After 9 days of testimony, cross-examination and atty statements, including charges of “fear,” “greed” and intimations that at least some execs lied under oath, Pabst and MC “amicably resolved all outstanding issues in the case.”  So said MC communications chief Pete Marino.  Pabst assured its brands will be available to their fans “for many, many years to come.”  Abrupt settlement followed 1 day of jury deliberation.  No details public yet.  Gotta figure Pabst will pay more for its beer to secure ongoing supply and MC’s profits improve, but for how long and how much, respectively, ain’t divulged.

Briefly, Pabst claimed MC’s determination it would not have sufficient capacity after 2020 to brew for Pabst was “pretext” to get out of contract and hurt Pabst as competitor.  MC could end agreement only if it reasonably determined it would not have sufficient capacity to extend.  Critically, MC had “sole discretion” to determine that.  When MC analyzed current capacity, projected volumes and potential brewery closures (possibly 2 more beyond Eden, NC) in Aug-Sep 2015, concluded it would not have capacity.  Pabst believes MC fashioned analysis to falsely claim insufficient capacity.  That would breach good faith, violate Wisc competition laws and led to lawsuit.  Over 9 days, attys put jury thru dizzying array of contradictory testimony and emails, plus attempts to damage credibility of witnesses.  But jury never got to resolve dispute and each side now publicly smilin’.

Tho most eyes on ABI report this morn, two other analyst reports worth noting.  To Goldman Sachs’ Judy Hong, MillerCoors “getting to ‘flat’ market share,” current stated goal over next 3 yrs, “still seems to be a tall order.”  Why’s that?  Combo of math and history.  Improvement in subpremiums has been mostly from higher promos and 15-packs (and GS doesn’t say it, but AB winning in segment right now).  Second, “stabilizing” Coors Light “while maintaining Miller Lite momentum could also spread resources across two light brands in a declining segment,” and that’s while Molson Coors’ comments about mktg investment “does not seem to reflect a big step-up in overall spending.”  Third, “TAP’s track record in sustaining growth in the high-end has been mixed.” So, stabilizing share “could be challenging given continued proliferation of many beer and non-beer choices for consumers and increased brand investment” by competitors across the spectrum.  Coupla bright spots:  Molson Coors’ Euro biz better and international now making money; more cost savings on tap.

Meanwhile, Macquarie’s Caroline Levy ran various scenario’s on Constellations plan to sell off chunk of lower-priced wine biz and weighed cannabis oppys.  Their conclusion as they stayed neutral on the stock: “STZ story increasingly complex with limited earnings visibility.”  Selling wines will help STZ margins but nick EPS, analysts figure.  And lotsa “upside potential from Canopy (if it gets its fair share of US/Canada markets) but we remain concerned that losses may be on-going as it invests in opportunities across many different categories.”  So, STZ got “first mover advantage” in cannabis, but that comes at cost of murky earnings, sez Macquarie.

AB performance “improved” in 2d half of last yr as co “steadily progressed” in 2018, chief sales officer Brendan Whitworth told INSIGHTS.   AB lost less share in 2018 than 2017 in IRI data, according to Brendan.  Down 0.74 points in last 12 weeks of 2018, compared to 1.07 in 2018 (IRI data set we see shows less improvement).  While AB still “not happy” with that, it is moving in right direction, he adds. Also, Brendan sez 6 of 7 regions showing improvement in recent IRI data.  (AB volume up 1.6% and share down 0.2 for last 13 weeks thru Feb 17 in midwest Region 3 IRI multioutlet + convenience data).  Brendan acknowledges you can “slice and dice data 1000 different ways,” but if you look at “core and core plus” lights, basically including Michelob Ultra, then AB actually gaining share of that group (some MC distribs make same point).  It gained 0.06 share in 2017, 0.54 in 2018 and even more in more recent periods.   And Michelob Ultra Pure Gold shows AB will “establish a little more upside foothold” in what it now calls “premium” segment (Corona price point) and an “engine of growth.” For last 4 weeks thru 2/16 in Nielsen data, Michelob Ultra Gold gained 0.3 share of $$, a top 5 growth brand and not far behind Modelo Especial, which gained 0.4 for 4 weeks.

Bringing shipments in line with depletions, AB shipments down just 0.1% in 4^th qtr 2018.  Sales-to-retailers still down 2.8% for qtr and 2.7% for yr.  Shipments dropped 2.35 mil bbls, 2.6% for yr.  STR trend slightly better than 2017 (-3%), but over a point better than MillerCoors (-3.9%) in 2018.  Still, AB had its “best annual share performance since 2012,” estimating that it lost 40 basis points of share for full yr and just 20 basis points in Q4.  Industry STRs a bit worse in 2018, as AB estimated industry sales-to-retailers dropped 1.8% in 2018, 2.4% in Q4, compared to a 1.3% drop in 2017.  

