Molson Coors Beverage Co (TAP) 2010 Q3 法說會逐字稿

Before we get started, I want to paraphrase the Company's Safe Harbor language. Some of the discussion today may include forward-looking statements. Actual results could differ materially from what the Company projects today. Please refer to its most recent 10-K and 10-Q filings for a more complete description of factors that could affect those projections. The Company does not undertake to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. You should not place undue reliance on forward-looking statements, which speak only as of the date they are made. Regarding any non-US GAAP measures that may be discussed during the call and from time to time by the Company's executives in discussing the Company's performance, please visit the website, www.molsoncoors.com, and click on the financial reporting tab of the Investor Relations page for the reconciliation of these measures to the nearest US GAAP results. Now, I would like to turn the call over to Mr. Peter Swinburn, President and CEO of Molson Coors. Mr. Swinburn, you may begin.

Thank you, Darren, and hello, everybody, and welcome. Thanks for joining us today. With me on the call this morning, are Stewart Glendinning, Molson Coors Chief Financial Officer, Leo Kiely, the CEO of MillerCoors, Gavin Hattersley, the Chief Financial Officer of MillerCoors, Dave Perkins, the CEO of Molson Coors Canada, Mark Hunter, the CEO of Molson Coors UK, Kandy Anand, President of Molson Coors International, Sam Walker. Molson Coors Chief Legal Officer, Bill Waters, Molson Coors Controller, and Dave Dunnewald, Molson Coors Vice President of Investor Relations. On the earnings call today, Stewart and I will share highlights of Molson Coors Brewing Company's third quarter 2010 results, along with some perspectives on the fourth quarter. Then we will open it up for questions. So, in the third quarter Molson Coors recorded strong results. Underlying pretax income grew almost 30%, driven by double-digit earnings growth in the US, UK and in Canada. Each of these businesses achieved positive pricing, substantial cost reductions and significant market expansion in the quarter.

Although we anticipate that some of the drivers of our third quarter pretax income growth will not carry over to the fourth quarter, or will reverse in the fourth quarter, these results represent a very solid third quarter for Molson Coors. Total Company underlying after-tax earnings increased 12.3%, driven by strong pretax results, partially offset by a higher tax rate this year. In the US, MillerCoors reduced cost of goods sold per hectoliter, which along with positive pricing, drove underlying income growth of more than 34%. In Canada, we achieved positive pricing in a weak market and still gained share and grew underlying profit by more than 16%. And in the UK, we continued to achieve robust pricing and cost reductions to drive a 12.6% underlying profit growth. Our sharp focus on brands, innovation and costs delivered these results.

Regarding brands, our Canada business translated its extensive brand building activities over the past year into market share growth and an increase in net pricing in the quarter. In the US, Blue Moon, Leinenkugel's and Coors Light, grew share for MillerCoors, and Miller Lite trends improved sequentially in the quarter. In addition, we will begin importing, selling and marketing the Modelo brands in the UK and Japan beginning in January. The addition of Corona and other great Modelo brands will strengthen our portfolios in those two beer markets. And also in the third quarter, our international team grew volume more than 11% and completed the formation of our joint venture in China, which will reduce costs and allow us to leverage our best global innovations with Coors Light in the world's largest beer market. On costs, in the third quarter we again exceeded our cost reduction targets with $24 million of RFG2 savings and $83 million of MillerCoors cost reductions. These cost reductions were the primary driver of lower cost of goods per hectoliter in Canada and the US, as well as expanded gross margins in these businesses and in the UK.

The weak global economy has presented substantial challenges for our Company during the past several quarters. But during this time, we have stayed sharply focused on our strategies of building brands, driving value from innovation and delivering on our cost saving commitments. By focusing on these strategies, we have increased profits, we have improved our margins, we generated substantial cash and we strengthened our balance sheet. In fact, our strong cash flow, so far this year, is allowing us to increase our free cash flow target for 2010. Also during the third quarter, we began to unwind our swap positions related to the cost of stock and to lock in significant gains on the positions that were still open. The remaining swap positions will mature by January 2011. More on these topics in a few minutes. So at this point, I'll turn it over to Stewart to review our third quarter financial results and business highlights. Then, we'll cover the outlook for the fourth quarter, including our increased cash flow target for 2010. Stewart.

