Molson Coors Beverage Co (TAP) 2016 Q2 法說會逐字稿

Good morning, and welcome to the Molson Coors Brewing Company second-quarter 2016 earnings followup session conference call. Now I will turn the call over to Dave Dunnewald, local Vice President of Investor Relations for Molson Coors.

Thank you, Chris. Good morning, everyone. On behalf of Molson Coors Brewing Company, thank you for joining us today for our second quarter 2016 followup 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 Mark Hunter, Mauricio Restrepo, and our business unit CEOs earlier today. We will use a standard question-and-answer format and we anticipate the call will last less than an hour. 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 our 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 our 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. We also encourage investors and analysts to read SABMiller PLC news releases and trading statements that include financial and other information relating to the Miller Coors joint venture.

Let's get started with an introduction of the team with me on this call. We have Kevin Kim, Investor Relations Senior Manager; Ashley Dunlop, Finance Forecasting Senior Manager; Brian Tabolt, Controller; Jason Charpentier, Treasury Director and Mark Saks, VP of Tax.

Regarding quarterly results, as Mark Hunter mentioned on our regular earnings call this morning, in the second quarter we continued to focus on our first choice ambition and on building a stronger, broader and more premium brand portfolio, underpinned by incremental sales and marketing investments as we discussed on our first quarter earnings call a few months ago.

Progress in the quarter included net sales revenue per hectoliter growth on a constant currency basis in all of our businesses, that included strong Coors Light growth globally, improved core brand momentum, fast growing innovations in key markets and strong Above Premium growth globally. We significantly increased investments behind our brands, although the timing of shipments and other short-term factors held back bottom line performance in the quarter. In brands, Coors Light grew volume more than 4% globally including strong double-digit growth in Europe and Latin America and low single digit growth in the US -- this brand's best performance here in nearly three years.

We continued to strengthen our business through improvements to our sales execution and revenue management capabilities, increased efficiency of our operations, and implementation of common global systems. To ensure that our supply chain is fit for the future, in the second quarter we reached an agreement to purchase land in British Columbia on which we will build a new efficient and flexible brewery over the next few years. This new brewery site is attractively priced, has rail access and is situated on the Trans-Canada highway, making it ideal for serving the western Canada and US markets. We anticipate completing the land purchase this month.

In the past few months, we've also made substantial progress on the impending MillerCoors transaction including in integration planning and completing the necessary financing at very attractive rates. Investor demand for our recent debt offering was very strong and we achieved record and near-record low interest rates on our debt issue. We're pleased with the transaction progress made to date and we continue to plan for a closing before the end of 2016.

In the balance of this year, we will continue to focus on our first choice for consumers' and customers' ambition, all driven through our profit after capital charge lens and with the intent to drive total shareholder returns. So with that, I'd like to open it up for your questions. Over to you, Chris.

(Operator Instructions)

Our first question comes from the line of Vivien Azer from Cowen. Your line is open.

Hello, good afternoon.

Hey, Vivien.

So I wanted to circle back on the US first, please. I'm just having a hard time reconciling the comment from Gavin in the press release that the second quarter started off slow but finished strongly in June and then the STR is down mid-singles through July 23. I recognize you guys are getting rid of that mid-quarter commentary, but I'm having a challenge reconciling the drop-off, seemingly given the more constructive commentary in the press release? Can you help with that?

Yes, it really gets back to what Mark was talking about on the earlier -- or maybe it was Gavin -- on the earlier call, and that is with only three weeks of data, relatively small changes in the timing of holidays, in weather in various regions around the US and so forth, can have a disproportionate effect on those numbers and cause really quite a bit of volatility. And we've seen that pretty frequently over the many -- call it 20-some years we've been providing those data points. That actually limits their usefulness.

In this particular timeframe, call it early July, you have the largest holiday of the year right on the edge of that time period -- July 4, obviously in the US. Then if you're wondering about Canada, you've got the Canada Day holiday on July 1. So yes, simply a lot of volatility in the numbers. I think longer-term view of volume trends and brand health and so forth are actually more useful, and that's why we've talked about discontinuing those numbers upon or following completion of the transaction.

Understood. Then on that point then, fairly notable disconnect between STRs and STWs? Can you comment on inventory levels and whether we should anticipate seeing a normalization of those two trends in the back half, please?

Sure. I think as always you want to look at STRs and STWs sort of over a longer period of time. MillerCoors has consistently said that they plan to ship to consumption, so in other words they're not changing -- or they've not indicated a change in inventory policy.

You noticed in the second quarter there appeared to be an inventory depletion of sorts, but you may recall there was actually a bit of a build in the first quarter of this year. If you look at STRs and STWs on a year-to-date basis, they're within 20 basis points of each other, which tells you there as always may be some relatively minor adjustments to wholesale inventories. At least on a year-to-date basis they're largely in line.

Perfect. Thanks very much.

Thanks, Vivien.

Your next question comes from the line of Brett Cooper from Consumer Edge Research. Your line is open.

Hey, Dave. Question on CapEx, you lowered the guidance and there was some technical components to it. What should we expect from an all-in number?

We haven't provided an all-in number. What I would say is that we changed the guidance in order to really do two things. One, we went from $300 million on our last earnings call of CapEx this year, excluding MillerCoors, down to $220 million. The difference is in two pieces.

One is the exclusion of the CapEx associated with the new brewery that we're going to build in British Columbia over the next two or three years. The second piece would be adjustments to our capital plans, capital spending plans for this year. So it's not just about the Vancouver brewery. So it's those two pieces.

