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Boston Beer Inc (SAM) Q2 2019 Earnings Call Transcript

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Boston Beer Inc  (NYSE: SAM)
Q2 2019 Earnings Call
Jul. 25, 2019, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings. Welcome to The Boston Beer Company Second Quarter 2019 Earnings Call. [Operator Instructions]. A brief question-and-answer session will follow the formal presentation. [Operator Instructions].

At this time, I will turn the conference over to Jim Koch, Founder and Chairman. Mr. Koch, you may begin.

C. James Koch -- Chairman and Founder

Thank you. Good afternoon and welcome. This is Jim Koch, Founder and Chairman, and I'm pleased to be here to kick off the 2019 second quarter earnings call for The Boston Beer Company. Joining the call from Boston Beer are Dave Burwick, 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 Dave, who will provide an overview of our business. Dave will then turn the call over to Frank, who will focus on the financial details for the second quarter, as well as a preview of our outlook for 2019. Immediately following Frank's comments, we'll open up the lines for questions.

I'm tremendously proud of the efforts of our coworkers in achieving our fifth consecutive quarter of double-digit growth while maintaining our focus on quality and innovation. We're also delighted to learn that for the 9th year out of the last 11, beer distributors ranked Boston Beer Company as the Number 1 beer supplier in the industry in the annual poll of beer distributors conducted by Tamarron Consulting, a consulting firm specializing in the alcoholic beverage distribution industry. This is a result of our efforts of all of our coworkers at Boston Beer Company to service and support our distributors' businesses and they're our primary customers and to the strong relationships we've built with our distributors.

Turning to our business. We achieved depletions growth of 17% in the second quarter, an increase from depletions growth of 11% in the first quarter. We're still seeing challenges across the industry, including a general softening of the part of the craft beer industry that goes through the 3-tier distribution system and on to retail shelves that offer an overwhelming number of options to drinkers. We remain positive about the future of craft beer, and we're happy that our diversified brand portfolio continues to fuel double-digit growth.

We're a little disappointed with our Sam Adams brand trends and continue to evolve our brand messaging. During the quarter we did have success with continued growth of Sam Adams New England IPA and our new lighter and brighter recipe for Sam Adams Summer Ale as well as a significant package redesign. We plan to continue to invest to improve trends and remain focused on the longer-term goal of returning Samuel Adams to growth.

We're also excited about our recent merger with the Dogfish Head Brewery that we completed on July 3rd, 2019. Dogfish Head has a proud history as a craft beer pioneer with a brand that's beloved by American consumers and highly respected by the industry. This combination is the right fit, as both Boston Beer and Dogfish Head have a passion for great brewing and for innovation. We share the same values and we'll learn a lot from each other as we continue to invest in the high-end craft beer category. I'm very happy that Sam Calagione of Dogfish Head will be joining our management team at Boston Beer. He's a tremendous friend, an innovator and a brewer, and we have a bright future together with Sam, Mariah, his wife, and his off-centered Dogfish Head team.

I'll now pass it over to Dave for a more detailed overview of our business.

David A. Burwick -- President and Chief Executive Officer

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

Okay. Now let me share a deeper look at our business results. Based on information in hand, year-to-date depletions reported to the Company through the 28 weeks ended July 13, 2019, excluding Dogfish Head Brewery depletions, are estimated to have increased approximately 17% from the comparable period in 2018. First half shipments growth was higher than depletions as we took active steps to ensure adequate distributor inventory levels to support drinker demand during the peak summer months.

Our depletions growth in the second quarter was a result of increases in our Truly Hard Seltzer and Twisted Tea brands that were only partially offset by decreases in our Samuel Adams and Angry Orchard brands. Truly continues to grow beyond our expectations. We're launching Truly Draft nationally this quarter while we continue to expand distribution across all channels. In addition, we're launching a new high-profile ad campaign for Truly featuring noted comedian Keegan-Michael Key, as we believe we can further improve our position as a leader in hard seltzer by building a meaningful and relevant brand.

Twisted Tea continues to generate consistent double-digit volume growth. While Angry Orchards volume declined against the first half 2018 national rollout of Angry Orchard rose, we're excited about our brand investment plans for the second half and the national rollout of Angry Orchard Crisp Unfiltered, a traditional American cider with a less sweet, fresh apple taste. I'm pleased that our overall business has shown great momentum and depletion improvements during the first half of the year. Given our trends for the first half and our current view for the remainder of the year, we've adjusted our expectations for higher 2019 full year earnings, depletions, and shipment growth. Our expectations are primarily driven by the strong performance of our Truly brand and the inclusion of Dogfish Head business in our second half results.

While we're pleased with our overall first half performance, our accelerated depletions growth has been challenged operationally. We've been operating at capacity for many months and have increased our usage of third-party breweries during the quarter in response to the growth. In particular, the additional Truly volumes have come at a higher incremental cost due to an increased usage of third-party breweries and higher percentage of variety packs in the overall mix. These factors are negatively impacting our gross margin expectation for the year.

