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Molson Coors earns $151.5-million (U.S.) in Q1 2022

2022-05-03 10:12 ET - News Release

Mr. Gavin Hattersley reports

MOLSON COORS BEVERAGE COMPANY REPORTS 2022 FIRST QUARTER RESULTS

Molson Coors Beverage Company's Molson Coors Canada Inc. has released its results for the 2022 first quarter. All monetary amounts are in United States dollars unless otherwise stated.

2022 first quarter financial highlights:

  • Net sales increased 16.7 per cent reported and 17.6 per cent in constant currency, primarily due to positive net pricing, favourable sales mix and financial volume growth.
  • Net sales per hectolitre on a brand volume basis in constant currency increased 10.2 per cent, primarily due to positive net pricing and favourable sales mix.
  • United States GAAP (generally accepted accounting principles) income before income taxes of $173.7-million increased 37.5 per cent reported and 37.8 per cent in constant currency.
  • Underlying (non-GAAP) income before income taxes of $83.5-million improved $66.3-million from $17.2-million.
  • U.S. GAAP net income attributable to Molson Coors of $151.5-million, 70 cents per share on a diluted basis. Non-GAAP diluted earnings per share (EPS) of 29 cents increased 28 cents.

Chief executive officer and chief financial officer perspectives

Molson Coors delivered against its revitalization plan in the first quarter of 2022 as the company continues driving toward its goal of sustainable long-term top-line and bottom-line growth while managing global inflationary pressures. The company grew its top line for a fourth consecutive quarter -- the highest quarterly top-line growth in over a decade. It grew revenue of its core brands, Coors Light and Miller Lite, on the heels of doing the same in 2021. Fewer on-premises restrictions led to significant growth in European markets on the strength of flagship brands like Carling. The global above-premium portfolio continued to grow and reached its highest percentage of total trailing 12-month net sales since the 2016 MillerCoors acquisition fuelled in part by the national launch of Topo Chico Hard Seltzer.

Gavin Hattersley, president and chief executive officer, statement:

"The start of 2022 brought continued momentum for Molson Coors. Many of our core brands continued to outperform their peers, we again earned the largest growth in U.S. hard seltzers among major brewers and our expansion beyond beer continued to track ahead of our $1-billion revenue target. All were factors in delivering not just a successful quarter, but the most quarterly top-line growth this company has had in more than 10 years."

Tracey Joubert, chief financial officer, statement:

"We had a strong first quarter, delivering double-digit top- and bottom-line growth on a U.S. GAAP basis and triple-digit bottom-line growth on an underlying basis. Our performance benefited from strong pricing and sales mix and our efforts to mitigate the challenging inflationary environment, while still increasing investments behind our core brands and key innovations. Under our revitalization plan, we have built a strong foundation for future growth that has positioned us to manage through challenging times. This gives us the confidence to reaffirm our 2022 guidance for top- and bottom-line growth."

Quarterly consolidated highlights (versus first quarter 2021 results):

