MillerCoors Weathers Tough First Quarter

08 May 2013 --- SABMiller and Molson Coors Brewing Company reported that pricing and growth in sales of above premium brands at MillerCoors drove a 4.0 percent increase in domestic net revenue per barrel versus the same quarter in the prior year.

MillerCoors underlying net income declined 1.2 percent in the first quarter to $271.9 million versus the same quarter in the prior year.

“Across the country, beer volumes were challenged in the first quarter due to a combination of tough comparatives led by last year’s unseasonably warm weather and the payroll tax increase that impacted our core beer drinkers’ disposable income,” said MillerCoors Chief Executive Officer Tom Long. “However, our portfolio transformation strategy is working as evidenced by our growth in domestic net revenue per barrel so there is reason for optimism as our strategy unfolds.  Our new brand launches, Redd’s Apple Ale and Third Shift, gained early traction with consumers and retailers ahead of our initial projections, and Tenth and Blake continues to deliver strong results led by Blue Moon.”

First Quarter Highlights
Unless otherwise indicated, all amounts are in U.S. dollars and calculated in accordance with U.S. GAAP.  All percentages are versus the prior year comparable period and include MillerCoors operations in the U.S. and Puerto Rico.  Quarterly sales-to-retailers (STRs) results are presented on a trading-day-adjusted basis, as the first quarter of 2013 had one less trading day compared with the same quarter in the prior year.

- Total net sales increased 1.6 percent to $1.788 billion for the quarter.
- Total cost of goods sold (COGS) per barrel increased 3.7 percent for the quarter.
- Underlying net income (a non-GAAP measure) decreased 1.2 percent to $271.9 million for the quarter.
- Domestic net revenue per barrel, excluding contract brewing and company-owned distributor sales, increased 4.0 percent for the quarter, representing the highest increase since Q1 2009.
- Domestic STRs decreased 3.3 percent for the quarter.
- Domestic sales-to-wholesalers (STWs) decreased 2.5 percent for the quarter.

Brand Highlights for the First Quarter
MillerCoors Premium Light STRs decreased mid-single digits in the quarter. Coors Light declined low-single-digits in the quarter.  The brand continues to lead the premium light segment in share growth through continued reinforcement of its “refreshment as cold as the Rockies” positioning in advertising, including several new “Explorers” TV spots, as well as through packaging innovation with the launch of the “World’s Most Refreshing Can” this month with several functional features that will drive consumer engagement.  The brand will continue to grow its appeal to multicultural consumers with the strength of its Liga MX Hispanic soccer alliance and the “Search for the Coldest” program with rapper/actor Ice Cube.

Miller Lite declined high-single digits for the quarter. The “It’s Miller Time” campaign is well-positioned around camaraderie and is resonating emotionally with our consumers, particularly within social media where Facebook followers have doubled since the launch of the program.  We launched new executions of the “It’s Miller Time” campaign in March featuring celebrities Ken Jeong, Chuck Liddell and Questlove.   We will follow up the successful punch top can launch of last year with the launch of the new Miller Lite iconic bottle in the on-premise channel nationally this month.

Tenth and Blake Beer Company grew the MillerCoors Craft and Import portfolio by high-single digits in the quarter, driven by Blue Moon Brewing Company and the continued national expansion of Batch 19. Blue Moon continued its strong growth, up high-single digits in the quarter.  Peroni Nastro Azzurro continued its growth, up low-single digits for the quarter.  Jacob Leinenkugel Brewing Company’s growth slowed to low-single digits for the quarter as the Summer Shandy brand was adversely affected by unseasonably warm weather in the prior year.

MillerCoors launched Redd’s Apple Ale and Third Shift nationally in the first quarter as it focused on creating innovative new products in the fast-growing, higher-margin segments of the beer industry.  Redd’s Apple Ale was launched with a Super Bowl TV ad in local markets across the country and we continue to market the brand aggressively to increase awareness. Third Shift debuted in March and was prominently advertised across the country during the March Madness men’s college basketball tournament.  Distribution and volume on both brands are incremental to our business as many consumers are new to the MillerCoors portfolio of brands.

The MillerCoors Economy portfolio declined mid-single digits in the quarter.  Miller High Life continued its veterans program and will kick off a partnership this month to celebrate the 110th anniversaries of two iconic American brands:  Miller High Life and Harley-Davidson.  Keystone Light continued to drive its “Always Smooth” positioning primarily through digital engagement and localized marketing efforts and introduced new packaging in late February.

The Premium Regular portfolio declined mid-single digits. The continued growth of Coors Banquet, which grew mid-single digits for the quarter, was offset by Miller Genuine Draft’s double digit decline.  Coors Banquet remains the only national Premium Regular brand in the industry to gain market share in the quarter.

Financial Highlights for the First Quarter
Domestic net revenue per barrel grew 4.0 percent for the quarter as a result of strong net pricing and favorable mix, the largest increase since Q1 2009.

Total company net revenue per barrel, including contract brewing and company-owned distributor sales, increased 3.6 percent for the quarter. Third-party contract brewing volumes were up 3.2 percent for the quarter.

Total COGS per barrel increased 3.7 percent for the quarter, driven by commodity inflation, brand and packaging innovation and volume softness.

Marketing, general and administrative costs increased 3.5 percent for the quarter, driven primarily by increased marketing investments in support of the national launches of Redd’s Apple Ale and Third Shift.

In the first quarter, $16 million of cost savings were achieved, primarily related to procurement savings, logistics savings and brewery efficiencies.

Depreciation and amortization expenses for MillerCoors in the first quarter were $69.7 million, and additions to tangible and intangible assets totaled $55.7 million.

There were no special charges during the first quarter.