Molson Coors Reports 2020 Second Quarter Results
July 30, 2020
Strong Second Quarter Performance Amidst Difficult Business Conditions from Coronavirus
Net Sales Revenue Decreased 15.1% Reported and 14.3% in Constant Currency
U.S. GAAP Net Income of $195 Million ($0.90 Per Share) Decreased 40.8%, and Non-GAAP EPS of $1.55 increased 2.0%
Underlying EBITDA of $692 Million Increased 2.2% in Constant Currency
Management Updates on Mitigating Actions Taking Steps Focused on Employee Safety and Immediate Business Challenges Positioning Business to Succeed in the Long-Term
GOLDEN, Colo. & MONTREAL–(BUSINESS WIRE)–Molson Coors Beverage Company (NYSE: TAP; TSX: TPX) today reported results for the 2020 second quarter and provided updates on ongoing pandemic impacts. Molson Coors president and chief executive officer Gavin Hattersley said:
“Last quarter we told you that our overarching focus as the whole world deals with the coronavirus pandemic was centered on two objectives: navigating the short term to protect our employees and to mitigate short-term business challenges of the coronavirus, and positioning our business for long-term success. That’s just what we’ve done. Through sound management and incredible work by our teams, we had a strong second quarter executing well against these two objectives and beating expectations for both top and bottom-line performance in the second quarter. We did it while delivering an improved cash position and preserving the biggest firepower in our marketing budgets so they can be ramped up in the back half of the year when we expect they will be most effective.”
Coronavirus Global Pandemic
We have seen the benefits of our work in response to the short-term impacts of the coronavirus pandemic and are confident in how we are positioning the business for the long-term. However, we are still actively monitoring the continued evolution of the pandemic and resulting impacts to our business. As expected, we experienced a significant adverse volume impact in the second quarter of 2020 resulting from the closure of the on-premise channel in nearly all of our markets for most of the quarter. Specifically, for the second quarter of 2020, we estimate that nearly all of our consolidated net sales resulted from off-premise consumption. While we began to see some of the on-premise return in June in many of these markets, with the notable exception of the U.K. which remained closed until early July, business in the channel has been slow, remains uncertain and has not returned to pre-pandemic levels. Therefore, as a result of this uncertainty, along with the growing risk of a return of shutdowns in certain markets, we currently continue to expect a significant adverse impact to both net sales and profit performance for the third quarter and fiscal year 2020, and, possibly, beyond.
In addition, where we have seen shifts in demand to the off-premise, and certain package types, this has strained our supply chain and package availability, particularly with aluminum can demand and other packaging materials, requiring that we strategically prioritize certain brands and package types. Our supply chain continues to work diligently to ensure sufficient supply of these high demand brands and packages as we adjust to these changing consumer dynamics.
With the continued spread of the coronavirus and the reversal of certain on-premise re-openings, the extent, severity and duration to which our operations will be impacted by the pandemic remains uncertain. Therefore, we previously withdrew our financial outlook for 2020 and beyond and have determined that the market remains too unpredictable to provide an updated detailed financial outlook at this time.
Despite these obstacles, we continue to effectively navigate the coronavirus pandemic taking numerous actions to protect our employees and mitigate short-term challenges while simultaneously working to position our business to succeed in the longer term including:
- We instituted and provided approximately $16 million of “thank you” pay for certain essential North America brewery employees which concluded in the second quarter as well as a paid leave policy and voluntary paid leave program, while also taking necessary steps to protect our employees by implementing additional health and safety measures in breweries and distribution centers,
- We prioritized and shifted our marketing spend significantly including shifting media to platforms with higher audiences in the current environment while suspending on-premise activation spending and reducing or eliminating spend in areas that have been significantly impacted, for example sports and in-market activations. We also adjusted the timing of spend behind brands and packs that were constrained by supply. These actions resulted in significant reductions in spend versus the second quarter of 2019. With the expected improvement in availability of our brands, as well as the very successful launch of Vizzy and Blue Moon LightSky as well as the upcoming launch of Coors Seltzer, we currently anticipate marketing spend in the third and fourth quarter of 2020 to be above the prior year in North America,
- While second quarter shipments were below desired levels driven in part by the on-premise closures, we strategically prioritized brands and package types to meet off-premise demand leading to positive mix in the U.S. and continue to work diligently to deliver product to meet these evolving shifts in demand,
- We reduced discretionary spending, limited new hiring and restricted travel,
- We reduced our planned 2020 capital expenditures by approximately $200 million and those reductions remain on target without sacrificing our ability to invest in necessary safety and maintenance projects and return-focused capital investments to our breweries, such as our Fort Worth, Texas seltzer expansion,
- We entered into an amendment to our existing $1.5 billion revolving credit facility agreement, which among other things, favorably revises the leverage ratios under the financial maintenance covenant for each fiscal quarter ending on or after June 30, 2020 through the maturity of the credit facility giving us greater financial flexibility,
- We established a commercial paper facility in the U.K. for the purpose of issuing short-term, unsecured GBP-denominated notes that are eligible for purchase under the Joint HM Treasury and Bank of England’s COVID Corporate Financing Facility commercial paper program in an aggregate principal amount up to GBP 300 million adding incremental borrowing capacity,
- Our board of directors suspended our regular quarterly dividends on our Class A and Class B common and exchangeable shares otherwise payable in the 2020 fiscal year, and
- We remain committed to maintaining our investment grade debt rating.
