I know these aren’t always an easy read, but some of my readers love them….so here goes. This from MillerCoors & MolsonCoors:
LONDON & DENVER-/mbb/-SABMiller plc (LN:SAB; OTC:SABMRY) and Molson Coors Brewing Company (NYSE: TAP; TSX: TPX) reported that MillerCoors posted underlying profit growth of 11.7 percent and a 4.1 percent increase in domestic net revenue per barrel versus the same quarter in the prior year.
“Led by Redd’s, Leinenkugel’s and Blue Moon, our strategy to grow share in the high-margin and fast-growing above premium space is driving excellent sales mix”
said MillerCoors Chief Executive Officer Tom Long. “The quality of our beers continues to be second to none and we are pleased consumers and customers are responding. And even though we continue to increase total company net revenue and total company net income, we are not satisfied with the on-premise distribution or volume performance of our premium light brands. Our recently announced restructuring will reduce our fixed cost base and allow increased brand investment moving forward, particularly on our premium lights.”
Third Quarter Highlights
Unless otherwise indicated, all amounts are in U.S. dollars and calculated in accordance with accounting principles generally accepted in the U.S. (U.S. GAAP). All percentages are versus the prior year comparable period and include MillerCoors operations in the U.S. and Puerto Rico. Quarterly sales-to-retailers (STRs) results are presented on a trading-day-adjusted basis, as the third quarter of 2013 had one more trading day compared with the same quarter in the prior year.
- Total net revenue increased 2.9 percent to $2.051 billion for the quarter.
- Total cost of goods sold (COGS) per barrel increased 3.8 percent.
- Underlying net income (a non-GAAP measure) increased 11.7 percent to $363.8 million.
- Domestic net revenue per barrel, excluding contract brewing and company-owned distributor sales, increased 4.1 percent, representing the best quarterly performance since first quarter, 2009.
- Domestic STRs decreased 1.9 percent.
- Domestic sales-to-wholesalers decreased 1.5 percent.
Brand Highlights for the Third Quarter
Coors Light continued to gain share within the premium light segment according to Nielsen, and leveraged its “Rocky Mountain Cold Refreshment” positioning. Volume declined low-single digits in the quarter. Miller Lite declined mid-single digits in the quarter. The “Don’t Mess with Miller Time” Hispanic advertising campaign, featuring actor Danny Trejo, began in early October and is airing on Spanish-language television and digital outlets. The brand will be bringing back the original Miller Lite can design from January 1 – March 15, 2014 to drive new interest and trial by legal drinking age millennials.
Tenth and Blake Beer Company grew the MillerCoors Craft and Import portfolio by high-single digits. Leinenkugel’s Summer Shandy expanded nationally and increased double digits. In 2013, Summer Shandy is the single largest driver of craft volume growth, accounting for nearly 10 percent of total craft industry growth, according to Nielsen. In addition, Leinenkugel’s Orange Shandy has made a promising start and is outperforming initial expectations. Blue Moon Belgian White grew mid-single digits in the quarter, continuing its run of 72 consecutive quarters of growth. Batch 19 volumes grew 275 percent as it continued to expand nationally.
MillerCoors new brands delivered exceptional volume and value growth in above premium. Redd’s Apple Ale has quickly become one of the fastest growing beer brands in the United States. Redd’s Strawberry Ale was introduced in the third quarter and has had a strong start, gaining incremental shelf space for the Redd’s franchise. Third Shift Amber Lager continues to perform well and is now a top 15 craft brand by dollar sales according to Nielsen.
Coors Banquet grew double digits fueled by the new 12-ounce “stubby” heritage bottle modeled after the brand's post-Prohibition era packaging. It’s making an extraordinary comeback in the American lager category and is on track to achieve its 7th consecutive year of growth.
Miller High Life continued its military veteran program and completed a partnership with Harley-Davidson to celebrate the 110th anniversaries of the two iconic American brands. Miller High Life and Keystone Light will begin national television advertising campaigns next spring.
Financial Highlights for the Third Quarter
Domestic net revenue per barrel grew 4.1 percent for the quarter as a result of higher net pricing and favorable brand mix. Brand mix favorability was driven largely by the success of Redd’s and Leinenkugel’s Shandy variants.
Total company net revenue per barrel, including contract brewing and company-owned distributor sales, increased 3.9 percent. Third-party contract brewing volumes were up 2.8 percent.
Total COGS per barrel increased 3.8 percent, driven by commodity and brewery inflation and higher costs associated with brand innovation.
Marketing, general and administrative costs decreased by 3.4 percent for the quarter, driven primarily by lower pension expense, a reduction in costs associated with the business transformation initiative and less promotional activity, which more than offset increased investments in support of new brand offerings.
In the third quarter, MillerCoors achieved $33 million of cost savings, primarily related to procurement, logistics and brewery efficiencies.
Depreciation and amortization expenses in the third quarter were $71.6 million, and additions to tangible and intangible assets totaled $88.1 million.