Our new automated variety pack can line in our Pennsylvania Brewery that began production this quarter should help relieve these pressures as it ramps up during the third quarter. We'll continue to invest to increase capacity as appropriate to meet the needs of our business and take full advantage of the fast-growing hard seltzer categories. We're in a very competitive business, but we're optimistic for continued growth of our current brand portfolio and we remain prepared to forsake short-term earnings as we invest to sustain long-term profitable growth in line with the opportunities that we see.

Now Frank will provide some of the financial details.

Frank H. Smalla -- Treasurer and Chief Financial Officer

Thank you, Jim and Dave. Good afternoon, everyone. For the second quarter we reported net income of $27.9 million or $2.36 per diluted share, representing an increase of $4.3 million or $0.38 per diluted share from the same period last year. This increase was primarily due to increased revenue, partially offset by lower gross margin and increases in advertising, promotional and selling expenses.

Shipment volume was approximately 1.4 million barrels, a 17% increase compared to the second quarter of 2018. We believe the distributor inventory as of June 29th, 2019, averaged approximately three weeks on hand and was at an appropriate level based on the supply chain capacity constraints and inventory requirements to support the forecasted growth of Truly and Twisted Tea brands over the summer. The Company expects wholesaler inventory levels in terms of weeks on hand to remain between two and four weeks for the remainder of the year.

Our second quarter 2019 gross margin of 49.9% decreased from the 52% margin realized in the second quarter of last year, primarily as a result of higher processing costs due to increased production at third-party breweries and higher temporary labor requirements of company-owned breweries to support increased variety pack volumes, partially offset by price increases and cost-saving initiatives at company-owned breweries.

Second quarter advertising, promotional and selling expenses increased $7.6 million compared to the second quarter of 2018, primarily due to increased investments in local marketing, media and production, higher salaries and benefits costs and increased freight to distributors due to higher volumes. General and administrative expenses increased by $2.9 million in the second quarter of 2018, primarily due to Dogfish Head transaction-related fees of $1.5 million and increases in salaries and benefits costs.

During the second quarter we recorded a net income tax expense of $10.2 million, which consists of income tax expense of $10.5 million, partially offset by $300,000 [Phonetic] tax benefit related to stock option exercises in accordance with the accounting standard employee share-based payment accounting, also known as ASU 2016-09. The effective tax rate for the second quarter, excluding the impact of ASU 2016-09, decreased slightly to 27.6% from 28% in the second quarter of 2018.

On July 3rd, 2019, the Company completed its merger with the Dogfish Head Brewery. The Company plans to consolidate Dogfish Head results into the Company's financial results beginning on July 3rd, 2019. In the second half of 2019, the Company expects the Dogfish Head to add between 3% and 4% in annual shipments and depletions throughout and between $50 million and $60 million in net revenue at a gross margin at approximately 50%. The Company estimates Dogfish Head operating expenses will be between $20 million and $25 million in the second half of 2019. These estimates include transaction-related costs and other nonrecurring costs of approximately $8 million, of which $1.5 million has been incurred in expense as of June 29th, 2019. Excluding these transaction-related costs and other nonrecurring costs, the Company currently estimates that the merger impact will be neutral to slightly accretive to full year 2019 earnings per diluted share.

Based on information of which we are currently aware and including Dogfish Head results beginning July 3rd, 2019, we are now targeting full year 2019 earnings per diluted share of between $8.30 and $9.30, an increase of the range from the previously communicated estimate of between $8.00 to $9.00. However, actual results could vary significantly from this target. This projection excludes the impact of ASU 2016-09.

Full year 2019 depletions growth, including Dogfish Head beginning July 3rd, 2019, is now estimated to be between 17% and 22%, an increase in the previously communicated estimate of between 10% and 15%. Excluding the Dogfish Head impact, full year 2019 depletions growth is now estimated to be between 13% and 18%. We continue to project increases in revenue per barrel of between 1% and 3%. Full year 2019 gross margins are expected to be between 50% and 51%, a narrowing down of the previously communicated estimate of between 50% and 52%.

We plan to increase investment in advertising, promotional, and selling expenses of between $35 million and $45 million for the full year 2019, an increase from the previously communicated estimate of between $20 million and $30 million, primarily due to the addition of Dogfish Head expenses for the second half of the year. This does not include any increases in freight costs for the shipment of products to other distributors.

We estimate our full year 2019 non-GAAP effective tax rate to be approximately 27%, which excludes the impact of ASU 2016-09. We are continuing to evaluate 2019 capital expenditures and currently estimate investments of between $120 million and $140 million, an increase from the previously communicated estimate of between $100 million to $120 million. The capital will be mostly spent on continued investments in our breweries and taprooms and could be higher if deemed necessary to meet future growth. We expect that our cash balance of $3 million as of June 29th, 2019, along with our future operating cash flow and unused line of credit of $112.5 million, will be sufficient to fund future cash requirements.

During the 26-week period ended June 29th, 2019 [Phonetic] and the period from June 30, 2019 through July 20, 2019, the Company did not repurchase any shares of its Class A common stock. We have approximately $90.3 million remaining on the $931 million share buyback expenditure limit set by the Board of Directors.

We will now open up the call for questions.

Questions and Answers:

Operator

Thank you. Our first question comes from the line of Caroline Levy with Macquarie Group. Please proceed with your question.

Caroline Levy -- Macquarie Group -- Analyst

Good afternoon, everyone.

