Press Release
Molson Coors Reports 2006 Third Quarter Results
October 31, 2006
DENVER, Colo., and MONTREAL, Quebec – Molson Coors Brewing Company (NYSE: TAP; TSX) released today its financial results for the third quarter ending September 24, 2006. Net sales, net income and earnings per share all increased in the quarter compared to the same period a year ago.
All of the Companys operating segments achieved pretax profit growth, with solid core brand volume performance during the quarter. Key results for the Companys third quarter 2006, compared to the same period a year ago, include the following (all $ amounts in US dollars):
- Net sales increased 3.3 percent to $1.58 billion.
- Sales volume of 11.2 million barrels, or 13.2 million hectoliters (hls), was unchanged.
- Cost of goods sold increased 2.8 percent to $907.3 million.
- Marketing, general and administrative expense rose 0.8 percent to $434.1 million.
- Net income increased 25.5 percent to $135.8 million, or $1.56 per diluted share.
- Excluding special items, income from continuing operations (after-tax) (1) was $139.5 million, or $1.61 per diluted share, down 8.4 percent from the third quarter 2005.
- Excluding a one-time tax benefit of $0.51 per share in the third quarter of 2005, third quarter 2006 after-tax income from continuing operations excluding special items increased 28.3 percent.
(See tables below for reconciliations to nearest US GAAP measures.)
Leo Kiely, Molson Coors president and chief executive officer, said, “Our third quarter results demonstrate consistent progress strengthening the fundamentals of our company, even while we face tough competitive and cost pressures in all of our markets. All three of our businesses grew pretax earnings at double-digit rates. Our Canadian teams continue to achieve strong profit growth driven by solid strategic brand performance and cost reductions. In the US, volume gains, synergy achievements and improved industry pricing contributed to double-digit profit growth in the quarter. US volume gains were driven by Coors Light, which grew for the sixth consecutive quarter. In the UK, our teams are doing impressive work in a very competitive market, focusing on the factors they can control to minimize the impact of margin pressures and other challenging trends in the UK beer industry.
“On pricing – an area that is key to profitability in all of our businesses – we have strategies that are driven by our own business priorities, which include building brands and ensuring our brand equities remain strong. With that in mind, our teams on the frontline are making prudent tactical pricing decisions necessary to be competitive by market, channel and package.”
During the quarter, Molson Coors achieved approximately $25 million in additional synergies and other cost savings during the quarter. These savings were more than offset, however, by commodity and energy-related cost inflation. Favorable foreign exchange rates increased total-company pretax income by approximately $8.5 million in the quarter.
The Companys effective tax rate during the third quarter 2006 was 31 percent including special items and 32 percent excluding special items, compared to 5 percent and 11 percent, respectively, a year ago. The low third quarter 2005 tax rates were attributable to a one-time $43.5 million benefit from releasing deferred tax liabilities related to the Companys UK business with the election of APB 23 tax treatment for that operation.
Canada Business
Canada operating income of $155.1 million in the third quarter 2006 increased 12.2 percent from the third quarter 2005 due to positive beer pricing, lower overall costs and an approximately 7 percent favorable movement in foreign exchange rates. Canada sales volume of 2.3 million barrels (2.7 million hls) was down 2.5 percent from the same period a year ago while net sales were up 6.1 percent from third quarter of 2005. Net revenue per barrel was up about 1 percent in local currency compared to the third quarter 2005. Cost of goods sold and marketing, general and administrative costs declined in local currency compared to the same period a year ago. Sales to retail decreased 1.7 percent during the quarter compared to third quarter 2005. Double-digit growth in Coors Light, Rickards and the Companys partner import brands was offset by a decline in other premium, discount and unsupported brands stemming from intense competitive pricing pressure in key provinces, along with the impact of the discontinuation of Molson Kick and A Marca Bavaria in fall 2005.
Synergies and other cost reduction initiatives offset about one-third of the Canada business cost of goods inflation. Canada segment other income was up $12.9 million compared to the third quarter a year ago, driven by improved financial performance by the Montreal Canadiens Hockey Club and a $9.0 million benefit related to a reduction in the Companys financial guarantee obligations to the team in the third quarter.
