Overview
For more than two centuries, we have been brewing beverages that unite people
for all life's moments. From Coors Light, Miller Lite, Molson Canadian, Carling
and Staropramen to Coors Banquet, Blue Moon Belgian White, Blue Moon LightSky,
Vizzy, Coors Seltzer, Leinenkugel's Summer Shandy, Creemore Springs, Hop Valley
and more, we produce many beloved and iconic beer brands. While our Company's
history is rooted in beer, we offer a modern portfolio that expands beyond the
beer aisle as well. As a business, our ambition is to be the first choice for
our people, our consumers and our customers, and our success depends on our
ability to make our products available to meet a wide range of consumer segments
and occasions.
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") in this Quarterly Report on Form 10-Q is provided as a
supplement to, and should be read in conjunction with, our audited consolidated
financial statements, the accompanying notes and the MD&A included in our Annual
Report on Form 10-K for the fiscal year ended December 31, 2021 ("Annual
Report"), as well as our unaudited condensed consolidated financial statements
and the accompanying notes included in this report. Due to the seasonality of
our operating results, quarterly financial results are not an appropriate basis
from which to project annual results.
Unless otherwise noted in this report, any description of "we," "us" or "our"
includes Molson Coors Beverage Company ("MCBC" or the "Company"), principally a
holding company, and its operating and non-operating subsidiaries included
within our reporting segments. Our reporting segments include Americas and
EMEA&APAC. Our Americas segment operates in the U.S., Canada and various
countries in the Caribbean, Latin and South America and our EMEA&APAC segment
operates in Bulgaria, Croatia, Czech Republic, Hungary, Montenegro, the Republic
of Ireland, Romania, Serbia, the U.K., various other European countries, and
certain countries within the Middle East, Africa and Asia Pacific.
Unless otherwise indicated, information in this report is presented in USD and
comparisons are to comparable prior periods. Our primary operating currencies,
other than the USD, include the CAD, the GBP, and our Central European operating
currencies such as the EUR, CZK, HRK and RSD.
Operational Measures
We have certain operational measures, such as STWs and STRs, which we believe
are important metrics. STW is a metric that we use in our business to reflect
the sales from our operations to our direct customers, generally wholesalers. We
believe the STW metric is important because it gives an indication of the amount
of beer and adjacent products that we have produced and shipped to customers.
STR is a metric that we use in our business to refer to sales closer to the end
consumer than STWs, which generally means sales from wholesalers or our company
to retailers, who in turn sell to consumers. We believe the STR metric is
important because, unlike STWs, it provides the closest indication of the
performance of our brands in relation to market and competitor sales trends.
Items Affecting Reported Results
Items Affecting Consolidated Results of Operations
Coronavirus Global Pandemic
We have been actively monitoring the impact of the coronavirus pandemic since it
started at the end of the first quarter of 2020. We observed improvements in the
marketplace related to the coronavirus global pandemic as on-premise locations
began to re-open, with varying degrees of restrictions, across the world
beginning in the second quarter of 2021. Despite the improvements in the
re-openings of on-premise locations, closures and openings with restrictions
impacted our financial results during the three and six months ended June 30,
2021. A new variant of coronavirus, Omicron, created additional uncertainty and
negatively impacted our on-premise business at the end of 2021. This uncertainty
partially subsided in the first quarter of 2022 as we saw progressive
improvements in the on-premise channel. In addition, during the first two months
of 2022, certain provinces of Canada endured heavy restrictions which eased
significantly towards the end of February 2022. Thus, while an improvement from
2021, the coronavirus global pandemic did have a negative impact to our
financial results for the six months ended June 30, 2022.
The extent to which our operations will continue to be impacted by the
coronavirus pandemic will depend largely on future developments, which are
highly uncertain and cannot be accurately predicted, including, but not limited
to, the level of governmental or societal orders or restrictions on public
gatherings and on-premise venues including any vaccine mandates or testing
requirements, the severity and duration of the coronavirus pandemic by market
including continued or prolonged outbreaks of variants, changes in consumer
behavior, the rate of vaccination and the efficacy of vaccines against
coronavirus
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and related variants. We continue to actively monitor the ongoing evolution of
the coronavirus pandemic and resulting impacts to our business.
