. Our beer brands, Samuel Adams and Dogfish Head have combined to hold share in a challenging craft beer category. During the first quarter, we are excited that Samuel Adams will begin programs and promotions as well as launch limited edition packaging to help celebrate America's 250th anniversary. For Dogfish Head, we're particularly pleased that Dogfish Head's Grateful Dead Beer collaboration and the brand's Minute series IPAs have helped fuel Dogfish Head's return to growth.

In summary, I'd like to thank our Boston Beer team and our distributors and retailers for their continued support. I'm encouraged by the progress we made in 2025 amid a dynamic environment. While consumers remain cautious and the near-term outlook is still challenging, I'm confident in our operating plans for 2026. We're continuing to invest in our brands. We're building a strong innovation pipeline, and we're highly focused on our multiyear productivity initiatives. Importantly, we're focused on controlling what we can control. We're executing in the marketplace to improve share trends and expand our margins. These efforts, along with our innovation capabilities, strong sales force and unique culture position us well for a successful long-term future.

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

Thank you, Jim. Good afternoon, everyone. 2025 was a year of continued progress for Boston Beer in a dynamic industry environment. Disciplined execution and supply chain efficiencies enabled us to meet or exceed our financial commitments, including very strong gross margin outperformance. This margin upside enabled increased investment in advertising support for all our brands while still delivering EPS ahead of our guidance.

Cash conversion was strong with $270 million in operating cash flow, and we ended the year with $223 million in cash and no debt. 2025 revenue was down 2.4% year-over-year, driven by shipments down 4.7% and 2.3 percentage points of positive price and mix. Price realization for the year was within our prior guidance of 1% to 2%, with the remainder being positive mix. We delivered 410 basis points of gross margin expansion with gross margin reaching 48.5%, inclusive of $10.1 million in tariff costs. Excluding contractual prepayments and shortfall fees, the gross margin was 50%. This is the highest full year gross margin rate since 2019.

EPS of $9.89 was up 4.7% year-over-year, excluding prior year impairment and onetime contract settlement charges. This EPS growth was inclusive of a [ $61 ] million increase in advertising spend, while general and administrative expenses were flat.

Turning to the fourth quarter results. Depletions decreased 6% and shipments decreased 7.5% year-over-year, primarily driven by declines in our Twisted Tea, Truly Hard Seltzer and Sam Adams brands that were partially offset by growth in the Sun Cruiser, Angry Orchard and Dogfish Head brands. As we expected, volumes slowed sequentially in the fourth quarter from the third quarter. Twisted Tea volumes continue to be soft and Sun Cruiser continues to show strength, but at a lower contribution in the fourth quarter due to seasonality. We believe distributor inventory of 4 weeks on hand as of December 27, 2025, is an appropriate level for each of our brands.

Revenue for the quarter decreased 4.1% due to lower volumes, partially offset by increased pricing and favorable product mix. Gross margin of 43.5% increased 360 basis points year-over-year. Gross margin primarily benefited from improved brewery efficiencies, procurement savings, price increases and product mix as well as lower inventory obsolescence. These factors were partially offset by inflationary and tariff costs and increased in short volume.

Advertising, promotional and selling expenses increased $8.4 million or 6.0% year-over-year, primarily due to incremental brand, media and local marketing investments of $8.0 million, with the remainder driven by higher freight costs. General and administrative expenses for the fourth quarter increased $4.5 million or 9.4% year-over-year, primarily due to increased salaries and benefits costs. We are continuing to execute on our 3 buckets of multiyear savings projects ahead of our initial timing expectations. We saw significant benefit in 2025 and have more savings to come in 2026, albeit at a lower rate.

To be specific, in brewery performance, we continue to see improvements in OE driven by process improvements, which helped to increase our internal production capacity. In the fourth quarter, we produced 99% of our domestic volumes internally compared to 85% in the fourth quarter of last year. Full year 2025 domestic internal production increased to 86% of our volume compared to 74% last year. In 2026, we expect to continue increasing the rate of in-sourced production, but at a smaller year-over-year benefit due to achieving a high in-source percentage in 2025.

In procurement savings, our fourth quarter results benefited from lower negotiated pricing on certain packaging and ingredients. As discussed previously, procurement savings initiatives are the area where we have made the most progress over the last 2 years. While we expect some continued benefits in 2026, the impact is expected to be moderate.