C. James Koch -- Chairman and Founder

Hi, Caroline.

Caroline Levy -- Macquarie Group -- Analyst

Congratulations. Hi Jim. It's really fun to see a great growth category under way. It's very exciting in consumer goods to have that and also great to see Twisted Tea continuing. I just want to clarify a couple of things. When is the Crisp Angry Orchard launch, and when is the advertising launch behind Truly?

David A. Burwick -- President and Chief Executive Officer

Okay. Hey, Caroline, this is Dave.

Caroline Levy -- Macquarie Group -- Analyst

Hi Dave.

David A. Burwick -- President and Chief Executive Officer

Crisp -- good afternoon. The on-premise launch has happened over the last couple of weeks and we're starting to get draft lines out there over the last two or three weeks. And then the off-premise launch happens pretty much now. We're shipping product now, just starting to. So as the month of August rolls in, you'll see Unfiltered out there across multiple channels. As it relates to Truly, most likely next week we'll be on air with this new campaign.

Caroline Levy -- Macquarie Group -- Analyst

And could you tell us -- thanks, Dave -- why you picked this particular person and what the images that you're hoping to go for, who your target market is?

David A. Burwick -- President and Chief Executive Officer

Yes, sure thing. I mean, Keegan-Michael Key, he's a well-known popular comedian. We think it's a fun category. We look at this category more, because it's more akin to soft drinks than it is to craft beer. And we want to have somebody who's popular, who's well known and well regarded basically talking about our brand in a way that consumers will be very likely to engage and accept that. So we like him a lot. He's fun, he's humorous, he's an improv comedian, so he'll bring a little bit of personality to it, and he's going to help us kind of shape that personality.

Caroline Levy -- Macquarie Group -- Analyst

Great. And then if we just turn to beer, if you could talk about whether you really see -- well, I mean, I know you're going to have to say you have hope for basic craft beer. But what do you have to do to move the dial and do you have things under way that could make that possible on your existing beers next year?

C. James Koch -- Chairman and Founder

I'll take that one. Craft beer is very clearly a different category than it was even two or three years ago. It's become more mature, more stable category that continues to see 1,000 new entrants a year. So it's a category where it's really difficult to grow if you're fully distributed and a brand that's been around a long time, because right now it's driven by new, small local more than anything else, but we view it as a category that is permanent and enduring and can continue to grow a little bit. We obviously feel that it has a solid potential because the Dogfish Head merger is doubling down on craft beer. And I think we will slowly see over the next set of years, this is not all going to happen in a year or two, but over the next three to five years, retailers are going to be more selective about what they put on shelves and what they put on draft. Distributors will cut their portfolios back because they're not grabbing everything where they were a few years ago. So fundamentally, we think strong, well-supported, high-quality brands will emerge from that long winnowing process, strong and successful.

Caroline Levy -- Macquarie Group -- Analyst

That's super helpful. Thank you, Jim. And then just lastly, if you could talk about what -- what you've done so far toward the merger or what you think the process will be before you really start to have an integrated operating system there?

C. James Koch -- Chairman and Founder

Yeah, a quick answer is, 2019 is business as usual. This is our first merger. We've never done this before. So we are, I think, proceeding prudently in a way that will not mess up anything. So we've told our teams, in most ways, it will be business as usual. Obviously, we're going to -- we are immediately beginning the financial integration because we're going to need to report on a combined basis in three months and we're beginning all the other forms of integration, both the people, production and so forth. For the next six months, there will be a lot of attention on consolidating our wholesaler networks, which are a majority of the volume overlaps, but there's a lot of work to do. We have 400 wholesalers, they have 300 wholesalers or close to that, maybe 200. So I think for the next six months, the most visible thing is going to be merging the distributor networks and then beginning in 2020, that's the point where we really start the rest of the integration of production and people and sales and operations.

Caroline Levy -- Macquarie Group -- Analyst

Okay. Fantastic. Thank you so much.

Operator

Our next question comes from the line of Nik Modi with RBC. Please proceed with your question.

Nik Modi -- RBC Capital Markets -- Analyst

Yeah, good afternoon everyone. I had a question on Truly. I mean, clearly this spikes up. The category is going to be a legit category longer term if we think about the opportunity. And so I just wanted to get a sense of how you're thinking about longer-term profitability. Is the fact that variety packs seem such a big piece of the product mix, is that just going to put this at a margin disadvantage for a long time or are there ways to kind of get the profitability up if you scale that business?

C. James Koch -- Chairman and Founder

Yes, there are. What you're seeing now is our response to volume that we didn't fully anticipate. Though we made provision for that contingency, we've added capacity, committed capacity at our contract producer, we added to automated variety pack lines that are starting to get up and running. But at the margin, it's kind of ugly, because at the margin, we are buying cans from Arizona, shipping them to Pennsylvania or to a contract packer, who then sends them to a variety packer, and then they come back into our Pennsylvania warehouse, where we have as many as 300 temps packing stuff. So at the margin, it's really ugly because we didn't put all the capital in there to do that efficiently, and the lead times to do that could be up to a year.

