DAVIDsTEA’s (DTEA) Q1 2017 Results

Joel Silver – President and CEO

They have not given up on the US

“We are in two distinct markets, Canada and the U.S. and it’s clear we’re at different stages of maturity in each. We have a very strong Canadian business underlined by the fact that we do 80% of our sales in Canada. We are extremely confident in Canada, DAVIDsTEA’s has an excellent platform and one we will continue to build upon. There has been significant effort trying to penetrate the U.S. market while there has been some success it has been limited, we will not abandon the U.S. market but we do intend to emulate the Canadian success in the U.S. with the necessary adjustment to perfect our business model.”

They have excess inventory

“with regard to the inventory level it’s in-line with what we expected for Q2, we’re sort of in a glide path to the back at our inventory levels by let’s say Q4, the pressure we expect to experience in Q2 will moderate somewhat in Q3 and Q4 but we’re still going to take a couple of quarters to work through our excess inventory position, we’re working hard with our clearings and our buys to mitigate the impact of some of the inventory levels as well as our gross profit margin pressure but it is in-line with where we thought will be in Q2.”

Very choppy beginning to the year

“It’s been fairly choppy the first four to five months this year, it has been tough to predict which is one of the reasons we’re not giving guidance but there’s nothing specific that we saw that we could point to and say it’s a specific factor. We have seen a general trend improved versus the aggregate Q1 results, as we sit here we are in negative low single digits so it is an improvement in the trend but it’s just been so choppy it’s hard to predict much beyond that at this point.”

Former Coca Cola (KO) CEO Roberto Goizueta on why companies exist

Former Coca Cola (KO) CEO Roberto Guizueta, who was CEO of the company from 1980 to 1997, wrote an essay on why companies exist called “Why Shareowner Value.”  

“At the Coca-Cola Company, our publicly stated mission is to create value over time for the owners of our business. Of course, there are plenty of other missions upon which a company could focus: serving customers; pursuing philanthropy; providing the highest quality of products and services; creating jobs and job security. But I would submit that in our political and economic system, the mission of any business is to create value for its owners. In the wake of huge layoffs at certain companies, this idea has been vilified by many critics, and doubt has arisen in the minds of many business leaders about their purpose. This is incredibly dangerous to the companies whose lead ers doubt their purpose and to the society that those companies serve.  So why is creating shareowner value the right mission for our businesses? There are three basic answers to this question: Increasing shareowner value over time is the job society demands of us.  Increasing shareowner value enables us to contribute to society in meaningful ways.  Focusing on creating value over the long term keeps us from acting short-sighted.”

“Our society is based on democratic capitalism. In such a society, people create specific institutions to help meet specific needs. Governments are created to help meet civil needs. Philanthropies are created to help meet social needs. Churches are created to help meet spiritual needs. Businesses such as ours are created to meet economic needs. The common thread between these institutions is that they can flourish only when they stay focused on the specific need they were created to fulfill. When institutions try to broaden their scope beyond their natural realms, when they try to become all things to all people, they fail.  While society institutions remain healthy when driven by their core purposes, society remains healthy when supported by all of its institutions.”

AB Inbev (BUD) Q1 2016 Earnings

AB Inbev (BUD) CEO Carlos Brito said Mexico enjoyed robust results while the Brazil region struggled mostly due to political turmoil

“The first quarter saw a strong performance in Mexico as well as improving volume trends in the U.S. and Europe. However, Brazil faced one of its most challenging quarters in many years due to the weakening macroeconomic conditions in the country and a tough comparable. The industry in China was also soft due to economic headwinds.  Volumes were significantly impacted by results in Brazil, as expected, where our beer volumes fell by 10%, although our volume trends in Brazil in April were significantly better than the first quarter.  Brazil is facing a tough macroeconomic environment with continuing pressure on consumer disposable income.”

Brand perception of their Bud Light offering is improving

“Our business in Mexico is doing great, and we’re excited about the prospects going forward. In the U.S., industry volumes returned to growth, and we’re seeing very good volume growth with our Above Premium brands. Bud Light volume trends are also heading in the right direction. In Brazil, our brands enjoy high consumer preference, and the premium category continues to grow.”

