Molson Coors(TAP) - 2024 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) The unaudited condensed consolidated financial statements for Q1 2024 demonstrate significant profitability growth, with net sales increasing to $2.6 billion and net income surging, while maintaining a stable balance sheet and positive operating cash flow Condensed Consolidated Statements of Operations For Q1 2024, the company reported a 10.7% increase in net sales to $2.60 billion, with substantial growth in gross profit and operating income, leading to a significant surge in net income and diluted EPS Q1 2024 vs. Q1 2023 Statement of Operations Highlights (in millions, except EPS) | Metric | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 31, 2023 | YoY Change | | :--- | :--- | :--- | :--- | | Net sales | $2,596.4 | $2,346.3 | +10.7% | | Gross profit | $963.5 | $770.7 | +25.0% | | Operating income | $314.3 | $158.2 | +98.7% | | Net income attributable to MCBC | $207.8 | $72.5 | +186.6% | | Diluted EPS | $0.97 | $0.33 | +193.9% | Condensed Consolidated Balance Sheets As of March 31, 2024, total assets slightly decreased to $26.07 billion, primarily due to reduced cash, while total liabilities also decreased, and stockholders' equity remained relatively stable Balance Sheet Summary (in millions) | Account | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $458.4 | $868.9 | | Total current assets | $2,677.0 | $2,848.5 | | Goodwill | $5,321.3 | $5,325.3 | | Other intangibles, net | $12,472.3 | $12,614.6 | | Total assets | $26,072.3 | $26,375.1 | | Total current liabilities | $3,863.0 | $4,092.6 | | Long-term debt | $5,312.2 | $5,312.1 | | Total liabilities | $12,714.1 | $12,940.0 | | Total MCBC stockholders' equity | $13,120.1 | $13,196.0 | Condensed Consolidated Statements of Cash Flows For Q1 2024, net cash provided by operating activities increased to $25.4 million, while cash used in investing and financing activities rose due to higher capital expenditures, share repurchases, and dividend payments, resulting in a net decrease in cash Cash Flow Summary (in millions) | Cash Flow Activity | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 31, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $25.4 | $3.4 | | Net cash used in investing activities | ($212.5) | ($177.4) | | Net cash used in financing activities | ($216.2) | ($102.5) | | Net decrease in cash | ($410.5) | ($271.8) | Notes to Unaudited Condensed Consolidated Financial Statements The notes detail key accounting policies and financial activities, including dividend declarations, share repurchases, goodwill impairment risk, debt levels, tax rates, and a significant legal contingency - The Board of Directors declared a dividend of $0.44 per share, paid on March 15, 2024[37] - Under a $2.0 billion share repurchase program, the company repurchased 1,760,115 shares for an aggregate cost of $111.2 million in Q1 2024[38][39][40] - The Americas reporting unit's goodwill fair value exceeded its carrying value by slightly less than 15% as of the last annual test, indicating a heightened risk of future impairment[56] - As of March 31, 2024, the company had an accrued liability of $59.0 million related to the Stone Brewing Company trademark infringement lawsuit[89] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the strong Q1 2024 performance to higher financial volumes, favorable pricing, and positive sales mix across both Americas and EMEA&APAC segments, while maintaining solid liquidity Consolidated Results of Operations Consolidated net sales rose 10.7% to $2.6 billion in Q1 2024, driven by increased financial volume and favorable price/mix, while improved cost of goods sold and higher marketing investments led to a 98.7% growth in operating income Drivers of Consolidated Net Sales Change (Q1 2024 vs. Q1 2023) | Component | Percentage Change | | :--- | :--- | | Financial Volume | +5.7% | | Price and Sales Mix | +4.4% | | Currency | +0.6% | | Total Net Sales | +10.7% | - Cost of goods sold per hectoliter improved 1.9% due to favorable unrealized mark-to-market derivative positions, cost savings, and volume leverage, which offset cost inflation[118] - MG&A expenses increased by 6.4% primarily due to increased marketing investment to support brands and innovations[119] Segment Results of Operations The Americas segment reported a 10.6% increase in net sales, driven by volume and price/mix, leading to a significant rise in pre-tax income, while the EMEA&APAC segment's net