So long term, yes. All of this can be brought in-house or automated and done very efficiently. So I feel good. Long term, when we know what the volume is, we know what the capital investment needs to be and we know how we need to operate to make a product line which can be 75% to 80% of is variety pack. It's very unusual for a consumer category. I can't think of any of them that has that kind of volume in variety pack, but eventually, we could integrate the canning line with the variety pack line, blah blah blah. So yes, we can take the vast majority of those incremental costs out.

Nik Modi -- RBC Capital Markets -- Analyst

And Jim, and maybe Dave, if you want to comment on this, I mean, when you think about the opportunity, and I don't know how much -- this is such a new category, but it looks like it's sourcing from so many different brands within the beer category but also outside of the beer category, when you think about wine and spirits and even some on-premise occasions like Baltika Club Soda. So I just was hoping you had some clarity, some thoughts, some analytics on maybe giving us a little bit more context around where the category or where the brands are sourcing their share from?

David A. Burwick -- President and Chief Executive Officer

Yes, this is Dave. I'll answer that. I think, Nik, I know you've been trying to figure it out along with everybody else. What we have, I can share some data. We did some work with the IRI Panel, and it's actually quite interesting. About 37% of the volume that hard sparkling water is sourcing from is spirits, about another 20% is wines. So you've got 57% from outside the category. And it's funny, because when you look at where the beer category is going and you look at the growth rate year-to-date in total beer, total total, I think year-to-date it's like 29% on IRI, but the latest four weeks, it's more like 2.5%. You see progression of growth, and that's really because some of these lost occasions are being sucked or being pulled back into the beer category, and about another 10% by the way is light beer. So between spirits and wine and light beer, that's about two-thirds of the volume.

Some other things that are interesting, you know the awareness [Phonetic] levels are still very low in the category, so that's -- we like that. The loyalty is also very low. Some work we've done, it's probably about -- only about 10% or 15% of consumers are loyal right at the moment. So the battle for brand loyalty has just begun, we think. And the last thing I'll say is that we've also looked at -- we tried some work to understand lapsed drinkers, and we can't find any. So people, it looks like the people that so far -- again, it's very early -- but people that come into the category are staying in the category.

The last thing I'd say, we all know this. I mean, you look at two critical trends with consumers now, one is health and wellness, the other is variety seeking. And this is an example where this category is a beautiful overlap of both of those things. So it's coming from outside of beer, we like that. It's coming, it's got a lot of tailwinds from a consumer perspective, and it's just getting started. And to Jim's point, we're investing -- we're going to play this game to win. We've got a tiger by the tail, we're not going to let go, and we're also looking at it -- we're looking at building brands maybe a little bit differently here than we do within the beer.

Nik Modi -- RBC Capital Markets -- Analyst

Super helpful. Thank you so much.

C. James Koch -- Chairman and Founder

Sure.

Operator

The next question is from the line of Vivien Azer with Cowen. Please proceed with your question.

Gerald Pascarelli -- Cowen and Company -- Analyst

Hi, this is Gerald Pascarelli on for Vivien. Thanks very much for taking the questions. So my first question --

C. James Koch -- Chairman and Founder

Hi.

Gerald Pascarelli -- Cowen and Company -- Analyst

Yeah, thanks. And my first question is on A&P. So the step-up in guidance, I get that's going to -- primarily to Dogfish Head, but of the previously communicated $20 million to $30 million for the core business, can you just provide color on how you're thinking of allocating or perhaps reallocating based on where you may have been previously? Thanks.

Frank H. Smalla -- Treasurer and Chief Financial Officer

So to your point, the increase is really primarily driven by the inclusion of Dogfish Head. There's a slight increase that we're having. We're investing a little bit more into Truly. We don't really give a breakdown by category, but naturally as you can see, you look at our categories and where the opportunity sits. We definitely reallocate our A&P spend between the categories where we believe we have the biggest opportunity. And I think Dave at the beginning laid out a little bit how we think about the new advertising when it's going to come onstream. So that's what you see. There's a bit of a reallocation, a slight increase in the base spend, which is already significant, and then the rest is Dogfish Head.

Gerald Pascarelli -- Cowen and Company -- Analyst

Got it, thank you. Jim, this one's for you. I guess just given your commentary around Samuel Adams now we're halfway through the year, maybe just some color on where the brand might have missed relative to your expectations heading into the year and just any kind of thoughts you can provide on what's driving some of the pressure on the brand? Thank you.

C. James Koch -- Chairman and Founder

Yeah. It's pretty much in the ballpark of expectations. We are seeing the seasonal category, where we have a very strong position, that is consolidating. We are gaining share in seasonals, and so we're beginning to see that winnowing out maybe first in seasonals, where a lot of people overexpanded. And Sam Adams is by far the leading seasonal brand out there with Cold Snap and Summer Ale, OctoberFest and Winter Lager. So that looks pretty good to us. I think within our product line in Sam Adams, we missed generating a successful IPA. And IPAs are a third, maybe even 40% depending on how you define it of craft beer volume.

And one of the things we're looking forward to is working with our new coworkers at Dogfish Head, because they're much stronger in IPAs with 60 Minutes and 90 Minutes. So that gives us a strong brand to go in and sell into that big chunk of the craft beer category that we didn't have even a month ago. And we both view the portfolios as quite complementary. We're strong in lager and seasonals, they're strong in IPA and sours. So we are expecting that the -- you know our combined craft portfolio will be much healthier together.

