Molson Coors Reports 2017 Third Quarter and Year-to-Date Results

From Molson Coors:

On Track to Deliver Full-Year Business Plans and Exceed Cost Savings Target

Worldwide Brand Volume Increased 0.6% to 25.5 million HL; Priority Brand Volume Grew 2.4%

Net Sales Revenue (NSR)/HL Increased 2.9%, and 1.9% in Constant Currency

EPS of $1.29 Decreased 12.2%, and Underlying EPS (Non-GAAP) of $1.34 Decreased 3.6%

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Year-To-Date (YTD) Worldwide Brand Volume Increased 1.6% to 71.6 million HL; Priority Brand Volume Grew 4.4%

YTD NSR/HL Increased 1.6%, and 2.4% in Constant Currency

YTD EPS of $3.71 Decreased 9.5%, and Underlying EPS (Non-GAAP) of $3.76 Decreased 2.8%

YTD Operating Cash Flow Increased 82%, Underlying Free Cash Flow Increased 78%

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November 01, 2017 07:00 AM Eastern Daylight Time

DENVER & MONTREAL Molson Coors Brewing Company (NYSE: TAP; TSX: TPX) today reported results for the 2017 third quarter. Molson Coors president and chief executive officer Mark Hunter said:

“One year on from the close of the MillerCoors transaction, Molson Coors is driving a cohesive First Choice commercial agenda, an expanded international business, a more efficient global organization, and a relentless focus on financial performance, all underpinned by highly engaged employees who are playing to win.”

"In reviewing our performance in the quarter, as well as year to date, we are building traction against our strategic priorities, as indicated by delivering growth in global brand volume, net sales per hectoliter and underlying EBITDA margin. Despite challenging market conditions in North America, we remain on track to deliver our 2017 business and financial plans and exceed our original cost savings targets and cash flow goals, as well as maintain our investment-grade debt ratings.

Mark added, "Year to date, we have delivered worldwide brand volume growth, driven by our global priority brands, and on a constant-currency basis, NSR per hectoliter is up more than 2 percent, as our focus on portfolio premiumization has driven pricing and mix benefits. Our above-premium brands have grown more than 20 percent year to date and now represent nearly one-fifth of our global volume. We have also improved our EBITDA margins this year while investing in the business.

"For the medium term, we continue to expect underlying EBITDA margins to increase an annual average of 30 to 60 basis points over the next three to four years. For 2017, we anticipate margins being in this range.

"One year on from the close of the MillerCoors transaction, Molson Coors is driving a cohesive First Choice commercial agenda, an expanded international business, a more efficient global organization, and a relentless focus on financial performance, all underpinned by highly engaged employees who are playing to win."

Quarterly Highlights (versus Third Quarter 2016 Pro Forma Results, unless otherwise noted)

• Net sales: $2.88 billion, decreased 2.1 percent, due to lower financial volumes, partially offset by positive global pricing, sales mix, royalty volume and foreign currency movements. Net sales in constant currency declined 3.0 percent.
• Net sales per HL: $109.67, increased 2.9 percent, and 1.9 percent in constant currency, driven by higher global pricing and sales mix.
• Volume: Worldwide brand volume of 25.5 million hectoliters increased 0.6 percent due to strong growth in Europe and International, partially as a result of adding the Miller global brands business and also from growth in some of our core brands. Global priority brand volume increased 2.4 percent. Financial volume of 26.3 million hectoliters decreased 4.8 percent, driven by the U.S. and Canada, which were adversely impacted by reductions in wholesaler inventories, contract brewing and brand volumes. These volume declines were partially offset by growth in both Europe and International due to added Miller International brand volumes, as well as positive organic brand performance.
• U.S. GAAP net income from continuing operations attributable to MCBC decreased 12.1 percent as a result of a higher tax rate, lower financial volume, higher brand amortization, and higher general and administrative costs, partially offset by positive pricing and mix, cost savings, lower interest expense and unrealized mark-to-market gains on our commodity positions.
• Underlying net income (non-GAAP) decreased 3.5 percent, driven by lower financial volume, along with higher brand amortization expense, general and administrative costs, and effective tax rate, partially offset by positive pricing and mix, cost savings and lower interest expense.
• The company looks at value creation from the MillerCoors transaction through the lens of the sum of three numbers. In the third quarter, these numbers were:
  • Underlying net earnings of $289.7 million, plus…
  • $109 million of transaction-related cash tax benefits and…
  • $11 million of transaction-related after-tax book amortization.
  • To calculate this measure on a per-share basis, the company had 216.5 million weighted average diluted shares outstanding in the third quarter.
• Underlying EBITDA: Decreased 0.4 percent on a reported basis and decreased 1.2 percent on a constant-currency basis.
• U.S. GAAP cash from operations: Net cash from operating activities for the first three quarters of 2017 was $1,145.4 million, which represents an increase of $515.2 million from actual prior year results, driven by the addition of the other 58 percent of MillerCoors cash flows, as well as lower cash paid for taxes, which were partially offset by higher cash paid for interest.
• Underlying free cash flow: $836.4 million for the first three quarters of 2017, a 78.2 percent increase from actual prior year results of $469.4 million, driven by the same factors as cash from operations, partially offset by higher capital expenditures.
• Debt: Total debt at the end of the third quarter was $12.319 billion, and cash and cash equivalents totaled $971.3 million, resulting in net debt of $11.348 billion, which is $164 million lower than at the beginning of the year. As planned, we also made an additional, discretionary contribution of $200 million to our U.S. defined-benefit pension plan in the third quarter as part of our deleveraging goals.

