Molson Coors Brewing Company (TAP)

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Molson Coors Brewing (TAP)

Q3 2012 Earnings Call

November 07, 2012 11:00 am ET


Peter S. Swinburn - Chief Executive Officer, President and Director

Gavin Hattersley - Chief Financial Officer

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

Mark Hunter - Chief Executive Officer of Molson Coors (UK) and President of Molson Coors (UK)


Judy E. Hong - Goldman Sachs Group Inc., Research Division

Dara W. Mohsenian - Morgan Stanley, Research Division

Mark D. Swartzberg - Stifel, Nicolaus & Co., Inc., Research Division

Bryan D. Spillane - BofA Merrill Lynch, Research Division

Brett Cooper - Consumer Edge Research, LLC



Good morning, and welcome to the Molson Coors Third Quarter 2012 Earnings Conference Call. Before we begin, I will 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,, 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. Also, unless otherwise indicated, all financial results the company discusses are versus the comparable prior year period and in U.S. dollars.

Now I'd like to turn the call over to Peter Swinburn, President and CEO of Molson Coors.

Peter S. Swinburn

Thank you, Chrissy. Hello, and welcome, everybody, to the Molson Coors earnings call, and thank you for joining us today. With me on the call this morning are Gavin Hattersley, Molson Coors' CFO; Dave Perkins, CEO of Molson Coors Canada; Tom Long, CEO of MillerCoors; Mark Hunter, CEO of Molson Coors Central Europe; Stewart Glendinning, CEO of Molson Coors U.K.; Kandy Anand, CEO of Molson Coors International; Sam Walker, Molson Coors' Chief Legal and People Officer; Zahir Ibrahim, Molson Coors' Controller; and Dave Dunnewald, Molson Coors' VP of Investor Relations.

On the earnings call today, Gavin and I will take you through highlights of our third quarter results for Molson Coors Brewing Company, along with our outlook for the fourth quarter.

The third quarter was our first full reporting period following our Central European acquisition. The addition of this business provided more than $60 million of pretax earnings accretion on an underlying basis, net of related interest expense. Strong results in the U.S. also contributed to our bottom line growth. As a result, underlying after-tax income increased more than 17% to $249 million, and underlying EPS grew more than 20% to $1.37 per share. Gross margin and underlying operating margin, including our share of MillerCoors, both increased significantly with the addition of the Central Europe business this year.

Regionally, the U.S. had another good earnings quarter, up 16%, while the U.K., Canada and our International business reported lower earnings, with the Canada beer market being particularly weak in the third quarter. In local currency, Central Europe underlying earnings increased nearly 16% on a pro forma basis. Negative currency movements, however, meant Central Europe pro forma earnings decreased 2.2% in the third quarter. Central Europe pro forma volume declined 1.5% due to a decrease in consumer demand, particularly in September, but we maintained solid market share in the region. Gavin will provide additional financial highlights in a minute.

With respect to our brands, third quarter Coors Light brand sales to retail grew market share in the U.S., the U.K. and in Canada. In Central Europe, we grew share in the majority of our markets, and Staropramen brand grew volume at a low double-digit rate in the region. Our premium craft brands in the U.S. and Canada substantially outperformed the industry to grow market share in the quarter. Miller Lite declined mid-single digits but reduced its trend graph to the overall market versus the first half of the year. The Carling brand grew share in its biggest channel, the on-premise, in a very weak U.K. economy, whilst Coors Light is growing at a strong double-digit rate and is now our second biggest brand in the U.K.

Nonetheless, we saw a decline in consumer demand across our businesses in the third quarter, and we expect the fourth quarter to be the most challenging of this year, with difficult profit comparisons in Canada and the U.K. and higher costs in the U.S. and Central Europe.

In this challenging macroeconomic climate, we have consistently said that in addition to growing our brands, we would aggressively drive costs out of our business. In the third quarter, our Resources for Growth program delivered $22 million in saving, bringing total program savings to $172 million since 2010. In Canada and the U.K., these cost savings offset cost of goods inflation. Our share of MillerCoors results added another $12 million of cost saving.

Consistent with this strategy, in the third quarter, we began a number of new initiatives to standardize and further streamline our company over the next 2 years. As a first step, at the end of this year, we will combine our U.K. and Ireland business with our new Central Europe organization to create a single European business called Molson Coors Europe. This move will allow us to use our go-to-market resources more effectively in the region and promote better sharing of commercial best practices and marketing expertise. With the larger European footprint, we'll be able to negotiate better terms with suppliers, improve processes and integrate systems to increase efficiencies. We will continue to manage the export and license business in Europe, including Staropramen export through Molson Coors International.

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