Thank you. Good afternoon and welcome. This is Mike Andrews, Associate General Counsel and Corporate Secretary of The Boston Beer Company. I'm pleased to kick off our 2025 third quarter earnings call. Joining the call from Boston Beer are Jim Koch, Founder, CEO, and Chairman, and Diego Reynoso, our CFO. Before we discuss our business, I'll start with our disclaimer. As we state in our earnings release, some of the information we discuss and that may come up on this call reflects 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-Q and 10-K. The company does not undertake to publicly update forward-looking statements whether as a result of new information, future events, or otherwise. I will now pass it over to Jim for some introductory comments.
Thanks, Mike. I'll begin my remarks this afternoon with an overview of our strategy, operating results, and brand updates, and then turn the call over to Diego, who will focus on our supply chain and the financial details of our third quarter results, as well as our updated financial outlook for 2025. Immediately following Diego's comments, we'll open the line for questions. I would like to start by thanking Michael Spillane for his service as CEO and for continuing to provide counsel to me as a member of our Board of Directors. While I've now stepped back into the CEO role, our company priorities remain unchanged. They continue to be innovation, supporting our full portfolio of brands with advertising investment and focused execution, and driving margin improvement.
I'll personally be particularly focused on our high-impact areas, including our innovation pipeline and ensuring that we are appropriately investing in our brands through both advertising and local in-market execution. We've made strong progress on our margin improvement initiatives, and to help continue those efforts, Phil Hodges has been named Chief Operating Officer. Phil has 30 years of operations experience in consumer packaged goods at Carlsberg, Mondelez, and Kraft Foods, and he has led our supply chain efforts for the last three years. His team has delivered strong efficiency improvements in our breweries, which have positively impacted our gross margins. In his new role, Phil will continue to report to me and will focus on continuing to improve execution across all functions and implementing our previously announced margin enhancement initiatives.
I'm excited to be back in the CEO seat and to partner with our highly experienced executive leadership team to execute our plans to improve volume trends and create long-term shareholder value. Now, turning to the current industry environment, I mentioned on our last call that we were experiencing a challenging macroeconomic environment, and those trends continued into the third quarter. Economic uncertainty that has consumers more tightly managing their budgets, as well as pressure on Hispanic consumers, continues to impact consumer demand negatively across the overall beer industry. Moderation trends are also having an impact on demand, and in certain states, hemp-derived beverages are competing for shelf space and drinkers. Despite these current industry headwinds, we continue to see long-term growth opportunities in the Beyond Beer category, also known as the Fourth Category. Beyond Beer represents more than 85% of our volume.
We believe that the Beyond Beer category share will grow as the drinker is younger and more diverse than traditional beer. Our brands are well-positioned to participate in this growth, and our strong innovation culture allows us to move quickly to add to the portfolio as consumer trends evolve. The latest example is Sun Cruiser, which was one of the top volume gainers in RTD Spirits so far this year. We're continuing to innovate and invest across our portfolio of brands to position us well for when the industry environment improves. As Diego will discuss in his remarks on our guidance, we are reinvesting some of our gross margin over delivery into additional advertising spend. This includes media spend, as well as a new local market activation program.
As part of this local activation, we're investing alongside our wholesalers to support local sponsorships, local radio, sampling teams, brand ambassadors, and grassroots event support. With respect to innovation, we're currently testing a number of brands, and our goal is to further expand Sun Cruiser in 2026 and launch an additional innovation brand. With that as context, let's move on to our results and brand performance. In the first nine months, our depletions were down 3% compared to an overall beer industry that we estimate to be down over 4% in volume. In the third quarter, our depletions were down 3%, and as we expected, shipments were significantly below depletions at down 14%.
As we mentioned in our last call, this was mostly driven by shipping ahead of depletions in the first half of the year due to the timing of wholesaler demand for Sun Cruiser, as well as lower-than-target wholesaler inventory levels last June. In terms of depletions, we're encouraged by the strong consumer reception to Sun Cruiser, a second consecutive quarter of growth in Angry Orchard, and positive drinker reception to our higher ABV offerings. However, industry headwinds are impacting our larger brands, particularly Twisted Tea, which are likely to persist for some time. Despite a softer volume environment that we planned at the start of 2025, we have delivered strong margin expansion and grown our EPS for the first nine months of the year.
