Molson Coors Q4 US Shipments -11%, Depletions -6.8%; Full-Year Global Net Sales +4.1%, to $10.7 Billion

Molson Coors’ U.S. business ended 2022 on a weak note, as the company recorded declines in both shipments (-11.2%) and depletions (-6.8%) in the fourth quarter, according to the company’s Q4 and full-year 2022 earnings report.

In the company’s Americas segment, Q4 net sales declined -0.7% on a reported basis, but increased +0.4% in constant currency, which Molson Coors attributed to “positive net pricing and favorable sales mix, partially offset by lower financial volumes.”

Financial volumes, which Molson Coors defines as “owned or actively managed brands sold to unrelated external customers within our geographical market” – akin to shipments (sales to wholesalers), declined -10.5% in the Americas, driven by declining shipments in the U.S. and Canada. Brand volumes, which are similar to depletions (sales to retailers), declined -6.6% in the Americas, driven by the U.S. (-6.8%) and Latin America (-6.9%). Canadian brand volumes declined -5%.

“The fourth quarter volume was down,” CEO Gavin Hattersley said during a conference call with investors and analysts. “From a consumer spend point of view, just like every other consumer goods company, we did see changed behavior from a consumer point of view. So that impacted our fourth quarter retail sales or brand volumes.”

For full-year 2022, Molson Coors’ worldwide net sales reached $10.7 billion, an increase of +4.1% on a reported basis and +7% in constant currency, which it credited to “positive net pricing and favorable sales mix resulting from portfolio premiumization and favorable channel mix, partially offset by lower financial volumes.” Financial volume declined -2.1% driven by “industry softness in the Americas” that was only partially offset by volume gains in Europe “due to less onerous coronavirus pandemic restrictions.”

Net sales per hectoliter on financial volumes increased +9.3% in constant currency, due to portfolio premiumization, which was one of the goals of the company’s sweeping revitalization plan introduced in October 2019

“We have delivered our seventh consecutive quarter of top-line growth on a constant currency basis, driven by the strength of our core brands and growth in our above premium portfolio,” Hattersley said in a press release. “We believe our 2022 results are not an aberration or a moment in time but a product of three years of work under our revitalization plan. And it is a milestone on our path to delivering sustainable growth, year after year.”

In U.S.-based multi-outlet grocery and convenience stores, dollar sales of Molson Coors’ portfolio increased +0.9%, to $7.584 billion, while case volume declined -5.5% in 2022 compared to 2021, according to market research firm IRI.

Dollar sales of the Coors brand family – Molson Coors’ largest and the fifth best-selling brand family in the U.S. – were flat in 2022, to $2.639 billion, while case volume declined -5.3%, according to IRI. The Miller brand family, which is just behind Coors in both the company’s portfolio and overall beer category sales, recorded dollar sales increases of +1.5%, to $2.162 billion. Miller family case volume declined -4%.

Miller gained the -0.04 in dollar share that Coors lost, bringing its share of total beer category dollars to 4.85%. Coors accounted for 5.92%.

For the first month of 2023, Molson Coors recorded a +5.8% increase in off-premise dollar sales through January 29, according to IRI. Case volume declined -2.1% compared to the same period in 2022.

The Coors family’s dollar sales increased +5.6%, but its case volume declined -1.9%. The Miller brand family recorded gains in both dollar sales (+9.3%) and case volume (+1.9%), outperforming the overall beer category.

Those gains by the company’s two largest brands came as Molson Coors prepared to launch its first nationally broadcast commercial in the Super Bowl in decades, as rival Anheuser-Busch InBev waived its long-held exclusivity rights over the beverage-alcohol category.

“We’ve got really strong programs for 2023, starting with the Super Bowl, which wasn’t just a point in time,” Hattersley said. “It was a buildup for several months before that, and we’ll continue to leverage that post the Super Bowl. So, we don’t shy away from being the challenger in the challenger position versus our competitors.”

