Mr. Gavin Hattersley reports
MOLSON COORS REPORTS 2021 SECOND QUARTER RESULTS
Molson Coors Canada Inc. has released results for the 2021 second quarter.
Unless otherwise indicated in this release, all dollar amounts are in U.S. dollars, and all quarterly comparative results are for the company's second quarter ended June 30, 2021, compared with the second quarter ended June 30, 2020. Some numbers may not sum due to rounding.
2021 second quarter financial highlights:
Net sales revenue increased 17.4 per cent reported and 13.7 per cent in constant currency, primarily due to higher financial volumes (North America increased 1.9 per cent and Europe increased 17.8 per cent) and higher net sales per hectolitre.
- Net sales revenue per hectolitre increased 5.0 per cent, on a brand volume basis, primarily due to positive mix in North America and Europe, driven by channel mix and historic improvement in brand mix in the United States, positive brand mix in Europe, plus higher net pricing, partially offset by unfavourable geographic mix.
- U.S. GAAP (generally accepted accounting principles) net income attributable to MCBC of $388.6-million, $1.79 per share on a diluted basis. Non-GAAP (generally accepted accounting principles) diluted EPS (earnings per share) of $1.58 per share increased 1.9 per cent.
- Underlying (non-GAAP) EBITDA (earnings before interest, taxes, depreciation and amortization) of $697.8-million decreased 1.3 per cent in constant currency.
Chief executive officer and chief financial officer perspectives
In the second quarter, the company made significant progress against its revitalization plan that it laid out nearly two years ago. Above premium brand volumes reached a record-high portion of the company's U.S. portfolio compared with any prior quarter since the creation of the MillerCoors joint venture in 2008 and a record-high portion of the company's European portfolio, while the company continued to invest in its capabilities, including the announcement of a new hard seltzer canning line in the United Kingdom and investments to quadruple the company's production of hard seltzer in Canada. The company is continuing to succeed in emerging markets and beyond beer, as the company's Latin America volume grew by triple digits versus prior year and non-alcoholic brands like ZOA have already surpassed the company's expectations for the entire year. The company is also delivering on its commitment to invest in its communities and people, as it recently announced another $1.5-million investment in 33 organizations across North America dedicated to empowerment, equity and justice.
Gavin Hattersley, president and chief executive officer, stated:
"This quarter represents the best results we have had since implementing our revitalization plan nearly two years ago, and it delivered the most top-line growth of any quarter in over a decade. We've reached the point where the investments, partnerships and product launches that were byproducts of the revitalization plan are now bearing results, and we plan to put our foot even more firmly on the gas pedal as we drive towards sustainable top- and bottom-line growth for this business."
Tracey Joubert, chief financial officer, stated: "We are proud of our second quarter operating performance, which underscores our progress in premiumizing our product portfolio. Our work under the revitalization plan coupled with our improved financial flexibility has enabled us to invest in our business, continue to delever our balance sheet and to reinstate a dividend, while reaffirming our financial guidance for 2021."
CONSOLIDATED PERFORMANCE -- SECOND QUARTER 2021
(in millions, except per-share data)
Three months ended
June 30, 2021 June 30, 2020
Net sales $2,939.4 $2,503.4
U.S. GAAP net income (loss) 388.6 195.0
Per diluted share 1.79 0.90
Underlying net income (loss) 343.8 337.3
Per diluted share 1.58 1.55
Underlying EBITDA 697.8 692.3
Six months ended
June 30, 2021 June 30, 2020
Net sales $4,837.8 $4,606.2
U.S. GAAP net income (loss) 472.7 78.0
Per diluted share 2.17 0.36
Underlying net income (loss) 345.4 414.3
Per diluted share 1.59 1.91
Underlying EBITDA 977.8 1,044.5
Quarterly highlights (versus second quarter 2020 results):
Net sales revenue increased 17.4 per cent on a reported basis and 13.7 per cent in constant currency primarily due to financial volume growth in the quarter, favourable brand and channel mix and positive net pricing in North America and Europe. Financial volume increased 5.5 per cent due to improving levels of on-premise reopenings, higher above premium and core brand volumes, as well as favourable shipment timing in the United States, partially offset by lower economy brand volumes. Net sales per hectolitre on a brand volume basis grew 5.0 per cent in constant currency as a result of positive brand and channel mix through premiumization of the portfolio, increased on-premise reopenings and positive net pricing in North America and Europe, partially offset by unfavourable geographic mix due to the strong brand volume growth in Latin America and Europe.
