SABMiller and Molson Coors Report MillerCoors First Quarter Earnings
SABMILLER AND MOLSON COORS REPORT MILLERCOORS FIRST QUARTER EARNINGS
Accelerated Synergies, Strong Revenue Growth, and Cost Management Drive Nearly 50% Increase in Underlying Profits Despite Continuing Commodity Cost Pressures
May 5, 2009 (London and Denver) – Based on accelerated synergy delivery, strong revenue growth, disciplined cost management and timing of marketing expenditure, SABMiller plc (SAB.L) and Molson Coors Brewing Company (NYSE: TAP; TSX) today reported increased profits for MillerCoors on a pro forma basis for the quarter ended March 31, 2009, despite continuing commodity cost pressures.
“We delivered growth on five of our six focus brands, and we increased profitability through strong pricing growth and reduced price promotions,” said MillerCoors Chief Executive Officer Leo Kiely. “These results demonstrate the strength of the MillerCoors portfolio in the face of a challenging economy and intense competition.”
Key operating results for the first quarter are compared to the prior year on a pro forma basis and include MillerCoors operations in the U.S. and Puerto Rico. MillerCoors volumes for the period are reported on a trading-day-adjusted basis, which reflects one fewer trading day in the quarter versus a year ago.
o Five out of six MillerCoors focus brands increased sales-to-retailers (STRs) in the first quarter:
o Coors Light STRs were up low single digits
o Miller Lite STRs decreased mid single digits, a reduced year-over-year rate of decline versus the previous quarter
o The continued acceleration of MGD 64 led to volume growth in the Miller Genuine Draft franchise (up mid single digits) for the first time in a decade
o The craft and import portfolio rose in the first quarter, as Blue Moon continued to perform well with STRs up high single digits
o Keystone Light delivered a strong double-digit increase in STRs
o Miller High Life growth accelerated to mid single digits
MillerCoors domestic STRs increased 0.4 percent versus the prior year pro forma quarter due to strong results from five of the six focus brands, offset primarily by declines in Milwaukee’s Best. Domestic sales-to-wholesalers (STWs) declined 1 percent versus prior year, while total STWs declined 2 percent driven by a double-digit reduction in contract brewing volumes.
Pricing remained strong in the first quarter as domestic net sales per barrel, excluding contract brewing and company-owned distributor sales, increased 5.6 percent based on 2008 price increases (in the first and fourth quarters) and reductions in discounting. Pricing growth was lower than the previous quarter due to cycling of early 2008 general price increases.
Premium light brand STRs were up slightly versus prior year due to solid growth of Coors Light and continued acceleration of MGD 64, despite price increases across the premium light brand segment. Coors Light was up low single digits versus prior year. Miller Lite STRs were down mid single digits, a reduced rate of decline versus the previous quarter.
A new marketing campaign for Miller Lite launched in late March focused on the brand’s long-standing consumer equity associated with the brand’s taste. Innovative new packaging reinforcing the brand’s taste platform is rolling out nationwide this month. MGD 64 continued to accelerate since its national launch in fall 2008. For the quarter, MGD 64 exceeded Miller Genuine Draft Light volumes versus the prior quarter and drove mid-single-digit growth in the MGD franchise. Coors Banquet continued to generate good growth.
The craft and import portfolio rose slightly in the quarter, led by the strong performance of Blue Moon and Peroni Nastro Azzurro, offset by declines in Pilsner Urquell and Weinhard’s.
The domestic above premium portfolio declined double digits due to lower Miller Chill volume. The new reformulated 100-calorie Miller Chill featuring new packaging and advertising is currently rolling out nationwide. The Sparks franchise continued to generate growth in the first quarter following reformulation of the product.
The below premium portfolio was up low single digits compared to the prior year’s first quarter, as the strong performance of Keystone Light and accelerated growth of Miller High Life more than offset declines in Milwaukee’s Best and Icehouse.
FIRST QUARTER FINANCIAL HIGHLIGHTS
(All amounts are in U.S. dollars and calculated in accordance with U.S. GAAP, unless otherwise indicated.)
o Underlying net income attributable to MillerCoors, excluding special items, increased by 46.3% to US$216.4 million
o IFRS Underlying EBITA increased by 52.6%
o Total net sales increased 3.8% to $1.716 billion
o Domestic net revenue per barrel increased by 5.6%
o Cost of goods sold (COGS) per barrel increased by 5.3%
o Marketing, general and administrative costs decreased by 9.1%, driven in part by marketing expenditure timing and synergy delivery
MillerCoors total net sales increased by 3.8 percent to $1.716 billion versus the prior pro forma quarter. Excluding contract brewing and company-owned distributor sales, net sales increased 4.5 percent to $1.609 billion. Third-party contract brewing volumes declined 10 percent, though profits from contract brewing increased slightly.
Though MillerCoors continues to realize supply chain related synergies and deliver savings from its cost leadership programs – Resources For Growth and Project Unicorn – Cost of Goods Sold (COGS) per barrel increased by 5.3 percent due to significant increases in brewing and packaging materials related to high commodity costs this year.
For the quarter, marketing, general and administrative costs decreased by 9.1 percent driven by timing and management of marketing and sales spending and the accelerated timing of synergy delivery.
For the quarter, net income attributable to MillerCoors (excluding special items) is $68.5 million ahead of the prior pro forma quarter. Depreciation and amortization expense for MillerCoors in the first quarter was approximately $71 million and additions to tangible and intangible assets totaled $97 million.
INTEGRATION AND COST SYNERGIES
The integration of MillerCoors business processes and systems to enable faster local decision-making and streamlining of costs is proceeding well. The MillerCoors network optimization project is ahead of schedule, as more than 60 percent of the planned brewing production relocations were completed by April 1, 2009. Finally, construction of the new MillerCoors Chicago corporate headquarters is nearing completion with an expected occupancy date in the third quarter of 2009.
MillerCoors further accelerated synergy delivery timing, realizing $50.1 million in the first quarter, which captures some savings originally planned for delivery in the second quarter. A total of $78.4 million in synergy savings has been realized since July 1, 2008, exceeding the company’s original goal of $50 million for the first 12 months of operations. The company now expects to realize $128 million of synergies by June 30, 2009.
By the end of calendar year 2009, MillerCoors expects to achieve a total of $238 million in synergies, surpassing its original forecast of $225 million. While the timing of synergy delivery has accelerated, MillerCoors $500 million synergy goal is unchanged.
During the first quarter of 2009, MillerCoors reported special items totaling $10.4 million due to employee relocation and retention expenses relating to the formation of the company.
As demonstrated in the first quarter, MillerCoors will continue to execute net revenue management strategies that drive the size and value of the beer category, creating strong brand positions for the long term. The company plans to execute strong marketing programs in national chains to create profitable growth opportunities for the upcoming key summer selling season. Finally, MillerCoors continues to pursue strong cost management and is well on its way to deliver its stated synergies goal of $500 million in three years.