Molson Coors Brewing Company (TAP)

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Molson Coors Brewing Company (TAP)

Q3 2010 Earnings Call Transcript

November 3, 2010 11:00 am ET


Peter Swinburn – President and CEO

Stewart Glendinning – Global CFO

Dave Perkins – President and CEO, Molson Coors (Canada)

Mark Hunter – President and CEO, Molson Coors (UK)

Dave Dunnewald – IR


Judy Hong – Goldman Sachs

Mark Swartzberg – Stifel Nicolaus

James Watson – HSBC

Christine Farkas – Banc of America

John Faucher – JP Morgan



Before we get started, I want to paraphrase the company’s Safe Harbor language. Some of the discussion today may include forward-looking statements. Actual results could differ materially from what the company projects today. So please refer to its more recent 10-K and 10-Q filings for a more complete description of factors that could affect those projections.

The company does not undertake to publicly update forward-looking statements, whether as a result of new information, future events, or otherwise. You should not place undue reliance on forward-looking statements, which speak only as of the date they are made.

Regarding any non-U.S. GAAP measures that may be discussed during the call and from time to time by the company’s executives in discussing the company’s performance, please visit the Web site, and click on the Financial Reporting tab of the Investor Relations page for the reconciliation of these measures to the nearest U.S. GAAP results.

Now, I would like to turn the call over to Peter Swinburn, President and CEO of Molson Coors. Mr. Swinburn, you may begin.

Peter Swinburn

Thank you, Devin, and hello everybody and welcome. Thanks for joining us today. With me on the call this morning are Stewart Glendinning, Molson Coors Chief Financial Officer; Leo Kiely, the CEO of MillerCoors; Gavin Hattersley, the Chief Financial Officer of MillerCoors; Dave Perkins, the CEO of Molson Coors Canada; Mark Hunter, the CEO of Molson Coors UK; Kandy Anand, President, Molson Coors International; Sam Walker, Molson Coors Chief Legal Officer; William G. Waters; Molson Coors Controller; and Dave Dunnewald, Molson Coors Vice President of Investor Relations.

On the earnings call today, Stewart and I will share highlights of Molson Coors Brewing Company’s third quarter 2010 results along with some perspectives on the fourth quarter, then we will open it up for questions.

So in the third quarter, Molson Coors reported strong results. Underlying pretax income grew almost 30%, driven by double-digit earnings growth in the U.S., U.K. and in Canada.

Each of these businesses achieved positive pricing, substantial cost reductions, and significant market expansion in the quarter. Although we anticipate that some of the drivers of our third quarter pretax income growth will not carry over to the fourth quarter or will reverse in the fourth quarter, these results represent a very solid third quarter for Molson Coors.

Total company underlying after-tax earnings increased 12.3%, driven by strong pretax results, partially offset by higher tax rate this year. In the U.S., MillerCoors reduced cost of goods sold per hectoliter, which along with positive pricing, drove underlying income growth of more than 34%.

In Canada, we achieved positive pricing in a weak market and still gain share and grew underlying profit by more than 16% and in the U.K., we continue to achieve robust pricing and cost reductions to drive a 12.6% underlying profit growth. Our sharp focus on brands innovation and cost deliver these results.

Regarding brands, our Canada business translated its extensive brand building activities over the past year into market share growth and an increase in net pricing in the quarter.

In the U.S. Blue Moon, Leinenkugel’s and Coors Light grew share for MillerCoors and Miller Lite trends improved sequentially in the quarter. In addition, we will begin importing, selling and marketing the Modelo brands in the U.K. and Japan beginning in January. The addition of Corona and other great Modelo brands will strengthen our portfolios in these two beer markets.

Also in the third quarter, our international team grew volume more than 11% and completed the formation of our joint venture in China, which will reduce cost and allow us to leverage our best global innovations in Coors Light in the world’s largest beer market.

On costs, in the third quarter we gain exceeded our cost reduction target, with $24 million of RFG2 savings and $83 million of MillerCoors cost reductions. These cost reductions were a primary driver of lower cost of goods per hectoliter in Canada and the U.S. as well as expanded gross margins in these businesses and in the U.K.

The weak global economy has presented substantial challenges for our company during the past several quarters, but during this time, we have stayed sharply focused on our strategies of building brands, driving value from innovation and delivering on our cost saving commitments.

By focusing on these strategies, we have increased profits. We have improved our margins. We generate substantial cash and we strengthened our balance sheet. In fact, our strong cash flow so far this year is allowing us to increase our free cash flow target for 2010.

Also during the third quarter, we began to unwind our swap position related to the Foster’s stock and to lock in significant gains on the positions that were still open. The remaining swap positions will mature by January 2011. More on these topics in a few minutes.

So, at this point I’ll turn it over to Stewart to review our third quarter financial results and business highlights. Then we’ll cover the outlook for the fourth quarter, including our increased cash flow target for 2010. Stewart?

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