E-Malt.com News article: Canada & USA: Molson Coors – higher sales and low earnings per share for Q2 2008

Molson Coors Brewing Company reported higher sales volume and net sales and lower earnings per share for the fiscal second quarter ending June 29, 2008, the company’s official site posted on August 5.

Key results for the Company's fiscal second quarter ended June 29, 2008, compared to the fiscal second quarter ended July 1, 2007, include the following:

- A major achievement during the quarter was the formation of MillerCoors, creating a single, stronger, more competitive American brewer with a powerful portfolio of brands and economies of scale to win in the U.S. beer market.
- Net sales increased 4.8 percent to $1.76 billion.
- Net sales per barrel increased 3.9 percent.
- Sales volume increased 0.9 percent to 11.6 million barrels, or 13.6 million hectoliters (HLs).
- Total Company sales-to-retail (STRs) rose 2.3 percent.
- Cost of goods sold per barrel increased 5.9 percent.
- Marketing, general and administrative expenses rose 1.4 percent.
- Income from continuing operations, a U.S. GAAP earnings measure, was $93.3 million after tax, compared to $184.3 million in the second quarter of 2007. The change is attributable to higher special charges, increased energy and commodity inflation in all markets, and a higher effective tax rate for the quarter.
- Underlying after-tax income was $172.6 million, or $0.93 per diluted share, in the second quarter 2008, a 2.0 percent decline from $176.1 million, or $0.97 per diluted share, last year. The company calculates non-GAAP underlying income by excluding special and other one-time items from the nearest U.S. GAAP earnings measure.
- To calculate underlying income in the second quarter of 2008, the company excluded net special charges of $103.9 million pretax. The charges were driven by a non-cash write-down of the book value of the Molson brands sold in the U.S.; MillerCoors retention, planning and integration expenses; and transition costs related to the outsourcing of shared services.
All $ amounts are in U.S. Dollars. See "Special and Other One-Time Items" and "Discontinued Operations" as well as tables below for reconciliations to nearest U.S. GAAP measures.

Peter Swinburn, Molson Coors president and chief executive officer, said, "This was a momentous quarter for the future of our company. With the creation of MillerCoors, we completed the most significant business combination in the history of U.S. beer. This new venture fundamentally changes the game in the U.S. beer industry by creating a stronger and more competitive company with the talent, brands and scale to win. MillerCoors is bringing new energy to the beer industry and will drive profitable growth, which provides Molson Coors Brewing Company with important new financial resources to continue building our brands in our core markets and around the world."

During the quarter, Molson Coors achieved approximately $18 million in cost reductions as part of its three-year, Resources for Growth program. At the half-way mark for the program, the Company has achieved $138 million of the total $250 million in cost savings expected by the end of 2009.

Foreign exchange rate movements increased total-company pretax income by approximately $6 million in the quarter.

The company's effective tax rate during the second quarter 2008 for income from continuing operations was 23 percent, both including special items and on an underlying basis, up from 13 percent and 20 percent, respectively, during the second quarter a year ago. The company now estimates that its full-year 2008 effective tax rate will be in the range of 20 percent to 24 percent on an underlying basis.

Following are the Company's 2008 second quarter results by business segment:

Canada Business

The Canada business earned underlying pretax income of $154.4 million. The 5.6 percent increase compared to a year ago was driven by an $11 million benefit from favorable foreign currency and positive net pricing, partially offset by higher energy and commodity costs.

On a comparable basis (which includes the Modelo brands in all of Canada for both periods1), Canada sales-to-retail decreased 0.8 percent during the quarter and market share declined slightly. The sales-to-retail decrease was driven by weak industry performance reflecting unusually wet weather across most of Canada. Despite weak industry trends, Molson's strategic brands, which represent more than 85 percent of the Company's Canada volume, continued to grow, including mid-single-digit growth by the Coors Light brand and double-digit growth by Rickard's, Creemore and Carling.

Results for the Modelo Molson joint venture, which sells the Modelo brands across Canada, are recorded under the equity method of accounting. Beginning in 2008, Modelo brand results are no longer consolidated in the Company's Canada results, affecting the comparability of results with 2007.

Canada sales volume decreased 11.7 percent in the quarter ending June 29, 2008, due almost entirely to the transfer of volume to the Modelo Molson joint venture and the termination of the U.S. production contract for Foster's. Net sales per barrel increased 4.2 percent in local currency during the quarter with more than half the increase driven by positive pricing. Cost of goods sold per barrel increased 1.4 percent in local currency, driven by eight percentage points of commodity and materials inflation, along with four percentage points due to higher overhead costs and the ongoing shift in sales mix to partner import brands. These factors were largely offset by two and one-half percentage points of operations cost savings and eight percentage points of net benefit related to the Foster's and Modelo changes and cycling an unfavorable foreign currency adjustment in 2007. Marketing, general and administrative expenses decreased 10.4 percent in local currency during the quarter, due to the transfer of Modelo brand spending to the Modelo Molson joint venture.

