Molson Coors Brewing Company (NYSE:TAP)
Q4 2009 Earnings Call
February 09, 2010 11:00 am ET
Peter Swinburn - President and CEO
Stewart Glendinning - CFO
Dave Perkins - President and CEO, Molson Coors Canada
Mark Hunter - President and CEO, Molson Coors U.K.
Judy Wong - Goldman Sachs
Kaumil Gajrawala - UBS
John Faucher - JPMorgan
Carlos Laboy - Credit Suisse
Mark Swartzberg - Stifel Nicolaus
Raghavan Selvaratnam - MainFirst
Thank you all for attending Molson Coors Brewing Company 2009 fourth quarter and year end earnings conference call. I’d now like to read a prepared statement. Before we get started, we want to paraphrase the company’s Safe Harbor language. Some of the discussion today may include forward-looking statements. Actual results could differ materially from what the company projects today, so please refer to its most recent 10-K, 10-Q and proxy filings for a more complete description of factors that could affect these projections.
The company does not undertake to publicly update forward-looking statements, whether a result of new information, future events, or otherwise. Regarding any non-U.S. GAAP measures that may be discussed during the call, please visit the company’s website www.molsoncoors.com for a reconciliation of all these measures to the nearest U.S. GAAP results.
I would now like to introduce your host for today’s conference Mr. Peter Swinburn the President and Chief Executive Officer of Molson Coors Brewing, Sir you may begin.
Thank you again hello and welcome everybody and thanks for joining us today. With me on the call are Stewart Glendinning, Molson Coors CFO, Leo Kiely, CEO of MillerCoors, Gavin Hattersley the CFO of MillerCoors, Dave Perkins, CEO of Molson Coors Canada, Mark Hunter, CEO of Molson Coors U.K., Sam Walker, Molson Coors Chief Legal Officer, Bill Waters, Molson Coors Controller, and Dave Dunnewald, Molson Coors Vice President of Investor Relations.
On this morning I would also want to extend the special welcome to Kandy Anand who has joined Molson Coors as President of our international business in Asia, continently Europe and Latin America. Kandy brings with him more than 20 years of global brand and marketing experience most recently with Coke and Unilever, and we are delighted to have him on board with the Molson Coors team.
On the earnings call today, Stewart and I will take you through highlights of our fourth quarter and full year 2009 results for Molson Coors Brewing Company. Along with some initial perspectives on 2010, and then as usual we will open the call for questions.
So, we will get started. Underlying earnings for our company increased more than 85% in the fourth quarter versus the year ago driven by one time reduction in tax rate. Behind the headline number, our results were affected by weak volumes across all markets.
Cost increase in the U.S. and UK and brand investments in Canada. Overall, consumer demand remains sluggish and we see these conditions continuing to impact volume and mix in the near term. Our strategy remains consistent however, as we are focused on investing in innovation on our brands, on ensuring we maintain the strong sheet so that when the market conditions improve we are better positioned to accelerate our growth and capitalize on opportunities.
Our forums in the quarter and over the past year has benefited from this strategic focus. While our underlying earnings in the fourth quarter were aided by one time reduction in our tax rate, it’s important to point out that we grew or held our net pricing and market share in both the U.S. and Canada.
Our Canada share performance represented a significant trend improvement in previous quarters. In the UK we continue to forgo low profit volume and share which helps us drive positive pricing and margins. For the full year, we expanded our brand portfolios in Canada and the UK, exceeded our goals for cost savings and maintain price discipline all of which contributed to a significant increase in our full year underlying earnings. Looking at the regional headlines for the fourth quarter our Canada team launched three new products and new (Audio Gap).
Your line is now reconnected sir.
Okay, well my apologies everybody, I am not quite sure what happened there and I don’t know how much everybody. So, for completeness I am going to start from the beginning again.
Underlying earnings for our company increased more than 85% in the fourth quarter versus a year ago driven by a one time reduction in tax rate. Behind the headline number our results were affected by weak volumes across all market cost inflation in the U.S. and UK and brand investments in Canada.
Overall consumer demand remained sluggish and we see these conditions continuing to impact volume and mix in the near term. Our strategy remains consistent however, as we are focused on investing and innovation on our brands and ensuring we maintain a strong balance sheet so that when market conditions improve we are better positioned to accelerate our growth and capitalize on opportunities.
Our performance in the quarter under the past year has benefited from the strategic focus. While our underlying earnings in the fourth quarter were aided by one time reduction in our tax rate, it’s important to point out that we grew or held our net pricing our market share in both the U.S. and Canada. Our Canada share performance represented a significant trend improvement from previous quarters.
