Keurig Green Mountain posted solid 2d qtr revenue gain of 10% to $1.1 bil. Adjusted EPS were up 18% to $1.08 and easily beat analyst expectations of around $0.88 per share, per FactSet forecast. Operating income surged 21% to nearly $272 mil in qtr. "Double-digit sales and earnings growth on the heels of a strong holiday season demonstrates the continued opportunity to grow our Keurig system in North America in a very competitive environment," said ceo/prexy Brian Kelley. Sales of its portion packs grew 13% in qtr, and co sold 1.8 mil Keurig brewing systems as well. Brian noted that even with "nearly $800 million" in cash returned to shareholders via dividends and share repurchases, Keurig Green Mountain still boasts balance sheet with $1.1 bil in cash on hand. Separately, Keurig Green Mountain (formerly Green Mountain Coffee Roasters) also announced it had agreed to multiyear extension of partnership with JM Smucker to produce K-Cups for Folger family of coffees, including Folgers, Folgers Gourmet Selections, Café Bustelo and Millstone brands.  

Coca-Cola Bottling Co Consolidated bit off a portion of the new territory in Mid-South that it hopes to win during core supplier Coca-Cola's refranchising push, in process offering up some details of how these deals are being structured. Among noteworthy elements: deals include no production assets, with KO retaining production duties (meaning COKE won't technically be a "bottler" in those newly added territories), and KO appears also to have demanded greater say over outside brands that bottler may want to pick up.

Charlotte-based bottler - Coke's biggest in North America - said it signed definitive deal to expand its franchise territory to include Morristown and Johnson City, Tenn, which are currently operated by KO's Coca-Cola Refreshments USA subsidiary. Deal should close by end of May, even as KO and COKE continue negotiations for territories including Knoxville, Cleveland and Cookeville in Tenn; Louisville, Lexington, Paducah and Pikeville in Ky, and Evansville, Ind, all outlined in letter of intent earlier disclosed by cos. Deal includes both Coke-owned brands and some allied brands (presumably along lines of Monster Energy and Core Power protein drinks that KO distributes but doesn't own). Earlier in week COKE reported Q1 that saw sales edge up just 1.3% to $388.6 mil, continuing pattern of slight revenue gains and suggesting importance of additional territory as means of attaining greater size.

SEC filings suggest that aggregate purchase price for transferred assets is about $13.5 mil, netting out at $12.4 mil after deducting value of certain retained assets and retained liabilities. In addition, comprehensive beverage agreement to be entered into at closing calls for COKE to make quarterly "sub-bottling" payment to CCR on continuing basis for grant of the exclusive rights. That CBA runs for initial term of 10 years, renewable for successive 10-year terms. The quarterly payments will be based on sales of the included bevs.

Of interest to outside brands that have seen the ranks of indie Coke and Pepsi bottlers increasingly receptive to picking up brands that fill voids in core suppliers' portfolios, COKE's deal with CCR prohibits COKE from acquiring or developing "any line of business inside or outside of the Territory without the consent of The Coca-Cola Company (which consent could not be unreasonably withheld)" thru end of 2016, on grounds that bottler can't afford distraction from integration of new Coke territories. Considering that COKE operates a bev incubator of its own under BYB Brands name, that seems like tough condition. But deal does include as closing condition an "ancillary business letter" that grants COKE "certain advance waivers to acquire or develop certain lines of business involving the preparation, distribution, sale, dealing in or otherwise using or handling of Beverages, Beverage Components (as such terms are defined in the Comprehensive Beverage Agreement) or other beverage products that would otherwise be prohibited under the Comprehensive Beverage Agreement." That suggests quite a bit of give-and-take over jailbreak issue in hammering out pact as KO uses new leverage stemming from refranchising program to keep bottlers in line.  

Monster Beverage scored another quarter of strong growth and even stronger earnings gains in Q1, but market was spooked in early trading today by signs that Apr had come in at softer pace. But shares quickly gathered strength, and by press time were back in positive territory.

