MillerCoors grows Above Premium portfolio in challenging quarter

SABMiller plc (LN:SAB; OTC:SABMRY) and Molson Coors Brewing Company (NYSE: TAP; TSX: TPX) reported solid pricing and strong Above Premium sales growth at MillerCoors in the second quarter, despite difficult trading conditions. Domestic net revenue per barrel increased 2.6 percent versus the same quarter in the prior year, while underlying net income declined 5.3 percent to $412.7 million.

“This was a tough volume quarter for us and for the beer industry overall,” said MillerCoors Chief Executive Officer Tom Long. “Our strategy to evolve our portfolio to the fast-growing and higher-margin areas of the business is working, as shown by the successful launch of Redd’s Apple Ale and the nationwide expansion of Leinenkugel’s Summer Shandy. Thanks to these initiatives, as well as the introduction of Third Shift Amber Lager and continued growth of Blue Moon Belgian White, we have already grown our Above Premium brand volumes to more than 9% of our portfolio in the quarter. While we continued to gain share in Premium Lights according to Nielsen data, we are working hard to restore volume growth which we believe will come as the health of the category is defined by the Premium Light performance.”

Second 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.

• Total net sales decreased 2.9 percent to $2.159 billion for the quarter.
• Total cost of goods sold (COGS) per barrel increased 2.4 percent.
• Underlying net income (a non-GAAP measure) decreased 5.3 percent to $412.7 million.
• Domestic net revenue per barrel, excluding contract brewing and company-owned distributor sales, increased 2.6 percent.
• Domestic sales-to-retailers (STRs) decreased 4.4 percent.
• Domestic sales-to-wholesalers (STWs) decreased 5.3 percent.

Brand Highlights for the Second Quarter

MillerCoors Premium Light STRs decreased high-single digits in the quarter. Coors Light declined mid-single-digits, yet continues to lead the Premium Light segment in share growth by leveraging its “Rocky Mountain Cold Refreshment” positioning through advertising, innovation and promotions. The spring launch of the new World’s Most Refreshing Can was supported with national media, digital marketing, retail and innovative programming like the Coors Light Refresherator, a customized personal vending machine designed to highlight the World’s Most Refreshing Can. Miller Lite declined high-single digits. The launch of the new Miller Lite Pilsner Bottle has been well-received among retailers and consumers.

Tenth and Blake Beer Company grew the MillerCoors Craft and Import portfolio by double digits. Leinenkugel’s Summer Shandy increased double digits as the brand continued its national expansion. Blue Moon Belgian White grew high-single digits in the quarter, continuing its run of 46 consecutive quarters of growth. Batch 19 more than doubled as it continued to expand nationally.

MillerCoors new expansion brands delivered strong growth in Above Premium. Redd’s Apple Ale continued an aggressive marketing campaign, including national and local TV, sponsorship of NASCAR Sprint Cup Series champion Brad Keselowski for two races, and integrations with Discovery Network. Redd’s volume doubled versus the prior quarter, sourcing most of its sales from consumers who normally drink outside the MillerCoors portfolio. Third Shift Amber Lager gained momentum behind strong distribution and increasing velocity trends and is already a larger brand than well-known craft brands, such as Goose Island 312 and New Belgium Ranger IPA, according to year-to-date Nielsen all outlet data.

MillerCoors Premium Regular portfolio declined mid-single digits. Coors Banquet grew mid-single digits fueled by the June debut of the new 12-ounce “stubby” bottle modeled after the brand’s post-Prohibition bottle. Coors Banquet’s continued growth was offset by declines in Miller Genuine Draft.

MillerCoors Economy portfolio declined mid-single digits. Miller High Life continued its military veteran program and kicked off a partnership with Harley-Davidson to celebrate the 110th anniversaries of the two iconic American brands. Keystone Light continued its partnership with the FLW Walmart Bass Fishing Tour Series that culminates with the Forrest L. Wood Cup in August.

Financial Highlights for the Second Quarter

Domestic net revenue per barrel grew 2.6 percent for the quarter as a result of higher net pricing and favorable mix.

Total company net revenue per barrel, including contract brewing and company-owned distributor sales, increased 2.7 percent. Third-party contract brewing volumes were down 6.6 percent.

Total COGS per barrel increased 2.4 percent, driven by commodity inflation, brand innovation and lower fixed cost absorption.

Marketing, general and administrative costs increased 0.2 percent for the quarter, driven primarily by increased marketing investments in support of the national launches of Redd’s Apple Ale and Third Shift Amber Lager and the expansion of Leinenkugel’s Summer Shandy partially offset by lower pension expense.

In the second quarter, MillerCoors achieved $25 million of cost savings, primarily related to procurement savings, logistics savings and brewery efficiencies.

Depreciation and amortization expenses for MillerCoors in the second quarter were $69.7 million, and additions to tangible and intangible assets totaled $65.9 million.

There were no special items during the second quarter.