  • Net sales increased 16.7 per cent on a reported basis and 17.6 per cent in constant currency primarily due to positive net pricing, positive sales mix, including favourable brand mix from portfolio premiumization and favourable channel mix from fewer on-premises channel restrictions, as well as higher financial volumes. Financial volumes increased 5.1 per cent, primarily due to higher brand volumes in EMEA (Europe, the Middle East and Africa) and APAC (Asia-Pacific), higher factored volumes, and the cycling of lower U.S. distributor inventory levels in the prior year attributed to the March, 2021, cybersecurity incident and the February, 2021, Fort Worth, Tex., brewery shutdown due to a winter storm, partially offset by lower brand volumes in the Americas. Brand volumes increased 1.7 per cent primarily due to a 19.8-per-cent increase in brand volumes in EMEA and APAC, including the cycling of significant on-premises closures that occurred during the first quarter of 2021, particularly in the United Kingdom. This was partially offset by a 3.1-per-cent decrease in Americas brand volumes, driven by a decline in the economy portfolio, including the deprioritization and rationalization of non-core SKUs, which more than offset growth in the above premium portfolio. Net sales per hectolitre on a brand volume basis in constant currency increased 10.2 per cent, primarily due to positive net pricing and favourable brand and channel mix resulting from portfolio premiumization and fewer on-premises channel restrictions.
  • Cost of goods sold (COGS) per hectolitre increased 4.9 per cent on a reported basis primarily due to cost inflation mainly on input materials and transportation costs and the mix impacts of portfolio premiumization and higher factored volumes, partially offset by changes to its unrealized mark-to-market commodity positions, lower depreciation expense and favourable foreign currency impact. Underlying COGS per hectolitre increased 8.6 per cent in constant currency due to cost inflation mainly on input materials and transportation costs, as well as the mix impacts of portfolio premiumization and higher factored brand volumes, partially offset by lower depreciation expense.
  • Marketing, general and administrative (MG&A) increased 24.5 per cent on a reported basis, which includes a $56-million accrued liability related to potential losses as a result of the continuing Keystone litigation case. Underlying MG&A increased 15.7 per cent in constant currency primarily due to higher marketing spend to support core brands and new innovations, increased local sponsorship and events as the pandemic related restrictions have continued to ease, and the cycling of lower people related costs, including travel and entertainment costs.
  • U.S. GAAP income (loss) before income taxes increased 37.5 per cent on a reported basis primarily due to higher net sales, changes in its unrealized mark-to-market commodity positions and lower depreciation expense, partially offset by cost inflation mainly on input materials and transportation costs, higher general and administrative costs driven by a $56-million accrued liability related to potential losses as a result of the continuing Keystone litigation case, increased marketing investment behind its brands, and higher special items, net.
  • Underlying income (loss) before income taxes of $83.5-million improved $66.3-million from $17.2-million, primarily due to higher net sales and lower depreciation expense, partially offset by cost inflation, increased marketing investment behind our brands, and higher general and administrative costs.

Quarterly segment highlights (versus first quarter 2021 results)

Americas segment:

  • Net sales increased 8.5 per cent on a reported basis and 8.6 per cent in constant currency primarily due to positive net pricing and favourable sales mix, partially offset by a 0.8-per-cent decrease in financial volumes. Lower financial volumes were primarily due to lower brand volumes, partially offset by the cycling of lower U.S. distributor inventory levels in the prior year attributed to the March, 2021, cybersecurity incident and the February, 2021, Fort Worth, Tex., brewery shutdown due to a winter storm. Americas brand volumes decreased 3.1 per cent primarily due to a 4.3-per-cent decline in the U.S., which was driven by a decline in the economy portfolio attributed to the deprioritization and rationalization of non-core SKUs, partially offset by growth in the above premium portfolio driven by hard seltzers. Canada brand volumes reflected softer industry performance in the first quarter of 2022 and declined 4.5 per cent, while Latin America brand volumes grew 13.8 per cent.
  • Net sales per hectolitre on a brand volume basis in constant currency increased 9.8 per cent for the Americas segment and 11.2 per cent in the U.S. primarily due to positive net pricing and favourable brand mix.
  • U.S. GAAP income (loss) before income taxes decreased 39.6 per cent on a reported basis primarily due to a $56-million accrued liability related to potential losses as a result of the continuing Keystone litigation case, higher marketing spend, cost inflation mainly on input materials and transportation costs, and higher special items, net, driven by a non-cash impairment charge taken on its Truss LP (limited partnership) joint venture asset group and lower financial volumes, partially offset by positive net pricing, favourable sales mix and lower depreciation expense. The increased marketing spend includes higher spend behind innovation brands, Coors Light and Miller Lite, as well as higher localized spend as pandemic related restrictions eased compared with the prior year.
  • Underlying income (loss) before income taxes increased 9.0 per cent in constant currency primarily due to positive net pricing, favourable sales mix and lower depreciation expense, partially offset by increased marketing investment, cost inflation mainly on input materials and transportation costs, and lower financial volumes.

