Greetings and welcome to the Boston Beer Company third quarter 2026 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is 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 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. 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 include Trailed the broader category in the third quarter with mixed performance across our portfolio. Depletions in 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, Suncruiser 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 three 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 Thank you for joining us. on increasing total portfolio shelf space while display space remains an area of opportunity as it continues to over-index to RTD Spirits. Before I review our brand performance and upcoming plans, I'd like to take a moment to welcome Alison 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-driven 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 hard tea and lemonade category, we're continuing our work to improve share turns and grow total combined volume of our two leading brands, Sun Cruiser and Twisted Tea. Sun Cruiser has become a top four spirits RTD in just over two years and continues to rank among the category's fastest growing brands in combined measured on and off-premise channels. It also continues to Thank you for joining us. and many more. 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 Cruise media 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 snowsuits 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. Twisted Tea continues to be the clear number one brand in the malt-based hard tea market, with more than 85% market share, while the next 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 targeted pricing adjustments, 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 Camo, a popular brand of camouflage clothing and outdoor gear that helps us deepen the brand's connections to outdoor drinking occasions and drive displays. There are three limited edition camo 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 in 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 teardrop ads Thank you for joining us. improve the combined performance of the two 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 number two 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 re-prioritizing 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 and Chris Bapple and Chris Imperial. Single Serve Packaging, and Celebrity Media Integration through Halloween. Turning to beer, our Samuel Adams brand, this fall we launched two new remastered vintage ads from our independent Since Forever campaign. They have tested extremely well with our consumers. We saw strong improvement in Boston Lager Velocity Trends over the Summer Driven by America 250 program. Oktoberfest season is underway, featuring the launch of the new Samuel Adams non-alcoholic Oktoberfest. Support includes a national partnership with Snyder's Pretzels, on-premise stein hoisting events, and major Oktoberfest festival activations. For our Dogfish Head brand, we continue to expand our Grateful Dead beer 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 Aid is the newest ready-to-drink cocktail from our innovation incubator. Joining the emerging Vodka Aid space, it was launched last month in four states with unique packaging, easy-to-understand flavors, 100 calories per can, and 5 ABV. Rally Dog is expanding to seven 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. Lit electric coolers, which initially launched in five states, has now expanded to an additional 18 states and will be available nationally in 2027. is 15% ABV, malt-based, and offered in six 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, Lit took home the 2026 Best New Alcoholic Beverage High ABV award Award at the annual National Association of Convenience Stores show earlier this month. Sinless Vodka Cocktails continues in test as a zero sugar, zero carb, 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've 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 Thank you for joining us. 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 Sun Cruiser and Angry Orchard brands. Distributor inventory at the end of the quarter was four weeks on hand, slightly below the four and a half 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 SunCruiser. 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 non-cash write-offs of equipment at company-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 order supplier dispute litigation expense of $1.8 million reflects post-judgment interest expense. Year-to-date pre-tax litigation expenses, including related legal fees, totaled $200.3 million. As previously announced, we intend to continue 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 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 16 cent 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 four 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 domestic volume internally compared to 89% in the third quarter of last year. For the full year of 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 three quarters of the year are behind us and our fourth quarter is a seasonably 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 2026 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 percent 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 do not hedge commodities and have updated our cost assumptions for freight 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 one 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 partial-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, at 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've 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 for 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 percent. 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 shares 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.

Thank you. Ladies and gentlemen, if you would like to ask a question, please press star 1 on your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. And due to the interest of time, we ask that each analyst limit themselves to one question and one follow-up. Thank you. One moment, please, while we poll for questions. And our first question comes from the line of Filippo Falorni with Citi. Please proceed. Hi, good afternoon, everyone.

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 called out some of the macro impacts and gas prices. How are you seeing those impacts evolving as you exit the quarter? Have you seen any 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 this easier comparison on a two-year basis? Or how are you thinking about the category evolving from here? Thank you.

It's a really good question. I wish I had a crystal ball, but I'll just give you my observations. 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 early. Thank you for joining us. Our definitions may be different from other people's definitions. We sort of define it as our addressable market, which is both beer as traditionally defined and then this fourth category of beyond beer type products. 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 beyond beer category, depending on your definition. 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, well, instead of being down 3%, it's down 4%, and beyond 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 Thank you for joining us. Thank you for joining us. 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 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 and many others. I guess, Jim, I love your perspective on the Vodka Aid category. We've seen a lot of launches there. You have Rally Dog.

