Molson Coors Beverage Co (TAP) 2014 Q3 法說會逐字稿

Good afternoon and welcome to the Molson Coors Brewing Company third-quarter 2014 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.

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 executive 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 other wise indicated, all financial results the Company discusses are versus the comparable prior-year period and in US dollars.

The Company also encourages investors to read SABMiller plc news releases and trading statements that include financial and other information relating to its MillerCoors joint venture. I will now turn the call over to Dave Dunnewald, Global Vice President of Investor Relations for Molson Coors.

Thanks, Ian. Hello, everybody, and welcome. Wanted to say, on behalf of Molson Coors Brewing Company, thank you for joining us today for our third-quarter 2014 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. Let's get started with an introduction of the team with me on this call. We have Kevin Kim, Investor Relations Manager; Spencer Schurr, Finance Forecasting Senior Manager; Katie Walter, Finance Forecasting Senior Analyst; Ashley Walker, Manager of SEC Reporting; Brian Tabolt, Controller; Mike Rumley, Treasurer; Mark Saks, VP of Tax; Steve Mack, Director of Tax; and today, we have a very special guest, Gavin Hattersley, CFO, who has heard how much fun these afternoon calls are and wanted to join us for this one.

But getting into the meat of the call, regarding quarterly results, as Peter Swinburn mentioned on our regular earnings call this morning, our third-quarter results are impacted by weak consumer demand in our core markets, higher marketing spending, the loss of the Modelo brand income from Canada, and unfavorable foreign currency movements. On a US GAAP basis, we had the impairment of the Jelen and Ozujsko brands in Europe. Despite these headwinds, we continue to build a strong brand portfolio, deliver value-added innovation, invest in our core brands, and increase our share of above premium.

We remain focused on the fundamentals of our business. We have leading brand positions in the world's most profitable beer markets, we are improving the efficiency of our operations, and we are successfully combining our distribution muscle with our proven ability to innovate and grow both large and small brands. This strategy is delivering expanded gross margins, positive pricing, and sales mix, and cost reductions, along with steady, strong underlying EBITDA and cash returns to shareholders. So with that, I'd like to open it up for your questions. Over to you, Ian.

(Operator Instructions)

Your first question comes from the line of Ian Shackleton at Nomura. Your line is now open.

Hey, Ian.

Yes, hi, Dave. Hi, Gavin, and team. First question, I just wanted to make sure I fully understood what was happening with Canada volumes. It may just be that I'm being a little bit stupid here, but just walk me through a little bit, because if I look at the Table 10 in your release, we can see the volumes reported going from 2.314 million to 2.262 million, so that's a decline of 2.3%.

I'm assuming that you still got the Modelo volumes in the 2013 numbers and they have gone in the 2014, but equally, you seem to be implying later on that the decrease from Molson Coors Canada minus 2.2% excludes the Modelo brands. What am I missing, sorry? Can you just clarify what's going on here?

Yes, good question, Ian. What's going on here is, essentially, the STR number is built slightly differently from the volume number. The STR number included last year and for the early two months of this year, one-half of the Modelo brand sales to retail that we had in those time frames, and obviously, we don't have any Modelo STRs this year. The reason we had one-half of those included in our STRs is because it's a 50%/50% joint venture.

Our Molson Coors Canada sales volume, which to your point, decreased 2.2% in the third quarter, sales volume does not include the Modelo brands. We don't brew those or didn't brew those beers when we managed them and had the JV going, and so they were treated differently from a volume standpoint, so that's your difference between the STRs and the volume. If you take the Modelo brands out of the STR volume of down 5.9% in Canada that we reported, a little over one-half of that was the Modelo brand, and so you'd get pretty close to the range of what the sales volume number was in the third quarter.

That is very good. That clarifies it. Thanks, Dave. Perhaps the other thing -- obviously, this is a question that was asked on the earlier call, but I was just [unsure] around the counting of it. The provision release in Europe that was mentioned, [don't you think], Gavin, [this] was around the [$5 million] to [$6 million level. [The language is] just thinking through here, is it sounds like this was something that was said at part of the acquisition accounting with StarBev, and therefore I was slightly surprised that this is now being released through the main P&L rather back through a provision. What am I missing?

I don't think you're missing anything. It was part of the opening balance sheet following the purchase and now that we no longer -- or essentially, conditions changed and we now are confident that we won't owe that, we released it. Gavin may have -- Gavin or Brian, actually, will have a little bit more perspective.

Sure, Ian. Under US GAAP, we're outside of the measurement window, which is permitted with regards to purchase accounting. Therefore, the release is taken through the P&L.

Oh, interesting. How long is that window? Is that three years or something? Is that the way -- is it something like that? Is that the way it works?