Thanks, Peter. Hello, everyone. I'll start with the third quarter financial highlights. On the bottom line, underlying after-tax income of $239.1 million, or $1.28 per diluted share, increased 12.3% from a year ago due to higher net sales revenues, substantial cost reductions, higher equity income from MillerCoors and favorable foreign exchange. These positive factors more than offset the impact of lower volume in the UK and US and a higher tax rate this year. Underlying pretax income grew 29.9%, with about one-fourth of this growth attributable to timing and factors that we do not expect to repeat or that will reverse in the fourth quarter. In the third quarter, we grew total Company gross margins as well as operating and after-tax margins. In fact, we expanded gross margins more than two percentage points in the US, UK and Canada, which drove three percentage points of margin expansion on a total Company basis for the quarter. And we achieved this margin expansion despite a 4% decline in our worldwide beer volume from a year ago.

It is important to note that our third quarter underlying earnings excludes some non-core gains and expenses primarily related to changes in the value of our Foster's cash [settle] total return swap, as well as net special charges of $3.1 million. These adjustments to our US GAAP results are described in detail in the earnings release we distributed this morning. Also, unless otherwise indicated, all financial results we share with you today will be in US dollars and results comparisons will be versus the comparable prior-year period. In segment performance highlights, starting with Canada, underlying pretax income and local currency increased 9.9% in the third quarter. Continued volume growth, positive net pricing and cost of goods sold reductions in the quarter were partially offset by higher overhead expenses this year. In US dollars, Canada underlying pretax income increased 16.1% to $162 million in the third quarter, which includes an $8 million benefit of a 6% year-over-year increase in the Canadian dollar versus the US dollar.

So, let's review some highlights. Our Canada sales to retail, or STRs, for the calendar quarter ended September 30, increased 0.4% versus the prior year. Volume gains from new brands, including Molson M and Keystone, were offset by declines in our established brands. Our new brands, along with the addition of Granville Island volume, helped us to increase our market share nearly a full share point versus a year ago. Coors Light and Molson Canadian brands declined at low-to-mid-single-digits in the quarter, as we adjusted price and volume priorities for these brands. Total Canadian beer industry sales to retail decreased an estimated 1.8% in the calendar third quarter, primarily due to colder weather than a year ago, particularly in September when the industry was down more than 6%. Our Canada sales volume was 2.5 million hectoliters in the third quarter, up 2.5%. Net sales per hectoliter increased 0.8% in local currency, driven by selective price increases taken during the year in all regions. Also, we have now cycled our less competitive pricing positions in the previous year.

Cost of goods sold per leader decreased 4.5% in local currency in the third quarter, driven by the net effect of three factors. First, savings from our RFG2 cost reduction program reduced of cost of goods sold per hectoliter by about 2.5 percentage points. Second, an immaterial out-of-period adjustment to distribution and certain other costs decreased our rate by three percentage points. And third, these savings are partially offset by higher input costs, which increased the cost of goods sold rate by about one percentage point. Marketing, general and administrative expense in the quarter increased 6.7% in local currency, driven primarily by increases in commercial and employee-related expenses, along with the addition of Granville Island overhead costs.

Moving to our UK business. In the third quarter, underlying pretax income increased 19.6% in local currency, driven by strong pricing and cost reductions. These positive factors were partially offset by the impact of lower volume. These results include a $7 million non-cash increase in defined benefit pension expense this year and a $3.6 million benefit as a result of cycling a 2009 mark-to-market charge on natural gas hedges. Our third quarter UK results were adversely impacted by $2 million due to a 6% devaluation of the British pound versus the US dollar. And US dollars underlying pretax income of $36.7 million represented an increase of $4.1 million, or 12.6%. Looking at third quarter highlights for the UK, our UK-owned brand volume declined 12.5% in the quarter, driven primarily by retailer destocking following the FIFA World Cup, which ended early in our fiscal third quarter. Total UK beer industry volume decreased approximately 10% in the third quarter.

