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Craft Brew Alliance Inc (NASDAQ:BREW)
Q2 2019 Earnings Call
Aug 8, 2019, 11:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day ladies and gentlemen and thank you for your patience. You have joined the Q2 2019 Craft Brew Alliance Inc., Earnings Conference Call.

[Operator Instructions]

I would now like to turn the call over to your host, CEO, Andy Thomas. Sir, you may now begin.

Andy Thomas -- Chief Executive Officer

Thank you Latif and good morning everyone. It's my pleasure to present the Craft Brew Alliance investor conference call to discuss our results for the second quarter and year-to-date 2019. This morning I'm joined by three other members of the CBA leadership team, our Chief Marketing Officer, Ken Kunze; our Chief Operating Officer, Scott Mennen; and our new Chief Financial and Strategy Officer, Christine Perich. In keeping with our standard agenda, before we begin, I'll ask Ed Smith, our Corporate Controller, to read our safe harbor statement.

Edwin A. Smith -- Corporate Controller

Thank you, Andy. As a reminder, this call may contain forward-looking statements. Forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially from those described in any such forward-looking statements. The Risk Factors section in our most recent 10-K lists some of the factors that could cause Craft Brew's actual results to differ materially from the forward-looking statements made on this call. Craft Brew undertakes no obligation to update publicly any forward-looking statements, except as required by law. Andy?

Andy Thomas -- Chief Executive Officer

Thanks Ed. For our time together this morning I will begin with my customary high level reflection on the quarter. Ken, will provide commentary on our commercial results. Scott, will provide insight into our operations and Christine will offer her remarks on our financial performance. Before closing, I'll also spend a few moments addressing the upcoming ABI qualifying offer date of August 2three. Given the amount of territory to cover please note that our prepared remarks will go slightly longer than normal but still leaving time for Q&A at the end. To frame my remarks for this call I will stick with the construction metaphor introduced during our Q1 call three months ago as it continues to appropriately represent our progress as a company. Both literally in areas like the construction of the Kona Brewery in Hawaii and metaphorically in the continued emergence of an entity building and shaping itself before our very eyes.

Indeed Q2 shows the positive results of sticking to a disciplined schedule and maintaining strict standards, while not turning a blind eye to real-time learnings or changes necessitated by our consumer and trade environment. As is often the case it begins with the strength of our foundation. And Q2 2019 picked up where Q1 left off, as strength in the fundamental dynamics of our business continued to show. Despite a harshly changing market that could easily induce excessive price discounting or force margin dilutive operational complexity CBA stuck to its blueprint. A portfolio of relevant brands rooted in consumer insights to allow for pricing power and value creation brought to market through an end-to-end supply chain capable of achieving operational efficiency to allow for gross margin expansion. Indeed that's our simple formula, gross margin accretive growth.

And as the team will detail the foundational numbers this quarter again speak for themselves. Core beer revenue per barrel remained healthy. Beer gross margins grew to record levels for the quarter and year-to-date. And pub performance improved markedly, with gross margins back in the double digits. These results are not apparitions. They are the proof of a well architected, well-engineered and well-built foundation that can sustainably generate the necessary investment in our brands, people and future. And speaking of our brands, Q2 will build on those early signs of progress teased in Q1 with our reengineered portfolio proving itself through accelerated growth in our corporate flagship Kona, sustained growth in our newly acquired brands, a more managed contraction of our legacy portfolio; and exciting new prospects for the future, both in more traditional beer offerings, like La Rubia, and in more innovative offerings coming out of our pH experiment.

There is a lot of good to talk about in the quarter. So without further ado, first on to Ken and in turn the rest of the team for some color before coming back to address the future both in terms of our weeks away unknown of an ABI qualifying offer and in terms of our real-time learnings and the implications for the future. Ken?

Kenneth Kunze -- Chief Marketing Officer, Vice President

Thanks Andy. Good morning everyone. In Q2, Kona depletions again strongly outpaced the beer category in the craft segment. Kona's trend accelerated in Q2 versus Q1 behind the ramp up of investment in the last week of March and the beginning of Q2. Kona's Q2 depletions were up plus 8% versus plus 1% in Q1. And finished plus 5% for the first half. Continuing to lead the way flagship Big Wave Golden Ale domestic depletions were up plus 25% in Q2 and plus 22% year-to-date. Big Wave is CBA's number 1 priority and represented almost 50% of Kona's mix in Q2. And on the international front, Kona rebounded in Q2 closer to its longer-term trend with depletions plus 24%.

In Q2, Kona represented almost 70% of CBA's depletion mix, driving total CBA depletions positive to plus 1%. CBA and Kona's quarterly performance compared to a beer category and a craft segment that were both down three% as measured by the Beer Institute. CBA and Kona both outperformed craft by approximately 400 and 1,100 basis points respectively. As the decline of both beer and craft indicate growth in traditional beer continues to be more difficult and will be more expensive to achieve. As reported elsewhere, the end of June leading into the 4th of July holiday was particularly difficult for the category. July 4 holiday once dominated by beer was won by spirits and the rapidly emerging hard seltzer segment. With slowing craft segment growth and off premise retailers no longer increasing space for alcohol, broadly defined, pressure to hurtle profit per linear square foot thresholds will grow in importance and become the different maker between strong and weak brands.

Our strategy of focusing against Kona flagships and home markets positioned our portfolio to make the most out of the craft beer opportunity and protect our route to market. But with our consumer learning in-house and the dynamically changing consumer preferences CBA has broadened its mission to serve consumers beyond just American craft beers. We are rapidly bringing to market products to take the portfolio in new directions and capitalize on consumer trends. We believe seltzers are not another FMB boom splat but the start of a longer-term race for significant share of throat and market fueled by several macro consumer trends and are moving aggressively to capitalize on the opportunity. Relative to traditional beer, wine and spirits seltzers deliver against better for you, refreshing, less filling, low-calorie, low-carb and convenient while dovetailing trends in non-alch. By the fall timeframe CBA will have three seltzer products in market, each uniquely positioned to take advantage of the aggressive growth.