United States Business
In the third quarter 2006, sales volume and net sales in the US business increased 3.0 percent and 6.0 percent, respectively, from the third quarter a year ago. US sales to retail increased 1.4 percent during the quarter compared to the same period in 2005, driven largely by a low-single-digit increase in Coors Light volume and a low double-digit increase in Keystone Light. Excluding the companys Caribbean business, US 50-states sales to retail increased 1.8 percent from a year ago, well ahead of the domestic US beer industry.
Including special charges, US pretax income was $48.8 million. Excluding special charges, US pretax income increased 10.7 percent to $74.3 million compared to the same period a year ago driven by sales volume growth, higher net pricing and the Companys cost saving initiatives and merger synergies.
Europe Business
Including special items, Europe business pretax income during the third quarter 2006 was $34.6 million. Excluding special items, pretax income for the Europe business was $36.9 million, a 27.6 percent increase from the third quarter of 2005, driven by cost savings initiatives in supply chain and overheads. In the third quarter 2006, Europe business owned-brand sales volume decreased by 4.4 percent compared to the same period a year ago. The Companys market-leading Carling brand continued to outperform the UK beer industry, though the brands volume declined at a low-single-digit rate, primarily due to lower sales following the World Cup this year, the cycling of distribution gains in multiple pub chains a year ago and declines in the overall on-premise market.
Net sales per barrel decreased about 4.7 percent in local currency compared to the third quarter of 2005. About 3 percentage points of the decline was due to unfavorable owned-brand net pricing and sales mix, while the balance of the decline was largely attributable to declining factored brand volumes and a change in invoicing arrangements on certain factored brand sales. The invoicing change reduced both net sales and cost of goods sold by about $5.8 million with no impact on gross profits in the third quarter 2006. Cost of goods sold per barrel for the Companys owned brands decreased approximately 5 percent during the quarter, while marketing, general and administrative costs decreased by about 14 percent, both in local currency.
Corporate Expenses
The Companys Corporate general and administrative expenses totaled $27.2 million in the third quarter, up $4.1 million from a year ago. About half of the increase was due to the Companys stock-based long-term incentive plan, including the effect of expensing equity-based compensation. The balance of the increase was for severance payments and other labor-related costs.
Interest expense, excluding interest income from trade loans in the UK, was $31.2 million in the third quarter, 9.4 percent lower than the interest expense a year ago due to debt repayments, including repaying $208 million of special dividend debt, during the past year and lower expense related to recording Ontario Beer Store interest rate swaps at market value.
(1)Discontinued Operations
Net income from discontinued operations during the third quarter of 2006 was $13.4 million, which reflects a reduction in the fair value of indemnity guarantees related to the Brazil Kaiser business. These liabilities were reduced because Kaiser participated in federal and state amnesty programs in Brazil to settle a significant portion of the Companys previously recorded tax-related liabilities.
Special Charges
During the third quarter 2006 the company reported special charges totaling $28.5 million pretax, or $0.20 per diluted share after-tax, primarily related to the following:
- US results included a $25.5 million pretax special charge related primarily to the closure of the Companys Memphis brewery, which was completed on September 6. These charges include accelerated depreciation of Memphis assets, severance and other plant closure costs.
- In Europe, a $2.3 million special charge was attributable to restructuring costs in the Companys UK supply chain and other areas.
- The Corporate special charge of $0.7 million was attributable to the cost of benefits for the Coors executives who left immediately following the merger last year under a change of control agreement.
2006 Third Quarter Earnings Conference Call
Molson Coors Brewing Company will conduct an earnings conference call with financial analysts and investors at noon Eastern Time today to discuss the Companys 2006 third quarter financial results. The Company will provide a live webcast of the earnings call. Approximately two hours after the conclusion of the earnings call, the Company also will host an online, real-time webcast of an Investor Relations Follow-up Session with financial analysts at 3:00 p.m. Eastern Time. Both webcasts will be accessible via the Companys website, www.molsoncoors.com. Online replays of the webcasts will be available until 11:59 p.m. Eastern Time on December 31, 2006.
