Molson Coors Announces Revitalization Plan and Reports 2019 Third Quarter Results
October 30, 2019
Net Sales Revenue Decreased 3.2% Reported and 2.0% in Constant Currency
U.S. GAAP Net Loss of $403 million Driven by Canadian Goodwill Impairment Charge
Underlying EBITDA of $703 million Decreased 5.6% in Constant Currency
EPS (U.S. GAAP) of $(1.86), and Underlying EPS (Non-GAAP) of $1.48 Decreased 19.6%
DENVER & MONTREAL–(BUSINESS WIRE)–Molson Coors Brewing Company (NYSE: TAP; TSX: TPX) today reported results for the 2019 third quarter and is also announcing a new revitalization plan intended to achieve consistent top-line growth by improving efficiency and unlocking resources to reinvest in the business. The strategy, as detailed below, will be further discussed on the quarterly earnings call by new Molson Coors president and chief executive officer, Gavin Hattersley, including information on reinvestment plans, organizational structure, and impact on guidance.
“Our business is at an inflection point. We can continue down the path we’ve been on for several years now, or we can make the significant and difficult changes necessary to get back on the right track,” said Hattersley. “Our revitalization plan is designed to streamline the company, move faster, and free up resources to invest in our brands and our capabilities. Through it, we will create a brighter future for Molson Coors.”
The plan aims to revitalize Molson Coors, achieving consistent topline growth by enabling us to: 1) Invest in iconic brands as well as opportunities to grow in the above premium space, 2) Expand beyond beer without having to sacrifice support for larger brands in the company’s portfolio and 3) Create new digital competencies for commercial functions, system capabilities for supply chain and capabilities for employees. To make this possible, Molson Coors plans to unlock significant resources by eliminating duplication, shedding what’s not working and restructuring the organization to better succeed in today’s competitive, fast-paced environment.”
|
Revitalization Plan |
FUELING FUTURE GROWTH
This revitalization plan is designed to allow Molson Coors to invest across its portfolio at the level necessary to drive long-term, sustainable success.
Investing in the core, growing above premium and expanding beyond beer
Molson Coors has shown it can improve the performance of its iconic brands and can stabilize brand performance and position for sustainable growth – by accelerating investments behind the largest brands in its portfolio, by focusing on recruitment especially of new legal age drinking consumers, by driving relevance with breakthrough marketing, and by innovating on core brands to attract legal age drinkers. The company will invest significantly in Above Premium, the fastest growing area of the beer industry, with added investment in existing brands, new innovations and possibly through bolt-on acquisitions where there is a strong business case. After launching two portfolio firsts in 2019, a canned wine and a hard coffee, Molson Coors will continue to invest more in whitespace opportunities and in growth spaces beyond the beer category.
The company will also put a greater focus on bringing new beverages to market faster and with more precision. This includes expanding the model that has reduced the time it takes to bring innovations to market from 18 months to as little as four months in the U.S. and expanding a “test and learn” approach that evaluates market potential for products and then quickly scales up.
Investing in capabilities, systems and people
As part of the revitalization plan, the company will also invest in improving its digital capabilities, expanding data resources and building out innovation systems. This will better enable precision marketing and improve e-commerce abilities. New investments in leadership and growth opportunities for employees will help build an inclusive culture and diverse workforce.
Separately, Molson Coors will continue its ongoing efforts to modernize its brewery footprint and will also invest several hundred million dollars to modernize its brewery in Golden, CO. These plans will allow for more flexible capacity to better meet demand and fulfill future growth opportunities, while increasing supply chain efficiency. The company is not using the cost savings generated from the revitalization plan to make this previously planned brewery investment possible.
“For nearly 150 years we have brewed great beers in Colorado, and we will continue to brew great beers in Colorado for hundreds of years to come,” said Hattersley “This investment will modernize the brewery to allow for more flexibility, enable us to move with pace and deliver new products to meet changing consumer preferences.”
STREAMLINING TO ENABLE GROWTH
To make the new investments possible, Molson Coors plans to unlock approximately $150 million in savings by simplifying its structure. The company will move from a corporate center and four business units (MillerCoors in the U.S., Molson Coors Canada, Molson Coors Europe and Molson Coors International) to two streamlined business units – North America and Europe.