In the UK we continued to forego low profit volume and share which helps us drive positive pricing and margins. For the full year we expanded our brand portfolios in Canada and the UK exceeded our goals for cost savings and maintained price discipline all of which contributed to a significant increase in our full year underlying earnings.
Looking at the regional headlines for the fourth quarter our Canada team launched 3 new products and new ad created for Molson Canadian. As well as accelerating promotional activity behind our sponsorship of the Vancouver Winter Olympics.
These brand investments and the addition of Granville Island volume helps us to increase some market share a quarter of one point versus a year ago. Our share performance in the fourth quarter was particularly encouraging in the eastern provinces which represent nearly three quarters of our Canada volume.
A weak economy and industry along with the cost of these new brand investments resulted in a 5% decline in underlying Canada earnings in the quarter. But our brand work is beginning to give us the platform we require to improve share and revenue performance in Canada going forward.
In the U.S. MillerCoors fourth quarter results reflect a significantly weaker beer industry than expected. Consumer's reduced overall volume of beer purchases and favored value over convenience in their choices as a result all major channels are worsening of sales trends in the fourth quarter versus earlier in 2009 in line with our overall strategy, our U.S. team continued to invest heavily in brands and maintain market share in a declining industry. In fact five out of six of our U.S. focus brands grew share in the fourth quarter.
Nonetheless lower volume and adverse sales mix have a substantial negative impact on our U.S. financial results in the quarter with segment income declining nearly 9% from year ago despite delivery of cost synergies.
Our UK team achieved another strong performance in the fourth quarter with 20% growth in underlying earnings driven by continued price management and solid brand building performance was particularly encouraging and the independent on premise channel and with the Cobra brand which we acquired in 2009.
The results in the UK show what can be achieved with high equity brands such as Carling now Stewart will take you through the details but we are pleased with the progress of our businesses and the progress being made in building brands managing price reducing cost generating cash and becoming a stronger competitor in each of markets. Before we discuss the fourth quarter in detail I want to share with you some important accomplishments for 2009.
For the full year we continue to make great strides in our brands, our competitive position cost reductions and cash generation but we gave back a lot so we can just see volume unfavorable currency movements and commodity inflation particularly in the U.S. and the UK.
Globally we reported underlying earnings of $707.4 million up 40.7% from a year ago on earnings per share increased $1.10 per share to $3.81 per share. Positive results were driven by a lower effective tax rate price discipline and cost reductions.
Free cash flow for 2009 reflected net cash generation of $691 million which was made up of $824 million of operating cash flow plus $58 million of proceeds from asset sales minus capital spending of $125 million and $66 million of investing cash contributed to MillerCoors.
If you exclude one time cash uses by MillerCoors to capture synergies along with the return of collateral cash related to MillerCoors commodity hedges underlying free cash flow totaled $725 million for the full year in 2009.
As a result, we exceeded our 2009 underlining free cash flow goal which was $575 million by nearly 27%. We exceeded all of our cost reduction goals and announced our next generation of cost reduction called RFT 2 which plans to capture at least another $100 million of annualized cost savings over the next three years.
Also MillerCoors delivered $245 million of the $500 million synergy reduction in 2009. Additionally, MillerCoors delivered $26 million of its $200 million of next generation cost savings in 2009 and we of course benefit from 42% of these MillerCoors cost savings.
In Canada the leadership team led by CEO Dave Perkins is accelerating our strategy of brand development and innovation. Later in the year we introduced the first new Molson trademark brand for five years called MolsonM.
Along with a low calorie extension of Molson Canadian and the introduction of Rickard's Dark, these introductions are exceeding our expectations and have contributed to our share performance.
We also strengthened our Canada asset weight by selling out interest in the Montreal Canadiens Hockey Club and agreeing to buy Granville Island Brewing Company. The Granville Island acquisition we expect to close in the first half of 2010 further increases our presence in the highly profitable upper premium segment.
MillerCoors exceeded its synergy targets and announced another $200 million of cost saving reductions to be delivered by the end of the 2012. The U.S. team also invested heavily in building brands and sales capabilities. Despite the toughest U.S. beer market in decades, MillerCoors grew underlying income by more than 18% and greatly increased its cash generation in 2009.
MillerCoors was formed a year and a half ago to make as a stronger competitor and improve our financial performance in the U.S. and this team is delivering on that promise.
