After takin’ big hit in Q1, when it temporarily closed Portland, Oreg brewery, Craft Brew Alliance made up most of lost ground in Q2. But volume trends still all over the map. Shipments of owned brands and “partnership beers” +4.7% in 2d quarter. Kona shipments up 24%, a full 6 pts ahead of depletions. Both Widmer Bros and Redhook families down double digits again, -16% and -22% respectively. So for qtr, Kona about 3X size of each of those brands. Omission volume dipped by 8% too. But addition of contracts with Appalachian Mountain Brewery and Cisco Brewers provided nice volume boost. CBA depletions +3% for qtr, but flat for 6 mos. Shipments still down 1.4% thru first half.  CBA still expects 1-2% shipments gain in 2016.

CBA also made progress financially during Q2. Net sales +6%, $3.7 mil for the qtr and +1.3% for 6 mos. That’s in part due to fees from those partnership brands, CBA reports. Tho selling, gen and admin expenses still up 2% in Q2 compared to last yr, that spending down as a percent of net sales. CBA expanded gross margin from 31.9% to 32.9% during 2d qtr, boosting gross profits almost 10%. But again, 1st qtr results counter that affect YTD: gross margin at 28.8% for 6 mos, down a full point. So tho net income up big for the qtr, CBA still at slight loss YTD.

Genesee Brewery is the oldest brewery in NY, founded in 1878. And after going thru some very hard times, it’s on way up again.  With $70 mil invested in last 5 yrs and another $39 mil slated for the next 2 yrs, Genesee brewery and Brew House have added 250 jobs to Rochester, over 100 last year alone, and reinvigorated formerly rundown downtown area.  NAB employs over 600 in Rochester now.  Its popular Genny Brew House had 293,000 visitors last yr.  Ambition of owner North American Breweries (and parent co Costa Rican conglomerate FIFCO) is to make that area of Rochester “a beer and brewing destination.” 

What’s more, Genny brand itself is reinvented and “reborn,” with new packaging, design, line extensions and it’s now one of “top performing” below premium brands, sez NAB ceo Kris Sirchio.  Genny now also has an above premium halo with several higher priced new craft line extensions, including Scotch Ale, Salted Caramel Porter, Pilsner and IPA.  Above premium brands accounted for vast majority of Genny growth in IRI multi-outlet + convenience data thru Jun 10.  Genny flagship also up 13% yr-to-date thru Jun 10 in IRI (but Genny Ice down 20%).  Total Genny up about 6% in IRI, before Pilsner and IPA included in IRI numbers.  

Genny STRs Up 4%; Connecting to Rochester Community; Triple Bottom Line Philosophy Total Genny depletions up 4% in NAB’s fiscal yr so far (which ends in Sep), Kris told INSIGHTS.  And it’s up more than that in hometown Rochester.  Before this “rebirth” started, Genny was declining 20%.  So something interesting is happening with this brand.  And it’s also connected to many of the moves that NAB is making to become a bigger part of Rochester scene and enhance the local community.  These are in accordance with NAB’s Triple Bottom Line Philosophy.  TBL measures profit, social internal (employee engagement) and social external (environmental, community involvement) goals. FIFCO ceo Ramon Mendiola (who will speak at our Beer Insights Seminar) is a leading proponent of this philosophy. 

NAB Exceeding TBL Goals; Contract Biz “Very Strong”; Seagram Coolers Up; “Tap It Forward” Last year, NAB “exceeded all of our triple bottom line goals,” said Kris and “we’re well ahead” this yr too.  What’s more, this “philosophy” is “yielding growth.” NAB is “on track to grow our business.”  While Kris didn’t provide too many specifics, he did note that both Seagram Coolers and Genny are up and “we’ve had a very strong year with our contract business.”  (Contract is a sizable chunk of NAB’s total biz and tho it doesn’t reveal clients, they reportedly include some key players in some segments.) The Genesee brewery is “extremely flexible” and can make a “wide array” of craft, lager, FMB in “multiple styles” and that’s what’s kept it a “strong player” thru “good and bad times,” noted Kris.   Just yesterday, Genny announced “Tap It Forward” day, when Genny will close brewery for a day for first time and “continue area beautification” as over 200 workers will perform various acts of community service, including planting, weeding, cleaning and painting.  Genny will also host a “Tap It Forward” festival to celebrate local brewers. 

