Molson Coors Beverage Co (TAP) 2013 Q2 法說會逐字稿

Welcome to the Molson Coors Brewing Company second quarter 2013 earnings follow-up session conference call. 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 US -- 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 on the Investor Relations page for s reconciliation of these measures to the nearest US GAAP results. Also, unless otherwise indicated all financial results the Company discuss are versus the comparable prior-year period and in US dollars. The Company also encourages investors to read SAB Miller PLC news releases and trading statements that include financial and other information relating to its Miller Coors joint venture.

I'll now turn the call over to Dave Dunnewald, Global Vice President of Investor Relations for Molson Coors.

Thanks, Kyle. I really appreciate it. Hello and welcome everybody. On behalf of Molson Coors Brewing Company, thank you for joining us today for our second quarter 2013 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, Gavin Hattersley and our business unit CEOs earlier today. We will use a standard question-and-answer format and we anticipate that the call will last less than an hour. So let's get started with an introduction of the team with me on this call.

First of all, a special welcome to Kevin Kim who joined the Company three months ago as our new Investor Relations Manager. Today we also have Spencer Schurr, Finance Forecasting Manager; Brian [Table], Senior Director of Technical and SEC accounting; and Mark Saks, VP of Tax.

As Peter Swinburn mentioned on our regular earnings call earlier today, in the second quarter our Company delivered double-digit underlying profit growth driven by earnings accretion from the central Europe acquisition in June of last year as well as improved financial performance in our Europe and International businesses along with a lower tax rate. We also generated strong underlying EBITDA and free cash flow and reduced our net debt by $373 million in the quarter. We delivered these results despite weak consumer demand across all of our markets. As discussed two months ago during our New York Investor Day, we are focused on the drivers that matter most in our business.

These are driving strong core brand performance, leveraging our valued-added innovation pipeline, increasing our share of above-premium sales, capturing significant sustainable cost savings, and allocating cash via our disciplined tax-centered process that builds long-term shareholder value. In the remainder of the year we expect consumer demand to remain weak. Despite this we plan to increase our marketing investments behind our core brands of and innovation in order to drive long-term total returns for our shareholders.

And with that, Kyle, we'd like to open it up for questions. Over to you.

(Operator Instructions)

Judy Hong, Goldman Sachs.

Hey, Judy.

I wanted to go back to pricing in Canada. And I apologize if you've given all these numbers. I don't know if I caught everything but -- so the negative 0.5% revenue per barrel, how much of that was price versus mix?

Yes. So price was positive 1% and then slightly more than offset by negative 1.5% mix. And mix includes, by the way, things like geographic mix, product mix, segment mix, that sort of thing.

And I know you talked about value growing faster. Can you give us the actual percentage numbers for value versus your premium?

No, not a separate number. But we did see growth in the economy brands ahead of -- well, actually, no, we'll give you at least a broad brush. Our economy brands were roughly flat in the quarter. (multiple speakers)

Okay and within premium -- so in your portfolio I think some of the brand performance you've cited were Molson Canadian down 2% -- 2.5%?

Cited where?

I think it's in the press release, so sales volumes for Molson Coors -- oh, sorry, so you didn't give the -- do you have any of the brand information Coors Light, Molson Canadian?

Not specific numbers, no. We did say that we were pleased with the performance of the Molson Canadian brands in the quarter. Coors Light performance was not quite as strong as we'd seen earlier in the year, partially driven by overlapping the introduction of Coors Light Iced Tea a year ago which we include in those numbers.

Okay, all right. And then on Canada so the cost per hectoliter increased more than 6%. I'm just trying to also just go through the drivers and quantify some of the drivers. You talked about the asset write down as a big factor. How much was mix versus some of the others like input cost inflation and fixed cost deleveraging?

Yes. That's a good question, Judy. There are different ways of course to bucket things. But what we mentioned was that asset write-offs were about a third of the increase which is just over 6% per hectoliter in local currency in the quarter. So about a third of it was asset write-offs, things like equipment or obsolete inventory, that sort of thing.

And then beyond that we had some incremental costs related to in-case promotions. That was about another third of the increase. And then finally you have fixed cost deleverage and a bit of mix as well as the last third.

Okay. And so the full-year guidance being in the mid single digit level does imply the back half moderate. Then is that primarily because of the asset write-off being really more of a one-off?

Yes. It was certainly asset write-offs -- obsolete inventory can happen really any time. Equipment write-offs are I guess less common. They can happen, but anyway the 6% -- the main point around this is the 6% number is within the guidance.