Have had to divest a large number of brands in order to gain regulatory approval for their acquisition of SAB Miller 

“I’d like to give you an update on the proposed combination with SABMiller. When we made the initial announcement in November last year, we said we would be proactive in addressing any potential regulatory considerations and we have made good progress in all four of the markets where regulatory clearance is a precondition to making the formal offer to shareholders. We have announced the sale of SABMiller’s interest in MillerCoors in the U.S. and in CR Snow in China, as well as the disposal of certain of SABMiller’s premium brands and related businesses in Europe, including Peroni and Grolsch. Also, last week, we announced our decision to divest of SABMiller’s Central and Eastern Europe business and brands. Of course, all of the disposals are subject to the closing of the main transaction.”

China beer volume growth slowed but the company took market share from competitors 

“oving now to China, China beer industry volumes declined by around 4% in the first quarter due to economic headwinds. Our own volumes were down just over 1% in the quarter versus the tough first quarter last year, wherein our volumes grew by 4.7%. We estimate we gained approximately 45 bps of market share in the quarter, reaching a level of 19% market share.  We believe the Core+, Premium and Super Premium segments have the greatest long-term growth potential within the industry. Our brands in these segments represent more than 50% of our total China volumes and are well positioned with strong brand health metrics.”

AB Inbev (BUD) CFO Luis Dutra said the company was able to issue debt at an average rate of 3.2% in order to fund their SAB Miller acquisition 

“As Brito mentioned earlier, we have made good progress with the prefunding of the SABMiller transaction, with three bond issuances in the first quarter. Slide 23 contains a summary of these issuances, which resulted in net proceeds of $61.6 billion and an average coupon of 3.2%.”

AB Inbev (BUD) CFO Luis Dutra said they recognize they have strong integration abilities after doing dozens of acquisitions over the last few decades

“M&A remains a core competency, and we’ll always be ready to look at opportunities when and if they arise, subject to our strict financial discipline. Surplus cash flow should be returned to shareholders. Our goal is for a dividend to be a growing flow, consistent with the non-cyclical nature of our business; and dividend yield, the earnings payout, free cash flow payout, will always remain references in determining the amount of the appropriate dividend payment.”

AB Inbev (BUD) CEO Carlos Brito explained how they are viewing the exploding craft brewery segment

“In terms of craft, ]we think we made a lot of progress. The idea that we have on craft is a simple one. I mean, we are the market leader in the U.S. Craft is a growing and very profitable segment. It is one where we are under-represented. So it’s a two-fold strategy. First, we have crafts of our own, like, for example, Shock Top, just to give one example. Second, we acquired some.  If you think that there are 4,000 craft brewers in the U.S. and we acquired less than 10, if you put it all together. But it’s important to have some of those because, first, you bring some amazing craft partners to join us and to continue to help our brewers to continue to create the very best beers and styles in the marketplace. So that has been great. We’re very happy with our craft development in the U.S.”

Starbucks (SBUX) Q1 2016 Earnings Call

 

Starbucks (SBUX) CEO Howard Schulz said the decline of traditional brick and motor retail isn’t slowing the company’s brand or success down
“Our recent classes of new and remodeled retail stores continue to defy established consumer trends away from traditional bricks-and-mortar retailing and deliver record-breaking unit sales, unit economics and return on investment; very strong performance metrics that underscore the increasing power and relevance of the Starbucks brand around the world.”
 
Still opening a massive amount of new stores in China
 
Starbucks has committed to China, and we now have over 2,000 stores in 100 cities in China and are adding over 10 new stores every week. Our business in China remains very strong, and I personally have no doubt that the Chinese government’s commitment to true economic reform is genuine and that its plan to double 2010 per capita income by 2021, resulting in a middle-class in China approaching 600 million people, almost twice the size of the entire current U.S. population, is achievable.”
 