Gerald Pascarelli -- Cowen and Company -- Analyst

Super helpful. Thank you very much.

Operator

Thank you. Our next question is from the line of Judy Hong with Goldman Sachs. Please proceed your questions.

Judy Hong -- Goldman Sachs -- Analyst

Thank you. Hi, everyone.

C. James Koch -- Chairman and Founder

Hi, Judy.

Judy Hong -- Goldman Sachs -- Analyst

Hi. So I guess I wanted to start with your guidance because I just wanted to clarify a few things. First, the change or the increase to your guidance, if I just take the Dogfish Head impact, it looks like it's adding about $5 million in the back half, including all of the one-time costs. So that, in and of itself, is about $0.30 increase to your earnings, which means the core isn't really going up even with the increase to depletion guidance. So can you just clarify kind of why your full year guidance is not going up more than kind of that $0.30?

Frank H. Smalla -- Treasurer and Chief Financial Officer

Yeah, Judy, this is Frank. We've got a couple of things here. So when you look at the numbers, what we gave for Dogfish, they are ranges, and I think it's better to go with what we said, but it's only going to be slightly accretive, so there's a bit of a range. It might not be the number that you just quoted. The other thing is that we have all the configuration costs that we have in the year, and I think as we said, nothing is really changed below the gross profit line, but the incremental volume that we're getting is primarily Truly. And that comes, as Jim has just said, it's a margin. The margin is lower, and that's what's driving primarily the lower gross margin versus prior year. And we expect the growth in Truly to continue. So that's what we've also narrowed down the gross profit line, but it's the margin, that's what it is. We believe we can achieve that. We have, I think, seen the peak in the outsourcing, but if you look at the Dogfish Head range, I mean, there's a range, and it's only going to be slightly accretive.

Judy Hong -- Goldman Sachs -- Analyst

Yeah, I guess I'm just taking the midpoint of the $50 million to $60 million, so you're adding sales of $55 million. Gross margins of 50% gets you to about $28 million of gross profit. You take the operating expenses out, and you're getting to even like $5 million including all the transaction costs. And then I think your comment that it's slightly neutral excluding transaction costs actually also doesn't necessarily reconcile with the fact it's adding like $0.85 to your earnings, if I do the math. So I know it's half a year, and this year is, you know maybe there's additional transaction costs. But I guess more broadly, if you think about 2020 impact, is it fair to take just the assumptions that you've given or the financials that you've given in Dogfish and then just take out the transaction costs as sort of one-time and then build that out as we're thinking about the 2020 impact?

Frank H. Smalla -- Treasurer and Chief Financial Officer

I think the 2020 impact will be slightly different, and we're going to give guidance in October. But it's definitely fair to take out the one-time costs and the non-recurring costs, which is slightly above $8 million. But then, of course, we are building the portfolio differently, and there will be different impacts. But that's the starting point, yes.

Judy Hong -- Goldman Sachs -- Analyst

Okay. And then the other question I had regarding guidance is just in terms of your comment about shipments for the back half of the year, so I know your shipments are up 23% year-to-date, depletion up 17%, but it sounded like you're not expecting a big change to the inventory level. So for the back half, should we be expecting shipment growth to be essentially in line with depletion growth?

Frank H. Smalla -- Treasurer and Chief Financial Officer

Yes, it will be a little. So as we discussed before, we pre-burdened the first quarter. As you have seen, we started increasing our depletions over shipments in the second quarter, and that's going to continue in the third quarter. Now what happened is, we still have about a similar breakdown between -- of the reduction of the pre-build between Q2 and Q3, but it's happening at a higher level. And so we have higher depletions, but we also have higher shipments as we added capacity. And it all depends literally on the depletions and our production capacity how this is going to play out.

Judy Hong -- Goldman Sachs -- Analyst

Got it, OK. And then I guess I wanted to go back to Truly, and I know, Dave, your initial forecast for this year was eventually doubling, and obviously, that's tripling for the year. So can you just comment on -- now it's your expectation that this sort of trend line continues and you're expecting to triple this year on the Truly side? And some of the distribution opportunities that you cited, where are really the gaps outside of the on-premise, which obviously you're going in with the draft? But when you look at the off-premise opportunity from a distribution standpoint, how much run rate is there, and where are the gaps that you can fill for the next 6 to 12 months?

David A. Burwick -- President and Chief Executive Officer

Yes, for sure thing. And by the way, if you could tell me how fast, how much we're going to grow next year, I'd love to know. Yeah, but I think on this year, yeah, you've got that right. We're hovering around tripling the business, maybe not totally that much across all channels. But yeah, we're preparing next year for triple-digit growth as well, as per some of Jim and Frank's comments.

In terms of the upside, yes, for sure on-premise, for sure. As you mentioned, we're launching draft. We're not sure how big that's going to be, but we think it's an interesting idea. We're also -- certainly, cans and on-premise is still a big, big opportunity. And C-Store is a huge opportunity for us. If you look at the share gap we have with our primary competitor, it's really driven -- a lot of it is driven in C-Stores. They were very smart to get into C-Stores early to drive trial and build the brand, and that's something that we've been later in the game to do. And we see a lot of opportunity in C-Stores.

