Molson Coors CEO Gavin Hattersley declared the U.S. consumer “remains resilient,” as trade up to premium offerings continues and there aren’t signs of “significant channel shifting,” during the beverage-alcohol producer’s Q2 earnings report today.
Hattersley added that similar trends are playing out in Canada and the United Kingdom.
However, while volume has “remained strong elsewhere,” the company has seen “weakened consumer demand across the beer industry” in Central and Eastern Europe where consumers “tend to have less disposable income” and “are more prone to inflationary pressure,” Hattersley said. That led to “strain” on Molson Coors’ business in the region.
Although Molson Coors has been “aggressive in taking price compared to historical benchmarks in beer,” Hattersley said keeping up with the pace of inflation in some markets “has been difficult” and consumers in other markets such as Central and Eastern Europe “simply cannot withstand higher levels of pricing.”
In the U.S., Hattersley said the company’s price increases earlier this year will equate to a +10% on average increase compared to the fourth quarter of 2021. Historically, the company has taken a +1% to +2% annual price increase.
“We will see that pricing benefit for the entirety of the quarter,” he said.
Molson Coors rolled out a first price increase of +3%-5% in the spring, followed by a similar increase in the fall. While it’s “a little soon” to determine the impact of the latter as it began rolling out in September – and is still hitting this month in some markets – the spring increase showed a price elasticity that was “not as elastic as they have been historically,” Hattersley said.
“The consumer has been quite resilient to the price increases we’ve put into the market, given that they’re actually quite substantially lower than in many other fast moving goods that consumers have been exposed to,” Hattersley said.
Nevertheless, if consumer behaviors do shift, Hattersley said Molson Coors has a portfolio to meet the moment and “adjust to conditions more nimbly.”
In addition to consumer softness in Central and Eastern Europe, Hattersley pointed to the “noticeable difference in COGs [cost of goods] inflation rates between the two sides of the Atlantic.” He noted COGs per hectoliter increased nearly +14% in Asia-Pacific compared to around +11% in the Americas.
Hattersley reiterated that he doesn’t believe either headwind will impact the company’s ability to deliver on its full-year guidance. He pointed out that the company has now posted six straight quarters of net sales revenue growth, and through Q3, its global net sales now surpassing 2019 levels in constant currency. The company has also posted top- and bottom-line growth (in constant currency) in four of the last seven quarters.
US Shipments +1.4%, Depletions at -0.9% ‘Best Quarterly Performance’ in a Decade
Molson Coors increased U.S. shipments +1.4%, while its brand volumes declined -0.9% due to “softer industry performance,” the company reported.
Molson Coors chief communications and corporate affairs officer Adam Collins wrote that the depletions (sales-to-retailers) trend “was the best quarterly performance we have seen in over a decade.”
Recall that in Q2 2022, U.S. depletions declined -1.7% “as a result of softer industry performance.” Molson Coors’ U.S. shipments that quarter declined -8.2% due to cycling elevated shipments during Q2 2021, when the company was playing catch-up following a cybersecurity incident and severe winter storms in Texas.
Helping drive Molson Coors’ Q3 performance were core brands Coors Light, Miller Lite and Coors Banquet, which combined grew more than a full share point of the premium beer segment, while Miller Lite and Coors Banquet both grew volume, Collins wrote.
Meanwhile, Simply Spiked Lemonade was “the fastest growing new flavored alcohol beverage in the country” in Q3, the company shared, Hattersley said. Topo Chico Hard Seltzer remained “the fastest growing hard seltzer in the U.S.” and a top-five growth brand, the Blue Moon brand family grew share of the U.S. craft beer segment, and Italian import brand Peroni grew volumes “double digits,” he added.
Those gains led to Molson Coors recording its “best U.S. dollar share trend improvement in the quarter relative to the latest 52 weeks,” Collins wrote.
Nevertheless, Molson Coors reported income (loss) before taxes declined -43.2%, “due to changes in our unrealized mark-to-market commodity positions, cost inflation mainly on materials, transportation and energy costs and the unfavorable impact of foreign currency movements, partially offset by positive net pricing, lower depreciation expense and favorable sales mix.”
In the Americas region, Molson Coors increased net sales +6.8% (7.4% in constant currency), which the company attributed to “positive net pricing and favorable sales mix, partially offset by a decrease in financial volumes.” Net sales per hectoliter on a brand volume basis increased +7.5% in constant currency in the Americas segment, “due to positive net pricing and favorable sales mix.”
Lower shipments in Canada, due to a now resolved Québec 11-week labor strike, led to a -1% decline in “financial volumes.” Additionally brand volumes declined -1.5%, which the company attributed to an -8.6% decline in Canada due to “softer industry performance” and the strike.
Hattersley Addresses Jim Koch’s ‘Self-Serving’ Comments on Future Beer Growth
Boston Beer Company’s founder and president Jim Koch expressed multiple times in the past year that he does not expect mainstream beer to grow again in our lifetime. When asked to respond to Koch’s comments, Hattersley said the “self serving statement” was “what you would expect to hear from the leader of a business that has only got about 10% of its portfolio in beer.”
