James Koch - Founder and Chairman of the Board Frank Smalla - Chief Financial Officer Martin Roper - President and Chief Executive Officer.

Laurent Grandet - Credit Suisse Judy Hong - Goldman Sachs Vivien Azer - Cowen and Company Kevin Grundy - Jefferies.

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Boston Beer Company Fourth Quarter 2017 Earnings Conference. At this time, all participants are in a listen-only mode to prevent background noise. [Operator Instructions] And as a reminder, this conference call is being recorded.

Now I’d like to welcome and turn the call to the Founder and Chairman, Jim Koch..

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

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

Martin will then turn the call over to Frank, who will focus on the financial details for the fourth quarter and for 2017 fiscal year as well as our outlook for 2018. Immediately following Frank's comments, we'll open the line for questions. Although still negative, total Company depletion trends showed continued improvement during the last quarter.

We are still seeing challenges across the industry, including a general softening of the craft beer and hard cider categories, more and more start-up brewers opening their doors, and retail shelves that offer an increasing number of options to drinkers.

Our leadership team continues to make strides to address these challenges by improving our cost structure and investing the savings into our brands, which we believe is contributing to the improvements in gross margin and depletions trends.

We are excited by the new media campaigns launched in late 2017 for both our Samuel Adams and Angry Orchard brands, and by the early enthusiastic reception to our key innovations launching nationally in the first quarter of 2018. These include the launch of Sam '76, a uniquely flavorful and refreshing union of lager and ale.

The launch of Sam '76 is being supported by new media, by launch events and other marketing programs to drive awareness of this revolutionary beer. To date, the response from our wholesalers, retailers and drinkers has been incredibly positive, but it's still too early to draw conclusions on the long-term impact.

Our other key innovations include Samuel Adams New England IPA and Angry Orchard Rosé, both of which are generating excitement during the very early stages of their introductions.

We believe that we are well positioned to meet our longer-term challenges because of the quality of our employees, our beers, our innovation capability and our sales execution strength, coupled with our strong financial position that enables us to invest in growing our brands and creating new growth opportunities.

As previously announced, we are delighted that Dave Burwick will join us as CEO. Dave has an established track record of innovation and business success in the beverage and consumer goods industries and has served on Boston Beer's Board of Directors since 2005.

In his most recent role as CEO of Peet's Coffee, Peet's has significantly grown sales and profits over the past five years under Dave's leadership. We expect Dave to join in the second quarter and Martin Roper, the Company's current President and CEO will step down as CEO and from the Board at that time.

We sincerely thank Martin, as under his 17 years of leadership as CEO, the Company has quadrupled, growing from scrappy up-and-comer to the most successful leader of the Craft beer revolution and a leading player in the hard cider and high-end beer categories. I will now pass over to Martin for a more detailed overview of our business..

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

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

You should also be advised that the Company does not undertake to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. Our reported fourth quarter depletions decline for the comparable 13-week period was primarily due to decreases in our Samuel Adams and Angry Orchard brands.

These decreases were only partially offset by increases in our Twisted Tea and Truly Spiked & Sparkling brands. We are encouraged by the improving quarterly Company depletions trends since the first quarter of 2017 and are motivated further by a strong start in 2018.

In the 2017 fourth quarter, Twisted Tea grew distribution and pull and Truly Spiked & Sparkling maintained its position as one of the leaders of the hard sparkling water segment. Most of our volume declines for the quarter resulted from the continued underperformance of our Samuel Adams brand.

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

In the fourth quarter, we also saw declines in the cider category and in our Angry Orchard brand, although these declines appear to be slowing. During the fourth quarter, we introduced a new media campaign designed to better educate drinkers on hard cider and the occasions to drink it, while explaining the quality and uniqueness of Angry Orchard.

We are pleased by the early reaction to the campaign, and are excited by the national launch of Angry Orchard Rosé cider in 2018, which we believe can attract new drinkers to the category from wine and beer.

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

We believe we have strong brands in attractive categories and that the best long-term value creation is continued investment to return our brands to growth. With that perspective, we currently anticipate a return to volume growth in 2018.

We are planning increased brand and organizational investments funded by continued progress on cost savings and efficiency projects and some of the benefit of the recent tax changes.

Our guidance ranges reflect some uncertainty on our volume outlook for 2018 that is more innovation sensitive than in prior years, and projecting full-year depletions volumes and profitability will remain difficult until the success of our key initiatives is more visible, likely towards the end of the second quarter.

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

Our second priority is a focus on cost savings and efficiency projects to fund the investments needed to grow our brands and to build our organization's ability to deliver against our goals.