The North America business unit will consolidate the United States, Canada and corporate center, enabling the company to move much more quickly with an integrated portfolio strategy. The Europe business unit will be structured to allow for standalone operations, developed and supported by a European-based team, including a local leadership, commercial, supply chain and support functions. The existing Molson Coors International team will be reconstituted to more effectively grow the company’s global brands – with the Latin America business reporting into the North America business unit and Africa and Asia Pacific reporting into the European business unit. The change in structure to two business units will not be effective until January 2020 and therefore the resulting financial reporting changes will not be reflected until our first quarter of 2020 results.
Reduced office footprint
To further drive efficiency and enable growth, Molson Coors is consolidating and reorganizing office locations. The Denver office will be closed and Chicago will be designated as the North American operational headquarters. Functional support roles currently housed in several offices around the country will now be based in Milwaukee, Wisconsin.
As a result, we expect to reduce employment levels by approximately 400 to 500 employees as part of this restructuring, primarily in our existing United States, Canada and International reporting segments, as well as Corporate.
In connection with these consolidation activities and related organizational and personnel changes, which were determined and initiated on October 28, 2019, the company currently expects to incur certain cash and non-cash restructuring charges related to employee relocation, severance, retention and transition costs, non-cash asset related costs, lease exit costs in connection with office leases in Denver, Colorado, and other transition activities estimated in the range of approximately $120 million to $180 million in the aggregate, the majority of which will be cash charges that will be spread through the balance of this fiscal year and fiscal years 2020 and 2021. The consolidation activities are expected to be substantially completed by the end of fiscal year 2021. Costs related to these restructuring activities are expected to be recorded as special items within our financial results beginning in the fourth quarter of 2019.
New senior leadership
The company will also consolidate the Global, MillerCoors, Canadian, and MCI leadership teams into one team to streamline decision making. Hattersley’s new Leadership Team will assume their roles effective November 1.
- Adam Collins, Chief Communications and Corporate Affairs Officer
- Simon Cox, President and CEO of Molson Coors Europe
- Kevin Doyle, President of U.S. Sales
- Brian Erhardt, Chief Supply Chain Officer
- Rahul Goyal, Chief Strategy Officer
- Tracey Joubert, Chief Financial Officer
- Fred Landtmeters, President of Canada
- Pete Marino, President of Emerging Growth
- Dave Osswald, Chief People and Diversity Officer
- Lee Reichert, Chief Legal and Government Affairs Officer
- Michelle St. Jacques, Chief Marketing Officer
As Molson Coors moves to a North America and Europe structure, there will no longer be a President of the U.S. business.
Changing Company Name to Molson Coors Beverage Company
The company will also change its name to Molson Coors Beverage Company to better reflect its strategic intent to expand beyond beer and into other growth adjacencies. The company will legally change its name starting in January 2020.
| Consolidated Performance – Third Quarter 2019 | ||||||||||||||||||
|
|
Three Months Ended |
|||||||||||||||||
|
($ in millions, except per share data) |
September 30, |
|
September 30, |
|
Reported |
|
Foreign |
|
Constant |
|||||||||
|
Net Sales |
$ |
2,841.6 |
|
|
$ |
2,934.2 |
|
|
(3.2 |
)% |
|
$ |
(33.2 |
) |
|
(2.0 |
)% |
|
|
U.S. GAAP Net income (loss)(1) |
$ |
(402.8 |
) |
|
$ |
338.3 |
|
|
N/M |
|
|
|
|
|||||
|
Per diluted share |
$ |
(1.86 |
) |
|
$ |
1.56 |
|
|
N/M |
|
|
|
|
|||||
|
Underlying (Non-GAAP) Net income (loss)(2) |
$ |
321.2 |
|
|
$ |
398.5 |
|
|
(19.4 |
)% |
|
|
|
|
||||
|
Per diluted share |
$ |
1.48 |
|