- Cost of goods sold (COGS) per hectolitre increased 8.6 per cent
on a reported basis primarily due to cost inflation, including higher transportation and packaging materials costs, unfavourable brand and channel mix associated with higher above premium volumes and on-premise reopenings, increased inventory obsolescence, cycling the prior-year favourable resolution of a property tax appeal for the Golden, Colo., brewery and unfavourable foreign exchange movements, partially offset by changes to unrealized mark-to-market commodity positions, cost savings, volume leverage and cycling prior-year charges for temporary thank you pay for certain essential North America brewery employees. Underlying COGS per hectolitre increased 8.0 per cent in constant currency primarily due to cost inflation, unfavourable brand and channel mix, increased inventory obsolescence and cycling the above-mentioned prior-year favourable property tax appeal resolution, partially offset by cost savings and volume leverage.
- Marketing, general and administrative (MG&A) increased 30.0 per cent
on a reported basis. Underlying MG&A increased 25.3 per cent in constant currency due to higher investments behind our core brands and new innovations, as well as cycling targeted reductions and shifts in timing of marketing spend related to the coronavirus pandemic restrictions in the prior year.
- U.S. GAAP pretax income increased 30.1 per cent due to higher volumes, favourable net pricing, positive brand and channel mix, lower special items, as well as favourable unrealized mark-to-market changes on commodity positions, partially offset by higher marketing investment, as detailed above, and COGS inflation.
Underlying EBITDA decreased 1.3 per cent in constant currency, due to increased marketing investment behind the company's core brands and new innovations, cycling targeted cost reductions in the prior-year and COGS inflation, partially offset by the net sales revenue growth discussed above.
- U.S. GAAP cash from operations: Net cash provided by operating activities
was $748.5-million for the six months ended June 30, 2021, compared with $1,059.9-million in the prior year. This decrease was primarily due to unfavourable timing of working capital and higher cash paid for taxes. Notably, working capital and cash paid for taxes benefited in the prior year from over $500-million of tax deferrals from various government-sponsored payment deferral programs initiated in response to the coronavirus pandemic.
- Underlying free cash flow: The company received cash of $558.2-million for the six months ended June 30, 2021, which represents a decrease in cash received of $238.2-million from the prior year, primarily due to the unfavourable timing of working capital and higher cash paid for taxes discussed above, partially offset by favourable timing of cash paid for capital expenditures.
- Debt: Total debt at the end of the second quarter of 2021 was $8.2-billion, and cash and cash equivalents totalled $1.3-billion, resulting in net debt of $6.9-billion. Continuing the company's commitment to deleverage, in July, 2021, the company repaid in full $1.0-billion 2.1 per cent senior notes that matured on July 15, 2021, using a combination of cash on hand and proceeds from commercial paper issuances.
Quarterly segment highlights (versus second quarter 2020 results)
North America business:
Revenue: Net sales on a reported basis, increased 10.1 per cent and 8.3 per cent in constant currency due to higher net sales per hectolitre and a 1.9-per-cent increase in financial volume driven by favourable shipment timing in the U.S. where domestic shipments increased 1.2 per cent, as well as strong performance in Latin America. North America brand volumes decreased 1.0 per cent including a 4.0-per-cent decrease in the U.S. driven by deprioritization of non-core SKUs (stock-keeping units) in the economy segment while the above premium and premium segments grew versus prior year. Canada brand volume decreased 5.1 per cent with continued on-premise restrictions, while Latin America grew triple digits primarily due to the lower impact of on-premise restrictions in the current quarter.