How do you see this category evolve compared to Thank you. Again, I don't have a crystal ball, but my observation would be that this vodka aid category has exploded faster than

then Hard Tea, Hard Seltzer, even RTDs like Neutral and Cut Water and High Noon. All of those were around for years before they really hit everybody's radar screen and caused a land grab. Vodka Aid 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, splat, and disappeared all in a 24-month period. Hard to tell now. It feels like it's got more legs. It doesn't have the vulnerabilities that hard root beer had where it had 320 calories in 12 ounces. So 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 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. We'll have to see. 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 number two or three bet in the Vodka Aid 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 and a large sales force that can execute at retail. So there's gonna be a lot of number four, five, six, seven, eight, nine 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'll very quickly sort down to maybe four players and maybe down to two or three from there.

Great.

Thanks so much. I'll pass it on.

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

Great. Thank you. Good evening, guys. Hope you both are doing well. So I wanted to just shift to maybe profitability just in the context of, you know, the environment we've been in from a cost and volume standpoint. The gross margin performance has been impressive, and you both kind of touched on the productivity mindset, but you've benefited from mix, you know, brewer efficiencies and other factories as well. And I just asked this in the contest, it doesn't really seem like the inflationary backdrop or the volume backdrop is really shifting. So, you know, 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 kind of north of, I think you mentioned north of 95%.

Yeah, thanks, Peter. Great question. We've been on a voyage here, started around 42% margin, and over the last three 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... through what we've 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're not done for sure. We're going to keep trying to grow our margins. We'll see what 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 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%. Great.

You know what?

I'll leave it there. Thank you so much. I'll pass it on.

The next question comes from the line of Eric Serrata with Morgan Stanley. Please proceed.

Great. Thanks for the question and good afternoon, everyone. I just wanted to, Jim, get your impressions and expectations for Sun Cruiser and the spirits-based or vodka-based tea category as we look to next year and we're in year Thank you. Thank you.

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 still 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 and we are probably the leader in the T part of this Vodka, tea, and lemonade, and we believe there is growth, and we are seeing it now, stronger growth in the lemonade piece of it.

Great. And then as you, just turning to the cost side, Matt, I think that freight was something like a nine and a half, $10 million year-on-year headwinds in your APNS line in the third quarter. How are you thinking about that for the fourth quarter? Do you think this is a and many more.

We've projected out for the remainder of 2026 that it's going to continue. We used 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.

Great. Thanks so much. I'll pass it on.

The next question comes from the line of Komil Gajrawala with Jefferies. Please proceed.

Hey, everybody. I guess a couple of questions. The first is, With depletions down five, advertising flat, I feel like the history of the company has often been to accelerate advertising during more difficult times. I'm just curious, maybe it's because of Allison's arrival, it's better to throttle back until there's enough time for her to lay out her own plan, or is there something else going on with what the right level of advertising should be to try to turn overall top line around?

Yeah. Hi, Kamal. Great question. I'll start off and then hand it off to Jim. We had a big increase between 24 and 25. It was around 60 million. and we've been, you know, we're projecting flat between 25 and 26. You know, we think we're at the right level right now. There's a little timing involved with, you know, we sort of front loaded the first half of the year and have, because of the World Cup and other, you know, other timing items. So we were down in the third quarter. and we'll likely be down in the fourth quarter and that'll 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 non-performing, particularly around Trulia 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 2027, look at where our volume projections are and what we need to support our brands and invest as we see.

Yeah, 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 all have these brands and each one of them has an advertising budget. We may start to hear that way, but 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 in 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 to the campaign that we have behind Trulies, 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 Samuel Adams, 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 and I think you're right. It's going to happen. I don't know if it'll be worse than this year.

because I do suspect that there is going to be a slowdown in 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'll be the vodka AIDS, but I think those will largely take away from the high noons, the neutrals, even the Surfside and Suncruisers. So I don't see it being worse for Twisted Tea, just a different set of competitors grabbing the display space.

Got it. Thank you very much.

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

All right. Thank you. Hi, everyone. I had a quick question on Trulie. 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 skew rationalization on the brand? I guess I'm ultimately... Trying to understand, do you think truly volume can stabilize, or will you maybe manage the brand to optimize margin and cash flow?

Thanks. To answer your question directly, our approach would be to stabilize or even grow the brand. I mean, it's just too big to give up on it. You know, it's... 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 You know, skew rationalization and new taglines and stuff like that. It puts the liquid on the table. It puts, you know, the positioning, the packaging, all elements of the brand identity are basically being reassessed in an effort that, you know, we started right after the World Cup. And Allison is... was their first week, but it's one of her 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. And my point of view, you know, it's unnaturally low in market share. You generally, you know, we are what, well, A fourth or a fifth of White Claw. Usually things stabilize at a liter 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 look at everything. and we're looking at turnarounds of other brands and what they have entailed and you've got to put even the liquid itself on the table. So that's what we're asking ourselves. It's a 10-year-old category. It may be time. It hasn't been a lot of news. So our question is, is there a next generation of hard seltzer?

