MillerCoors delivers 7.4% underlying net income growth in first quarter

SABMiller plc (LN:SAB; OTC:SABMRY) and Molson Coors Brewing Company (NYSE: TAP; TSX: TPX) reported that MillerCoors first quarter underlying net income grew 7.4 percent to $291.9 million versus the same period in the prior year.  This income growth was driven by positive pricing and sales mix, cost savings, and lower marketing spending, primarily due to timing differences versus last year.

“In the first quarter, we continued to gain share in the high-margin and fast-growing Above Premium space with Miller Fortune and the Redd’s franchise,” said MillerCoors Chief Executive Officer Tom Long.  “In Above Premium, we are expanding the category and attracting new legal drinking age consumers to beer with our innovations and brands like Leinenkugel’s and Blue Moon.  The key to our success will be our performance in Premium Lights, which have been particularly challenged recently, including in the first quarter.  We have made Miller Lite more relevant for millennials by bringing back the Original Lite Can, and we gained share in the Premium Light segment.  This month, we will continue to engage legal drinking age millennials around Premium Lights with the release of Coors Light’s first line extension, Coors Light Summer Brew.”  

First Quarter Highlights

Unless otherwise indicated, all amounts are in U.S. dollars and calculated in accordance with accounting principles generally accepted 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 7.4 percent to $291.9 million for the first quarter.
• Total net sales increased 0.1 percent to $1.790 billion.
• Domestic net revenue per barrel, excluding contract brewing and company-owned distributor sales, increased 3.3 percent.
• Total cost of goods sold (COGS) per barrel increased 3.8 percent.
• Domestic sales-to-retail (STRs) decreased 3.4 percent.
• Domestic sales-to-wholesalers (STWs) decreased 3.0 percent.   

Brand Highlights for the First Quarter

Premium Light portfolio STRs declined mid-single digits but still gained segment share in the first quarter, according to Nielsen.   

Coors Light declined mid-single digits in the first quarter. The brand will connect with legal drinking age millennial consumers in 2014 by introducing new, cutting-edge designs on packaging each trimester.  Last week, Coors Light introduced its first line extension, Coors Light Summer Brew, which will be available exclusively in 10 ounce cans while supplies last. Coors Light will engage sports fans and Latino consumers by continuing its partnership with the LigaMx soccer league and through advertising during this year’s World Cup broadcasts from Brazil.

Miller Lite declined mid-single digits in the first quarter, but achieved a high-single digit trend improvement in can STRs versus the fourth quarter of 2013.  The brand brought back the Original Lite Can in the first quarter to tell the story of Miller Lite’s authenticity to a new generation of legal age beer drinkers.  Based on these strong results, the Original Lite Can will be in-market through September, and an updated design inspired by the brand’s original look will be unveiled in October across all packaging. This summer, Miller Lite will launch its “Miller Time for America” campaign, which will encourage consumers to engage with the brand online for a chance to have their photos included in a national television commercial. 

Above Premium portfolio STRs grew high teens in the first quarter and ahead of the industry in the segment.  Innovations delivered excellent volume and value growth in Above Premium, led by Miller Fortune and the Redd’s franchise. Launched in February, Miller Fortune was supported with strong distribution and gained a 0.3 share of total industry volume in March, according to Nielsen. The Redd’s franchise performed well in the first quarter, more than doubling its volume versus the prior year, and Redd’s Apple Ale continues to be one of the fastest growing brands in the U.S. beer category. 

Overall, Tenth and Blake Beer Company declined mid-single digits, driven by double-digit declines in Blue Moon seasonals, Henry Weinhard’s, Killian’s and Batch 19. This was partially offset by double-digit growth of the Leinenkugel’s franchise and low-single digit growth of Blue Moon Belgian White, which extended its run of 74 consecutive quarters of growth.  Leinenkugel’s Shandy variants continued to capture the most absolute volume growth among all craft brands in the quarter, according to Nielsen.

Coors Banquet grew mid-single digits in the first quarter and has grown for over seven consecutive years.  In 2014, the brand launched one of the biggest media plans in its history, and Coors Banquet television advertising will air nationally throughout the year.  Coors Banquet will continue to tell its story of timeless Western masculinity with four new can designs in market from April through June.

In April 2014, Miller High Life and Keystone Light returned to television with national advertising campaigns for the first time since 2012, and Keystone Light is continuing its partnership with the FLW Walmart Bass Fishing Tour Series.

Financial Highlights for the First Quarter

Domestic net revenue per barrel grew 3.3 percent for the quarter as a result of favorable net pricing and positive brand mix.

Total company net revenue per barrel, including contract brewing and company-owned distributor sales, increased 3.4 percent. Third-party contract brewing volumes were down 4.5 percent.

Total COGS per barrel increased 3.8 percent, driven by commodity and brewery inflation, lower volume, and higher costs associated with brand innovation. 

Marketing, general and administrative costs decreased by 6.4 percent.  The decrease was driven primarily by timing of media investments and lower employee-related expenses.

MillerCoors achieved $42 million of cost savings in the first quarter, primarily related to procurement savings, brewery efficiencies and lower overhead costs.

Depreciation and amortization expenses for MillerCoors in the first quarter were $79.1 million, and additions to tangible and intangible assets totaled $107.2 million. 

Special items in the quarter included restructuring related costs of $0.7 million.