|
$ |
1.84 |
|
|
(19.6 |
)% |
|
|
|
|
||||
|
Underlying EBITDA (Non-GAAP)(2) |
$ |
702.6 |
|
|
$ |
756.7 |
|
|
(7.1 |
)% |
|
$ |
(11.6 |
) |
|
(5.6 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
N/M = Not meaningful |
||||||||||||||||||
|
|
Nine Months Ended |
|||||||||||||||||
|
($ in millions, except per share data) |
September 30, |
|
September 30, |
|
Reported |
|
Foreign |
|
Constant |
|||||||||
|
Net Sales |
$ |
8,093.2 |
|
|
$ |
8,350.9 |
|
|
(3.1 |
)% |
|
$ |
(122.3 |
) |
|
(1.6 |
)% |
|
|
U.S. GAAP Net income (loss)(1) |
$ |
78.0 |
|
|
$ |
1,040.5 |
|
|
(92.5 |
)% |
|
|
|
|
||||
|
Per diluted share |
$ |
0.36 |
|
|
$ |
4.80 |
|
|
(92.5 |
)% |
|
|
|
|
||||
|
Underlying (Non-GAAP) Net income (loss)(2) |
$ |
763.5 |
|
|
$ |
908.9 |
|
|
(16.0 |
)% |
|
|
|
|
||||
|
Per diluted share |
$ |
3.52 |
|
|
$ |
4.20 |
|
|
(16.2 |
)% |
|
|
|
|
||||
|
Underlying EBITDA (Non-GAAP)(2) |
$ |
1,800.9 |
|
|
$ |
1,966.0 |
|
|
(8.4 |
)% |
|
$ |
(23.7 |
) |
|
(7.2 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
(1) |
Net income (loss) attributable to MCBC. |
|
|
(2) |
See Appendix for definitions and reconciliations of non-GAAP financial measures. |
|
Quarterly Highlights (versus Third Quarter 2018 Results) |
- Net sales: $2.8 billion, decreased by 3.2% and 2.0% in constant currency driven by volume declines, partially offset by net sales per hectoliter growth.
- Net sales per hectoliter: $113.46 on a reported financial-volume basis, increased 2.5% and net sales per hectoliter on a brand volume basis increased by 3.0% in constant currency, primarily driven by favorable net pricing in all segments and positive global mix as a result of our continued focus on premiumizing our portfolio.
- Volume: Worldwide brand volume and financial volume decreased 2.4% and 5.5%, respectively, due to declines in all segments, partially driven by challenging industry dynamics. Financial volume was further impacted by quarterly timing of customer inventory levels in the U.S. and Canada, as well lower contract brewing volume.
- Cost of goods sold (COGS) per hectoliter: on a reported basis, increased 4.1% primarily driven by inflation and global volume deleverage, partially offset by lower unrealized mark-to-market losses on our commodity positions as compared to the prior year, foreign currency movements and cost savings.
- Underlying COGS per hectoliter: increased 5.9% in constant currency primarily driven by the same factors as U.S. GAAP results excluding the impacts of the changes in unrealized mark-to-market positions and foreign currency movements.
- U.S. GAAP net income attributable to MCBC: decreased by $741.1 million to a loss of $402.8 million, largely driven by the impact of aggregate goodwill and intangible asset impairment charges of approximately $692 million primarily related to our Canada reporting unit. The decrease was also due to lower volume, inflation and cycling the favorable resolution of a vendor dispute in the U.S., partially offset by positive global pricing and mix, cost savings and lower incentive compensation, restructuring charges and marketing spend.
- Underlying net income: decreased 19.4%, primarily driven by the same factors as U.S. GAAP net income, excluding the impact of the aggregate goodwill and intangible asset impairment charges and cycling prior year restructuring charges, as well as a higher underlying effective tax rate as compared to the prior year.
- Underlying EBITDA: decreased 5.6% on a constant-currency basis, driven by the same factors as underlying net income, excluding the impacts of the higher underlying effective tax rate.
- U.S. GAAP cash from operations: net cash provided by operating activities was $1,288.2 million for the nine months ended September 30, 2019, a decrease of $503.2 million compared to the nine months ended September 30, 2018. This decrease was primarily driven by cycling the $328 million cash payment received in January 2018 related to a purchase price adjustment for our acquisition of the Miller International Business, as well as lower net income adjusted for non-cash add backs and higher cash paid for taxes, partially offset by lower interest paid during the nine months ended September 30, 2019.
