Molson Coors Beverage Company CEO Gavin Hattersley opened today’s third quarter earnings call by reciting what he said are the seven “headlines” of the company’s last three months.
- Coors Light, the company’s biggest brand, is growing share of the total beer category in the U.S., its biggest market, something the brand hadn’t done in five years.
- Molson Coors’ worldwide net sales revenue for above premium products has topped 25% of its brand volume net sales revenue on a trailing 12-month basis, a first since the launch of the company’s revitalization plan about two years ago.
- The company has grown its share of the U.S. above premium segment for two consecutive quarters for the first time in more than five years.
- Through the first nine months of 2020, the company has sold nearly 2 million cases of non-alcohol beverages in the U.S., a first for the company.
- Molson Coors’ market share trends in Canada have improved for eight straight months, and its European business has bounced back to approximately 2019 revenue levels.
- Global supply chain issues impacted the company’s third quarter volumes, however trends have improved in October as weekly shipments are around 1 million barrels in the U.S.
- Headwinds related to transportation availability and costs continue.
Following Hattersley’s narrative for the company’s Q3, an analyst asked him to define what success now means for the company in the U.S. Hattersley replied that “the quality of our revenue and changing the shape of our portfolio is what is important to us now.”
“For me what success looks like over the short-, medium- and long-term is that we were driving sustainable top-line revenue growth, and at the same time driving our profits,” he added. “It’s not an either/or for us. It’s a both/and.”
Two years into Molson Coors’ transformation into a “beverage company,” Hattersley said the company is progressing toward those goals. He cited “a significant milestone” in selling nearly 2 million cases of non-alcoholic beverages in the U.S. through September 30, as it pushes toward its goal of $1 billion in revenue from its emerging growth business by 2023. He added that the company believes it can scale offerings in the water, energy and coffee categories, with brands such as energy drink Zoa in partnership with Dwayne “The Rock” Johnson and ready-to-drink canned coffee with La Colombe Coffee Roasters.
“Growing beyond the beer aisle is no longer an aspiration, we’re doing it and we’re driving scale,” he said.
Since its launch, Zoa has become the No. 1 new energy drink franchise in 2021, and a top 20 energy drink brand in the U.S., Hattersley said. He added the brand is now available through 31,000 outlets, with more than 115,000 points of distribution and more coming online.
“There’s a lot of upside for this brand,” he said.
As for La Colombe, Molson Coors has been able to unlock national distribution in grocery and mass channel stores in early 2022 due to its early focus on distribution in large national retailers.
Hattersley also challenged the “noise” around the slow down in hard seltzer sales in the U.S., which he called largely inaccurate and “unproductive.”
“Hard seltzers are here to stay,” he said. “They’re over 10% of beer category sales and growing. But the segment has matured and the easy growth is over. Moving forward, it is going to take distinctive, differentiated brands in order to succeed and that is why we feel so confident about our portfolio.”
Hattersley believes Molson Coors has that with Vizzy and Topo Chico, which he said is the “fastest growing” hard seltzer portfolio in the U.S. Vizzy grew 50% during the quarter and is now the No. 4 hard seltzer in the U.S. Meanwhile, Topo Chico is the No. 3 new product in the general malt beverage category. Next up is a national expansion for the brand, which initially launched in 16 markets.
“Our ambitions don’t stop at double digit share [in the U.S.], right?” Hattersley said. In Canada, the company is closing in on its 10% share goal with Vizzy and Coors Seltzer, and Topo Chico on the way next year.
“We’re making real progress against our seltzer goals,” he added.
While hard seltzers are “significant and here to stay,” Hattersley said he sees opportunities for growth with ready-to-drink spirits-based brands. The company will compete in the category with its Superbird blue agave tequila-based canned cocktail and possibly future offerings.
Molson Coors’ joint venture to distribute Yuengling in the western half of the U.S. launched in Texas during the quarter and the brand is now available in 40,000 locations across the state.
The on-premise reopening has also led to double-digit growth for Italian import brand Peroni, high-single digit growth for Blue Moon Belgian White. Blue Moon Light Sky, which was the top new brand in the U.S. in 2020, is also up double digits, and the company will line extend the brand again in 2022 with Blue Moon Tropical Wheat.
Q3 By the Numbers: US Depletions -5%, Shipments -6.6%
In the U.S. Molson Coors’ Q3 depletions declined -5.2% due to declines with its economy brands following the company’s decision in Q2 to discontinue around 100 primarily economy brand SKUs and cease production of Milwaukee’s Best Premium, Henry Weinhard’s Private Reserve, Keystone Ice, Hamm’s Special Light, Keylightful, Icehouse Edge, Magnum, Mickey’s Ice, High Life Light, Steel Reserve 211, and Olde English HG 800.