Severance costs of $15.0 million related to a restructuring were recorded as a special item in the quarter. 
Third Quarter 2013 Highlights (1)
- Worldwide beer volume: 17.0 million hectoliters, decreased 0.9%
- Net sales: $1.17 billion, decreased 2.0%
- Underlying after-tax income: $268.1 million, increased 7.7% ($1.45 per diluted share)
- U.S. GAAP net income from continuing operations attributable to MCBC: $120.9 million, decreased 38.8% ($0.65 per diluted share) due to $163.1 million of special and other non-core expenses
- Underlying EBITDA (earnings before interest, taxes, depreciation and amortization): $464.3 million, increased 0.6%
- First three quarters 2013 Underlying Free Cash Flow: $746.8 million, increased 0.2%
DENVER & MONTREAL--/mbb/--Molson Coors Brewing Company (NYSE: TAP; TSX: TPX) today reported a 7.7 percent increase in underlying after-tax income for the third quarter 2013, driven by improved performance in its U.S., Europe, and International businesses, along with less interest expense and a lower quarterly tax rate versus a year ago. U.S. GAAP net income from continuing operations attributable to MCBC decreased 38.8 percent due to $163.1 million of special and other non-core expenses. (See Special and Other Non-Core Items below for details.) Worldwide beer volume decreased 0.9 percent, and net sales declined 2.0 percent in the third quarter of 2013.
“In the third quarter, our U.S. GAAP after-tax income declined nearly 39 percent, primarily due to a $150.9 million non-cash write-down of the value of two brands in our Europe business as a result of our annual asset impairment testing process.”
Molson Coors president and chief executive officer Peter Swinburn said, “In the third quarter, Molson Coors increased underlying after-tax earnings nearly 8 percent, expanded gross margins and underlying pretax margins, grew underlying EBITDA and free cash flow, and reduced our debt. As we anticipated on our earnings call last quarter, consumer demand was weak across our markets. Despite poor consumer uptake, we have continued to invest in our core brands. Our innovation pipeline is delivering a mid-single-digit percent of sales, and our owned above-premium brand portfolio is growing at a double-digit rate globally. We made progress on our global cost savings and cash generation targets, paid down nearly $282 million of net debt in the quarter, and will deliver the cost savings that we announced during our June Investor Day in NY. We continued to standardize processes to reduce complexity and improve efficiency."
Swinburn added, “In the third quarter, our U.S. GAAP after-tax income declined nearly 39 percent, primarily due to a $150.9 million non-cash write-down of the value of two brands in our Europe business as a result of our annual asset impairment testing process."
Underlying EBITDA and Free Cash Flow
Underlying earnings before interest, taxes, depreciation and amortization, or underlying EBITDA, reached $464.3 million in the third quarter, a 0.6 percent increase from a year ago. Year to date underlying EBITDA increased 5.8 percent from a year ago to $1.15 billion this year.
Underlying free cash flow through third quarter 2013 totaled $746.8 million. This represents an increase of $1.8 million on top of strong cash generation last year.
Foreign Exchange
The Company’s third quarter underlying pretax income includes a net favorable impact of approximately $3 million from foreign currency movements. Foreign currency was approximately $4 million positive in both Europe and Corporate, and $5 million negative in Canada.
Effective Income Tax Rates
The Company’s third quarter effective income tax rate was 21 percent on a reported basis and 15 percent on an underlying basis, with the difference driven by special and other non-core items. On an underlying basis, our effective tax rate was approximately 3 percentage points lower than prior year primarily due to changes in the geographic mix of income and one-time tax benefits in the quarter.
Debt
Total debt at the end of the third quarter was $3.89 billion, and cash and cash equivalents totaled $406.9 million, resulting in net debt of $3.48 billion.
Third Quarter Business Segment Results
The following are the Company’s third quarter 2013 results by business segment:
United States Business (MillerCoors)(2)
Molson Coors underlying U.S. segment equity income increased 10.5 percent to $154.6 million in the quarter.
MillerCoors Operating and Financial Highlights
MillerCoors underlying net income for the quarter increased 11.7 percent to $363.8 million, driven by stronger pricing, brand mix and cost reductions, partially offset by the impact of commodity and brewery inflation and lower volumes.
MillerCoors domestic sales to retailers (STRs) declined 1.9 percent, on a trading-day-adjusted basis for the quarter. Domestic sales to wholesalers (STWs) decreased 1.5 percent. Domestic net revenue per hectoliter, which excludes contract brewing and company-owned-distributor sales, grew 4.1 percent primarily due to higher net pricing and favorable brand mix. Total company net revenue per hectoliter, including contract brewing and company-owned distributor sales, increased 3.9 percent. Third-party contract brewing volumes increased 2.8 percent.
Cost of goods sold (COGS) per hectoliter increased 3.8 percent, driven by commodity and brewery inflation and higher costs associated with brand innovation. Marketing, general and administrative (MG&A) expense decreased 3.4 percent, driven primarily by lower pension expense, a reduction in costs associated with the business transformation initiative, and less promotional activity, which more than offset increased investments in support of new brand offerings.