In the UK we drove volume on the back of the Carling brand strength delivered solid course like growth, purchase to controlling interest in the Global brand grew Magners Draught Cider and completed the ramp up of our contract brewing arrangements. We leveraged these strategic initiatives to balance price and volume priorities affectively.
Additionally we closed our defined benefit pension scheme to all future accrual of time and benefits which will reduce the growth of these liabilities in the future. Our international teams enhanced its capabilities and continue to invest in developing markets in Asia, Europe and Latin America.
Due to our focus on cash generation to strengthen our balance sheet our cost savings success and on increased investment in brands in innovation, we entered 2010 a stronger more competitive company, than we were a year ago.
We will continue to build a strong a portfolio brand so that we were able to deliver share and revenue growth to go with our cost savings successes.
So with that as an overview I will turn over to Stewart to review fourth quarter financial results and trends. And then we will cover the outlook for 2010, so Stewart over to you.
Thanks Peter. Hello everyone now I will start with the fourth quarter financial highlights. Worldwide beer volume for Molson Coors declined 4% from a year ago, driven by overall industry weakness as well as our pricing strategy in the U.K.
On the bottom line, underlying after-tax income of $190.3 million, or $1.02 per diluted share, was 85.5% higher than the fourth quarter a year ago driven by the favorable resolution of unrecognized tax positions and the year-over-year currency moments.
Underlying pre-tax income declined 6% due to weak industry conditions in the U.S. and Canada along with cost inflation in the U.S. and UK.
It is important to note that our fourth quarter underlying earnings exclude some one-time gains and losses and expenses, primarily related to the sale of our 19.9% interest in the Montreal, Canadians hockey team.
Changes in the value of our Foster’s cash-settled total-return swap and income tax rate change Ontario and MillerCoors integration costs, as well as net special charges of $11.1 million. These adjustments to our U.S. GAAP results are described in detail in the earnings release we distributed this morning. Also, unless otherwise indicated, all financial results we share with you today will be in U.S. Dollars.
In segment performance highlights, starting with Canada, underlying pretax income and local currency decreased 12% in the fourth quarter from a year ago excluding the impact of foreign currency hedges in other income. Lower production cost in the quarter were more than offset by increases in brand investments higher incentive compensation expense and the impact of deconsolidating our interest in the beer stores in Ontario, known as BRI Brewers Retail Inc. beginning in the first quarter of 2009 based on the strength of our brand investments and innovations we grew market share while maintaining net pricing versus the prior year.
In U.S. dollars Canada underlying earnings of $94.5 million in the fourth quarter decreased 5.3% which reflects the benefit of 15% year-over-year increase in the Canadian dollar versus the US dollar. The stronger Canadian dollar this year increased Canada segment underlying income by approximately $11 million in the quarter.
To provide more comparable results in our Canada discussions today, as we have done on our previous earnings call. We will exclude the sales and cost related to exporting beer to Campo La Cruz as well as the reporting effects of deconsolidating BRI.
So let’s review some highlights. Our Canada sales to retail or STRs for the calendar quarter ended December 31 decreased 1.2% versus the year ago. Coors Light continued to show growth and our new product launches are exceeding expectations.
The Molson Canadian Dry and export brands decline various prior year. Total Canadian beer industry sales to retail decline and estimates of 1.9% in the calendar fourth quarter. As a result, our estimated Canada market share increased about one quarter of share point in the fourth quarter versus the year ago driven by our portfolio building innovations and investments that our team rolled out last fall.
In the fourth quarter, our market share performance was strongest in Ontario, Quebec and the Atlantic provinces, especially later in the quarter as our brand building initiatives gained momentum.
Our Canada sales volume was $2.1 million hectare liter in the fourth quarter unchanged from a year ago. Comparable net sales per hectare liter were virtually unchanged in local currency various the year ago as favorable frontline pricing was offset by continued price discounting activity. Cost of goods sold per hectoliter in the fourth quarter decreased approximately 3% on a comparable basis in local currency, driven by the net affect of three factors.
First, the decrease of about 1.5% was due to declines in commodity and packaging material input costs, partially offset by increases in distribution and pension costs. Second, savings from our sources for growth initiatives reduced cost of goods sold per hectoliter by about 3% and third, these decreases were offset by about 1.5% due to ongoing product mix shifts.
Comparable marketing, general and administrative expense in the quarter increased 14.2% in local currency driven by higher brand investments as well as an increase in incentive compensation expense. Underlying other income decreased $8 million in the fourth quarter due to lower Montreal Canadian's equity income this year along with cycling prior year gains from foreign currency hedges. Note that this underlying result excludes a one time $46 million gain on the sale of our interest in the Canadian's hockey club in the fourth quarter.