- Net sales per hectolitre on a brand volume basis increased 4.7 per cent in constant currency due to positive brand mix in the U.S. and net pricing increases in the U.S. and Canada, partially offset by unfavourable geographic mix attributed to growing licence volume in Latin America. In the U.S., net sales per hectolitre on a brand volume basis increased 6.9 per cent including positive brand mix as the company continues to premiumize its portfolio aided by innovation brands. The rate favourability, coupled with financial volume increases, resulted in an 8.2-per-cent increase in net sales revenue in the U.S. Net sales per hectolitre on a brand volume basis also increased in Canada, due to higher net pricing and positive sales mix, and in Latin America due to positive sales mix.
- U.S. GAAP pretax income increased 4.1 per cent on a reported basis due to net pricing increases, lower special charges, favourable brand mix in the U.S., cost savings in COGS, higher financial volumes and cycling prior-year charges for temporary thank you pay for certain essential North America brewery employees, partially offset by higher MG&A expense and inflation within COGS, including higher transportation, brewery and packaging materials costs, increased inventory obsolescence, as well as cycling the prior-year favourable resolution of a property tax appeal for the Golden, Colo., brewery. The higher MG&A expense reflects increased marketing investment on innovation brands as well as cycling lower-prior year marketing spend in areas impacted by the coronavirus pandemic.
- Underlying EBITDA decreased 10.7 per cent in constant currency due to the same factors as U.S. GAAP pretax income results with the exception of the lower special charges and the prior year thank you pay for certain essential North America brewery employees. The prior-year thank you pay and related program costs were approximately $16-million and were excluded as non-GAAP adjustments for underlying results.
Revenue: Net sales on a reported basis increased 69.5 per cent and 52.3 per cent in constant currency due to higher volumes and higher net sales per hectolitre. Financial volume increased 17.8 per cent and brand volumes increased 15.4 per cent, due to progressive reopening of the on-premise channel during the quarter compared with greater restrictions in the same period of the prior year. Net sales per hectolitre on a brand volume basis increased 16.6 per cent in constant currency due to favourable channel, geographic and brand mix and positive net pricing.
- U.S. GAAP pretax income: Income was $47.4-million compared with a loss of $11.0-million in the prior year due to higher financial volumes as a result of less severe restrictions in the on-premise channel related to the coronavirus pandemic across Europe, favourable channel, geographic and brand mix, positive net pricing, and the impacts of favourable foreign currency movements, partially offset by higher MG&A expenses due to lower spend in the prior year, driven by cost mitigation efforts as a result of the impact of the coronavirus pandemic and higher special items charges.
- Underlying EBITDA increased 189.0 per cent in constant currency due to the gross profit impacts of higher financial volumes, favourable mix and positive net pricing, partly offset by higher MG&A expense.
The decrease in the company's second quarter U.S. GAAP
effective tax rate was primarily due to lower net discrete tax expense recognized in the second quarter of 2021 compared with the second quarter of 2020, partially offset by the effect of proportionally higher pretax income in jurisdictions with a higher tax rate. The decrease in discrete income tax expense is primarily due to approximately $135-million of discrete tax expense related to the enactment of the final hybrid regulations by the U.S. Department of the Treasury recognized in the second quarter of 2020, partly offset by approximately $18-million of discrete tax expense related to remeasurement of deferred tax liabilities due to an increase in the U.K. corporate income tax rate from 19 per cent to 25 per cent recognized in the second quarter of 2021.
Special and other non-core items
The following special and other non-core items have been excluded from underlying results:
During the second quarter of 2021, the company recognized net special charges of $9.0-million, primarily due to asset abandonment charges related to previously disclosed brewery closures in the company's North America and Europe segments as well as restructuring charges related to the revitalization plan.
- Additionally during the second quarter of 2021, the company recorded other non-core net benefits of $98.4-million primarily due to changes in the company's unrealized mark-to-market positions on commodity hedges.
