Molson Coors Beverage Co (TAP) 2011 Q1 法說會逐字稿

Good afternoon. My name is Alicia and I will be yourself conference operator today. At this time I would like to welcome everyone to the Molson Coors Brewing Company 2011 first quarter Investor relations follow-up session. All lines have been placed to mute to prevent any background noise. After the speakers' remarks there will be a Question and Answer Session. (Operator Instructions)

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. So please refer to its most recent 10-K and 10-Q filings for a more complete description of factors that could affect these 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 Company's website www.molsoncoors.com and click on the financial reporting tab of the Investor Relations page for a reconciliation of the measures to the nearest US GAAP result.

Now I would like to turn the call over to Dave Dunnewald, Vice President of Investor Relations for Molson Coors. Please go ahead, sir.

Thank you, Alicia. Hello, and welcome everybody. On behalf of Molson Coors Brewing Company, thank you for joining us today for our first quarter 2011 follow-up earnings conference call. Our goal on this call is to address as many additional earnings related questions as possible following our regular earnings conference call with Peter Swinburn, Stewart Glendinning, and our business unit CEOs earlier today. We will use the standard question and answer format, and we anticipate the call will last less than an hour.

So, let's get started. With me on the call are Heather Pollard, Investor Relations Manager who is replacing Leah Ramsey who moved over to an operations finance role a few weeks ago. Greg Snyder, Group Manager of Global Forecasting and Analysis. Spencer Shearer, Finance Forecasting Manager. [Vessel Boyson], Director of Strategic Finance. Mark Saks, Senior Director of Tax. And Bill Waters, Vice President and Global Controller.

As Peter Swinburn mentioned on our regular earnings call earlier today, our first quarter results reflect solid net sales, earnings growth, and margin expansion, despite sluggish economies in our core markets and accelerating global commodity inflation. Our financial performance in the quarter benefited from strong brands supported by substantial investment in innovation, continued positive pricing and cost reductions.

These results also reflect progress against our 3 growth pillars of maximizing the value of our core markets, increasing our exposure to emerging markets, and taking advantage of smart M&A opportunities. Our growth strategy is generating value for the business today, and will have an even greater impact as economic conditions improve.

At Molson Coors, we have a strong team focused on growing this business, realizing our vision of becoming a top global brewer in profitability, and delivering long-term value to our shareholders.

Before we get started with the Q&A, to avoid any potential confusion I want to clarify that the cost savings delivered by MillerCoors over and above synergies now total over $156 million. The amount of $166 million presented in the MillerCoors release this morning was not correct.

All other cost savings results in the MillerCoors release and call, however, are correct, as presented, including the savings in the first quarter and the total year-to-date -- or, I am sorry, since formation of MillerCoors in 2008. That number is $684 million of annualized synergies. With that clarification, we would now like to open it up for your questions. Alicia?

Bill Kirk with UBS.

Hi, Dave. I was just wondering if you could walk us through maybe where your leverage ratio is today versus where the credit agencies may see it or may look at it.

Yes. Actually, I can't give you a leverage ratios as of, say, the end of the first quarter because we don't calculate that. We do internally, but we don't publish it externally, the numbers for it, except on in the 10-K.

As of year end, however, our leverage ratio, the way some people calculate it, a simple debt to EBITDA ratio, would have been less than 1. Say in the range of 1 or a little less. On the other hand, if you layer in or add in some additional factors that some of the rating agencies, and especially S&P, add to the ratio, then you would have been in the range of 3 times for that ratio. We don't have a good way of calculating all of the factors that would go into that on a quarterly basis.

Thank you. That's very useful.

You're welcome.

Our next question comes from the line of Christine Farkas with Bank of America Merril Lynch. Christine Farkas with Bank of America Merrill Lynch. Your line is open.

Thank you. Hello, Dave.

Christine.

Just getting back to the UK, I want to understand how we are to look at the volumes, because the management comments indicated that contract brewing is not in the beer volumes. But Modelo is treated as your owned brand. So, are Modelo brands included in your reported volumes?