Depreciation and amortization expenses for MillerCoors in the third quarter were $71.6 million, and additions to tangible and intangible assets totaled $88.1 million.
Canada Business
Canada underlying pretax income decreased 13.3 percent to $130.6 million in the quarter and decreased 9.6 percent in local currency. Lower volume drove the decline in Canada, despite reduced G&A costs in the quarter. A decrease in the Canadian dollar versus the U.S. dollar resulted in an approximate $5 million negative foreign exchange impact in the quarter.
STRs decreased 3.3 percent in the third quarter primarily due to higher beer excise taxes in Quebec, weak economic conditions and increased competitor promotional activity across key regions this year. The Canadian beer market declined approximately 1 percent, and our market share decreased about one percentage point versus a year ago. Third quarter sales volume for Molson Coors Canada decreased 5.2 percent, due to lower STRs and a larger reduction in customer inventories this year. Net sales per hectoliter decreased 0.3 percent in local currency, driven by mix shift to lower-priced brands and packages, partially offset by positive net pricing in the quarter.
COGS per hectoliter increased 1.4 percent in local currency, driven by inflation and fixed-cost deleverage, along with increased pension and other costs this year. MG&A expense decreased 3.6 percent in local currency, driven by reductions in incentive compensation and overhead costs, partially offset by increased marketing and sales investments.
Europe Business(3)
Europe underlying pretax income increased 5.7 percent to $95.0 million driven by pricing, volume growth, cost savings, and an approximate $4 million benefit from favorable foreign currency movements.
Europe sales volume increased 0.7 percent due to improved performance in Czech Republic, Croatia and the U.K., which benefited from favorable weather during the quarter. Weak demand affected most of our Central Europe markets, particularly in Serbia, Romania and Bulgaria. Europe net sales per hectoliter increased 3.3 percent in local currency due to positive pricing.
COGS per hectoliter decreased 0.2 percent in local currency as a result of cost reduction initiatives.
MG&A expenses increased 18.4 percent in local currency, driven by higher incentive compensation and investment behind core brands and innovation, along with year-over-year differences in the timing of marketing and sales spending.
International Business (4)
The International segment posted an underlying pretax loss of $2.1 million in the third quarter, an improvement of $5.6 million, or 72.7 percent, from a year ago due to timing of marketing investment in Japan, improved profit performance in our China business and lower overhead expenses, partially offset by the negative impact of transferring our Carling travel and export business to the Europe segment.
Total International sales volume, including royalty volume, decreased 18.0 percent primarily due to the industry weakness in our Ukraine and Russia license markets and the negative impact of transferring our Carling travel and export business to the Europe segment. This decline was partially offset by strong growth in Mexico and Latin America. Net sales per hectoliter increased 8.2 percent, driven by positive geographic mix and higher net pricing in China.
COGS per hectoliter increased 4.6 percent, driven by geographic mix and the addition of contract brewing volume in India. International MG&A expense decreased 28.9 percent, driven by the timing of marketing investment in Japan, along with a year-over-year difference in the timing of overhead expenses.
Corporate
Underlying Corporate pretax expenses totaled $59.6 million for the third quarter. This $7.6 million decrease was driven by lower interest expense due to debt repayment and favorable foreign currency movements.
Special and Other Non-Core Items
The following special and other non-core items have been excluded from underlying pretax earnings.
During the quarter, Molson Coors special items resulted in a $163.0 million pretax charge, primarily driven by impairment charges of $150.9 million related to indefinite-lived intangible brand assets in Europe, $8.9 million in restructuring costs in Europe and Canada, $2.6 million of losses and related costs in our Europe business due to significant flooding in Czech Republic in the second quarter of 2013, and $0.6 million of other special charges. The $150.9 million of impairment charges in Europe were the result of our annual asset impairment testing process, which drove fair value adjustments to Jelen, a mainstream brand in Serbia, and to Ostravar, a regional brand in Czech Republic. Both brands have recently faced increased competition, reduced volume and macroeconomic weakness in their markets, which are driving lower projected cash flows. Also, higher discount rates in Serbia and Czech Republic were factors in the asset impairments, as was a 50% increase in Serbian income tax rates.
During the quarter, MillerCoors reported a $15.0 million special charge related to organizational restructuring. This equates to $6.3 million at Molson Coors' 42 percent economic ownership share.
Other non-core items resulted in a $6.2 million pretax gain, which was due to $10.6 million in net gains primarily related to fair value and foreign exchange movements on our 500 million Euro convertible note that was settled during the third quarter, partially offset by $4.4 million of acquisition and integration costs. The $10.6 million of net gains consisted of a $21.1 million gain recorded as non-core interest income due to fair value changes recognized upon settlement of the Euro note, partially offset by a $10.5 million net loss primarily related to foreign currency movements on this note and recorded within other income (expense).
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