Net sales per hectoliter of our own brands increased 11% in local currency, with about eight percentage points driven by higher pricing and three percentage points as a result of positive sales mix, predominantly due to the impact of channel and brand mix. Cost of goods sold per hectoliter of our own brands increased 2% in local currency, driven by the following factors. First, the incremental pension expense represented three percentage points of this increase. Second, two percentage points are due to mix, predominantly more [Cobra] sales this year. Third, four percentage points were attributable to fixed cost deleverage from lower owned-brand volumes. These were partly offset by a three percentage point reduction related to cycling a mark-to- market adjustment on natural gas hedges in 2010, and a four percentage point reduction from cost savings and input cost deflation. Marketing, general and administrative expenses in the UK increased 1% in local currency, reflecting higher pension expense this year, partly offset by lower marketing expense, which is expected to reverse in the fourth quarter.

In our US segment, underlying pretax income increased 34.2% to $144.1 million in the third quarter, driven by MillerCoors results. Looking at the total MillerCoors P&L, third quarter underlying net income increased 36.7% to $334 million, due to favorable pricing and continued synergy and cost savings delivery, which were partially offset by lower volume. MillerCoors domestic STRs declined 4%, driven by a sluggish US beer market affecting the entire industry. Domestic sales to wholesalers declined 2.7%. Sales to wholesalers outperformed STRs, largely due to distributor inventory build ahead of this year's fall price increases. Total net revenue increased 0.3%, to $2 billion. Pricing remains strong, however, as domestic net revenue per hectoliter, which excludes contract brewing and Company-owned distributor sales, increased 2.4% in the quarter. Cost of goods sold per hectoliter decreased 0.3%, due to the realization of synergies from supply chain and procurement, partially offset by higher transportation and packaging costs and the addition of brands purchased earlier this year by our Denver distributorship. Marketing and general and administration expenses decreased by 9.8%, primarily driven by synergies and other cost savings.

In our International and Corporate segment, the underlying pretax costs for international and corporate combined was $54.6 million in the third quarter, a decrease of $3 million, driven primarily by lower corporate [project] and employee compensation expense this year. Third quarter corporate net interest expense increased $0.8 million, and corporate G&A expense decreased $3.6 million, to $24.5 million. Our International team grew sales volume 11.2% in the third quarter, driven by sales in China and Europe. MG&A expense for International was $14.3 million in the quarter, increase of $1.6 million due to brand investments and growth initiatives in our priority international markets. Corporate Other Income was $43.4 million, driven by a $42.3 million mark-to-market gain related to the total return swap we arranged with respect to Foster's common stock. As usual, mark to market gains on losses on the Foster's swap are excluded from our underlying earnings.

Now, highlights of our cost reduction initiatives. We exceeded our RFG2 program goals in the third quarter, with $24 million of cost savings towards the program's three-year goal of $150 million. In addition to our RFG2 savings, MillerCoors delivered $56 million of incremental cost synergies and $27 million of other cost reductions in the third quarter. We benefit from 42% of the MillerCoors cost savings. Year-to-date, we've delivered $55 million against our three-year RFG2 program goal of $150 million. And MillerCoors has achieved $216 million of synergies and other cost savings year-to-date. Moving beyond our operating business unit performance, our third quarter effective tax rate was 19% on a reported basis and 17% on an underlying basis, up from 9% and 4% respectively a year ago. With regard to our balance sheet, total debt at the end of the third quarter was $1.45 billion, and cash and cash equivalents totalled $764 million, resulting in net debt of $684 million.

Our debt and cash balances were both temporarily low at the end of the third quarter, as we were in the process of refinancing $300 million of notes that matured in September. Our debt issuance in early October totalled CAD500 million, to give us head room for general corporate purposes, which may include payments to fund our global pension obligations. Underlying free cash flow for the first three quarters of this year was $671 million, up from $534 million a year ago. Our cash generation this year was made up of $726 million of operating cash flow, plus $34 million of exceptional cash uses that we add back, and $4 million of proceeds from asset sales, minus $78 million of capital spending and $15 million of net cash contributed to MillerCoors. [Higher] cash flow for the first three quarters of 2010 was driven primarily by higher net income, some non-recurring cash flow sources and lower net investment of cash in MillerCoors this year. Please see our website for details regarding our adjustments to arrive at underlying free cash flow.