So I guess we'll leave the forecast to you. But you're right, there are some aspects that are not -- sorry, some cost factors in the 6% in the second quarter that don't happen every quarter.

Okay. And are you assuming similar level of fixed cost deleveraging or is it your anticipation that certainly in the fourth quarter you do have much easier comp at that component of the negative drag actually moderates?

Yes. Since fixed-cost deleverage has a heavy component of volume in it, I'll leave that for forecast to you.

Okay, all right. And then just on the MCI -- on MCI, so I understand some of the drivers in the year-over-year impacting the percent changes. But if I look at just the absolute level of MG&A expenses for that division, it's been running $50 million for the last couple of quarters. And so on an absolute basis is there any reason to think that that steps up in the back half?

Let's see. In the second quarter we had benefit of some reduced costs in the MCI business, in other words, timing of marketing spend and particularly comparisons versus last year. For example, in the second quarter last year we had the joint venture. And we also were spending a lot more last year in the China -- the non-joint venture part of China.

And so from a JV standpoint, we will have cycled the, call it, elimination of those costs mid-year this year. From the standpoint of not spending as much on some of the -- on, call it, low-margin accounts in the rest of China not related to the joint venture, I'm not sure exactly when in the year we cycle that but call it roughly around mid-year.

Okay. But that's a year-over-year change though. I'm just looking at the absolute level of expenses in the first half. And so is it just partly timing of the spending that gets shifted into the back half as well so the absolute spending does indeed go up in the back half?

I'm not going to -- well, yes, I'm not going to forecast again the MG&A spend in the back half and MCI. I would say that there is -- the comparisons do -- well, they -- we do have a change in comparisons in the back half versus the first half of the year which aided the second quarter.

Okay. All right. I think that's all I have for now. Thanks, Dave.

Thanks, Judy.

Tom Mullarkey, Morningstar.

I guess I have a question to combine a couple of points made on this morning's calls dealing with I believe Miller Coors. First, there was the objective that over the next several years the above premium segment would go from about 9% of Miller Coors's volume to mid teens. And then second there was the comment that a barrel of [third shift] uses three times the capacity of Miller Lite.

Assuming that pretty much all your craft beers are probably more capacity intensive than your premium lights. If you go ahead 2015, 2016 if MillerCoors will they have enough slack capacity during the peak summer months given that premium light volumes will probably start rebounding and then demand for the craft like brews will be much stronger then as compared to now?

That's a good question. The 9% to mid teens was something that we talked about in June in some Miller Coors meetings, which I'm sure you can listen to those on the web if you want.

And then capacity utilization by brand, actually that varies quite a bit. There are actually some craft brands that in some ways don't use as much capacity as some of premium light brands. So you're going to see a lot of variability around that. And the bottom line is we're confident that we're going to have the capacity to meet the needs of consumers for our products.

Thanks, Dave.

Okay. Thanks Tom.

Ian Shackleton, Nomura.

Yes, Dave, hi. Ian Shackleton. Couple of questions. I asked Gavin the question around the timing of cost savings during the year. And he made the comment, well, look what's happening; we're reducing some of our guidance on cost per hectoliter, which seems to imply that this is something that has become more of a factor in the second half.

I'm just trying to get some idea about how that $40 million to $60 million, how does that phase in during the year? Is it going to be fairly back-end loaded?

Well, we haven't provided granularity around the phasing of cost savings. I would say that his -- the comments around changes in cost of goods -- I'd say the guidance around cost of goods per hectoliter is not necessarily indicative of a change in the timing of cost savings. I'd say -- if I were you I'd go with the guidance that we gave or the goal I guess of $40 million to $60 million per year, the upper end of the range for the next two to three years and that $40 million to $60 million is -- we expect to be able to achieve that over the next -- at least the next five years.

And will you report on an annual basis what you've achieved each year? Will we get that number?

That's our intent is to tell you what we've achieved at the end of each year. And by the same token to report on the earnings accretion and how we're doing with the StarBev or central Europe results and returns to shareholders.

Okay. So you actually pull out the elements that relate to central Europe and, what the UK and central Europe merger as well?

Yes. That's right. That's one of the commitments around the acquisition so that investors could, you could say, scorecard us on that deal. And that's -- and so that's the sort of approach that we took when we gave you the numbers. Well, I'll just tell you the accretion in the second quarter from central Europe was approximately $30 million on a pretax basis.

