Improved volume, a bit of price and significant easing of costs added up to strong Q1 earnings for MillerCoors. Shipments up 1.3%, as previously announced, MC’s best qtr since JV formed and aided by extra shipping day. STR’s dipped 1.3%, selling-day adjusted. These represent “positive strides,” said ceo Gavin Hattersley, as Coors Light and Miller Lite each showed “improvement” and were flat for the qtr, Henry’s Hard sodas scored “strong launch” and Above Premium volume “strengthening.” At same time, rev/bbl up 1.5%, about where it’s been trending for 5 straight qtrs. And most important, cost of goods sold/bbl down 5%. That boosted gross profits by $85 mil, 12%. And even tho mktg, gen & admin expenses up 5%, operating profits before special charge of $36 mil related to planned closing of Eden brewery jumped $64 mil, 21%. Even with charge, which was 1/3 of charge MC took in Q4 last yr, operating income up 9% and operating margin popped a full point. Volume Details Flesh Out Pluses and Minuses Difference between -1.3% STRs and +1.3% shipments is about 320K bbls. Miller Lite and Coors Light improved and gained share of premium lights and STRs flat for each. A significant step in right direction. But recall that Gavin said on Mar 23 that “both [brands were] growing volume at the same time for the first time since we launched the JV.” In premium regular, Banquet continued up low-singles, but Genuine Draft continued down high-singles, wiping out the gain. Below premium trends remained very soft, with portfolio off mid-singles. Mil’s Best brands down high-singles, Key Light and High Life each off mid-singles and Icehouse up low-singles. Steel Reserve franchise down low-singles despite continuing gains with Alloy series. MC posted very mixed trends in high end. Above premium up low-singles with Henry’s intro offsetting Redd’s low-single-digit drop, signs that familiar FMB flavor fatigue seemingly starting with Redd’s too. Tenth & Blake down low-singles, with Blue Moon Seasonals drop offsetting Belgian White gain. Leinie’s total biz even with shandy rockin’ double-digits, but rest of portfolio net down.

Here’s yet another suggestion that US Sup Ct decision in Granholm a decade ago was “evolution” rather than “revolution.” US Appeals Ct for 5th Circuit just rejected notion oft-cited by distrib advocates that language stating 3-tier system “unquestionably legitimate” allows virtually any restrictions on wholesale and retail tiers, even if they are discriminatory. Recall the discussion we reported at NABCA legal symposium earlier this yr (see Mar 18 Express) where direct shipping advocate Tracy Genesen reminded that that statement doesn’t mean “anything goes,” when it comes to retailers and distribs. Fifth Circuit just ruled essentially the same thing and added what alc bev atty Marc Sorini called “significantly more complexity and nuance into the Commerce Clause/21st Amendment analysis” going forward. Case is kinda complex and old, as it involved question of standing and 2-decade old ruling that barred Tex from maintaining certain residency requirements on retailers. In the end, the 5th Circuit rejected retailer org’s argument that in wake of Granholm, other Appeals Ct decisions that upheld certain restrictions on non-producer tiers “essentially removed Commerce Clause protections from state laws dealing with the wholesale and retail tiers,” as Marc described the argument. The 5th Circuit rejected this claim as “unconvincing.” It also pointed out, as others (including Tracy) have, that the sweeping characterization of the 3-tier system as “unquestionably legitimate” is “dictum,” more like commentary than an essential part of any ruling. Specifically, the 5th Circuit ruled that while the 21st Amendment allows a state to require a physical residency requirement for a licensee to operate, a state can’t impose a “durational-residency requirement on the owners of alcoholic beverage retailers and wholesalers.” More broadly, the 5th Circuit found that “state regulations of the retailer and wholesaler tiers are not immune from Commerce Clause scrutiny just because they don’t discriminate against out-of-state liquor.” This decision creates a split between the 5th and 8th Circuits on this issue and “yet another wrinkle in the federal courts’ ongoing struggle to reconcile the holding of Granholm…with its dictum” about the 3-tier system, Marc points out. He thinks the Supreme Court will “allow the issue to further ‘percolate’ in the lower courts” before it revisits the issue again. But it’s possible the litigants will seek Supreme Ct review of this Tex case and perhaps put previous “wins” (upholding state restrictions on retailers/wholesalers) in “jeopardy.” Stay tuned.

