News Details

DENVER & MONTREAL, Nov 03, 2010 (BUSINESS WIRE) --

Molson Coors Brewing Company (NYSE: TAP; TSX) today reported higher net income and underlying after-tax income⁽¹⁾ for the third quarter 2010, driven by higher sales revenue, results of cost savings initiatives, higher equity income from MillerCoors, and favorable foreign exchange, partially offset by lower volume in the U.K. and U.S. and a higher effective tax rate.

Third Quarter Highlights⁽¹⁾

• Income from continuing operations attributable to Molson Coors, net of tax: $257.0 million⁽²⁾, +5.2% ($1.38 per diluted share)
• Underlying pretax income: $288.2 million⁽³⁾, +29.9%
• Underlying after-tax income: $239.1 million, +12.3% ($1.28 per diluted share)
• Net income attributable to Molson Coors: $256.1 million, +8.8% ($1.37 per diluted share)
• Net sales: $875.0 million, +2.5%
• Worldwide beer volume, 13.2 million hectoliters, -4.0%

"The weak global economy has presented our company with substantial challenges during the past several quarters, but we have stayed sharply focused on our strategies of building brands, driving value from innovation, and delivering on our cost-savings commitments. As a result, in the third quarter we grew underlying income at a double-digit rate, improved margins, generated substantial cash, and strengthened our balance sheet for shareholders," said Peter Swinburn, Molson Coors president and chief executive officer.

"In the third quarter, underlying pretax income grew almost 30 percent, driven by double-digit earnings growth in the U.S., U.K. and Canada. Each of these businesses achieved positive pricing, substantial cost reductions, and significant margin expansion in the quarter. Although we anticipate about one-fourth of the drivers of third quarter income growth will not carry over to the fourth quarter or will reverse in the fourth quarter, these results are indicative of a very solid quarter for Molson Coors. Total company underlying after-tax earnings increased 12.3 percent, driven by strong pretax results, partially offset by a higher tax rate this year.

"In the U.S.," Swinburn continued, "MillerCoors reduced cost of goods sold per hectoliter, which along with positive pricing drove underlying income growth of more than 34 percent. In Canada, we increased net pricing in a weak market and still gained share and grew underlying profit 16.1 percent. In the U.K., we continued to achieve strong pricing and controlled costs to drive 12.6 percent underlying profit growth.

Looking forward to the fourth quarter, we anticipate that our U.S. distributors will reduce their inventories more than last year, and we expect significantly higher U.K. marketing and promotional expense due in part to quarterly timing differences. We also forecast a more normal effective tax rate in the fourth quarter this year versus last year's unusually low rate, which benefited from the favorable resolution of unrecognized tax positions."

Detailed Highlights

• Income from continuing operations attributable to Molson Coors net of tax increased 5.2 percent to $257.0 million, or $1.38 per diluted share, driven by increased underlying after-tax income, partly offset by a lower non-cash mark-to-market gain related to the cash-settled total-return swap the Company arranged with respect to Foster's common stock in 2008.
• Underlying pretax income increased 29.9 percent to $288.2 million. This increase was driven by higher sales revenue, results of our cost savings initiatives, higher equity income from MillerCoors, one-time factors, and favorable foreign exchange, partially offset by lower volume in the U.K. and U.S.
• Underlying after-tax income increased 12.3 percent to $239.1 million, or $1.28 per diluted share, up from $212.9 million, or $1.14 per diluted share, a year ago. This increase was driven by higher underlying pretax income, partly offset by a higher tax rate this year.
• Third quarter results include the benefit of favorable foreign currency movements, which increased consolidated underlying pretax income approximately $5 million.
• Molson Coors worldwide beer volume decreased 4.0 percent, driven by lower volume in the U.S. and U.K.

The Company's third quarter effective tax rate for income from continuing operations was 19 percent on a reported basis and 17 percent on an underlying basis. The Company estimates that its full-year 2010 effective tax rate will be in the range of 15 percent to 17 percent on an underlying basis.