On a full-year basis it was about $55 million. And that would be since the end of June of last year. And if you throw in the two weeks before that, when we owned the business, it would actually be closer. So adding two more weeks which are peak season, right, you'd actually get to around $70 million pretax accretion from that acquisition. That would be on an underlying basis so you're excluding some of the deal costs and financing-related costs.

Okay. Understood. And one other thing I wanted to ask about, I think Mark Hunter was talking about trending and I think this was in the European markets you're in, where he talked about Q1 being minus 0.5% and Q2 minus 6%. Did I understand that correctly?

On a -- okay.

This is right toward the back end of the call.

Yes. 6% -- is that 6% volume? Ian, was that 6% volume in the European segment?

Well, my understanding was that those were market volumes for your markets in Europe. As I say, [IM's] was a minus 6% for the industry in Q2 and then minus 0.5% for Q1. But I may have misunderstood that. I just wanted to check what he was actually referring to.

I appreciate the clarity. Yes, he was referring to industry trends and he was trying to make the point that the industry really had faced a lot more challenges in the second quarter than it did in the first quarter. So that's right. Those would be industry retail volume trends.

And this is UK and central Europe combined? These are your markets?

Yes. It would be -- that's right -- all of Europe. So in our case, exactly, it would be our markets so it would be the central Europe markets plus the UK and Ireland. And -- all in. That's right.

And just to be clear, this is -- these are volumes, not value figures. These are volume figures?

Precisely. Those are volume figures.

Great. One final question around Canada and, again, Stuart earlier on made some reference to shipments from Europe. And I wasn't quite sure what the reference there was.

It does look -- given the fact that STWs were weaker than STRs but you've seen some stocking up at the end of the quarter. Is that what he was confirming?

Yes. Essentially he was giving you some details in the process, essentially call it the difference between STWs and STRs in Canada include some trade inventories and even some in transit from places like Europe. So because, as you know, we run three of the largest import brands in Canada. We manage those brands.

Now just broadly speaking, that just means that there's a bit of a difference in inventories in the quarter. And, yes, we expect over time that that should even out.

Right. Okay. Thanks for clarifying that, Dave.

Sure.

Brett Cooper, Consumer Edge Research.

Hey, Dave.

Hey, Brett.

Couple of quick ones. Can you give us -- when you guys say that the international business cogs per hectoliter are expected to be down low single digits, I assume that's I guess an underlying or currency-neutral number. Is that correct?

That particular one is in US dollars, partly because we have so many currencies flowing through that international business. I think about businesses in China, Mexico, India, different parts in Europe, Asia, whatever. So that one's in US dollars.

Okay. Perfect. And then there was a point on the conference call and I don't think I caught all of it, and I think there was a -- if I remember correctly there was a comment that in Canada, volumes were down 100,000 hectoliters. Was it that half of that was attributable to the year-over-year comp on Coors Light Iced Tea?

Yes. That's what Stuart mentioned on the earlier call. That's right.

But is -- should -- if I have my numbers right -- the Canadian industry is about 5 million hectoliters in the quarter? So that would be -- basically is Coors Light Iced Tea market share down 100 basis points year-over-year?

Well, I couldn't tell you what the industry is -- well, okay, around 6 million hectoliters. Remember it's -- this is peak season so first quarter would be a lot lower. But I'll let you do the math. But I think you have the right numbers to work with.

Can you tell me -- what was the peak market share for Coors Light Iced Tea in Canada last year?

Off the top of my head I don't recall what the market share was. My sense was that it was around 1% round numbers but kind of a distant memory if you will.

(laughter) Perfect. Thank you very much, Dave.

(Operator Instructions)

Jesse Reinherz, Stifel Nicholas.

Dave, how's it going? Quick one on working capital savings. I know you guys mentioned that you have a target of $300 million from 2012 to 2014.

Is that end of 2012 through 2014? So a 2013 and 2014 comments or is it a three-year comment?

It's a three-year comment that included 2012. All of -- you can call it all of 2012 if you want.

Okay. And any idea -- have you guys said anything on phasing or what was achieved in 2012 and thus kind of leftover? Is it relatively even or --?

We've mentioned -- I don't remember whether it was with New York or one of the earnings calls but it was around $70 million achieved last year in 2012.

Okay. Great. Thanks a lot.

Yes. You bet.

There are no further questions at this time.

Okay, great. Thanks, Kyle.

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 Kevin Kim or me on our direct lines 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.