Based on our visibility to opportunities in 2018, we are maintaining our previously stated goal of increasing our gross margins by an average of about one percentage point per-year-over the three-year period ending 2019, before any mix or volume impacts, while preserving our quality and improving our service levels.

Our third priority is long-term product innovation where we continue to explore beverage areas compatible with our business model for delivering long-term shareholder value with an aim to generating a consistent cadence of interesting brand innovations.

Based on information in hand, year-to-date depletions reported to the company through the six weeks ended February 10, 2017 are estimated to have increased approximately 6% from the comparable weeks in 2017.

As previously announced during the second I am transitioning my responsibilities to Dave Burwick and I'm stepping down as CEO of the Boston Beer Company.

I am incredibly proud of everything that the employees of Boston Beer have accomplished of my 23-year tenure and I know that they and our leadership team already to work with Dave to continue to build on our current momentum. I'm excited to see where Dave will lead the company. Now Frank will provide the financial details..

Thank you, Jim and Martin. Good afternoon, everyone. For the 13-week fiscal fourth quarter and we reported net income of $30.5 million or $2.57 per diluted share, an increase of $0.82 per diluted share from the 14-week fiscal quarter of last year.

This increase was primarily due to favorable one-time impact of $1.72 per diluted share related to the 2017 Tax Cuts and Jobs Act that was enacted in December 2017 and an increase in gross margins, partially offset by the impact of lower shipments and higher brand investments.

Shipment volume was approximately 898,000 barrels and 8% decrease compared to the fourth quarter of 2016. We believe distributor inventory as of December 30, 2017 was at an appropriate level.

Inventory as of December 30, 2017 at distributors participating in the Freshest Beer Program decreased slightly in terms of days of inventory on hand when compared to December 31, 2016. We’ve approximately 79% of our volume on the Freshest Beer Program.

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

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

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

Our full-year net income increased $11.8 million or $1.30 per diluted share to $99 million or $8.09 per diluted share compared to the prior year.

This increase is primarily due to the favorable one-time tax rate impact related to the Tax Cuts and Jobs Act of 2017 and the adoption of the new accounting standard employee share-based payment accounting or ASU 2016-09.

As well as an increase in gross margin and decrease in general and administrative expenses partially offset by the impact of lower shipments and higher brand investments. Full-year 2017 shipment volume was approximately 3.8 million barrels, a 6% decrease from the prior year.

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

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

Full-year general and administrative expenses decreased by $4.9 million versus 2016, primarily due to decreases in consulting and legal costs and lower salary and benefits costs.

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

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

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

We plan increased investment in advertising, promotional and selling expenses of between $15 million and $25 million for the full-year 2018 not including any changes in freight costs for the shipment of products to our distributors.

We plan increased general and administrative expenses of between $10 million and $20 million due to organizational investments and anticipated new CEO stock compensation costs. We estimate our full-year 2018 effective tax rate to be approximately 28%, excluding the impact of ASU 2016-09.

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

We are continuing to evaluating 2018 capital expenditures and currently estimate investments of between $55 million and $65 million. The capital will be mostly spent on continued investments in our breweries.

We expect that our cash balance of $65.6 million as of December 30, 2017, along with future operating cash flow and our unused line of credit of $150 million, will be sufficient to fund future cash requirements.

During the fourth quarter and the period from December 30, 2017 through February 16, 2018 the Company repurchased approximately 179,000 shares of its Class A common stock for an aggregate purchase price of approximately $31.9 million.

We have approximately $169.8 million remaining on the $931 million share buyback expenditure limit set by our Board of Directors. We will now open up the call for questions..

Thank you. [Operator Instructions] And our first question is from the line of Laurent Grandet with Credit Suisse. Your line is open..

Yes. Good morning, everyone. I've got a question in regards to the [indiscernible] turnaround. So basically our last year was about minus 7% and is going to be between 0% and 6% up this year.

So could you be please a bit more granular to tell us basically where you guys thinking the growth will be coming from by brand, and how much of these would be coming from innovation like Sam '76? Thank you very much..

Sure. I think we look at the year, we are – and even in the year-to-date numbers and you can see it in the Nielsen and IRI, we're expecting Twisted Tea to continue to grow. We believe that Truly will continue to grow.

And those are relatively reliable beliefs, so obviously there's always uncertainty and there are big challenges continue to be Angry Orchard and Sam Adams. On the Angry Orchard side, I think as we went through the year, we saw the cider category decline starting to slow.

And certainly as we look at the start of this year, we are excited by what we're seeing. I think one challenge in looking at the numbers is the IRI data year-to-date that we have available to us does not include some of the new innovations.