While uncertainty remains regarding the coronavirus pandemic, including the timing and strength of the recovery, the company continues to expect the following results for the full year 2021, which the company considers a year of investment:
Net sales revenue: mid-single-digit increase versus 2020 on a constant currency basis;
- Underlying EBITDA: approximately flat compared with 2020 on a constant currency basis;
Deleverage: The company intends to maintain its investment-grade rating as demonstrated by its continued deleveraging actions. It expects to achieve a net debt to underlying EBITDA ratio of approximately 3.25 times by the end of 2021 and below 3.0 times by the end of 2022;
- Underlying depreciation and amortization: approximately $800-million;
- Consolidated net interest expense: approximately $270-million, plus or minus 5 per cent;
- Underlying effective tax rate: in the range of 20 per cent to 23 per cent for 2021.
On July 15, 2021,
the company's board of directors declared a regular quarterly dividend on its Class A and Class B common shares of 34 cents per share, payable Sept. 17, 2021, to shareholders of record on Aug. 30, 2021. Similarly, the board of directors of Molson Coors Canada Inc., an indirect wholly owned subsidiary of the company, on July 15, 2021, declared a quarterly dividend of approximately 42 cents per share (the Canadian dollar equivalent of the dividend declared on Molson Coors stock) payable on Sept. 17, 2021, to its Class A and Class B exchangeable shareholders of record on Aug. 30, 2021. The board believes the quarterly dividend amount declared is sustainable and gives room for future increases as business performance improves.
2021 second quarter investor conference call
Molson Coors Beverage Company will conduct an earnings conference call with financial analysts and investors at 11 a.m. Eastern Time today to discuss the company's 2021 second quarter results. The live webcast will be accessible via the company's website. An on-line replay of the webcast will be available until 11:59 p.m. Eastern Time on Oct. 27, 2021. The company will post this release and related financial statements on its website today.
- Reports Q3 2021 results: Oct. 28, 2021;
Reports Q4 2021 results: Feb. 24, 2022.
About Molson Coors Canada Inc.
Molson Coors Canada (MCCI) is a subsidiary of Molson Coors Beverage. MCCI Class A and Class B exchangeable shares offer substantially the same economic and voting rights as the respective classes of common shares of MCBC, as described in MCBC's annual proxy statement and Form 10-K filings with the U.S. Securities and Exchange Commission. The trustee holder of the special Class A voting stock and the special Class B voting stock has the right to cast a number of votes equal to the number of then outstanding Class A exchangeable shares and Class B exchangeable shares, respectively.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per-share data)
Three months ended Six months ended
June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020
Financial volume in hectolitres 23.823 22.586 40.040 41.014
Sales $3,564.0 $3,029.8 $5,820.1 $5,567.6
Excise taxes (loss) (624.6) (526.4) (982.3) (961.4)
Net sales 2,939.4 2,503.4 4,837.8 4,606.2
(Cost) of goods sold (1,667.9) (1,456.6) (2,835.3) (2,935.6)
Gross profit 1,271.5 1,046.8 2,002.5 1,670.6
Marketing, general and
administrative (expenses) (681.7) (524.5) (1,224.6) (1,154.2)
Special items, net (loss) (9.0) (64.3) (19.9) (150.9)
Operating income (loss) 580.8 458.0 758.0 365.5
Interest income (expense), net (67.9) (69.7) (133.2) (138.6)
Other pension and
postretirement benefits (costs), net 13.0 7.6 26.0 15.1
Other income (expense), net (3.3) 5.8 (1.9) 1.0
Income (loss) before income taxes 522.6 401.7 648.9 243.0
Income tax benefit (expense) (132.3) (204.5) (176.6) (161.2)
Net income (loss) 390.3 197.2 472.3 81.8
Net (income) loss attributable to
non-controlling interests (1.7) (2.2) 0.4 (3.8)
Net income (loss) attributable to MCBC 388.6 195.0 472.7 78.0
Basic net income (loss)
attributable to MCBC per share 1.79 0.90 2.18 0.36
Diluted net income (loss)
attributable to MCBC per share 1.79 0.90 2.17 0.36
Dividends per share - - - 0.57
We seek Safe Harbor.
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