Thank you. Good afternoon and welcome. This is Michael Andrews, Associate General Counsel and Corporate Secretary of The Boston Beer Company. I'm pleased to kick off our 2026 first 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 over to Jim to share his comments.
Thanks, Mike. I'll begin my remarks this afternoon with an overview of our strategy and operating results before turning the call over to Diego to discuss our first quarter financial results and our financial outlook for the remainder of 2026. Immediately following Diego's comments, we will open the line for questions. In the first quarter, we were encouraged to see some signs of improvement in the total beer and RTD category, which we estimate was flat in volume compared to a decline of 4% for the full year of 2025. Beyond beer continues to outperform traditional beer in volume in measured off-premise channels with an increase of about 3% for the quarter compared to traditional beer, which slightly declined.
While these trends represent modest industry progress, we continue to anticipate volume headwinds for 2026, given a dynamic macroeconomic environment and evolving geopolitical developments that may impact consumer spending. With respect to the Boston Beer portfolio, we have not yet fully participated in the improvement in category trends. We are encouraged that Twisted Tea and Sun Cruiser together are growing depletions, driven by the strong performance of Sun Cruiser and some sequential improvement in Twisted Tea. Angry Orchard and Dogfish Head have now experienced four consecutive quarters of growth. However, Truly remains a meaningful portion of our mix and continues to lose share. We've also seen some softness in Samuel Hard MTN DEW. our first quarter depletions were down 4%.
As we expected, shipments trailed depletions at down 7%, reflecting first quarter 2025 shipments comparisons when distributors built inventory for our Sun Cruiser and Truly Unruly innovations. Additionally, improvements in the responsiveness of our supply chain to meet consumer demand led to moderately lower distributor inventory of four and a half weeks on hand at the end of the quarter versus five weeks on hand in the prior year period. We continue to make strong progress on our margin enhancement initiatives, delivering 49.3% first quarter gross margin, and we're on track to achieve our planned full year 2026 savings. The business is generating strong cash flow, and we have repurchased over $30 million in shares year to date.
Our priorities for 2026 continue to be supporting our category-leading brands to improve market share trends, launching strong innovation, and continuing to expand our gross margins. We remain focused on controlling what we can control and executing in the marketplace, and I'm confident in our operating plans for the key summer selling season. Incremental advertising support for our brands following a significant step-up in 2025 is on track while maintaining flexibility to adjust toward the lower end of our financial guidance range and brand investments as we monitor the energy cost environment. With respect to our full year outlook, we expect the factors that I discussed on our last call, including tighter consumer budgets, pressure on the Hispanic consumer, and moderation trends to continue.
Based on year-to-date depletion trends and our latest outlook for the balance of the year, we are slightly narrowing our 2026 volume range to down low single digits to mid-single digits from our prior guidance of flat to down mid-single digits. As we look to the summer, we're highly focused on executing our marketing plans with strong partnerships, programming for the U.S. men's soccer team during the World Cup and local market activations. We expect to slightly increase our total portfolio shelf space this spring while we continue to make progress on regaining lost display space. I'll now provide an overview of our brand performance and plans. As I mentioned on our last call, a key priority for 2026 is to improve share trends and grow volume in the hard tea category through progress in Twisted Tea and the continued expansion of Sun Cruiser.
On a combined basis, Twisted Tea and Sun Cruiser delivered depletion volume growth in the first quarter. As a reminder, to the extent that Sun Cruiser sources volume from Twisted Tea, this is revenue and margin accretive for us. Twisted Tea off-premise measured channel depletion trends improved sequentially in the first quarter, but are not yet where we want them to be. Measured channel sales dollars declined 4% in the quarter compared to a decline of 9% in the fourth quarter against more difficult prior year comparisons. Twisted Tea continued to gain distribution and shelf space with lower velocities reflecting broader category headwinds, reduced feature and display activity, primarily due to the expansion of RTD Spirits and some interactions with spirit-based hard tea. The declines are primarily concentrated in the original lemon tea and variety packs, particularly in 12-pack sizes, as previously discussed.
