Coors chalks up profit; volume takes a hit

Modern Brewery Age, Feb 16, 2004

Adolph Coors Co. said its fourth-quarter earnings rose 79 percent as higher prices, improved European sales and favorable foreign exchange rates helped it more than offset a decline in U.S. volume.

The company announced higher consolidated net sales, net income and earnings per share for 2003, despite declining U.S. beer sales late in the year.

For the 52-week fiscal year ended Dec. 28, 2003, the company achieved consolidated net sales of $4.0 billion, a 5.9 percent increase from 2002. Reported sales volume totaled 32,735,000 U.S. barrels, or 38,413,000 hectoliters (HLs), in 2003, a 2.8 percent increase from 2002. Consolidated 2003 net income was $174.7 million, or $4.77 per diluted share, up 8.0 percent from a year ago. Higher 2003 earnings were attributable primarily to a lower effective tax rate, solid beer pricing in the company's Americas business, higher Europe segment; volume and-margins, and favorable foreign currency exchange rates.

Leo Kiely, Coors Brewing Co. president and chief executive officer, said, "Overall, 2003 was a tough year for Coors Brewing Company. Our U.S. business suffered from weak industry demand, increased popularity of 'low-carbohydrate' beers, and product supply disruptions resulting from implementation of our new supply chain systems and processes late in the year. After a disappointing first half of the year, our U.K. business achieved solid earnings growth in the second half of the year, driven by strong volume and share performance from the Carling brand, improved pricing in both the on- and off-wade channels, favorable foreign exchange, and improvements in operations costs compared to the prior year.

"During 2003," Kiely added, "we also continued to make progress in key high-opportunity areas of our U.S. business, including young-adult and Hispanic marketing and the on-premise and convenience-store channels. In the U.K., we're pleased with the success of our Carling Extra Cold roll-out last year and the initial results of the recent Coors Fine Light launch. In addition, we achieved further cost reductions in key areas of our U.S. and U.K. operations, and we increased our efforts in the area of product innovation that we believe will renew category excitement and results for both our U.S. and U.K. brand portfolios.

"Finally," Kiely said," we increased cash generation and made net principal payments on debt totaling $272 million, partially aided by some one-time factors, including lower cash taxes

Going forward, our focus will be on sustaining the progress that we made late last year in Europe and restoring volume growth in key markets in the Americas business."

For the 13-week fourth quarter ended Dec. 28, 2003, the company reported net sales of $1.0 billion, up 4.3 percent from the fourth quarter of 2002. Fourth quarter 2003 sales volume decreased 1.7 percent from the fourth quarter 2002. Fourth quarter 2003 net income was $36.1 million, or $0.98 per diluted share, up 78.5 percent from a year ago.

For the full year 2003, Americas segment net sales increased 0.4 percent from a year earlier. Americas sales volume and sales to retail for 2003 decreased 1.4 percent from the prior year. U.S. distributor sales to retail--excluding sales to the Caribbean and Asia--decreased 1.0 percent for the full year, compared to 2002. Pretax income for the full year 2003 increased 1.0 percent from 2002.

In the fourth quarter 2003, net sales in the Americas segment decreased 0.8 percent from the fourth quarter a year ago. Fourth quarter sales volume for the segment was down 2.7 percent from a year earlier, while sales to retail were down approximately 2.6 percent. Excluding sales to the Caribbean and Asia, U.S. distributor sales to retail decreased 2.8 percent in the fourth quarter, compared to 2002. Pretax earnings were up 14.6 percent.

"The supply chain disruptions in the U.S. business resulted in approximately $8 million of additional costs in the fourth quarter," the company said, "primarily in freight, labor and finished goods loss. The disruptions also had a negative impact on volume and earnings. While performance of the new supply-chain systems and processes has improved considerably since last fall, more work needs to be done to improve the reliability and efficiency of the systems in order to meet the demands of peak season. Although U.S. distributor inventories ended the year approximately 100,000 barrels above the prior year, the company's U.S. distributors continue to experience product stock-outs, particularly of lower-volume products."

The company said its Europe segment 2003 full-year comparisons with 2002 results are hard to make, since 2002 results exclude the first five weeks of the year. In addition, 2003 results benefited from an 8.4 percent appreciation in the British pound versus the U.S. dollar. Overall, the company said its key brands in the U.K.--especially Carling and Grolsch--continued to grow volume and market share versus 2002.

In the fourth quarter 2003, the Europe segment achieved a 10.9 percent increase in net sales from the fourth quarter of 2002. Sales volume increased 0.2 percent versus a year ago, driven by the Carling brand growing at a high-single-digit rate, largely offset by declines in other brands. Europe segment 2003 fourth quarter pretax income increased 60.7 percent from the prior year driven by operations cost savings, less off-trade discounting, appreciation of the British pound vs. the U.S. dollar, and lapping unusually high costs in the fourth quarter of 2002.