This was primarily driven by continued progress on our profitability initiatives, which Diego will discuss in his remarks, and to a smaller extent, a positive product mix from our new product innovations. These efforts have allowed us to raise our gross margin guidance for the year while we continue to absorb tariff costs. We also hit record-high consumer service levels and reached over 50% gross margin in the third quarter, which is our highest gross margin since 2018. Our business generated over $230 million in operating cash flow in the first nine months, which enables us to both invest in our brands and repurchase over $160 million in shares year to date. I'll now provide an update of our brand performance and plans.
Twisted Tea had strong growth for many years and is the number 10 brand family in the overall beer market, with over $1.2 billion in annual retail sales in measured off-premise channels. Going into the year, we planned the brand to grow, consistent with an F&B market that grew 7% in dollar sales in measured off-premise channels during 2024. During 2024, the brand has gained distribution but has declined in velocity in retail displays and features. Year to date, in measured off-premise channels, Twisted Tea is down 5% in dollar sales and losing share in an F&B Category that is down 3%. We continue to believe that the macroeconomic environment is a significant driver of weaker alcohol trends and the deceleration in Twisted Tea performance. Inflation and general economic uncertainty for low to middle-income consumers has resulted in lower traffic at retail and fewer social occasions.
The Twisted Tea drinker profile is particularly sensitive to these impacts, as they typically have less household income than drinkers of our other brands. Hispanic consumer buying rates remain challenged across the industry. Twisted Tea is slightly over-indexed with Hispanic shoppers compared to overall alcoholic beverage shoppers. They are a sizable portion of the Twisted Tea drinker base and have an impact on the brand's volume performance. In addition to these macro factors, we believe that Twisted Tea retail displays are being impacted negatively by retailers making additional space for RTD Spirits, which are currently their key category growth driver. As I mentioned on our last call, according to Numerator data, approximately 20% of the drop in Twisted Tea is due to the vodka tea category, of which Sun Cruiser is one of the brands.
To the extent that Sun Cruiser sources volume from Twisted Tea, this is revenue and gross margin accretive for us. Twisted Tea brand equities remain strong, with growing distribution, a very large organic social following, and the highest organic engagement among the top 10 beer brands. It is a clear leader in malt-based hard tea with over 85% market share in measured off-premise channels. So far this year, single serve is performing much better than large packs, which tells us that the consumer interest in the brand remains strong. We believe that softness in larger pack sizes is driven by its higher absolute price point with more cost-conscious shoppers. To address this, we will refine our pricing in certain markets as necessary. In addition, in certain markets, we have recently added an under $10 per package 16-ounce four-pack to help increase lower price points and drive demand.
Twisted Tea Light and Twisted Tea Extreme are growing shelf space and velocities. Our packaging redesign has improved sales per point of Twisted Tea Light. Twisted Tea Extreme Lemon and Blue Raz are still the top two growth SKUs in the convenience channel among all F&Bs. To meet drinker demand, we're planning to add a Twisted Tea Extreme variety pack early in 2026. We expect Twisted Tea Light and Twisted Tea Extreme to be growth drivers for the brand for the remainder of 2025 and beyond. We have strong advertising plans for the rest of the year to position the brand for future growth. Key campaigns to drive awareness for the balance of the year include our high-performing tea drop ads, along with our college football and fall fest programs, with spends across ESPN, ABC, and CBS during key college football matchups.
Our college football program includes in-game advertising, sponsorships with ESPN, and expanded retailer programs with team-specific packages in key markets. In the coming months, we're adding other promotions, key programs and partnerships, and media that resonate with our drinkers, including country music, NASCAR, and WWE wrestling, as well as NFL-related promotions. Lastly, we're increasing our investment in Hispanic and Spanish-language brand content, including new media and digital content, to continue to widen the brand's appeal to more drinkers. In summary, Twisted Tea is our largest brand, and we're continuing to support it with advertising investment and innovation. We continue to believe that despite near-term challenges, these actions, coupled with an improvement in the macroeconomic environment, will return the brand to growth in the long term. Moving to Sun Cruiser now, which launched last summer and went national in January of this year.
Thank you, Jim. Good afternoon, everyone. As expected, and as Jim noted, during the third quarter, our shipments rebalanced relative to our depletions, which unfavorably impacted third quarter shipments and revenue. Depletions decreased 3% and shipments decreased 13.7% compared to the third quarter of last year, primarily driven by declines in our Twisted Tea, Truly Hard Seltzer, and Samuel Adams brands that were only partially offset by growth in the company Sun Cruiser and Angry Orchard brands. We believe distributor inventory of four and one-half weeks on hand as of September 27th is an appropriate level for each of our brands. Revenue for the quarter decreased 11.2% due to lower volumes, partially offset by increased pricing and favorable product mix. Our third quarter gross margin of 50.8% increased 450 basis points year-over-year, and it's the highest level we've had since 2018.