In waste and network optimization, we're continuing to enhance the customer ordering and trade inventory management system that we implemented last year. These efforts helped us achieve record high customer service levels that resulted in lower inventories internally and which helped improve our cash flow. In addition, we reduced obsolete inventory 71% in the fourth quarter and 48% for the full year. In addition to our 3 buckets of savings, we are beginning to add revenue management capabilities as part of our margin agenda. These efforts are in early stages in 2026 with a more meaningful contribution expected in 2027.

Turning to our 2026 guidance. Our fiscal week depletion tons for the first 8 weeks of 2026 have declined 3% from 2025. We are currently planning 2026 depletions shipments to be flat to down mid-single digits. Where we land within this range will be impacted by the pace of improvement in the overall consumer environment and the time it takes for our brand investment initiatives to drive market share improvement. We expect price increases of between 1% and 2% and some additional benefit mix.

Full year 2026 reported gross margins are expected to be between 48% and 50%. Our outlook expects that we cover commodities and non-tariff-related inflation with pricing and that the lower shortfall fees and prepayment amortization growth broadly offset increased tariff costs. 2026 reflects a full year tariff cost estimate of $20 million to $30 million versus a partial year in 2025 of $11 million. These tariff cost estimates are based upon tariffs in place prior to the February 2026 Supreme Court ruling. We will continue to drive our savings initiatives to help buffer any volume deleverage. Our long-term gross margin target continues to be in the high 40s with any individual year dependent upon volumes, commodity inflation and tariff environment.

As Jim discussed earlier, we expect to increase our advertising levels to support our brands. The investments in advertising, promotional and selling expenses are expected to increase between [ $20 million ] and $40 million. This does not include any changes in freight costs for the shipment of products to our distributors. We estimate our full year 2026 effective tax rate to be approximately 29% to 30%. We are currently targeting a full year 2026 earnings per diluted share of between $8.50 and $11. As you model out the year, please keep in mind the following factors. Our business is impacted by seasonal volume changes with the first quarter and the fourth quarter being lower absolute volume quarters and the fourth quarter typically our lowest absolute gross margin rate of the year.

We have difficult shipment comparisons in the first quarter and the first half of the year as we shipped ahead of depletions in 2025 to build wholesale inventory of our product innovation, which included Sun Cruiser and Truly Unruly. We currently expect the first quarter and first half shipments to be down towards the lower end of our full year volume guidance, but with better shipment performance later in the year.

During full year 2026, we estimate shortfall fees and noncash expenses of third-party production prepayments in total will negatively impact our gross margins by 40 to 60 basis points. We expect year-over-year gross margin rate improvement to be most meaningful in the fourth quarter. We typically expense the majority of our shortfall fees in the fourth quarter. We expect lower shortfall fees in 2026 and the timing of this benefit, together with the fact that the fourth quarter is a smaller dollar quarter has an outsized favorable impact on the gross margin rate. Incremental advertising investment is expected to be weighted to the second and third quarters to support the key summer selling season.

Turning to capital allocation. We ended the quarter with a cash balance of $223 million and an unused credit line of $150 million, which provides us with ample flexibility to continue to invest in our base business, fund future growth initiatives and return cash to shareholders through our share buyback program.

For the full year 2026, we expect capital expenditures of between $70 million and $90 million. These investments will be primarily related to our own breweries to build capabilities and to improve efficiency. We will continue to be disciplined in our capital spending as we monitor the dynamic industry environment over the long term.

During the 52-week period ended December 27, 2025, and the period from December 29, 2025 through February 20, 2026, we repurchased shares in the amount of $200 million and $14 million, respectively, for a total of $214 million of repurchase since January 2025. As of February 20, 2026, we had approximately $215 million remaining on the $1.6 billion share repurchase authorization.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

I'll hand it off for the second part.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Thank you. Good afternoon, and welcome. This is Mike Andrews, Associate General Counsel and Corporate Secretary of the Boston Beer Company. I'm pleased to kick off our 2025 third quarter earnings call. Joining the call from Boston Beer are Jim Koch, Founder, CEO and Chairman; and Diego Reynoso, our CFO.

Before we discuss our business, I'll start with our disclaimer. As we stated in our earnings release, some of the information we discuss and that may come up on this call reflect the company's or management's expectations or predictions of the future. Such predictions are forward-looking statements. It's important to note that the company's actual results could differ materially from those projected in these forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in the company's most recent 10-Q and 10-K. The company does not undertake to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. I will now pass it over to Jim for some introductory comments.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Go ahead, Jim.

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

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

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

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

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

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

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

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

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

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

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

I could check the Qs, but thank you.

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

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

Jim, would you like to answer that question?

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

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

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

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

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

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

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

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

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

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

Jim, I will hand that over to you.

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

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

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

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