Net sales rose 10.7% to record $536.1 mil and operating income surged 38.7% to $148.9 mil. DSD segment dominated by Monster Energy sales rose 11.8% to $514.4 mil. Tho spending on professional services rose to $5.6 mil from $3 mil as co continues to battle for safety of its products on numerous legal and regulatory fronts, sharp cuts in areas ranging from distributor terminations to promotional expenses allowed net income to soar 50% to $95.3 mil. April's sales seemed to be up lesser 7.8%, tho chmn/ceo Rodney Sacks stressed that syndicated scanner data - which remain robust - provide more accurate reflection of strength of brand where it matters, with consumers at retail.

Among highlights of qtr flagged by Sacks, protein-rich Muscle Monster already has cemented 23.1% share of protein segment in convenience-and-gas channel, posing stiffer challenge to segment leader Muscle Milk than any other rival that BBI can recall. That share, in 13-week Nielsen data, comes as brand still has only 56% ACV, yielding considerable room for further share gains. Newest flavors, Strawberry and Peanut Butter Cup, are doing well, Rodney said. Also continuing as strong performer is elegantly packaged Ultra Zero zero-cal subline, albeit at expense of some cannibalization of Absolute Zero and Lo Carb sublines. Reassuringly, core sku, green can, hasn't stopped growing either. And Monster brand is wresting share from key rivals, scoring 15.1% $$ gain in C&G channel over past 13 weeks to Red Bull's 4% and Rockstar's 4.7%.

Outside energy set, Peace Tea continues to grow, tho Sacks didn't offer any data to suggest by how much, or how big brand is now. It recently added mango juice cocktail extension, has diversified a bit away from prepriced 24-oz cans to benefit of gross margin, and is proceeding with previously disclosed plans to add iced coffee subline later this year. Co continues to believe brand has good growth potential, Rodney maintained.

Tho coffee-inflected Java Monster line continues to grow, by 7.1% in 4-wk C&G data cited by Sacks, it lost share to Pepsi/Starbucks Doubleshot line, surging 21.7%. MNST's biggest hope on non-energy side, Hubert's Lemonade, had soft qtr, pulling down co's warehouse segment by 9.5% to $21.8 mil. Rodney attributed decline to failure of unidentified major customer (we believe Walmart) to repeat purchase of brand that it took on a year earlier.

Several analysts took favorable note of margin improvements, which Sacks attributed partly to simple mix shifts, as co notches big sales gains on Ultra, which is cheaper to produce than juice-, coffee- and protein-based sublines. But cost-of-goods declines helped too, as did Peace Tea's move to lessen reliance on prepriced cans, along with higher prices on 24-oz energy drinks. Reinstatement of copacker in Tex helped reduce freight costs to that key market. Other savings occurred on SG&A side, as co trimmed back amount of gear it gives away to consumers, even as it cut back sampling, sales payroll and sponsorships in some overseas markets. And with DSD network remaining intact in Q1, in contrast to terminations of Bud and Coke shops in NY a year earlier, that # declined by $10 mil too.

Big Jump in Emergency Orders from CCR Tho Sacks offered it not as a complaint but as an explanation for lumpy month-to-month changes in sales growth, he pointed to one possible area of frustration with key distribution ally in North America, Coca-Cola Refreshments. That's destocking trend at megabottler that's resulting in out-of-stocks at retail and big increase in emergency orders. Last year, Rodney noted, presumably referring to Q1 2013, CCR placed 42 short-lead orders requiring shipment in less than a week. That came to 1.3% of total orders. This year that # has jumped to 272 short-lead orders, or 6.7% of total orders. Ouch. (At another point, Rodney referred to "realignment by our larger customers to manage down their inventories," suggesting that maybe co's other key distrib partner, Anheuser-Busch, and its indie wholesalers have undertaken similar inventory retrenchment.)