United States Business (MillerCoors) (versus Third Quarter 2016 Pro Forma Results)

• Volume: U.S. domestic sales-to-retailers volume (STRs, trading-day-adjusted) declined 2.9 percent for the quarter, driven by lower volume in the Premium Light and Below Premium segments. Domestic sales-to-wholesalers volume (STWs) decreased 7.2 percent, partially driven by a reduction in distributor inventories and one less trading day this quarter.
• Revenue: Domestic net sales per hectoliter, which excludes contract brewing and company-owned-distributor sales, grew 1.2 percent as a result of higher net pricing, partially offset by negative sales mix.
• Cost of goods sold (COGS) per hectoliter decreased 0.1 percent, driven by cost savings partially offset by volume deleverage and higher input costs.
• Marketing, general and administrative (MG&A) expense decreased 5.5 percent due to lower marketing and information technology investments.
• On a U.S. GAAP basis, United States income from continuing operations before income taxes increased 5.3 percent to $365.1 million, primarily due to higher net pricing; cost savings; lower MG&A expenses; net interest income as a result of a reduction in mandatorily redeemable noncontrolling interest liabilities; and lower special charges related to the 2016 Eden, North Carolina, brewery closure.
• United States underlying EBITDA increased 0.8 percent to $475.6 million, driven by higher net pricing, cost savings and lower MG&A expenses, partially offset by the impact of lower shipment volumes.

Canada Business

• Volume: Canada brand volume decreased 1.7 percent in the third quarter, as a result of lower domestic volumes, partially offset by the return of the Miller brands to our portfolio. Canada financial volume, which includes contract brewing volume, decreased 4.7 percent primarily due to a timing-related reduction in wholesale inventories, as well as lower contract brewing volume.
• Revenue: Net sales per hectoliter increased 2.0 percent in local currency, primarily due to positive pricing and brand mix.
• COGS per hectoliter increased 3.1 percent in local currency due to volume deleverage, mix shift, and unfavorable transactional foreign currency impacts, partially offset by cost savings.
• MG&A expense increased 5.9 percent in local currency, driven primarily by higher brand amortization expense of approximately $10 million related to changing the Molson brands to definite-lived intangible assets last year.
• On a U.S. GAAP basis, Canada reported a 15.5 percent decrease in income from continuing operations before income taxes to $76.3 million, compared to the prior year, which was attributable to lower domestic volume and higher brand amortization expense.
• Canada underlying EBITDA decreased 0.5 percent to $112.1 million in the quarter, driven by the impact of lower domestic volume and fixed-cost deleverage, partially offset by positive pricing and favorable foreign currency.

Europe Business

• Volume: Europe brand volume increased 9.6 percent in the third quarter versus a year ago, primarily driven by the transfer of royalty and export brand volume across Europe from our International business and the addition of the Miller brands, along with growth from our core and above-premium brands. Europe financial volume, which includes contract brewing and factored brands but excludes royalty volume, increased 2.7 percent.
• Revenue: Europe net sales per hectoliter increased 4.1 percent in local currency, due to positive mix and net pricing.
• COGS per hectoliter increased 2.2 percent in local currency, primarily driven by mix shift to higher-cost brands and geographies, partially offset by higher net pension benefit this year.
• MG&A expense increased 7.4 percent in local currency, due to higher brand investments and general and administrative costs, including related to the addition of the Miller brands this year.
• On a U.S. GAAP basis, Europe reported income from continuing operations before income taxes of $98.3 million, a 0.2 percent decrease compared to the prior year due to cycling a gain on the sale of a non-operating asset in the U.K. and the receipt of net insurance proceeds last year related to the Balkan floods in 2014.
• Europe underlying EBITDA increased 13.6 percent to $140.3 million, driven by higher volume, positive sales mix and pricing, increased net pension benefit and favorable foreign currency.