Hattersley also pointed out the potential contradictory nature of Koch’s comments given that Boston Beer execs in their own Q3 earnings call said Truly Hard Seltzer was losing share to premium lights.
“Beer’s been around for 1,000 years, Kevin, it’s the most popular alcohol beverage in the world,” Hattersley said, addressing Jefferies equity analyst Kevin Grundy. “Make no mistake, Kevin, beer is always going to be the heartbeat of our business and beer is always going to be a favorite of consumers as the moderate choice of alcohol compared with hard liquor.”
Hattersley touted Molson Coors’ now 3-year-old revitalization plans, which adjusted the company’s focus to its core brands, growing its premium brands and building beyond beer capabilities.
“During that time we have shown that we are nimble and we can make adjustments when we need to make them,” Hattersley said.
The “most high profile adjustments” Molson Coors made in the period were the changes to Miller Lite and Coors Light marketing efforts “almost overnight” to move into the digital space during the COVID-19 pandemic, Hattersley said.
“We would expect our above premium portfolio to continue to grow from strength to strength,” he added.
Molson Coors has now cycled its economy SKU rationalization of last year, and the company’s “brand and our portfolio is really well positioned to take advantage of whatever happens,” Hattersley continued.
Molson Coors Inventories in ‘Really Good Place’
Beer has had a tough fall, particularly with at-risk inventory – beer at risk of expiring in the next 30 days in wholesaler warehouses – which has increased for three consecutive months, including a reading of 56 in the National Beer Wholesalers Assocation’s (NBWA) October Beer Purchasers’ Index (BPI).
However, Molson Coors’ inventory in the U.S., “with a few minor exceptions with some SKUs, is where we want it to be,” Hattersley said. The company’s stocks are now “as low as they’ve been for quite some times.”
“We had gotten to a really good place at the end of the third quarter,” Hattersley said. “And if you remember last year in the U.S., we were still rebuilding our inventories following the cybersecurity attack all the way through the fourth quarter.
“We spent the whole of the second quarter playing catch up and just keeping our head above water from a shipments point of view,” he continued. “We exited the third quarter this year with our inventories in a really good place. And so that’ll be a sort of negative headwind to speak for the fourth quarter as we do plan to ship to full year consumption.”
Molson Coors to Have ‘Very Significant Presence’ at World Cup with Top Chico Hard Seltzer
Molson Coors plans to have a “very significant presence” at the FIFA World Cup, which kicks off on November 20 in Qatar. While the sporting event is a “really big beer drinking occasion” in the U.K., it is “less of a thing” with Molson Coors’ North American business. As such, it will be leaning heavily in with Topo Chico Hard Seltzer marketing in the U.S., with the attempt to target Latino consumers, Hattersley said.
The company will advertise during 50 games on Spanish language television during the World Cup, including “big games” including Mexico and the U.S. teams.
Topo Chico has “less than half of the awareness of White Claw,” but over-indexes with Latino consumers who underindex in the segment, according to Hattersley. The World Cup provides the “perfect opportunity” for Molson Coors to capitalize on engaging that consumer base, he said.
Molson Coors has “just scratched the surface” of Topo Chico’s potential. In its first year of national distribution, the brand has grown dollar share more than any other hard seltzer brand in the last 52 weeks, Hattersley said. The company has “lots of innovation planned” still for the brand, following the launch of Topo Chico Ranch Water in January and a margarita-inspired pack in April. That innovation will continue in FY23 with Topo Chico Spirited, a spirits-based ready-to-drink canned cocktail.
On-Premise Recover in Q3 Nearly Fully Recovered to 2019 Levels
Molson Coors CFO Tracey Joubert said the company’s on-premise recovery in Q3 2022 was “nearly fully recovered to 2019 total revenue levels,” albeit with variations by market. In the U.S., Molson Coors’ on-premise business stood at 94% of 2019 total revenue, “the highest since the pandemic,” Joubert said. In the U.K., the company’s on-premise business topped 2019 total revenue, while in Canada, which implemented stricter on-premise restrictions, business improved “on a sequential bassist” but hasn’t recovered to 2019 levels.
Worldwide Net Sales +4%
Molson Coors’ global Q3 net sales increased +4% (+7.9% in constant currency), to $2.94 billion, which the company attributed to “positive net pricing and favorable sales mix.” Net sales per hectoliter increased +9.2%, which it attributed to “positive net pricing and favorable sales mix resulting from portfolio premiumization.”
Molson Coors Reaffirms Key Full-Year Guidance Metrics
Molson Coors reported that it remains on track to grow both its top- and bottom-line this year for the first time in a decade, Hattersley said.
Full year net sales are projected to increase mid-single-digit compared to 2021 on a constant currency basis.
The company expects an underlying income (loss) before taxes in the high single-digit compared to 2021. “Due to increased inflationary cost pressures and weakening demand in Central and Eastern Europe, we expect underlying income (loss) before income taxes to be at the lower end of the range,” the company reported.