As far as essentially giving you a breakout between those pieces, which would get you to the answer to your question, we're not going to provide that level of granularity. I guess what I would say though, is that the primary driver of the two was the exclusion of the CapEx related to the Vancouver brewery.

Okay. I'll push for this and see what you say.

Sorry, Ashley added a good point. At year end, you will actually have an all-in CapEx number that includes the Vancouver brewery. So you'll get your number, just have to wait a little bit longer for it. And it won't be exactly in sync with our guidance.

Have there been changes to the Vancouver brewery plan? Has it changed relative to your expectations going into the year?

No significant changes. We believe we have an excellent site on which to build a new brewery, given that we can build the brewery for nearly the proceeds of the land sale in Vancouver so the new brewery is about 100 kilometers east of Vancouver. The land that we plan to close on this month -- that land is obviously much less expensive than the land we sold because we can not only buy new land but also largely build a new brewery with the proceeds from the land sale which we completed last quarter.

Then just one question, it was in your Q that was filed. In the discussion of working capital, there's a comment that said we may be able to maintain these levels of working capital benefits in the long term? Is there anything to that statement? Is it just sort of normal cautionary commentary?

Yes, working capital, particularly in a business like ours that has not only large receivables and payables that you'd normally expect from a consumer product business, but we have very large CapEx payments for example, and just the timing of those types of things can result in substantial movements in our working capital. So we like to caution people so that it doesn't surprise them if there's a bit of a swing and it could be as little as a day or two difference in a payables or receivables item.

That comment is about volatility year-to-year, quarter to quarter, not about a long term drag from working capital?

Right. Long term we're going to drive as much cash out of the business as we can, but we're still going to put cautionary statements in our filings because it's the right thing to do.

Perfect. Thank you, Dave.

Thank you, Brett.

Your next question comes from the line of Robert Ottenstein of Evercore.

Great. Thank you. Not to beat a dead horse, Dave, but hopefully to help a little bit, I think I saw somewhere that the number of shipping days in July was two less than last year in the US, so maybe that's a driver? Can you confirm that? And if that's the case, perhaps would that have also been the case in Canada and Europe?

Yes, Robert, that's a good point. There are, as I understand it, two fewer shipping days depending how you define those in July this year and that would be a factor as well. In all likelihood, it would be a factor in a place like Europe too.

It depends a little bit in the route to market that you have in a given geography. But basically the answer is yes, that would be a factor along with timing of holidays and weather and lots of other things can affect such a short timeframe.

Right. Then in terms of Europe, I think you mentioned that overall you had gained about 30 basis points a share. Kind of a big picture aggregate number's not as helpful as perhaps a little bit more granularity. I know you can't give it for every single country, but can you give us a sense of which countries in Europe you're gaining share, which ones you're losing share, and any notable changes?

I don't want to get too granular. We're talking about 11 different countries in Europe and this is -- I guess what I would say is as a rule, our business has performed particularly well -- and this is not a specific share comment, because I'm not going to give that to you -- but it's performed particularly well in places like Romania, the UK, we've talked about how strong Coors Light is there. Croatia has been doing well for a long time. And then we've been particularly challenged in Serbia, for example.

Great. And you've had the Eastern European acquisition for a number of years now. You came into it with certain assumptions that this was actually a pretty promising long-term growth market. And obviously the economy hasn't helped us for the last few years here. But as you look forward, are you still as optimistic on those markets? Or have things changed?

That's a good point. Kind of at a strategic level, I'd say yes, we're every bit as enthusiastic and optimistic about the performance potential of those central European businesses. They actually have performed really well.

What has been really quite different from what we expected is actually the -- what would you call it, the actual backdrop, the macroeconomic challenges of the Euro Zone which are obviously pretty well documented but the actual performance of the businesses themselves has been quite good. We've had some localized challenges in places like Serbia that we've talked about, originally Romania was a particularly challenging market for us. We've been able to make great progress in Romania and I'd say meaningful progress in Serbia.

The one thing that we did not anticipate when we did the transaction was the speed with which we'd be able to combine the UK business with the central Europe businesses, and that has allowed us to vastly increase the, call it, synergies or efficiencies of the overall Europe operating unit. And so we've had challenges like floods. We've had macroeconomic challenges and so forth.

But nonetheless, the business has performed very well and we've been able to vastly exceed our expectation for cost savings and also lift some best practices out of the Central Europe business to some of our other businesses. For example, our sales processes we're now embedding in our Canada business. They've already been essentially lifted and shifted to our UK business. These have helped us to improve our efficiency and effectiveness in sales, in the sales force in those geographies, and obviously there's more potential to do that going forward.

Great. Thank you very much.

Thank you, Robert. Good questions.

(Operator Instructions)

Our next question comes from the line of Chris Sinnott of Stifel. Your line is open.

Hi, Dave. One quick question here. You actually answered my question on CapEx, so thank you for that. The only other housekeeping item I had was on Europe and the lapping of the Heineken termination? We still have one more quarter to go on that, right?

No, the Heineken contract brew arrangement was terminated in, if I recall correctly, May of last year, so we have now --

Okay, great. That's all I needed to check on. Thank you.

Thank you, Chris.

(Operator Instructions)

There are no further questions in queue at this time.

Great. Thank you, Chris, 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 we did not cover in our time today, please call Kevin Kim or me on our direct lines or main number here at Molson Coors, which is 303-927-BEER. Thank you again and have a great day.

Ladies and gentlemen, this does conclude today's conference call. Thank you for joining us. You may now disconnect your lines.