In Q4, Molson Coors recorded a non-cash, “goodwill impairment charge” of $845 million in the Americans segment, which “reduced our future expected cash flows in the near- to medium term,” chief financial officer Tracey Joubert said.

As a result, the company’s U.S. GAAP (generally accepted accounting principles) loss before income taxes was -$564.1 million. The impairment was not included in underlying results and was largely due to “macroeconomic factors like rising interest rates and increased cost inflation,” she added.

‘Low-Single-Digit Growth’ Project for 2023

Molson Coors is projecting “continued growth” in 2023, “despite softness in the beer industry” and continued inflationary pressures. The company is projecting low-single-digit growth for both net sales revenue and underlying pretax income, and an underlying free cash flow of $1 billion, plus or minus 10%.

“On the top line, we expect growth to be more rate than volume driven, as we continue to benefit from the strong global net pricing that we took in 2022 as well as premiumization,” Joubert said.

The company expects inflation “to continue to be a headwind in 2023,” but will counteract any costs with “pricing and continued premiumization,” Joubert said.

Price Hikes Expected to Return to Historical Trends in Back Half of 2023

Molson Coors implemented two above-trend price increases in 2022 – equivalent to a combined +10% increase versus prices in Q4 2021 – but the company maintains that it has not seen any “significant trade down” by consumers, or consumers leaving the beer category, Hattersley said.

“It is true that U.S. industry-wide beer volumes fell at a much higher rate in the fourth quarter than they had earlier in the year,” Hattersley said. “Much of this has been attributed to most of the beer industry taking a second price increase in the calendar year. And yet beer as a category has maintained its share of basket at retail. So consumers are not reducing beer purchasing in favor of other staples.”

Beer volume – determined by case sales – declined -4.8% in multi-outlet food plus convenience channels in 2022 versus 2021, according to IRI. The category also recorded an average price per case increase of $1.57, to $28.60 per case. However, beer was able to gain share of total bev-alc in Q4 2022, according to Hattersley.

“Consumers are not switching to other alcohol beverages,” Hattersley said. “And in fact, notwithstanding the comments made by a large upstream supplier, we see the pricing taken in 2022 still sticking across our markets earlier this year.”

The “large upstream supplier” Hattersley referenced but did not name is likely global can manufacturer Ball Corp., whose CEO Dan Fisher credited inflationary pressures and beer category price increases as the cause of less consumption and, in turn, Ball’s declining volume, during the company’s Q3 earnings call in November.

“If pricing were the driving reason behind the softer industry trends, we would have expected it to adversely impact the beer industry relative to other consumer staples or other alcohol beverage categories, and we haven’t seen that,” Hattersley said. “But what we have seen is a subset of value-conscious U.S. consumers who are actively trading down into smaller pack sizes.”

Consumers may be trading down in pack size, but Molson Coors has not seen any significant trade down away from premium brands into lower-priced segments.

“Obviously, that [package trade-down] is negative from a volume perspective, that contraction, but it’s actually positive from a mix point of view for our organization,” Hattersley said.

Molson Coors will continue to implement price increases in 2023, but the company is not projecting the large increases of 2022. There will be “a few increases” in the spring in markets that “didn’t take price in the fall.” For the fall, price increases will “be closer to where they’ve been from a historical point of view,” around +1% to +2%.

Should consumers start to trade-down into lower-priced segments, Molson Coors “has the ideal portfolio to deal with that,” Hattersley added.

Coors Light and Miller Lite ‘Healthier Than They’ve Been in Years’

Molson Coors has “aggressively premiumized” its portfolio in the past few years, with more than 28% of the company’s global net sales revenue now coming from its above-premium portfolio, up from 23% in 2019, Hattersley said. The company’s U.S. above-premium portfolio also gained “the second most dollar share of all major U.S. brewers in 2022.”

Molson Coors’ above-premium portfolio includes brands such as Peroni, with U.S. revenues up double digits vs. 2019, and craft brand Blue Moon, which recorded U.S. revenues also above 2019 levels, emboldened in part by the launch of Blue Moon LightSky in 2020, and Blue Moon LightSky Tropical in 2022.