Starbucks (SBUX) COO Kevin Johnson said a substantial percentage of their customers are paying for their orders with their phone
 
And we now have almost 19 million users of our mobile app in the U.S. alone. Mobile payment represented 24% of total U.S. tender in Q2, and Mobile Order & Pay continues to be increasingly embraced by our customers. It adds incrementality, especially at peak. Mobile Order & Pay transactions represented approximately 4% of total transactions in the quarter, which was a 40% increase sequentially.” 

AB Inbev Annual Report Notes

Source: AB Inbev Annual Report

AB Inbev (BUD) CEO Carlos Brito says they are building a company which they expect to last 100 years

“At Anheuser-Busch InBev, our ambition is to build a great, enduring company for the long term, not just for a decade, but for the next 100 years. In 2015, we not only took significant steps towards building a company that will stand the test of time.”

AB Inbev (BUD) CEO Carlos Brito explained the rationale for the $107 billion SAB Miller acquisition

“We believe that a combination of our two companies would build the first truly global brewer. Both companies have deep roots in some of the most historic beer cultures around the world and share a strong passion for brewing as well as an enduring tradition of quality. By bringing together our rich heritage, brands and people, we aim to provide more opportunities for consumers to taste and enjoy the world’s best beers. We believe this combination would generate significant growth opportunities and create enhanced value to benefit all stakeholders. In particular, the combination would strengthen our position in emerging regions with strong growth prospects, such as Asia, Central and South America and Africa.”

AB Inbev (BUD) CEO Carlos Brito explained the company’s entry into the craft beer space

“Our passion for brewing quality beer is reflected in our investments in the craft category. We know — as do consumers — that a brewer’s passion, care and skill must be evident in every glass. This has sparked an increasing interest among consumers in the craft beer experience, and led AB InBev to build a growing portfolio of exceptional craft beers, enabling more consumers to enjoy them. Our entry into the craft space comes at a time when many craft brewers themselves are wondering how they can bring the beers they are passionate about to an ever-expanding audience and are asking, “What’s next?” We are able to provide an answer by bringing together the resources to grow craft brands in the right way, with each brewer’s passion and commitment. We contribute capital, brewing expertise, distribution capabilities and talent — along with a deep respect for the craft brewing culture.”

Even AB InBev (BUD) is getting into the startup craze of having employees involved in hackathons

“With the creation of our Disruptive Growth team, we are seeking team members with skills more typically associated with start-up, entrepreneurial companies. One approach to finding such employees with a creative, curious, challenge-the-status-quo mindset, has been to invite students to participate in hackathons where they are encouraged to tackle real business problems.”

AB Inbev (BUD) CEO Carlos Brito says the company expanded their partnership with the NFL

“Sports sponsorships enable our brands to “team up” with loyal fans. One of our strongest sports connections is the long- running Bud Light NFL Sponsorship. In 2015, we had a strong integrated commercial plan for the NFL season, with exciting team cans and Super Bowl 50 cans that reinforce Bud Light as the beer of the fan. We just renewed our NFL contract for another six years, gaining additional marketing rights in the US as well as the ability to utilize NFL marks internationally. Bud Light will display highlight clips from NFL games on its website, Facebook page and other digital media, with features such as Bud Light “PlayeroftheGame”and“PlayoftheDay”. Moreover, Bud Light will be the exclusive sponsor of Thursday night football, allowing the brand to activate its 28 team partnerships outside the team city limits and connect with more fans nationally.”

Coca Cola 4Q15 Earnings Call Notes

Ahmet Muhtar Kent – Chairman & Chief Executive Officer

Feel confident that wont have to buy bottlers back again after re-franchising them

“when we announced the acquisition of CCE, it was, essentially, kind of a 25-year-old problem, and we said it would take a while to basically course correct. The level of investment was not where it was needed, and also the level of customer service was not where it was needed. And, essentially, we believe that having more than just one bottler essentially having that big a territory was a better way. Scalable size bottlers, right ownership values, right structure and right capability, and that’s what we have today in North America. And so, we feel very good that this is a model that is going to stay where it is and continue to add value. It’s not going to require any further – all of the time, there will be tweaking necessary, but not the scale that was needed when we did the transaction back at the end of 2010. And so, that was a core decision that was needed. That was a major surgery that was needed, and that’s really what took place.”

