As previewed last issue, Q2 and 6-mo shipments show overall industry basically flat. In Q2, top 2 brewers took hits, Constellation Brands Beer (CBB) and craft up double-digits, HUSA and Pabst each up slightly. Jun taxpaid shipments dropoff (-250,000 bbls, -1.5%), estimated by Beer Inst, was 4th-straight monthly decline. That left 6-mo taxpaid shipments down 319,000 bbls, 0.4%. But imports surged 20% in Jun, and +708,000 bbls, 5% for 6 mos. That more than offset domestic decline. So US shipments eked out 390,000-bbl, 0.4% increase Jan-Jun. But still some AB inventory to draw down, so call the first half flat. That's not so hot given easy comp vs Jan-Jun last yr (-2.4%). Meanwhile, total US sales-to-retailers down about a half-point in 1st half, AB figures.

AB shipments down 800,000 bbls, 3.2% in Q2 (organic trend slightly worse at -3.4%; Blue Point added bbls) as it shed some of inventory built in Q1 in case of labor problem. For 6 mos, AB shipments down 330,000 bbls, 0.7%. So AB continued to lose share. On depletions basis, AB moderated dropoff to -1% in Q2 (see below). But shipments still a full point ahead of depletions yr-to-date. "Inventory adjustment will continue" into 3d qtr, ABI said, with STRs and STWs "converging, in absolute terms, on a full year basis." MillerCoors reduced dropoff pace to -1.7% in Q2, as reported last issue, going against easy comp (-5% in Q2 last yr). For 6 mos, MC off 660,000 bbls, 2.3%. That's a bit better than -3% losses in 3 of last 4 yrs. Since mid-2013, AB and MC off 1.2-1.3 mil bbls, 1-2% each and collectively down another full share at least.

Constellation Brands Beer (CBB) is big exception to big supplier trends. We estimate Q2 and 6-mo shipments gains of 10%+ based on reported 6-mo trend thru May. That's a 700,000-bbl gain for 6 mos, 1.2-mil-bbl, 10% gain for 12 mos. CBB picked up more than half share over last yr, nearing 7 share. It has stiffer comps coming later in yr, but expects high single-digit depletions gain for fiscal yr thru Feb 2015. HUSA tuff to call; it won't report Q2 until later this mo. We figure shipments up slightly, excluding cider, given new brands put in pipeline and better scan trends. HUSA shipments flattish for 6 mos. Pabst improved in Q2 following tuff hit in Q1, scoring modest gain. Still off 3% for 6 mos. "Others" healthy for Q2 and 6 mos, driven by Boston gains (+28% for 6 mos, including cider, tho cider not included in table above) and big craft increase of 1.6 mil bbls, 18%, estimated by BA economist Bart Watson. BA gain now includes Yuengling, others. Trend even stronger than we estimated last issue, including 30%+ gains for big craft players like Lagunitas (gain more like 60%), New Belgium and Bell's. Craft Brew Alliance -- not included with BA #s -- reported 1st half shipments up 50K bbls, 14%.  

Hard to believe import trend could get much worse.  But it did.  Jan import shipments down whoppin’ 410,000 bbls, 22%, according to Commerce Dept.  That followed 13% drop in Dec 08 and goin’ against very easy comp of -21% in Jan 08.  That’s right.  Jan 09 imports were approx 925,000 bbls, 39% lower than Jan 07.  Gotta go back to Jan 04 to find Jan import figure lower than this year’s Jan shipments.   Dropoffs pretty much across the board.  Mexican shipments off 148,000 bbls, 18%.  Dutch shipments down 118,000 bbls, 26% (following 21% decline in Dec 08).  Canadian shipments crashed 88,000 bbls, 37%, but much of that was Blue Moon production shifted back to US.  Best trend of biggest source countries: German shipments off just 4,000 bbls, 8%, but that followed 54% hit in Dec 08.  UK shipments down 32%, Irish shipments down 21%.  That’s 92% of total imports.  “All Others” down 9% collectively.  Sure, it’s just one month in horrible economic climate.  But that’s a nasty hole to climb out of. For 12 mos, imports still runnin’ down about 3%.

Also, AB InBev announced this afternoon that the sale of Labatt USA to private equity group KPS Capital Partners has been completed.