International Business

• Volume: International brand volume increased by 64.7 percent in the third quarter, driven by the transfer of the Puerto Rico business from MillerCoors, Coors Light growth primarily in Latin America, and the addition of the Miller global brands business.
• Revenue: Net sales per hectoliter decreased 11.6 percent, driven by sales mix changes, partially offset by positive pricing.
• COGS per hectoliter decreased 2.8 percent, due to sales mix changes.
• MG&A expense increased 69.8 percent, driven by increased brand investments, including higher brand amortization expense, along with higher organization and integration costs related to the acquisition of the Miller global brands business.
• On a U.S. GAAP basis, International segment reported a loss from continuing operations before income taxes of $6.0 million versus a loss of $2.7 million a year ago, driven by higher brand amortization and integration costs related to the acquisition of the Miller global brands business, along with the loss of the Modelo contract in Japan, partially offset by higher volume and positive pricing.
• International underlying EBITDA was a loss of $1.0 million in the third quarter, versus a loss of $1.8 million a year ago, driven by higher volume and positive pricing, partially offset by higher MG&A expense and the loss of the Modelo contract in Japan.

Corporate

• On a U.S. GAAP basis, Corporate loss from continuing operations on a reported basis was $102.1 million in the third quarter compared to a loss of $119.6 million in the prior year, primarily due to higher unrealized mark-to-market gains on commodity swaps and lower costs this year related to the MillerCoors acquisition, partially offset by higher investments in our global growth initiatives.
• Corporate underlying EBITDA was a loss of $47.3 million for the third quarter versus a $26.7 million loss in the prior year, driven primarily by higher global investments in commercial, supply chain and information technology, as well as unfavorable foreign currency impacts and certain cost transfers from business units.

Special and Other Non-Core Items

The following special and other non-core items have been excluded from underlying results. See the Appendix for reconciliations of non-GAAP financial measures.

• During the third quarter, MCBC recognized a net special charge of $4.1 million, primarily driven by accelerated depreciation related to the planned closure of breweries in Canada and the U.K., partially offset by a gain on the sale of brewery property in Bulgaria.
• Additionally during the third quarter, we recorded other non-core net benefits of $29.8 million, primarily driven by unrealized mark-to-market gains on commodity hedges, partially offset by Acquisition-related expenses.

2017 Outlook

The following targets for full year 2017 are unchanged from previous disclosures, unless otherwise indicated:

• Underlying free cash flow: $1.2 billion, plus or minus 10 percent.
• Cash pension contributions of approximately $310 million as a result of an additional, discretionary contribution of $200 million to the U.S. pension plan. - Updated (formerly in the range of $300 to $320 million)
  • Included in 2017 underlying free cash flow target.
• Transaction-related cash tax benefits: more than $400 million.
• Capital spending: approximately $650 million, plus or minus 5 percent. - Updated (formerly $750 million, plus or minus 10 percent)
• Cost savings: more than $175 million.
• Cost of goods sold per hectoliter:
  • MillerCoors: low-single-digit increase.
  • Canada: mid-single-digit increase (local currency).
  • Europe: low-single-digit increase (local currency).
  • International business: increase at a low-single-digit rate. - Updated (formerly decrease at a mid-single-digit rate)
• Underlying Corporate MG&A expense: approximately $170 million, plus or minus 10 percent.
• Underlying depreciation and amortization: approximately $790 million.
• Pension income: approximately $27 million. - Updated (formerly $24 million)
• Underlying Corporate net interest expense: approximately $360 million, plus or minus 5 percent. - Updated (formerly consolidated net interest of $370 million, plus or minus 10 percent)
• Underlying effective tax rate in the range of 26 to 28 percent. - Updated (formerly 24 to 28 percent)

Notes

Unless otherwise indicated in this release, all $ amounts are in U.S. Dollars, and all quarterly comparative results are for the Company’s third quarter ended September 30, 2017, compared to the third quarter ended September 30, 2016. All per-hectoliter calculations include contract brewing and non-owned factored beverage volume in the denominator, as well as the financial impact of these sales in the numerator, unless otherwise indicated. Some numbers may not sum due to rounding.