So that numbers are probably not representative of the 6% depletions growth year-to-date that we've seen, but those innovations are also just going in right now and we're still building distribution towards target, and I would expect to get to fuller distribution target levels sort of during Q2.

So we're seeing a ramp up and it's really hard to read what's going on. In our projection of 0% to 6%, we're anticipating that cider will benefit from the introduction of Rosé and certainly our hope would be to return the total brand to growth, but that obviously is uncertain.

And that Sam Adams would benefit both from the switch back to Cold Snap that we did for us to bring seasonal that we're already seeing benefits from relative to what happened last year, and then also the introduction of Sam '76.

But I think our expectations are that Sam Adams probably will not get to growth this year, but certainly that's our goal a couple of years out..

Thank you.

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

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

Okay. Thanks very much and good luck for this year and good luck for your new chapter as we say..

Great. Thank you very much..

Thank you, Laurent..

Thank you. And our next question comes from the line of Judy Hong with Goldman Sachs. Your line is open..

Thank you. Hi, everyone..

Hi Judy..

Hi Judy..

So Jim, I guess I just wanted to get your thoughts on Dave Burwick, appointment as a CEO.

Obviously, he has been on the board, so you know him pretty well, but just in terms of some of the skill sets he brings in to Boston Beer particularly maybe around, I guess he has the retail experience, he's got some international experience, so are those things you think could be incremental or is it really more about sort of marketing and premium quality and sort of turning Sam Adams and Angry Orchard to growth?.

Well, I think time will tell on exactly which parts of his skill set proved to be the most useful. I think our focus in hiring was bringing on somebody who – while they didn’t have the exact same skill set as Martin could, sort of fill the very large shoes that Martin has left. And Martin skills have been quite broad.

He certainly demonstrated the ability to drive growth in a sales and marketing company, so we believe Dave Burwick has demonstrated those skills as well. He does have international experience, he's got retail experience, he's got M&A experience, those are really not areas that we currently see as growth areas, but Dave will bring his own perspective.

So and to your point in the CEO search – we've had the luxury of time and the luxury of approaching this with maybe a good print standard we didn't have to say well we're going to give ourselves a timeframe and a find the best person we can find and then ask six months or whatever we were able to say we're not going to stop looking until we find someone that we think can meet a very high standard that Martin has set.

So I'm very optimistic that the turnaround that you've seen and in the numbers so far this year, a real volume growth in the company that Dave will be able to continue this turnaround and Martin has led..

Got it. Okay. And then just on guidance for 2018. So first, it seems like pricing guidance is a little bit wider, so 0% to 2% versus kind of 1% to 2% that I think it typically guides.

So just wanted to get a sense of why a little bit of a wider range? And then the G&A investment that you called can you elaborate on the nature of those investments and how much is really sort of one-time in nature that goes away in 2019 and then on the tax rate the 28% think a little bit higher than your company being 100% domestic.

So again, just wanted to get a little bit color is this an ongoing tax rates or something in 2018 that pulls up the tax rate? Thanks..

Go ahead Martin..

Yes, Jim, why don’t I take pricing and then I think Frank will take the questions on G&A and tax because it's sort of above my pay grade. On the pricing we've done our initial pricing plans and we've worked through with the wholesalers.

As I think we're seeing slightly less opportunity for pricing than we've seen historically some of that is maybe being driven by some overcapacity in the cropped categories and some more aggressive positions as the growth stops and we're seeing sort of pricing options on different pack sizes that maybe – although we think will likely put some pricing pressure down.

We also anticipate that the other areas that we're playing in like with Truly and Angry Orchard will be more competitive than they have been in past years.

So I suppose as we look at it were not as positive on pricing that doesn't mean to say that we are not trying to lead and to realize price but in our guidance I think we're suggesting that we expect the outcome to be potentially lower than in previous years.

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

Yes, Judy so high level on the G&A and it's really the first time that we guided to it that’s partly related to the CEO change and as you recall last year we reverse some of the compensation charges that we had in the P&L because of the planned retirement and that's just like how the compensation structure for the CEO was structured relatively high variable component.

We didn't have that in the P&L last year we didn't really have that to a large extent in the P&L this year. Now with a new CEO coming on board that will come back into the P&L and this will be an ongoing component clearly.

Then the other piece to it is that we will make some investments into capabilities into our organization that fall into the G&A area we have done that last year primarily the selling area now this year will be partly in the G&A area. So those are the key drivers that you see on the G&A side.

Clearly this will change the base a little bit, but we're also working and reducing that over time the investment piece..

