GOLDEN, Colo. & MONTREAL –
Molson Coors Beverage Company (NYSE: TAP; TSX: TPX) today reported results for the 2020 first quarter and provided updates on ongoing pandemic impacts. Molson Coors president and chief executive officer Gavin Hattersley said:
“The first quarter of 2020 was unlike any other in our company’s long history. In the early part of the quarter, we saw mounting confidence and enthusiasm for our plans and for our brands - internally and externally.”
Gavin continued, “Despite the early progress, our first quarter results were disproportionately affected by the coronavirus, a pandemic that has changed the world - not just for our business, and our industry, but for the entire global economy. Like everyone else, the full impact and what our new normal looks like going forward is still uncertain, but coronavirus has had, and will have, a material impact on our business. We will continue to navigate this challenging time by first protecting our employees and mitigating the short-term risks, and second ensuring that we position the business to compete and win in the long-term.”
Coronavirus Global Pandemic |
We are actively monitoring the impact of the novel coronavirus pandemic, which has changed the landscape of our business. We currently expect a significant adverse impact, particularly in the second quarter of 2020, to both net sales and profit performance for fiscal year 2020, and, possibly, beyond, due to the resulting closure of the on-premise channel in effectively all of our markets, as well as the anticipated negative impact of the pandemic on the global economy. Specifically, we estimate that approximately 23% of our 2019 consolidated net sales resulted from on-premise consumption, with approximately 17% of our North America net sales and approximately 50-55% of our Europe net sales each coming from this important part of the industry, and in nearly all of our markets the on-premise business has been effectively reduced to zero.
In April 2020, the impacts of the coronavirus pandemic have continued to significantly adversely affect the on-premise channel, which continues to be effectively closed across all of our markets, and the benefit of pantry loading to our North America STR performance at the end of March has not continued. While off-premise sales continue to perform well, we do not expect them to fully offset the loss of the on-premise volume. Specifically, for the first four weeks of April 2020, in North America, we estimate that U.S. STRs were down approximately 14%, driven by lower premium and above premium brand trends, with economy brand performance down approximately 4% in the four weeks. In the U.S. we continue to see strong STR trends in the off-premise channel, but these trends are not fully offsetting the effective elimination of on-premise sales. We expect the negative on-premise trends in the U.S. to continue while social isolation continues to be practiced and expect that any increase in total off-premise volumes due to channel shifting will not be sufficient to offset the losses experienced in the on-premise. We estimate that this will result in negative trends in volume, net sales, and mix versus our prior estimates and expect these trends to continue at least through the end of the year and in particular in the second quarter. Separately, in Europe, we estimate that brand volumes are down approximately 40% for the first four weeks of April 2020.
The extent, severity and duration to which our operations will be impacted by the pandemic remains uncertain. Therefore, we withdrew our financial outlook for 2020 and beyond and the market remains too unpredictable to provide updated detailed financial outlook. However, we have provided the above information on early indications of the impact on our April performance in response.
In order to help support the challenges facing our on-premise customers and retailers, along with our overall commitment to quality, we initiated voluntary temporary keg relief programs in many of our markets, which will provide customers with reimbursements for untapped kegs that meet certain established return requirements. As a result, our first quarter results include aggregate charges of $50 million, inclusive of a reduction to net sales of $31.5 million for estimated returns and reimbursements through these keg relief programs, as well as charges of $18.5 million within cost of goods sold related to finished goods keg inventories that are not expected to be sold within our freshness specifications as a result of the ongoing on-premise impacts and the estimated costs to facilitate the above mentioned keg returns.
We are taking various mitigating actions to prepare to offset some of the implications to our employees and communities, as well as the immediate challenges to performance, while also ensuring liquidity and deleverage remain key priorities, including:
This is a very fluid situation, as governments and companies evaluate the impacts of the pandemic and prepare for the re-opening of the economy. We will continue to take prudent and proactive actions which are in the best interests of the Company, our employees, consumers, customers and our stockholders as things become clearer in this rapidly evolving situation. Our decisions will be guided by, and consistent with, the Company’s overall financial discipline, ensuring adequate liquidity and our continued desire to maintain our investment grade rating. As we contemplate taking additional actions to navigate this unprecedented environment, we remain mindful of not taking any steps that would have unintended negative ramifications to our business or that would jeopardize our medium or long-term success.