AB InBev’s first results since takeover  show not great volume/profits, but phenomenal cost reductions, especially going forward (these results include AB for last 6 weeks of yr).  In 4th qtr, ABI volume down 1.8% globally and net inc down 95%, as result of higher financing costs, and severance costs for departing AB employees.  Volume down 0.3% and net inc down 41% for full yr.  Both volume and profits came in below analyst expectations and below ABI targets.  Brito and most other top ABI execs will get no bonuses, ABI said, also consistent with its “performance” culture.   But ABI stock up today and that’s largely because ABI upped savings target $750 mil, 50% (from original $1.5 bil it expected from AB deal) to $2.25 bil and it will cut $1 bil from cap ex worldwide in 09.  Then too, those savings from AB deal will come faster.   ABI sez it already saved $250 mil in late 08 and expects further $1 bil in 09. So far this yr, ABI sez its volume “stable” and “pricing actions are holding.”   Expects margins will expand in 2009. 

ABI gained share in 7 of its top 10 countries in 08.  But importantly, it lost mkt share in Brazil, China and Russia, 3 of its most important countries.   In 4th qtr, Russia down 21% (reducing inventories) and China down 5%.   In US, AB gained share last yr.  Final shipments numbers were up 1.6% over 07 (INSIGHTS estimated +1.5%) and sales-to-retailers were up 1.1%.  MillerCoors STRs up a couple tenths in 08, Crown and HUSA down slightly, we estimate.  AB shipped 4.9% more in last 6 weeks of yr, suggesting some loading.   In early 09, AB sales-to-retailers reportedly still strong, up 2.5% thru Feb, selling-day adjusted.  More details to follow.  

Hand Family LLC has deal to buy near 3-mil-case Beasley Dist in Chattanooga, announced to employees and suppliers, pending approval.  That will make its 3d buy since 2006.  Two other smaller deals were in neighboring Ky.  Its original mkts were Clarksville and Cooksville, Tenn.  After this deal closes, Hand will be nearly 10 mil cases in 5 locations in 2 states.   Like Jeffries in nearby NC, Hand has made several smaller acquisitions in relatively quick succession and emerged as regional powerhouse in AB system.

Crown’s Q4 volume “showed positive results,” Modelo reported Friday, “mainly driven by the narrowing of the price gap between our brands and those of our competitors” who hiked prices in Q4 08.  Another factor: “tactical promotions implemented by Crown” in US.  Revs up $1 mil to $517 mil in Q4.  Operating profits also managed $1-mil increase, 1%, to $102 mil.  For the yr, Crown revs off $37 mil, 1.5% to $2.426 bil.  Operating profits off 4.2% to $503 mil.  

So estimates Lester Jones at Beer Inst.  That’s not too bad, given economy, nearly 6% taxpaid shipments pop in December 08 and solid gain last Jan (+3%).  But it breaks 3-yr streak of industry getting off to solid start.  From 06 thru 08, Jan taxpaid shipments up 2.3%, 5.4% and 2.9% respectively.  From large number of distrib/supplier execs INSIGHTS has talked to in last week or so, seems industry sales-to-retailers in all down slightly in early 09.  

Outlines of ambitious and novel strategy by private equity co KPS Capital Partners becoming clearer in last couple of days.  After closing on deal for “substantially all of the assets of” High Falls announced Friday, its purchase of Labatt USA announced today (subject to DOJ approval and “customary closing conditions”).  KPS has formed new co it calls North American Breweries.  Purchased “perpetual licenses” for Seagram’s Coolers at same time.   So 3 transactions announced in 2 biz days.  But it seems they’re not done yet.  “We intend to continue to grow North American Breweries aggressively, both organically and through acquisition,” KPS partner Raquel Vargas Palmer said in statement.  Other brands/cos that it has reportedly already looked at include Pittsburgh and Rolling Rock.  KPS interest in High Falls and Labatt USA first reported in INSIGHTS Express.

By acquiring Labatt USA, KPS Capital Partners will purchase 9^th-largest supplier in US, Labatt USA from AB InBev,  mandated by DOJ to sell LUSA as condition of approving larger AB InBev deal.  Tho many cos took a look see, and AB InBev granted an extension from 90-day deadline by DOJ until mid-Mar, nearly simultaneous High Falls and LUSA announcements with several weeks to spare before deadline, suggest KPS had by far most serious offer.  No $$ released on final price, but last we heard neighborhood was $80 mil. 

