Molson Coors(TAP_A) - 2022 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements (Unaudited) For the six months ended June 30, 2022, Molson Coors reported decreased net income and operating cash flow, driven by higher costs and expenses, with cash primarily used for debt repayment and capital expenditures Condensed Consolidated Statements of Operations In Q2 2022, net sales slightly decreased while net income attributable to the company significantly dropped by 87.8% to $47.3 million, reflecting a broader decline in profitability for the six-month period despite net sales growth Consolidated Statements of Operations Highlights (in millions, except per share data) | Metric | Q2 2022 | Q2 2021 | % Change | H1 2022 | H1 2021 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Net Sales | $2,921.7 | $2,939.4 | (0.6)% | $5,136.3 | $4,837.8 | 6.2% | | Gross Profit | $820.0 | $1,271.5 | (35.5)% | $1,747.8 | $2,002.5 | (12.7)% | | Operating Income | $114.5 | $580.8 | (80.3)% | $338.9 | $758.0 | (55.3)% | | Net Income (attributable to MCBC) | $47.3 | $388.6 | (87.8)% | $198.8 | $472.7 | (57.9)% | | Diluted EPS | $0.22 | $1.79 | (87.7)% | $0.91 | $2.17 | (58.1)% | Condensed Consolidated Balance Sheets As of June 30, 2022, total assets slightly decreased to $27.39 billion, with cash and equivalents declining, while total debt was reduced and total equity remained stable Balance Sheet Summary (in millions) | Metric | June 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $442.1 | $637.4 | | Total current assets | $2,871.9 | $2,778.7 | | Total assets | $27,387.9 | $27,619.0 | | Total current liabilities | $3,514.3 | $3,622.2 | | Long-term debt | $6,557.8 | $6,647.2 | | Total liabilities | $13,785.1 | $13,954.9 | | Total equity | $13,602.8 | $13,664.1 | Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2022, net cash from operating activities decreased to $666.8 million, while cash used in investing and financing activities significantly increased due to higher capital expenditures and debt repayments Cash Flow Summary for Six Months Ended June 30 (in millions) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $666.8 | $748.5 | | Net cash used in investing activities | $(369.5) | $(200.1) | | Net cash used in financing activities | $(469.8) | $(3.9) | | Net decrease in cash and cash equivalents | $(172.5) | $544.5 | Notes to Unaudited Condensed Consolidated Financial Statements The notes provide details on accounting policies, segment performance, and financial instruments, highlighting dividends, share repurchases, an impairment loss, a significant litigation liability, and debt repayment - The company's reporting segments are Americas and EMEA&APAC[29] - A cash dividend of $0.38 per share was declared on May 19, 2022, and paid in June, with total dividends declared for H1 2022 at $0.76 per share[35] - A share repurchase program of up to $200 million was approved, under which the company repurchased 510,000 shares for an aggregate value of $26.2 million in H1 2022[36] - In Q1 2022, an impairment loss of $28.6 million was recognized related to the Truss joint venture asset group within the Americas segment[60] - The company repaid its $500 million 3.5% USD notes upon maturity on May 1, 2022[79] - An accrued liability of $56.0 million was recorded as of June 30, 2022, reflecting the best estimate of probable loss from the Stone Brewing Company trademark infringement lawsuit[101] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the Q2 2022 performance to significant cost inflation, a labor strike, and the Russia-Ukraine conflict, leading to a substantial drop in gross profit and operating income despite some sales mix improvements, while liquidity remains adequate Items Affecting Reported Results Reported results were significantly impacted by persistent cost inflation, a labor strike at the Montreal brewery, the Russia-Ukraine conflict, and specific liabilities for litigation and joint venture impairment - The company continued to experience significant cost inflation in material, transportation, and energy, which is expected to continue for the remainder of 2022[116] - A labor strike by approximately 400 unionized employees at the Montreal/Longueuil, Québec brewery and distribution centers from late March to June 2022 adversely affected business and operations in Q2 2022[118] - A liability of $56 million was accrued in March 2022 related to potential losses from the ongoing Keystone litigation case[119] - The Russia-Ukraine conflict negatively impacted results, leading to the suspension of exports to Russia and termination of brand licenses, and drove further increases in material, transportation, and energy costs[122][123] Consolidated Results of Operations Consolidated net sales for Q2 2022 slightly decreased due to lower financial volume and unfavorable currency, while gross profit and operating income significantly declined due to increased cost of goods sold from commodity losses and inflation Drivers of Change in Net Sales (Q2 2022 vs Q2 2021) | Segment | Financial Volume | Price and Sales Mix | Currency | Total | | :--- | :--- | :--- | :--- | :--- | | Consolidated | (4.6)% | 6.8 % | (2.8)% | (0.6)% | | Americas | (8.1) % | 6.4 % | (0.6) % | (2.3) % | | EMEA&APAC | 6.2 % | 14.3 % | (13.3) % | 7.2 % | - Worldwide brand volume decreased 1.8% in Q2 2022, while financial volume decreased 4.6%, primarily due to cycling U.S. distributor inventory recovery and lower shipments in