The first, Pacer, from the pH experiment was launched in Q2. And as the name implies this targeted the consumers who are trying to moderate or pace their consumption of alcohol with only 2% ABV. Next, Omission seltzer builds on omissions equity as a better for you offering with its clean label only 4 all-natural ingredients and its gluten removed authenticity. And third, Kona will test a Hawaiian inspired flavor lineup locally only in Hawaii to capitalize on its market-leading position and blunt entrance of other mainland competitors. All three of these new items will be the three of the fastest to market in CBA's history. And plans to broaden La Rubia Blonde Ale's opportunity beyond the narrow craft definition is rapidly moving forward. La Rubia will be marketed to Caribbean Hispanics as a stand-alone brand and will be launched in the key eastern seaboard Caribbean Hispanic markets by fall.

Hispanic consumers continue to prefer beer over other forms of alcohol, it has the highest beer per caps, and has significantly driven the growth of Mexican imports. La Rubia, which means the blonde one in Spanish, will be uniquely positioned with the authenticity of our Puerto Rican founder story and with a very late sessionable but differentiated Blonde Ale. La Rubia launched in Puerto Rico in Q2 and is off to a strong start there as the first leg of an international opportunity. La Rubia was plus 48% in Q2. Moving to Omission, which continues to build on its healthy active lifestyle positioning. Omission Ultimate Light depletions were up plus 18% in Q2 and year-to-date.

While progress is being made here we are not satisfied with the pace of transition but believe the addition of seltzers and continued prioritization of Ultimate Light are on trend. Omission will also add a light IPA by year-end to further position the product lineup to more fully -- more fully against a healthy active lifestyle. For the remainder of the plus portion of the portfolio flagship and core brand focus in home markets continues to drive a number of strong positive individual results, although not at a level that fully offsets our own internal long tail and legacy brands in an ever more crowded retail shelf. Moving back to Kona for further review of Q2 performance relative to increased levels of investment, we're excited by the results and optimistic better execution can drive even more upside.

As a reminder, the increased Kona spend was largely invested behind our March Madness program. And it was geared to 1, drive share in mind in the AB wholesaler network with the objective to increase distribution; 2, invest, to build awareness and brand equity with consumers; and three, accelerate volume, as the 700 basis point improvement in trend demonstrated. On the Busch side, both wholesalers and retailers bought into the program at unprecedented levels and increased support for Kona. Wholesalers increased distribution by more than 25%, more than doubling the pace of historical distribution gains and points of distribution were up by almost 20,000 points. And retailers supported Kona with more feature ads, with ad counts up 8%. The Big Wave distribution was up 24% or 5.5 points as measured by Nielsen. On the poll side, consumers responded volume lift off feature ads increased 2three0 basis points to a very healthy 248%. And cases sold off feature increased 124% during the program as measured by Nielsen.

Longer-term brand building investment saw awareness, brand funnel metrics and brand health measures increase significantly across the board as measured by a pre/post media tracking study, validating the asymmetric copy testing results that Kona has some of the strongest creative in the beer category today. Kona's proposition continues to resonate with consumers and tremendous growth potential remains given current awareness and household penetration levels. We continue to believe that with time and ongoing investment, Kona's lifestyle positioning can play against a much larger volume pool than just craft. While this performance is all favorable as we dig into the results it appears wholesaler execution against display opportunities lagged significantly, relative to feature ads.

And it appears demand outpaced in store inventory as out of stock situations across markets were dramatic. Some of this is systemic to the current market structure of beer. And some of this is reflective of shelf inventory and stocking, not keeping pace with accelerating demand. Early estimates point to a potential loss of 2% of total CBA depletions from just the media markets alone in the quarter. The team is already testing enhancements to improve execution against demand. We remain positive to the Kona brands responsiveness to investment both from a volume driving and an equity building perspective. In closing, Kona again posted strong performance in Q2 and the first half of 2019, and it was accomplished against the beer market in the first half that history may reflect on as a pivot and proved to be a significant shift in consumer preference to the health and wellness of refreshing, less filling, low calorie alcoholic seltzers. This shifting consumer is reflected in and supported by our research.

We are broadening consumer targets and product offerings beyond traditional craft as rapidly as possible to better satisfy shifting consumer needs and growth opportunities, especially in light of craft segments slow down. Even in these times, Kona continues to resonate and drive CBA performance. And in Q2, even without the new items mentioned above, Kona's ongoing strong consumer acceptance drove CBA's total depletions for its rebalanced portfolio into positive territory. With that, I'd like to turn over to Scott Mennen; our new Chief Operating Officer.

Scott Mennen -- Chief Operating Officer

Thank you Ken and good morning everyone. Q2 was another solid quarter for CBA. The work we have done over the past few years is paying dividends in the form of improved results. Prior to getting into the numbers, I would like to take a moment and highlight CBA's excellent workaround sustainability. Earlier this summer we released our 6th Annual Sustainability Report, which we highlighted the following. We supported multiple carbon reduction projects that offset 600 metric tons of greenhouse gases, equivalent to 10% of our total carbon emission. We decreased all in electricity and gas usage across our locations, generating 16% of our energy from renewable energy credits and on site solar and bio power. Our water usage remained well below benchmark, reflecting operational innovations such as the industry's first, waterless vacuum pump installed on the Portland can, bottle line.

Our wastewater reduction efforts, which led to a 75% decrease in wastewater solids, earned us the 2018 Most Valuable Prevention Award from the EPA. And we supported over 500 nonprofit last years in the communities where we live and work through in kind donations, sponsorships, charity events, and employee volunteer efforts. We are very proud of the work we are doing to support our communities, while operating more efficiently and responsibly. Now for some color on our operational performance, total shipments for the second quarter were 2three0,000 barrels, up 2.6 from Q2 of 2018. Core shipments, which exclude contract brewing increased 4.4%, primarily driven by an 11% increase in Kona shipments. Year-to-date total shipments were 400,000 barrels up 2% and core shipments increased by three.5% from the first half of 2018.

Beer gross margin for Q2 was 41.6%, 220 basis points better than Q2 of 2018. Year-to-date, beer gross margin was 40%, 240 basis points better than the first half of 2018. The improvement is the result of continued strong revenue management, increased shipments from the Fort Collins brewery. The realization of the full value of AMB Cisco and Wynwood which are now fully on brands. Reduction in losses, which was partially offset by increases in logistics and fixed cost. Pub gross margin for the quarter was 10%, a 710 basis point improvement over Q2 of 2018 and 10.5% year-to-date a 600 basis point improvement over the first half of 2018. The improved pub gross margin, which is squarely in line with our target, is due to improve performance within our reshape pub footprint, including the addition of AMB pub in Boone and Wynwood pub in Miami.