(1)Molson Coors includes its 50% ownership share of Modelo Molson sales to retail in its consolidated sales to retail. Beginning in 2008, Modelo Molson sales volumes are excluded from consolidated sales volume.

United States Business

Underlying U.S. pretax income increased 14.8 percent to $112.7 million, driven by strong sales volume growth and higher net pricing, partially offset by higher energy, transportation and packaging material costs. Total U.S. segment sales to retail grew 5.1 percent during the quarter.

The increase was due to mid-single-digit growth by Coors Light, high-single-digit growth by Coors Banquet, and double-digit growth by Blue Moon and Keystone Light. For the fourth consecutive quarter, each of the Company's four largest U.S. brands achieved sales and market-share gains. In the second quarter, the U.S. business again achieved sales-to-retail growth in all major channels and in 47 out of 50 states. Total sales volume to wholesalers grew 7.0 percent. Net sales per barrel increased 3.8 percent in the second quarter, driven by positive pricing.

Cost of goods sold per barrel in the U.S. business increased by 4.9 percent in the second quarter, due primarily to increased fuel prices and packaging material costs. Marketing, general and administrative expense increased 6.6 percent during the quarter, driven by increased sales and marketing investments and higher incentive compensation related to strong business performance.

United Kingdom Business

The U.K. business reported underlying pretax income of $21.5 million in the second quarter of 2008 compared to $40.5 million in the same quarter last year. The decrease is primarily due to higher input inflation, higher pension costs and lower volumes. During the second quarter, the U.K. beer industry continued to suffer from weakening economic conditions, smoking bans, and accelerating commodity and materials inflation.

Despite the economic climate, the U.K. business gained market share in both the on-premise and off-premise channels in the second quarter. U.K. owned brand volumes decreased 2.6 percent in the quarter. The U.K. business increased volume in the off-premise channel by 6 percent, while volumes in the on-premise channel declined 9 percent.

U.K. net sales per barrel in local currency increased 3.4 percent during the quarter, driven by the 2007 acquisition of the Camerons on-premise distribution business. Comparable owned-brand net sales per barrel increased 0.6 percent due to higher on-premise pricing.

Cost of goods sold per barrel in local currency increased 11.9 percent in the second quarter, due primarily to higher Camerons factored brand sales, energy and materials cost inflation, and higher pension expense. Nearly half of this increase was due to Camerons and other factored brand sales. Marketing, general and administrative expense decreased 0.8 percent in local currency.

Global Markets and Corporate

Marketing, general and administrative expenses for Global Markets and Corporate decreased 6.1 percent to $35.1 million in the second quarter 2008, which includes $25.9 million in Corporate general and administrative expenses. Net interest expense was $26.0 million in the second quarter 2008, a decrease of $1.8 million compared to a year ago. The underlying pretax loss for Global Markets and Corporate was $57.1 million, a 3.4 percent improvement from the second quarter of 2007. Foreign exchange movements increased the Global Markets and Corporate pretax loss by $5 million due to higher interest and other corporate expense.


Special and Other One-Time Items

During the second quarter 2008 the Company reported net special charges of $103.9 million, due to four factors:
- Planning, integration and employee retention costs of $33 million related to MillerCoors;
- Transition costs of $12 million to outsource the Company's shared services to a third-party supplier;
- $8 million of various other charges;
- A $51 million non-cash impairment of the intangible asset related to the Molson brands sold in the United States.

Molson brands that are marketed and sold in the U.S. by Coors Brewing Company have been declining in recent years. Most recently, increases in packaging and freight costs on imported products, combined with continued volume declines, have significantly impacted the overall profitability of the brands in the U.S. While management continues to believe that the Molson brands play an important role in the MillerCoors brand portfolio, it was determined that the value of the intangible brand asset has been impaired. The Company therefore recognized a $50.6 million non-cash charge in the second quarter to reduce the carrying value of the Molson brands in the U.S.

Second quarter 2007 underlying pretax income excludes a one-time $16.7 million benefit from the sale of the Company's ownership interest in House of Blues Concerts Canada, as well as special charges of $25.4 million, including a $24.1 million non-cash special charge related to the termination of our Foster's U.S. license agreement.

Discontinued Operations

The Company reports results for its former Brazilian unit, Cervejarias Kaiser ("Kaiser"), as discontinued operations. The Company reported a net loss of $12.4 million from discontinued operations during the quarter due to the impact of foreign exchange movements on the indemnity estimates related to the Brazil Kaiser business.


07 August, 2008