EMEA and APAC segment:

  • Net sales increased 84.2 per cent on a reported basis and 92.3 per cent in constant currency, primarily due to higher financial volumes, favourable sales mix and positive net pricing. Financial volumes growth of 29.4 per cent was driven by brand volume growth of 19.8 per cent, primarily due to growth in its core brands and above-premium portfolio, including the cycling of significant on-premises closures that occurred during the first quarter of 2021, particularly in the United Kingdom, as well as higher factored volumes.
  • Net sales per hectolitre on a brand volume basis in constant currency increased 30.1 per cent primarily due to favourable sales mix, as well as positive net pricing.
  • U.S. GAAP loss before income taxes of $32.2-million improved 64.0 per cent on a reported basis, primarily due to higher financial volumes, favourable sales mix and positive net pricing, partially offset by cost inflation mainly on input materials and transportation costs and higher MG&A spend. Higher MG&A spend was primarily due to increased marketing spend to support the company's brands and the cycling of lower spend in the prior year due to cost mitigation efforts.
  • Underlying loss before income taxes of $31.2-million improved 62.1 per cent in constant currency, primarily due to higher financial volumes, favourable sales mix and positive net pricing, partially offset by cost inflation mainly on input materials and transportation costs and higher MG&A spend.

Cash flow and liquidity highlights:

  • U.S. GAAP cash from operations used in operating activities was $119.3-million for the three months ended March 31, 2022, compared with $190.9-million in the prior year. The decrease in cash used in operating activities was primarily due to the favourable timing of working capital payments driven by increased MG&A spend and COGS inflation in the current year, as well as lower payments for incentive compensation and higher net income, partially offset by timing of receipts due to higher financial volumes.
  • Underlying free cash flow used of $358.8-million for the three months ended March 31, 2022, represents an increase in cash used of $270.8-million in the prior year, primarily due to higher capital spend, partially offset by lower cash used in operating activities.
  • Debt at the end of the first quarter of 2022 was $7,313.4-million and cash and cash equivalents totalled $358.7-million, resulting in net debt of $6,954.7-million and a net debt to underlying EBITDA (earnings before interest, taxes, depreciation and amortization) ratio of 3.28 times. As of March 31, 2021, the company's net debt to underlying EBITDA ratio was 3.74 times.
  • On Feb. 22, 2022, the company's board of directors declared a cash dividend of 38 cents per share, paid on March 18, 2022, to shareholders of Class A and Class B common stock. Shareholders of exchangeable shares received the Canadian-dollar equivalent of dividends declared on Class A and Class B common stock, equal to 48 cents per share.
  • On Feb. 17, 2022, the company's board of directors approved a share repurchase program up to an aggregate of $200-million of the company's Class B common stock through March 31, 2026, with repurchases primarily intended to offset annual employee equity award grants. For the three months ended March 31, 2022, it repurchased 280,000 shares under the share repurchase program at a weighted average price of $50.40 per share for an aggregate value of $14.1-million.

Other results

Highlights:

  • The decrease in the company's first quarter U.S. GAAP effective tax rate was primarily due to a decrease in net discrete tax expense. It recognized discrete tax benefit of $900,000 in the first quarter of 2022 versus discrete tax expense of $18.1-million in the prior year.
  • The decrease in its first quarter underlying effective tax rate was primarily due to higher underlying income before income taxes in the first quarter of 2022 compared with prior year, as well as a decrease in net discrete tax expense. It recognized discrete tax expense of $4.2-million in the first quarter of 2022 compared with $14.1-million in the prior year. In addition, for the three months ended March 31, 2022, there was a disproportionate impact from the discrete tax expense recorded during the first quarter on the company's underlying effective tax rate due to the lower underlying income before income taxes for the first quarter of 2022.