The improved beer and pub gross margin drove CBA's overall Q2 gross margins three8.5% with year-to-date gross margin at three6.7%, both representing a 270 basis point improvement over the same time periods last year. As you can see CBA's operating business fundamentals are solid. Next, I'd like to update you on our innovation efforts and share a few of the newest beers being developed by our awesome team. In the Cisco brand family, we recently launched Crantucket, a cranberry, brut, rose IPA. The brewers at AMB have been busy developing beers like Kreme, a donut infused nitro milk stout and launching their lager, a GABF gold medal winner in cans. And earlier this month, the Wynwood team announced a partnership with Richard Branson's Virgin Voyages to serve a signature English pale ale on board its Scarlet Lady cruise ship. While our brewers have been developing amazing beers across all of our brand families, our beverage innovators have also been hard at work developing a line of seltzers for the Omission family, which will hit the markets later in Qthree. These seltzers are made with organic cane sugar root with natural flavors and will be 4% alcohol, 90 calories with just 1 gram of carbs.

The team is also hard working developing seltzer styles for the Kona in Hawaii. The most exciting area of our innovation effort is coming from CBA's innovation business unit, the pH experiment. Leveraging the learnings from Yale's, the Yale study and Prophet work. We've launched 2 end market tests across the U.S. earlier in Q2. Pre Aperitivo Spritz an Italian inspired botanical cocktail and Pacer a low proof seltzer, a line of 2% alcohol, 50-calorie, zero-sugar seltzers. Additionally, pH continues to gain momentum in tests with Amazon Go stores and will see distribution on multiple pH experiment SKUs with Amazon Fresh and Amazon Prime in Qthree. The pH team will continue to fuel more innovations in pursuit of their $25 million in revenue by 2025 goal.

I would also like to update everyone on the progress we are making to produce Kona beers locally in Rio de Janeiro. While slightly behind schedule, we are committed to achieving a perfect beer profile match and are confident we are getting closer in our partner brewery. As a result, we have reset our plan and will be ready for local production of Big Wave later in Qthree. And before closing, I'm excited to share the latest update on the construction of our new state-of-the-art 100,000 barrel brewery in Hawaii. Construction is in full swing with concrete slabs being poured, equipment being delivered in Qthree and start up and commissioning beginning in late Q4 with a brewery fully online in Q1 of 2020. The brewery is on track to be one of the most sustainable breweries in the world with the investments we have made in resource recovery, high energy brewing system and solar power.

Now I'd like to turn the call over to Christine. Christine?

Christine Nicol Perich -- Chief Financial and Strategy Officer

Thank you Scott and good morning everyone. As you are seen in our filing and heard on this call, we had a strong second quarter and our core business is very healthy. During my remarks, I will share a second quarter and year-to-date 2019 financial results and insights on how we are viewing the remainder of the year. You will see that our financial results reflect positive momentum from our continued focus on operational excellence, marketing investment to support our growing brands and our overall pivot-to-growth strategy. Top level net sales for the quarter were $60.6 million or minus 2% versus second quarter 2018.

However, it is important to put this into context, as we received alternating proprietorship fees from AMB, Wynwood and Cisco in 2018 that are not present in 2019. Those brands are now part of our consolidated results with the change in ownership. The impact for 2018 was $1.8 million received in Q1 and $2.three million it received in Q2. Excluding that change, our 2019 net sales comparison would be plus 1.7% for the quarter and plus 2.2% for the year. Second quarter shipment volumes grew 2.6% with Kona up 11% for the quarter and 10% for the year. I shared last quarter, contract barrel volumes are much less than we anticipated this year, which has caused a three,700 barrel decline over the second quarter of last year. Own shipments without contract brewing were up over 4% for the quarter and three.5% for the year.

A strong focus on operational excellence and moving our three partner brands from alternating proprietorship into the CBA family resulted in an 8.2% reduction in our cost of goods sold per barrel, which drove beer growth margins for the quarter to 41.6% or 220 basis points higher than the same period last year. We also saw strong improvement in our pub gross margin, which grew to 10% a 710 basis point gain over the second quarter a year ago. Gross profit for the second quarter increased 5% to $2three million, while gross margins increased 270 basis points to three8.5%. Beer gross margins expanded to 41.6% for the quarter and 40% for the year. SG&A costs were up 6.4% as a percentage of net revenue, primarily due to the increased in-market spending on the Kona brand, as well as increased employee-related costs. Net income for the quarter was $2.6 million or $0.1three per diluted share, down $1.8 million or 41% from the second quarter of 2018.

The decrease in income and earnings per share is primarily due to the planned Kona media investment and increased spends across our brands. As a follow up to our Kona class action lawsuit, the judge accepted our settlement agreement in June and the first few weeks of claims have been in line with our expectation. We believe our approval is sufficient and this matter should be closed by early October of this year. Taking a step back, or perhaps a step forward, let's move from results to looking strategically at the future. I must start with a potential impact of an ABI qualifying offer as well as no offer and the uncertainty that, that brings. Rest assured, we are actively working on how we will continue to approach the business regardless of our capital structure as a leader in not just beer, but in total beverage. We are continuing our work with Yale on consumer insights and putting those learnings to work.

As a part of that work, we are also ensuring that we have the right team and the right position to help us be successful moving forward under any scenario. We will create the right business model for the future of CBA. Acknowledging our year-to-date results and giving the impending decision on the ABI qualifying offer and the broad implications that that may bring, we will not be addressing guidance at this time. Following clarity on the ABI qualifying offer, we will update guidance. In summary, we are pleased with our operational performance for the second quarter and the year. While we are confident in our ability to continue driving results and sustaining the core health of our business, we also recognize the current pressure on the industry and the risk that poses for all of beer. Understanding the consumer, meeting them where they are and offering a diverse portfolio will be key as the industry evolves. With the launch of our three distinct seltzer offerings this fall, along with a broad range of offerings within our beer portfolio led by Kona, we believe we are set up for success.

With that, I will turn it over to Andy.