Amidst the backdrop of this global pandemic, we are very pleased with our second quarter financial performance, our progress in improving liquidity, and efforts to advance our long-term goals for the business. While we are confident in our ability to achieve long-term success, we are mindful of the challenges and continued uncertainty that lie ahead. During this time of great uncertainty, our management and board will continue to take prudent and proactive actions which are in the best interests of the Company, our employees, consumers, customers and our stockholders. Our decisions will be guided by, and consistent with, the Company’s overall financial discipline, ensuring adequate liquidity and our continued desire to maintain our investment grade rating. Our actions remain focused on doing what is best not only in the near-term, but positioning the business for medium and long-term success.
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Consolidated Performance – Second Quarter 2020 |
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Three Months Ended |
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($ in millions, except per share data) (Unaudited) |
June 30, 2020 |
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June 30, 2019 |
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Reported |
|
Foreign |
|
Constant |
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|
Net Sales |
$ |
2,503.4 |
|
|
$ |
2,948.3 |
|
|
(15.1) |
% |
|
$ |
(22.4) |
|
|
(14.3) |
% |
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U.S. GAAP Net income (loss)(1) |
$ |
195.0 |
|
|
$ |
329.4 |
|
|
(40.8) |
% |
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|
|
|
|||
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Per diluted share |
$ |
0.90 |
|
|
$ |
1.52 |
|
|
(40.8) |
% |
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|
|
|
|||
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Underlying Net income (loss)(2) |
$ |
337.3 |
|
|
$ |
329.6 |
|
|
2.3 |
% |
|
|
|
|
|||
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Per diluted share |
$ |
1.55 |
|
|
$ |
1.52 |
|
|
2.0 |
% |
|
|
|
|
|||
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Underlying EBITDA(2) |
$ |
692.3 |
|
|
$ |
676.0 |
|
|
2.4 |
% |
|
$ |
1.2 |
|
|
2.2 |
% |
|
|
Six Months Ended |
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($ in millions, except per share data) (Unaudited) |
June 30, 2020 |
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June 30, 2019 |
|
Reported |
|
Foreign |
|
Constant |
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|
Net Sales |
$ |
4,606.2 |
|
|
$ |
5,251.6 |
|
|
(12.3) |
% |
|
$ |
(33.0) |
|
|
(11.7) |
% |
|
U.S. GAAP Net income (loss)(1) |
$ |
78.0 |
|
|
$ |
480.8 |
|
|
(83.8) |
% |
|
|
|
|
|||
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Per diluted share |
$ |
0.36 |
|
|
$ |
2.22 |
|
|
(83.8) |
% |
|
|
|
|
|||
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Underlying Net income (loss)(2) |
$ |
414.3 |
|
|
$ |
442.3 |
|
|
(6.3) |
% |
|
|
|
|
|||
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Per diluted share |
$ |
1.91 |
|
|
$ |
2.04 |
|
|
(6.4) |
% |
|
|
|
|
|||
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Underlying EBITDA(2) |
$ |
1,044.5 |
|
|
$ |
1,098.3 |
|
|
(4.9) |
% |
|
$ |
(2.2) |
|
|
(4.7) |
% |
(1) Net income (loss) attributable to MCBC.