Encouragingly, Twisted Tea Extreme and Twisted Tea Light are both growing and gain shelf space in the spring resets. We're seeing much better trends in single serve across the full brand portfolio, which indicates continued consumer engagement with the Twisted Tea brand. Far this year, we've increased advertising investment, added new partnerships, and launched new pack sizes and Twisted Tea Extreme flavor innovation. This summer, we'll be running our high-performing Tea Drop national ads complemented with in-store display programs and always-on media for Twisted Tea Extreme and Twisted Tea Light. We've expanded partnerships including Barstool's number one sports podcast, Pardon My Take, and with Realtree Camo. Lastly, we continue to increase our investment in Hispanic and Hispanic language brand content, including new media and digital content, to continue to widen the brand's appeal.
Our pack size innovations, including lower price point four-packs, a 16-ounce can, and a 24-can value pack, and the Twisted Tea Extreme variety pack are now in market. While it is still early, we believe these offerings will continue to provide more options for consumers to engage with the brand and benefit volumes over time. Sun Cruiser has quickly grown to a top five spirits RTDs and is the fastest growing brand in the category by volume across combined measured and off-premise channels. Built in bars and restaurants, Sun Cruiser is the leading RTD spirits tea and lemonade brand in the measured on-premise channels. On-premise remains a key driver of trial, and we are investing in the channel alongside our off-premise expansion.
We expect strong distribution gains for Sun Cruiser in 2026, but continue to expect measured off-channel, off-premise data coverage to be lower versus our other brands due to Sun Cruiser's strong premise in on-premise and independence. Advertising support for Sun Cruiser includes content around the Let the Good Times Cruise media campaign, which includes television, paid social, and digital advertising and key influencers. We will be present where Sun Cruiser fits into our drinkers' lifestyles with a particular focus on music and sports. We recently announced a multiyear USGA partnership, making Sun Cruiser the official ready-to-drink cocktail of two of golf's most noticeable championships, the U.S. Open and the U.S. Women's Open. The partnership goes live this spring, and programming includes retail and tournament activation, golf media, influencers, and experiential marketing programs, as well as wholesaler incentives.
Sun Cruiser will have continued media presence in sports, including the NCAA, the MLB, the NFL, and sponsorship of numerous music concert series. From an innovation perspective, we're maintaining a disciplined range of tea and lemonade styles while expanding package options, including new 19.2 oz single serve packages, single style 8 packs, and tea and lemonade sampler 12 packs. We expect these offerings to broaden drinker occasions and support strong growth in 2026. Turning to hard seltzer, the overall hard seltzer category has continued to improve and grew slightly in dollars in measured off-premise channels for the first quarter. Truly has maintained its number 2 share position in the category. However, share trends remain challenged.
Our effort to improve our share during 2026 include investing in new equity building creative. Capitalizing on the U.S. Men's Soccer team participating in the World Cup and continuing to expand Truly Unruly. We're continuing to build our communications platform of Make Your Dreams Come Truly, while leveraging our U.S. Soccer partnership through our Drink like a Believer program. Drink like a Believer commercial activities launched in May and have been well-received by major retailers. The programming includes displays and a U.S. Soccer collector set of singles, along with a soccer-themed Star Squad Rotator 12-pack and 24-pack. In addition, we will have significant local media and retail programming investment in the 11 host cities. High ABV offerings continue to be a growth driver in hard seltzer, and Truly Unruly continues to grow both volume and distribution as our second-highest volume 12-pack.
In cider, Angry Orchard continues to grow, supported by new positioning, refreshed creative, and strong retail programming, including our St. Patrick's Day-themed promotions and displays in the first quarter. The new Angry Orchard Crisp Imperial 19.2 single-serve cans are a growth driver for the brand, and overall Crisp Imperial volume has increased more than 40% in the first quarter in measured off-premise channels. For our Samuel Adams brand, we have recently updated our brand messaging around Independent Since Forever and are excited to celebrate America's 250th anniversary this summer. To support our Drink Like It's Seventeen Seventy-Six retail programming and promotions, we have launched limited edition retro packaging. For our Dogfish Head brand, which returned to growth in 2025 and has grown for four consecutive quarters, we continue to expand Dogfish Head's Grateful Dead beer collaboration and invest behind the Minute Series IPAs.