Distrib orgs exercised some legislative muscle in two big states over last few weeks.  In Mass, economic development bill passed last weekend “cut out” an amendment that “would have directed” distribs and small brewers to resolve ongoing differences over moving brands in state, as Boston Globe reported.  (See Jul 15 Express.)  Recall there was last minute-amendment proposed that would have wiped out franchise law.  That turned into amendment that forced two sides to compromise by the end of the yr.  But even that disappeared.

Craft brewers livid, natch. Referring to distribs, Mass Brewers Guild prexy Rob Martin said, “they spend a lot of time and money on lobbying and fund-raising.  It’s unfortunate that there was work done to stymie efforts to get together and talk.”  Bill Kelley, prexy of Beer Distribs of Mass, said “any statements made that the Beer Distributors of Massachusetts are unwilling to discuss compromise and work to achieve reasonable resolution are disingenuous.”  He also said that removing franchise protections in Mass would allow big brewers to “crush” distribs and that distribs have met with brewers numerous times on franchise issues.

Mass legislature also dropped issue that would allow municipalities instead of state legislators to control number of local liquor licenses, a key economic development issue for some cities, including Boston.  Craft brewers also lost governor-supported bids to allow consumers to “fill up used growlers at breweries” and permit “sale of locally made beer and spirits at farmers markets,” Globe reported.  A few tiny reforms did pass, one specific to in-state farm wineries, another to allow groceries to set up in-store restaurants.  Outcome allowed Rob to make oft-repeated claim by smaller players about many state laws that Mass has “a cobbled-together set of laws that’s been enacted over the past 83 years.  They result in continual problems, and then we get more cobbled-together fixes to those problems.” Also in Mass, charges vs one of the retailer groups in “pay to play” investigation dropped recently when it turned out state ABC could not tie $20K payment for tap handles to actual licensee.  Charges against 4 other retailers still pending, as is hearing for 2 of ’em.   

Illinois Wine/Liquor Distribs Get Law to Gov Punishing Bootleggers  In Illinois, tho not a big beer issue, distrib-backed measure to reduce illegal wine/liquor shipping has gone to Gov.  Legislation represents wine/spirits distribs’ “attempt to protect the so-called three tier system against unlicensed wine shippers sending booze to Illinois customers and merchants illegally bringing alcohol across state borders without paying taxes,” reports Chi Tribune.  Ill law allows for direct shipping but some bizzes apparently bootlegging product anyway, to evade taxes.  New law would make transporting large quantities into state, or repeat offense by non-licensed wine dealer, a felony.  “It’s really about making sure we’re able to cover the laws that are in place and making sure everyone’s following the rules properly,” distrib Danny Wirtz told Trib.  Distrib assn had not only done its own survey to measure bootlegging, but bill it supported also called for stronger auditing process and higher license fees, earmarked for ABC to boost enforcement.  

Finally, legal bid by Okla liquor stores to halt ballot measure to overhaul state liquor laws and expand grocery store sales of strong beer and wine rejected by the court.  That’s a win for lotsa interests in Okla, including beer distribs that support ballot measure.        

As always, lotsa moving pieces in Molson Coors Q2 report this morn.  Global volume off 0.8% (it’s even for 6 mos), but wide variations in trends.  MillerCoors shipments in US stung 4.4% in Q2, but Canada STRs off just 0.1% and Europe volume +1.6%; intl volume -9.3%.  Rev and profit figures mixed too; higher brand investments depressed US, Canadian and European earnings.  All in, global revs, -1.9%, beat expectations and “profitability in its largest business (US)…was better than expected,” as Stifel’s Mark Swartzberg noted, albeit also down.  Molson Coors took a 24% hit on net income “primarily due to non-cash special charges and other non-core costs related to our pending MillerCoors acquisition; alcohol prohibition in Bihar, India; and planned brewery closures, along with significantly higher sales and marketing expenses in the quarter,” Molson Coors reported.  Foreign currency movements had negative impact too.  Ain’t easy runnin’ a global brewery.  But ceo Mark Hunter focused on positives: rev per bbl increases in each key mkt on constant currency bases, Coors Light’s global growth (+4.1%), “improved core brand momentum,” growing innovations and global growth in above premium (tho not in US).  At same time, Molson Coors over last few mos “made substantial progress on the pending MillerCoors transaction, including integration planning and completing the necessary financing at very attractive rates.”