Looking forward, we're increasing our 2010 underlying free cash flow target from $760 million to $900 million, plus or minus 5%. This increase in our target is primarily due to some non-recurring cash flow sources this year, including our cash settled total return swap, our low-cash taxes, a one-time improvement in UK working capital and proceeds from the repayment of a loan that MillerCoors had extended to Pabst. One of our sources of cash in the fourth quarter will be the settlement of a portion of our swap positions related to the cost of stock. As Peter mentioned, during the third quarter we locked in gains on the swaps and began to close out these positions. As of the end of the third quarter, we [had] closed out swap positions representing exposure to 16 million Foster's shares, out of 90.1 million shares of exposure outstanding at the beginning of the third quarter. As of November 1, we had settled approximately 46% of the Foster's related swaps. The last of these swaps will mature by January 2011. Regarding the uses of free cash. Among our usual range of opportunities, we're looking at potential accelerated contributions to one or more of our defined benefit pension plans, which we expect to resolve in the fourth quarter. Anything we do will be prudent, measured and in the best interests of our shareholders.

In terms of P&L outlook we continue to expect full-year 2010 MG&A expense in International and Corporate segment of approximately $180 million, plus or minus 5%. We forecast full-year 2010 corporate interest expense to be approximately $105 million at today's foreign exchange rates. Turning to our effective tax rate, we expect our full-year underlying rate for 2010 to be in the range of 15% to 17%, assuming no changes in tax laws. This indicates a much higher tax rate than in the fourth quarter this year than last year's unusually low rate, which benefited from the favorable resolution of unrecognized tax positions. Recall that our fourth quarter 2009 tax rate was negative 65% on a reported basis, and negative 54% on an underlying basis. We continue to forecast that our normalized long-term tax rate to be in the range of 22% to 26%. Our 2010 capital spending outlook remains approximately $150 million for the full year and, as always, this guidance excludes MillerCoors. At this point, I'll turn it back over to Peter for a look ahead to the fourth quarter. Peter.

Thanks, Stewart. In the fourth quarter, our focus will continue to be on brand building, innovation and reducing costs [across] the Company. In Canada, we are encouraged by our volume and market share results, with our share continuing to increase versus the prior year. These results are being driven by our brand-led focus, including the product innovations we initiated toward the end of 2009 and early this year. Namely, Molson M, Keystone and Keystone Light, Molson Canadian 67 and [new Rickard's Dark] line extension. Additionally this fall, we relaunched the Molson Export brand with new positioning, advertising and packaging in Quebec. Regarding Canada pricing, we've implemented selective price increases this year in all regions. We have also closed some price gaps on specific brands and packages in Ontario and the West so far this year. And we will continue to evaluate price gaps in the fourth quarter to ensure that we are competitive in these markets.

In the UK, the team continues to make substantial progress in improving profitability through our value-ahead-of-volume strategy. And, nearly all major on-premise customers' contracts are in place with annual price increases included. Looking forward, we are anticipating lower UK net sales per hectoliter growth in the fourth quarter than in the past quarters, primarily due to cycling the implementation of most of our new trading arrangements, along with less positive channel and brand mix. We also expect significantly higher UK marketing and promotional expense in the fourth quarter, due in part to quarterly timing differences. Looking ahead in the US, we are committed to driving efficiency and strong pricing, but we are also committed to driving growth to an ever sharper focus on the things that really move the business and investing behind those drivers. You've seen it in our creation of [five] regions, a move that shifts our people resources to the local markets where we need to focus to win. You've seen it with the creation of [Tandem Blake,] which we formed earlier this year. This Company within a Company has the capability and the focus to really drive our crafted import portfolio. And the numbers show we're well on our way to doing that.