Reconciliations to Nearest US GAAP Measures
Molson Coors Brewing Company
2006 First Quarter After-tax Income From Continuing Operations
Excluding Special Items
(Note: Some numbers may not sum due to rounding.)
| (In millions of $US, except per share data) | 3rd Q 2006 |
3rd Q 2005 |
| US GAAP: After-tax income from continuing operations: | $122.4 |
$131.0 |
Per diluted share |
$1.41 |
$1.52 |
| Add back: Pretax special items - net | 28.5 |
33.5 |
| Minus: Tax effect on special items | (11.3) |
(12.2) |
| Non-GAAP: After-tax income from continuing operations, excluding special items: |
$139.5 |
$152.3 |
Per diluted share |
$1.61 |
$1.77 |
| Percent change from 2005 results from continuing operations, excluding special items and one-time tax benefit |
(8.4%) |
|
| Minus: One-time tax benefit reported in 3rd Q 2005 | -- |
(43.5) |
| Non-GAAP: After-tax income from continuing operations, excluding special items and one-time tax benefit: |
$139.5 |
$108.7 |
|
$1.61 |
$1.27 |
| Percent change from 2005 results from continuing excluding special items and one-time tax benefit |
28.3% |
|
Molson Coors Brewing Company
2006 Third Quarter Pretax Income From Continuing Operations, Excluding Special Items
(Note: Some numbers may not sum due to rounding.)
(In millions of $US) |
Segment |
Total |
|||
|
Canada |
US |
Europe |
Corporate |
Consolidated |
US GAAP: 20063rd Q pretax income (loss) from continuing operations – reported |
$161.1 |
$48.8 |
$34.6 |
($59.4) |
$185.1 |
Add back: Pretax special charges |
— |
25.5 |
2.3 |
0.7 |
28.5 |
Non-GAAP: 20063rd Q Pretax income (loss) from continuing operations, excluding special items |
$161.1 |
$74.3 |
$36.9 |
($58.7) |
$213.6 |
Percent change 20063rd Q vs. 20053rd Q pretax from continuing operations, excluding special items |
22.7% |
10.7% |
27.6% |
15.0% |
21.2% |
US GAAP: 20053rd Q pretax income (loss) from continuing operations |
$131.2 |
$30.0 |
$28.4 |
($46.9) |
$142.8 |
Add back: Pretax special charges/credits - net |
— |
37.1 |
0.6 |
(4.2) |
33.5 |
Non-GAAP: 20053rd Q Pretax income (loss) from continuing operations, excluding special items |
$131.2 |
$67.1 |
$28.9 |
($51.1) |
$176.3 |
Pretax and After-tax Income (Loss) From Continuing Operations, Excluding Special Items should be viewed as a supplement to — not a substitute for — our results of operations presented on the basis of accounting principles generally accepted in the United States. We believe that Pretax and After-tax Income (Loss) From Continuing Operations, Excluding Special Items is used by and is useful to investors and other users of our financial statements in evaluating our operating performance because it provides them with an additional tool to evaluate our performance without regard to items such as special items, which can vary substantially from company to company depending upon accounting methods and book value of assets and capital structure. Our management uses Pretax and After-tax Income (Loss) From Continuing Operations, Excluding Special Items: as a measure of operating performance to assist in comparing performance from period to period on a consistent basis; as a measure for planning and forecasting overall expectations and for evaluating actual results against such expectations; and in communications with the board of directors, stockholders, analysts and investors concerning our financial performance.
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Forward-Looking Statements
This press release includes “forward-looking statements” within the meaning of the federal securities laws, and language indicating trends, such as “trend improvements,” “progress,” “anticipated,” “improving sales trends” and “on track.” It also includes financial information, of which, as of the date of this press release, the Companys independent auditors have not completed their review. Although the Company believes that the assumptions upon which the financial information and its forward-looking statements are based are reasonable, it can give no assurance that these assumptions will prove to be correct. Important factors that could cause actual results to differ materially from the Companys projections and expectations are disclosed in the Companys filings with the Securities and Exchange Commission. These factors include, among others, changes in consumer preferences and product trends; price discounting by major competitors; unanticipated expenses, margin impact and other factors resulting from the recent merger; failure to realize anticipated results from synergy initiatives; and increases in costs generally. All forward-looking statements in this press release are expressly qualified by such cautionary statements and by reference to the underlying assumptions. We do not undertake to update forward-looking statements, whether as a result of new information, future events or otherwise.
Molson Coors Brewing Company is one of the worlds largest brewers. It brews, markets and sells a portfolio of leading premium quality brands such as Coors Light, Molson Canadian, Molson Dry, Carling, Coors, and Keystone Light. It operates in Canada, through Molson Canada; in the US, through Coors Brewing Company; in the UK, Europe and Asia, through Coors Brewers Limited. For more information on Molson Coors Brewing Company, visit the companys website, www.molsoncoors.com.
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