Rev Per Bbl Up 1.8% for Yr; EBITDA Down 2%  AB revs dropped by 0.7% for yr.  But rev per bbl up 1.8%.  US EBITDA down 2% and margins contracted 65 basis points, “as an improved top line performance was more than offset by commodity headwinds and higher distribution expenses related to a tighter US freight market.”  In Q4, revs up 1.3% with flat shipments (even tho rev per bbl up just 1.4%) and EBITDA up 6.2% in qtr.

Above Core Gained Almost a Share Point; Bud and Bud Light Lost Over 1 Share Above premium (which it now calls “core”) biz “accelerated share gains to 90 bps in FY 18 versus 50 bps in FY 17, driven by Michelob Ultra, our regional craft portfolio, the recently rebranded Bon & Viv Spiked Seltzer and our innovations.”  But Bud and Bud Light lost 35 and 80 basis points of share respectively, AB figures.  Down 1.15 share, more than the 1.0 share AB figures those 2 brands lost in 2017.  

ABI Hit By One Offs in Q4, But Full Yr EBITDA Fine at $22 Bil; Expects “Strong” 2019 ABI reported net profit of $457 mil in Q4, compared to $3.04 bil in Q4 2017 “hit by a number of one off items,” per Market Watch.  But its revs up 4.8% for yr  and EBITDA up 7.9% to $22.1 bil, “enhanced by cost discipline and synergy capture,” it said  Then too, “in 2019, we expect to deliver strong revenue and EBITDA growth.” 

ABI stock, which had dropped several % in wake of disastrous Kraft Heinz results, rallied 5% this morn.  That’s in striking contrast to Molson Coors (-9%) and Coke (-7%) as they released results, let alone Kraft Heinz

(-28%).   It appears to be something of a “relief” rally.  “Phew,” said RBC analyst James Edwardes Jones to Reuters. “Investors’ nervousness ahead of these results was palpable.”  

A Note on “Best Performing Market” Mexico Mexico “was our best performing market this year in both top and bottom line delivery,” said ABI.  Mexico remains a real growth market for beer biz and for ABI, which owns Modelo portfolio, except in US.  ABI revs in Mexcio “up by low double digits, revenue per hl grew by mid single digits in line with inflation, and volume grew by high single digits.” ABI gained 0.6 share of Mexican market.  What a contrast to US! And ABI about to gain access to Oxxo convenience stores, sure to boost its volume there even more.

Join us for the Beer INSIGHTS Spring Conference at the Ritz Carlton in Chicago, the evening of May 15 and all day May 16. Our program features a top notch lineup of industry leaders including Constellation’s coo Bill Newlands (becomes ceo this week), AB’s chief sales officer Brendan Whitworth and new MillerCoors chief marketing officer Michelle St Jacques.  We’ll also feature fast-growing Mike’s Hard Lemonade in talk with prexy Phil Rosse and mktg veep Sanjiv Gajiwala, plus Diageo Beer Co USA prexy Nuno Teles and CANarchy prexy Matt Fraser.  You’ll hear a dynamic craft review from Craft Brew News sr editor Christopher Shepard.  And BMI prexy Benj Steinman will present a provocative overview of the US beer industry, with a focus on the high end and winds of change.  More speakers to be announced.  For more info, click here. To register click here. 

Mexico’s leading c-store chain Oxxo, with over 17,000 stores, is owned by FEMSA, which used to own #2 Mexican brewer.  Recall, Heineken bought its Mexican beer biz from FEMSA in 2010 and got 10-yr exclusivity agreement with this huge chain that sells about 25% of Heineken’s Mexican beer (FEMSA also still owns 15% of Heineken).  So possible end of exclusivity has loomed large for yrs.  

But Oxxo will phase out Heineken’s exclusivity gradually, signing new 5-yr agreement with Heineken and also a separate agreement with Modelo (ABI).  In Apr 2019, Oxxo will start selling Grupo Modelo (owned by ABI) beers in a “gradual and staggered manner,” according to press release, starting with largest cities Mexico City and Guadalajara and covering the entire country by 2022.   This will also eventually let Modelo into Oxxo stores in areas of northern Mexico long dominated by Heineken. So that combo can’t be good for Heineken, but perhaps impact won’t be as great as some feared.  Exclusivity deal had “very favorable terms (for FEMSA)” wrote Bernstein’s Trevor Stirling, “with much lower net profitability to Heineken than other channels of distribution.”  So new deal presumably improves terms on per unit basis, he suggests.  “We believe  that revenue per hl (and gross margins) for” Heineken “in those stores where exclusivities have been terminated should increase,” wrote Jeffries’ Edward Mundy.  Meanwhile, ABI Mexican earnings will go up just by growth it gets with increased access to such key outlets.  Other analysts viewed “gradual wind down” or “progressively phasing out” as “better than the worst option” of just ending exclusivity  (Consumer Edge’s Brett Cooper).  Ths deal “smooths the impact over 5 years,” said Jeffries’ Edward Mundy.