We're also focusing on innovation to drive our premium lights. We've seen the [vortex] bottle improve trends for Miller Lite, helping to drive a 6% improvement in trend for Miller Lite bottles, and the cold-activated window pack helped Coors Light continue to grow market share. The early returns show that the aluminum pint is also a hit. As we look to 2011 in the US, we are going to focus on fewer, bigger, better ideas that will really drive the business in areas like single-serve, cost merchandising, Blue Moon seasonals, Hispanic soccer programs, continued innovation in premium lights and distribution. So, the following are the most recent volume trends in each of our businesses early in the fourth quarter. In Canada, our sales-to-retail for the four weeks ended October 23, increased at low single-digit rates. In the five weeks of the fourth quarter, our UK STRs have decreased at a mid-single-digit rate. In the US, for the four weeks ended October 23, Miller Coors STRs increased slightly. As always, please keep in mind these numbers represent only a small portion of the fourth quarter, and trends could change in the weeks ahead.

In the area of cost outlook by business, in Canada we expect our full-year 2010 cost of goods sold per hectoliter to decrease at a low single-digit rate in local currency. Nonetheless, we do not expect our cost of goods trend to be as favorable in the fourth quarter as was in the first three quarters of this year. In the UK, we expect cost of goods per hectoliter of our own brands to increase at mid-single-digit rate in the fourth quarter in local currency. Drivers include the step-up in defined benefit pension expense this year, cycling a mark-to-market credit on natural gas hedges in 2009, and a shift in our sales mix towards the high cost of [premise] channel, partially offset by cost savings [and input] cost deflation. In the US, MillerCoors successfully completed initial product transitions within its national brewing network, with more of the Company's beer now brewed closer to customers. Going forward, the US team will focus on further network optimization to peak season to non-peak season sourcing changes, as well as opportunities for increased efficiency or new capability to capital projects. We continue to expect UK [COGS] per hectoliter to be up at a low single-digit rate for the full year of 2010, and approximately flat for the fourth quarter.

So, to summarize our discussion today, Molson Coors achieved strong financial results in the third quarter. Despite the substantial challenges that a weak global economy has presented to our Company during the past several quarters, we've stayed very sharply focused on our strategies of building brands, driving value from innovation and delivering on our cost saving commitments. As a result in the third quarter, we grew profits at a double-digit rate. We improved margins. We generated substantial cash. And, we strengthened our balance sheet for our shareholders. Now, before we start the Q&A portion of the call, three quick comments. First, our prepared remarks today will be on our website for your reference within a couple of hours this afternoon. Also, at 2 PM Eastern time today, our Investor Relations team, led by Dave Dunnewald, will host a follow-up conference call, essentially a working session for analysts and investors who have additional questions regarding our quarterly results.

That call will also be available for you to hear via webcast on our website. Secondly, we look forward to seeing many of you in London December 1 for our 2010 UK Analyst and Investor Day. This meeting will provide a strategic update regarding our global business, along with a more detailed review of our UK business and the UK beer industry. Thirdly, on November 30 and December 2, we will co-sponsor with SAB Miller two regional seminars focused exclusively on the MillerCoors business. The November 30 meeting will be in London, and the December 2 meeting will be in New York.. All of these analysts days and seminars will be audio-webcast for those of you who cannot attend the meetings in person. Please contact Dave Dunnewald or Julie Fry for more details. At this point, Darren, could we please open it up to questions.

Yes, sir. (Operator Instructions). Our first question comes from Judy Hong of Goldman Sachs.

Thank you. Hello, everyone.

Hi, Judy.

Good morning.

First, on Canada, it sounds like the industry volume softened in the third quarter. Some of that may have been weather-driven. But even in October, if I look at the comparison a year ago, I think October was down high single-digits last year. So, I'm just wondering if there's anything to sort of point to in terms of what's causing the industry softness in Canada, And then, secondly, on your brands it sounds like Coors Light and Molson Coors, two of the established brands, were down in the quarter. You commented on adjusting your volume priority and maybe you can elaborate on what that means

Yes, sure Judy. It's Dave Perkins. On the industry performance, what we saw in Q3 was really a drop-off in September. We did have very bad Labor Day weekend weather, and we had bad weather through Western Canada during the quarter. So, that seems to be a key factor. No doubt the economy continues to weigh on people, as well. So, we see consumer cautiousness continuing, and unemployment is fairly stable in about the 8% range in Canada. So, that's a factor. I think as we look forward on sort of the trend, last year was down 1.9% in Q4, so I think you need to consider that as you look forward. Related to Coors Light and Canadian, what we did in Ontario, and this was really focused in Ontario, is adjusted our price and volume priorities. And so, we made some pack strategy changes, and the net result of that was an increase in the net price to consumers. And that really is reflected in the volume trends that we've seen. We continue to feel very, very positive about what we're seeing on an underlying basis in Canadian and Coors Light. I think the brand equity is strong. The reaction we're seeing from consumers to our programming is very strong. So, we're feeling good there.

