Molson Coors Beverage Co (TAP) 2011 Q3 法說會逐字稿

Good afternoon and welcome to Molson Coors Brewing Company 2011 third-quarter Investor Relations follow-up session.

Before we begin, I will 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 these measures to the nearest US GAAP results. Also, unless otherwise indicated. all financial results the Company discusses are versus the comparable prior year period and in US dollars.

Now I would like to turn the call over to Dave Dunnewald, Vice President, Investor Relations.

Thanks, Melissa. Hello, and welcome everybody. On behalf of Molson Coors Brewing Company, thank you for joining us today for our third-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 that the call will last less than an hour. So let's get started.

With me on the call are Erik Mickelson, manager of SEC Reporting; Greg Schneider, Group Manager of Global Forecasting and Analysis; Spencer Schurr, Finance Forecasting Manager; Zahir Ibrahim, Global Controller; Andy De Gortari, Group Manager of SEC Reporting; Mark Saks, Senior Director of Tax; Melissa Mentor, Senior Manager of Tax; and Bill Waters, VP of Corporate Strategy.

As Peter Swinburn mentioned on our regular earnings call earlier today, Molson Coors Brewing Company's third-quarter underlying after-tax earnings decreased 11% as we continued to face high unemployment among core beer consumers, lower volume, and significant commodity inflation. New challenges in the quarter included the Miller Coors MG&A increase, and the degree of market softness that we saw in the UK. Nonetheless, we continue to pursue all three of our growth strategies, maximizing the value of our core markets, expanding our exposure to emerging markets, and taking advantage of smart M&A opportunities. We also achieved a fast start with our stock buyback program, and strengthened our balance sheet in the quarter. With our growth strategies, with profit and cash generation, and via the disciplined use of cash, we remain tightly focused on building long-term value for our shareholders.

Now, before we start the Q&A, I wanted to offer just a little bit of additional perspective on 1 question that we discussed on the call earlier today. And that's related to the tax rate outlook for 2012. We plan to provide a forecast range on our effective tax rate for 2012 on our next call in February, as usual. That's our normal cadence. In the meantime, however, let me offer you some perspective.

As Stuart mentioned earlier it's likely to take a few years for us to get to our long-term effective tax rate range of 22% to 26%. And in 2011, our rate was unusually low, because of some 1-time tax benefits and the favorable resolution of unrecognized tax benefits, what we call FIN 48 roll-offs. For 2012, then, assuming current tax law and no 1-time factors, we would expect to see a step up in the tax rate from 2011, but not all the way to the long-term range. As examples, our initial tax rate guidance ranges at the beginning of 2010 and 2011 were 18% to 22%, and 17% to 21%, respectively. So I hope that helps a little bit with perspective around tax rate, pending our formal forecast early next year.

So with that, we would now like to open it up for your questions. Melissa?

(Operator Instructions) Brett Cooper from Consumer Edge Research.

I was just wondering if you could help us walk through -- and this was a little bit on the call, but just in more detail -- the COGS guidance in Canada. Mid single digits implies something in the amount of, I think, a down 2 in the fourth quarter. And I'm having a difficult time reconciling that so I don't know if there's anything you can do to help.

Yes. So you have the full-year guidance and you have the year-to-date number. And it is true, when you only have one quarter, in a sense you get a lot of leverage there. So yes, implied in the combination of the year-to-date rate and our guidance, you would expect that there would be, call it a significant improvement in the COGS run rate in the fourth quarter.

If I have this right, you guys are up 9 year-to-date, right?

Off the top of my head that sounds about right, yes.

And you're still going to have the contract pack running through the business? Or the impact of contract pack running through the business in the fourth quarter?

That's right.

As an incremental, right? And so that was 5 points in the third quarter?

Right.We also had some one-time items in there, as well.

Right, because the one-time items were one-third -- just round numbers it was 5, and then 5 is the NAB piece, and then 5 was inflation, right? I guess what I'm struggling with is, if you had 5 for NAB in the fourth quarter, that would imply that your underlying input costs are down mid to high single digits. And I don't recall anything in 2010 as part of the base that would be unusual, was there?

I don't recall anything. Let me take the pieces then. NAB contract, yes that continues. And once we essentially established the ramp up, that's been relatively consistent. Our COGS in the third quarter, what did we say? 16% all- in local currency? And so you got about 5% of inflation and 5% of NAB, and 5% of miscellaneous, primarily one-time stuff. If the one-time stuff does not recur, that gets you down to high singles, low doubles. However, one thing to consider is, year-to-date 9% -- the cutoff, if you will, between high single digits and mid single digits, is that what we need here? If we're at 9% year-to-date, that's high single digits. To get us into the mid range, it needs to round to 7 or less. And so it may not be as far to go as you're thinking about.

Okay, so 7 would be the cutoff?

Actually, to be clear, when we talk mid single digits, that means anything that rounds to 4 or more, up to, and then rounding to 7.

(Operator Instructions) [Michael Luti] from Goldman Sachs.

It's Judy, actually. In the UK, so can you quantify that temporary buying reduction in off-premise in third quarter and the consequent or subsequent reversal in 4Q?

Yes. I'm not going to forecast the fourth quarter but I can tell you that, let's say the vast majority of the spread between our volume performance and, call it, the market performance was that issue. So you can do the math on that one with the percentages and at least get a sense of the magnitude of that issue. And the good news is, we've seen that issue largely correct itself. Well -- I shouldn't say largely correct itself, but start to correct itself in October, in the numbers we gave on the earlier call.

