James Koch - Chairman of the Board Martin Roper - President and Chief Executive Officer William Urich - Chief Financial Officer and Treasurer.

Judy Hong - Goldman Sachs Caroline Levy - CLSA Vivien Azer - Cowen & Co. Edward Mundy - Nomura Securities.

Good day, ladies and gentlemen, and welcome to The Boston Beer Company Fourth Quarter 2014 Earnings Release Call. At this time, all participants are in listen-only mode. Later, we’ll conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this conference call is being recorded.

I would now like to turn the call over to your host for today, Mr. Jim Koch, Founder and Chairman. Sir, you may begin..

Thank you. Good afternoon and welcome. This is Jim Koch, Founder and Chairman. And I’m pleased to be here to kick off the 2014 fourth quarter earnings call for The Boston Beer Company. Joining the call from Boston Beer are Martin Roper, our CEO; and Bill Urich, our CFO.

I will begin my remarks this afternoon with a few introductory comments, including some highlights of our results, and then hand over the microphone to Martin who will provide an overview of our business.

Martin will then turn the call over to Bill who will focus on the financial details for the fourth quarter and 2014 fiscal year, as well as our outlook for 2015. Immediately following Bill’s comments, we’ll open the line for questions.

I’m pleased with our depletions growth of 13% for the quarter and 22% for the year, and that The Boston Beer Company, after 30 years of brewing continues to help lead the craft beer industry both in innovation and variety.

Our drinkers still get excited by our beers, and our growth is attributable to great beer innovation, coupled with strong sales execution and support from our distributors and retailers. I am especially proud of our employees for growing Samuel Adams in a very competitive environment and learning to brew, manage and sell a more complicated portfolio.

At the end of the fourth quarter, we had a smooth transition to our spring seasonal Samuel Adams Cold Snap, which is in its second year. Cold Snap is a unique and approachable white ale brewed with a blend of exotic spices that has been well received by drinkers and retailers alike.

In the first quarter we also began a national rollout of our new session IPA, Samuel Adams Rebel Rider IPA and our new double IPA, Samuel Adams Rebel Rouser IPA, which we expect will complement Samuel Adams Rebel IPA, which had a successful launch in 2014.

We remain confident about the long-term outlook for the craft category and our Samuel Adams brand. I will now pass over to Martin for a more detailed overview of our business..

Thank you, Jim. Good afternoon, everyone. As we stated in our earnings release, some of the information we discuss in the release and then they may come up on this call reflect the company’s or management’s expectations or predictions of the future. Such predictions and the like are forward-looking statements.

It is important to note that the company’s actual results could differ materially from those projected in such forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in the company’s most recent 10-K.

You should also be advised that the company does not undertake to publicly update forward-looking statements whether as a result of new information, future events, or otherwise. In the fourth quarter, our depletions growth remained strong and benefited from growth in our Samuel Adams, Twisted Tea, Angry Orchard and Traveler brands.

As we anticipated, depletions growth rates slowed from earlier in the year as we faced tougher comparables and we did not benefit from new product launches as we did earlier in the year. In the fourth quarter, we had lower sales and marketing spending and higher shipments than expected, which resulted in higher earnings than anticipated.

Looking forward, we are excited, but expect the competitive environment to be tougher. We therefore anticipate the need to increase investing in advertising, promotional and selling expenses behind existing brands and to support national rollouts of brands and test future innovations.

We remain committed to investment in innovation, commensurate with the opportunities and the increased competitive activity that we see.

With the launch of several new beers and ciders in the first quarter of 2015, and our planned increased investment behind Samuel Adams, Twisted Tea, Angry Orchard and Traveler brands, we believe we are well-positioned to maintain our momentum.

Over the past two years, our supply chain struggled under unexpected increased demand and we experienced higher operational and freight costs than we had planned. During that period, we completed significant capital and efficiency projects that increased our capacity and capabilities.

Our focus for 2015 will be to take full advantage of these increased capabilities through improved training, stable scheduling, and operating efficiency and reliability improvements. We will also continue to make supply chain improvements intended to improve the freshness of our beers and enhance our customer service.

As we absorb and optimize our 2013 and 2014 investments, we are slowing the pace of our capital expansion. Our sales focus in 2015 will be to ensure successful second-year growth of our 2014 launches, and to support the national launch of our Traveler brand.

Looking forward, we expect to maintain a high level of brand investment, as we pursue sustainable growth and innovation, and we remain prepared to forsake the earnings that may be lost as a result of these investments in the short-term, as we pursue long-term profitable growth.