Per usual, conference call more focused on non-US issues, but Mark did say, regarding changes pending with acquisition of SABMiller stake in MC, mood at Molson Coors “not one of apprehension but excitement.”

Also, addition of Miller international brands to Molson Coors will provide “step-change opportunity” for its intl biz, especially in Canada, but also in UK, Ireland and other mkts where Molson Coors already has route to market for them and where it’s working on developing one, Mark and intl prexy Kandy Anand added.  Finally, Mark promised again that US team will “share plans” to improve below premium trends this fall. 

For last 4 weeks, including before and after key July 4 holiday, beer biz volume trend about same as yr-to-date, up 0.9% in Nielsen all-outlet + convenience.  AB down 0.4% and it lost 0.6 share of volume.  MC down 1.5% and it also lost 0.6 share of volume.  But Constellation grew 15% and grabbed fully 1 share of volume (up 1.4 share of $$).  Total import biz up 8% and gained 1 share. But craft volume up just 2% and gained just 0.1 share (in Nielsen-defined craft segment).  Heineken USA continued up very slightly, 0.2% for 4 weeks. Most big cos trends are similar to yr-to-date with AB and STZ slightly better, MC slightly worse. 

Following about a 1.5% drop in 1^st half STRs, MillerCoors sales-to-retailers down mid-single digits thru Jul 23, “partly affected” by timing of July, cfo Tracey Joubert said on conference call.  Nevertheless, ceo Gavin Hattersley expressed some satisfaction with progress already made at MC: “We are very pleased with where we are.  We are where we thought we’d be,” Gavin said, adding that he’s “never been more optimistic about our ability to get to growth.”  Recall, MC has goal of getting to even in 2018, growth in 2019 and is making some progress against that objective.  MillerCoors STRs down 2.5-2.8% each of last 3 yrs. It did 1 point better than that in 1^st half, tho Jul may have put it back down 2%+. 

Asked why MC rev per bbl increase just 0.7% in qtr vs AB at 1.8%, Gavin noted there are lotsa factors that go into pricing, but he pointed to fact that MC funds 70% of price promotions, while AB funds just 50%.  There were “more price promotions” in Q2, he added, noting AB “went deep”  in high MC share mkts like Chicago and Wisc, as well as big mkts like Fla.  “Some of it is mix shift” too, he added, i.e. AB getting more tradeup within its portfolio than MC currently.   

Gavin noted that he’d been ceo for a little over a year and there’s been “a tremendous amount of change” during that time, “I believe change for the better.” As more evidence that “we’re heading in the right direction,” Gavin pointed to Tamarron survey with distribs ranking MC as top supplier as “tremendous recognition for our company, especially recognition for the hard work” of sales prexy Kevin Doyle and team.  Asked for update on Eden, NC brewery closing, Gavin said it’s “on schedule.” MC has moved “approximately 2/3 of volume out of Eden” and will “stop shipping” from there at end of Sep.  “We are on track,” he asserted. 

Big Feb-Mar domestic taxpaid shipments gain mostly disappeared in Q2.  Domestic brewers’ taxpaid shipments slipped 30K bbls, 0.2% in Jun, estimates Beer Inst economist Michael Uhrich.  That put 6-mo number +61K bbls, up just 0.1%.  Strong Jan-May import gain of over 1 mil bbls keeping total US biz up near 1% yr-to-date tho.  Jun import report comin’ later this week.   

AB InBev and SAB announced “expected timetable and next steps” in their tie up.  Anticipated closing date: Oct 10, almost exactly 1 year after they announced “agreement in principle” on then $106-bil deal.  But plenty of steps still on road.  Among ’em, ABI files “merger terms” with Belgian govt as it folds ABI into “Newbelco” to accommodate the deal.  Those docs will have more detail and include AB’s “strategic rationale for the combination and its strategic intentions for the combined group post-completion.”  ABI execs have laid some of that out over the last 12 mos.  Redburn analyst Chris Pitcher suggests these docs “could include an updated synergy figure.”  Original anticipated synergies of $1.4 bil did not include all of the later deals to sell off parts of SAB, Chris reminds.  Later this mo, there will be UK hearing to determine whether SABMiller shareholders will be treated as one or two classes.  SAB has already recommended Altria and BevCo be treated separately from other shareholders.   If that happens, makes approval a bit less of a lock, observers note, since minority of 15% of total shareholder pool could block deal.  ABI and SAB shareholder mtgs to approve or disapprove deal on tap for Sep 28.  Then some more housekeeping and they hope to close on Oct 10, start trading shares of new company on Oct 11 on European, South African, Mexican and New York stock changes. So, in ABI and SAB view, on Columbus Day 2016, a new, powerful ship will set sail into the global brewing seas.      