Moving forward, Molson Coors’ economy portfolio is focused on four brands — Keystone Light, Miller High Life, Steel Reserve Alloy Series, and Icehouse.
Hattersley cautioned analysts not to be overly concerned by the company’s Q3 volume trends, which he explained were “predominantly a result of an intentional and strategic decision we made to deprioritize and eliminate a number a large number of lower margin, slower moving SKUs in the U.S. that were mainly in the economy segment.” He explained that about 90% of the company’s share and brand volume losses were due to its economy portfolio, with the majority of those declines coming from the discontinuing and deprioritizing of economy brands. Further culling of its economy portfolio isn’t expected at this time, he added.
“The intention was to simplify and premiumize our portfolio and that is exactly what is happening,” he said. “So our volume is down but our net sales revenue per hectoliter is up, and I can again tell you that we are on track to deliver on our full year key financial guidance for 2021.”
U.S. shipments during Q3 declined -6.6%, CFO Tracey Joubert shared during Thursday’s investor call. The company added that its North America financial volumes declined 4.8%, leading to a 1.2% decline in net sales (-2.1% in constant currency).
Hattersley admitted the company’s shipment trends “were not what we wanted them to be” during the quarter, which he attributed to supply chain challenges in August and September. Those trends have improved, leading to increased weekly shipments in Q4, which has led to distributor inventory increases of about 20% in recent weeks.
“That is a trend we expect to build on,” Hattersley said.
In fact, the 1 million barrels a week in shipments is similar to the volume the company experiences during the summer months, Hattersley said. Those efforts have helped rebuild wholesaler inventory days on hand and levels. As a result, the company is mostly satisfied with the inventory level of many of its SKUs.
Net sales revenue in the U.S. declined -3.7%, although net sales per hectoliter on a brand volume basis increased +3.2% due to “strong brand mix performance” and portfolio premiumization efforts.
Globally, Molson Coors increased net sales revenue +2.5%, to more than $2.8 billion, which the company credited to “strong net pricing, positive brand and channel mix” that “more than offset” decline in economy brands and shipment timing in the U.S. Net sales revenue per hectoliter increased +3.6% on a volume basis, which the company said was due to “strong net pricing, favorable brand mix related to portfolio premiumization,” and favorable channel mix impact as the on-premise continues to reopen.
Brand volumes — a measure that Molson Coors defines as including “an adjustment from sales-to-wholesaler (STW) volume to sales-to-retailer volume (STR)” — declined -3.6%, with the company citing declines in the U.S. driven by the reshaping of the company’s economy portfolio.
Cost of goods sold per hectoliter increased +9.3% during the quarter, which the company said was due to higher transportation costs and input costs inflation, mix impacts from premiumization of the company’s portfolio and volume deleveraging.
Inflationary costs — particularly transportation, fuel prices and trucker shortages — continued to be a challenge in Q3, especially related to transportation, with higher fuel prices, shorter supply of drivers and higher input costs.
Hattersley said the company has been forced to use the spot market for drivers, with one-in-four shipments now at the higher spot rates — and that’s manifested in the company’s Q3 cost of goods. To alleviate the issue, Molson Coors is turning to more rail shipping, and the company expects gross margin benefits from its premiumization efforts and the rationalization of economy brands. The company recently notified its wholesaler partners of increased fuel surcharges.
Molson Coors reported EBITDA of $642.6 million, a decline of 109% as net sales revenue growth and lower general and administrative spending was more than offset by increases in cost of goods sold and higher marketing spending.
Through the first nine months of 2021, Molson Coors’ global net sales have exceeded $7.6 billion, a 4.1% increase.
Molson Coors Reaffirms Financial Guidance
Molson Coors acknowledged that “uncertainty remains” due to the pandemic, however, the company said it expects the following results for the full year:
- A mid-single digit net sales revenue compared to 2020;
- Approximately flat underlying EBITDA compared to 2020;
- Maintaining the company’s investment grade rating via its continued deleveraging actions, with a net debut to underlying EBITDA ratio of about 3.25x by the end of 2021 and 3.0x by the end of 2022.
Joubert referred to 2021 as “a year of investment” for Molson Coors with the company planning to increase its marketing investment to build its core brands.
Asked about restating the company’s guidance, Hattersley said the company “wouldn’t reiterate the guidance if we didn’t believe that we would hit it.”