|Print Page | Close Window|
Molson Coors Brewing Company
With me on the call this morning from Molson Coors, we have:
As you know, a few months ago, we announced Tom’s plan to retire at the end of June. While we are well into the search, we do not anticipate that we will have his successor in place by the end of next month. As a result, the MillerCoors board has asked our own Gavin Hattersley to step in on an interim basis to lead the MillerCoors team while we complete the search for Tom’s replacement. Gavin is an outstanding and trusted leader with ideal qualifications for the role. He has extensive beer industry knowledge and experience in the U.S. and on the global stage, along with his unique experience of having held top leadership positions with both parent companies and MillerCoors, make him the right choice to take the business forward with integrity and a strong sense of purpose. Equally important, Gavin is not leaving Molson Coors, as he will also continue in his CFO role here, as well. With that, let’s talk about our quarterly performance
Our results for the 1st quarter reflect continued volume pressure in our largest markets and, as expected, a significant impact from foreign currency movements, a higher tax rate, and terminations of business contracts, all of which we discussed on our last earnings call. Despite this backdrop, we remain absolutely resolute in our focus on building our brand strength, achieving positive pricing, transforming our portfolio to the above premium segment, improving commercial execution, and embedding Profit After Capital Charge throughout our organization.
Our 1st quarter performance headlines are as follows:
In regional highlights:
In Canada, underlying earnings declined 12.5%, driven almost entirely by unfavorable foreign currency and the impact of terminating our Modelo joint venture a year ago. Canada sales to retail, or STRs, declined 3.7%, with nearly a third of this decline due to the loss of the Modelo brands. In core brands, the Coors Light sales trend improved versus last year, benefiting from more retail programming and new advertising. The combined Coors brand family grew Canada market share, partially due to the addition of Coors Altitude. In above premium, Coors Banquet delivered strong volume and share growth in the 1st quarter, as did Mad Jack Apple Lager, Molson Canadian Cider, and we delivered mid-single-digit growth from our Creemore and Granville Island craft brands.
Our Europe business faced weak consumer demand in some of our higher revenue and profit markets and an industry volume mix shift to the economy segment, and we deliberately chose to pursue value ahead of volume. Our first quarter results reflect positive pricing in most of our Europe markets, but also lower volume and negative sales mix. These factors, along with the loss of the Modelo brands in the U.K. in 2015, contributed to lower volume and market share in Europe in the 1st quarter. Nonetheless, we maintained our focus on building our core brands and above premium portfolio, including crafts, as well as revenue management and price discipline across the region. Our craft and above-premium brands performed well, with Coors Light, Doom Bar, and Staropramen outside the Czech Republic growing strongly.
Our International business delivered double-digit growth in volume in the first quarter with continued momentum for Coors Light in Latin America and strong double-digit volume growth in India. Due to unfavorable foreign currency movements and increased marketing investments, our loss for the quarter increased by $2.4 million.
Now, I'll turn it over to Gavin to give additional 1st quarter financial highlights and perspective on the rest of 2015. Gavin...
Underlying free cash flow for the 1st quarter of 2015 totaled a cash use of $162.2 million. This represented $97.6 million more cash use versus a year ago and was driven by lower net income and a decreased benefit from working capital timing, including higher cash paid for taxes. Our underlying free cash flow result in the 1st quarter excludes a $227.1 million discretionary contribution to our U.K. pension plan earlier this year. Net free cash use in the 1st quarter of the year is normal in this seasonal business because this is the lowest profit and cash-generating time of the year.
Our 1st quarter free cash flow included the following factors:
Investing cash outflows included:
Our underlying free cash flow included $310.4 million of cash distributions and $417.9 million of cash invested in MillerCoors. A detailed reconciliation of our 1st quarter underlying free cash flow is available in our earnings release distributed this morning.
Total debt at the end of the 1st quarter was $3.251 billion, and cash and cash equivalents totaled $317.6 million, resulting in net debt of $2.934 billion, which is $521.4 million lower than a year ago.
Please see the earnings release we distributed earlier this morning for a detailed review of our business unit financial results in the quarter.