Yes, they are. The way to think about our volumes, we have a lot of relationships with a lot of the major brewers around the world in various markets. And in some cases we, obviously, we have owned brands that we own and we have owned, and those are pretty clear.

We have contract brew which we never count in our, call it, STR or worldwide volume numbers. And the reason is because we're producing beer for somebody else and they manage the brand and we're just producing beer you could say. On the other hand, we have some brands where we manage them either in whole or in part.

The example that comes to mind, or the example that you mentioned, is the Modelo brand. Those brands, while we import the beer itself, we manage that brand from front to back within the marketplace. And so we do count that as an owned brand. The same thing could be said in the UK about the Grolsch brand which we have always included in our owned brand volumes and other numbers like that.

Do you have the say on the pricing for those brands in those markets?

Yes. As I say, we essentially manage the brand including all of the sales and other activities. Now, we would, of course, be in touch with the brand owner in figuring out what the right positioning is for the brand, what kind of ad creative is going to be most effective and so forth. So there is some work that we do together, but we are primarily in charge of that brand in that marketplace.

Okay. As a follow-up to that, then, I had a question with respect to how much these added brands adds to your volumes, and the answer was it adds about 1 point of share. So to look at this as measured channels, that your share is about 16% of the UK market. 1 point of share would imply something like 6% growth in volumes again, so I want to make sure I am comparing apples-to-apples.

Are you going to see that kind of impact on volumes or does that include all the other brands that you don't include in volumes? How much did you see come through in the first quarter, for example?

Yes. Let me help out. So about 1% of share, measured channels doesn't get you all the way there. Our actual share in the UK market, which by the way, skews a bit towards the on premise which is probably not fully measured in the channels you're looking at.

I am quite sure it is not.

Yes. So we're about 19% share. And so adding a percent of share to that. Now, the only thing I would add is there's a bit of an offset with the Femsa brands which we used to have but no longer have. So we're essentially bringing in Modelo and Sharp's and taking out Femsa, which would be a partial offset.

A partial offset. But, again, 1 point on 19 points of share is 5% of incremental volume on your portfolio offset by some Femsa, but not completely offset, correct?

Not completely. In fact, a fraction offset. But, yes, your math is roughly right. Minus a little bit for Femsa.

But that's pretty meaningful with respect to, call it, 3 points or 4 points of added volume, quote, growth, or acquired growth year-over-year. Would you say that that was the impact in the first quarter that helps you reach that number?

It does, it helps, yes. It is a factor in the growth in the first quarter to be sure.

Okay. Great. Separate question. On MillerCoors, the profits were up 7% in the first quarter but the guidance included some incremental or accelerated cost of goods.

Some of your synergies have been completed. I realize we're still seeing some trickle through. But does that imply or can you share with us targets for full year growth? Do you expect profits to actually grow this year?

We don't give profit guidance actually for any of our businesses including MillerCoors. So I can't help with that. You have the cost of goods guidance. And the rest of the P&L I will have to leave to you.

There is one piece of information that might be useful. In early December in New York, MillerCoors presented, in fact you were there if I remember right, and just as a refresher, there was a piece of guidance given by SABMiller. And so I would refer you back to that.

Yes, the 3-year margin plans. Is that what you're talking about?

That's correct.

Okay. I will review that. My final question, Dave, is on free cash flow guidance. I realize a bunch of the guidance was not changed but can you just walk us through, again, where you stand now on the free cash flow guidance for 2011?

The latest guidance we have we provided on the last earnings call and actually in New York in March. That was $750 million of underlying free cash flow plus or minus 10%.

Okay. So the parts are the same as well as the total?

Yes, we did not provide any change to that guidance on the call this morning.

Mark Swartzberg with Stifel Nicolaus.

One clarification. The synergy comment you just made, was it $528 million plus $156 million is what you're saying is the realized number so far?

Yes, that's right. If you add those 2 together you get to the total number which was correct in the release.

