SABMiller plc (LN:SAB; OTC:SABMRY) and Molson Coors Brewing Company (NYSE: TAP; TSX: TPX) reported that MillerCoors posted underlying profit growth of 11.7 percent and a 4.1 percent increase in domestic net revenue per barrel versus the same quarter in the prior year.
"Led by Redd’s, Leinenkugel’s and Blue Moon, our strategy to grow share in the high-margin and fast-growing above premium space is driving excellent sales mix," said MillerCoors Chief Executive Officer Tom Long. "The quality of our beers continues to be second to none and we are pleased consumers and customers are responding. And even though we continue to increase total company net revenue and total company net income, we are not satisfied with the on-premise distribution or volume performance of our premium light brands. Our recently announced restructuring will reduce our fixed cost base and allow increased brand investment moving forward, particularly on our premium lights."
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Third 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. Quarterly sales-to-retailers (STRs) results are presented on a trading-day-adjusted basis, as the third quarter of 2013 had one more trading day compared with the same quarter in the prior year.
Total net revenue increased 2.9 percent to $2.051 billion for the quarter.
Total cost of goods sold (COGS) per barrel increased 3.8 percent.
Underlying net income (a non-GAAP measure) increased 11.7 percent to $363.8 million.
Domestic net revenue per barrel, excluding contract brewing and company-owned distributor sales, increased 4.1 percent, representing the best quarterly performance since first quarter, 2009.
Domestic STRs decreased 1.9 percent.
Domestic sales-to-wholesalers decreased 1.5 percent.
Brand Highlights for the Third Quarter
Coors Light continued to gain share within the premium light segment according to Nielsen, and leveraged its "Rocky Mountain Cold Refreshment" positioning. Volume declined low-single digits in the quarter. Miller Lite declined mid-single digits in the quarter. The "Don’t Mess with Miller Time" Hispanic advertising campaign, featuring actor Danny Trejo, began in early October and is airing on Spanish-language television and digital outlets. The brand will be bringing back the original Miller Lite can design from January 1 – March 15, 2014 to drive new interest and trial by legal drinking age millennials.
Tenth and Blake Beer Company grew the MillerCoors Craft and Import portfolio by high-single digits. Leinenkugel’s Summer Shandy expanded nationally and increased double digits. In 2013, Summer Shandy is the single largest driver of craft volume growth, accounting for nearly 10 percent of total craft industry growth, according to Nielsen. In addition, Leinenkugel’s Orange Shandy has made a promising start and is outperforming initial expectations. Blue Moon Belgian White grew mid-single digits in the quarter, continuing its run of 72 consecutive quarters of growth. Batch 19 volumes grew 275 percent as it continued to expand nationally.
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MillerCoors new brands delivered exceptional volume and value growth in above premium. Redd’s Apple Ale has quickly become one of the fastest growing beer brands in the United States. Redd’s Strawberry Ale was introduced in the third quarter and has had a strong start, gaining incremental shelf space for the Redd’s franchise. Third Shift Amber Lager continues to perform well and is now a top 15 craft brand by dollar sales according to Nielsen.
Coors Banquet grew double digits fueled by the new 12-ounce "stubby" heritage bottle modeled after the brand’s post-Prohibition era packaging. It’s making an extraordinary comeback in the American lager category and is on track to achieve its 7th consecutive year of growth.
Miller High Life continued its military veteran program and completed a partnership with Harley-Davidson to celebrate the 110th anniversaries of the two iconic American brands. Miller High Life and Keystone Light will begin national television advertising campaigns next spring.
Financial Highlights for the Third Quarter
Domestic net revenue per barrel grew 4.1 percent for the quarter as a result of higher net pricing and favorable brand mix. Brand mix favorability was driven largely by the success of Redd’s and Leinenkugel’s Shandy variants.
Total company net revenue per barrel, including contract brewing and company-owned distributor sales, increased 3.9 percent. Third-party contract brewing volumes were up 2.8 percent.
Total COGS per barrel increased 3.8 percent, driven by commodity and brewery inflation and higher costs associated with brand innovation.
Marketing, general and administrative costs decreased by 3.4 percent for the quarter, driven primarily by lower pension expense, a reduction in costs associated with the business transformation initiative and less promotional activity, which more than offset increased investments in support of new brand offerings.
In the third quarter, MillerCoors achieved $33 million of cost savings, primarily related to procurement, logistics and brewery efficiencies.
Depreciation and amortization expenses in the third quarter were $71.6 million, and additions to tangible and intangible assets totaled $88.1 million.
Severance costs of $15.0 million related to a restructuring were recorded as a special item in the quarter.
