Molson Coors Beverage Company — Q2 2023 Form 10-Q Summary
Business context and reporting period
Molson Coors is a global beverage company operating primarily through its Americas and EMEA&APAC segments, with a portfolio centered on beer and adjacent beverage products. This unaudited Form 10-Q covers the three and six months ended June 30, 2023, compared with the corresponding 2022 periods. Results are reported in U.S. dollars and are subject to seasonality.
Financial performance and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Net sales | $3,266.6 million | $2,921.7 million | $5,612.9 million | $5,136.3 million |
| Operating income | $488.5 million | $114.5 million | $646.7 million | $338.9 million |
| Income before taxes | $441.1 million | $54.9 million | $543.0 million | $228.6 million |
| Net income attributable to Molson Coors | $342.4 million | $47.3 million | $414.9 million | $198.8 million |
| Diluted EPS | $1.57 | $0.22 | $1.91 | $0.91 |
| Net cash from operating activities | Not provided for quarter | Not provided for quarter | $894.4 million | $666.8 million |
Q2 net sales increased 11.8%, while six-month net sales increased 9.3%. Financial volume increased 2.8% in Q2 and 1.5% year to date. Price and sales mix contributed 9.3% to Q2 sales growth and 8.9% year to date, primarily from pricing actions, premiumization and geographic mix.
Q2 gross profit was $1,218.9 million, representing an approximately 37.3% gross margin versus approximately 28.1% in the prior-year quarter. Operating margin was approximately 15.0% versus 3.9%, and net income attributable to Molson Coors margin was approximately 10.5% versus 1.6%. Six-month gross margin was approximately 35.5% versus 34.0%, and operating margin was approximately 11.5% versus 6.6%.
Q2 cost of goods sold decreased 2.6% despite higher volumes, benefiting from favorable commodity derivative mark-to-market movements, currency and cost savings. For the six-month period, cost of goods sold increased 6.9%, reflecting cost inflation and unfavorable mix. Marketing, general and administrative expense increased 3.9% in Q2 but decreased 2.4% year to date.
As of June 30, 2023, cash and cash equivalents were $960.9 million, compared with $600.0 million at December 31, 2022. Total debt, including current maturities and short-term borrowings, was approximately $6.6 billion, consisting of $6.2 billion of long-term debt and $423.2 million of current debt and short-term borrowings. Net debt was approximately $5.6 billion before considering other liquidity items.
Operating cash flow was $894.4 million for the first six months, capital expenditures paid were $335.1 million, dividends paid were $178.2 million and share repurchases were $26.7 million. The company ended the period with no borrowings under its revolving credit facility or commercial paper program.
Material changes versus the prior comparable period
- Q2 operating income rose 326.6% and net income attributable to Molson Coors rose 623.9%, partly because the prior-year period included adverse commodity derivative mark-to-market effects and the current year benefited from pricing, volume leverage and favorable mix.
- Year-to-date operating income increased 90.8% and attributable net income increased 108.7%. The comparison benefited from cycling the $56.0 million Keystone litigation accrual and the $28.6 million Truss asset impairment recorded in 2022.
- Americas Q2 net sales increased 10.7% and financial volume increased 5.0%; six-month net sales increased 8.5% and volume increased 2.6%.
- EMEA&APAC Q2 net sales increased 16.3% despite a 3.0% volume decline; six-month net sales increased 12.7% despite a 1.5% volume decline. Results reflected significant pricing and mix benefits, while inflation pressured consumer demand, particularly in Central and Eastern Europe.
- The revolving credit facility was amended in June 2023, extending maturity to June 26, 2028 and increasing capacity from $1.5 billion to $2.0 billion.
- The company repaid its CAD 500 million, 2.84% notes at maturity on July 15, 2023 using cash on hand.
Guidance, outlook, commentary and risks
Management expects cost inflation to moderate in the second half of 2023 and continue easing into 2024, although the filing does not provide a clear quantitative earnings or revenue guidance figure. Management is relying on pricing, premiumization, hedging and cost-savings programs to offset inflation.
- Key risks include persistent materials, manufacturing and logistics inflation, consumer trade-down or reduced discretionary purchases, adverse foreign exchange movements, commodity prices, interest rates and competitive pricing pressure.
- The Russia-Ukraine conflict continues to affect EMEA&APAC demand and global input costs. The company suspended exports of its brands to Russia and terminated its Russian production license.
- Americas performance benefited from cycling the 2022 Quebec labor strike; this favorable comparison may not recur.
- Americas goodwill remains sensitive to unfavorable changes in forecast cash flows, terminal growth rates, market multiples, discount rates, industry conditions and execution of the company’s premiumization strategy. No impairment trigger was identified during the first six months of 2023.
- The Keystone trademark litigation remains unresolved. The company accrued $57.6 million as of June 30, 2023, including associated post-judgment interest. Post-trial motions and potential appeals could change the ultimate loss.
- Aggregate accrued liabilities for litigation, disputes and environmental matters were $79.1 million. The company also recorded $39.9 million for guarantees of obligations of certain investments and subsidiaries and $11.9 million related to Kaiser indemnities.
- A potential legislative change in Ontario could adversely affect the beer distribution and retail systems, although the existing Master Framework Agreement runs through December 31, 2025 and the legislation had not been proclaimed.
- The company stated that its disclosure controls were effective as of June 30, 2023 and that there were no material changes in internal control over financial reporting.
Most important facts for investors to verify
- Whether pricing and premiumization can continue to offset inflation without causing volume declines or consumer trade-down.
- The sustainability of Q2 margin expansion, particularly the effect of commodity derivative mark-to-market gains and other nonrecurring comparison benefits.
- Post-June 30 debt activity, including the July 2023 CAD 500 million note repayment and resulting interest expense and liquidity profile.
- Progress and ultimate resolution of the Keystone litigation, including any effect from post-trial motions or appeals.
- EMEA&APAC volume trends and consumer demand under ongoing inflationary pressure.
- Americas goodwill impairment sensitivity and the company’s achievement of forecast cash flow and growth assumptions.
- Future cash allocation among dividends, share repurchases, capital expenditures and debt reduction.