Molson Coors Beverage Company — FY2022 Form 10-K Summary
Business context and reporting period
Molson Coors is a global brewer and beverage company operating through its Americas and EMEA&APAC segments. Its portfolio includes Coors, Miller, Molson, Carling, Staropramen, Blue Moon, Vizzy and other beer, hard seltzer, ready-to-drink, non-alcoholic and cannabis-related beverages. The filing covers the fiscal year ended December 31, 2022, with comparisons to fiscal 2021 and 2020. Although the request references 2022 Q4, this filing is an annual Form 10-K; quarterly results are not separately presented in the supplied text.
Financial performance and liquidity
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Net sales | $10,701.0 million | $10,279.7 million | +4.1% |
| Gross profit | $3,655.2 million | $4,053.4 million | -9.8% |
| Operating income | $157.5 million | $1,454.4 million | -89.2% |
| Net income attributable to MCBC | $(175.3) million | $1,005.7 million | Turned to loss |
| Diluted EPS | $(0.81) | $4.62 | Turned negative |
| Operating cash flow | $1,502.0 million | $1,573.5 million | -4.5% |
| Capital expenditures paid | $661.4 million | $522.6 million | +26.6% |
| Cash and equivalents | $600.0 million | $637.4 million | -$37.4 million |
Net sales benefited from 9.1% price and sales-mix gains, including premiumization, partially offset by a 2.1% decline in financial volume and a 2.9% unfavorable currency impact. Cost of goods sold increased 13.2%, driven primarily by material, transportation and energy inflation, volume deleverage, mix effects and commodity derivative mark-to-market movements. Gross margin was approximately 34.2%, down from approximately 39.4% in 2021.
Americas net sales increased 2.7% to $8,711.5 million, while financial volume declined 5.4%. EMEA&APAC net sales increased 11.3% to $2,005.2 million, with volume up 8.1%. Americas income before taxes fell 73.4% to $312.9 million, while EMEA&APAC income before taxes increased 85.4% to $61.0 million.
The company recorded an $845.0 million partial goodwill impairment for the Americas reporting unit, a $28.6 million impairment related to the Truss joint venture asset group and a $56.6 million accrued liability for the Keystone litigation. These items, combined with inflation and lower Americas volumes, materially reduced reported earnings. The effective tax rate was negative 198.4%, primarily because the goodwill impairment was not tax deductible.
Debt obligations totaled approximately $6,515.1 million at December 31, 2022, excluding certain lease and other amounts. Total current and long-term debt on the balance sheet was $6,562.3 million. The company repaid its $500 million 3.5% notes at maturity in May 2022. It had no borrowings under its $1.5 billion revolving credit facility or commercial paper program at year-end and reported compliance with debt covenants, including a maximum net debt-to-EBITDA covenant of 4.00x. Long-term credit ratings were BBB-/Stable from S&P, Baa3/Stable from Moody’s and BBB(Low)/Stable from DBRS.
Cash used in financing activities was $889.5 million, including $329.3 million of dividends, $51.5 million of share repurchases and $509.1 million of debt repayments. The company declared dividends of $1.52 per share during 2022 and authorized repurchases of up to $200 million through March 31, 2026.
Material changes versus the prior comparable period
- Revenue increased despite lower volume, as pricing, premiumization and favorable mix more than offset volume and currency pressures.
- Profitability deteriorated sharply because cost inflation outpaced pricing benefits and because of the $845.0 million Americas goodwill impairment.
- Americas volume declined 5.4%, partly reflecting industry softness, the prior-year U.S. distributor inventory rebuild and the Quebec labor strike.
- EMEA&APAC volume grew 8.1% as on-premise restrictions eased, particularly in Western Europe, but inflation and currency depreciation remained significant headwinds.
- Operating cash flow decreased modestly, while capital spending increased substantially because of brewery investments, including the Quebec brewery and Golden, Colorado sustainability projects.
- Debt declined following repayment of the $500 million notes, while dividends and share repurchases resumed at higher levels than in 2021.
- Other comprehensive loss was $201.9 million, largely reflecting foreign-currency translation losses and pension-related changes.
Guidance, outlook, commentary, risks and unusual items
Management did not provide a clear quantified full-year 2023 guidance figure in the supplied filing text. Management expects cost inflation, including for materials, transportation and energy, to continue negatively affecting results in 2023. Mitigation measures include pricing, hedging, premiumization, cost savings, increased rail shipments in the Americas and alternative fuel and energy sources in EMEA&APAC.
The company completed a three-year cost savings program that delivered approximately $605 million of savings, including approximately $115 million in 2022. Its strategy remains focused on strengthening core brands, growing above-premium products, expanding beyond beer and investing in capabilities. Management cautions that premiumization and SKU rationalization may reduce volume even if they improve net sales and earnings quality.
The Americas goodwill balance is considered at risk of additional impairment. Key sensitivities include forecast cash flows, cost inflation, beer-industry trends, interest rates, terminal growth rates, market multiples and the success of innovation and beyond-beer initiatives. Goodwill and intangible assets remained significant at approximately $5.3 billion and $12.8 billion, respectively.
Approximately 400 unionized employees at the Montreal/Longueuil brewery and distribution centers were on strike from late March through June 2022. The company also suspended exports of its brands to Russia and terminated its Russian production license following the Russia-Ukraine conflict. The conflict had limited direct sales exposure but contributed to broader energy, materials, transportation, supply-chain and currency pressures.
Material contingencies include the Keystone trademark litigation, for which a $56.6 million liability was accrued; environmental matters, including the Lowry Superfund site; Kaiser-related indemnities with a maximum potential purchased-tax-credit claim of $66.2 million and recorded indemnity liabilities; and potential changes to Ontario’s beer distribution and retail framework.
Most important facts for an investor to verify
- Whether the Americas reporting unit generates sufficient cash-flow growth to avoid further goodwill impairment.
- Whether pricing and premiumization can offset continuing inflation without further volume or market-share losses.
- The timing and funding of 2023 and 2024 debt maturities, including approximately $389.8 million due in 2023 and $856.4 million due in 2024.
- The ultimate outcome and cash impact of the Keystone litigation and other legal contingencies.
- Progress in rebuilding Americas volume and the sustainability of EMEA&APAC growth after the recovery in on-premise channels.
- The effectiveness of cost savings, commodity hedges and supply-chain actions in protecting gross margins.
- Execution and consumer acceptance of above-premium, hard seltzer, ready-to-drink, non-alcoholic and other beyond-beer products.
- Foreign-exchange exposure, given that approximately 30% of 2022 net sales were denominated in currencies other than the U.S. dollar and approximately 76% of cash was held outside the United States.
- Potential changes to alcohol distribution rules, excise taxes, health labeling, packaging regulation and cannabis-related regulation.