Moving to our U.S. segment, underlying pre-tax income declined 8.9% to $51.2 million in the fourth quarter as weak U.S. beer industry conditions drove lower volumes and significant cost de-leverage in our business. These negative factors were partly offset by favorable pricing, synergies delivery and reductions in marketing, general & administrative costs in the fourth quarter.
Looking at the total MillerCoors P&L, fourth quarter underlying net income decreased 21.6% to a $106.1 million versus a year earlier. The difference in trend between MillerCoors income and our U.S. segment income is due to a $17 million increase in share base compensation expense for MillerCoors in the fourth quarter of 2009 which was driven by strong appreciation in the SAP Miller stock price versus a year ago. Note that this expense is attributable to higher mark to market values for stock based grants existing prior to the formation of MillerCoors and not the issuance of new grants. Share based compensation expense related to SAP Miller stock price is excluded from our U.S. equity income.
MillerCoors' domestic sales to retailers STRs declined 3.6% primarily due to poor industry and economic conditions. In a weak industry our U.S. business held market share in the quarter. Domestic sales-to-wholesalers, STWs declined 4.2%, driven by lower STRs and a reduction in contract brewing volumes. MillerCoors total net revenue decreased 1.6% to $1.71 billion versus the prior year.
Pricing remained strong in the fourth quarter as domestic net revenue per hectoliter which excludes contract brewing and company undistributed sales increased 2.3%. Cost of goods sold per hectoliter increased 5.6% versus the prior year as savings from MillerCoors cost performance initiatives were more than offset by significant increases in brewing and packaging material cost including gloss and aluminum along with volume related cost deleverage. Marketing, general and administrative costs decreased 2.7%, driven primarily by synergies and other cost savings. This decreased would have been about 6% excluding the impact of increased share based compensation expense. Higher information technology cost also had an impact.
Moving to our U.K. business in the fourth quarter, underlying pre-tax earnings increased nearly 15% in local currency from a year ago. This strong performance was driven by positive results from strategic actions of our U.K. team that they have taken in the past year including leveraging our contract brewing arrangement and brand building efforts which allowed us to forego low margin volume.
These earnings drivers were partially offset by lower volume and higher incentive compensation expense in the quarter. In U.S. dollar terms, fourth quarter U.K. underlying pre-tax profit increased 20.3% to $36.8 million versus a year ago. These results include the benefit of a 4% increase in the valuation of the British pound versus the U.S. dollar which increased U.K. earnings by approximately $2 million in the quarter.
Looking at fourth quarter highlights, our U.K owned brand volume decreased 9.3% in the quarter due to declining industry volume and a company strategy to forego low margin volume. U.K. brewer industry volume declined approximately 4% in the fourth quarter. Comparable net sales per hectoliter of our own products increased 18% in local currency driven by two factors. First, 10% was due to higher pricing at all channels as we benefited from our strategy to forego low margin volume. And second, 8 percentage points were due to positive sales mix predominately due to growth in draught Magners cider and Cobra.
Comparable cost of goods sold per hectoliter of our own products increased 12% versus 2008 in local currency predominately driven by the following. 5% was due to input cost inflation with increases in can metal barley, bottles and utilities. 5% was mix driven by growth and draught Magners cider and Cobra. 3% was due to cost deleveraging impact of lower earned brand volumes.
These factors are partially offset by a 1% cost reduction related to a mark-to-market adjustment on natural gas hedges which partially reverses a charge in the third quarter. Marketing, general and administrative expense in the U.K. increased 11% in local currency due to higher incentive compensation and investments in information systems along with a cost of adding the Cobra sales force this year.
In the international and corporate segment, the underlying loss for international markets and corporate combined was $58.1 million pre tax in the fourth quarter, 7% higher than a year ago. Our international team grew volume more than 14% in the fourth quarter of a small base driven by sales in China, Europe and Latin America. MG&A expense for international was $15.8 million in the quarter, an increase of $5.5 million versus a year-ago as we increased investments in our priority international markets. In addition corporate general and administrative expense increased $2.5 million to $25.7 million, primarily due to higher incentive compensation expense.