And the tax rate?.

On the tax rate, sorry, can you repeat the question on the tax rate?.

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

Well, so we have reflected essentially on the tax rate. Everything that we know from the tax reform, all the impacts and naturally what you see is the Federal decrease that's falling through. But we had some manufacturing credit benefits that are going away with the tax reform.

So there were some benefits that we had to know 37% tax rate that will not carryover with a new tax reform. And then there are some other changes where you look at officers’ compensation above $1 million and that has a bit of an impact as well. So the 28% is pretty much comparable to the 37% that we had guided to before the tax reform..

Got it, okay, all right. Thank you..

Thank you. And our next question is from the line of Vivien Azer with Cowen. Your line is open..

Thank you for the question. And I wanted to turn back to the Sam Adams brand please. Fully appreciate that you guys have a lot in the hopper for 2018, but as you reflect back on brand performance by – like sub-line if you will over the course of 2017.

Can you just comment on kind of the dichotomy in terms of the brand performance? To me it's a little bit surprising to see that your seasonal business has really responded to the packaging upgrades and to the advertising, but at the same time, if I look at [core Boston locker] in dollar terms and Nielsen into our channel, the magnitude of the dollar, sales decline has been accelerating curve for most of the year.

And so I would have thought that there might have been a brand halo. So if you could just comment on that more broadly, I’d appreciate it. Thank you..

Sure. I think we're still watching this and certainly the excitement in the pool behind our spring seasonal is showing up very strongly and obviously you can see easy comparables.

I think we would have expect it some potential Halo, but that is also some potential that the problems that we had last year caused sort of more log of consumption as – because we certainly think one of the issues last year was familiarity with the offerings and people one familiar with Hopscape and Fresh as Helles and maybe we’re challenged by them or didn't find them on the shelf and could well have migrated bloggers.

So it certainly muddy and is tough to read and we certainly aren't seeing sort of the log are sort of accelerate as the seasonal accelerate. So that's certainly not linked. That being said, I think as we look at the trends, since we started [indiscernible], I think we're a slightly encouraged.

I wouldn't say incredibly encouraged, but it's still pretty early and because of this muddiness around the seasonal transition back to Cold Snap plus the launch of ’76, it's very hard to sort of read what is going on and again in the numbers that you're seeing certainly in there Nielsen – I don't believe 76 is being reported.

So it's very hard to draw conclusions on the very recent data..

Understood. Thank you for that. I'm afraid while I recognize that that you're guidance doesn't include any free inflation, either down here at Cagney that has certainly been the topic of discussion.

So kind of just directionally how are you guys thinking about freight costs because it seems like for most in CPG that’s going to inflationary this year? Thanks..

Yes, I think obviously we don’t provide guidance on it and for us we're reporting it in SG&A and only reported sort of on an annual basis in the 10-K. As we look at it, we were planning some increase based on rates and other knowledge that we had back in sort of the October timeframe, when we put the plan together.

But we did expect to see some offsets based on mix and shipping lanes. So we probably weren't planning that big of an increase in net.

I think it's fair to say that our ops people are commenting on current rates being squeezed and not really squeezed is the negotiated rates perhaps the truckers on available as much as they were are so we're going to the next second tier and third tier rates. And so that sort of started and it's a little unclear, what that's going to look like.

It’s certainly on our radar screen as a potential risk to the year, and if the shortages and/or price pressures availability pressures continue that, it could be a significant risk, but again, it's unclear where we are in that cycle from a seasonality point of view.

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

Thank you. And my last question, just to double back on pricing, your comment around the challenges and kind of Craft beer is a complex make a lot of sense in terms of lowering kind of the low end of your pricing outlook.

I am curious while recognizing the price points are far, far apart in mainstream beer, so I’d call that kind of like premium lights and economy there's been a material step up in competitive activity. It largely looks that it would be driving interaction between those two prices, I couldn't swear economy discounting.

I personally think it is driving some cannibalization in premium lights, but is that at all informing your change in pricing outlook?.

I'd say that we don't really look at what is going on in that segment when we think about pricing. We are thinking about competitive activity, what is going on in this segment, so we’re directly competing in. So I would say no, that isn't going into our thinking nor do we sort of analyze it in particular.

I think we still believe trade-ups going on generally by the growth of imports and the growth of craft and even sort of trade-ups to maybe Michelob Ultra.

So I think we still believe that trade up is going on, and therefore drinkers are heading on our direction, and therefore would not worry so much about price gaps not that we look at them particularly closely at the toll. But what we do, do is look at competitive situations market by market and category by category..

Thank you so much..