Okay. That's helpful. Thank you. And then , Stewart, on the Foster's total return swap, is it your intention to basically close out the remaining position before January 2011? And then if that's the case, what should be the cash impact

Judy, the answer to your question is yes. Understand that we have used the derivative strategy to look in a range of potential benefit. And really, I can't give you a cash number because that will depend on how the stock price turns out within that derivative color.

Okay. And then maybe just more broadly speaking, obviously you've had this position now for a couple of years or so. So, what have you learned through that process? And as you think about the Australian market, what is your updated thinking in terms of your opportunity in that market?

Judy, I'll take that, if it's okay. Let me [tick] this off. We're pretty clear that we said we found the Australian market interesting. We said the exposure that we had to swap gave us really three things. One, it was very flexible. Secondly, it was extremely low risk as far as we were concerned as a business. And thirdly, it gave us the opportunity to either increase our exposure, decrease or move out. And I think we decided that we no longer wanted the exposure to the swap. I think that just coincided with us being able to unwind it and also at the same time realize a cash benefit with the shareholders. So, I think that worked really well, and I think our definition of our exposure to the swap has actually worked out exactly as we said. As far as the Australian market going forward is concerned, same as all markets, we'll continue to look at it. We'll continue to examine it. And if there are any opportunities that we think we want to take advantage of there or indeed, anywhere else, we would act accordingly.

Okay. Thank you.

Thank you.

Thank you. Our next question comes from Mark Swartzberg of Stifel Nicolaus.

Thanks. Hi guys.

Good morning, Mark.

Stewart, the reference to a quarter of drivers of third quarter income growth not carrying over into the fourth quarter, can you explain that comment? Are you saying take a quarter of 30%? What do you mean by that comment?

Thank you, Mark. Let me give you some clarity around that. First of all, we're very pleased with our performance in terms of brands, costs and profit for the quarter. We're up $66 million. If you really look at -- of that, we're saying about roughly $15 million is impacted by timing and one-time items. And to give you more clarity around that, of the $15 million, we expect about $3 million or so will reverse in the fourth quarter.

Got it. Okay. Great. And then, Dave or Stewart, as we look at Canada next year, can you give us some flavor for how you're hedged and how you're feeling about cost of sales in that market on a per hectoliter basis? You're saying it's going to go up a bit in the fourth quarter? Is that a signal of where we're heading?

Mark, I'll let Dave talk specifically to the fourth quarter, but not until the end of the year will we give some guidance on sort of where we see next year going. Also, we aren't really giving any perspective on our hedges other than what we disclose in our financials. But, our hedging policy hasn't changed, and you should expect to see behavior from us that's pretty consistent with the past.

Mark, as it relates to Q4, we are anticipating higher costs from manufacturing, including some start-up costs related to the supply agreement with North American Breweries that we announced recently. As well, we're seeing some increases on distribution costs and packaging mix between bottles and cans.

Okay. Great. Thanks, guys.

Thank you. Our next question comes from James Watson of HSBC.

Good morning, everyone.

Hi, Dave.

Had a question about the UK market. I wanted to get into the destocking we saw there. I was wondering if some of that was -- how much of that was really reflecting underlying weakness versus whether there was just too much stocking ahead of the World Cup. If you could enlighten me there.

Hi James. It's Mark here in the UK. It's probably more of the latter than the former. If you look at what happened in the marketplace in the second quarter, the off-trade market was up about 14%, and the third quarter it was [down] 12%. So, it's clear that there was a significant overstock issue, as retailers anticipated probably more of an uplift from the World Cup. I think the underlying performance of the market continues to be tracking that around about 4%. We saw the market [down] last year at 4%. Our projection for this full year of this year is just under 4%. No fundamental change [to underline,] but I think just a swing from Q2 to Q3 principally an off-trade.