Gross margin primarily benefited from procurement savings, improved brewery efficiencies, price increases, and product mix, as well as a favorable comparison against higher inventory obsolescence in the prior year. These factors were partially offset by increased inflationary and tariff costs. Advertising, promotional, and selling expenses for the third quarter of 2025 increased $16.8 million, or 11.3% year-over-year, primarily due to $20.9 million in increased brand media and local marketing investments that were partially offset by lower freight costs. General and administrative expenses for the third quarter increased $1.1 million, or 2.5% year-over-year, primarily due to increased salaries and benefit costs. For the first nine months of the year, the strong progress we have made in our supply chain initiatives enabled us to deliver 49.7% gross margin and generate $11.82 of EPS.
Our three buckets of multi-year savings projects, which we are executing ahead of our initial timing expectations, are positioning us to respond better to potential changes in the volume environment, product mix, and tariffs. We are continuing to execute projects across all three buckets, which I'll now discuss. In brewery performance, we continue to see improvements in OEEs driven by process improvements, which help to increase our internal production capacity. In the third quarter, we produced 90% of our domestic volume internally compared to 66% in the third quarter of last year. Year to date, our domestic internal production increased to 83% of our volume compared to 71% in the first nine months of last year. In our procurement savings, our third quarter results benefited from lower negotiated pricing on certain packaging and ingredients. Our efforts year to date have resulted in procurement savings more than offsetting inflationary impact.
In waste and network optimization, we're continuing our efforts to improve our customer ordering and inventory management system that we implemented last year. These efforts resulted in a 28% reduction in obsolete inventories year to date. Turning to our guidance, given that three quarters of the year are behind us and our fourth quarter is a seasonably smaller quarter, we are narrowing our volume guidance range and raising our gross margin and EPS guidance for the full year, inclusive of higher investment spending in our brands. We now expect our volumes to be down mid-single digits for the year. Our depletion trends for the first 42 weeks of 2025 have decreased 4% from 2024. We continue to expect price increases of between 1% and 2%.
Based on strong gross margin performance year to date, combined with a lower than expected impact from tariffs, our gross margin guidance for the year is now 47%-48%, up from 46%-47.3% previously. We now expect tariffs to have an unfavorable impact of $9 million-$13 million, which is a gross margin headwind of 40-60 basis points. The change to our tariff estimate is due to lower than anticipated tariffs, primarily on materials sourced from Canada and exempt from the tariffs as USMCA compliant goods. In the first nine months, we have incurred $7.1 million in tariff costs. Given our strong margin performance, we are using some of the upside to increase our advertising investments in our brands in the fourth quarter.
We now expect increases in advertising, promotional, and selling expenses to range from $50 million-$60 million, an increase from our previous estimate of $30 million-$50 million. This does not include any changes in freight costs for the shipments of the products to our distributors. We are revising our full year 2025 EPS guidance range, inclusive of tariffs, to $7.80-$9.80, up from $6.72-$9.54. Tariffs are expected to have an unfavorable impact of $0.60-$0.80 on earnings per diluted share. As you model our fourth quarter, please keep in mind the following factors. Due to seasonality, the fourth quarter is our smallest revenue quarter with the lowest absolute gross margin rate of the year. Meaningful improvement in our gross margin performance began in last year's fourth quarter, which we will be lapping.
Additionally, we expect volume deleverage in the fourth quarter combined with higher year-over-year shortfall fees. Turning to capital allocation, we ended the quarter with a cash balance of $250.5 million and an unused credit line of $150 million, which provides us with flexibility to continue to invest in our base business, fund future growth initiatives, and return cash to our shareholders through our share buyback program. For the full year 2025, we are lowering our capital expenditure guidance range by $20 million to between $50 million and $70 million, with a portion of the reduction driven by timing. We continue to focus our spend on supporting our productivity programs. During the 13-week period ended September 27, 2025, and the period from September 27, 2025 through October 17, 2025, we repurchased shares in the amount of $50 million and $12.1 million, respectively.
As of October 17, 2025, we had approximately $266 million remaining on the $1.6 billion share repurchase authorization. This concludes our prepared remarks, and now we'll open the line up for questions.