Molson Coors Beverage Company — Q1 2022 Form 10-Q Summary
Business context and reporting period
Molson Coors Beverage Company is a global brewer with operations in the Americas and EMEA&APAC segments. The filing covers the unaudited three months ended March 31, 2022, compared with the three months ended March 31, 2021. Results are seasonal and management cautions that quarterly results are not an appropriate basis for projecting full-year performance.
Key financial metrics
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Net sales | $2,214.6 million | $1,898.4 million | 16.7% |
| Gross profit | $927.8 million | $731.0 million | 26.9% |
| Operating income | $224.4 million | $177.2 million | 26.6% |
| Income before taxes | $173.7 million | $126.3 million | 37.5% |
| Net income attributable to MCBC | $151.5 million | $84.1 million | 80.1% |
| Diluted EPS | $0.70 | $0.39 | 79.5% |
| Net cash used in operating activities | $(119.3) million | $(190.9) million | Improved by $71.6 million |
| Capital expenditures paid | $243.8 million | $102.5 million | Increase of $141.3 million |
Reported gross margin was approximately 41.9%, compared with 38.5% in the prior-year quarter. Operating margin was approximately 10.1%, compared with 9.3%, and net income attributable to MCBC margin was approximately 6.8%, compared with 4.4%.
- Financial volume increased 5.1% to 17.037 million hectoliters; worldwide brand volume increased 1.7% to 16.531 million hectoliters.
- Americas net sales rose 8.5% to $1,836.2 million, while income before taxes declined 39.6% to $87.1 million.
- EMEA&APAC net sales increased 84.2% to $381.2 million, and income before taxes improved to a loss of $32.2 million from a loss of $89.4 million.
- Cash and cash equivalents were $358.7 million at March 31, 2022, down from $637.4 million at December 31, 2021.
- Total debt, including current and long-term portions, was approximately $7.3 billion; long-term debt was $6.6 billion and current debt and short-term borrowings were $681.9 million.
- The company had $1.3 billion available under its $1.5 billion revolving credit facility at March 31, 2022. Subsequent commercial paper borrowings reduced availability to approximately $1.0 billion as of May 3, 2022.
- The company paid $82.4 million of dividends and repurchased 280,000 Class B shares for $14.1 million during the quarter.
Material changes versus the prior comparable period
- Net sales benefited from a 5.1% increase in financial volume and 12.5% favorable pricing and sales mix, partially offset by a 0.9% currency headwind.
- Worldwide brand volume growth was driven by a 19.8% increase in EMEA&APAC, including easier comparisons from pandemic-related on-premise closures in Q1 2021. Americas brand volume declined 3.1%.
- Cost of goods sold increased 10.2%, reflecting input-material and transportation inflation, higher factored volumes and portfolio mix effects.
- Marketing, general and administrative expenses increased 24.5%, primarily due to a $56.0 million accrual related to Keystone litigation, higher legal costs, increased marketing and sponsorship spending, and the comparison with lower prior-year expenses.
- Special items increased to a net charge of $27.6 million from $10.9 million, including a $28.6 million impairment loss related to the Truss joint venture asset group.
- The effective tax rate declined to 21% from 35%, primarily because the prior year included $18.1 million of net discrete tax expense, while Q1 2022 included a $0.9 million discrete tax benefit.
- Operating cash use improved year over year, but higher capital expenditures and dividend payments resulted in a $273.0 million decline in cash during the quarter, including foreign-exchange effects.
Guidance, outlook, commentary, risks and unusual items
The filing does not provide a clear quantified full-year financial guidance range. Management expects significant cost inflation, including higher transportation, energy, supply and input costs, to continue to pressure results for the remainder of 2022 and potentially beyond. Pricing, premiumization, hedging and cost-saving initiatives are intended to mitigate these pressures.
- COVID-19 restrictions eased during the quarter, but on-premise volumes had not returned to pre-pandemic levels. Future outbreaks, restrictions and changes in consumer behavior remain uncertain.
- The Russia-Ukraine conflict led to suspended exports and licensing activity in Russia and halted licensed production and sales in Ukraine. Direct exposure was less than 0.2% of 2021 net sales, but broader inflation, supply-chain and geopolitical effects may be material.
- The company accrued $56.0 million for the Keystone trademark litigation jury verdict. Post-trial proceedings and potential appeals could change or nullify the verdict, and the estimated loss could change in the near term.
- Approximately 400 unionized employees at the Montreal/Longueuil brewery and distribution centers went on strike in late March 2022, adversely affecting production and distribution. A prolonged or expanded strike could materially affect results.
- The company repaid its $500.0 million 3.5% senior notes at maturity on May 1, 2022 using cash and commercial paper borrowings.
- Americas goodwill was identified as vulnerable to future impairment if forecast cash flows, revitalization efforts, inflation assumptions, tax rates or other valuation assumptions deteriorate. No Q1 2022 goodwill triggering event was identified.
- The company remained in compliance with debt covenants, including a maximum net debt-to-EBITDA ratio of 4.00x under the revolving credit facility.
- Management stated that available cash, operating cash flow and borrowing capacity are expected to fund operating needs, debt service, capital expenditures and other obligations for at least the next twelve months, although access to additional liquidity is not assured under adverse market conditions.
Important facts for investors to verify
- Reconcile the improvement in reported earnings with the $56.0 million Keystone accrual, $28.6 million Truss impairment and significant commodity-derivative gains.
- Assess whether pricing and premiumization can offset persistent input, freight, energy and labor inflation without further volume erosion, particularly in the Americas.
- Monitor the Montreal labor disruption, on-premise recovery, COVID-19 developments and the continuing Russia-Ukraine impact on operations and supply costs.
- Review liquidity after the May 1, 2022 debt maturity, subsequent commercial paper borrowings and the decline in quarter-end cash.
- Evaluate potential future impairment risk for Americas goodwill and indefinite-lived brands if management’s growth and margin assumptions are not achieved.
- Track the outcome of the Keystone post-trial proceedings, potential appeals and any change to the $56.0 million accrued liability.