As used in this release, the term “Acquisition” refers to the Company’s acquisition from Anheuser-Busch InBev SA/NV on October 11, 2016, of SABMiller plc’s 58 percent economic interest and 50 percent voting interest in MillerCoors LLC and all trademarks, contracts and other assets primarily related to the Miller International business outside of the U.S. and Puerto Rico.

2017 Third Quarter Conference Call

Molson Coors Brewing Company will conduct an earnings conference call with financial analysts and investors at 11:00 a.m. Eastern Time today to discuss the Company’s 2017 third quarter results. The live webcast will be accessible via the Company’s website, www.molsoncoors.com. An online replay of the webcast will be available until 11:59 p.m. Eastern Time on February 13, 2018. The Company will post this release and related financial statements on its website today.

Overview of Molson Coors

With a story that starts in 1774, Molson Coors has spent centuries defining brewing greatness. As one of the largest global brewers, Molson Coors works to deliver extraordinary brands that delight the world’s beer drinkers. From Coors Light, Miller Lite, Carling, Staropramen and Sharp’s Doom Bar to Leinenkugel’s Summer Shandy, Blue Moon Belgian White, Pilsner Urquell, Creemore Springs Premium Lager and Smith & Forge Hard Cider, Molson Coors offers a beer for every beer lover.

Molson Coors operates through Molson Coors Canada, MillerCoors, Molson Coors Europe and Molson Coors International. The company is not only committed to brewing extraordinary beers, but also running a business focused on respect for its employees, communities and drinkers, which means corporate responsibility and accountability right from the start. It has been listed on the Dow Jones Sustainability North American Index for the past seven years. To learn more about Molson Coors Brewing Company, visit molsoncoors.com, ourbeerprint.com or on Twitter through @MolsonCoors.

About Molson Coors Canada Inc.

Molson Coors Canada Inc. (MCCI) is a subsidiary of Molson Coors Brewing Company. MCCI Class A and Class B exchangeable shares offer substantially the same economic and voting rights as the respective classes of common shares of MCBC, as described in MCBC’s annual proxy statement and Form 10-K filings with the U.S. Securities and Exchange Commission. The trustee holder of the special Class A voting stock and the special Class B voting stock has the right to cast a number of votes equal to the number of then outstanding Class A exchangeable shares and Class B exchangeable shares, respectively.

Forward-Looking Statements

This press release includes “forward-looking statements” within the meaning of the U.S. federal securities laws. Generally, the words “believe,” “expect,” “intend,” “anticipate,” “project,” “will,” and similar expressions identify forward-looking statements, which generally are not historic in nature. Although the Company believes that the assumptions upon which its forward-looking statements are based are reasonable, it can give no assurance that these assumptions will prove to be correct. Important factors that could cause actual results to differ materially from the Company’s historical experience, and present projections and expectations are disclosed in the Company’s filings with the Securities and Exchange Commission (“SEC”). These factors include, among others, our ability to successfully integrate the acquisition of MillerCoors; our ability to achieve expected tax benefits, accretion and cost savings and synergies; impact of increased competition resulting from further consolidation of brewers, competitive pricing and product pressures; health of the beer industry and our brands in our markets; economic conditions in our markets; additional impairment charges; our ability to maintain manufacturer/distribution agreements; changes in our supply chain system; availability or increase in the cost of packaging materials; success of our joint ventures; risks relating to operations in developing and emerging markets; changes in legal and regulatory requirements, including the regulation of distribution systems; fluctuations in foreign currency exchange rates; increase in the cost of commodities used in the business; the impact of climate change and the availability and quality of water; loss or closure of a major brewery or other key facility; our ability to implement our strategic initiatives, including executing and realizing cost savings; our ability to successfully integrate newly acquired businesses; pension plan and other post-retirement benefit costs; failure to comply with debt covenants or deterioration in our credit rating; our ability to maintain good labor relations; our ability to maintain brand image, reputation and product quality; and other risks discussed in our filings with the SEC, including our most recent Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q. All forward-looking statements in this press release are expressly qualified by such cautionary statements and by reference to the underlying assumptions. You should not place undue reliance on forward-looking statements, which speak only as of the date they are made. We do not undertake to update forward-looking statements, whether as a result of new information, future events or otherwise.

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