Thank you. [Operator Instructions] And our next question comes from the line of Kevin Grundy with Jefferies. Your line is open..

Thanks. Good evening..

Hi Kevin..

Yes. So question, I'd like to stick on pricing, if that's okay. So the question is for Jim and Martin. And I guess I asked this in the context, we go back years and this should have been much discussed proliferation of breweries and everyone sort of looking at the same charts and it's just sort of been a rocket ship.

And the risk being that if when the category slows and that sort of where we are now that the market forces of supply and demand sort of kick in, and do we have sort of a soft landing or a hard landing with respect to pricing and do we have an orderly or disorderly sort of rationalization in the marketplace with all of these breweries.

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

Yes. I think we are seeing just a little wiggle.

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

So I think there's a little bit of downward pressure primarily actually coming from larger packs sizes. 15 packs have been introduced over the last few years and that seems to be putting a little bit of downward pressure, but when you look six pack to six pack, 12 pack to 12 pack, there hasn't been a lot of wiggling in the price.

It’s been close to that 1% to 2% level. So I don't think we're hearing a canary in the coal mine just yet..

Okay. Thanks for that. I appreciate it. And just a couple cleanup questions on the guidance. So the depletions outlook moves up a bit, I think is low-single before, now it's 0 to plus 6, so modestly, I’ll call it a point or two maybe at the midpoint.

And Martin just to be clear and it looks like the depletions number year-to-date off to a good start albeit against some soft comps in the prior year, but what very specifically sort of drove the modestly better outlook?.

Well without confirming that the outlook is modestly better because I obviously to interpret that, I obviously appreciate the question. Let me just sort of comment that we're very early in the launch of some of our key initiatives for the year. We're still building distribution.

We still don't have the sets for a lot of the chains, don't complete to the March/April time period, but those new innovations plus strength in Twisted Tea and Truly are driving the plus 6 year-to-date. But we're still early in that process and I think that stronger start led us to provide the guidance we did.

But there is a lot of uncertainty as to whether these items stick. I think depletions as you know measure wholesaler excitement into retail. And I think it's fair to say and I think we indicated that we’re getting good wholesaler excitement and wholesalers are helping us.

And I think – we think we're getting good retail excitement too, but until you get that pool out of retail that depletions didn’t really help you and it just loaded the channel. So it's still very early to tell and that's sort of why we’re sort of conservative on the downside..

Okay, thanks Martin.

And one more for Frank, just on the gross margin piece, so the outlook there are also modestly more favorable sort of the moving parts there that year-to-date progress on cost savings maybe a little bit better, maybe operating leverage is modestly better than you thought it was going to be and maybe partially offset by a little bit less pricing.

Is that the right way to think about the change in the gross margin outlook?.

Yes, so the outlook is going back to when we had our in Investor Conference, what we said we go a little bit – if we go one point on average by year, which is really driven by the cost saving as we said. We get a little bit of leverage, but we're looking at the entire range and then investing back.

So broadly the algorithm is there, but we feel fairly good about the cost savings that we've achieved so far. Naturally the pace is going to decline a little bit, but not here the algorithm that is correct..

And I would just add that I think in 2017, we made very significant progress, maybe ahead of our expectation and we're able to pull some projects in and ideas in.

So 2017, certainly represents a huge accomplishment by everybody in the company that walked on it and I think we probably accelerated some, but we’re expecting slightly less in 2018 and I'm looking Frank to confirm, how to think about it..

Yes that kind of with the guidance – but we're still optimistic. We can we can meet the long-term target..

Okay, thank you guys, very much. Good luck..

Thanks..

Thank you. And our last question comes from the line of Caroline Levy with Macquarie. Your line is open..

Hi, everyone. It’s Andrew for Caroline..

Hey, Andrew..

Hey, Andrew for Caroline..

Sorry to push on the 6% year-to-date growth, but other than the fees involved, are you seeing any – is any of that growth coming from your other beer brands? And secondly was Cold Snap launched earlier in the season this year versus prior year and could that have anything to do with the increased growth? Thank you..

Yes, so I think a growth in beer brands and to answer the first part of the question, it’s certainly Sam Adams, which is one of our beer brands is benefiting from Cold Snap, but it's also benefiting from '76 right. So there's a couple of things going into that.

I assume that's really what you're asking because we would also classify within our beer brands, Twisted Tea is a beer and Truly is a beer. But I don't think that's what you're referring to, but those brands remain strong.

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

Okay. Great, thank you..

You’re welcome. End of Q&A.

Thank you [Operator Instructions]..

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

Cheers. And thank you Martin..

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