Okay. Thank you very much. One last question just for the total Company on if you guys have seen anything about weak costs and if that's going to be impacting you.

Yes, look, I mean, wheat is not a big driver of cost for us. Certainly, grain costs have gone up, but I would, as I've made comment in the past, barley is an important agreement. But if you looked at current prices, they're not above where they were in the 2007 timeframe. So, I hope that helps.

Great. Thank you very much.

Thanks, James.

Thank you. (Operator Instructions). Our next question comes from Christine [Arkas] of Bank of America.

Thank you very much. A couple of questions on Canada, if I could. Firstly, with the STWs exceeding STRs, do you anticipate some deload coming up in the fourth quarter?

No, what we see is the difference between our sales volume, and our sales-to-market is related. About two-thirds of it is related to the difference in timing and periods. So the [stub] period really accounts for the majority of that. There was some modest change in inventory. So, not anticipating anything of significance in Q4.

Okay. On the back of that, Dave, you mentioned comps down 1.9% in the fourth quarter. Is that a fourth quarter 2009 STW number? It just doesn't match what I see.

That was a sales-to-retail.

Sales-to-retail.

Yes.

Okay. And then just a last couple of points, still with Canada. There was a mention about three points of an adjustment to cost of goods, which was coming about from a distributor adjustment. But that wasn't called out, or may not have been called out, as a one-time. Is this something we'll see a benefit now for the next three, four quarters.

This is a one-time adjustment.

So, that doesn't reverse, that was just a benefit for the quarter?

That 's exactly right, yes.

Okay. And then lastly on --

Christine?

Yes.

Just to pick up, Mark said [he got] a question about what's reversing. [I] called out the $15 million. This item you've just highlighted sits in the piece that 's the one-time that won't reverse next quarter.

Got it. And only $3 million is reversing out of that $15 million?

Yes, that's right.

And then the last question I had on Quebec, actually. You talked about pricing and selective pricing going in, and we certainly did see that in some key brands and key channels and retailers in Quebec. But we've seen some of that reverse now in October. And in light of your competitors' comments about a very competitive pricing environment in Canada, I'm wondering if you can give us some color on how things are looking in the early part of the fourth quarter.

Well, the way I characterize Quebec is very stable on the pricing front. So, what we did see in the third quarter was a number of weeks where some of the major retailers actually brought their beer prices up above minimum price. Those have been back at minimum price in recent weeks. But the overall environment is quite stable there.

All right. Thank you very much.

Thank you. Our next question comes from John [Buescher] of JPMorgan.

Yes, thanks. You talked a little bit about the uses of cash. I guess can you just go through -- I think you said best interests of shareholders? So, can you just sort of give us an idea of what you mean by best interests? And then also, kind of prioritize what you're thinking right now. Thanks.

Our prioritization hasn't changed, and our thinking hasn't changed. It's always been [consistent.] And that really is that our cash flow falls into three big buckets. One, investing in the business. You've certainly seen a lot of that over the last couple of years, most recently with the consummation of the joint venture in China. We've seen the second allocation that we've looked at as taking care of the balance sheet. We've certainly gone off to that area this year, a reduction of almost $100 million related to some Brazilian tax liabilities, some historic attention to pensions. We've called out that as we look at this fourth quarter we are in the process of some detailed examination of some of the pension plans. And we expect by end of fourth quarter to have clarity around potential pension contributions. And then, of course, we've seen a fairly large increase in our dividend over the last few years, and we continue to look at options around giving cash back to shareholders. We look at all of those options from the perspective of what do we think is in the best interests, long-term interests, of our shareholders. And we use that to priorsize the specifics of our cash use. And as always, we consult with our Board on a quarterly basis with respect to that prioritization.

Got it. Thanks.

Thank you. (Operator Instructions).

Are we clear, Darren?

I'm showing no further questions, sir.

Okay. Well, thank you, everybody, for joining us today. We look forward to seeing some of you in the UK early in December, and look forward to speaking to you again in February, when we have our fourth quarter results. Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may all now disconnect. Thank you, and have a nice day.