Based on information in hand, year-to-date depletions reported to the company through the seven weeks ended February 14, 2015 are estimated to be up approximately 12% from the comparable period in 2014. Now, Bill will provide the financial details..

Thank you, Jim and Martin. Good afternoon, everyone. We reported net income of $19.1 million, or $1.40 per diluted share for the fourth quarter, representing an increase of $10 million, or $.07 per diluted share from the same period last year. This increase was primarily due to shipment increases partially offset by a higher tax rate.

Core shipment volume was approximately 983,000 barrels, a 4% increase compared to the fourth quarter of 2013. Fourth quarter shipment growth rates were lower than depletions growth rates, primarily due to the timing of shipments and a decrease in distributor inventories.

We believe distributor inventory at December 27, 2014 was at an appropriate level. The inventory at distributors participating in the Freshest Beer Program at December 27, 2014 decreased slightly in terms of days of inventory on hand when compared to December 28, 2013.

We have approximately 68% of our volume on the Freshest Beer Program and we believe participation in the Program could reach 72% to 78% of our volume by the end of 2015.

Our fourth quarter 2014 gross margin at 50% was lower than the 51% realized in the fourth quarter of the prior year, primarily due to higher brewery processing costs and unfavorable product mix effects that were partially offset by price increases.

Fourth quarter advertising, promotion and selling expenses were flat compared to the fourth quarter of 2013.

Increases in local marketing, costs for additional sales personnel and freight to distributors due to higher volumes were offset by decreases in point of sale and media advertising due to the timing of these brand investments and the new product launches during 2014 compared to the prior year.

General and administrative costs increased by $600,000 from the fourth quarter of 2013, primarily due to increases in salary costs that were partially offset by lower consulting costs.

Our full-year net income increased $20.3 million, or $1.51 per diluted share to $90.7 million, or $6.69 per diluted share compared to the prior year primarily due to growth in shipments which will partially offset by increased advertising, promotion and selling expenses.

Full-year 2014 core shipment volume was approximately 4.1 million barrels, a 20% increase from the prior year. Full-year 2014, gross margin decreased to 51.5% from 52% in the prior year.

The margin decrease is a result of increases in ingredient cost, product mix effects, and increased brewery processing cost, which were partially offset by price increases. Full-year advertising, promotion and selling expenses were $42.8 million higher than the cost incurred in the prior year.

The increase was primarily a result of increased investments in media advertising, increased costs for additional sales personnel and commissions, point of sale and local marketing, and increase in freight to distributors due to higher volumes.

Full-year general and administrative expenses increased by $3.6 million from the prior year, primarily due to increases in salary cost. Looking forward to 2015, based on information of which we are currently aware, we are targeting 2015 earnings per diluted share of between $7.10 and $7.50. But actual results could vary significantly from this target.

We are currently planning 2015 shipments and depletions growth of between 8% and 12%. We are targeting national price increases per barrel of between 1% and 2%. Full-year 2015 gross margins are currently expected to be between 51% and 53%.

We intend to increase investments of advertising, promotion and selling expenses by between $25 million and $35 million for the full-year 2015, not including any increases in freight costs for the shipment of products to our distributors.

We estimate increased expenditures of between $10 million to $15 million for continued investments in Alchemy & Science brands, which are included in our full-year estimated increases in advertising, promotion and selling expenses.

These estimates could change significantly and 2015 volume from these brands is unlikely to cover these and other potential Alchemy & Science brand investments. We believe that our 2015 effective tax rate will be approximately 38% based upon current tax laws and underlying regulations.

We are continuing to evaluate 2015 capital expenditures and currently estimate investments of between $80 million and $110 million, which could be significantly higher dependent upon capital required to meet future growth.

These investments relate to continuing investments in our breweries and additional keg purchases in support of growth, and increased complexity. Based on information currently available, we believe that our capacity requirements for 2015 can be covered by our breweries and existing contract capacity at third-party breweries.

These estimates include capital investments for existing Alchemy & Science projects of between $3 million and $5 million. We expect that our cash balance of $76.4 million as of December 27, 2014 along with future operating cash flow and our unused line of credit of $150 million will be sufficient to fund future cash requirements.

During fourth quarter and the period from December 28, 2014 through February 20, 2015, the company repurchased approximately 31,900 shares of its Class A Common Stock for an aggregate purchase price of approximately $8.6 million.

We have approximately $41.9 million remaining on the $350 million share buyback expenditure limit set by the Board of Directors. We will now open up the call for questions..