Andy Thomas -- Chief Executive Officer

Thanks, Christine. To summarize, as the team collectively detailed; today, CBA and its shareholders stand atop a strong foundation, witnessing the emergence of a beautiful structure above, and evidenced by some of the strongest numbers in our history, and in our ever-changing industry. As I head toward some remarks on the unknown of an ABI qualifying offer, let me first summarize where management believes we are as a company, relative to where we were at this time in 2016. That timeframe being an apt comparison, since the very prospect of that qualifying offer was born three years ago this month on August 2three, 2016. The CBA of today is highlighted by 40% plus beer gross margins, an increase of more than 900 basis points compared to three years ago. Core revenue per barrel over $265, an increase of nearly 10% versus three years ago. Gross profit of more than $70 million on a trailing 12-month basis, an increase of 15% versus three years ago.

Our Kona brand was still untapped potential, domestically and globally, that is already approaching 0.5 million barrels of volume on a 12-month rolling basis and that has grown nearly 100,000 barrels or 25% in the last three years. A complimentary plus portfolio with legitimately strong local and regional brands that has finally turned positive on a quarterly volume trend basis for the first time in the last three years. Newly emerging white space growth opportunities represented both by the more innovatively targeted traditional beer offerings, such as La Rubia and Ultimate Light, as well as by more progressive unicorn offerings, such as Pacer Low Proof seltzer and Pre Aperitivo Spritz. The latter born from our homegrown innovation unit the pH experiment, and none of which were part of the CBA of three years ago. And importantly, an already strong and increasingly progressive talent base throughout the organization.

And while those results are outstanding, let's spend some time on the ever-anticipated question on everyone's minds. What about ABI? Are they or aren't they going to make an offer? Let me begin by saying this clearly, I and the entire executive leadership team at CBA readily acknowledge the strong value creation for our shareholders that an ABI qualifying offer would bring. Indeed, if we as management didn't believe in that prospect for value creation, we wouldn't have entered into the agreements three years ago. Further as is publicly known, I'll remind all stakeholders that through our shareholder endorsed compensation packages, management themselves are sizable shareholders with tightly aligned shareholder interests. That said, we are ever mindful that CBA's value and value creation is cultivated by always doing the right thing for all shareholders. Those things that made CBA attractive to ABI as a minority partner over a decade ago, those things that brought us to the table to reimagine our relationship three years ago, and those things that makes CBA worth $24.50 a share as a doorway to a future with ABI as a full, not minority owner.

All that to say, management is well aware of and not indifferent to an ABI offer. But management is also confident of its work to-date in creating value through the transformation of this company. And while the uncertainty remains today, even with less than 15 days to go before August 2three, management has been dutiful and responsibly preparing for a future with or without an ABI offer. So let me close by doing three things. First, staying focused on the business at hand and returning to those learnings and subsequent course corrections that I referenced at the very beginning of the call. Those things that we're working on, regardless of what is known by August 2three. Secondly, reminding this call of the protection for CBA and its stakeholders in the absence of a qualifying offer, using the exact words that I've used in the past. And thirdly, previewing our anticipated communication actions as it's related to the qualifying offer.

First, as to the course corrections, as you've heard in this call, Q2 not only brought solid results, but it also brought lost and incremental opportunities. In that regard, regardless of what is known by August 2three, management is actively engaged in assessing issues surrounding retail out of stocks and retailer and wholesaler execution, both in terms of working better with our existing infrastructure, and in terms of shaping that infrastructure for tomorrow. And as our learnings in consumer insights grow, management is developing plans for an accelerated movement to a more progressive portfolio beyond traditional beer. In both regards, plans are in development for a more focused organization, better matching talent and resource levels to key growth drivers. Brand wise, geography wise and channel wise, with specific emphasis on a more effective organization, built for the consumer wholesaler and retailer demands of a shifting market.

Secondly, as I reminded this call before, in the event of the absence in a qualifying offer from ABI within the next 15 days, CBA shareholders can be assured that CBA is well protected, both through the receipt of a $20 million international incentive payment from ABI and through the security that the existing ABI agreements; the master distribution agreement, the contract brewing agreement, and the international distribution agreement, would continue at CBA's election for up to another seven years, while then enabling CBA to embrace a host of strategic alternatives, all from a fundamentally stronger and improving operating position. And thirdly, as for the communication regarding a qualifying offer and some shareholder insight into management actions should it not materialize. ABI subject to its 1threeD obligations will promptly inform investors of any developments.

Additionally, CBA will endeavor to continue our tradition of proactive investor engagement and shareholder transparency. Should a qualifying offer not materialize, management will host a special off-cycle conference call, where we will share our initial reactions and perspectives along with additional detail on the more immediate plans in place to both safeguard and accelerate the continued progress of our company on both the top and bottom lines, while addressing initial thoughts regarding matters of our longer-term business and corporate strategies. As Christine alluded to in that call, we would also provide an update on market guidance for the remainder of the year, including preliminary thoughts on the uses of the $20 million cash injection. So in closing there you have it, remarkably strong operational performance throughout the company and remarkably exciting prospects for tomorrow, all within the context of remarkably awkward circumstances for the coming weeks.

And through it all, appropriately enough, this team maintains remarkably and unabashedly confident in our future. On behalf of the entire leadership team at CBA a sincere thank you to each of you who have followed and played a role in this construction project for the past several years. To our investors, to those analysts who cover us, to our interested parties and importantly, to all of our hardworking passionate and engaged employees and partners wherever they operate within the world of CBA, watch this space.

And with that, I'll open up for questions. Latif?

Questions and Answers:

Operator

Thank you, sir. [Operator Instructions]

Our first question comes from the line of Vivien Azer of Cowen and Company. Your line is open

Vivien Azer -- Cohen and Company -- Analyst

Hi good afternoon. Hey, So, Andy in Ken's prepared remarks he talked about the Kona opportunity not just in the U.S., but internationally and given the uncertainty around AB it might be helpful just to address the Kona Ambev relationship, and any potential implications for that just to get started?

Andy Thomas -- Chief Executive Officer

Yes, I think for Kona it's been a -- the international piece has been a pretty methodical and deliberate strategy over the course of the last three years. And I know a lot of folks thought it was going to be a lot quicker out of the box, but as I reflect on where we are, I feel really good about it and I feel really good about the fact that we were a little bit mindful and thoughtful along the way. So to address the question directly, the relationship with Ambev is really good and we're seeing awesome things in Brazil both in seeding the brand in Rio and already preparing for expansion outside of Rio, all of it unleashed from a value chain perspective by the contract brewing relationship, with their local brewing relationship down there. So if you isolate Rio, I think there is a lot of skin in the game on both sides and there's a lot of opportunity for the brand. And with the presence of local production we have a lot of safeguards in place for cultivation of the Brazilian market on a local sourcing basis with Ambev.