Yes, it's generally considered to go out 12 months. One year from [acquisition].

12 months, okay.

So we finalized the (multiple speakers) [accounting] in the second quarter of 2013.

Okay, great. Look, are there any other issues outstanding from the StarBev acquisition, similar type provisions out there, or does this really clear it all up now?

This is the only one that I'm aware of. As with any business, you have to look at your balance sheet on a quarterly and annual basis, and when we have things that have changed or need to be adjusted, we will do that, but this is the only one I'm aware of.

Great, okay. Thanks for clarifying that. Thanks a lot.

Thanks, Ian.

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

Hey, Dave. How are you?

Hey, Brett. Great, thanks.

Can you talk about -- you guys obviously took the charges on the two brands in Europe, and the last time you took a charge on this, you confirmed that the business case of the acquisition case was still on track, was actually running ahead, it's just that the intangibles are dedicated or assigned to a particular brands. So can you talk about what, at the end of the day, what's going right in Europe or better than expected that's offsetting the charges you're taking?

Yes, the total value of the reporting unit, that would be the Europe reporting unit, is roughly in line with, actually slightly higher this year in the 10-Q that we just filed, versus a year ago. So to your point, that does mean that if you have brand write-offs, that obviously says, or sorry, indicates some of the challenges around those two brands in those markets.

So what's going well. I'm not going to give you a full list but some offsetting factors and we'll see whether Gavin and Brian have more to add around this. But things like the Carling brand has done better in recent times than in some time, and the cost reductions that we've achieved in the Europe business unit, as well, have been significant factors. The Staropramen brand has been doing well, and actually the Coors Light brand has been doing particularly well in the UK, also. Is there anything Gavin or Brian?

You've hit the nail on the head. [Both premo] Staropramen is doing particularly well. We delivered more than our anticipated synergies. We have got the cost reductions we were looking for. We have got substantial cost reductions in the UK that were made possible by the StarBev acquisition, so you highlighted everything.

Perfect, thanks.

Thanks, Brett.

(Operator Instructions)

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

Great, thank you. Just two questions. I was reviewing my notes and I just want to make sure I got this right. Did you say that, if you look at the Coors family as a whole in the US, that it held market share, or did I get that wrong?

That was in Canada actually.

It was Canada? Okay, that makes more sense then.

Yes, we said the combined Coors Light and Banquet brand family grew market share in Canada from a year ago. That would be in the third quarter.

Okay that makes more sense then. And then you've done a terrific job on the generating free cash flow. Can you just talk a little bit more about why, what are the drivers in terms of why you think you're going to be at the high end, what are you doing right and what the outlook is on CapEx and what you think your maintenance CapEx level is? Just get a little better sense of how sustainable this very strong cash flow is?

Yes, that's a good question. We'll be a little bit limited in the amount of granularity we'll give but let's take a run at it. CapEx is lower than we expected earlier in the year. Our cash tax is a bit lower as well and also cash paid for interest. There's also lots of puts and takes, as always, in things like working capital. We won't parse out all those details, but anyway, those are the headlines. Anything, Gavin, you'd add to that, as far as sustainability or--?

Not really. As I said earlier on, Robert, we have generated significant working capital benefits, and obviously, given that we've done a lot of that, it's harder to keep that run rate going, so we plan to continue to generate favorable working capital but, we did particularly well in 2012 and 2013 and we've followed that up with a lower rate this year.

And how should we think of CapEx going forward, and what would be your maintenance level? I'm assuming they're fairly close?

Yes, let me take a run at that. The CapEx that we're talking about for this year is $315 million. That does include some significant ROI projects in Canada, so it is definitely above maintenance CapEx levels, the way most people think about those things, but we don't give out a specific maintenance CapEx level. All I can tell you is that the $315 million is clearly above that and we're in cost savings mode so we don't expect that to, call it, above maintenance CapEx run rates, to change at least for awhile.

So am I reading you right, saying that you don't expect the $315 million to decline?

I didn't say that specifically. What we're saying is that we don't expect to be at a maintenance CapEx level, which is clearly below $315 million, for some time.

With that CapEx being used to take out costs and generate better long-term returns?

Yes, the incremental CapEx, right, is primarily focused on ROI projects, reducing costs, improving efficiencies, supply chain improvements, things like that.

Okay, is it possible to give any sense of guidance for next year on CapEx?

Yes, we can do that on our next earnings call. We will do that (laughter).

Okay, thank you very much.

Absolutely, Robert. We'll also plan to give you our target of underlying free cash flow for next year as well on that call.

Thank you.

Thanks, Robert.

(Operator Instructions)

We have no further questions.

Okay, great. 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.