Got it, okay. And then looking at the US business, your low single-digit cost to sales per actual liter increase this year, does that include your higher freight costs?

Yes, the guidance in the US business, we only provided 1, call it, number of guidance, or 1 point of perspective. And that excludes nothing. So it includes the benefit of cost savings, it includes the challenge of recent changes in commodities including freight and fuel.

And the higher freight in the US business you get back automatically by the actual charge you make to your customers for freight, is that right?

Yes, above a certain threshold, which you can imagine is $115 a barrel or something, we're well above that. We do get a full refund on the incremental fuel. It's a fuel surcharge that our distributors do refund to us to get the beer to them.

Okay. Not that you're saying this, but if freight were the only thing driving your higher COGS view, your P&L would be earnings neutral to the event, because your distributors pay for that higher freight charge?

Yes. The fuel cost component of outbound freight we would be refunded for, again above a certain level. So, if you had a $0.50 increase in diesel fuel, but well above -- which we are now -- well above the threshold, then for outbound finished goods freight we would be refunded for that.

But you would still see some impact from inbound freight. Fuel tends to go through many different places in the P&L, so I wouldn't suggest that there would be no impact because it really does go through all kinds of things, whether it is materials -- or anyway, amazing number of things, even down to agricultural materials.

Sure. And inbound and outbound, in terms of percentage, what's 'bigger in the COGS mix, inbound, outbound freight?

In total, outbound freight, to be sure. You can imagine if freight is a simple sum of bulk times weight, then the material going out is going to be a lot heavier and bulkier than the stuff coming in. But still they're both important.

And then with Canada, does it also have this automatic mechanism above some threshold for freight?

Not that I am aware of. That's partly due to the set up of the market. Let me get back to that, though. Bill Waters made a good point that also the distance to ship is generally longer on outbound freight than inbound. Because usually the suppliers, that constitutes inbound freight, or that's why we have inbound freight, they tend to be closer to the breweries than on average.

The customers. yes, in Canada you have the set up in the market place where, for example, we are the distributor in big chunks of Canada. So, there is, call it, a less uniform setup and much less skewed toward 3-tier distribution which results in, call it, fewer opportunities or situations where you would share freight, outbound finished goods freight.

(Operator Instructions) Brett Cooper with Consumer Edge Research.

Hello, Dave. Quick question on the NAB contract. For the numbers, it doesn't seem like there was anything in the first quarter. Is that correct?

Let's just say it was beginning to ramp up so, yes, minimal impact in the quarter.

Can you just help us understand how that phases through as you go through the balance of the year and into 2012?

Yes. I would say the way to think about it is ramping up, really hitting stride in the second quarter, but unlikely a full ramp up. And then pretty close to full in the back half of the year. That's the way those things normally go. I am not giving you anything particularly special there.

And so you'd expect to see full annualized impact beginning, more likely, in the third quarter than in the second. But we'll see how it goes. Obviously it takes you about a year to layer all of that in.

So you're saying by the time, third quarter, whatever the impact is that we put in there, believe it is going to be, on a quarterly basis we'll see that in the first quarter, and then obviously it is the subsequent fourth, first and second to get to that point. Is that fair? Are you 50% of the way there in the second quarter? Is that fair to think about it that way?

I don't think I can dive into percentages on the second quarter. But the point is, as we gear up for peak season, we will be gearing up that contract brew arrangement at the same time. And as you are thinking about how the numbers flow in the contract, I would also dial in an assumption about seasonality, as you would with the rest of our business.

But the seasonality shouldn't be any different than the base business?

Not significantly different. I think that's fair.

(Operator Instructions) We have no further questions at this time. I turn the call back over to the presenters.

Great. Thank you, Alicia. And with that, I just want to thank everybody for participating in the call today and for your interest in Molson Coors. If you have any additional questions that we did not cover during our time this afternoon, please call me on my direct line or at the main number here at Molson Coors which is 303-927-BEER -- or 927-2337. Thank you again and have a great day.

This concludes today's conference call. You may now disconnect.