We always said we would use the relationship in Brazil and a couple of the other tests we've done to inform future expansion with ABI through the international distribution agreement. So I think that's one of those unknowns that candidly management has built a couple of scenarios for depending on the future. If you look at our international business to date, still better than 95% of that is going through craft and travel. And I think that's kind of a double edged sword for us to be candid. One, -- on one hand it's well protected, because it's not impacted a lot from the ABI offer, yes or no. And on the other hand, it demonstrates how much upside there is that's probably been frustrating for a lot of the investors on the call that we haven't taken advantage of in the last couple years. But again, holistically it's in a good place. I think Brazil in particular, we're seeing outstanding things. The advent of local production will unleash the money we need to be able to invest.

When I say we, I mean us and our distribution partner down there, Ambev. And I think that's pretty well protected, Vivien. I think international in general though continues to be something that develops before our very eyes in terms of the opportunity, not just for the Kona brand, but as, Ken alluded to, as we look at the prospects for brands like La Rubia and candidly even some of the pH Experiment offerings that we've got. We -- a lot is changing in the market, but I think one of the things that isn't changing is the way that we see trends moving, both domestically across the U.S. and from the U.S. globally. So there's a lot there. So long winded answer, feel good about where we are internationally. Feel well protected given the shared business between CCT and ABI and on the ABI front field the investments we've made are pretty well protected and well positioned to return some value for everybody in the coming months and years.

Vivien Azer -- Cohen and Company -- Analyst

And then just turning to your other brand portfolio now that you've rolled out Wynwood and Cisco and AMB clearly some clear benefits to the brew pub segment. And, if I look at kind of the first half year-over-year it looks like the segment's grown about 4.8%, which is slightly better than the 4% year-to-date growth that we're seeing in craft. So as you think about potential opportunities for those three complementary assets how are you thinking about distribution going from here?

Andy Thomas -- Chief Executive Officer

Yes. It's a great question Vivien. And it's interesting for us to kind of take a long-term view of what we've done and what we haven't done. So this is a team that as everybody knows it's probably first to contract distribution and to pull out of states several years ago. So now I'm going to go to 180 degrees to the other direction, because I think candidly for those three brands there are distribution opportunities and growing. And the reason I say that is there is a lot of strength in the local markets for brands like Wynwood and for Cisco and for AMB and part of going deeper and getting bigger isn't just increased SKU penetration, increased distribution in their home markets, but it's thoughtful expansion into adjacent geographies. So I think we're distribution expansion minded for those three brand families on a very calculated basis, because of what we're seeing in the home market. I think health in their brew pub operations is a really good leading indicator of health in their businesses, in their brands.

And I think as we get short-footed and as the company has more to invest and we can be more thoughtful in the deployment of those resources you will see a benefit especially for those three brands. And one asterisk on that increasingly we love all of our new children. They're all -- we love everybody in the family, but increasingly of all of those brands we continue to see La Rubia have potential almost as a stand-alone brand, as Ken alluded to. And so while we see expansion opportunities geographically from Wynwood, AMB and for Cisco, we see much broader expansion opportunities for La Rubia, because we'd be targeting more demographics and psychographics as opposed to kind of old school geographies on La Rubia brand. And we think there's a lot of white space and run room for us there.

Vivien Azer -- Cohen and Company -- Analyst

Perfect very helpful. Thank you so much.

Operator

Our next question comes from Amit Sharma of BMO.

Drew Nolan Levine -- BMO Capital Markets Equity Research -- Analyst

This is Drew on for Amit, Hey thanks a couple for me. I wanted to talk about the performance of Kona during the quarter and the sort of execution issues from the wholesalers. Just given that shipments are still trending like 500 bps above depletions can you just talk about what those sort of execution issues were specifically? How you plan to get those corrected? And if you think that's something that we need to read into, if there's potential for no deal sort of what the distributor support will be for the brand?

Andy Thomas -- Chief Executive Officer

Yes. It's really a thoughtful question, Drew. So there's a lot there let me try to unpack it and then maybe, Ken, if you have anything to jump into if I misspeak or if I'm not comprehensive enough. So I think it's important to say, I don't think any wholesalers didn't try to execute. So I want to make sure we don't couch this as being the wholesalers dropped the ball. What we're seeing is, and I think as Ken said in his prepared remarks, there is a systemic aspect to it, where we're just not getting enough retail pack out for a fast moving brands in beer relative to the rest of the beer categories. So, if you think about it, if you've got 4 different beers all the same number of facings and one is turning at threex faster than the other three are on shelf. It's really hard for them to service that shelf in an efficient way for all of those brands. And either something is going to get too much attention, which is not likely the case or something's not going to get enough attention.

So as we build distribution for Kona, and as we saw a really dramatic increase in the consumer pull through in -- especially in media markets, we simply ran out of stock on shelf. And those shelves were not being replenished at the rate necessary for the Kona pull through, but probably at a rate that was fine for most of the other brands on shelf given what happened in the overall market. That's point 1. Point 2 is very astute observation on the 5% shipment gap. I think that shows that retail -- or consumers or wholesalers were actually expecting the pull through to be greater and the pack out at retail to be stronger because they actually stocked their barns and were ready to deploy inventory in satisfaction of that higher consumer demand. So in a very a ironic way, the gap between shipments and depletions validates the fact that we're seeing this retail out of stock. It's not a wholesaler out of stock issue, it's a retail out of stock issue. So then you get to the third thing about what do you read into and what are we doing about it and what could the long-term implications be?

The answer is, yes. There would be long-term implications. I think there are long-term implications for the entire industry though. And without being too dramatic about it, if you take a look at what's happening with consumers today and what's happening with retailers, what it takes to service consumers and to service consumer demand that retail is evolving pretty rapidly before our very eyes. In the old school model of palette drops at your off premise accounts and merchandising that shelf a couple of times a week is probably a little bit outdated these days and needs to be contemporized. Does that mean that we need more merchandisers? Probably. Does that mean that we need to pay for the merchandisers or wholesalers have to pay for the merchandisers, or we need to expect a different servicing level from kind of key accounts? That remains to be seen, Drew. But if I stitch all of this together, we think there was a governor on the growth of Kona because consumers were pulling it at a rate that they were incapable of satisfying.

