E-Malt.com News article: USA: Molson Coors reports higher results for 2005 third quarter

Molson Coors Brewing Company announced on November 1 higher consolidated net sales and sales volume, and higher net income for the third quarter of 2005 compared to the third quarter of 2004. Higher consolidated sales volume, net sales and net income were attributable to including Molson Inc. results in the third quarter of 2005 but not in the third quarter of 2004. Net income in the third quarter was $108.2 million.

For the 13-week third quarter ended September 25, 2005, the company reported net sales of $1.6 billion and sales volume of 12.8 million barrels, or 15.1 million hectoliters (hl). Excluding special items, the company reported after-tax income of $129.5 million* (or $1.51 per share) for the third quarter, down 4.1 percent from 2004 on a pro forma basis. Excluding special items and merger-related amortization expense, after-tax income was $139.1 million* (or $1.62 per share), down 3.7 percent from 2004 on a pro forma basis. (*See table below for reconciliation to nearest U.S. GAAP measure.)

The company's effective tax rate for the third quarter 2005 was 6.4 percent, or 13.1 percent excluding special items, and 15.0 percent excluding special items and merger-related amortization. For comparative purposes, pro forma third quarter 2004 results reflect the same effective tax rates as 2005 third quarter results.

Leo Kiely, Molson Coors president and chief executive officer, said, "Our third quarter financial results reflected encouraging volume and financial performance in Canada and the U.S., despite extensive competitive price discounting in some of our largest markets and significant input cost inflation. We made good progress on cost reduction initiatives across the company, which aided financial results in the quarter, and we increased investments in marketing and sales programming. At the same time, substantial market challenges in the U.K. reduced the financial performance of our Europe business. Our Brazil operation continued to report operating losses, but at a significantly reduced level.

"In Canada, our year-over-year sales to retail increased 1.5 percent on a comparable basis during the third quarter, led by Coors Light which grew at a double-digit percentage rate versus a year ago. In the U.S., sales to retail were up slightly compared to prior year, driven by low-single-digit growth of Coors Light. However, our revenue per barrel was impacted negatively by a substantial increase in price discounting in several U.S. markets in the quarter.

"Although third quarter volume improved in our Europe segment well ahead of the U.K. beer market, this business continued to be challenged by competitive price discounting and margin pressure from unfavorable changes in channel and sales mix. We were encouraged, however, by strong volume performance of our U.K. industry-leading brand, Carling, which grew at a mid-
single-digit percentage rate in the quarter. In Brazil, cost and pricing trends improved in the third quarter, but volume declines and operating losses continued to be significant challenges."

Canada segment comparable sales to retail were up 1.5 percent during the third quarter 2005 compared to prior year largely due to favorable weather and stronger, more integrated sales and marketing programs. Overall industry sales to retail grew an estimated 3.5 percent in the quarter from a year earlier. Sales volume of 2.4 million barrels (2.8 million hl) was up 4.0 percent on a comparable basis versus prior year. Canada segment net sales increased 14.0 percent on a pro forma basis from the third quarter of 2004 driven by favorable foreign exchange rates, higher volume and increased pricing in select markets. Excluding a $13.9 million pretax special charge in 2004 (described below), operating income in Canada during the third quarter 2005 increased 11.2 percent on a pro forma basis versus prior year.

In the third quarter 2005, comparable U.S. segment sales volume decreased 0.3 percent. On a pro forma basis, the company reported no change in U.S. segment net sales compared to the third quarter a year ago. U.S. segment sales to retail increased 0.1 percent on a pro forma basis during the quarter, driven by low-single-digit percentage growth by Coors Light and a strong double-digit increase in Blue Moon, offset by declines in other brands, primarily the Coors brand and Aspen Edge.

Including a special charge of $37.1 million (described below), third quarter U.S. operating income of $31.2 million was 48.1 percent lower on a pro forma basis versus prior year. Excluding the special charge, U.S. operating income increased 13.8 percent on a pro forma basis, driven by lower overhead and manufacturing costs, partially offset by higher packaging materials and energy costs.

Europe Segment: In the third quarter 2005, Europe segment sales volume increased 3.4 percent compared to a year ago. Net sales per barrel decreased 18.6 percent from the third quarter of 2004, primarily because of a change in contractual arrangements with a major customer for the sale of non-owned, or factored, brand sales. This contract change reduced both net sales and cost of goods sold by $60 million in the third quarter, with no impact on profits. Owned brand revenue per barrel in the U.K. decreased approximately 3 percent in local currency as a result of lower pricing and adverse channel and sales mix. In addition, unfavorable foreign exchange rates reduced net sales approximately 1 percent.

Although U.K. beer industry volume grew in the third quarter against a soft quarter a year ago, the industry continued to be challenged by lower consumer spending and higher levels of competitor discounting in both the on-premise and off-premise channels. As a result, Europe segment operating income during the third quarter 2005 decreased 24.2 percent from the prior year.

Brazil segment net sales during the third quarter increased 27.0 percent on a pro forma basis from the third quarter of 2004, driven by favorable beer pricing and a 19.3 percent appreciation of the Brazilian real versus the U.S. dollar. Sales volume of 1.6 million barrels (1.9 million hl) declined 7.6 percent on a comparable basis versus a year ago. The Brazil business continued to improve operating trends during the third quarter, with a pro forma operating loss 26.4 percent smaller than a year ago.

Molson Coors Brewing Company continues to assess the future of its Brazil operations and evaluate a full range of strategic options for the future of this business, a process that includes discussions with third parties regarding the Kaiser business.


01 November, 2005