For the third quarter, Molson Coors achieved $24 million of cost savings as part of its second Resources for Growth (RFG2) cost savings program. Year-to-date, the Company has achieved $55 million against its three-year RFG2 goal of $150 million of cost savings through the end of 2012.

MillerCoors achieved $56 million in synergies and $27 million of other cost savings in the third quarter. Molson Coors benefits from 42 percent of the MillerCoors cost savings.

Molson Coors Brewing Company's total worldwide beer volume was 13.2 million hectoliters in the quarter, down 4.0 percent, as shown in Table 1 below.

Business Segments

Following are the Company's third quarter results by business segment:

Canada Business

Canada underlying pretax income in local currency increased 9.9 percent⁽⁴⁾. Continued volume growth, positive net pricing, and cost-of-goods-sold reductions in the quarter were partially offset by higher overhead expenses this year. In U.S. dollars, Canada underlying earnings increased 16.1 percent to $162.0 million in the third quarter, which includes an approximate $8 million benefit of a 6 percent year-over-year increase in the Canadian Dollar versus the U.S. Dollar.

Canada sales-to-retail (STRs) for the calendar quarter ended September 30^th increased 0.4 percent versus the prior year. Volume gains from new brands, including Molson M and Keystone, were offset by declines in our established brands. Our new brands, along with the addition of Granville Island volume, helped to increase our market share nearly a full share point. Coors Light and the Molson Canadian brands declined at low-to-mid-single-digit rates in the quarter as we adjusted price and volume priorities for these brands. Total Canada beer industry STRs decreased an estimated 1.8 percent in the calendar third quarter, due to colder weather than a year ago, particularly in September, when the industry was down more than 6 percent.

Canada sales volume was 2.5 million hectoliters in the third quarter, up 2.5 percent. Net sales per hectoliter increased 0.8 percent in local currency, driven by selective price increases taken during the year in all regions. Also, we have now cycled our less competitive pricing position in the previous year.

Cost of goods sold per hectoliter decreased 4.5 percent in local currency, with approximately 2.5 percentage points driven by cost savings and 3 percentage points due to an immaterial, out-of-period adjustment to distribution and certain other costs. These reductions were partially offset by higher input costs, which increased the cost of goods sold rate by about one percentage point.

Marketing, general and administrative expenses increased 6.7 percent in local currency, driven primarily by increases in commercial and employee-related expenses, along with the addition of Granville Island overhead costs.

United Kingdom Business

U.K. underlying pretax income in local currency increased 19.6 percent. Strong pricing and cost reductions were partially offset by the impact of lower volumes. These results include a $7 million non-cash increase in defined-benefit pension expense this year and a $3.6 million benefit as a result of cycling a 2009 mark-to-market charge on natural gas hedges. In U.S. dollars, U.K. underlying pretax income increased $4.1 million, or 12.6 percent, to $36.7 million, including an approximate $2 million adverse impact of a 6 percent devaluation of the British Pound versus the U.S. Dollar.

U.K. owned-brand volume declined 12.5 percent in the quarter, driven primarily by retailer destocking following the FIFA World Cup, which ended early in the Company's fiscal third quarter. As a result of this, total U.K. beer industry volume decreased approximately 10 percent in the third quarter.

Net sales per hectoliter of owned brands increased 11 percent in local currency, with approximately 8 percentage points driven by higher pricing and 3 percentage points as a result of positive sales mix, predominantly due to the impact of channel and brand mix.

Cost of goods sold per hectoliter of owned brands increased 2 percent in local currency in the third quarter. Incremental pension expense increased cost of goods sold per hectoliter by 3 percentage points, mix increased our rate by 2 percentage points, and fixed-cost deleverage from lower owned-brand volumes increased the cost of goods sold rate by 4 percentage points. These increases were partially offset by a 3 percentage-point reduction relating to cycling a mark-to-market adjustment on natural gas hedges in 2009, and a 4 percentage-point reduction from cost savings and input cost deflation.

Marketing, general and administrative expense increased 1 percent in local currency, reflecting higher pension expenses this year, partially offset by lower marketing expense, which is expected to reverse in the fourth quarter.