Fourth quarter corporate net interest expense increased $2 million from a year-ago with about $3.6 million of this increase attributable to foreign currency movements partially offset by approximately $2.3 million related to the deconsolidation of BRI. Note that interest expense for the fourth quarter of 2008 has been increased by $4 million retroactively in accordance with the new accounting rules for convertible debt. Corporate other expense increased $3.3 million driven by a non-cash mark-to-market loss related to the total return swap we arranged with respect to fastest common stock. As usual mark-to-market gains and losses on the fastest swap are excluded from our underlying earnings.
Now highlights of our cost reduction initiatives. In the fourth quarter we captured an incremental $24 million of cost savings as part of our three year $250 million Resources for Growth, or RFG cost reduction initiative. For full year 2009 we achieved $92 million of savings. As a result we closed out our three year RFG program with a total of $270 million in permanent cost reductions which significantly exceeds our original commitment of $250 million for the program.
In addition to our RFG savings, MillerCoors delivered $62 million of incremental cost synergies in the fourth quarter., MillerCoors also delivered $26 million of cost reductions against its new $200 million cost savings program to be delivered by end of 2012. These new cost initiatives are additional to the original $500 million three year synergy commitment. As with MillerCoors 42% of these new cost savings accrue to Molson Coors.
Moving beyond operating business unit performance, our fourth quarter effective tax rate was negative 65% on a reported basis and negative 54% on an underlying basis. These tax rates are well below our long-term rates due to the favorable resolution of unrecognized tax positions in the fourth quarter. Total debts at the end of the fourth quarter was $1.71 billion and cash and cash equivalents totaled $734 million resulting in net debt of 0.98 billion.
Looking forward, we expect full-year 2010 MG&A expense in the Corporate and International Markets segment of approximately $180 million plus or minus 5%. We anticipate full-year 2010 corporate interest expense to be approximately a $105 million at today's foreign exchange rates.
Turning to our effective tax rate we expect our full year underlying tax rate for 2010 to be in the range of 18% to 22% assuming no further changes in tax laws. We continue to expect our normalized long term tax rate to be in the range of 22% to 26% after this year. Our 2010 capital spending outlook is approximately a $150 million for the full year. As usual this guidance excludes MillerCoors. At this point, I will turn it back over to Peter for a look ahead to 2010. Peter?
Thanks, Stewart. In 2010 we will continue to focus on brand building, reducing costs and generating cash. In Canada, we begun to implement against our commitment to include the brand portfolio with the launches of Rickards Dark, Molson M and Molson Canadian 67, a low calorie option for consumers and we have seen favorable volume strength in the later of the fourth quarter as a result. This focus is continued into 2010 with the first quarter launch of Keystone Light and Keystone Lager into the Ontario and Western regions as well as a redesign of our common packaging to reflect the visual appeal of the biggest beer brand in the U.K. Both of these portfolio enhancements leveraged our global brand set and are designed to strengthen our value offerings in the Canada regions where we have faced significant challenges specifically from the smaller brewers who have been the market share beneficiaries for the past several years.
For the U.S. we are investing behind our brands which we demonstrated late last year with our stepped up advertising for MGD 64 and national TV advertising for Blue Moon. We believe that we have the right positioning for our brands and we are investing aggressively in big ideas, in marketing and innovation to bring them to life. You will see it in this spring with the Miller Lite and Coors Light as we grow with our toned draughts. You will see it as we expand distribution of the Miller Light aluminum pint and later this year introduce Coors Light aluminum pint.
We also plan to roll our Blue Moon variety packs and introduce a new advertising campaign for Keystone Light and to start a big push for Miller High Life Light. Finally you will see stepped up investment behind MGD 64 as we prepare for some new competition in the ultra light beer market. In the U.K the business is now on much firmer footing and has made substantial progress in improving profitability. During 2010, we expect incremental benefits to accrue from our Cobra brand which we will began brewing during the year.
We're also in the process of implementing a new enterprise information system in the fall of 2010 and I'll be expecting moderate implementation cost in the near term. This system will help drive efficiency in future years. You will recall that we closed our U.K. defined benefit pension plan in April 2009 with a view to minimizing future risk and exposure.
Despite a recent improvement in the global economic outlook, pension related interest rates have fallen to historical lows and equity values remain below peak levels of two years ago. As we result we expect our 2010 U.K. pension expense to be approximately 20 million pounds higher than 2009. We do not expect this deterioration in funded states to have an impact on U.K. cash contributions in 2010.
Following are the most recent volume trends for each of our businesses early in the first quarter. In Canada, our sales to retail in January decreased at low single digit rates driven by continued economic conditions and the first five weeks of the first quarter our U.K. STRs have decreased at a double digit rate impacted by the coldest January in more than two decades.