So we saw really sharp increases in awareness and demand and affinity for the brand in the media markets. We saw wholesalers get really excited about it, because they felt that too. We saw retailers when it was on display, those numbers Ken quoted are phenomenal. So when -- I think one thing to double click on to give you guys a little bit more color, when we got adequate display execution, there was by default adequate inventory to satisfy consumer demand. So without getting too much into some competitively sensitive information, if you look at markets like Florida, where we had outstanding execution on display and outstanding programming at places like Publix, we experienced a lower out of stock level than we would have in Southern California, both of where we saw great increases in consumer demand. But we didn't have commensurate or comparable levels of retail execution in those markets.

So I know that's pretty detailed, but I think it gives you guys a little bit of color on why we're high-fiving each other over how the media worked, high-fiving each other over the excitement on new points of distribution built in the wholesaler network but sitting here kind of shrugging our shoulders of OK now what? What is that going to take? So hopefully that gives you a little bit of color on what we think is happening. And as far as what's next, there will be implications, as I said, organizationally, in terms of how do we course correct for that? Because our job isn't to play down to the level of our competition being the churn rate of the rest of the beer category, our job is to distinguish ourselves and separate our trends from the rest of the category. And if unlocking that or solving that kind of issue and that dilemma of retail servicing is part of the equation, we'll solve it. I can say that emphatically. How? I don't have enough color right now to share with you guys what that might look like.

Drew Nolan Levine -- BMO Capital Markets Equity Research -- Analyst

And then my next question kind of dovetails of something you said about having 4 phase-ins and 1 is turning much faster. I mean, is there any thought about maybe sort of simplifying the assortment at retail to really drive more on Big Wave? And then separately, if you could just maybe comment on, you know, it's been a few months since the advertising campaign, any sort of color on what the repeat rates you've seen have been?

Andy Thomas -- Chief Executive Officer

I think, I'll let Ken address kind of the decay so to speak of advertising and what we're seeing and feeling good about it. So well, I'll let Ken elaborate on that. It's more his wheel house. In terms of thoughts on pairing down the portfolio, I feel great about the fact that we focused all of our efforts on Big Wave and Longboard already. And I think it might have been subtle and some people may have noticed it, we went so far as to even feature just Big Wave and Longboard in the media campaign and one ad focused exclusively on Big Wave. So I think we agree with where you're going in terms of your observation, Drew. We think focusing on a fewer things that can move faster are better for us.

And you're also seeing that benefit in our gross margin, because we're not just fragmenting the portfolio, we're consolidating the portfolio and growing faster. It's a balancing act. But I think -- we believe keeping the brands fresh and staying innovative in the eyes of the consumer is important. But by the same token, we need to make sure that we're doing it in a pretty responsible way. So I would say, you'll continue to hear us talk about consolidation. And I think again, for those of you who followed us, you'll remember four years ago we whapped three5% of our SKUs. We have a lot of SKU management on a regular basis, but it's something that we're pretty mindful of. On the decay, as you know I'll toss it over to Ken.

Kenneth Kunze -- Chief Marketing Officer, Vice President

Just, I think on the retail shelf before on the decay, the -- I would say we're already trying to do that with our flagship and core brand focus in terms of trying to get additional facings of the key brands, the core brands, the flagship brands and whatnot. The reality is we don't control the shelf per se though. We have to work with the retailer and the wholesaler to be able to make that happen. Given the number of players that are out there, it becomes a pretty complicated process to control the shelf. But -- so we're already trying to do that. That'll be an ongoing effort. I think the -- in terms of the media decay for us right now, it looks like it was probably in that 12 to 14 week range, where we really saw pretty consistent response to it. And so we're still kind of letting it run out, so to speak, given where we are in the year. And we'll continue to track and monitor what the long-term effect of it really is.

Andy Thomas -- Chief Executive Officer

One think I'll add to that Drew is, I think it's fair for us to say we see very high levels of repeat on Big Wave. And I'll even distinguish Big Wave relative to Longboard. So overall we feel really good about repeat levels. But from what our tracking can teach us, we see one of the highest levels of repeat on a brand like Big Wave that I've probably seen on any consumer packaged goods brand in the beverage space. Once people taste it and they know about it, they really do repeat on it. So it's an encouraging sign for us.

Drew Nolan Levine -- BMO Capital Markets Equity Research -- Analyst

Great. Thanks so much. I'll pass on thank you.

Operator

Thank you. Our next question comes from Anthony Vendetti of Maxim Group. Your question please

Anthony Vendetti -- Maxim Group -- Analyst

Thank you Andy, thanks so much for the color on the potential buyout by (indecipherable), I was just wondering in addition to the $20 million payment, is there anything that changes with the master distribution agreement, the contract brewing or the international agreement? And if not, can you just go over the details of those agreements, how much brewing they do for you, how many barrels, how that relationship looks like now? And if it changes, how it changes?

Andy Thomas -- Chief Executive Officer

So effectively, the answer to your question is, no, nothing changes. So without being flip, I could say to everybody on this call with confidence, if ABI doesn't make an offer, nothing changes except for the fact that we have $20 million to pursue our long-term direction that we're already headed in. And feeling really good about where we are and where we've come over the last three years, it gives us a sense of confidence in that regard. Again, not withstanding the comments I made, we recognize that $24.50 is great for all shareholders. So I do want to continue to say that, because I think sometimes people think that we're blind to that and we're not. But that said, nothing changes in terms of their veto rights or their ability to cancel a contract or our ability to do it. We continue to work together by letter of the contract in the same way we work together now with the infusion of $20 million.

The detail behind that, the master distribution agreement continues for another seven years at the same rate per case as it does today, which is $0.25 a case. We have the right to brew up to three00,000 barrels in Fort Collins at a savings of $10 per barrel. So candidly and transparently, the nuance there is we'd probably update our costing as we go through Fort Collins to make sure we're still saving $10 a barrel and that that's still mutually beneficial. And on the international front, they still have the right to a number of markets that we've been slow to realize. And that's where the $20 million payment really comes in, because the fact that ABI won't have made an offer if we get the $20 million is meant to compensate us for the fact that we haven't made the progress internationally that we might have made otherwise. But their long-term prospect for that remains, Anthony.