(2) Represents net income (loss) and EBITDA adjusted for non-GAAP items. See Appendix for definitions and reconciliations of non-GAAP financial measures including constant currency.
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Net Sales Drivers |
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Three Months Ended June 30, 2020 |
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Reported |
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Percent change |
Financial Volume |
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Price, Product |
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Currency |
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Net Sales |
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Net Sales per |
|
Brand |
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Consolidated |
(12.5) |
% |
|
(1.8) |
% |
|
(0.8) |
% |
|
(15.1) |
% |
|
0.3 |
% |
|
(11.6) |
% |
|
North America |
(8.3) |
% |
|
0.4 |
% |
|
(0.4) |
% |
|
(8.3) |
% |
|
0.9 |
% |
|
(7.8) |
% |
|
Europe |
(24.8) |
% |
|
(17.6) |
% |
|
(2.2) |
% |
|
(44.6) |
% |
|
(12.7) |
% |
|
(21.4) |
% |
|
|
Six Months Ended June 30, 2020 |
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|
Reported |
|
|
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|
Percent change |
Financial Volume |
|
Price, Product |
|
Currency |
|
Net Sales |
|
Net Sales per |
|
Brand |
||||||
|
Consolidated |
(10.7) |
% |
|
(1.0) |
% |
|
(0.6) |
% |
|
(12.3) |
% |
|
(0.6) |
% |
|
(7.4) |
% |
|
North America |
(8.1) |
% |
|
0.5 |
% |
|
(0.3) |
% |
|
(7.9) |
% |
|
(0.1) |
% |
|
(4.2) |
% |
|
Europe |
(18.8) |
% |
|
(11.9) |
% |
|
(2.1) |
% |
|
(32.8) |
% |
|
(9.6) |
% |
|
(16.2) |
% |
(1) Our net sales revenue (NSR) per HL performance discussions are reflected on a brand volume (“BV”) basis, reflecting owned and actively managed brand volume, along with royalty volume, in the denominator, as well as the financial impact of these sales (in constant currency) in the numerator, unless otherwise indicated.
Quarterly Highlights (versus Second Quarter 2019 Results)
- Revenue: Net sales decreased 15.1% on a reported basis, and 14.3% in constant currency driven by financial volume declines related to on-premise closures resulting from the coronavirus pandemic across all of our major markets, as well as unfavorable global mix, partially offset by higher net pricing in the U.S. and Canada. Worldwide brand volume and financial volume decreased globally due to the impacts of the coronavirus and the related closure of on-premise outlets, as well as market share declines in part as a result from the prioritization of certain key brands and pack types to meet off-premise demand. Financial volume was further impacted in North America by continued unfavorable shipment timing largely attributed to aluminum can supply and other packaging material constraints, as well as lower contract brewing volume.
- Cost of goods sold (COGS) per hectoliter: decreased 5.4% on a reported basis primarily driven by changes to our unrealized mark-to-market commodity positions, cost savings and a favorable resolution of our property tax appeal for our Golden, Colorado brewery, partially offset by volume deleverage and temporary “thank you” pay for certain essential North America brewery employees. Underlying COGS per hectoliter: increased 0.4% in constant currency primarily driven by volume deleverage, partially offset by cost savings and the above-mentioned favorable property tax appeal resolution.
- Marketing, general & administrative (MG&A): decreased 31.9% on a reported basis. Underlying MG&A: decreased 30.8% in constant currency largely driven by the prioritization, shifting and reductions in marketing as discussed above and cost savings related to the revitalization plan. However, we currently anticipate our marketing spend to increase in the second half of 2020 to support our core brands as well as continue to invest behind rapidly growing Blue Moon LightSky and Vizzy as well as the upcoming launch of Coors Seltzer, in addition to aligning spend with the shift in timing of major partnership programs, particularly those tied to sports.
- U.S. GAAP pretax income: increased 0.3% driven by lower MG&A, an approximate $106 million year-over-year variance resulting from favorable unrealized mark-to-market changes on our commodity positions and HEXO warrants, and cost savings, partially offset by an increase in special charges of approximately $114 million driven by special items associated with the revitalization plan, the Irwindale brewery closure and cycling the gain on the sale of the Montreal brewery, lower financial volume and unfavorable mix.
- Underlying EBITDA: increased 2.2% in constant currency, driven by the same factors as pretax income with the exception of changes in our unrealized market-to market commodity positions and HEXO warrants and special items which were excluded as non-GAAP adjustments for underlying results.