Cost Inflation
We continued to experience significant cost inflation, including higher
material, transportation and energy costs, which negatively impacted our results
of operations during the three and six months ended June 30, 2022. We expect
significant cost inflation to continue to have a negative impact on our results
of operations for the remainder of 2022 and potentially beyond. In addition to
the cost increases that commenced in the second half of 2021, the Russian
invasion of Ukraine in February 2022 has caused a negative impact on the global
economy, driving further increases to, among other things, the cost of
transportation, energy and materials. Higher transportation costs are a result
of increased fuel prices, a short supply of truck drivers worldwide and
increased freight costs. In the Americas, we are taking steps to reduce the
impact of driver shortages by shipping more beverages via rail. Besides
impacting our outbound shipments, our suppliers are facing difficulty in timely
delivering the materials we need, and we are also experiencing increased
materials costs due to overall cost inflation. The volatility of aluminum
prices, inclusive of Midwest Premium and tariffs, significantly impacted our
results during the three and six months ended June 30, 2021 and June 30, 2022,
respectively. To the extent materials, transportation and energy prices continue
to fluctuate, our business and financial results could be materially adversely
impacted. We continue to monitor these risks and rely on our risk management
hedging program, pricing, our premiumization strategy and cost savings programs
to help mitigate some of the inflationary pressures.
Cybersecurity Incident
During March 2021, we experienced a systems outage, that was caused by a
cybersecurity incident. We engaged leading forensic information technology firms
and legal counsel to assist our investigation into the incident and we restored
our systems after working to get the systems back up as quickly as possible.
Despite these actions, we experienced delays and disruptions to our business,
including brewery operations, production and shipments. This incident caused a
shift in production and shipments from the first quarter of 2021 to the balance
of fiscal year 2021.
Items Affecting Americas Segment Results of Operations
Montreal/Longueuil, Quebec Brewery and Distribution Centers Labor Strike
From late March 2022 until June 2022, approximately 400 unionized employees in
our Montreal/Longueuil, Québec brewery and distribution centers went on strike.
This strike adversely affected our business and operations during the second
quarter of 2022. We expect to see an impact on our operations in the second half
of 2022 as we restart brewery operations, rebuild inventory and replenish
retailer shelves. See the risk factor related to this labor strike at Part
II.-Item 1A. "Risk Factors" .
Keystone Litigation
During March 2022, we accrued a liability of $56 million within marketing,
general, and administrative ("MG&A") expenses on the unaudited condensed
consolidated statement of operations related to potential losses as a result of
the ongoing Keystone litigation case. See Part I. - Item 1. Financial
Statements, Note 12, "Commitments and Contingencies" for further information.
Impairment of an Asset Group
During the first quarter of 2022, we recognized an impairment loss of
$28.6 million within special items, net in the unaudited condensed consolidated
statements of operations, of which $12.1 million was attributable to the
noncontrolling interest. See Part I.-Item 1. Financial Statements, Note 5,
"Special Items" for further information.
Texas Storm
In February 2021, a winter ice storm severely impacted the southern U.S. In
particular, local government authorities in Texas were forced to impose energy
restrictions, causing the Fort Worth brewery to be offline which resulted in our
inability to produce or ship product during the downtime.
Items Affecting EMEA&APAC Segment Results of Operations
Russia-Ukraine Conflict
In February 2022, Russia invaded Ukraine and the conflict remains ongoing. We
had less than 0.2% of our 2021 annual net sales and no physical assets in Russia
and Ukraine. While not material to our Company, the Russia-Ukraine conflict
negatively impacted our results of operations for the three and six months ended
June 30, 2022. We suspended all exports of
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any MCBC brands to Russia and also terminated the license to produce any of our
brands in Russia. Production and sales of our brands in Ukraine under license
arrangements are currently halted as a result of the dangerous environment in
the country due to the conflict. In addition, the Russia-Ukraine conflict has
caused a negative impact to the global economy which has impacted our Company,
driving further increases to the cost of materials, transportation and energy.
See the risk factor related to this conflict at Part II.-Item 1A. "Risk
Factors" .
India Sale
During the first quarter of 2022, we completed the sale of our non-operating
India entity in our EMEA&APAC segment resulting in an insignificant loss on
disposal recorded in special items, net in the unaudited condensed consolidated
statements of operations. The disposal group had previously been classified as
held for sale during the fourth quarter of 2021.
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