sales grew 10.9% due to price/mix and currency, improving its pre-tax loss Americas Segment Net Sales Drivers (Q1 2024 vs. Q1 2023) | Component | Percentage Change | | :--- | :--- | | Financial Volume | +7.5% | | Price and Sales Mix | +3.1% | | Currency | 0.0% | | Total Net Sales | +10.6% | - Americas financial volumes increased 7.5%, driven by U.S. volume growth in core brands, reflecting continued shifts in consumer purchasing behavior and distributor inventory builds[127] EMEA&APAC Segment Net Sales Drivers (Q1 2024 vs. Q1 2023) | Component | Percentage Change | | :--- | :--- | | Financial Volume | (0.2)% | | Price and Sales Mix | +8.2% | | Currency | +2.9% | | Total Net Sales | +10.9% | - The EMEA&APAC segment's pre-tax loss improved by $14.4 million (56.7%) due to increased net pricing and favorable sales mix[134] Liquidity and Capital Resources The company's liquidity is supported by positive cash from operations, with cash and equivalents ending at $458.4 million, while cash was primarily used for capital expenditures, share repurchases, and dividends, maintaining compliance with debt covenants and an undrawn $2.0 billion revolving credit facility - Net cash provided by operating activities increased to $25.4 million in Q1 2024 from $3.4 million in Q1 2023, primarily due to higher net income[143] - Cash used in financing activities increased to $216.2 million, driven by higher share repurchases ($113.6 million) and dividend payments ($96.8 million)[26][145] - As of March 31, 2024, the company had $2.0 billion available under its revolving credit facility with no borrowings outstanding[150] - The company was in compliance with all debt covenants as of March 31, 2024, including its maximum net debt to EBITDA leverage ratio of 4.00x[153] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from changes in interest rates, foreign currency exchange rates, and commodity prices, with sensitivity analyses indicating potential negative impacts on fair values of related financial instruments under adverse hypothetical changes Market Risk Sensitivity Analysis (as of March 31, 2024) | Risk Type | Instrument | Notional Amount (millions) | Fair Value (millions) | Effect of Adverse Change (millions) | | :--- | :--- | :--- | :--- | :--- | | Interest Rate | Fixed Rate Notes | $6,132.5 | ($5,709.2) | ($398.3) (1% change) | | | Interest Rate Swaps | $1,000.0 | $62.6 | ($75.4) (1% change) | | Foreign Exchange | FX Denominated Notes | $1,232.5 | ($1,224.8) | ($119.9) (10% change) | | | FX Forwards | $233.7 | $2.4 | ($24.6) (10% change) | | Commodity Price | Commodity Swaps | $618.1 | ($29.4) | ($54.8) (10% change) | Controls and Procedures Based on management's evaluation, including the CEO and CFO, the company's disclosure controls and procedures were effective as of March 31, 2024, with no material changes to internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of March 31, 2024[178] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[179] PART II. OTHER INFORMATION Legal Proceedings The company refers to Note 10 of the financial statements for details on legal proceedings, including a significant accrued liability of $59.0 million for the Stone Brewing trademark case - For details on legal proceedings, the report refers to Note 10 of the Financial Statements[181] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K - There were no material changes to the risk factors previously disclosed in the company's Annual Report[181] Unregistered Sales of Equity Securities and Use of Proceeds During Q1 2024, the company repurchased 1.76 million shares of Class B common stock for approximately $111.2 million, with $1.74 billion remaining available under the current share repurchase program Issuer Purchases of Equity Securities (Q1 2024) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | January 2024 | 447,856 | $62.53 | | February 2024 | 1,013,764 | $61.92 | | March 2024 | 298,495 | $65.71 | | Total | 1,760,115 | $62.72 | - The share repurchase program, approved in September 2023, authorizes up to $2.0 billion in repurchases over five years, with approximately $1.74 billion remaining available as of March 31, 2024[182] Other Information On March 15, 2024, the company's Vice President and Controller, Roxanne M. Stelter, entered into a pre-arranged Rule 10b5-1 stock trading plan for potential share sales - The company's Vice President and Controller, Roxanne M. Stelter, entered into a Rule 10b5-1 sales plan on March 15, 2024[186]