While craft slowing down overall, higher priced craft is still growing great guns. So there’s tons of trading up within craft segment. “Brands priced at $40 or higher accounted for only 20% of total Craft dollar sales yet were responsible for over 50% of total dollar growth,” consultant Bump Williams showed in rich analysis in his monthly letter out this weekend (following up on analysis he began last mo). Brands $40-$49.99 $$ sales grew 54.5% last 52 weeks thru Apr 17 in IRI multi-outlet + convenience, Bump showed. They were just 12% of $$ sales, but 34% of growth. Brands $50-$59.99 were also up a whopping 51.2%. They were just 2.3% of craft $$, but got 6.5% of growth. Craft brands that were over $60 per case were 2.6% of $$, they grew 37% and got 6.8% of growth. Meanwhile brands $20-$29.99 $$ sales down 1.7% for 52 weeks. And brands $30-$39.99 (over 2/3 of craft volume) grew 9.7% and got half of craft growth. Bump also gave great info on leading brands in each price tier. See Craft Brew News for more details on Bump’s info and overall IRI.

Craft volume up just 4% last 4 weeks thru Apr 17 in IRI multi-outlet + convenience, with 8 of top 10 craft brands down in period. Craft volume up 6% for 12 weeks in IRI, with 6 top-10 brands down, two more flat-to-down. Slowdown skewed by timing of Easter and IRI’s changed definition to include Blue Moon Brewing, Shock Top and Leinie, several variants of which are down and most of which are losing share of segment. Still, craft slowdown is real, marked and one of the surprises of industry so far this yr (tho it actually started late last yr). Between slowdown and the dizzying M&A activity, craft brewers head to Philly this week for Craft Brewers Conference under much different conditions than for the past 6 yrs at least. Remember, craft up double digits each of the last 6 yrs. Conditions tuffest on biggest and most established craft brands. Check out some of these still shocking 12-week volume trends: Sierra Pale -6.4%, Sam Adams Lager -16.3%, Fat Tire -5.9%, Sam Seasonal -23.9%, Shiner Bock -0.3% and Sierra Torpedo -7.6%. Haven’t seen collective trends like that on these big craft brands. EVER. And those are 6 of the top 7 BA-defined craft brands. Others in IRI’s top 10, include Blue Moon Belgian White +2%, Shock Top -0.3%, Leinie’s Shandy seasonal -9.7%. Only one healthy brand, Lagunitas IPA, up 15.9%. And even that represents a significant slowdown. The four leading growth brands in craft’s top 30 so far this yr are Goose Island IPA, Firestone Walker 805, Founder’s All Day IPA and Coney Island Hard Root Beer (still included in craft tho Not Your Father’s Root Beer is now an FMB in IRI). Those 4 brands are just 3 share of craft volume (up 2 share) but got 38% of growth in segment this yr. Collectively they grew 466,000 cases out of 1.231 mil cases that craft grew overall in IRI in last 12 weeks. Outside those 4 brands, craft growth under 4% for 12 wks. Another way of looking at it: top 30 craft brands collectively flat, all other craft up 12% last 12 weeks.

Among the many legislative battles pitting brewer vs brewer and wholesalers vs AB is issue of allowing retailers to lease coolers from industry members. Supporters, like AB, argue such laws provide stores and consumers with additional service and convenience via more cold beer. Opponents, like competing distribs and craft brewers, say retailers can access coolers from non-industry members, and such coolers “tied” to brewers would provide competitive advantage, additional shelf space and more advertising to those brewers. Craft brewers say they can’t afford to play at that level. Issue has been hotly contested in AB’s home state Mo this session. Senate passed a bill including provision that allows leased coolers. House just passed similar provision, but it goes back to Senate for another vote, reports St Lou Public Radio. And there’s a second bill still floating around with similar measures. So a few twists and turns still possible. If a bill passes Senate again, goes to the Gov.