Thank you, Jim. Good afternoon, everyone. Depletions in the first quarter decreased 4% and shipments decreased 6.9% compared to the first quarter of last year, primarily driven by decreases in our Twisted Tea, Truly, Samuel Hard MTN DEW brands, partially offset by increases in our Sun Cruiser, Angry Orchard, and Dogfish Head brands. Consistent with our plans, shipments declined at a higher rate than depletions in the quarter, with shipments lapping strong growth in the prior year to load innovation. Distributor inventories at the end of the quarter was four and one half weeks on hand, which was approximately one half of a week lower compared to the end of the quarter last year. This decrease in distributor inventory was due to the timing of innovation and supply chain improvements, as Jim mentioned earlier.
Revenue for the quarter decreased 4.4% due to lower volume, partially offset by price increases and favorable product mix. Our first quarter gross margin of 49.3% increased 100 basis points year-over-year. Gross margin performance primarily benefited from procurement savings and brewery efficiencies. A positive impact of pricing and product mix were offset by inflationary commodities and tariff costs. Advertising, promotional, and selling expenses for the first quarter of 2026 increased $2.5 million or 1.8% year-over-year due to higher freight rates, partially offset by lower volumes. Brand investment were flat, lapping mid-teens increases in advertising investments in the first quarter of 2025. General and administrative expenses increased $4.4 million or 9.1% year-over-year.
Excluding legal costs related to the one-time litigation expense, general and administrative expenses increased by $0.4 million From the first quarter of 2025, primarily due to increased consulting costs. We recorded $216 million in total pre-tax litigation expenses in the quarter. As we previously disclosed, this amount is related to a supplier contract dispute. We intend to pursue all available post-trial motions and appellate remedies. We cannot estimate when or if damages or interest will ultimately be paid, but do not expect this issue to have a material impact on our operating plans. The total impact of these litigation expenses represented a $15.52 impact to our first quarter GAAP EPS. Excluding the litigation-related expenses, we reported non-GAAP EPS of $1.64 per diluted share. I'd like to provide an update on our ongoing productivity initiatives.
We continue to make progress and are on track to deliver our 2026 savings target. As I noted on our fourth quarter call, we expect year-over-year gross margin improvement in 2026, although at a lower rate than that of 2025, given strong performance in 2025. We believe the multi-year operational improvements that we have made in our supply chain better positions us to manage variability and volume, product mix, and the tariff and commodity environment. For the remainder of 2026 and beyond, we continue to expect contribution from all four savings buckets, as I discussed on the last quarter call. I will now provide some highlights on our initiatives in each bucket. In brewery performance, we continue to see improvements in OEEs driven by process improvements, which help to increase our internal production capacity.
In the first quarter, we produced 95% of our domestic volume internally, compared to 85% in the first quarter of last year. For the full year 2026, we continue to estimate domestic internal production will be over 90%, compared to 86% last year. In procurement savings, our first quarter results benefited from lower negotiated pricing on certain packaging and ingredients. As discussed previously, procurement savings have been a significant contributor to our gross margin improvements over the last two years. While we expect some continued benefits in 2026, the impact is expected to moderate versus 2025. In waste and network optimization, we're continuing to enhance our customer ordering and inventory management system. These efforts helped us achieve high customer service levels, lower inventories, and improved our cash flow. In addition, we reduced obsolete inventories 36% in the first quarter.
