USA: Molson Coors reports 2007 1Q results

Molson Coors Brewing Company released its financial results for the fiscal first quarter ending April 1, 2007, in its press release, May 10.

The Company’s sales volume increased 2.9 percent to 8.9 million barrels, or 10.4 million hectoliters (HLs), during the 13-week fiscal first quarter 2007 compared to the 13-week fiscal first quarter ended March 26, 2006. Net sales increased 6.5 percent to $1.23 billion in the first quarter 2007 versus a year ago. (All $ amounts in U.S. dollars.) Net income in the first quarter 2007 was $4.4 million. Income from continuing operations after tax in the first quarter 2007 was $19.2 million. Excluding special items(1), income from continuing operations(2) was $25.1 million, compared to an after-tax loss of $0.4 million in the first quarter 2006.

Leo Kiely, Molson Coors president and chief executive officer, said, “Overall, our first quarter 2007 results are an encouraging start to the new year. We continued to strengthen our momentum from the second half of 2006 with our global focus on brand building and attacking costs. While cost and competitive pressures continued in the first quarter, our underlying business and financial performance continued to improve. We grew total company volume, revenue per barrel, margins and profits in the first quarter, while we invested aggressively behind strategic brands in all of our major businesses – in Canada, the U.S. and the U.K. In addition, we continued to make significant improvements to our cost structure through merger synergies and other cost reductions that helped to offset substantial cost inflation across all of our businesses. As a result, we achieved strong double-digit percentage growth in operating earnings.

“Looking ahead, we are pleased with the momentum of our strategic brands as we prepare for this year’s peak beer season. We believe our teams can build on that momentum and win the summer, while we make even more progress building great brands and reducing costs to fuel the investments we need to become a top-performing global brewer.”

2007 First quarter results

Key results for the Company’s fiscal first quarter 2007, compared to the first quarter a year ago, include the following:

- Net sales increased 6.5 percent to $1.23 billion.
- Sales volume of 8.9 million barrels (10.4 million HLs) was up 2.9 percent.
- Cost of goods sold increased 6.0 percent to $770.2 million.
- Marketing, general and administrative expense rose 2.0 percent to $396.8 million.
- Excluding special items, income from continuing operations (after tax) was $25.1 million, or $0.28 per diluted share, compared to a loss of $0.4 million, or $0.01 loss per diluted share, in the first quarter 2006.

During the quarter, Molson Coors achieved approximately $14 million in merger synergies. Foreign exchange rate movements reduced total-company pretax income by approximately $2.3 million in the quarter.

The Company’s effective tax rate during the first quarter 2007 for income from continuing operations was 19 percent including special items and 21 percent excluding special items, compared to 33 percent and 31 percent, respectively, during the first quarter a year ago. The Company’s first quarter 2007 tax rate was lower due to the net effect of a number of factors, including the completion of certain prior year audits, mix of pretax income and the impact of new accounting rules that were adopted at the beginning of 2007 for recognizing and measuring uncertain tax provisions. The Company anticipates that these new rules – known as FASB Interpretation No. 48, or FIN 48 – will cause greater volatility in the Company’s effective tax rate in future quarters.

Following are the Company’s 2007 first quarter results by business segment:

Canada Business

Canada business pretax income was $45.3 million, excluding special charges, even with the first quarter 2006. Canada sales volume increased 2.8 percent, while sales to retail increased 1.2 percent. Strong growth in Coors Light, Rickard’s, Carling and the Company’s partner import brands was partially offset by a decline in other premium, discount and unsupported brands. Canada business net sales increased 4.1 percent in local currency. Net revenue per barrel increased about 1.3 percent in local currency compared to the first quarter 2006. Cost of goods sold per barrel increased 4.0 percent, while marketing, general and administrative costs increased approximately 1.8 percent, both in local currency. Synergies and other cost reduction initiatives offset nearly all of the Canada business cost of goods inflation.

United States Business

U.S. business pretax income was $45.2 million in the first quarter 2007. Excluding special charges a year ago, U.S. pretax income increased 23.1 percent, driven by sales volume growth, higher net pricing and results of the Company’s merger synergies and other cost saving initiatives. In the first quarter 2007, sales volume and net sales in the U.S. business increased 4.9 percent and 6.7 percent, respectively, from the first quarter a year ago, while net sales per barrel increased 1.7 percent. Sales to retail grew 2.9 percent driven by a low-single-digit growth by Coors Light and double-digit increases by Keystone Light and Blue Moon. U.S. business cost of goods per barrel increased 0.3 percent and marketing, general and administrative expense was up 6.4 percent.

Europe Business

Excluding special items, the Europe business reported a pretax loss of $4.5 million in the first quarter 2007 compared to a $13.4 million pretax loss in the first quarter 2006. The smaller pretax loss compared to a year ago was driven by continued progress on cost saving initiatives in the Europe business, partly offset by ongoing industry volume pressures and unfavorable trends in sales channel mix. In the first quarter 2007, Europe business owned-brand sales volume decreased 1.7 percent compared to the same period a year ago.

Owned-brand net sales per barrel increased 0.6 percent in local currency compared to the first quarter 2006. Cost of goods sold per barrel for the Company’s owned brands decreased 2.8 percent in local currency during the quarter. Marketing, general and administrative expense decreased 5.5 percent in local currency, with higher marketing spend in the first quarter more than offset by reductions in general and administrative costs.

Corporate Expenses

The Company’s Corporate general and administrative expenses totaled $21.4 million in the first quarter 2007, a decrease of $8.3 million from the first quarter 2006. Net interest expense, excluding interest income from trade loans in the U.K., was $29.2 million in the first quarter 2007, $5.6 million lower than a year ago due primarily to lower average net debt balances during the quarter compared to the first quarter 2006.

(1)Special Items

During the first quarter 2007 the Company reported net special charges of $8.2 million, primarily due to restructuring expenses of $4.1 million in Canada and $4.2 million in Europe.

(2)Discontinued Operations

The company reports results for its former Brazilian unit, Cervejarias Kaiser (“Kaiser”) as discontinued operations. The Company reported a net loss of $14.8 million from discontinued operations during the quarter arising from an increase in the fair value of indemnity guarantees related to the Kaiser business. These liabilities increased during the first quarter 2007 due to changes in estimates related to the timing and amounts of estimated future outcomes and payments.

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