Canada from the brewery strike[136] - Cost of goods sold per hectoliter increased 35.7% in Q2 2022, with changes to unrealized mark-to-market commodity positions accounting for approximately 66% of the increase[140] - MG&A expenses increased 3.8% in Q2 2022 due to higher G&A expenses and increased marketing investment[141] Segment Results of Operations In Q2 2022, the Americas segment experienced declines in net sales and pre-tax income due to lower volume, while the EMEA&APAC segment saw net sales growth but a decrease in pre-tax income due to cost inflation and currency impacts Americas Segment Results (Q2 2022 vs Q2 2021) | Metric | Q2 2022 | Q2 2021 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $2,367.4M | $2,422.4M | (2.3)% | | Income before income taxes | $348.0M | $428.2M | (18.7)% | | Financial Volume (HL) | 16.536M | 17.986M | (8.1)% | EMEA&APAC Segment Results (Q2 2022 vs Q2 2021) | Metric | Q2 2022 | Q2 2021 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $558.2M | $520.5M | 7.2% | | Income before income taxes | $34.4M | $47.4M | (27.4)% | | Financial Volume (HL) | 6.207M | 5.844M | 6.2% | Liquidity and Capital Resources The company maintains adequate liquidity, with H1 2022 operating cash flow decreasing to $666.8 million, while cash was used for significant debt repayment and increased capital expenditures - Net cash from operating activities for H1 2022 was $666.8 million, a decrease of $81.7 million from H1 2021, primarily due to lower net income[167] - Net cash used in financing activities for H1 2022 increased to $469.8 million, mainly due to the repayment of $500 million 3.5% USD notes, higher dividend payments, and share repurchases[169] - As of June 30, 2022, the company had $1.3 billion available to draw on its $1.5 billion revolving credit facility[175] - Capital expenditures paid in H1 2022 totaled $388.7 million, an increase of $143.0 million from H1 2021, due to the timing of capital projects[191] Quantitative and Qualitative Disclosures About Market Risk The company reports no significant changes to its market risks, including interest rate, foreign exchange, and commodity price risks, with hypothetical adverse changes impacting fair values of debt and derivatives - There has been no significant change to the nature and type of the company's market risks since year-end 2021[196] Market Risk Sensitivity Analysis (as of June 30, 2022) | Risk Type | Notional Amount (millions) | Fair Value (millions) | Effect of Adverse Change (millions) | | :--- | :--- | :--- | :--- | | Interest Rate Risk (Fixed Rate Debt) | $6,515.5 | $(5,983.9) | $(240.4) (1% change) | | Foreign Exchange Risk (Debt & Forwards) | $1,793.0 | $(1,581.4) | $(164.4) (10% change) | | Commodity Price Risk (Swaps & Options) | $776.3 | $194.1 | $(75.5) (10% change) | Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2022, with no material changes in internal control over financial reporting during Q2 2022 - The Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were effective as of June 30, 2022[203] - No changes in internal control over financial reporting occurred during Q2 2022 that have materially affected, or are reasonably likely to materially affect, internal controls[204] PART II. OTHER INFORMATION Legal Proceedings This section refers to Note 12 for details on legal proceedings, including the significant $56 million accrued liability for the Stone Brewing trademark lawsuit - For information on legal proceedings, the report refers to Note 12, "Commitments and Contingencies" in the financial statements[206] Risk Factors The company highlights key risks including weakening economic conditions, geopolitical conflicts like the Russia-Ukraine war impacting costs, and the potential for labor strikes due to a unionized workforce - Weakening economic conditions, inflation, and reduced consumer spending could materially adversely affect business and financial results[208] - The Russia-Ukraine conflict has adversely affected the global economy, increasing costs for transportation, energy, and supplies, and could continue to have a material adverse effect on the business[210] - The company faces risks from labor strikes due to a high concentration of unionized workers, highlighted by the Q2 2022 strike at the Montreal/Longueuil brewery and ongoing negotiations for other collective bargaining agreements in Québec[211][213] Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2022, the company repurchased 230,000 shares of Class B common stock for approximately $12.1 million under a publicly announced $200 million repurchase program Issuer Purchases of Equity Securities (Q2 2022) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2022 | 0 | N/A | | May 2022 | 230,000 | $52.59 | | June 2022 | 0 | N/A | | Total | 230,000 | $52.59 | - The Board of Directors approved a share repurchase program for up to $200 million of Class B common stock, effective through March 31, 2026[214] Defaults Upon Senior Securities The company reported no defaults upon senior securities - None[215] Mine Safety Disclosures This item is not applicable to the company - Not applicable[216] Other Information The company reported no other information for this item - None[217] Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications by the CEO and CFO pursuant to the Sarbanes-Oxley Act and XBRL data files - Exhibits filed include Section 302 and 906 certifications from the CEO and CFO, and XBRL interactive data files[218]