Molson Coors Brewing Company (TAP)

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Molson Coors Brewing (TAP)

Q2 2011 Earnings Call

August 02, 2011 11:00 am ET


David Perkins - Chief Executive Officer of Molson Coors Canada and President of Molson Coors Canada

David Dunnewald - Vice President of Global Investor Relations

Peter Swinburn - Chief Executive Officer, President and Director

Krishnan Anand - President of Molson Coors International

S. Glendinning - Chief Financial Officer


Judy Hong - Goldman Sachs Group Inc.

John Faucher - JP Morgan Chase & Co

Mark Swartzberg - Stifel, Nicolaus & Co., Inc.

Brett Cooper - Consumer Edge Research, LLC

Christine Farkas - BofA Merrill Lynch

Jeffrey Farmer - Jefferies & Company, Inc.

James Watson - HSBC



Good morning. My name is Michelle and I will be your conference operator today. At this time, I would like to welcome everyone to the Molson Coors Brewing Company 2011 Second Quarter Earnings Call. [Operator Instructions] 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 most recent 10-K and 10-Q filings for a more complete description of factors that could affect these 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 company's website, Again, that is, and click on the Financial Reporting tab of the Investor Relations page for a reconciliation of these measures to the nearest U.S. GAAP results.

Now I would like to turn the call over to Mr. Peter Swinburn, President and CEO of Molson Coors. Please go ahead, sir.

Peter Swinburn

Thank you, Michelle. Hello, welcome, everybody, and thanks for joining us today. So with me on the call this morning are Stewart Glendinning, Molson Coors CFO; Tom Long, CEO of MillerCoors; Dave Perkins, CEO of Molson Coors Canada; Mark Hunter, CEO of Molson Coors U.K.; Kandy Anand, President of Molson Coors International; Sam Walker, Molson Coors Chief Legal Officer; Bill Waters, Molson Coors Controller; and Dave Dunnewald, Molson Coors VP of Investor Relations.

On the earnings call today, Stewart and I will take you through highlights of our second quarter 2011 results for Molson Coors Brewing Company, along with some perspective on the balance of 2011.

In the second quarter, our company underlying after-tax earnings decreased about 1% as positive beer pricing and cost reductions in our core businesses and favorable foreign exchange were offset by the impact of weak economic conditions, commodity inflation and investments in our International businesses.

As we mentioned during our annual New York Investor Day in March, our growth strategies rest on 3 pillars: Maximizing the profitable growth opportunities in our core markets; accelerating our push into new and emerging markets to grow our brands globally; and looking for M&A opportunities that meet our criteria for generating shareholder value.

We can [indiscernible] with our results for our core markets, we faced challenges in 2 main trends in the second quarter. Volumes for the industry on our businesses were weak due to struggling economies, high unemployment among our core demographic base and high fuel prices. Our Canada and U.K. businesses cycled particularly typical volume comparisons from a year ago, which negatively impacted results this year.

Input inflation, including fuel, packaging materials and agricultural commodities, has driven our 2011 cost of goods per hectoliter forecast in all of our businesses higher than we anticipated just 6 months ago. Our hedging strategies have lessened, but not eliminated the impact of this inflation.

At the same time, we have continued to invest behind our brands and innovation, and in the U.S., Blue Moon and Leinenkugel grew double digits and led the growth of the category, while Coors Light grew both volume and market share.

In Canada, we introduced Molson Canadian 67 Sublime, Miller Chill Lemon and Rickard's Blonde. And in the U.K., we grew market share for the third consecutive quarter. After successfully implementing an SAP system in the first half of this year, the U.K. team plans in the second half include a number of new brand introductions, a new beer to appeal to women and the rebranding of Carling.

Our international group has increased its investment rate behind Coors Light, Carling and other brands, and has been growing the top line at high rates in the group per [ph] priority new and emerging markets.

International business volume was 54% higher in the second quarter, driven by the addition of the Si'hai brands in China and the Modelo brands in Japan, along with growth of Carling in Europe and Coors Light in Latin America and China. In the quarter, we completed the purchase of a controlling interest in a new joint venture to brewing market the Cobra brand in Southeast Asia, including India. This $35 million investment represents a very attractive way to enter one of the world's most fastest-growing markets and gives us global control of the high opportunity of Cobra brand.

We also introduced the Carling brand in the Ukraine this quarter, and initial results are very positive.

As we mentioned in New York in March, our international group is increasing investments in high potential markets with the goal of becoming a significant contributor to total company top line and bottom line growth in less than 5 years.

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