[Operator Instructions] Our first question comes from the line of Judy Hong of Goldman Sachs. Your line is open. Please go ahead..

Thank you. Hi, everyone..

Hi, Judy..

Hi, Judy..

Hi, Judy..

So I wanted to just ask you about the shipments and depletion guidance for 2015 coming down a little bit versus you’ve given in the last quarter, what’s driving that and just a little bit more color in terms of beer versus cider or pear or some of the other tonic [ph] that you’re participating in..

Sure, Judy, I think since we last spoke to you the level of competition in frankly all of the categories that we’re playing in, is rising. And certainly, you probably seen from the publically available data or on Nielsen that it’s suffered to maintain the trends that we enjoyed last year.

I think based on that we thought it’s appropriate to adjust down. I think craft beer remains very healthy with increased competition both in new entrants and number of beers, and continues to be challenging for brands that have been around a while to maintain solid growth without very significant innovation.

I think we’re excited by a launch of Rebel Rider and Rebel Rouser, but it is way too early for us to read what that might do to help us. And it’s also a little tough comparing to last year because we’re going up against some interesting comparisons from the launch of Cold Snap and Rebel last year.

So I think we’re being cautious based on what we see from a competitive environment. On the cider side, you think you’re seeing that the cider market is still very healthy and growing, perhaps not growing at the rates that we saw this time last year. Obviously, it’s very hard to judge how that’s going to evolve over the next 12 months.

You are seeing increased competition primarily at the local level with a lot of start-ups and small cideries opening up. And we remain - we still have the competition from the national players who have chosen to invest in and compete in the category.

But it is just really hard to read that and I think I’ll read on it now, it’s a little softer than a read on it, whatever was 10 weeks ago.

I think we’re still happy again on the publically available data that Angry Orchard continues to maintain a good share, obviously a lower share than it had this time last year, but we’re happy with its share presence. And it’s just a little unclear what the growth rate of cider will be this year.

It’s a wide range and we’re obviously taking our best guess at it. On the Twisted Tea front, tea continues to be small sort of niche brand in its own sort of area.

Lots of competitive activity around it with the other flavored malt beverages that affect it but we are happy with it sort of continued strength; again further by the publically available data it’s just, it’s jogging along, although small but jogging along. And I think at this point in time we’re optimistic that tea will have another solid year.

And then beyond that as it relates to our full-year projections we’re including some estimates for Traveler, which we are launching nationally with significant TV media investment plus obviously all the other sorts of investments that a national launch would require.

That media would hit end of March, and while we’re excited about that possibility and obviously believe based on our prior year of experience and development of the packaging in the liquid, that it’s a promising opportunity. We really have literally no clue what the total volume may be. So we - that one’s a little more uncertain.

I think we are excited about the category. We received nice, in fact, very nice support from retailers and wholesalers alike, and they seem excited.

And it’s just too early to tell we’ve got some shipments under our belt have the wholesalers have chanteys, ready to launch end of this month or beginning of next and read for that media wave, but it’s really hard to tell what’s going to go on.

So we’ve got a lot of uncertainty, because we haven’t yet really seen the - our own business trends that will drive this end number, because of other bit will depend on Traveler success on cider total category and our ability to maintain share and then some of the innovations in the Sam Adams space plus other things that we have planned to hold the brand strong.

And I think versus 10-weeks ago, we just think it feels tougher to do all these things, to deliver an end result..

Okay. If I can just follow-up on the competitive landscape, because as long as I’ve been following you guys, you’ve always been talking about competitive activity being challenged and you need to continue to invest in the category and the brand.

So is there anything different about, what you’re seeing in the marketplace today, whether it’s from the bigger brewers or some of the smaller start-ups across those beer and cider that makes you a little bit more nervous, or just the reality of this - growth in the cider category that you’re seeing continue that trends and obviously the craft category has been, being a lot of new entrants in the category? So the question is really is there anything different that you’re seeing a competitive perspective that makes you think about spending increases for next year and some of the share trends that you’re expecting for 2015?.

Judy, I think, you’re right, we’ve spoken about increasing levels of competition for quite a while and that’s been the reality. And I don’t see this as anything discontinuous or dramatically different. I think perhaps if there is any differences the base gets bigger, the attractiveness to competition becomes higher.

So we’re just seeing a continuation of what’s been happening for many years. Craft beer is kind of the darling of certainly the beer business maybe be the entire alcoholic beverage business and it just - as it gets bigger, everybody wants to play there.