Study Suggests Energy Drinks Are Negligible Source of Caffeine for Youngsters As has been his custom since energy backlash arose, chmn Sacks started off call with defense of energy category's safety, this time citing new Jnl of Pediatrics study finding that only 6% of caffeine consumed by consumers age 22 and under is from energy drinks; for children/adolescents, figure is considerably lower.  

Incoming Beer Inst prexy/ceo Jim McGreevy may wish he'd brought 10 yrs experience with the Farm Bureau rather than a decade practicing govt affairs with soft drink folks at ABA. He enters a beer biz marked by squabbling members who referred to each other in recent weeks as cats and pigs. While many suggested recently that internal squabbles shouldn't be made so public as they have been (at CBC and NBWA), this week completed unfortunate trifec-ta. Beer Inst leadership also could not help themselves from pushing hot buttons. That's even while they warned about (and were warned about by guests) downsides of public disunity. Recall, NBWA's Craig Purser refused to sharply attack small brewers for com-ments on franchise laws by saying that would be like "wrestling pigs" (see last issue). MC CEO Tom Long returned to animal kingdom at BI mtg with a far milder reference. Keeping BI members together is like "herding cats," he said.

Still, rhetoric escalated at various times from podium and panels in DC. Tom crit-icized what he called "xenophobic, jingoistic slurs" used by some "in support of tax breaks for themselves." He called that "wrong." Noted that every MC job is "an American job," including many 3d generation workers at Milwaukee and Golden breweries. And when these workers hear what other brewers say about them it's "hurtful, ugly, bad for the industry and un-American." Elsewhere, Bill Hackett reiterated comments he made last spring that Crown had "never sold or promoted products by denigrating anyone else…. Those that do bring down the entire industry. I find it reprehensible that this is going on."

In the wake of these and other developments at BI mtg, small group of small brewers pre-sent privately vented complaints about its tone and substance. Several stood in back with steamed looks on their faces. While craft brewers boast of revolutionary role they've played in transforming US beer biz, Tom Long refers to "disruption" and "churn," and not so positively. In contrast, he emphasized BI's role in advancing "inclusion." And several other BI leaders stressed BI as place where industry can align around common goals. That included incoming chairman AB ceo Luiz Edmond who acknowledged recent public attacks, but said "we are better than that." Yet at least for now, not so much. Perhaps new prexy Jim can provide leadership to help players get beyond current rhetorical rumbles.  

Not only are there conflicts galore between and among brewers and distribs these days, but Beer Inst has just opened up a new can of conflicts with its Know Your Drink campaign aimed to reverse distillers' "drink is a drink" message. First, of course, is loud and clear challenge to distillers and their assn DISCUS. Tho BI is aligned with them when it comes to defeating proposed alc bev tax increases, DISCUS reaction to KYD is sure to be spirited and may have unanticipated consequences, up to and including a more vigorous fed excise tax debate. Then there's break with small but increasing number of craft brew-ers, who not only sell high ABV beers (a pint of Dogfish Head 90-Minute IPA is about 2.6 "customary" beers), but who are also proud distillers. BI wants NBWA to support KYD, but many wholesalers also sell wine and spirits. It will be interesting to see how regu-lators react to what will likely be an increasingly public debate when industry members gather with them at various conferences. There are few things regulators enjoy less than refereeing internecine industry battles.

Last, but far from least is a new internal conflict for the big brewers themselves. As noted, BI veep Chris Thorne stressed that one of primary aims of Brand Beer and KYD is to "defeat efforts to blur the lines between beer and hard liquor," which is what "a drink is a drink" is designed to do. But just a couple of hours after Chris made that statement, the ceos of the 4 largest beer suppliers acknowledged how much the lines be-tween these beverages have been blurred in recent yrs via their own efforts. On panel moderated by CBA's ceo Andy Thomas, he asked how his colleagues defined "beer." HUSA's Dolf van den Brink said that's an "increasingly good question." Traditional definitions "no longer hold," he suggested, as the "lines are blurring" with FMBs, cider, apple ales and "spirited beers." HUSA is betting heavily on Strongbow, Desperados and Dos-A-Rita. AB's Luiz Edmond concurred that the lines are "blurring" and the definition of beer is getting "more and more difficult as everyone tries to grab everybody's occasions." Earlier, Luiz had said that "borders between beverages are blurring every day."