Labatt USA sold approx 1.545 mil bbls in US last yr.  Flagship Labatt Blue down 5% to 861,000 bbls.  That’s down from 1.2 mil bbls as recently as 2002 when it was #3 import brand.  Subsequently, Blue lost ¼ of its volume and slipped to #7 import brand.  But Labatt Blue Light up from 377,000 bbls in 02 to 489,000 in 08 (+0.6% last yr). And KPS acquiring about another 100,000 bbls from LUSA too (recall AB InBev will keep Kokanee and Brahma, another 100,000 bbls or so).  High Falls Brewing brews a few hundred thou bbls of its own brands (estimated) and contract brews for others, totaling about 1 mil bbls in all, Rochester Democrat and Chronicle recently reported.   Labatt in Canada will brew for NAB for “up to 3 years,” but gotta figure co will want to move production to High Falls brewery, which at one time brewed 3 mil bbls.  

Turns out Coors Light total shipments trend in 08 not quite as strong as we originally thought, as softer exports knocked it back a point or so.  Coors Light did outship Miller Lite in 08, but gap not the ½ mil bbls we suggested in Express #7. (And, as noted, Miller Lite still ahead in US-only shipments, excluding Puerto Rico) .  Stay tuned.  

All came down to a lopsided vote tabulated in a small crowded room at the Crowne Plaza Hotel in Secaucus, NJ (a decidedly non-luxury locale).  There, AB’s chairman Pat Stokes and ceo August Busch IV presided over a very brief pro-forma meeting as shareholders overwhelmingly voted to end AB independence and be bought by InBev for $52 bil.  About 150 people attended.  No visible presence of acquirer InBev.  It was a far cry from annual shareholder meetings in decades past, which featured lots more hoopla and much bigger crowds.  The vote, 96% in support of deal, certainly no surprise.   Especially in these troubled days, board’s decision to accept $70 per share looks better by the minute. 

In brief opening remarks, AB ceo August Busch IV again noted it “was a very difficult decision” that was “discussed and debated extensively” by board, and that “every alternative was considered.”  But in end, “we all agreed” that $70 per share was “good for shareholders,” added August.  August had also briefly appeared at wholesaler meetings in Vegas last week to big applause.  In Vegas, he bluntly apologized for his (as it turns out—inaccurate) “not on my watch” comment back in spring.  That seems an eternity ago.  Now August looking forward, both “proud and excited” to be “fulfilling global ambitions of my family” as AB InBev will expand Bud brand globally, “selling more beer to more people in more countries than any company in history.” 

Only comment came from a shareholder who came in from San Francisco.  She made impassioned plea that “something matters here more than money.”  In her view, AB has done too much good in US and “proven they can be profitable on their own.”  AB InBev, she continued “won’t be able to hold market share” and it will be too “leveraged” causing it to cut people, programs, etc. 

After overwhelming approval of offer, meeting adjourned.  It was less than a half hour from start to finish.  That was pretty much it.  Outside, reporters crowded around chairman Pat Stokes.  Was it a sad day?  It’s “sad,” Pat acknowledged that a company that had been independent for over 150 years would no longer be independent.   But AB’s board had  “protected the interest of shareholders.”   Last remaining hurdle, regulatory approval by Dept of Justice here, as well as by China and UK authorities.  Closing expected anytime between now and end of yr.  

Next big shoe to drop appears to be accelerated distrib consolidation, especially in MillerCoors network.  Includes some big, already consolidated mkts.  Schenck Co, 14-mil-case MillerCoors distrib in Orlando, Fla told suppliers and employees it’s for sale last week, tho it has no deal at this time.   An unusual move.  Schenck board “decided timing and market conditions are appropriate for the family to formally entertain offers to sell the business,” the co said.  In accordance with its contractual obligations, Schenck notified suppliers of its “intention to evaluate purchase offers.”   Expect a lot of interest. 

Wow!  Tho Fla pretty much fully consolidated MillerCoors mkt, it is now moving on to even bigger consolidations.  Recall that earlier this yr, Thies sold to Gold Coast and JJ Taylor.  And now Schenck entertaining offers.  Meanwhile, several other deals already surfaced since MillerCoors became real, including  Seattle, Alaska, Buffalo.  There’s lots more cookin’.   Seems consolidation entering new phase.