And we’re seeing some of that in cider, and certainly FMBs have wave, after wave of innovation in new entries..

Got it. Thank you..

Thank you. Our next question comes from the line of Caroline Levy of CLSA. Your line is open. Please go ahead..

Thank you so much. Good afternoon..

Hey, Caroline..

Hi, Caroline..

So you do call up the risk of an increase in freight cost. Could you talk about why that is? I think your freight has been up the last couple of years, because of such high demand..

Sure. I’m not sure exactly, what we called out, but I can talk about what we’re seeing on the freight front. On the one hand with diesel price is coming down, we’re starting to see the fuel surcharges of the last two, three years start to dissipate, so that’s obviously nice. That’s somewhat of a small factor in the total pie.

The bigger factor is the rate increases that the carriers are looking for to basically compensate them both for reduced driving time but also frankly for tightness in the marketplace of equipment.

We’re doing our best to move shipments where we can to intermodal and other forms of transportation to try and compensate but our emphasis on freshness and delivering the best beer we can to our drinker prevents us from perhaps going to the full way on those, because of the transit times.

And so even with diesel prices coming down, we’re seeing our actual costs of getting a case from brewery to market on average across the country increase..

Okay. Thank you.

And then would you mind telling us how on-premise is doing versus the big box and versus other channels?.

I think, last year we were just really delighted with our on-premise trends. I think the - again, the publicly available tracking which has some noise on it, sort of described to us some gain in share in the on-premise, I’m not sure whether that’s the reality.

But for us the on and off track pretty closely together, and a lot of that was due to the investment in our sales organization that fighting for every angle they can get. We obviously rolled Rebel out, which gained incremental volume for us and helped us with our calls with those accounts and we’re very appreciative for that business.

So I think, even last year we look at it sort of even, but a lot of that was driven by that Rebel piece. And I’m not sure that’s going to continue, our major draft initiative in addition to our existing brands this year it’s Traveler and again it’s little early to tell.

So, generally, the on-premise business is a little tough or an even more competitive than the off-premise business. But I think we’re a little bit of an anomaly and that both of them have been healthy for us over the last 52 weeks..

Thank you.

And I just want to clarify, you said that Alchemy & Science was part of the increase, you are doing that part of the $25 million to $35 million increase is that Alchemy & Science spent?.

Yes. This is Bill, Caroline, yes, correct..

Thank you.

And so, are you convinced given the competitive environment that are roughly $15 million increase in the all other A&M is enough to grow your position and can you just talk about what the base Sam business looks like?.

I think we are right now, based on the plans we have, I think, as always we would say that if we come across something that would change the trajectory significantly, we will prefer to invest even at the cost of short-term earnings.

But based on what we currently have in the Hapa, we think the number - the planning numbers are right, and for providing guidance and for modeling, right now again that could change. I think, we - Sam Adams had a great year last year. It’s little more competitive, and we’re going up against some very tough comparables.

We are trying to focus on making the second-year of Rebel and Cold Snap as successful as the first-year, and basically building franchises. And that’s our primary focus the first, three, four months, we’ve got other things planned later in the year and it’s too early to think about how those may help us..

Thanks so much. Congratulations..

Thank you..

Thanks..

Thank you. Our next question comes from the line of Vivien Azer of Cowen & Company. Your line is open. Please go ahead..

Hi, good evening..

Hey, Vivien..

Hi, Vivien..

So I had a question about your advertising spending in the fourth quarter, coming out of the third quarter earnings call, it sounded like, there have been some shift in the timing of spend that came out of the third quarter and would have hit on the floor, so I was little surprised that your A&P was flat in the fourth quarter, can you elaborate on some of the decisions that you made around A&P?.

Yes, I don’t think it was necessarily an advertising thing, the advertising spend came in pretty much exactly as we anticipated. I think our comments in the third quarter related to some timing of some promotional and point of sale purchases.

And at the time, as we were looking at the full-year, we frankly, we’re anticipating some more point of sale on local marketing spend happening in the fourth quarter then actually it could.

Now some of that might have been due to our bad planning, or some of that might have been - organization telling us they are going to spend it, but it wasn’t really going to happen, but they were keeping their powder just in case.

And we are trying to look at that, because it was a little bit of a surprise for us, but the sort of difference in the spending versus what we had indicated we thought it would be is more in the point of sale, which is a timing of purchase issue and actual purchase, delivery being accepted and then also in the local marketing, which is a sales force, sort of, we think we are going to spend this and maybe - and then they don’t - it doesn’t actually happen for whatever reason, that maybe.