Looks like ABI-SAB may indeed be only about Africa and Latin America. In move that surprised financial analysts, AB InBev “submitted an updated package of commitments to the European Commission.” In addition to selling Peroni, Grolsch and Meantime to Asahi, ABI will offer for sale “entirety” of SABMiller’s assets in 5 countries: Hungary, Romania, Czech Republic, Slovakia and Poland. At first blush, analysts floated figures between $4.5 bil and $6.9 bil for the assets, which SABMiller’s chief exec Alan Clark called a “core part of our growth story since we first embarked on our international expansion strategy over 20 years ago.” One analyst (Andrew Holland at Societe Generale) called move “slightly strange,” since there are no antitrust issues in any of these countries. Another (Wim Hoste at KBC Securities) was “slightly surprised” given that ABI earlier divested Central and Eastern European bizzes when it bought AB. Bernstein’s Trevor Stirling expressed surprise as well and noted that “we think these disposals now mean ABI will be retaining none of SAB’s European Assets.” Everyone agrees this is another indication of ABI’s determination to get the deal done. Exane BNP Paribas estimates these brewers’ revs at about $2.3 bil, EBIT of $450 mil. Expected suitors include Asahi and Molson Coors, which has its own biz (StarBev) in the region. But Molson Coors, as well as Heineken and Carlsberg, could face its own antitrust issues if it pursues these brewers. Then too, Molson Coors and/or Asahi could balk at adding more debt. Private equity always an option. Meanwhile, ABI-SAB deal continues to shrink. Between deals to sell SAB’s MillerCoors stake ($12 bil), CRB in China ($1.6 bil), Euro brands to Asahi ($2.9 bil) and now this batch of brewers (~$6 bil), that’s over $22 bil in planned divestitures so far. And keep in mind, advocates in US seek their pounds of flesh as well. Brewers Assn wants DoJ to force AB to divest is branch biz. (Sources: NY Times, Bloomberg, Intl Biz Times, Wall St Journal, The Street.com.)

Yesterday, a source sent INSIGHTS picture of big stack of Bud Light and Bud at important SoCal Hispanic chain called Superior: buy one 18-pack at $13.99 and get another for 50% off or $6.99. Comes out to $21 for 36 cans or $3.50 per six. This is type of pricing that retailers will choose during window of $19.80 pricing around Memorial Day. But this is happening this weekend. Not sure why, tho source suggests “first mover advantage.” But is there a price war? Not according to a different source: “The rate of AB price increases have been similar to recent years, basically in-line with inflation. There is no price war. The company has invested in promotions, but at a similar level to prior years. AB is looking for better ways to spend its promotional dollars.” Our take: more intense promotional activity, earlier than in other years but certainly not a price war at this stage by any means.

Ballot initiative petition drive to privatize Oreg liquor biz abruptly dropped yesterday by grocers assn and Distilled Spirits Council, prime backers of bid to move liquor sales to grocery stores. Grocers say they decided to switch their efforts over to defeating proposed corporate sales tax hike in state, reports Portland Trib. DISCUS not jumpin’ into corporate tax issue, but spokesman said it would seek other ways to privatize liquor. Recall, initiative had left up to legislature how to tax liquor if public privatized it, which left potentially large revenue shortfall to state, as opposition pointed out. Among those opposed: Oreg Wine and Beer Wholesalers Assn, craft brewers, vintners and distillers. Opposition told Express that the measure polled badly and that is why it was withdrawn. Meanwhile, $381 can get you a case of solid French champagne at a Total Wine and Liquor Store, according to Total’s website. It can also purchase a single vote in a Md primary. That’s what Total’s founder David Trone paid per vote to come in 2d in House Democratic primary this week, Wall St Journal reports. Indeed, the $12 mil David dropped was “a record for a self-funding House candidate at least as far back as the 1990 election, according to the nonpartisan Center for Responsive Politics.” This ain’t likely to make Total any less aggressive on getting good prices.

“A Sam Adams Deal That Just Might Work,” headlined Bloomberg yesterday in latest speculative piece about Boston Beer’s future. But it’s more interesting than most because it named specific potential buyer: “One suitor just might be able to lure” chairman Jim Koch “to the negotiating table, and that’s Constellation Brands,” wrote columnist Tara LaChappelle. “It’s still pretty safe to say that Koch is unlikely to entertain offers” from ABI. But “more deals are probably in Constellation’s future” and it seems to allow “businesses it acquires” to “continue running their operations.” What’s more, “while chatter about a Boston Beer takeover has gone on for years, it’s now a cheaper – and perhaps more vulnerable – candidate.” Stock price “has dropped by more than half amid increasing competition…. Boston Beer is now valued at less than 11 times this year’s estimated EBITDA, which is a lower multiple than the majority of its peers,” according to Bloomberg data. Then it cheekily concluded: “If beer is proof that God loves us, then a sale could be proof that Koch Loves Boston Beer’s shareholders.”

CTFN, a high-priced financial news service ($1700 per month) reports that DOJ is “probing how it can be assured that” ABI and MC “won’t hold beer prices high through tacit collusion” following ABI-SABMiller deal. “Tacit collusion involves discrete strategies to prevent competition rather than direct communication over pricing,” said follow-up report on Seeking Alpha. Potential for tacit collusion central to argument of advocacy group American Antitrust Institute, which just weighed in against deal for at least 3d time. No word at presstime whether CTFN has any inside info or is simply reflecting arguments of AAI.