SABMiller PLC and Molson Coors Report MillerCoors Third Quarter Earnings
SABMiller plc (SAB.L) and Molson Coors Brewing Company(NYSE: TAP; TSX) today reported strong performance by their new U.S. joint venture in its first quarter of combined operations. MillerCoors drove higher sales-to-retailers, pricing, revenue, as well as strong double-digit underlying income for the fiscal third quarter ended September 30, 2008.
“As expected, MillerCoors is already driving profitable growth based on our early efforts to build a stronger and more competitive U.S. brewer with the people, partners, brands and scale to win,” said MillerCoors Chief Executive Officer Leo Kiely. “Our people are making it happen and these impressive financial results demonstrate our passion to deliver on our vision to become America’s best beer company.”
“Despite the challenging U.S. economy and ongoing changes to the competitive dynamics in the U.S. beer industry, our first quarter of combined performance demonstrates the tremendous potential of our new company,” Kiely added.
BRAND HIGHLIGHTS Key operating results for the third quarter are compared to prior year on a pro forma basis1 and include the U.S. and Puerto Rico operations of the combined company.
o MillerCoors total brand portfolio grew sales-to-retailers (STRs) by 0.7 percent on a comparable basis
o Seven of the 12 largest MillerCoors brands increased STRs, led by strong Coors Light growth; five brands grew share including Coors Light, Blue Moon, Miller High Life, Peroni Nastro Azzuro and Coors Banquet
o Blue Moon, Peroni Nastro Azzurro, Coors Banquet, Sparks and Keystone Light achieved double digit growth
o MGD 64 grew well ahead of expectations in the early stages of its national launch
During the period, MillerCoors STRs rose by 0.7 percent after adjusting for the extra trading day in the period (+2.3% unadjusted), due to continued momentum from seven of its 12 largest brands. MillerCoors shipments-to-wholesalers (STWs) declined by 0.5 percent, due to reductions in distributor inventory levels in the third quarter.
STRs for the company’s flagship premium light brands were up 1.4 percent (+3.0% unadjusted) versus the prior year. Coors Light STRs increased an impressive 6.8 percent (+8.5% unadjusted), due to gains in both distribution and velocity, while Miller Lite STRs decreased 3.6 percent (-2.1% unadjusted), due to volume declines in the Midwest and Pacific regions as the brand cycled a difficult volume comparison in the prior year.
The craft and import portfolio rose 5.0 percent (+6.6% unadjusted), led by the strong performance of Blue Moon, Leinenkugel’s and Peroni Nastro Azzurro. The domestic above-premium portfolio, which includes Miller Chill, Sparks and Killian’s Irish Red, experienced a double-digit decline as Miller Chill cycled tough comparatives from the previous year, while facing a new competitive entry to the category.
Other premium brands grew 0.2 percent (+1.8% unadjusted) as Coors Banquet delivered double-digit growth offsetting Miller Genuine Draft declines. Below premium brands grew 2.3 percent (+3.9% unadjusted) as Keystone Light posted double-digit gains and Miller High Life continued to generate solid growth.
MGD 64 showed strength ahead of expectations as consumers and retailers responded favorably to the national launch of this innovative premium light beer. During its roll-out in the third quarter, MGD 64 gained traction across the country as STRs rose 77 percent versus MGD Light volume a year earlier.
THIRD QUARTER FINANCIAL HIGHLIGHTS (All amounts are in U.S. Dollars and calculated in accordance with U.S. GAAP, unless otherwise indicated.)
o Total net sales increased 2.1 percent to $1.950 billion
o Underlying net income, excluding special items, increased 28.2 percent to $191 million
o Domestic net revenue per barrel increased by 2.9 percent
o Cost of goods sold (COGS) per barrel increased by 5.6 percent
o Marketing, general and administrative costs decreased by 9.1 percent
MillerCoors total net sales increased by 2.1 percent to $1.950 billion versus the prior period pro forma results. Excluding contract brewing, net sales were up 2.3 percent to $1.818 billion. Third-party contract brewing volumes decreased 3.3 percent.
Pricing remained strong as total company net sales per barrel increased 3.0 percent. Excluding contract brewing, net sales per barrel grew at 2.9 percent versus the prior year pro forma results, driven by strong pricing. MillerCoors revenue growth outlook for the balance of the year is expected to remain strong, as the company implemented selective price increases on the majority of its beer volume in September and October this year. Net sales mix was virtually unchanged, due to strong growth by the company’s premium light, craft and import brands, largely offset by cycling significant Miller Chill launch ramp-up volumes in the prior year.
COGS per barrel increased by 5.6 percent, as reductions related to legacy savings initiatives by Miller Brewing Company (Project Unicorn) and Coors Brewing Company (Resources for Growth) were more than offset by increased commodity and fuel costs.