So we are going to take a look at that and trying to get better at that particularly around the year end..

That’s incredibly helpful.

If I could just follow-up with the separate question, can you talk a little bit about your distribution expectations for Traveler and maybe if you could kind of benchmark it to the distribution that you were able to achieve for Rebel and for Cold Snap?.

Yes, I think the both - that those are both interesting sort of benchmarks. Cold Snap is a seasonal benefit from the seasonal conversion from Winter Lager, which obviously have been a style and a seasonal that has - we had in distribution for 20 years. So it’s got all the benefit of that.

So that Cold Snap had great distribution but it was building off of that solid base. Rebel, I think was built handle-by-handle and was a terrific success. I think it’s been described as one of the most successful craft launches of last year. And so we’re - to expect that for Traveler, I think might be optimistic.

I think of Traveler more as a - in its full year, I think a bit more sort of building slow and I hate to link these two brands together, but I’d be happy if we got Angry Orchard first full year distribution with Traveler, that would be pretty cool.

That I’m not saying that in any way to suggest that we think Traveler is going to burst on the scene like the cider category, but that’s sort of more how we’re thinking about its first year..

Yes, I think with Sam Adams Rebel IPA had both the very strong Samuel Adams brand name on it, and a very strong IPA style. And you put those two together and it was as Martin said, I’d say, I think, we will describe it as the most successful craft introduction ever.

So we just don’t think we’re going to be able to do that in second year, because Traveler is a new brand that we’re building and the flavored IPA - the flavored ale is again something new, something interesting that will take longer.

It’s just not going to jump out of the gates like Rebel did, but maybe two, three years from now that sort of the way we’re thinking about it. It’s going to take longer and be a little harder..

Terrific. Thank you so much for the color..

Thank you. [Operator Instructions] Our next question comes from the line of Edward Mundy of Nomura. Your line is open. Please go ahead..

Good afternoon, everyone. Few questions if I may. The first is just to follow up on your comments on cider. I’m bit unclear the growth rates of cider.

Just a little bit more granularity there, what exactly do you think it is that seem - that’s resulting in the slowdown inside that you've seen year-to-date so far? And secondly on general and admin expenses, what’s your outlook for growth there for 2015?.

All right, Edward, I take the first one on cider. And I’m not sure I tracked the second one, so I’ll pass it to Bill. The cider category growth rate if you look at the publically, again publically available information, has been declining ever since it’s - for at least 12 months, maybe 15, it was 150% and it’s just been coming down.

I want to say more recently it’s in the 30% to 50% range. I don’t have those numbers right in front of me. So it’s obviously slowing.

Now it’s slowing partly because the basis is so much bigger, maybe because the drinker penetration is happened, the mix returning to what I would describe as a more normal growth rate than the high growth rate that we were sort of experiencing.

So just in the - you’re seeing it and I just think its lows are big numbers and probably penetration, trial acceptance, and now we’re sort of trying to grow the base. That’s what I would ascribe it to, but that’s not to say that we are optimistic and we believe that it cannot grow double-digits for several more years.

Cider category probably is still order of magnitude 1% of beer, maybe just a little under that and versus other countries where there’s good data, that’s obviously low.

And so, we’re just not seeing it growing at the explosive growth rate that we saw the last two years, so that sort of was my - what I was trying to say, and I apologize if that wasn’t clear. And the second question was outlook for cider, 1% of the beer business. I would love to tell you it could get to two but who that knows.

And that one I just don’t know. If you’d ask me, six months ago what the growth rate for cider would be, six months from now we would have never guessed that we would have seen the slowdown, but when you look at it analytically, the big number sort of say, it has to.

And so frankly, I would be high with low double-digit growth in the category for 10 years that would be pretty cool, that would take the category up to 2.5% of beer, that would be pretty cool, and certainly, if we were able to maintain our position in that, that would be cool as well..

And so my second - so thank you for that.

My second question was more on your financial guidance, you’ve given guidance on A&P increases for 2015, but I’d be interested in general and administrative expenses and what type of inflation we should look at for that line in the P&L?.

That’s all part of our SG&A expenses. I think that as we’ve indicated that we’re looking advertising, promotional and selling, we really haven’t laid out what our SG&A total expenses are..

Right. Got it. Thank you..

Thank you. And I’m showing no further questions in the queue which will end our question-and-answer session, as well as our conference for today. Ladies and gentlemen, thank you for your attendance. You may all disconnect. Have a great rest of your day..

Thanks very much guys..

Thank you..