James Quincey – President & Chief Operating Officer

The global economy remains challenged and is not improving rapidly

“Our performance in 2015 gives us confidence that our strategies are working and that our underlying performance will be within our long-term targets in 2016. However, let me be clear. The global economy remains challenged and is not improving rapidly. We do see slightly better GDP growth rates for 2016 as compared to 2015. But to be fair, forecasts continue to be revised downwards and there is still much uncertainty. Notable are Brazil and Russia continuing to deteriorate, while China’s growth rate does also slow, putting pressure across many of the emerging and developing markets. Now, while helpful to consumers, the lower price of oil is also causing volatility in the Middle East and other oil-driven export economies, with further implications for those nations.”

The environment in China has pretty clearly slowed down

“in terms of China, clearly not as much as we would have liked to have grown in China in the first quarter; I think that the environment in China is pretty clearly having slowed down, but we think we had a strong momentum over the last couple of years coming back into China.

Kathy N. Waller – Chief Financial Officer & Executive Vice President

Fully hedged on major currencies for 2016

“In terms of coverage, we are fully hedged on the euro, yen and sterling for 2016. We also have near-term coverage in place across several other major currencies.”

Brown Forman FY 1Q16 Earnings Call Notes

We’re all anxiously watching market gyrations

“This leads me to my second topic, our outlook for fiscal 2016, which we reaffirmed today. Before I dig into that topic, I would like to add that while we are fortunate to have a business model that combines long-term growth with defensive characteristics, we realized that we are not immune to a further deterioration in the global economy. So, like all I view, we are anxiously watching the market gyrations over the last two weeks, particularly in the emerging markets.”

Our emerging market footprint is <10% of our total

“But for now, our emerging market footprint outside of Poland and Mexico is less than 10% of our total revenues. So our exposure is significantly less than the competition. Additionally, this approximate 10% is well diversified, spread over a 100 plus countries around the world.”

5 million cases of Jack Daniels is a lot

“One noteworthy milestone that occurred during the quarter was Jack Daniel’s Tennessee Whiskey surpassing 5 million cases in the United States for the first time in its 149 year history and to be clear here, I am referring to the parent brand Jack Daniel’s Black Label as most know it.

I’ve been reflecting some on this recent accomplishment. So I thought I’d share a few perspectives with you about it. First, I’ll simply note that attaining the 5 million case level in our industry is a rare event in its own right. This is a very high level of consumer acceptance achieved by very few brands.

Add to this the fact that Jack Daniel’s is priced the super premium price level, well above the price of most brands that have achieved the 5 million case level and the recent milestone is even more rare and impressive in my view”

Big brands have had a headwind

“The first factor outside is the difficulty the big brands have experienced both inside and outside our industry. As evidenced, consider that the largest ten brands by volume in calendar year 2010, in the United States have not only lost share, but cumulatively lost over 1 million cases in the last four years with six of the top 10 having lower volumes today versus 2010.”

There has been intense competition too

“A third factor has been the intensifying competition in the American Whiskey segment as new entrants in craft premium plus and flavored whiskey have exploded in recent years.”

149 years of Jack Daniels

I find it impressive the Jack Daniel’s is in its 149th year in the United States and sits today at all-time volumetric point. Aside these factors to illustrate that Jack Daniel’s is not just normal brand, I believe it to be a special brand and often the exception to the rule.”

Millenial’s social habits are changing

“if you just look at the behavior of Millenial’s , where they might have spent three or four hours at a bar for an evening, they may only be spending an hour and a half in the first portion of it is in their apartment on the couch with their friends and so, the brand selections that occur in those different environments are really important and I think that actually is a contributing factor to why the flavored whiskies are actually doing fairly well because they are convenient to pour and consume and don’t require a lot of mixtures et cetera. So, I think there is some changing dynamics that made be with us for a while.”

