Molson Coors Brewing Co. says it could take months for the brewer’s sales and profits to fully recover from the body blow sustained as a result of the National Hockey League lockout.
“The impact that it had in the second half of last year is permanent,” chief executive officer Peter Swinburn said in an interview Thursday after the company reported its year-end results.
“Going forward... I would hope that the fan base isn’t affected in any way. I wouldn’t expect it to be, given the popularity of hockey in Canada, so we’re hopeful that things will get back to normal.”
The Montreal- and Denver-based brewer said it has seen a pickup in demand since the dispute ended in January, but the full benefit won’t fully resume until the fall because large retailers require up to six months to plan floor space and sales promotions.
Mr. Swinburn said the disruption to its main winter revenue driver had an obvious impact, with total sales falling by nearly 12 per cent in the fourth quarter.
But the company did point out that these losses were partly offset by operational costs, related to fewer NHL opportunities. It said marketing and administrative expenses decreased nearly 17 per cent during this time.
Sales to retail fell 13 per cent, or 7 per cent excluding an extra week of activity in the 2011 period, citing hockey and higher taxes in Quebec as the key factors.
Molson Coors' Canadian market share declined one share point on an estimated industry volume decline of 5 per cent, excluding the extra week of business in 2011.
The lockout affected all brands, but Mr. Swinburn said Molson Canadian and Coors Light sustained the biggest hit because they are the largest brands in the brewer’s portfolio.
Canada’s underlying pretax income decreased 22 per cent to $101-million (U.S.). Hockey was an important factor for the league sponsor but he said the company can’t quantify the financial hit.
“If you look at the fourth quarter compared to the previous quarters it was worse than the rest of the year and the third quarter was worse than the first and second quarter. So obviously the NHL lockout did have an effect but it’s impossible to quantify exactly to what extent.”
Mr. Swinburn had vowed last year to seek financial compensation from the NHL and said Thursday the company has reached a confidential agreement.
He declined to provide any details, saying any compensation won’t be specifically identified in its financial results.
The NHL declined to comment on agreements that may have been reached with other league sponsors.
“We don’t discuss the nature of our contracts with League sponsors,” said executive vice-president Gary Meagher.
In addition to being pleased with the return of hockey, Mr. Swinburn said the early response to its new Molson Canadian advertising has been strong and consumers like its new resealable aluminum bottles.
During the quarter, sales were also affected by a 20 per cent increase in Quebec excise taxes as of November, that reduced demand across the beer industry.
“It’s difficult to say precisely what that impact is but as price goes up consumers will buy less,” Stewart Glendinning, president of the Canadian operations told analysts.
Overall, Molson Coors earned $60-million in the fourth quarter, or 33 cents per diluted share. Net sales grew 9.9 per cent to $1.03-billion, largely as a result of acquisitions. Worldwide beer volume was up 15.3 per cent to 14.1 million hectolitres.
The quarter included a number of special items for the multinational brewing company, including $22.8-million for restructuring, a $6.5-million charge related for its portion of an IT writeoff at MillerCoors and $38.3-million due to tax rate increases in Serbia.
The company said its underlying after-tax income, after adjustments, was $126.1-million, or 69 cents per share.
That compared to $173.2-million, or 95 cents per share, of net income, and $937-million of net sales a year ago. Its adjusted underlying after-tax income was $176-million, or 97 cents per share.
Molson Coors was expected to earn 64 cents per share in adjusted profits in the quarter on $1.07-billion of sales, according to analysts polled by Thomson Reuters.
Mr. Swinburn said it marked the fifth consecutive quarter that the company has beat industry forecasts.
“I think we’re just in a better position than we were this time last year,” he said, noting that its new business in Central and Eastern Europe has gained market share in all but a couple of countries.
For the full year, it earned $443-million, or $4.45 per share, on $3.92-billion of sales, down from $676.3-million, or $3.66 per share, on $3.5-billion of sales. Adjusting for one-time items, it earned $710.5-million, or $3.91 per share.
Mark Swartzberg of Stifel Nicolaus maintaining a "hold" rating on the stock “given continued volume under performance and no evidence of this trend reversing.”
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