United States Business (MillerCoors)⁽⁵⁾

Molson Coors underlying U.S. segment pretax income increased 34.2 percent to $144.1 million in the third quarter, driven by MillerCoors results.

MillerCoors Operating and Financial Highlights

For the quarter, underlying net income attributable to MillerCoors, increased 36.7 percent to $334.0 million, due to strong net pricing and cost management, offset by lower volume.

MillerCoors domestic STRs decreased 4.0 percent. Domestic sales-to-wholesalers decreased 2.7 percent in the third quarter. Sales-to-wholesalers outperformed STRs largely due to distributor inventory build ahead of this year's fall price increases.

MillerCoors total net revenue increased 0.3 percent to $2.016 billion. Excluding contract brewing and company-owned distributor sales, domestic net revenue increased to $1.867 billion, driven by firm net pricing and favorable sales mix.

Cost of goods sold per hectoliter decreased slightly (0.3 percent), primarily due to the realization of synergies from customer supply chain and procurement, partially offset by higher transportation and packaging costs and the addition of brands purchased earlier this year by our Denver distributorship.

Marketing, general and administrative expense decreased 9.8 percent, primarily due to synergies and other cost savings realized.

Depreciation and amortization expenses for MillerCoors in the third quarter were $72 million, and additions to tangible and intangible assets totaled $51 million.

International and Corporate

The underlying pretax loss for International and Corporate was $54.6 million, a 5.2 percent decrease driven primarily by lower Corporate project and employee compensation expense this year.

The Company's International business grew volume 11.2 percent, driven by sales in China and Europe. Marketing, general and administrative expense for International was $14.3 million in the quarter, an increase of $1.6 million due to brand investments and growth initiatives in our priority International markets.

Corporate general and administrative expense was $24.5 million in the third quarter, a decrease of $3.6 million, driven by lower project and employee compensation expense this year.

Corporate net interest expense was $25.5 million in the third quarter, an increase of $0.8 million primarily due to year-over-year appreciation of the Canadian Dollar versus the U.S. Dollar.

In the quarter, Corporate other income of $43.4 million was driven by a $42.3 million mark-to-market gain related to the Foster's cash-settled total-return swap.

Special and Other Non-Core Items

The following special and other non-core items have been excluded from underlying earnings.

During the third quarter 2010, the Company reported net special charges of $3.1 million pretax, which was composed primarily of a $2.4 million restructuring charge in the U.K. and expenses associated with strategic initiatives in Canada, International and Corporate of $0.7 million.

Other non-core items in the quarter included a $42.3 million mark-to-market gain related to the cash-settled total-return swap the Company arranged with respect to Foster's common stock in 2008. During the third quarter, the company settled a portion of its swap positions related to the Foster's stock. The Company also entered into a number of option contracts to limit its exposure to future changes in the value of the remaining swap positions, which will mature during the next two quarters.

During the third quarter of 2010, MillerCoors reported special charges of $21.0 million, $6 million higher than the prior year, driven largely by pension and postretirement benefit curtailment expenses, and integration costs including severance costs resulting from a sales office reorganization. This equates to $8.8 million at Molson Coors' 42 percent economic ownership share.

Discontinued Operations

The Company reports results associated with its former Brazilian business, Cervejarias Kaiser Brazil S.A., as discontinued operations. During the third quarter, the Company reported a loss of $0.9 million from discontinued operations due to the impact of unfavorable foreign exchange movements on the remaining Kaiser indemnity estimates.

2010 Third Quarter Earnings Conference Call

Molson Coors Brewing Company will conduct an earnings conference call with financial analysts and investors at 11:00 a.m. Eastern Time today to discuss the Company's third quarter results. The Company will provide a live webcast of the earnings call.

The Company will also host an online, real-time webcast of an Investor Relations Follow-up Session with financial analysts at 2:00 p.m. Eastern Time. Both webcasts will be accessible via the Company's website, www.molsoncoors.com. Online replays of the webcasts will be available until 11:59 p.m. Eastern Time on February 9, 2011. The Company will post this release and related financial statements on its website today.