In the US for January most MillerCoors trading day adjusted STRs declined at a high single digit rate. It is important to note that after adjusting for the shift in the Super bowl into February and the impact of the prior year price increase in Puerto Rico, January STR trends were in line with the fourth quarter. As always, please keep in mind that these numbers represent only a very small portion of the first quarter and trends could change in the weeks ahead.
In the areas of cost outlook by business, in Canada we currently expect our 2010 cost of goods sold per hectoliter to decrease at a low single digit rate as we anticipate that cost inflation will be more than offset by continued delivery of RFG savings. We expect 2010 cost of good per hectoliter in the U.K. to increase at a mid single digit rate in local currency. Drivers include a shift in our sales mix towards high cost off premise channel and product mix reflecting Cobra and draught Magners volume. We expect cost of goods comparisons to be more challenging in the first half of the year than in the second.
In the U.S. MillerCoors delivered $250 million in synergies in 2009 bringing the total to $273 million since the beginning operations on July, 2008. The U.S. team now expects to achieve $450 million of cumulative annual synergies by the end of 2010. We expect U.S. cost per hectoliter to continue to increase early in the year and moderate in the second half of the year and these expectations are of course highly dependent on what we see in commodity pricing in overall industry volume.
So to summarize our discussion today, our fourth quarter and full year 2009 results show the effect of weak industry volume along the continued cost inflation in the U.S. and the U.K. and increased brand building investment in Canada. Most encouraging for the future, we grew or held net pricing and market share in both the U.S. and Canada in the fourth quarter and in the U.K. we drew positive pricing, margins and profit on the back Carlings brand strength. Looking to 2010, we expect volume to remain challenging especially in the first half but we are focused on continuing to establish a strong brand base to our business that ensures we not only manage the current market but we take full advantage of the revenue upsides from momentum influence.
Now, before we start the Q&A portion of this call, a quick comment. Our prepared remarks will be on our website for your reference within a couple of hours this afternoon. Also 2 PM Eastern Time today, our Investor Relations team led by Dave Dunnewald who will host a follow-up conference call which essentially a working session for analysts and investors who have additional question regarding our quarter results. That call will also be available for you to hear by our webcast on our website. So, at this point we can open it up for questions. Thank you.
(Operator Instructions). Our first question comes from Judy Wong of Goldman Sachs.
Judy Wong - Goldman Sachs
My first question is on Canada and I'm wondering if you can give us some perspective on what the competitive dynamics look like in that market. Obviously we have seen your share improve in that market after some softness earlier in 2009 and I am wondering whether there has been any changes to the competitive situation. So if you can update on that is my first question?
Its Dave Perkins. Yeah, look. During Q4 we didn’t see any meaningful change from the sort of activity that we saw on Q3. So I would say there is stability there. We continue to have closed our meaningful price gap as we did through the second half. We're satisfied with where we're at. And so overall I would say reasonable stability from Q3. Obviously during the first quarter of 2010 if you see that same level of pricing activity, that will cause us some year-over-year comparison challenges related to pricing because of prior year but I would say overall feeling stable and satisfied with where we find ourselves.
Judy Wong - Goldman Sachs
Okay, and then Stewart, the free cash flow generation that you saw in 2009 clearly exceeding your guidance of $575 million underlying. So can you give us what the delta was in terms of what drilled that outperformance and then how we should think about that number as we look out for 2010?
Yeah Judy, really two big drivers for the out performance. One was related to obviously our higher earnings, say year-over-year. The second piece was related to a slightly lower CapEx plus obviously some benefits that are coming from asset sales. I think if you look at where we sit right now, we got about $700 million in cash. This is a business, but working capital wise it would take somewhere around $300 million. We are at the moment in a cash usage period of the year and it's not obvious until we get into the second and particularly the third quarter that we start to really generate cash.
And at the same time, we do have a couple of opportunities to look at in terms of our balance sheet. Specifically our liabilities are ledged to the Brazilian tax credits. Also we later this year will have some debt maturing and something you will see in our 10-K is that we have a very large pension liability as a result of reduced discount rate. So you're looking at pension liabilities as somewhere in the almost $900 million range.
So we've got some fairly big items out there on the balance sheet. Clearly, as we move into the back half of the year and we get into the cash generation phase of the year, we'll have a little bit more flexibility to look at other alternatives which we've highlighted in the past which would include obviously growing our business and sharing some of that cash with the shareholders.