- Underlying free cash flow: cash received of $884.8 million for the nine months ended September 30, 2019, represents a 13.7% decrease from cash received of $1,025.4 million for the nine months ended September 30, 2018, primarily due to lower underlying EBITDA and higher cash paid for taxes, partially offset by lower capital expenditures and lower cash paid for interest.
- Debt: Total debt at the end of the third quarter 2019 was $9.252 billion, and cash and cash equivalents totaled $410.2 million, resulting in net debt of $8.842 billion.
|
Business Review – Third Quarter 2019 |
|
Net Sales |
||||||||||||||||||
|
($ in millions) |
Three Months Ended |
|||||||||||||||||
|
|
September 30, |
|
September 30, |
|
Reported |
|
Foreign |
|
Constant |
|||||||||
|
United States |
$ |
1,890.5 |
|
|
$ |
1,935.8 |
|
|
(2.3 |
)% |
|
$ |
— |
|
|
(2.3 |
)% |
|
|
Canada |
366.3 |
|
|
388.9 |
|
|
(5.8 |
)% |
|
(3.5 |
) |
|
(4.9 |
)% |
||||
|
Europe |
558.0 |
|
|
577.9 |
|
|
(3.4 |
)% |
|
(29.6 |
) |
|
1.7 |
% |
||||
|
International |
56.5 |
|
|
67.0 |
|
|
(15.7 |
)% |
|
(0.1 |
) |
|
(15.5 |
)% |
||||
|
Corporate |
0.1 |
|
|
0.2 |
|
|
(50.0 |
)% |
|
— |
|
|
(50.0 |
)% |
||||
|
Eliminations(2) |
(29.8 |
) |
|
(35.6 |
) |
|
16.3 |
% |
|
— |
|
|
16.3 |
% |
||||
|
Consolidated |
$ |
2,841.6 |
|
|
$ |
2,934.2 |
|
|
(3.2 |
)% |
|
$ |
(33.2 |
) |
|
(2.0 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
(1) See Appendix for definitions and reconciliations of non-GAAP financial measures. |
||||||||||||||||||
|
Pretax Income (U.S. GAAP) |
||||||||||||||||||
|
($ in millions) |
Three Months Ended |
|||||||||||||||||
|
|
September 30, |
|
September 30, |
|
Reported |
|
Foreign |
|
Constant |
|||||||||
|
United States |
$ |
348.3 |
|
|
$ |
374.2 |
|
|
(6.9 |
)% |
|
$ |
— |
|
|
(6.9 |
)% |
|
|
Canada |
(615.5 |
) |
|
77.5 |
|
|
N/M |
|
9.6 |
|
|
N/M |
||||||
|
Europe |
77.5 |
|
|
96.0 |
|
|
(19.3 |
)% |
|
(4.9 |
) |
|
(14.2 |
)% |
||||
|
International |
(7.7 |
) |
|
(1.0 |
) |
|
N/M |
|
(0.9 |
) |
|
N/M |
||||||
|
Corporate |
(111.2 |
) |
|
(136.6 |
) |
|
18.6 |
% |
|
(0.9 |
) |
|
19.3 |
% |
||||
|
Consolidated |
$ |
(308.6 |
) |
|
$ |
410.1 |
|
|
N/M |
|
$ |
2.9 |
|
|
N/M |
|||
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
N/M = Not meaningful |
||||||||||||||||||
|
Underlying EBITDA (Non-GAAP)(1) |
||||||||||||||||||
|
($ in millions) |
|
Three Months Ended |
||||||||||||||||
|
|
|
September 30, |
|
September 30, |
|
Reported |
|
Foreign |
|
Constant |
||||||||
|
United States |
$ |
481.1 |
|
|
$ |
526.1 |
|
|
(8.6 |
)% |
|
$ |
— |
|
|
(8.6 |
)% |
|
|
Canada |
96.9 |
|
|
112.6 |
|
|
(13.9 |
)% |
|
(1.8 |
) |
|
(12.3 |
)% |
||||
|
Europe |
136.8 |
|
|
144.1 |
|
|
(5.1 |
)% |
|
(8.1 |
) |
|
0.6 |
% |
||||
|
International |
7.7 |
|
|
2.9 |
|
|
165.5 |
% |
|
(0.7 |
) |
|
189.7 |
% |
||||
|
Corporate |
(19.9 |
) |
|
(29.0 |
) |
|
31.4 |
% |
|
(1.0 |
) |
|
34.8 |
% |
||||
|
Consolidated |
$ |
702.6 |
|
|
$ |
756.7 |
|
|
(7.1 |
)% |
|
$ |
(11.6 |
) |
|
(5.6 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
(1) See Appendix for definitions and reconciliations of non-GAAP financial measures. |
||||||||||||||||||
|
Quarterly Segment Highlights (versus Third Quarter 2018 Results) |
United States Business
- Revenue: Net sales decreased 2.3% due to lower shipment volumes, partially offset by net sales per hectoliter (brand volume basis) growth of 4.3% driven by higher net pricing and positive sales mix.