- U.S. GAAP cash from operations: net cash provided by operating activities was $1,059.9 million for the six months ended June 30, 2020 compared to $828.0 million in the prior year. This increase was primarily driven by favorable timing of working capital and lower cash paid for taxes and interest, partially offset by lower net income adjusted for non-cash add-backs in the first half of 2020. Notably, working capital and cash paid for taxes benefited from over $500 million in deferred tax payments from various government-sponsored payment deferral programs initiated in response to the coronavirus pandemic, of which we currently anticipate a significant portion to be paid in the second half of 2020 with the remaining amounts to be paid beyond this fiscal year.
- Underlying free cash flow: cash received of $796.4 million for the six months ended June 30, 2020, which represents an increase in cash received of $235.7 million from the prior year, primarily due to favorable timing of working capital and lower cash paid for taxes, as discussed above, and lower cash paid for interest, partially offset by lower underlying EBITDA and higher cash paid for capital expenditures.
- Debt: Total debt at the end of the second quarter 2020 was $8.7 billion, and cash and cash equivalents totaled $780.8 million, resulting in net debt of $7.9 billion.
Quarterly Segment Highlights (versus Second Quarter 2019 Results)
North America Business
- Revenue: Net sales on a reported basis, decreased 8.3% and 7.9% in constant currency due to financial volume declines of 8.3%, reflecting lower brand volume, lower contract brewing volume and an under-shipment position in the U.S. largely due to aluminum can supply and other packaging material constraints. North America brand volumes decreased 7.8% due to the closure of on-premise outlets as well as market share declines. In the U.S., brand volumes decreased 5.2% compared to domestic shipment declines of 6.5%. We currently expect U.S. domestic shipment trends to be higher than brand volume trends as we build distributor inventories for the balance of the year. Canada and Latin America brand volumes declined 9.8% and 48.1%, respectively, in the quarter.
Net sales per hectoliter on a brand volume basis increased 0.9% driven by favorable geographic mix, favorable package mix, and net pricing increases in the U.S. and Canada, partially offset by negative brand and channel mix attributed to the shift of volume from on-premise to off-premise. In the U.S., net sales per hectoliter on a brand volume basis increased 1.0% driven by positive mix, with favorable package mix more than offsetting negative brand mix, and net pricing increases. In Canada, negative mix more than offset the net pricing increases, while Latin America net sales per hectoliter on a brand volume basis also declined.
- U.S. GAAP pretax income: decreased 8.2% due to higher specials charges, lower financial volume and charges for temporary “thank you” pay for certain essential North America brewery employees, partially offset by lower marketing, general and administrative expense, cost savings in cost of goods sold, the favorable resolution of our property tax appeal for our Golden, Colorado brewery and net pricing growth in the U.S. and Canada. The lower marketing, general and administrative expense was driven by cost mitigation actions, anticipated shifts in the timing of certain marketing spend into the second half of 2020 and reduced discretionary spending, as well as cost savings related to the revitalization plan.
- Underlying EBITDA: increased 13.8% in constant currency due to the same factors as U.S. GAAP results with the exception of the higher special charges and “thank you” pay for certain essential North America brewery employees. The “thank you” pay and related program costs were approximately $16 million and were excluded as non-GAAP adjustments for underlying results.
Europe Business
- Revenue: Net sales on a reported basis, decreased 44.6% and 42.4% in constant currency due to lower volumes and lower net sales per hectoliter related to the closure of the on-premise. Net sales per hectoliter on a brand volume basis declined 12.7% driven by unfavorable channel and geographic mix, particularly from our higher margin U.K. business, which has a more significant exposure to the on-premise channel and was closed until early July compared to other European markets which started to re-open gradually toward the end of May and early June, as well as unfavorable net pricing. Financial volume decreased 24.8% and brand volumes decreased 21.4%.
- U.S. GAAP pretax loss: $11.0 million loss compared to income of $43.4 million in the prior year was primarily due to lower gross profit as a result of the on-premise impacts of the coronavirus pandemic and cost inflation, partially offset by lower MG&A expense driven by cost mitigation actions and lower incentive compensation, lower special charges and favorable foreign currency movements.
- Underlying EBITDA: decreased 66.9% in constant currency driven by gross margin impacts of volume declines and cost inflation, partially offset by lower MG&A expenses as a result of cost mitigation actions following the coronavirus pandemic and lower incentive compensation.