But then if you look beyond on-premise and convenience stores, if you look at our distribution relative to White Claw, there's still -- there's opportunity pretty much everywhere, quite honestly. And I think going forward, the game -- the rules were changed a little bit, but I think it's going to be about the winner or the one who's going to grow the most share is going to be those who have maximized and really exploited the distribution opportunities that we're talking about, those who have found ways to innovate in the category and try to expand what this category can mean.

And then the third thing, which I think we're kicking off this -- next week, which we believe in is, how do you build a brand? How do you build a brand that matters in this category? And consumers are really there. We see that they are attracted to, number one, products that have good taste in this category. And number two, brands that their friends and family are drinking. And that means popular brands.

Judy Hong -- Goldman Sachs -- Analyst

Got it. Okay, thank you.

Operator

Your next question is from the line of Kevin Grundy with Jefferies. Please proceed with your question.

Kevin Grundy -- Jefferies -- Analyst

Thanks. Good evening, guys.

C. James Koch -- Chairman and Founder

Good evening.

Kevin Grundy -- Jefferies -- Analyst

I want to start -- this is for Jim and Dave, probably. With your views on the growth trajectory for Dogfish Head, so I think it's 300,000 barrels now currently this year. I think the expectation was for high-single-digit volume growth. As we look at the Nielsen data, it looks like there's some distribution opportunity for the brand relative to Sam Adams. Jim, you mentioned before the company will be working through merging the distribution network here in the near term over the next several months. I was hoping maybe you could speak to your growth outlook for that brand over the next three to five years.

C. James Koch -- Chairman and Founder

It's a good guess for anybody. We do believe that it's a very strong brand. It is untarnished in the consumer's eyes, continues to stay relevant and fresh. Sam and Mariah have done a great job keeping the image of the brand pristine. So we think it's under-distributed. And we think they have right now sort of three strong assets, one of them being the flagship 60 and 90 Minute IPAs. The other is, they have the Number 1 sour beer in SeaQuench, and then we think Slightly Mighty, which is a 96-calorie, low-carb, basically an IPA, is a unique product. So we view significant distribution opportunities off-premise for SeaQuench and especially Slightly Mighty and we think there's significant run room for 60 Minute IPA on-premise. So that's what we're going to be focusing on. This is all within a context of just a hyper-competitive category that has something like 8,000 craft breweries, with 1,000 a year opening up in a category that's growing low single digits. So there's no miracles, but we do see run room and upside for those three products in their portfolio because they all have unique positions.

Kevin Grundy -- Jefferies -- Analyst

Thanks, Jim. Is that -- so you'd rather not put a number on what you expect the growth rate to be for the portfolio, either in total or if we're looking at the Nielsen data, what distribution can look like relative to the Sam Adams Boston Lager?

C. James Koch -- Chairman and Founder

Kevin, to be honest, I don't have a number. I have a plan and the plan will produce a number, but I don't know what that number is. Maybe Dave has a better estimate.

David A. Burwick -- President and Chief Executive Officer

Yeah, I'm not going to pull a number out of the air, either, but I think just from a distribution perspective, we know that the average ACV distribution for 60 Minutes is right around 12% ACV. And Sam Adams is like low 30s. So just to give you a sense of the differential between the two, and we think there's an opportunity, obviously, to bring it up, to bring it in line with Sam.

Kevin Grundy -- Jefferies -- Analyst

Okay, that's helpful. Thanks, Dave. Another one for me. So now Angry Orchard and cider, of course, the dichotomy of growth rates in your portfolio is -- I'm telling you things you don't know. Very interesting. So Angry Orchard has softened here quite a bit. It doesn't seem necessarily to be so on trend as we look at the Nielsen data, and now down double digits. Maybe talk a little bit about the positioning of that brand and your outlook for it going forward.

David A. Burwick -- President and Chief Executive Officer

Sure. So I think first of all, remember we're lapping a hugely successful rose launch last year. We believe, and I think when we last spoke that we would maybe overcome that better than we have. And I think when you look at -- well, first of all, Crisp Original is actually doing a little bit better, so the trends are improving on Crisp Original, probably because there's not as much focus, maybe, on Rose. We're hopeful about Unfiltered, both draft and bottle and can. But what we're seeing and you look across the category, you're seeing it everywhere. The growth of hard seltzer is casting a very long shadow over the entire business. We are seeing maybe some consumption going in that direction, but we still look at the brand as still dominant, Number 1 in the category, and we'll continue to do some things to see if we can rekindle growth there.

So by the way, the distance of the Unfiltered, which we talked about, we're testing an Angry Orchard Spritz product in a number of markets right now, which is a lighter drinking, 120-calorie spritz-type product, and we think that might potentially play maybe closer to where hard seltzer's playing. So for Angry Orchard, like we don't -- given our plans and given the opportunities across the portfolio, we now are managing a large portfolio. We don't need Angry Orchard to outperform and be a superstar. We need Angry Orchard to maintain, we want to maintain share and we want to find a way to grow it and we think we've got enough news to do it and we're going to face a little bit of headwinds as we go, and we'll see where it all -- where it all nets out. But the second half of the year will be telling, because we'll get learning on the spritz test. We'll also get learning inside of what happens with Unfiltered.