Consolidated Performance - First Quarter 2020 |
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|
Three Months Ended |
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($ in millions, except per share data) (Unaudited) |
March 31, 2020 |
|
March 31, 2019 |
|
Reported
|
|
Foreign
|
|
Constant
|
||||||||
Net Sales |
$ |
2,102.8 |
|
|
$ |
2,303.3 |
|
|
(8.7 |
)% |
|
$ |
(10.6 |
) |
|
(8.2 |
)% |
U.S. GAAP Net income (loss)(1) |
$ |
(117.0 |
) |
|
$ |
151.4 |
|
|
N/M |
|
|
|
|
||||
Per diluted share |
$ |
(0.54 |
) |
|
$ |
0.70 |
|
|
N/M |
|
|
|
|
||||
Underlying Net income (loss)(2) |
$ |
77.0 |
|
|
$ |
112.7 |
|
|
(31.7 |
)% |
|
|
|
|
|||
Per diluted share |
$ |
0.35 |
|
|
$ |
0.52 |
|
|
(32.7 |
)% |
|
|
|
|
|||
Underlying EBITDA(2) |
$ |
352.2 |
|
|
$ |
422.3 |
|
|
(16.6 |
)% |
|
$ |
(3.4 |
) |
|
(15.8 |
)% |
N/M = Not meaningful
(1) |
Net income (loss) attributable to MCBC. |
|
(2) |
Represents net income and EBITDA adjusted for non-GAAP items. See Appendix for definitions and reconciliations of non-GAAP financial measures including constant currency. |
Net Sales Drivers |
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|
Three Months Ended March 31, 2020 |
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|
Reported |
|
|
||||||||||||||
Percent change |
Financial Volume |
|
Price, Product and Geography Mix |
|
Currency |
|
Net Sales |
|
Net Sales per hectoliter (BV basis)(1) |
|
Brand Volume |
||||||
Consolidated |
(8.3 |
)% |
|
0.1 |
% |
|
(0.5 |
)% |
|
(8.7 |
)% |
|
(1.6 |
)% |
|
(1.8 |
)% |
North America |
(7.8 |
)% |
|
0.6 |
% |
|
(0.2 |
)% |
|
(7.4 |
)% |
|
(1.3 |
)% |
|
0.4 |
% |
Europe |
(10.0 |
)% |
|
(3.4 |
)% |
|
(2.1 |
)% |
|
(15.5 |
)% |
|
(5.2 |
)% |
|
(8.5 |
)% |
(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 First Quarter 2019 Results) |
Quarterly Segment Highlights |
(versus First Quarter 2019 Results) |
North America Business
Europe Business
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.
Other Results |
|||||
Effective Income Tax Rates |
|||||
|
Three Months Ended |
||||
|
March 31, 2020 |
|
March 31, 2019 |
||
U.S. GAAP effective tax rate |
27 |
% |
|
18 |
% |
Underlying effective tax rate |
2 |
% |
|
24 |
% |
|
|
|
|
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.
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 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 new U.S. federal income tax regulations.
On April 7, 2020, the U.S. Department of Treasury enacted final hybrid regulations implementing provisions of the 2017 U.S. Tax Cuts and Jobs Act with full retroactive application to January 1, 2018, with a few exceptions. We are currently in the process of reviewing and interpreting the finalized regulations related to their impact on our tax positions, as well as evaluating the impact on our financial statements. Based on our preliminary review of these finalized regulations, we currently expect to recognize estimated income tax expense of approximately $100 million to $200 million upon enactment in the second quarter of 2020, related to the retroactive period of January 1, 2018 through March 31, 2020, for fiscal years 2018, 2019, and the first quarter of 2020. This estimated range considers the potential impacts associated with the possible technical interpretations of the regulations that could result following a full legal analysis.
Notes |
Unless otherwise indicated in this release, all $ amounts are in U.S. Dollars, and all quarterly comparative results are for the Company’s first quarter ended March 31, 2020, compared to the first quarter ended March 31, 2019. Some numbers may not sum due to rounding.
2020 First 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 first 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 July 29, 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, Saint Archer Gold, Leinenkugel’s Summer Shandy, Creemore Springs and more, Molson Coors produces some of the most beloved and iconic beer brands ever made. While the company’s history is rooted in beer, Molson Coors offers a modern portfolio that expands beyond the beer aisle with sparkling cocktails, hard coffee, canned wine, kombucha, cider and more.