Segment Recast
Effective January 1, 2020, we changed our management structure from a corporate center and four segments to two segments – North America and Europe. We also have certain activity that is not allocated to our segments, which has been reflected as “Unallocated”. Specifically, “Unallocated” activity primarily includes financing related costs such as interest expense and income, foreign exchange gains and losses on intercompany balances related to financing and other treasury-related activities, and the unrealized changes in fair value on our commodity swaps not designated in hedging relationships recorded within cost of goods sold, which are later reclassified when realized to the segment in which the underlying exposure resides. Additionally, only the service cost component of net periodic pension and OPEB cost is reported within each operating segment, and all other components remain unallocated. Prior period results have been recast to retrospectively reflect these changes in segment reporting, with no impact to our consolidated prior period results. Please see 2019 segment recasts by quarter on the Investor Relations section of our website.
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Other Results |
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Effective Income Tax Rates |
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|
|
Three Months Ended |
||||
|
|
June 30, 2020 |
|
June 30, 2019 |
||
|
U.S. GAAP effective tax rate |
51 |
% |
|
18 |
% |
|
Underlying effective tax rate |
20 |
% |
|
18 |
% |
- The increase in our U.S. GAAP effective tax rate was primarily driven by the recognition of discrete tax expense related to the hybrid regulations enacted in the second quarter of 2020. Specifically, on April 7, 2020, the U.S. Department of Treasury enacted final hybrid regulations with full retroactive application to January 1, 2018, with a few exceptions. These regulations, associated with the taxability of certain interest, impact tax positions we took in 2018 and 2019 and resulted in discrete income tax expense of approximately $135 million recognized upon enactment in the second quarter of 2020.
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 second quarter of 2020, we recognized a net special charge of $64.3 million, primarily driven by accelerated depreciation related to two planned brewery closures in North America and restructuring charges related to the revitalization plan.
- Additionally during the second quarter of 2020, we recorded other non-core net charges of $44.2 million primarily driven by changes in our unrealized mark-to-market positions on commodity hedges, as well as charges related to temporary “thank you” pay for certain essential North America brewery employees as a result of the coronavirus pandemic.
2020 Outlook
On March 27, 2020, we withdrew, in its entirety, our financial outlook for 2020 and beyond that we previously provided on February 12, 2020. We currently remain unable to provide an updated detailed financial outlook. However, we have provided information as it relates to our mitigating actions as discussed above, and also note the following related to the deferral of certain tax payments, as well as new U.S. federal income tax regulations.
As discussed above, the working capital and cash paid for taxes within our U.S. GAAP cash from operations and underlying free cash flow for the six months ended June 30, 2020, benefited from over $500 million in deferred tax payments from various government-sponsored payment deferral programs initiated in response to the coronavirus pandemic, of which we currently anticipate a significant portion to be paid in the second half of 2020 with the remaining amounts to be paid beyond this fiscal year.
As also discussed above, the U.S. Department of Treasury recently enacted final hybrid regulations which impact tax positions we took in 2018 and 2019 and have resulted in additional income tax expense of approximately $135 million recognized during the second quarter of 2020. The impact of the finalized regulations could result in cash tax outflows up to this amount in 2021. We continue to analyze the potential cash impacts of the final regulations to minimize any cash outflows.
Notes
Unless otherwise indicated in this release, all $ amounts are in U.S. Dollars, and all quarterly comparative results are for the Company’s second quarter ended June 30, 2020, compared to the second quarter ended June 30, 2019. Some numbers may not sum due to rounding.
2020 Second Quarter Conference Call
Molson Coors Beverage 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 2020 second quarter results. The live webcast will be accessible via our website, www.molsoncoors.com. An online replay of the webcast will be available until 11:59 p.m. Eastern Time on October 28, 2020. The Company will post this release and related financial statements on its website today.
Overview of Molson Coors
For over two centuries Molson Coors has been brewing beverages that unite people for all of life’s moments. From Coors Light, Miller Lite, Molson Canadian, Carling, and Staropramen to Coors Banquet, Blue Moon Belgian White, Blue Moon LightSky, Vizzy, Leinenkugel’s Summer Shandy, Creemore Springs and more, Molson Coors produces some of the most beloved and iconic beer brands ever made.
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