Redhook Profits Dip

Shipments up 7.9% on increased contract brewing

Redhook Ale Brewery, Incorporated announced a third quarter net loss of $170,000, or $0.02 loss per share, compared to the same period last year..

Shipments increased 7.9% to 61,600 barrels compared to 2004 third quarter shipments of 57,100 barrels.

The company said in a press release that the net loss reflects increases in the cost of sales, primarily fuel and energy costs, and increases in selling, general and administrative expense, partially offset by the increases in shipments and sales.

Contract brewing played a key factor in the shipment growth for the company. Redhook brewed approximately 3,400 barrels on a contract basis in the third quarter of 2005; there were no shipments of beer brewed under contract during the 2004 third quarter. Excluding contract brewing activity, total sales volume for the 2005 third quarter increased 1.9.

Redhook said it has benefited in the 2005 third quarter from its investment in Craft Brands Alliance LLC, the joint venture between Redhook and Widmer Brothers Brewing Company. Craft Brands handles all advertising, marketing, sales and distribution for both brands in the Western United States. The Company’s 2005 third quarter net loss includes a $674,000 share in the net profit of Craft Brands, up slightly from a $658,000 share of the 2004 third quarter Craft Brands’ net profit.

The brewery reported sales of $9,498,000 in the third quarter of 2005, an increase of 8.1% as compared to sales of $8,790,000 in the same quarter of 2004. The $708,000 increase in total sales is largely attributable to an increase in shipments of beer brewed on a contract basis and an increase in sales in the brewery’s retail operations.

Contributing modestly to the sales improvement was an increase in shipments to Midwest and Eastern markets and an increase in the price at which Redhook sells its product to Craft Brands.

Since the formation of Craft Brands on July 1, 2004, Redhook has sold its product to Craft Brands at a price substantially below historical wholesale pricing levels. Redhook shares in the profits of Craft Brands with Widmer.

In the 2005 third quarter, wholesale shipments to the Midwest and Eastern United States increased 7.0% compared to 2004 third quarter shipments. Third quarter wholesale shipments in the Western United States, serviced by Craft Brands, decreased approximately 0.9%.

“We believe that we made notable progress during the third quarter in many key markets throughout the country, yet we know there is much work to be done,” reported Paul Shipman, President and Chief Executive Officer. “The increase in sales and marketing expenditures included the addition of sales personnel over the 2004 third quarter in our Midwest and Eastern markets and new labeling and creative work costs associated with the fourth quarter introduction to Midwest and eastern markets of new packaging and support materials. These costs were not offset by sufficient increases in sales activity and adversely impacted the quarter’s results.”