Marketing, general and administrative expense decreased 9.1 percent reflecting favorability due to the non-recurrence of prior year Miller Chill launch costs, which were partially offset by MGD 64 launch costs, as well as a reduction in share based compensation expenses.
Underlying net income, excluding special items, for the quarter increased to US $191 million, up 28.2 percent from the prior year pro forma result, driven primarily by strong pricing and reductions in marketing and overhead expenses, which more than offset increases in COGS and the reduction in shipment volume. Depreciation and amortization expense for MillerCoors in the third quarter was approximately $70 million, and additions to properties and intangible assets totaled $67 million.
MillerCoors is aggressively working to deliver against its stated goal of achieving $500 million of cost synergies in the first three years of combined operations commencing July 1, 2008. The company plans to deliver its initial commitment of $50 million of cost synergies in the first year of combined operations ending June 30, 2009. These savings will be divided approximately evenly between the second half of 2008 and the first half of 2009. In addition, MillerCoors is on track to deliver $350 million of savings in year two with approximately $175 million delivered in the second half of 2009. The remaining $100 million of savings will be delivered in year three ending June 30, 2011.
In the third quarter, MillerCoors began its brewery network optimization project to shift volume and brew both Miller and Coors products throughout its expanded network of eight major breweries. The projects will be phased in at the breweries over the next 18 months. The moves will reduce shipping distances which will drive products to market quicker, generating significant savings. The company continues to integrate its information systems to enable robust data sharing and analysis within the commercial enterprise, further minimize duplicate systems and reduce costs. The MillerCoors employee selection process is nearing completion, and the full sales organization selection process will be completed in early November.
During the third quarter 2008, MillerCoors reported special or exceptional items of $22.6 million related to one-time integration costs. Incurring these costs will enable MillerCoors to capture organizational synergies, as part of its stated $500 million three-year synergy savings plan. The third quarter 2007 proforma results include special items of $2.8 million relating to a one-time charge for supply chain restructuring in the Legacy Coors organization.
Overview of MillerCoors
MillerCoors produces, markets and sells the MillerCoors portfolio of brands in the U.S. and Puerto Rico. Built on a foundation of great beer brands and more than 288 years of brewing heritage, MillerCoors continues the commitment of its founders to brew the highest quality beers. MillerCoors is the secondlargest beer company in America, capturing nearly 30 percent of U.S. beer sales. Led by two of the bestselling beers in the industry, MillerCoors has a broad portfolio of highly complementary brands across every major industry segment. Miller Lite is the great-tasting beer that established the American light beer category in 1975, and Coors Light is the brand that introduced consumers to Rocky Mountain cold refreshment. MillerCoors brews full-calorie beers Coors Original Banquet and Miller Genuine Draft; and economy brands Miller High Life and Keystone Light. The company also imports Peroni Nastro Azzurro, Pilsner Urquell and Molson Canadian and offers innovative products such as Miller Chill and the Sparks line of caffeinated alcohol beverages. MillerCoors features craft brews from the Jacob Leinenkugel Company, Blue Moon Brewing Company and the Blitz-Weinhard Brewing Company. MillerCoors operates eight major breweries in the U.S., as well as the Leinenkugel’s craft brewery in Chippewa Falls, WI, and two microbreweries, the 10th Street Brewery in Milwaukee and the Blue Moon Brewing Company at Coors Field in Denver. MillerCoors vision is to become the best beer company in America by driving profitable industry growth. MillerCoors insists on building its brands the right way through brewing quality, responsible marketing and environmental and community impact. MillerCoors is a joint venture of SABMiller plc and Molson Coors Brewing Company.
Overview of SABMiller
SABMiller plc is one of the world’s largest brewers with brewing interests or distribution agreements across six continents. The group’s brands include premium international beers such as Miller Genuine Draft, Peroni Nastro Azzurro, Grolsch and Pilsner Urquell, as well as an exceptional range of market leading local brands. Outside the USA, SABMiller plc is also one of the largest bottlers of Coca-Cola products in the world. In the year ended March 31, 2008, the group reported $3,560 million operating profit before exceptional items and revenue of $21,410 million. SABMiller plc is listed on the London and Johannesburg stock exchanges. For more information on SABMiller plc, visit the company's website: www.sabmiller.com.
Overview of Molson Coors
Molson Coors Brewing Company is one of the world’s largest brewers. It brews, markets and sells a portfolio of leading premium quality brands such as Coors Light, Molson Canadian, Molson Dry, Carling, Coors, and Keystone Light in North America, Europe and Asia. For more information on Molson Coors Brewing Company, visit the company’s web site, http://www.molsoncoors.com.