Footnotes:

⁽¹⁾ Unless otherwise indicated, all comparative results are for the Company's fiscal third quarter ended September 25, 2010, compared to the fiscal third quarter ended September 26, 2009.

⁽²⁾ All $ amounts are in U.S. Dollars, unless otherwise indicated.

⁽³⁾ The Company calculates non-GAAP underlying income by excluding special and other non-core items from the nearest U.S. GAAP earnings measure. To calculate underlying income in the third quarter of 2010, the Company excluded non-core gains, losses and expenses, particularly related to changes in the value of our Foster's cash-settled total-return swap, MillerCoors integration, as well as net special charges of $3.1 million pretax. For further details, please see the section "Special and Other Non-Core Items", along with tables for reconciliations to the nearest U.S. GAAP measures.

⁽⁴⁾ Note that local currency results for Canada exclude the $0.3 million negative impact of foreign currency hedges in Other (Expense) Income, net, as it is meaningful to consider those hedges only when viewing the Canada segment in U.S. dollars.

⁽⁵⁾ MillerCoors, a U.S. joint venture of Molson Coors Brewing Company and SABMiller plc, was launched on July 1, 2008. Molson Coors has a 42 percent economic interest in MillerCoors, which is accounted for using the equity method. Molson Coors' interest in MillerCoors results, along with certain adjustments under U.S. GAAP, is reflected in "Equity Income in MillerCoors." This release includes reconciliation from MillerCoors Net Income to Molson Coors Brewing Company Equity Income in MillerCoors and Non-GAAP U.S. Segment Underlying Pretax Income (see Table 5).

Forward-Looking Statements

This press release includes estimates or projections that constitute "forward-looking statements" within the meaning of the U.S. federal securities laws. Generally, the words "believe," expect," intend," anticipate," "project," "will," and similar expressions identify forward-looking statements, which generally are not historic in nature.Although the Company believes that the assumptions upon which its forward-looking statements are based are reasonable, it can give no assurance that these assumptions will prove to be correct. Important factors that could cause actual results to differ materially from the Company's historical experience, and present projections and expectations are disclosed in the Company's filings with the Securities and Exchange Commission ("SEC"). These factors include, among others, pension plan costs; availability or increase in the cost of packaging materials; our ability to maintain manufacturer/distribution agreements; impact of competitive pricing and product pressures; our ability to implement our strategic initiatives, including executing and realizing cost savings; changes in legal and regulatory requirements, including the regulation of distribution systems; increase in the cost of commodities used in the business; our ability to maintain brand image, reputation and product quality; our ability to maintain good labor relations; changes in our supply chain system; additional impairment charges; the impact of climate change and the availability and quality of water; the ability of MillerCoors to integrate operations and technologies; lack of full-control over the operations of MillerCoors; the ability of MillerCoors to maintain good relationships with its distributors; and other risks discussed in our filings with the SEC, including our Annual Report on Form 10-K for the year-ended December 26, 2009, which are available from the SEC.All forward-looking statements in this press release are expressly qualified by such cautionary statements and by reference to the underlying assumptions. You should not place undue reliance on forward-looking statements, which speak only as of the date they are made.We do not undertake to update forward-looking statements, whether as a result of new information, future events or otherwise.

Reconciliations to Nearest U.S. GAAP Measures

Pretax and after-tax underlying income should be viewed as a supplement to, not a substitute for, our results of operations presented on the basis of accounting principles generally accepted in the United States. Our management uses underlying income as a measure of operating performance to assist in comparing performance from period to period on a consistent basis; as a measure for planning and forecasting overall expectations and for evaluating actual results against such expectations; and in communications with the board of directors, stockholders, analysts and investors concerning our financial performance. We believe that underlying income performance is used by and is useful to investors and other users of our financial statements in evaluating our operating performance because it provides them with an additional tool to evaluate our performance without regard to items such as special items, which can vary substantiallyfrom company to company depending upon accounting methods and book value of assets and capital structure.