So all three agreements stay in place for another seven years. We have the $20 million in our pocket and that's the letter of the contract. The reality of it is, yes, the world will change and I think that's why very transparently and candidly we said, hey until we really know what's going to go on, until we really know whether or not we're going to be looking at the back half of this year or 2020 and beyond, as an independent company with ABI as a partner or if we're going to be looking at ourselves as part of ABI, that would impact how do we unleash growth and how do we create value in the future? We can do both. I want to be clear about that. We believe the future has value creation for everybody. We think the color of that value creation and the pace of that value creation and the context of that value creation differs depending on whether or not we're operating as part of ABI, partners with ABI or potentially independent from ABI.

Anthony Vendetti -- Maxim Group -- Analyst

Just real quick on the follow up. I know you mentioned that you're going to have a call based on this decision. August 2three is a Friday. Are you expecting to have a call that day? Is it possible to let you know the day before? Or based on the fact that it's a Friday and they have -- I don't know if they have until midnight on Friday 2three. Are you intending to have a call on Monday? What's the plan at this point?

Andy Thomas -- Chief Executive Officer

Man, are you bugging our conference rooms? No, I think there's a lot of ifs in that. So what I can tell you is, our thinking is that we would disclose as quickly as we could, because of the materiality of the event. If ABI makes a qualifying offer, the obligation is on them as a 1threeD filer to amend their 1threeD and to quickly notify everybody. And we trust ABI would do that. For us, if we find ourselves waking up on the 2threerd without a qualifying offer, we would quickly disclose that we hadn't received a qualifying offer, probably in written form. And then would probably take a week to 10 days to organize a conference call for everybody. The reason we would wait a little bit of time is, we would want to make sure that we didn't just get on the phone and say to you guys, well, we didn't get an offer, we can tell you that.

We'll disclose the occurrence immediately. As far as giving us a chance to understand the conditions surrounding a non-offer from ABI, there are some questions we'd have for ABI and there are some answers we need to have to not be negligent as we represent to all of you what the future might hold. So we'll disclose as quickly as we can, and we'll get a conference call on the calendar quickly. But I think a week to 10 days is a reasonable amount of time to make sure people could schedule it, and that we could be responsible in what we have to tell you about what the rest of the year looks like, what the $20 million might look like and some initial thoughts on, hey, why did they or why didn't they and how would that impact the answer I just gave you, Anthony, about the other agreements.

Anthony Vendetti -- Maxim Group -- Analyst

Thanks Andy for all the color

Operator

Our next question comes from Jim Coll of Lombard Securities. Your line is open

Jim Coll -- Lombard Securities -- Analyst

Hello Andy, absent a qualifying offer, do you expect SG&A to continue to be in the $18 million to $20 million range quarterly? Or can you not comment on that?

Andy Thomas -- Chief Executive Officer

I wouldn't comment specifically on it, Jim, but I would be out of character for me to offer some thoughts on it. So I think if we look at the future, 18% to 20% of -- a quarter is probably on the high side. So I think there's a seasonality to spend. But I think if we take a look at it, we wouldn't necessarily want to under invest in the future in the absence of a qualifying offer, because -- and this might sound like bravado on behalf of the team, but I think it's -- it bears saying. For us to have been able to grow Kona, by what we grew Kona in this marketplace to me demonstrates just how peerless that brand is within the traditional beer space right now. And I think we need to feed the beast. So does that mean that there would be a rationalization of spend or not? I don't know, but I think Kona needs spend. Secondly, I think La Rubia opportunity is huge. It's real. It's white space.

So I think that requires spend. And then thirdly, if you take a look at some of what I call the unicorn offering that's coming out of the mad scientists and kind of the brilliant marketeers in our PH experiment, I think we want to make sure that we've got the treasure trove of offering supported appropriately in the marketplace. All of that takes money. So is that 18% to 20%? I don't know. But I can tell you, we don't think we would be slashing and burning in the absence of a qualifying offer. We think we would be pretty thoughtfully investing in the future, because we think one of the things that distinguishes CBA from a lot of our peers right now, we're not only operating well today with some assets that are known, we have some pretty nice gems that we can polish in the future, and that we can bring to market and we would be investment minded behind them. And all those things are our topics that you can all trust. We would have a bit more refined perspective on and a bit more of a tight answer to once we get past the 2threerd.

Jim Coll -- Lombard Securities -- Analyst

And then my comment is $24.50 is the minimum offer -- the qualifying offer?

Andy Thomas -- Chief Executive Officer

I love you, Jim. Yes, that is right. The language is written in that it has to be a minimum offer of $24.50.

Jim Coll -- Lombard Securities -- Analyst

And just one question about Kona. Where is that -- where does that stand geographically now in South America?

Andy Thomas -- Chief Executive Officer

Right now in South America, we're pretty much only in -- of any significance in Rio. We've done some tests in other markets. We did one container to Chile every so often. We did a couple of other things. But really in South America, Jim, right now it is a lot of white space, with a dot growing in Rio, and that dot probably to expand over to San Paulo once we get into local production.

Jim Coll -- Lombard Securities -- Analyst

Thank you so much for the color.

Operator

Our next question comes from David Cohen with Midwood Capital. Your question please.

David Cohen -- Midwood Capital -- Analyst

Hi everybody, so a couple of questions. One on international, you called out specifically Kona shipment volume up 21%. And we attempted to back into international shipment volume in total and it looked like that year-over-year growth was actually, if the logic holds, if the math holds, was actually greater than 21%. Is that a reasonable conclusion? And if so, what are the drivers of the whole international portfolio possibly being greater than even the Kona growth, which was substantial?

Andy Thomas -- Chief Executive Officer

Yes, I think there's a couple of things that are going on in there and it might be a little bit of the numbers issue. The majority of our shipments are Kona, so the vast majority, 90-some odd percent. The other things that we started to -- that we'll start to bleed in there La Rubia to Puerto Rico is a big opportunity, but that is an export, it's an international market for us, Puerto Rico, given that production is done on the mainland for those brands. And then there's a lot of dribs and drabs on, David, but there's not a lot there. I think, we can follow up offline on kind of the math you're doing. But that's pretty much Kona, then some La Rubia to Puerto Rico, and everything else is negligible right now.