- Volume: U.S. brand volume decreased 3.9%, on a trading day adjusted basis, driven by declines in the Economy and Premium Light segments while our Above Premium portfolio trends improved. Sales-to-wholesalers (STWs) volume, excluding contract brewing, decreased 6.2% driven by lower brand volume and quarterly timing of distributor inventories, as we expect brand volume and STW trends to largely converge on a full year basis.
- COGS per hectoliter increased 6.6%, driven by inflation, volume deleverage and other factors, including a substantial unanticipated increase in property tax at our Golden, Colorado brewery, partially offset by cost savings.
- Marketing, general and administrative (MG&A) expense increased 3.3% primarily driven by cycling a net benefit from the amicable resolution of a vendor dispute in the prior year, partially offset by the incremental cost reductions related to the restructuring initiated in the third quarter of 2018. MG&A also reflects the benefit of lower incentive compensation for the second consecutive year.
- U.S. pretax income decreased 6.9% from the prior year driven by lower volumes, cost inflation, and higher MG&A expenses, partially offset by higher net pricing, cycling special charges in the prior year related to restructuring, and cost savings.
- U.S. underlying EBITDA decreased 8.6% driven by the same factors as U.S. GAAP results with the exception of special charges.
Canada Business
- Revenue: Net sales decreased 5.8%, and 4.9% in constant currency, driven by volume declines, partially offset by net sales per hectoliter (brand volume basis) growth of 2.7% in constant currency, driven primarily by positive net pricing.
- Volume: Canada brand volume decreased 5.1% and financial volume decreased 8.4% in the third quarter. The decline in brand volume is driven primarily by industry declines, while financial volume was also impacted by lower contract manufacturing volume as well as negative impacts of timing of customer inventory levels.
- COGS per hectoliter increased 9.7% in constant currency primarily driven by volume deleverage, cycling prior year distribution gains, brewery start-up costs and inflation, partially offset by cost savings.
- MG&A expense decreased 7.7% in constant currency primarily driven by timing of brand investments and lower incentive compensation, partially offset by Truss joint venture start-up costs.
- Canada reported a pretax loss of $615.5 million, a decrease from the prior year, driven primarily by the $668.3 million goodwill impairment charge recognized in the third quarter of 2019 as well as gross profit impacts of volume declines, higher COGS per hectoliter, partially offset by lower MG&A expenses.
- Canada underlying EBITDA decreased 12.3% in constant currency, primarily due to the same factors as U.S. GAAP results with the exception of the goodwill impairment charge.
Europe Business
- Revenue: Net sales decreased 3.4% driven by unfavorable foreign currency, and increased 1.7% in constant currency driven by net sales per hectoliter (brand volume basis) growth of 2.9% in constant currency as a result of positive pricing and mix, partially offset by a slight decline in brand volumes.
- Volume: Europe brand volume decreased 0.7% and financial volume decreased 0.3% due to soft industry demand.
- COGS per hectoliter increased 3.5% in constant currency, primarily due to inflation.
- MG&A expense decreased 1.7% in constant currency, primarily driven by lower incentive compensation, offsetting higher marketing investments focused on our national champion brands and premiumization initiatives.
