Molson Coors Beverage Company 2021 Form 10-K Summary
Business context and reporting period
Annual report for the fiscal year ended December 31, 2021, filed February 23, 2022. Molson Coors is a global brewer and beverage company operating through the Americas and EMEA&APAC segments. Its portfolio includes core beer brands, above-premium beer, hard seltzers, ready-to-drink products, non-alcoholic beverages, cannabis-infused beverages and CBD-related products.
Management reported improved market conditions as on-premise venues reopened, although pandemic-related restrictions, Omicron-related disruptions, supply-chain constraints and inflation continued to affect results. The filing does not provide a separate Q4 income statement; the financial figures below are full-year results.
Key financial metrics
| Metric | FY 2021 | FY 2020 | Change |
|---|---|---|---|
| Net sales | $10,279.7 million | $9,654.0 million | +6.5% |
| Gross profit | $4,053.4 million | $3,768.3 million | +7.6% |
| Operating income (loss) | $1,454.4 million | $(408.9) million | Improved |
| Net income attributable to MCBC | $1,005.7 million | $(949.0) million | Improved |
| Diluted EPS | $4.62 | $(4.38) | Improved |
| Net cash from operating activities | $1,573.5 million | $1,695.7 million | -7.2% |
| Capital expenditures incurred | $558.6 million | $530.0 million | +5.4% |
| Financial volume | 84.028 million hectoliters | 84.479 million hectoliters | -0.5% |
| Worldwide brand volume | 80.673 million hectoliters | 82.033 million hectoliters | -1.7% |
Calculated margins were approximately 39.4% gross margin, 14.1% operating margin and 9.8% net margin in 2021, compared with approximately 39.0%, negative 4.2% and negative 9.8%, respectively, in 2020.
- Americas: Net sales were $8,485.0 million, up 3.0%; income before taxes was $1,176.5 million, up 8.9%. Financial volume declined 2.0% and brand volume declined 3.2%.
- EMEA&APAC: Net sales were $1,802.3 million, up 25.9%; income before taxes was $32.9 million versus a $1,603.7 million loss in 2020. Financial volume increased 3.9% and brand volume increased 3.0%.
- Liquidity: Cash and cash equivalents were $637.4 million at year-end versus $770.1 million in 2020. The company reported $1.5 billion of availability under its revolving credit facility and no outstanding revolver or commercial paper borrowings at year-end.
- Debt: Total long-term debt, including the current portion, was $7,155.2 million; total debt obligations in the contractual maturity schedule were $7,138.6 million. The company repaid its $1.0 billion 2.1% notes at maturity in July 2021. The maximum revolving-facility leverage covenant was 4.00x net debt to EBITDA, and the company reported compliance with its debt covenants.
- Debt ratings: Long-term ratings were BBB-/Stable from S&P, Baa3/Stable from Moody’s and BBB(Low)/Negative from DBRS.
- Dividends: The quarterly dividend was suspended in 2020 and reinstated in the third quarter of 2021. Dividends paid during 2021 were $0.68 per share. On February 22, 2022, the board declared a quarterly dividend of $0.38 per share.
Material changes versus the prior comparable period
- Results recovered sharply from 2020, when pandemic-related closures and restrictions drove a $1.5 billion EMEA&APAC goodwill impairment and a consolidated net loss.
- Net sales increased despite a 0.5% decline in financial volume, primarily reflecting 5.2% price and sales-mix improvement and 1.8% favorable currency effects.
- Worldwide brand volume declined 1.7%, primarily due to lower economy-brand volumes and the rationalization of non-core SKUs, partly offset by growth in above-premium products.
- Cost of goods sold increased 5.8%, with cost per hectoliter rising 4.4% in local currency because of input-material, transportation and other inflationary pressures.
- Marketing, general and administrative expenses increased 4.8%, reflecting higher marketing investment in core brands and new innovations.
- Special items declined to a net charge of $44.5 million from $1,740.2 million, largely because 2021 did not include the prior-year EMEA&APAC goodwill impairment.
- Operating cash flow decreased by $122.2 million, principally because 2020 benefited from approximately $130 million of tax-payment deferrals that were substantially repaid in 2021.
- The March 2021 cybersecurity incident disrupted production and shipments in the first quarter. Management stated that operations had recovered by December 31, 2021; incremental related costs were $2.4 million, net of insurance recoveries.
- The revitalization plan was substantially complete at year-end. The company delivered approximately $220 million of cost savings in 2021 and expects approximately $600 million over the three-year program through 2022, including approximately $150 million related to the revitalization plan.
- A new Longueuil, Quebec brewery became operational during the fourth quarter of 2021.
Guidance, outlook, management commentary, risks and unusual items
Management expects cost inflation, including higher transportation, fuel, aluminum and other input costs, to continue negatively affecting results in 2022. The company plans to mitigate pressure through pricing, premiumization, hedging and cost savings, but does not quantify formal 2022 revenue or earnings guidance in the provided filing text.
- COVID-19 remains a significant uncertainty, particularly regarding new variants, on-premise restrictions, consumer behavior, vaccination or testing requirements and economic conditions.
- The Americas goodwill balance was $6.2 billion and was considered at risk of future impairment. The October 1, 2021 valuation showed fair value approximately 6% above carrying value; a 50-basis-point increase in the discount rate would have reduced the cushion to approximately 1%.
- Supply-chain disruption, packaging availability, driver shortages, freight costs and commodity inflation could pressure volumes, margins and product availability.
- Competitive and consumer shifts toward above-premium beer, hard seltzers, spirits, wine, non-alcoholic products and other beverage categories may require continued investment and successful innovation.
- The company faces material exposure to foreign-exchange movements, interest rates and commodity prices, although it uses derivatives and supplier contracts to hedge portions of these risks.
- Legal and regulatory contingencies include the Stone Brewing trademark litigation, environmental matters, indemnities related to the former Kaiser business and potential changes to Ontario’s beer distribution and retail framework.
- Accrued litigation, other disputes and environmental liabilities were $11.3 million at year-end. Kaiser indemnity liabilities totaled $10.2 million, and letters of credit outstanding totaled $62.2 million.
- Management and the independent auditor concluded that internal control over financial reporting was effective as of December 31, 2021.
Most important facts for investors to verify
- Whether pricing and premiumization can offset volume declines and sustained input-cost inflation.
- Progress in restoring on-premise demand and the continuing financial effects of pandemic-related restrictions or variants.
- The Americas reporting unit’s narrow goodwill impairment cushion and sensitivity to discount rates, forecast cash flows and market performance of new products.
- Debt maturities, refinancing plans and covenant headroom, particularly the $512.3 million due within one year and larger maturities in 2024 and 2026.
- Execution of the revitalization plan, including the remaining 2022 cost-savings target and returns on innovation investments.
- Cash-flow conversion after tax-deferral repayments, capital expenditures, dividends and debt service.
- Potential outcomes of the Ontario distribution-framework legislation and the Stone Brewing litigation.
- Whether the March 2021 cybersecurity incident creates additional costs, operational vulnerabilities, litigation or insurance impacts.