MillerCoors Delivers 3.5% Underlying Net Income Growth in Third Quarter

07 Nov 2014 --- SABMiller plc and Molson Coors Brewing Company reported that MillerCoors third quarter underlying net income grew 3.5 percent to $376.7 million versus the same period in the prior year, driven by positive pricing, sales mix and cost savings.

Total net sales increased 0.9 percent in the third quarter to $2.070 billion.

“Despite a tough quarter in the overall industry, MillerCoors delivered profit growth driven primarily with Above Premium brands like Redd’s, Smith & Forge, Leinenkugel’s Summer Shandy and Blue Moon Belgian White,” said Tom Long, MillerCoors CEO. “Our success model is to continue to develop our Above Premium portfolio and to renovate our Premium Light business behind Coors Light and Miller Lite, two iconic brands with unmatched quality and consistency. We've demonstrated that when we market these brands and tell their story with conviction, consistency and authenticity, beer drinkers respond positively. We believe we are on the right track and will accelerate our investments to grow our priority brands.”

Third Quarter Highlights

Unless otherwise indicated, all amounts are in U.S. dollars and calculated in accordance with generally accepted accounting principles in the U.S. (U.S. GAAP). All percentages are versus the prior year comparable period and include MillerCoors operations in the U.S. and Puerto Rico.

- Underlying net income, a non-GAAP measure, increased 3.5 percent to $376.7 million for the third quarter.
- Total net sales increased 0.9 percent to $2.070 billion.
- Domestic net revenue per barrel, excluding contract brewing and company-owned distributor sales, increased 2.5 percent.
- Total cost of goods sold (COGS) per barrel increased 2.0 percent.
- Domestic sales-to-retailers (STRs) volume decreased 3.7 percent.
- Domestic sales-to-wholesalers (STWs) volume decreased 1.7 percent.

Brand Highlights for the Third Quarter

Premium Light portfolio STRs declined mid-single digits, with Coors Light declining mid-single digits and Miller Lite down low-single digits for the quarter.

In the third quarter, Coors Light Summer Brew, Coors Light’s summer-only offering, gained 0.4 share points of the Premium Light segment. Summer Brew will return next summer in 12 ounce cans and singles. Coors Light debuted new advertising this fall highlighting its core difference versus other American light lagers: It is cold filtered, never heat pasteurized and lagered below freezing to deliver refreshment that never stops. These ads will run in heavy rotation through the end of the year.

Miller Lite, the beer that won the gold medal this year in the Great American Beer Festival’s American Style Lager category, held share of segment in the third quarter. The graphic design overhaul that began with cans has now extended to bottles and will finish with secondary packaging in October. The consumer response to the new packaging has been terrific, and Miller Lite 52 week volume trends continue to improve.

Total Above Premium portfolio STRs grew mid-single digits in the third quarter, led by the Redd’s franchise, Smith & Forge, Miller Fortune and craft brands like Blue Moon Belgian White and Leinenkugel’s Summer Shandy. The Redd’s franchise grew double digits in the third quarter. Redd’s is the fastest growing brand in flavored malt beverages, and over half its volume is sourced from outside the beer category. In the third quarter, Redd’s launched Wicked Apple, a higher-ABV apple ale, which is now a top ten growth brand in Grocery. Smith & Forge gained 0.2 share points of the Above Premium segment in the third quarter, and in October the brand announced that it will be available on-premise in draught beginning this fall. Miller Fortune gained 0.5 share points of the Above Premium segment in the third quarter, and it is the third largest new brand of 2014. This performance was partially offset by strategically deprioritized brands like Henry Weinhard’s and Batch 19, which both declined double digits.

Blue Moon Belgian White, the most popular craft beer in America, grew low-single digits in the third quarter. Blue Moon will celebrate its 20th anniversary in 2015. Blue Moon’s seasonal business is beginning to improve, with Harvest Pumpkin Ale off to a promising start. The Leinenkugel’s franchise grew low-single digits in the third quarter, due, in large part, to Summer Shandy: Summer Shandy grew double digits in the third quarter and gained share in the craft segment. The success of Summer Shandy was partially offset by the soft performance of Leinenkugel’s Heritage portfolio. In November, the brand will release its Winter Explorer Pack, which will feature a new beer, Winter’s Bite, a Cocoa Spice Black Lager, along with Helles Yeah, Cranberry Ginger Shandy and Snowdrift Vanilla Porter.

The Premium Regular portfolio was down mid-single digits in the third quarter, driven by a double digit decline in Miller Genuine Draft and a low-single digit decline of Coors Banquet, which was cycling double digit volume growth last year driven by the successful rollout of its “stubby” heritage bottle. In 2015, the stubby bottle will be expanded into 12-packs, 18-packs and 20-packs nationwide.

The Below Premium portfolio declined mid-single digits in the quarter driven by high-single digit declines in Keystone Light and Milwaukee’s Best. Miller High Life declined low-single digits in the third quarter, but brand trends have improved sequentially over the last two quarters as a result of its “I Am Rich” national advertising campaign and its Artist Series packaging design program, in which influential artists created limited edition designs inspired by Harley Davidson and Miller High Life. Steel Reserve grew mid-single digits in the third quarter, due in part to the success of the Steel Reserve Alloy Series, the brand’s line of flavored malt beverages.

Financial Highlights for the Third Quarter

Total domestic net revenue per barrel grew 2.5 percent for the quarter as a result of favorable net pricing and positive sales mix.

Total company net revenue per barrel, including contract brewing and company-owned distributor sales, increased 2.6 percent. Contract brewing volumes were down 1.0 percent.

Total COGS per barrel increased 2.0 percent, driven primarily by commodity and brewery inflation and higher costs associated with brand innovation, partially offset by supply chain cost savings.

Marketing, general and administrative costs increased by 0.5 percent, driven primarily by higher expenses relating to the Business Transformation initiative, partially offset by lower employee related expenses.

MillerCoors achieved $31 million of cost savings in the third quarter, primarily related to procurement savings, brewery efficiencies and lower overhead costs.

Depreciation and amortization expenses for MillerCoors in the third quarter were $76.6 million, and additions to tangible and intangible assets totaled $85.0 million.

Special items in the quarter included restructuring charges of $0.2 million.