Judy Wong - Goldman Sachs
And then Peter just from a strategic perspective or in an environment where all of your three markets are seeing an industry volume decline, so if trends really don't get better anytime soon, do you think there is maybe a greater urgency to look at some of the more growth opportunities outside of these markets whether it's in organic basis or looking at strategic opportunities from an acquisition or M&A perspective?
We're being pretty consistent on this Judy. We are investing, not heavily but we are investing in new markets and I mentioned the appointment of Kandy earlier. So we are actually going into new markets as we speak with Coors Light but that’s not on an acquisition basis. Our belief is that we can still work our businesses that we've got pretty effectively and we will certainly not at this moment go for a heavy investment in any market that we don’t really have the skill set to work in and we don’t yet feel we have that skill set to something we are building up internally. But we're not there yet.
Thank you. our next question comes from Kaumil Gajrawala of UBS.
Kaumil Gajrawala - UBS
So when we think about the new Canadian portfolio, could you give us a bit of a read on what your picture of success is now in Canada. Your results are a bit better than they were perhaps the last quarter but if you could maybe give us a little bit of context done on volume or pricing or what you look at as the long term goals for that market?
Yeah, what we're working towards is really a brand portfolio that covers the broad spectrum of consumer occasions. So, because we're not able to say with certainly what the trends across segments will be, I think it's important to have a portfolio that can deal with the movements that we see going on these days. If you look at the super premium imports, we are well lined up with Corona, Heineken and MVD. You think of about premium domestic, we have the Rickards family. The addition of Rickards Dark has been well received. That is a strong brand for us. The growth in the micro area really gets covered for us with pretty more and more now moving towards Granville Island which allows us to participate there.
Premium which is really the significant segment in Canada, between Coors Light Canadian and now Molson M and Molson Canadian 67, we feel well positioned across consumer needs that were seeing there and then in value we've recently made some packaging changes on Carling which has been well received but as importantly we just introduced Keystone into Ontario and the Western markets and that will enable us to play in the value segment. So, as we look at our business overall in Canada, our strength is in the mainstream premium and the areas of development opportunity for us are the top end and in the value segment. The moves that we have made recently around our portfolio whether through acquisition or innovation have really helped line us up nicely against those segments. So, success for me looks like building our development in above premium and value while maintaining our strengths in mainstream brand name.
Kaumil Gajrawala - UBS
Got it. And then one more follow-up on Canada. With the de-consolidation of the beer store, will that change the pricing dynamic in all that market?
No that would have no implication to that.
Our next question comes from John Faucher of JPMorgan.
John Faucher - JPMorgan
I wanted a follow up on Canada. If I remember correctly, you guys started off the fourth quarter relatively weekly and then rebounded. It appears pretty dramatically given the fourth quarter STR number to the point where you must have been positive potentially as you exited the quarter. So I guess the questions is, as we look at the weakness sequentially, I'm assuming in January, is there anything to that? Is that noise? Has something gotten a little bit worse as we entered into the first quarter of the year or is it something that we really shouldn't pay that much attention to? And also what caused things to get better as we went through the fourth quarter?
Let me start with the second question. What caused things to get better for us through the final quarter was really the innovation agenda and price competitiveness. So we have been although its early days on innovation, we're very pleased with what we're seeing there in terms of volume and share delivery as well as obviously the strategic strengthening of our brand portfolio. As we look at January, I assume you're referring to the low single digit volume decline and we believe that is fully attributable to economy as opposed to anything that’s happening within our business specifically if that answers your question.
John Faucher - JPMorgan
Okay, so it does I guess but given the fact that the economy was probably bad in the fourth quarter, it sounds like its more noise than anything else. In terms of looking at how you exited the year versus how you started, it sounds like it's just a bit of normal volatility. Is that fair?
Yeah, I think that is fair. We do see ups and down in the industry. You will remember October was a difficult one. You go through all of 2009, you will see several months that bounced around quite significantly. So I'm certainly not reading anything more than the normal volatility and to where we're currently.
(Operator Instructions). Our next question comes from Carlos Laboy of Credit Suisse.
Carlos Laboy - Credit Suisse
You referenced fixed cost absorption in the U.S. in one of the releases. Do you have flexibility to scale back reduction capacity? Is that a consideration at this point? How are you thinking about that?
Just coming off news here. I think, the thing you remember about our capacity utilization is that we will be full out starting the end of the March through July cards, because if you look at last year we actually chased volume most of the year.
So our utilization rates will be great during the peak. What we have to prepare for is more flexibility in the shoulders that’s where we get the leverage that were soft overall market volumes make us most venerable and that’s what showed up in the fourth quarter.