Kevin Grundy -- Jefferies -- Analyst

Okay, thanks. If I could just squeeze in one more. It's sort of a longer-term question, getting back to hard seltzers. Just given the lack of product differentiation among the leading brands, do you see a risk that private label will play a role in this category at some point?

David A. Burwick -- President and Chief Executive Officer

Yeah, I mean, it could play a role. I think there is the differentiation. This is my point of view, which I don't know, maybe, I might be right, I might be wrong. I think White Claw and Truly have superior products. I think the process that they use, which is sort of a black box to us, the process we use, which is a black box to them, does a great job purifying the product and distilling the alcohol base down to something that's very clean and I just notice it when I try other brands. So it's not that easy to replicate the product, while it might on the surface seem somewhat commodity-like, I think those two brands in particular, which is probably why they're 80% of the category. I think there is a difference. So private label will come in and may play a role, but this product is a little bit -- it's harder to make than it appears.

Kevin Grundy -- Jefferies -- Analyst

Okay, fair enough. Thank you, guys. Good luck.

Operator

The next question is from the line of Amit Sharma with BMO. Please proceed with your question.

Amit Sharma -- BMO Capital Markets -- Analyst

Hi. Good afternoon, everyone.

C. James Koch -- Chairman and Founder

Hello.

Amit Sharma -- BMO Capital Markets -- Analyst

Dave and Jim, just continuing that last question from Kevin, does the competition, and then not just think about private label, but especially in the context of your earlier comment about really there's not that much brand loyalty yet, does that also open up room to other larger competitors who may be better positioned to be able to create a better-tasting product?

C. James Koch -- Chairman and Founder

Well, it's not that easy, and it's not that quick to develop a beautiful, bright, fruit-forward flavor on an immaculately clean base. So I would not underestimate the difficulties of doing that. And I think -- most of the other big beer suppliers have an entry. Diageo has one with Smirnoff, they're doing OK; Miller has one with Henry's, they're doing OK; obviously, ABI has one with Bon & Viv, which are doing OK. But if you look at the last 12 to 15 months, 18 months, even going back maybe a little further, Truly and White Claw have maintained about 80% market share. So it's hard to know what the future's going to be, but I think we're committed to maintaining or growing our market share. I'm pretty sure Mark Anthony is as well. So we'll have to see what happens.

I think as the category gets bigger, it will fragment, differentiate. We do see from ABI, a low-price, higher-alcohol extension of Natty Light coming into the seltzer category. It will obviously drop -- it will put downward pressure on margins and pricing. I'm not sure how thrilled retailers are going to be about downward pressure on a fast-growing, very profitable category for them. So we'll have to see how it all plays out.

Amit Sharma -- BMO Capital Markets -- Analyst

That's really helpful, Jim. And another one on the hard seltzer. Can you talk about the seasonality, especially as we go past the peak summer season and then think about it as you launched on-premise as well from a seltzer perspective?

C. James Koch -- Chairman and Founder

Well, I'll give you -- I don't have a crystal ball, so I can only look backwards. But I can tell you that a lot of the strong products now began as very seasonal. And then as their adoption and penetration increased, they became less seasonal. And in that category, in our experience, Twisted Tea was much more seasonal. And then as it grew, it grew faster in the shoulders. Same thing with Angry Orchard. It was summer and fall, and then it became as the brand and the category developed, it became less seasonal. Looking even further back, Corona. When it went through its big growth spurt, it used to be a summer beer, a beach beer, and now they've done a great job developing their consumer base and building their brands, and it has much less seasonality than it used to have. So I'm going to guess over time, it becomes less seasonal. And in the US today, something like 55% of the US population today lives in geographies that don't have winter. So the whole country is becoming less seasonal.

Amit Sharma -- BMO Capital Markets -- Analyst

Got it. One final one for me on the margin side of it. Certainly higher capex spending this year to fix the variety pack issue. Is that level of spending going to continue for the next couple of years, at least, in order for you to get to where you want to be to be more efficient to address this different type of product?

C. James Koch -- Chairman and Founder

I'll just start with a lot of it's just adding more capacity. We're adding two more can lines or at least we're projecting that, and they're expensive. They're really expensive with the supporting infrastructure. So depending, you can talk anywhere from $20 million to $50 million times 2 for just to be able to make more canned product, because not only is Truly driving cans, but so is Twisted Tea. And even within Angry Orchard, we're seeing that migrating away from bottles into cans. So some of it's variety pack, but a lot of it's just building our base capabilities. And Frank has a much more, much better understanding of all of this.

Frank H. Smalla -- Treasurer and Chief Financial Officer

Yeah, no, at the beginning, at the moment we're just building the capacity, as Jim said. And we always have a certain amount of volume that we keep external with our core manufacturers. Once the volume moderates a little bit, I think we'll both scale it back. The capital that we're putting in for the incremental volume is clearly paying back. And it's the can lines themselves, but it's also the black box that we have talked about that creates the base. So there are a number of things in the variety pack. So there are a number of things that we're investing in, but they, of course, have very high returns based on the income margin that we're creating. Once it's flattening out, that will reduce and then there's going to be some investments to optimize the processes within the breweries and that's where we get the margin back.