Revenue management capabilities were added this year as part of our margin agenda. These efforts are in the early stages in 2026, with a more meaningful contribution expected in 2027. Turning to our 2026 guidance. As Jim mentioned earlier, our volume guidance range of down low single digits to down mid single digits reflect year-to-date depletions and market share performance, and our latest outlook for the balance of the year. Fiscal week depletion trends for the first 17 weeks of 2026 have declined 4% year-over-year. A sequential improvement from down 6% in the fourth quarter of 2025. As a reminder, the summer selling season is a significant driver of our full-year volume performance, and we will have more visibility on market trends as we move through the summer.
Since our last earnings call, we are seeing additional inflation in energy and aluminum that could impact the balance of the year. We do not hedge commodities and are closely watching recent market cost increases driven by macroeconomic factors. As a result of these two factors, we are narrowing our full-year non-GAAP EPS guidance to $8.50-$10.50 from our prior guidance of $8.50-$11.00. This EPS outlook embeds our latest volume and energy cost projections as well as productivity and cost mitigation efforts. We also expect to maintain flexibility to reduce incremental advertising spending if needed to offset further headwinds from the macroeconomic cost pressure. We will update our EPS outlook if commodity inflation continues to increase.
We continue to expect price increases of between 1% and 2% and some additional benefit from mix. We continue to expect full year 2026 reported gross margins to be between 48% and 50%. Our outlook expects tailwinds from positive pricing, favorable product mix, productivity savings, and lower shortfall fees, with headwinds from tariffs and commodity inflation. As a reminder, the majority of our freight expense is booked in advertising, promotional, and selling expenses. Our 2026 guidance reflects a full year tariff cost estimate of $20 million-$30 million, versus a partial year in 2025 of $11 million. These tariff cost estimates are based upon tariffs that we are currently being charged by our suppliers and that what we expect to continue going forward.
We continue to estimate that our investments in advertising, promotional, and selling expenses will increase between $20 million and $40 million. This amount does not include any changes in freight costs for the shipment of products to our distributors. As I mentioned earlier, we may choose to spend at the lower end of the range depending on the commodity and energy costs environment. We are estimating our full year 2026 non-GAAP effective tax rate to be approximately 29%-30%. As you model out the year, please keep in mind the following factors. Our business is impacted by seasonal volume changes, with the first quarter and the fourth quarter being lower absolute volume quarters, and the fourth quarter typically our lowest absolute gross margin rate of the year.
We expect first half shipments to decline toward the lower end of our full year volume guidance, with better shipment performance later in the year. This is due to higher shipment comparisons in the first half of the year as the company shipped ahead of depletions in 2025 to support innovation and build distributor inventories, as well as 2026 innovation launches, which are second half weighted. Additionally, improvements in the company's supply chain responsiveness that enables modestly lower distribution inventory levels are expected to have a more meaningful impact on the first half and begin to be lapped throughout the second half. During the full year 2026, we estimate shortfall fees and non-cash expenses of third-party productions prepayments in total will negatively impact gross margin by 40 to 60 basis points. We expect year-over-year gross margin rates improvements to be the most meaningful in the fourth quarter.
We typically expense the majority of our shortfall fees in the fourth quarter. We expect lower shortfall fees in 2026, the timing of this benefits, together with the fact that the fourth quarter is a smaller dollar quarter, has an outsized favorable impact on the gross margin rate. Incremental advertising in-investment is expected to be weighted to the second and third quarters to support the key summer selling season. Turning to capital allocations. We ended the quarter with a cash balance of $164 million and $150 million of availability on our line of credit. These balances, together with our projected future operating cash flow, enables us to maintain operating investments in our business and cash returns to shareholders, as well as the potential litigation related payments. We expect capital expenditures of between $70 million-$90 million in 2026.
These investments will be primarily related to our own breweries to build capabilities, improve efficiencies, and support innovation. We will continue to be disciplined in our capital spending as we monitor the dynamic industry environment over the long term. During the 13-week period ended March 28, 2026, and the period from March 30, 2026 through April 24, 2026, we repurchased shares in the amount of $23.8 million and $7.4 million. As of April 24, 2026, we had approximately $197 million remaining on the $1.6 billion repurchase authorization. This concludes our prepared remarks. Now we'll open the line for questions.