So, are there ways to anticipate that better for next year than this year. I think there are yeah, we look at the plans to give us the most flex, and the plan that gives us the most flex in our system today is Golden, but that’s a decision we have to be prepared to take a really good look at coming at summer.
Carlos Laboy - Credit Suisse
Do you see opportunity may be do (audio gap).
Not in the short term just a pragmatics of cross border cost, tariffs etcetera, doesn’t look to be an opportunistic short term play perhaps in the longer term that’s implement beyond the game plan for North America but again you are dealing with a much different scale in breweries and much different tax and tariff realities.
Thank you. (Operator Instructions). Our next question comes from Mark Swartzberg of Stifel Nicolaus.
Mark Swartzberg - Stifel Nicolaus
Couple of technical questions I guess could you repeat the corporate MG&A numbers to what was your expectation for 2010?
MG&A for 2010 we have $180 million that includes the international fees.
Mark Swartzberg - Stifel Nicolaus
And then with Brazil we have been hearing about that for a while what's your best guess to when that gets result?
We don’t have a specific date for that, Mark. We think we have got good number that fits in our balance sheet as our best guide. We have ongoing discussions with them as it relates to this regulatory process has also been underway so there are few moving parts we are actively working on brining it to a resolution but I don’t have a date to share with you.
Mark Swartzberg - Stifel Nicolaus
Lastly Dave, follow-up to John's question about the volatility in the month by month volumes in Canada, can you talk a little bit about innovations, how many points of growth you got from that in the fourth quarter and is it right to think that, that growth moderated in the month of January. Just trying to understand what the underlying trend for your business is?
I wouldn’t want to split out the growth that we have got from innovation and just for competitive reasons but I would say that innovation was a meaningful contributor but the underlying trends on the business we continue to see growth with Coors Light with Rickard we saw growth for our import, the micros and obviously through the innovation but where we continued to see difficulties with Molson Canadian was a mid single digit decline and somewhat moderated from the first half which is good news when you think of potential cannibalization issues and other Molson trademark brands that are being XXX and dry primarily would have been high single digit declines. So overall innovation played an important role for us, but the base business is still certainly the bulk of it.
Mark Swartzberg - Stifel Nicolaus
How would you characterize it's role in January versus the quarter? Was it, did it have a similarly meaningful impact?
Yes. I wouldn't characterize it as appreciably different than we saw through the last half of Q4 when those brands were in full effect.
Our next question comes from Raghavan Selvaratnam of MainFirst.
Raghavan Selvaratnam - MainFirst
Just that question regarding the U.K. and competitive environment, you have already weighed prices quite significantly in quarter 4 what are you seeing from your competitors and may you lead to the fact that the poor weather in January lead to large drop in volumes and is that also perhaps due to the large prices increases, do you see?
Yeah, happy to do that. I think it's important to look at the context here we have now had 12 quarters of price increase and certainly over the last five quarters of price increases have been in the double digit range some of that by mix, some of that through our next selling price, you got to remember that not all of those price increases find out their way through to at the retail level, so some of them are renegotiations with our major customers are then absorbed by our customers, so we've been pretty I think consistent and regular with the need in a shrinking market to try and grow value ahead of volume.
I really don't want to comment on anything we're seeing in the market place from a competitive perspective pricing out retail continues to remain very, very competitive because our customers remain very, very competitive with one another. Clearly as we commented in January things have been tough across retail and total its just been announced today that the retailing industry had its work candidate for 15 years so certainly the two weeks are very, very vital and well out of the effective all of our sales haven’t been too much into January and December seems a lot weaker to specially back to (inaudible).
Thank you. Our next question comes from John Faucher of JPMorgan.
John Faucher - JPMorgan
Yes, actually just a follow-up on a question from before on Judy's question about cash flow. Did you guys provide cash flow guidance for 2010 I didn’t get it, so you can give us an idea what the order of magnitude is going to be there? Thanks.
Thanks for that question, we have not given guidance yet. We expect in three weeks at our analyst meeting in New York that we will give you some more clarity then.
Thank you. I assume there are no further questions at this time, sir.
Okay, that’s perfect timing. Thanks very much everybody, sorry about the glitch early on but thanks for hanging in there and thanks for interest in the company and we will see a lot of you I am sure in New York in a few weeks time. Thanks a lot, thanks.
Thank you. Ladies and gentlemen thank you for your participation in today's conference. This concludes the program you may all disconnect.
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