The last week has injected some uncertainty

“I think it’s more the uncertainty around where – what might go, what might occur going forward as a result of just the skittishness that we have seen over the last, I mean, literally week to ten days we are acting a little bit more I think to just the recency of some of these market sell-off. That I mean, I am not, at this stage see what happens, I am not obsessed with what’s going on out there”

Constellation Brands FY 1Q16 Earnings Call Notes

Bought a new wine brand, 600k cases 50% growth

“Launched in 2006, Meiomi sold about 60,000 cases in the U.S. marketplace in 2010 and has grown to become a nearly 600,000 case brand since then. It is currently the fastest growing major pinot noir in IRI channels at the $20 luxury price point and has experienced dollar sales growth of more than 50% over the last 52 weeks”

Robust demand for our Mexican beers

“We continue to experienced robust consumer demand for our iconic portfolio of Mexican beers, with our top five brands experienced — experiencing solid growth across almost all channels and packaging sizes during the quarter.”

I’m awesome

“I would also like to remind everyone that during my tenure as CEO for the last eight years, our team has created significant value by transforming and simplifying our product portfolio through the rationalization and divestiture of business assets in an effort to premiumize and grow the business. And my plan for the future is to continue to deliver value and generate growth.”

We’ve rationalize a lot of the low end of the portfolio

“that’s something that we have done over the years. We’ve really shed the bulk of the low-end portfolio. I think around, I don’t know 2008 when I became CEO and we disposed off the Almaden and Inglenook brands, which were primarily by that time 5-liter bag in the box which really represents the vast majority of the sub-premium market.”

Beer makers usually take price in the fall

“We really haven’t moved into the season where beer pricing is usually taken which is in the fall. We will of course be looking at the market as we normally do on a market-by-market, case-by-case basis. But we still fully expect that we’ll be within our guidance range of 1% to 2% on price mix”

We continue to increase advertising spend because it’s critical to maintain this “out of the ballpark growth we’ve been enjoying”

“we continue to increase our spends in advertising and marketing because we think that it’s critical to continue to drive the kind of success that we’ve had.

So in particular, the commercial side of beer is a very important part of the business for us to continue to invest in because we can’t just take our current growth and be penny wise and dollar foolish for the future. We have to make sure that we are taking all of the right steps to ensure that we are able to maintain this kind of hit it out of the ballpark growth that we’ve been enjoying.”

Paid 10x “transferred margins” for the wine company

“the purchase price pre-synergies was about 10 times the transferred margins. So post-synergies, it’s going to be significantly better than that. So it’s real good deal especially given the growth rate, which was I think 50% in IRI on over a half a million cases in the last 12 months. So, I mean tremendous deal.”

Increased marketing in wine

“I think that we will continue to see two things, okay, increased marketing and the concentration of that marketing against the smaller subset of brands. As I mentioned, we have initiated TV marketing at fairly significant rates against Black Box, Woodbridge by Robert Mondavi, for example.”

Molson Coors 1Q15 Earnings Call Notes

Worldwide volumes down 3.5%

“Worldwide volume declined 3.5%, driven by Europe, Canada and the U.S. Underlying pretax income on a constant currency basis increased 0.6%, driven by positive net pricing, along with results of cost-saving initiatives. The underlying performance of the business was stronger than this result indicates, as we cycled a particularly strong quarter last year when pretax income nearly doubled.’

Above premium brands, blue moon and some others I’ve not heard of

“In Above Premium, Blue Moon grew at mid-single-digit rate in the quarter, while Leinenkugel increased at high single-digit rates, and both Redd’s and Smith & Forge Cider achieved strong double-digit growth.’

Europe business faced weak consumer demand and mix shift to economy segment

“Our Europe business faced weak consumer demand in some of our higher revenue and profit markets, and an industry mix, volume mix shift to the Economy segment, and we deliberately chose to pursue value ahead of volume. Our first quarter result reflect positive pricing in most of our Europe markets, also lower volume and negative sales mix.”

