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EAST: Looking for an explosion in revenue over the next two quarters with expanding margins. Fourth quarter results were below our expectations. With the improving outlook we are increasing our stock price to $9.00 a share.

By Ian Gilson, PhD, CFA


Eastside Distilling (NASDAQ:EAST) announced its fourth quarter and full year results on April 02, 2018 followed by a conference call.

Both revenue and earnings were below our estimates mainly due to lower gross and net prices per case than we had anticipated. The rebranding of the Burnside Bourbon line had a larger impact than we had realized and this is one of the most profitable spirits Eastside sells. The MotherLode facility added expenses but no revenue. As a result gross margins were well below our forecast.

Looking into 2018 the news is very good. The Burnside Bourbon line has recovered back to its prior levels ( it was responsible for most of the growth in revenue in 4Q17) and is still growing. The potato Vodka continues to do well. Net prices per case are improving both Y/T and sequentially. MotherLode will generate revenue in the 1Q18. All of these factors will improve gross margins.

The new excise tax laws will also have an immediate impact.

The Redneck Riviera now has points of sale at retail in 70 cities across the United States. With price points close to $150 a case (9 liters or 12 750 ml bottles). Eastside sold 2,800 cases in the two months it was available in 1Q18. That is a annualized run rate (adjusted for seasonality) of close to 9,000 cases. However, pipeline filling is taking place and final sell through may not be this high. Other Redneck Riviera spirits may be introduced before year end.

We are looking for record revenue in the first quarter and further increase in 2Q18. The third quarter may show some seasonality in spirits sales but MotherLode may produce meaningful revenue in the second half of the year.

Given the increasing sales growth, improving margins, brand recognition and expanding geographical distribution we are increasing our price target from $8 to $9 a share.


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