MillerCoors revs dropped $76 mil, 3.5% as shipments fell 4.4% in tuff 2d qtr.  Rev per bbl up just 0.7% (while AB’s up 1.8%).  Contract biz  fell 1.3%.  And it took $39 mil hit on special charges related to closing of Eden.  So MC also took double digit hit in qtr on operating and net income.  Each down about $57 mil.  That’s even tho MC cost of goods sold down 1.3% per bbl in qtr, “driven by supply chain cost savings and lower aluminum and fuel pricing.”  In fact, MC realized $22 mil of cost savings.  MC did increase mktg, gen and admin expenses by 1.8%, “driven primarily by higher marketing investments and employee related expenses.”

“For the first time in many years, we are in line with our volume expectations for the first half of the year,” ceo Gavin Hattersley said in statement.  Recall, STRs much better than shipments in Q2.  Down 1.7%.  And for half,  shipments and STRs down in the 1.5-2% range.  “Another sign of the traction we’ve gained,” said Gavin “was finishing #1in the 2016 Tamarron Supplier Survey... for the first time in the history of the joint venture.   Our entire system is energized by our performance.” 

MC gave additional brand notes, focusing on bright spots with its biggest brands.  Miller Lite and Coors Light “combined to deliver flat STR volume” for 2d qtr in a row.  Miller Lite flat and Coors Light STRs up low single digits in qtr. Coors Light got its best trend since 4^th qtr of 2012. But it was offset by discontinuation of Coors Light Radler and “high single digit decline” of Miller 64.  So total MC premium lights down low single digits.

MC’s total above premium biz down low single digits, even with “continued growth from Henry’s Hard Soda, “the #1 hard soda franchise” in qtr, MC sez, citing Nielsen.  Why the high end decline? Blue Moon Leinie’s and Redd’s each down in qtr.   Total Tenth and Blake down mid-single digits in qtr (down 6% in Nielsen YTD). Blue Moon Brewing down mid-singles with “double digit declines” in Blue Moon Seasonals.  Leinenkugel down low singles, tho shandy franchise still up low singles, “driven by Grapefruit shandy.” MC sells 9 out of 10 shandies, it sez.  And Redd’s down mid singles too, even as Wicked still up double digits and Blueberry Ale intro’d, but that was “more than offset by declines across the balance of the Redd’s portfolio.” 

MC’s subpremium biz continued to be a trouble spot, down mid-single digits in all, with Mil’s Best down high singles, Keystone and Miller High Life down mid-singles (as reported earlier in SABMiller trading statement).  Icehouse up low single digits for 3d consecutive qtr, but Steel Reserve franchise down low single digits, even as Alloy series up mid-singles.

ABI cleared two highly significant hurdles on Friday with approval from China and recommendation from SABMiller board of directors.  But it still has one big one to go: shareholder approval.  And since SABMiller board made Altria and the Santo Domingo family a separate class of shareholders (they own near 41%), that means ABI has to get approval of 75% of the remaining 60% of shares.  “The maker of Budweiser was this weekend scrambling to find enough support among SABMiller shareholders,” wrote the Australian, reaching out to hundreds of shareholders.  Deal “could be voted down by as few as 15% of shareholders,” it added (25% of 60%), with big funds like Aberdeen and Vontobel against.  So ABI would need about 85% of all shares, which Stifel’s Mark Swartzberg deemed “very likely because we believe SAB shareholders prepared to risk holding out for a higher offer or a no-deal valuation represent less than 15% of all SAB shares.” 

In a pointed editorial, Business Day in South Africa headlined: “SABMiller deal still good for” South Africa.  Noting shareholder “unhappiness” and SABMiller board’s statement that “could hardly have been more lukewarm,” the editorial stated: “Far advanced as it now is, this is clearly not yet a done deal.”  But “it’s hard to imagine that a failed deal could be good for SABMiller or its shareholders” especially as SABMiller’s “share price could be expected to tank.  So even disaffected shareholders will have to think twice before they say no to the revised cash offer.”