A number of headwinds

“To summarize our discussion today, Molson Coors results for the first quarter reflect a number of headwinds, but we remain resolute in our focus on building brand strength, achieving positive pricing, transforming our portfolio to the Above Premium segment, improving our commercial execution and embedding profit after capital charge in our organization and delivering total returns to our shareholders.’

CEO change underway

“Tom indicated towards the end of last year his intention to retire and we publicly announced that earlier on this year ahead of our distributor convention. We’ve had a search process in place. And I think, from our Chairman, Pete, Alan Clark and myself, we are absolutely clear that we want to find the best possible leader for the MillerCoors organization, that’s what the organization requires and deserves, and we will take our time and be thoughtful. As I’m sure you’re aware, these type of searches sometimes take time.’

India is a big potential beer market

“we see India as an attractive, long-term market. It’s currently at market size of 23 million to 24 million hectoliters. It’s been growing double digits steadily. And yet, per capita consumption of beer is only 2 liters per person per year, which means, in the long-term, we expect this market to continue to grow.’

Anheuser Busch InBev 1Q15 Earnings Call Notes

Craft strategy is regional

” in terms of crafts or specialties, the strategy in different places, of course, in different countries are slightly different because they are at different stages of development. In the U.S., for example, the segment is more developed than in other countries, of course. And here, we’re adopting the strategy very clearly of having more regional relevant brands.”

We’re outperforming in Brazil because we made the decision not to get caught up in the gloomy mood

“our guys in Brazil, which has been through tough years before, at the beginning of this year, they decided they were not going to be part of the bad mood or whatever that was in some other industries in Brazil. They decided that we would focus on the things we could control. We felt we had good plans in our hands. So we decided to keep our head down, focus on execution and out-execute competition in the marketplace, at least have that intent. I like to remind people that despite the bad mood or some poor macro indicators, the fundamentals in Brazil remain the same. So demographics, the fact that LDA is growing at a healthy pace, it’ll be a plus. The weather, the beer culture, the regional differences, middle class, all those things are there.”

Bud Light didn’t have support during the summer because it advertised so heavily with Football

“you have to remember that Bud Light for many years didn’t have much support as a brand during the summer because most of its investments was tied to sports and NFL, which in the summer doesn’t really take place. So it was a very low support season for Bud Light. Last year, we decided to — as you saw, we upped our investments in the U.S., one of the reasons being we decided to support Bud Light during the summer. And the results were quite impressive. So this year, we’re doing that again. So that’s one thing.”

Brand fragmentation is a reality

“brand fragmentation is a reality. It has to be managed, though. One of the ways to manage it is with technology. So for example, by increasing the use of smartphones with our sales reps, which is something we do, and using more algorithms, you can be better at your offer being tailored by a customer when you have a bigger portfolio. You also have to be smarter about how you split your market money and sales money in support of those brands. So we’re developing better models to check return on investment on both traditional and social media. So we are sharper on how to allocate resources behind brands”

You have to have salepeople who can help customers with assortments

“you also have to have better training of our people, so they can talk to customers and also try to tell customers and get insights to customers on how they should build their assortment because what we see these days is that some customers that went too wild on assortment lost business on a relative basis. And they keep asking themselves, “Why, if I’m offering more assortment, which is what consumers seem to want, how come I’m losing share of business to my competitor, my neighbor?” And what we — the insights we bring is that there is a point at which more assortment becomes like overwhelming to consumers. ‘

Some craft brews don’t turn very quickly creates challenges for the retailer that we need to help solve

“if you have some of those craft brands, for example, in the U.S., we’ve been proven. Data proves that some of them should sit outside of the cold box because they turn 1 six pack per month. And that, of course, doesn’t compare to a Bud Light that turns 6 packs in a day, right? So those are the things that with increased fragmentation, we need to do — we need to be smart about technology in our production, sales and distribution facilities. ‘