That's interesting. No, that's helpful. And maybe just a quick follow on that, you know, in 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, you know, maybe what it suggests about either the, you know, the growth outlook or the health of your business. Thanks.

Yeah, 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 from 2026 to 2027. We spend to optimize our breweries, to spend on innovation. We feel like we've been at this 50 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 is the major factor for the call down.

All right, thanks for that. I'll pass it on. Thank you.

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

Great. Thank you very much, 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?

Thank you. I think the lack of consolidation has come from the growth opportunities being taken by New Entrance, Smaller Entrance, or Entrance 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 Sazerac or a Gallo or a Stateside or even a Boston Beer Company. So those would Those would be hard to consolidate. ABI is not going to buy Gallo. Molson Coors is not going to merge with Sazerac, for example. I think you will see, going forward, some of these new players being bought. Many of them, as you saw with Spike Dade, That followed a pattern you see in the non-alcoholic beverage business where the entrepreneurs build the brands and grow them, but they grow them to 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 with Spiked Aid, where the brand... was sold for a very attractive return on the initial capital, and it consolidated. You saw that with Juicebox. That was built, and you knew it was eventually going to be sold. It wasn't 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 more... 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 beer industry is pretty consolidated. Thank you.

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

Thank you for taking my question. I have two, please. First, Jim, you know, 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 one to two 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? Thank you.

Yeah. 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, in the Convenience Channel. The 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 $9.99... four 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, a 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 $19.99 price point, though not universally. So that would be how I'm... and I'm seeing 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. As a result, that disproportionately strikes discretionary income. 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. If inflation is up 3.5% and beer prices are up 1.5%, that's basically, in real dollars, coming down 2%. 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. You're not going to see 200 basis points in real price decline on beer. When that will happen, I don't know. We're roughly 4% of the market. We don't have any pricing power. It's a very competitive market. We have to eat cost increases and can't pass them on because it's such a competitive market. There's nothing we can do about it. We eat them. I do believe that can't go on for the next five years. Eventually, Prices are going to have to reflect all of the cost inflation that we're seeing.

Very helpful. Thank you.

As a reminder, everyone, if you would like to ask a question, please press star 1 on your telephone keypad. And the next question comes from the line of Michael Lavery with Piper Sandler. Please proceed.

Thank you. Good evening. Just wanted to come back to some of the innovation. You talked about the vodka aids a good bit earlier, but lit at the convenience store show was very prominent and got a lot of attention just in 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 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 it truly is just because of its size. How would these fit into your thinking for how much it can offset other declines or how those pieces come together and how big of a push you'll put behind either one or both of those?

Sure. You know, basically, we're going to push what moves. So if we see, you know, and we can't predict, is something going 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, you know, looking out a year. But, you know, you can look out three weeks and if something's moving, you know it. I would not, for 2026, 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 Trulia is now for several years, even if they're wildly successful. Lid is kind of a unicorn. That's probably why it got so much excitement. It is an 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, wow, that's pretty interesting. It puts a smile on your face. Wow, you know, booze in a light bulb. Where did you think of that? And it's, you know, 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, you know, conveyor belts to move little light bulbs around. and so on. They're set for various kinds of cylinders. Having a round bottom is weird. Of course, having a screw top is not common among the normal set of contract producers. It has to be merchandised differently. You can't put it on the shelves. It's a 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 three light bulbs of lit. They see it and they put three of them in their basket, but they didn't go there to buy lit. 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. The margin per case equivalent might be five times what a normal beer is. Similar margin for the retailer. Again, they don't need to sell tons of it. One ball may be as much Margin is they make a six-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 that has to be made differently and distributed differently. The distributor's 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 ask for three points of interruption in an account that carries it rather than just one spot on the shelf. So I don't know. 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 multiples of everything else in our product mix. The vodka aid category is a little more traditional. It's kind of priced at vodka RTDs like Sun Cruiser, If it's on the shelf, you can merchandise it the same way. But it has gotten out of the gates faster than anything I've seen.

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

Yeah, thanks. Very little is the simple answer. The impact of the higher inventory in Q3 2025 at wholesaler We've given the improvements in our supply chain. We reduced the levels. So we had less shipments in Q4 last year. I think we were down minus seven. 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 Lit, but... it's mostly just the timing of shipments given our supply chain improvements.

Okay, thanks. I'll pass it on.

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.