Molson Coors’ second quarter earnings report featured varied results, including volume declines, an increase in net sales per hectoliter (+7.1%) and the company’s first increase in U.S. dollar share in more than a decade.
Globally, net sales declined -0.6% on a reported basis, but increased +2.2% in constant currency, which Molson Coors attributed to “positive net pricing and favorable brand and channel mix resulting from portfolio premiumization and fewer on-premise channel restrictions.”
In the Americas, net sales declined -2.3% on a reported basis and -1.7% in constant currency. U.S. shipments (sales to wholesalers) declined -8.2% due to cycling against elevated shipments during Q2 2021, when Molson Coors was playing catch-up following a cybersecurity incident and severe winter storms in Texas in the prior quarter. U.S. depletions (sales to retailers) declined -1.7% “as a result of softer industry performance,” according to a press release.
Net sales per hectoliter in the Americas segment increased +6.2% as the company lapped the anniversary of last year’s announcement that it would thin out its economy portfolio in favor of concentrating its focus on more premium offerings.
Complicating Molson Coors’ performance in its Americas segment was an 11-week strike at its Montreal, Canada-based Longueuil Brewery and distribution center, which ended June 14 after the company and the Teamsters Local 1999 ratified a five-year collective bargaining agreement. Brand volumes declined -2.2% in the Americas in part because of the strike, but volume and share increased throughout Canada (minus Quebec, which was affected by the strike).
The company also hit a speedbump earlier this summer when it issued a voluntary withdrawal of 2 million cases of Coors Light and Keystone Light packages due to defect on a canning line at its brewery in Trenton, Ohio.
Other headwinds affecting Molson Coors’ first half of 2022 included lagging sales driven by the loss of Christmastime business in the U.K. However, the company was the largest beer category share gainer in that country.
“In aggregate across our three largest markets, we are outpacing the industry and continuing to grow the top line growth globally,” CEO Gavin Hattersley said. “These results are not an accident. They’re not a coincidence. These are rewards of our continued commitment to and execution of the revitalization plan.”
In the 12 weeks that ended July 10 (which includes about a week of Q3 data), Molson Coors off-premise dollar sales at multi-outlet food and convenience stores increased +1.2%, slightly outpacing the overall beer category, which was flat, according to market research firm IRI. The company increased its dollar share of the category by +0.21%, to 16.8%.
Price Increases Coming in Q4
Molson Coors plans to increase price between 3% and 5% in several U.S. markets next quarter, chief financial officer Tracy Joubert said. This will be the company’s second price increase in 2022.
During Q2, Molson Coors’ cost of goods sold (COGS) per hectoliter increased +32%, and its underlying COGS increased +11.5% in constant currency, “primarily due to cost inflation mainly on materials, transportation and energy costs, volume deleverage and mix impacts from both portfolio premiumization and higher factored volumes, partially offset by lower depreciation expense,” the company wrote.
“We think inflationary pressures will continue, but we do expect to mitigate some of that through our hedging and our cost savings program,” Joubert said.
At off-premise retailers tracked by IRI for the 12 weeks ending July 10, Molson Coors’ price per case increased $1.24, flat to the overall category and -$0.01 less than its year-to-date price increase.
Beyond Beer Brands Find Success in US and Canada
At a time when the overall hard seltzer segment is slowing (-9.2% in dollar sales year-to-date through July 10, per IRI), Molson Coors’ hard seltzer portfolio has shown signs of strength on both sides of the U.S.-Canada border.
Hattersley praised the “outstanding performance” of Topo Chico Hard Seltzer, which Molson Coors produces through a licensing agreement with Coca-Cola, as “something which might be driving the softness of some of our competitors.”
“We’ve got the fastest growing hard seltzer portfolio,” Hattersley said.
Topo Chico accounts for 5.6% of the hard seltzer segment and grew share by 18 basis points in the four weeks ending July 16, according to a report from Jefferies. The brand family has posted year-over-year growth of +153.4% for the L4W, an acceleration from the +122.5% it recorded in the L12W. It has eclipsed its elder sibling Vizzy Hard Seltzer in market share by nearly double. Vizzy accounts for 2.9% of the segment and has posted YoY declines of -10.1% for the L4W and -13.2% for the L12W, according to Jefferies.
At 8.5% of the segment, Molson Coors has nearly caught up with Anheuser-Busch InBev, whose seltzer portfolio (Bud Light Seltzer, Michelob Ultra Organic Seltzer and other assorted brands) accounts for 9.9% of the segment.
In Canada, Vizzy Hard Seltzer and Coors Seltzer (which the company discontinued in the U.S. last summer after less than a year in market) account for more than 12% of the Canadian hard seltzer segment, Hattersley said. Molson Coors introduced Topo Chico Hard Seltzer in Canada earlier this summer, which the company expects to boost its share of Canadian seltzer.
Simply Spiked, another Coca-Cola collaboration, was launched nationwide in the U.S. in June and “has really just taken off,” Hattersley said.
“We’ve already exceeded our business case for the year,” he said. “We’re ramping up supply as quickly as we possibly can to meet demand, which has frankly surprised us.”
Due to the product’s success, Molson Coors sped up its timeline for in-house production and ramped up its Fort Worth brewery within six weeks to make more of the fruited hard lemonade, Hattersley said.
“We weren’t planning to do that until next year, frankly, but demand is so strong that we brought it in-house, and we did that in a record time,” he said.