So if you look at the margin, which has suffered quite a bit from adding this quickly, there are two key drivers. One is that we bring, relatively speaking, more volume in-house, so that will clearly improve the margin. The second one will be to run it much more efficiently. And those two things will improve the margin as we take the waste out.

Amit Sharma -- BMO Capital Markets -- Analyst

Got it. Thank you so much.

Frank H. Smalla -- Treasurer and Chief Financial Officer

Also the second part of the investment will have a high return.

Amit Sharma -- BMO Capital Markets -- Analyst

Got it. Thank you again.

Operator

The next question is from the line of Kaumil Gajrawala with Credit Suisse. Please proceed with your question.

Kaumil Gajrawala -- Credit Suisse -- Analyst

Hey, everybody. Digging into Truly just a bit more, how much of the growth trends is coming from distribution and how much is coming from velocity?

David A. Burwick -- President and Chief Executive Officer

I'd say the last I looked, there's a mix of both and we're growing both. At this stage, everything is growing, both the distribution and the velocity. I don't have the numbers off the top of my head, but it's pretty balanced.

Kaumil Gajrawala -- Credit Suisse -- Analyst

Got it. And last, if we think about the seltzer category competitively, obviously, the growth has brought in a lot of competition. Is it at the moment a series of regional strongholds, or is it kind of more hand-to-hand combat more evenly around the country?

David A. Burwick -- President and Chief Executive Officer

I think if you look at the last year, the number of brands have more than doubled, I think from 15 to 32 this year, the last I looked. I think again -- again, my point of view -- I look at this as, I think of this as a game between Pepsi, Coke, and Dr. Pepper. There's going to be three big players at most in this category. If you look across FMBs, that's sort of how it plays out. I don't think that regional -- the regional appeal that obviously, the craft beers have plays in this category at all. I think it's which brand is the highest quality products. We talked about getting a clean alcohol base and how difficult that is. We don't really talk about it because it's not very sexy, but it's a real advantage. I think it's a hard thing to do. So I think developing the product, but also building a brand that people perceive as popular and that they're in, particularly in a new category where people aren't that familiar with the category and they want some assurance before they go and try something. When they see their friends drinking it, they're more likely to drink it. So I think the tactics in the brand building's going to play out like it does, honestly, like in a category like soft drinks, where you have two or three players that are big national players.

Kaumil Gajrawala -- Credit Suisse -- Analyst

Got it. And then just very quickly, given the growth in Truly and the addition of Dogfish Head, would you mind just providing us with what your portfolio breakdown looks like? How much you -- you can use volume or revenue, whichever you like, just to get an idea of how much comes from where?

Frank H. Smalla -- Treasurer and Chief Financial Officer

Yes. Typically, we don't break down our portfolio. I think the best bet that you have is looking at the IRI and the Nielsen data. That's typically what we refer people to and provide the...

Kaumil Gajrawala -- Credit Suisse -- Analyst

Happy to. Is there any -- just to make sure, there's nothing in there that would lead to us being materially wrong if we used this, that information?

C. James Koch -- Chairman and Founder

No, I think you know our business. What you see in IRI and Nielsen is typically the chain business that you have, and in addition, there's Indy. That's not where we're reported, and there's the on-premise and they have slightly different dynamics, but the biggest part of our business is the on-premise chain. So it's a relatively good proxy.

Kaumil Gajrawala -- Credit Suisse -- Analyst

Okay, great. Thank you.

C. James Koch -- Chairman and Founder

All right.

Operator

Our next question is from the line of Sean King with UBS. Proceed with your question.

Sean King -- UBS -- Analyst

Actually, I thought I'd exited the queue. My questions have been answered. But I have actually one here. The -- I guess for the total brand or category level of seeing pricing come down in hard seltzer, is that more of an impact of just increasing pack sizes, or is there any element of discounting that you're seeing?

C. James Koch -- Chairman and Founder

Pack sizes.

Sean King -- UBS -- Analyst

Got it. Thank you.

C. James Koch -- Chairman and Founder

Sure.

Operator

Thank you. At this time, we've reached the end of our question-and-answer session, and I'll turn the call back over to Jim Koch for closing remarks.

C. James Koch -- Chairman and Founder

Thank you, everybody, and look forward to speaking in three months. Now we'll go back to work.

Operator

[Operator Closing Remarks]

Duration: 57 minutes

Call participants:

C. James Koch -- Chairman and Founder

David A. Burwick -- President and Chief Executive Officer

Frank H. Smalla -- Treasurer and Chief Financial Officer

Caroline Levy -- Macquarie Group -- Analyst

Nik Modi -- RBC Capital Markets -- Analyst

Gerald Pascarelli -- Cowen and Company -- Analyst

Judy Hong -- Goldman Sachs -- Analyst

Kevin Grundy -- Jefferies -- Analyst

Amit Sharma -- BMO Capital Markets -- Analyst

Kaumil Gajrawala -- Credit Suisse -- Analyst

Sean King -- UBS -- Analyst

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