Looking forward to the balance of 2015:
All other full-year forward guidance is unchanged from last quarter, such that:
In 2015 cost outlook, we continue to expect…
And finally, regarding the profit and cash headwind from foreign currency that we expect this year: If we were to apply foreign exchange rates at the end of April to our results for the last three quarters of 2014, it would reduce underlying pretax earnings for that period by more than $50 million -- and the impact on cash would have been even larger. If we add the $5.1 million of FX impact in the first quarter this year, as set out in our earnings release, the full year FX estimated impact would be more than $55 million, or approximately 6-7%, on consolidated results. We have taken steps in recent years to mitigate some of our foreign currency exposures via debt structures and hedging.
At this point, I'll turn it back over to Mark for outlook, wrap up and the Q&A. Mark....
As we discussed on our last earnings call, we continue to expect our 2015 results to be challenged by negative foreign currency, the termination of three major business contracts, and a higher effective tax rate. Additionally, our Canada results will be affected by the new framework agreement that was announced by the Ontario government last month, although we expect much of the impact to be phased in over the next 4 years. We will continue to work with the government and our fellow Beer Store owners to implement the recommended changes.
Despite these challenges, we will continue to drive our strategy of building a stronger brand portfolio, strengthening our core brand positions, and increasing our share in above premium, craft and cider. We will have a relentless focus on delighting our consumers and our customers to ensure we are the First Choice brewer in the geographies and segments where we choose to play, and we will selectively build our international brands and strengthen our world-class commercial capability. We will do this while ensuring that we have a fit-for-purpose cost base and a deeply embedded, disciplined, and PACC-led capital allocation process approach. Besides including PACC performance measures in our long-term incentive plan this year, we have been rolling out interactive training with each of our country teams to embed our value-driving PACC model from top to bottom in the organization.
In Canada, we continue to invest in our core brands and above premium, including craft, imports and flavored malt beverages. In early March, Molson Canadian introduced the next chapter of its Beer Fridge campaign, and in April launched an NHL promotion nationally. We also introduced a new advertising campaign behind Coors Light in early March. In above premium, consumer demand remains strong for Coors Banquet, Molson Canadian Cider, and Mad Jack Apple Lager, which will be rolled out nationally in the 2nd quarter, after a successful launch in Ontario & Quebec in 2014. The national launch of Coors Altitude is proceeding well, as is our expanded partnership for the marketing and distribution of the Heineken, Dos Equis, Sol and Strongbow brands. We are also launching Rickard’s Radler as a new seasonal offering for summer.
In Europe, although some of our largest markets continue to be weak this year, our segment-leading core brands will receive incremental investments in local currency in the remainder of 2015. We also intend to continue the strong momentum of our above premium, craft and cider portfolio, including expanding Carling British Cider to more European markets, introducing new Sharps brands in the U.K., and adding the Modelo brands to our international premium brand portfolio in Central Europe this year. We are also taking important steps in the first half of this year to ensure that our U.K. supply chain is fit for purpose, including entering into an agreement in January to sell our Burton malting operations in the 3rd quarter and in March purchasing the brewing and kegging operation of Thomas Hardy’s Burtonwood brewery in the north of England, which will give us greater capability and flexibility to grow our U.K. craft business further. Meanwhile, following the termination of our U.K. contract-brewing arrangement with Heineken at the end of April, we are closing our Alton brewery this month in order to ensure that our supply chain capacity is aligned with the needs of the business.
Our International business will focus on growth and expansion in new and existing markets. We will continue to drive strong momentum on Coors Light and Coors 1873 in Latin America, along with growth in our India business. Our recent India acquisition is in line with our strategy to grow our regional brand portfolio and adds two breweries in two large Indian states and more than doubles our brewing capacity there. This acquisition gives us a powerful combination of industry-leading brewing expertise, brand reach and operational efficiency that will allow us to grow our brands even further in India, one of the fastest-growing beer markets globally.
Finally, here are the most recent volume trends for each of our businesses early in the 2nd quarter:
Now, before we start the Q&A portion of the call, a quick comment:
As usual, our prepared remarks will be on our website for your reference within a couple of hours this afternoon. Also, at 1 p.m. Eastern Time today, Dave Dunnewald will host a follow-up conference call, which is an opportunity for you to ask additional questions regarding our quarterly results. This call will also be available for you to hear via web cast on our website.
Additionally, in the next two months, we hope to see many of you at three events:
So, at this point Ginger, we would like to open it up for questions please….