Special and other non-core items

The following special and other non-core items have been excluded from underlying results:

  • During the first quarter of 2022, the company recognized net special items charges of $27.6-million, primarily consisting of a non-cash impairment on its Truss LP joint venture asset group within its Americas segment.
  • Additionally, during the first quarter of 2022, it recorded other non-core net benefits of $117.8-million consisting of gains in its unrealized mark-to-market positions on commodity hedges, partially offset by the recording of a charge related to the continuing Keystone litigation case. As of March 31, 2022, the company accrued a liability of $56-million within other liabilities on its unaudited condensed consolidated balance sheet as the best estimate of probable loss in the Keystone litigation case based on the jury verdict. However, the estimate of the loss could change based on the progression of the case, including the resolution of remaining defences and other posttrial issues, as well as any appeals process. The company will continue to monitor the status of the case and will adjust the accrual in the period in which any significant change occurs which could impact the estimate of loss.

2022 outlook

The company continues to expect to achieve the following targets for full-year 2022. However, the inherent uncertainties that exist in the macroeconomic environment, including significant cost inflation, the extent and duration of the continuing Quebec collective bargaining negotiations and related strike, and the continuing coronavirus pandemic could impact the company's financial performance:

  • Net sales -- mid-single-digit increase versus 2021 on a constant currency basis;
  • Underlying income (loss) before income taxes -- high single-digit increase compared with 2021 on a constant currency basis;
  • Deleverage -- the company expects to achieve a net debt to underlying EBITDA ratio below three times by the end of 2022;
  • Underlying free cash flow -- $1-billion, plus or minus 10 per cent;
  • Underlying depreciation and amortization -- approximately $750-million, plus or minus 5 per cent;
  • Consolidated net interest expense -- approximately $265-million, plus or minus 5 per cent;
  • Underlying effective tax rate -- in the range of 22 per cent to 24 per cent for 2022.

The company repaid its $500-million 3.5 per cent United States-dollar notes upon their maturity on May 1, 2022, using a combination of commercial paper borrowings and cash on hand.

2022 first quarter investor conference call

Molson Coors will conduct an earnings conference call with financial analysts and investors at 11 a.m. ET today to discuss the company's 2022 first quarter results. The live webcast will be accessible through its website. An on-line replay of the webcast will be available until 11:59 p.m. ET on Aug. 1, 2022. The company will post this release and related financial statements on its website today.

Overview of Molson Coors Beverage Company

For more than two centuries Molson Coors Beverage Company has been brewing beverages that unite people for all life's moments. From Coors Light, Miller Lite, Molson Canadian, Carling and Staropramen to Coors Banquet, Blue Moon Belgian White, Blue Moon LightSky, Vizzy, Coors Seltzer, Leinenkugel's Summer Shandy, Creemore Springs, Hop Valley and more, Molson Coors produces many beloved and iconic beer brands. While the company's history is rooted in beer, Molson Coors offers a modern portfolio that expands beyond the beer aisle as well.

Its reporting segments include Americas, operating in the U.S., Canada and various countries in the Caribbean, Latin America and South America; and EMEA and APAC, operating in Bulgaria, Croatia, Czech Republic, Hungary, Montenegro, the Republic of Ireland, Romania, Serbia, the United Kingdom, various other European countries, and certain countries within the Middle East, Africa and Asia-Pacific. In addition to its reporting segments, it also has certain items that are unallocated to its reporting segments and reported as unallocated, which primarily include financing related costs and impacts of other treasury-related activities. Its environmental, social and governance (ESG) strategy is focused on people and planet with a strong commitment to raising industry standards and leaving a positive imprint on its employees, consumers, communities and the environment.

About Molson Coors Canada Inc.

Molson Coors Canada is a subsidiary of Molson Coors Beverage Company. Molson Coors Canada Class A and Class B exchangeable shares offer substantially the same economic and voting rights as the respective classes of common shares of Molson Coors Beverage, as described in Molson Coors Beverage'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.

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