However, the darlings in the company’s portfolio at the moment are its premium light lagers, Coors Light and Miller Lite. The two brands are “healthier than they’ve been in years,” and both grew volume and dollar share in the U.S. in Q4, Hattersley said.

“They even combined to outperform the combination of [Anheuser-Busch InBev’s] Michelob Ultra and Bud Light in U.S. volume share performance for the fourth quarter,” Hattersley said.

“These trends didn’t just suddenly appear,” he continued. “They’re the result of consistent brand messaging, and more effective brand investment.”

Molson Coors to Expand on Innovations of 2022

Molson Coors still sees “lots of upside” with the innovations it launched in 2022, including Simply Spiked Lemonade, a flavored-malt-beverage (FMB) made through an agreement with The Coca-Cola Company.

Reception to Simply Spiked was “amazingly positive,” but Molson Coors wasn’t able to capitalize on the brand as much as potentially possible, as they “weren’t able to meet demand,” Hattersley said.

“We’ve got a process in place where we will be able to meet demand this year,” he said. “So, lots of upside in Simply Spiked.”

Molson Coors will expand Simply Spiked with a Peach flavor this year, joining Strawberry, Blueberry, Watermelon and Signature Lemonade.

Molson Coors also plans to “maintain the momentum” of Topo Chico Hard Seltzer, with a spirits-based version of the beyond beer brand launching in 2023. Topo Chico Spirited (5.9% ABV) will come in three flavors, two tequila-based and one vodka-based, Molson Coors VP of innovations Jamie Wideman shared during the company’s distributor convention in September.

“The way we’re looking at our innovations is we’re looking at flavor more broadly,” Hattersley said. “So, it includes seltzers, but it also includes FMBs and RTDs. And when you look at those segments together, we grew more share than any other supplier in the last 52 weeks. … So, we’ve still got lots of upside with our existing innovations that we just launched.”

Molson Coors to Increase Marketing Spend in 2023

Molson Coors marketing spend was down in Q4 2022 versus Q4 2021, as the company refocused on “core brands and innovation.” The decline is slightly misleading, as it laps “significantly higher spend in the previous year period, when investments exceeded fourth quarter 2019 levels,” Joubert said.

Additionally, when excluding discontinued brands, marketing investments actually increased for the full year versus 2021, Joubert added.

“We’ve completely changed our approach to media to make sure that our dollars work really hard for us,” Hattersley said. “We’ve also completely overhauled our approach to performance-based marketing to make sure that we get the absolute best return on ad spend and to maximize our effectiveness.”

More than 50% of Molson Coors’ media spend is in digital channels, with ads on streaming videos, podcasts, and sports betting platforms such as DraftKings, Hattersley said. The company partnered with DraftKings during Super Bowl LVII this year, having consumers vote on what would happen in Molson Coors’ first national Super Bowl ad in more than 30 years.

“We’re going to continue to invest heavily behind our brands, and we are planning to increase our ad spend in 2023,” Hattersley said.

Molson Coors to Exit ‘Large Contract Brewing Arrangement’ in 2024

Molson Coors’ top line growth projections for 2023 will rely more on price mix than volume, as the company is “a little cautious” “from a volume perspective.”

Hattersley noted that the company is in the process of “exiting a large contract brewing arrangement,” which is also impacting its top line. 2023 will be a “transition year” with the contract ending at the end of 2024.

Pabst Brewing announced in 2019 that it would wind down its contract brewing agreement with Molson Coors, with the production shifting to City Brewing by December 2024. Pabst went on to acquire the former Molson Coors brewery in Irwindale, California, which was later sold to a consortium that acquired City Brewing.

“A decent chunk of that volume comes out [with that transition] and that obviously carries a fair amount of NSR [net revenue] with it,” Hattersley said. “Now, we are confident that it will take a lot of complexity out of our business and reduce our overall cost structure, and it’s just going to make us a whole lot more efficient.”