And then just from an industry perspective in UK, the fact that the industry didn't really bounce back in 3Q as much as you had anticipated, just given the favorable comparison in Q3 of last year. Was it all really weather driven? A lot of the beverage companies talked about challenging July/August just because of the weather issue. So how much is that weather versus more the macro challenges?

I think when I look, my history around the UK business points to weather often being an issue. Clearly, though, in recent times the economy has also been an issue. And you're at least as well aware of the macro issues in Europe as I am. So I'd say it's a combination of the two.

And then in Canada, I think Dave corrected my market share number but for some reason for second quarter I had a higher market share number for you guys in Canada. So I'm not sure what the difference is. But so your market share, the absolute level in 3Q was 40.5%?

I'll take your word for that. I do know that, broadly speaking, our share is 41% rounded. But it does depend on which partner brands you give us credit for and how much. But anyway, let's say it's around 41%.

So when you speak to the market share number, are you including your partner brands or not including your partner brands?

We include all of the partner brands with the exception of Modelo brands that run through a joint venture, and we claim 50% of those. The other brands, though, we manage front to back and so we claim 100% of those. For example, Heineken and MGD, those would be the two largest import brands that we completely control in Canada. Corona is bigger but we run that through a JV. So the way to think about that is, or to think about Dave Perkins' comment, is if our share in the first quarter was 41%, then we had roughly 41% in Q2 and Q3. Now, that probably is quite a bit different from last year in those same quarters, but at least sequentially this year he's saying once we got past the large, call it, benefit of the Winter Olympics, and rolling out some new brands, call it pipeline fill if you want, then our share has been quite stable this year on a sequential basis.

And then on the MG&A expense side in Canada, the 7% decline in local currency, so I think I heard marketing was up. So all of the decline was just the overhead expenses coming down?

Yes, I'm sorry, which business?

In Canada.

And that was MG&A?

Yes.

Right. MG&A was all overhead. Some of that's employee incentive comp and some other things. There was no significant change in marketing. I think there was a very small decrease but nothing of significance.

So do you remember, marketing expenses in Canada year-to-date, what the number is, percent change?

Yes. On a year-to-date basis in local currency, MG&A is down at a mid single digit rate. Actually marketing is up slightly on a year-to-date basis. So all of that decline is in general and administrative.

Okay, so marketing up slightly but overall MG&A down mid single digit year-to-date?

Yes, between 5% and 6% in local currency.

(Operator Instructions) Pat Palozzi from Beutel Goodman

Good to see you guys have been active with the buyback. We're very supportive of that. A couple of quick questions. The first one was on Molson Canadian. Can you give me some color on how that did in terms of its share? And then the other question was, you guys said that you settled a quarter of your swap. Are you able to give us some details as to which one you settled or was it split?

Yes, okay. Let me take the second one first and then I'll get to the first one. We settled, right. We had some cross currency swaps which effectively gave us a partial hedge of our Canadian dollar exposures. Originally it was set up as a British pound hedge, and we flipped it following the merger several years ago. So those swaps were out of the money, around $400 million prior to settlement. And so for about $100 million we settled 25% of them, of the out-of-the-money -- I'm sorry, it was about $100 million cash used to settle 25% of them. The notional amount, around $300 million, if I recall correctly, if it matters.

And then that was Canadian to pounds, right?

Actually, there's two legs. It's pounds to US dollars and then US dollars to Canadian. And that reflects the origination of it. And then the flip four or five years ago. Does that help with the swap?

Yes, that does, thank you.

And then as far as Canadian, yes, the Canadian trademark gained share in the third quarter. It grew at what I'd call a low single digit rate. Now, most of that, or certainly the driver there, though, is the Canadian 67 and Canadian 67 Sublime brands which did quite well in the quarter.

So it was basically the line extensions. But the core Canadian brand, did that lose share or was that stable?

I'd call it stable. Stable volume on that brand. As far as share goes. But stable volume, yes, maybe slight gain. Greg corrects me -- slight decline based on the market performance.

(Operator Instructions) Brett Cooper from Consumer Edge Research.

Just a follow-up housekeeping item. So when you have the 14th week in the fourth quarter, that does not apply to the US business, correct?

That's correct. Good call, Brett. Yes, Miller Coors reports on a regular calendar basis so our US results will not have an extra week this year.

And can you remind me the last year you guys had the extra week?

Yes. In 2006, we had a 53-week year. That yielded about $10 million of underlying pre-tax profit in Canada. And it was about breakeven in the US and the UK. Obviously, it added about -- let's see, if I do the math, I think it's 1 divided by 52 weeks is about 1.8%. So you do have, obviously, some volume to go with those income perspectives that I provided for last time. No guarantee what happens this time. I don't know, I'll leave that to you. But at least that's what happened last time around. And one more thing, Brett. Greg pointed out, we also have an additional week of interest and overhead expenses in the corporate segment.

So it's just everything except the US?

Yes, that's right.

There are no further questions at this time.

Okay. Great, thanks, Melissa. And in closing, I'd like to thank all of you for your interest in Molson Coors and for joining us today. If you have 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. Again thank you. And cheers, everybody.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.