Tax Incentives 500 Peer Response

Hi Class and Professor Miller,

Have you heard the joke about the guy that has gone to buy his two-week supply of alcohol for the third time this week? I suspect this is true for quite a few people during Covid-19. Well, I decided to see if there has been any improvement in earnings at one of the largest Breweries in Canada, as a result, the Molson Coors Beverage Company.

Identify the company you selected.

Molson Coors Beverage Company, Q2 2020, July 13, 2020. I listened to the Call and read the transcript.

The speakers were Gavin Hattersley, President, and Chief Executive Officer, and Tracey Joubert, Chief Financial Officer.

Have you ever listened to an earnings call?

Yes, I have listened to a few, and have participated in one as COO of a small hedge fund while working in NY. It is very different from a publicly-traded company’s earnings call, but the questions are just as targeted and challenging.

What topics were included?

• 1. Systemic Racism, and Molson’s action plan.
  2. Corona Virus Impact, supply chain issues
  3. Expansion into Hard Seltzers.
  4. Short Term Funding Activity to solidify Cash Position.
  5. Moody’s affirmation of Credit Rating.
  6. Changes in Consumer Demand
  7. Acquisition of Atwater Brewing (funny, I had a drink at their facility last fall)
  8. New Ad Partnership with MLB
  9. Financial: Net Sales down 14.3%, EBITDA increased 2.2%, Free Cash Flow for six months $796.4 million (up $235.7 million YOY), $500 Mio of Tax deferrals from Government Support programs.
  10. The US and Europe’s Financial Insights
  11. Constraints from 12 Oz cans supply disruption.
  12. Debt Activity, repayment of $1 bio left on credit facility.
  13. Suspension of Quarterly Dividend, improving their cash flow.
  14. Reduction of $200 Mio in Capital Expenditure.
  15. Which were most helpful or insightful?

There were four things insightful:

1. 1. That Molson’s led with the topic of Racism.
   2. Corona Virus Impact and the supply chain disruption of 12 Oz Cans
   3. The Significant increase in Free Cash Flow for the first 6 months of 2020( $235.7 Mio), and the strengthening of the overall cash position from the suspension of dividends and tax incentives.
   4. $500 Mio Tax payment deferrals from Government Support Programs.

Were there topics you wished were included or expanded upon?

I was surprised that there was no discussion of Net Income or EPS in the prepared remarks and, It maybe not a surprise, but then again, they were unwilling to give forward guidance. I also sense they wanted to ensure the investor in concentrating on their liquidity and cash flow during the time of uncertainty. As I learned in last week, DQ Free Cash Flow is the primary line item investors are looking for as a signal of a healthy company (1).

Was there a discussion of profit or EPS by Company Management? Explain what this implies, what is the driving force, and what actions you would recommend?

There was no discussion on EPS, and I was surprised as you could tell above. It made me look into why some companies do not and found a couple of interesting articles. It might be because of the possible inaccuracy of any forward guidance due to Covid-19?

https://insight.factset.com/are-more-sp-500-companies-withdrawing-or-providing-eps-guidance-for-2020

https://www.investopedia.com/articles/stocks/08/earnings-tricks.asp

https://www.marketwatch.com/story/why-forward-guidance-matters-2015-09-03

Were the analysts’ questions aggressive and challenging or supportive and respectful?

Yes, the questions were all presented cordially. The Q&A was well over half of the call. I sense no aggressive behavior on behalf of the analysts on the call. Despite the long list of topics discussed, I felt they were lob ball type questions.

Topics:

1. 1. US and Europe’s business activity and sourcing Issues
   2. Coors Lite and Vizzy (Hard Seltzer) Brands Strategy.
   3. UK Size of recovery and bottom-line impact.
   4. US Lite Beer Segment
   5. COGS per Hectoliter and favorable tax settlement
   6. Strategic Asset from a balance sheet perspective.
   7. Performance in the US in April and May, and rightsizing the marketing spend.
   8. Margin under pressure.
   9. Overall Supply constraints, 12 OZ cans, etc.
   10. Investment Strategy in the current economic Environment.
   11. Debt to EBITDA Ratio, 3.4 times. An improvement.
   12. Marketing Spend.

How well did management respond to the questions?

Management did quite well to answer all the questions. Much like the analysts were respectful of the management team, the management team kept an even keel and were as transparent as possible, despite holding on to giving any forward guidance when asked about it.

What additional insights were you able to gain in regards to the company’s financial health, forward guidance, and strategic financial decisions?

The fact that they were refraining from giving any forward guidance had me curious as to why. Almost to the point, it felt that they did not trust the investor space to interpret the information correctly.

Was there any information or perspective shared that a competitor could benefit from?

Yes, their expansion in the hard seltzer space was quite transparent and optimistic, and their impact from the lack of 12 Oz can supply something their competitor could use.

If you were an employee of this company, how could you leverage this resource to benefit you or your company?