Longtime legend and chairman of Constellation Brands Beer Division Bill Hackett will retire “after a remarkable 35-year career,” prexy Paul Hetterich wrote in internal announcement last night.  Bill “has been an incredible steward of our brands, values and culture, setting a standard we have all learned from and creating a legacy we will continue to drive.”   From here, Bill “steps into a consultant role with our organization.”  This is not a surprise.  Bill originally signed up for 2 yrs with Constellation when he became chairman of the Beer Division in 2016, but added one more yr. Constellation’s fiscal year ends tomorrow.  Constellation’s Gold Summit Network meeting with distribs next week.

“Today, we announced that we are modifying our sales team structure to align with our strategy and to enable more efficient ways of working,” communications director Bjorn Trowery told INSIGHTS.  Company will cut approximately 15% of workforce.  This follows small number of layoffs at HUSA in early Oct as it eliminated “Retail Activator” role,  as well as about 100 folks at Lagunitas in same time period.  So Heineken has reduced personnel costs in US as sales under pressure.  HUSA down high single-digits in 2018 and soft so far in 2019 too. “This will help HEINEKEN USA be more cost effective, and allow us to reinvest behind our brands and business in the US,” added Bjorn. Change will particularly affect some of mkts where HUSA had heavied up on sales personnel, anticipating a bigger boost in results (Route-to-Market).  This gives HUSA “greater flexibility,” said distrib source, noting that resources could be redeployed “to greater needs.”  Bjorn concluded:  “While change that impacts our people is always difficult, we believe these changes will better position HEINEKEN USA for the future.”

Join us tomorrow at 1pm EST for first of our 2-part webinar series focused on the ever-changing craft beer biz: Craft Update, 2019. Dive deep into an extensive and exclusive set of craft data: 10 yrs of shipment data for the segment, top players and growing portfolios; extensive off-premise analysis; in-depth review of craft M&A; tracked on-premise overview and more. And that’s just Part I. Part II follows with even more on May 1. Can’t make the live presentation tomorrow? Don’t worry. Webinar presentations will be recorded so you can review them at your convenience. And all registrants will receive pdf-copies of webinar slides and supplemental data reports to dig even deeper into the details. Get all the info at beerinsights.com and register today.

Recent changes in Colorado and Oklahoma put 3.2 writing on the wall, reducing number of states requiring broader sales of lower-alc beers to 2 in just last 6 mos. So proposals to remove current cap of 3.2% alc by weight (4% ABV) expected early in Utah. It arrived with largely retailer-backed effort last month. But instead of going whole hog, lawmakers chose more modest proposal: take statutory alcohol content up just a notch to 4.8% alc by weight (6% ABV). Not modest enough for powerful Church of Latter Day Saints, which opposed change early this month. Not radical enough for small brewers in state, who would prefer to see cap removed altogether. And this small increase more likely to benefit big brewers (and big retailers), besides, Utah Brewer’s Guild argues. But despite opposition, state Senators overwhelmingly approved measure on 2nd reading yesterday, perhaps paving the bill’s final clearance in that chamber before heading over to the House.  

Elsewhere, a couple states are considering shifts in excise tax rates, but taking very different approaches. Early in session, a Nebraska lawmaker released proposal to boost alc bev excise taxes across the board. Beer tax itself would’ve jumped near 350%, about $24/bbl. Brewers (and others) cried bloody murder and legislator last week walked back proposal, choosing instead a 3-pt increase to sales tax on alc bevs, from 5.5% to 8.5%. Industry members still not in love with any tax increase, natch. Note tho that legislator’s original proposal, which would have set excise taxes to equivalent of about 10 cents per drink, as he explained recently, tracks frequent calls from public health community.

Meanwhile, in Connecticut, new governor included quite a gift to small brewers in recently released budget proposal: cut excise tax on beer “at craft breweries” by 50%. Obviously not final yet, but proposal amounts to sizeable tax cut down to $3.60/bbl. But language in single line item within gov’s budget suggests the cut not applicable across the board, but limited to taxes paid by in-state brewers on volume sold directly to consumers. Folks from wholesale and retail tiers still support proposal, according to Hartford Biz Journal. Perhaps that’s result of newfound detente across tiers in CT, as groups work toward compromise on separate issues, the Hartford Courant reported. (Lots more detail coming in today’s issue of Craft Brew News.)