David Cohen -- Midwood Capital -- Analyst

And just logistically, when is your next Board Meeting?

Andy Thomas -- Chief Executive Officer

Our next Board meeting. So our governance cycle is well known, so we just got through the second quarter Board Meeting last week with our Board. So our next Board Meeting would be October three0 and that's our normal governance cycle. And that said, if there's something behind the question, I'll read into a little bit, David. The Board is also on top of their responsibilities. We have a special committee of independent directors, who made on a regular basis and who also convene the day of our Board Meeting and who are pretty active in monitoring the situation as it pertains to a qualifying offer or not.

David Cohen -- Midwood Capital -- Analyst

And then, I'm sure you're aware, as probably a lot of people on the call are of Anheuser-Busch's recent transaction involving Platform brewing. And I'm curious, not that I expect you to know the ins and outs of Platform, but from an outsider's perspective, how would you compare sort of the asset there to some of the assets that Craft Brew Alliance now owns? And I'm thinking particularly of the three partner breweries that you recently acquired?

Andy Thomas -- Chief Executive Officer

Man, there's a speculative question to ask me, David. So I'll bite, I think Platform is a great --

David Cohen -- Midwood Capital -- Analyst

Well, I don't want to ask you about water conservation, sorry.

Andy Thomas -- Chief Executive Officer

Exactly. There's a -- I think the Platform acquisition is a nice one for ABI. I think it makes a lot of sense. Ohio is a really appealing market for the craft space. It was white space within the entire network, both within the CBA portfolio and within the ABI portfolio. It's a nice brand, great founders and really nice beers. So if I -- I think it makes a lot of sense. So if I contrast that with our other assets, I see it looks a lot like -- it looks like it would check a lot of the same criteria that our acquisitions checked. Really strong brand in its home market, really authentic and strong founders with a good beer portfolio, with a really strong local relevance and with some room to run. So I would say that the criteria ABI probably used in their acquisition of Platform looks a lot like the criteria we used in our acquisition of AMB, Cisco and Wynwood.

David Cohen -- Midwood Capital -- Analyst

And then my last comment is a comment not a question. And I appreciate the genuine efforts on the part of the management team and the Board to do what's in the best interest of shareholders. And as I -- as we mentioned in a letter sent to the Board a couple of months ago, we are of the mind that that, that is achieved through a sale of the company, as you, in part, suggested today. And we strongly believe that there are other buyers, some with some seemingly -- some significant war chests that should have an interest in a set of assets like Craft Brew has. So we would strongly encourage the company in the absence of a qualifying offer to put up a big shiny for sale sign and maximize the value of the company. That's all I'll say. All right thanks guys.

Thanks David thank you.

Operator

Our next question comes from the line of Steve Szabo of RJ & Associates. Your line is open.

Steve Szabo -- RJ & Associates -- Analyst

Hi guys. Thanks for taking the question, in the absence of an offer, just to understand that a little bit better, if another buyer were to make a bid, all the agreements are enforceable, correct?

Andy Thomas -- Chief Executive Officer

That is correct. I understand David there -- Steve, sorry, there's a rabbit hole nuance there and we can kind of take it offline if you're interested in it. But I'd be negligent and not -- ABI still has a position on our Board and they have a minority position on the Board. And a change in control would have to pass the Board. So you end up in a little bit of a circular reference to, could you want to go change and control and if you were do you want a change in control, would the agreement stay in place? And the answer is, yes. ABI would be a party to those discussions though in one way shape or form as a result of their existing presence on the Board.

Steve Szabo -- RJ & Associates -- Analyst

How does that affect, I guess, Kona's growth one way or the other? I know you addressed that earlier a little bit. But I guess the commitment on their part to Kona based on how it goes.

Andy Thomas -- Chief Executive Officer

I think we spend a lot of time thinking about that, Steve. And I can represent to all of you with a very clear conscience, Kona is growing because of CBA, not because of ABI. And I don't mean that in any disrespectful way to our partners, but we are responsible for growth on the Kona brand. We worked through our partners at the ABI distribution network and through our brewing partnership, and we pay for that. We pay $0.25 a case for access to the AB distribution network through the Master Distribution Agreement, but we maintain a sales force of wholesaler managers and of retail folks. So in a sense, nothing changes because you shouldn't see them start to take resources away from the Kona brand, because they're not necessarily deploying resources to the Kona brand today.

So our fate is largely in our hands and that's why when I go back to questions even like treaties on merchandisers, that's our obligation to figure out. Kona is our responsibility and not anybody else's. So I don't worry about whether or not ABI would try to kill the brand or if ABI would divert attention from the brand in the absence of a qualifying offer. The Kona brand is a beautiful brand, consumers love it, retailers want to stock it, wholesalers like to make margin off of it. It's up to us to unleash the value for all of those entities and ultimately for all of you in the process.

Steve Szabo -- RJ & Associates -- Analyst

And I just wanted to say as well, you guys have always done the right thing for shareholders and I have confidence that you always will. So I appreciate everything you've done.

Andy Thomas -- Chief Executive Officer

Thanks Steve. That means a lot, appreciate it.

Operator

Thank you. At this time I'd like to turn the call back over to CEO, Andy Thomas, for closing remarks. Sir?

Andy Thomas -- Chief Executive Officer

I appreciate everybody's continuing support of CBA and being available for this call. We look forward to discussing the results of the third quarter of 2019 with you soon. Thank you, and have a great day.

Operator

[Operator Closing Remarks]

Duration: 65 minutes

Call participants:

Andy Thomas -- Chief Executive Officer

Edwin A. Smith -- Corporate Controller

Kenneth Kunze -- Chief Marketing Officer, Vice President

Scott Mennen -- Chief Operating Officer

Christine Nicol Perich -- Chief Financial and Strategy Officer

Vivien Azer -- Cohen and Company -- Analyst

Drew Nolan Levine -- BMO Capital Markets Equity Research -- Analyst

Anthony Vendetti -- Maxim Group -- Analyst

Jim Coll -- Lombard Securities -- Analyst

David Cohen -- Midwood Capital -- Analyst

Steve Szabo -- RJ & Associates -- Analyst

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