- Europe pretax income decreased 19.3% from the prior year, driven by current year special charges of $13.7 million, primarily related to the write down of intangible assets following the termination of distribution, brewing and joint venture agreements with a partner in one of our markets, as well as unfavorable foreign currency movements, increased brand investments, soft industry demand and inflation, partially offset by positive net pricing and mix and lower incentive compensation.
- Europe underlying EBITDA increased 0.6% in constant currency driven by positive pricing and mix as well as lower incentive compensation, partially offset by increased brand investment, commodity inflation and lower brand volume due to soft demand.
International Business
- Revenue: Net sales decreased 15.7%, and 15.5% in constant currency, driven by an 8.6% decline in brand volume and a 7.6% decline in net sales per hectoliter (brand volume basis) in constant currency, due to geographic mix, partially offset by positive net pricing.
- Volume: International brand volume decreased driven by India supply chain and demand constraints, economic decline in Paraguay and Puerto Rico along with timing of STWs.
- COGS per hectoliter increased 6.1% in constant currency, driven by geographic mix and inflation.
- MG&A expense decreased 29.5% in constant currency, driven by lower marketing spend and lower incentive compensation.
- International reported a pretax loss of $7.7 million, compared to a loss of $1.0 million in the prior year, driven by higher special charges due to impairments of our India business, partially offset by lower MG&A expense.
- International underlying EBITDA of $7.7 million increased 190% in constant currency driven by lower MG&A expenses, partially offset by lower volume.
Corporate
- Corporate reported a pretax loss of $111.2 million in the third quarter compared to a loss of $136.6 million in the prior year, primarily due to lower unrealized mark-to-market losses, lower incentive compensation and lower net interest expense.
- Corporate underlying EBITDA improved by $9.1 million, driven primarily by lower incentive compensation.
|
Worldwide Brand and Financial Volume(1) |
|
(In millions of hectoliters) |
Three Months Ended |
||||||||
|
|
September 30, |
|
September 30, |
|
Change |
||||
|
Financial Volume(1) |
25.044 |
|
|
26.513 |
|
|
(5.5 |
)% |
|
|
Contract brewing, wholesaler and non-beer volume |
(1.986 |
) |
|
(2.222 |
) |
|
(10.6 |
)% |
|
|
Royalty volume |
1.169 |
|
|
1.171 |
|
|
(0.2 |
)% |
|
|
Sales-To-Wholesaler to Sales-To-Retail adjustment |
0.441 |
|
|
(0.178 |
) |
|
N/M |
||
|
Total Worldwide Brand Volume(1) |
24.668 |
|
|
25.284 |
|
|
(2.4 |
)% |
|
|
|
|
|
|
|
|
||||
|
N/M = Not meaningful |
|||||||||
|
Other Results |
|
Effective Income Tax Rates |
||||||
|
|
Three Months Ended |
|||||
|
|
September 30, |
|
September 30, |
|||
|
U.S. GAAP effective tax rate |
(29 |
)% |
|
16 |
% |
|
|
Underlying effective tax rate |
24 |
% |
|
16 |
% |
|
|
|
|
|
|
|||
- Our effective tax rate was negative 29% in the third quarter of 2019 and was primarily driven by the $668.3 million impairment charge to nondeductible goodwill of our Canada reporting unit, as well as other discrete tax items recognized during the third quarter of 2019.
- Our third quarter underlying effective tax rate increased to 24% from 16% a year ago primarily due to net discrete tax expenses recognized in the third quarter of 2019 versus net discrete tax benefits recognized in the third quarter of 2018.
Special and Other Non-Core Items
The following special and other non-core items have been excluded from underlying results. See the Appendix for reconciliations of non-GAAP financial measures.
- During the third quarter of 2019, MCBC recognized a net special charge of $703.3 million, primarily driven by goodwill impairment charges to our Canada and India reporting units, as well as an intangible asset impairment charge within our India business. Additionally, we recorded special charges related to the write down of intangible assets following the termination of distribution, brewing and joint venture agreements with a partner in one of our markets in Europe.
Contacts
News Media
Matthew Hargarten, (303) 927-2443
Investor Relations
Mark Swartzberg, (303) 927-2334