The first thing that came to my mind was if I were in marketing at Molsons, I would want to see how I could get involved in the Vizzy campaigns. There seems to be an aggressive push into the Hard Seltzer space, and there is good momentum. It might be more exciting than trying to re-ignite the old and decaying beer market.

Jamie

References:

3. 1. Berman, Knight & Case. 2008. Why Cash Matters. HBR
   2. Molson Coors Company, Q2 2020 Earnings Call. July 13, 2020. https://event.on24.com/view/presentation/flash/ended.html?eventid=215984
   3. Molson Coors Company. [email protected] 2020 Earnings call. Transcript. Retrieved July 30, 2020, https://s21.q4cdn.com/334828327/files/doc_financials/2020/q2/CORRECTED-TRANSCRIPT-Molson-Coors-Beverage-Co(TAP-US)-Q2-2020-Earnings-Call-30-July-2020-1100-AM-ET.pdf

   Peer# 2 RE: Johanna Snow

   Good Evening Class,

   Earnings Call Review:

   • Identify the company you selected.

     Target, Q12020; May 20, 2020

   • Have you ever listened to an earnings call?
     No, this was my first time.

   • What topics were included? Which were most helpful or insightful? Were there topics you wished were included or expanded upon?

     1) Digital sales growth (over $1.1 billion compared with last year in April alone).
     2) April’s digital performance which outranked Cyber Monday and their ability to adapt to accommodate customers.
     3) More than 5 million online shoppers .
     4) Covid Outlook and the continued adaptation of guest and team member safety.
     5) Extra benefits for team members (extra $2 to hourly wage, enhanced paid leave, and daycare options through June).
     6) Biggest donation is company history ($10 million to assist team members and communities response to the pandemic).
     7) Target orders fulfilled by Shipt and overall digital, were higher in the first quarter of 2020 than in the first 3 quarters of 2019 combined. New drive up service also had accelerated growth.
     8) Slowed down plans of remodels and new stores.
     9) Recent acquisition of local route optimization technology from Deliv.
     (Thomson Reuters, 2020).

     I think that it’s important to note that Target was still seeing growth in the first quarter when so many things were shut down for the Pandemic. It was very insightful to the way they adapted and turned their online, delivery, and drive up into the main streams of revenue. I also thought it was interesting that they’ve invested in logistical technology, Deliv, I hadn’t head about that before this call.

   • Was there a discussion of profit or EPS by Company Management? Explain what this implies, what is the driving force, and what actions you would recommend?

     On the EPS line, Target earned $0.59 in the first quarter, more than 60% lower than last year. GAAP EPS was about $0.03 lower at $0.56, reflecting the loss on their investments in Casper Sleep. Looking at the EPS it’s tempting to say Target’s performance was disappointing and that their long-term prospects have been getting weaker. However, Michael Fiddelke (2020), Target CFO, says that “because of what our team has been able to accomplish and deliver for our guests, I believe our long-term prospects have gotten stronger over the last 90 days. Put another way, I wouldn’t trade Target’s future prospects for anyone else’s in the marketplace”.

   • Were the analysts’ questions aggressive and challenging or supportive and respectful? How well did management respond to the questions?

     The analysts were supportive and respectful. It’s an unprecedented time and management handled questions well.

   • What additional insights were you able to gain in regards to the company’s financial health, forward guidance, and strategic financial decisions?

     That while they’re proud of the first quarter, they’re still uncertain about where their financial health will be as this pandemic continues on. Their main take away is that all they continue to do is be flexible, adaptable and continue to meet changing consumer needs. They seem to know “not to over promise and under deliver (Welch, 2020), which helps them gain trust with their analysts.

   • Was there any information or perspective shared that a competitor could benefit from?
     That drive up service and their digital platform have been extremely successful. Competitors could use that information to develop their own platforms.
   • If you were an employee of this company, how could you leverage this resource to benefit you or your company?

     Knowing that extra benefits are slated to end in June, I would save up money from that hazard pay. I’d also work to get more into the digital platform/ drive up service, as to limit my exposure to other people. I’d also invest in tech that would probably help other competitors or ours develop more logistical platforms to get the customer what they need.

     One thing to note is I was curious how things faired for Target after the murder of George Floyd. But unfortunately this report is about 5 days too soon, and their Q2 report doesn’t come out until August 19, 2020. It’ll be interesting to see what comes up in the Earnings Report in regards to that.

     Thanks,
     Jo

   References:

   Fiddelke, Michael. (2020). TGT – Q1 2020 Target Corp Earnings Call. Retrieved from com/static-files/588970b2-c376-42f2-ae8a-a2216b853f22″ rel=”nofollow”>https://investors.target.com/static-files/588970b2…

   Thompson Reuters. TGT – Q1 2020 Target Corp Earnings Call. (Edited Transcript). (2020). https://investors.target.com/static-files/588970b2…Welch, Jack. (n.d.). JWI520. Week 5 EOP Video: Finance Quarterlies.

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