Our reporting segments include: North America, operating in the U.S., Canada and various countries in Latin and South America; and Europe, operating in Bulgaria, Croatia, Czech Republic, Hungary, Montenegro, the Republic of Ireland, Romania, Serbia, the U.K., various other European countries, and certain countries within Africa and Asia Pacific. In addition to our reporting segments, we also have certain items that are unallocated to our reporting segments and reported as "Unallocated", which primarily include financing related costs and impacts of other treasury-related activities. First quarter 2019 segment financial information has been recast to reflect the segment changes as part of the revitalization plan. Please see 2019 segment recast by quarter on the Investor Relations section of our website. The company’s commitment to raising industry standards and leaving a positive imprint on our employees, consumers, communities and the environment is reflected in Our Beer Print and our 2025 sustainability targets. To learn more about Molson Coors Beverage Company, visit molsoncoors.com, ourbeerprint.com or on Twitter through @MolsonCoors.
About Molson Coors Canada Inc. |
Molson Coors Canada Inc. (MCCI) is a subsidiary of Molson Coors Beverage Company. 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.
Forward-Looking Statements |
This press release includes “forward-looking statements” within the meaning of the U.S. federal securities laws. Generally, the words “believe,” "aims," “expect,” “intend,” “anticipate,” “project,” “will,” “outlook,” "desire," and similar expressions identify forward-looking statements, which generally are not historic in nature. Statements that refer to projections of our future financial performance, our anticipated growth, cost savings and trends in our businesses, and other characterizations of future events or circumstances are forward-looking statements, and include, but are not limited to, statements under the heading "2020 Outlook," expectations regarding the impacts of the coronavirus pandemic on our business, future dividends, overall volume trends, consumer preferences, pricing trends, industry forces, cost reduction strategies, including our revitalization plan announced in 2019 and the estimated range of related charges and timing of cash charges, anticipated results, expectations for funding future capital expenditures and operations, debt service capabilities, timing and amounts of debt and leverage levels, shipment levels and profitability, market share and the sufficiency of capital resources. 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, the impact of the coronavirus pandemic, the impact of increased competition resulting from further consolidation of brewers, competitive pricing and product pressures; health of the beer industry and our brands in our markets; economic conditions in our markets; additional impairment charges; our ability to maintain manufacturer/distribution agreements; changes in our supply chain system; availability or increase in the cost of packaging materials; success of our joint ventures; risks relating to operations in developing and emerging markets; changes in legal and regulatory requirements, including the regulation of distribution systems; fluctuations in foreign currency exchange rates; increase in the cost of commodities used in the business; the impact of climate change and the availability and quality of water; loss or closure of a major brewery or other key facility; our ability to implement our strategic initiatives, including executing and realizing cost savings; pension plan and other post-retirement benefit costs; failure to comply with debt covenants or deterioration in our credit rating; our ability to maintain good labor relations; our ability to maintain brand image, reputation and product quality; and other risks discussed in our filings with the SEC, including our most recent Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q. 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.
Appendix |
|||||||
Statements of Operations - Molson Coors Beverage Company and Subsidiaries |
|||||||
Condensed Consolidated Statements of Operations |
|||||||
(In millions, except per share data) (Unaudited) |
Three Months Ended |
||||||
|
March 31, 2020 |
|
March 31, 2019 |
||||
Financial volume in hectoliters |
18.428 |
|
|
20.101 |
|
||
Sales |
$ |
2,537.8 |
|
|
$ |
2,800.1 |
|
Excise taxes |
(435.0 |
) |
|
(496.8 |
) |
||
Net sales |
2,102.8 |
|
|
2,303.3 |
|
||
Cost of goods sold |
(1,479.0 |
) |
|
(1,413.0 |
) |
||
Gross profit |
623.8 |
|
|
890.3 |
|
||
Marketing, general and administrative expenses |
(629.7 |
) |
|
(655.2 |
) |
||
Special items, net |
(86.6 |
) |
|
(13.0 |
) |
||
Operating income (loss) |
(92.5 |
) |
|
222.1 |
|
||
Interest income (expense), net
|