These and other execs have talked about taking occasions from spirits for yrs, in part with products aimed at looking more like, tasting more like and being sold more like "hard liquor", including higher ABVs, sweeter taste profiles and words like "margari-ta" on packaging. A week earlier, MC's Tom Long touted that Miller Fortune was designed to "take occasions from spirits" (it's to be consumed out of a "rocks" glass), that 40% of Redd's Apple Ale volume "comes from white wine and vodka" and is "indicative of our new product strategy to compete successfully against wine and spirits occasions." Constella-tion's Bill Hackett, of course, is part of a company that sells beer, wine and spirits and execs there have talked about advantages of cross-merchandising 3 bevs. Separate-ly, Andy had asked Bill obliquely about the "evil empire" in the house at Constellation, a company that is also a member of DISCUS, which advances "a drink is a drink." Bill didn't address policy issue, saying that "I run the beer business and the leadership knows that and they are in lockstep with how I run the beer business." Diageo Guinness USA, another co with total beverage alcohol approach, was kicked out of BI some years ago. But apparent conflict for Constellation has never surfaced as an issue at BI. In any case, it will be interesting to see how BI can maintain the distinctions between beer and spirits in the policy arena while its members blur those distinctions in the market.  

By now, most thought ABI and MC would have either improved volume results or their profit increases would have stopped. But so far, neither has happened. In 1st qtr, over 5 yrs into new era, very profitable game remained much the same for big 2. Each of ABI and MC reported profit gains yet again, using different levers, even while sales-to-retailers continued down 3% or so.

ABI's profit growth slow in US last couple of yrs, tho this remains easily its biggest profit mkt. ABI gave US #s for 1st time on quarterly basis: US EBITDA (earnings before interest taxes, depreciation and amortization) up $25 mil, 1.8% to $1.377 bil on revs of $3.42 bil in Q1. That followed 2% gains in North American EBITDA in each of 2012-2013. More than 100% of US 1st qtr gain accounted for by extra beer ABI shipped "due to contin-gency planning in advance of labor negotiations." As reported in INSIGHTS Express, that 1 mil bbls amounts to about $150 mil of incremental rev and at AB's normal 40% EBITDA margin in US, that would mean $60 mil in EBITDA. So extra beer shipped in 1st qtr was the difference between plus and minus in AB's US earnings. Meanwhile, MillerCoors reduced its mktg, gen and admin expenses by more than its total oper income grew. MC mg&a down $27 mil, 7% in qtr and its oper income up $23 mil, 8.4%. That followed $58 mil, 12% drop in Q4 mg&a. First qtr cuts were a combo of timing of mktg expenses and employee-related expenses. MC still getting additional cost savings too to tune of $42 mil in 1st qtr.

Another reason for AB and MC's continued profit growth: a still solid pricing environ-ment. MC and AB each increasing rev per bbl at inflation or greater rates, especially MC in last couple of qtrs. MC rev per bbl up 3.3% in 1st qtr, while AB's up 1.9%. About half of MC's increase from mix shift, with Redd's, Fortune and Leinie providing up-scale boost. Key reason for less of an increase in AB rev per bbl: it got only 0.5 points from mix shift this yr compared to 1.5 last yr. Its new products this yr provide less incrementality in pricing and high-end volume than last yr, and AB losing more mkt share this yr than previously in scan data. As volumes continue to struggle, AB getting more active on pricing at the margins. AB had $59 half bbls of Bud in Boston and $58 half-bbls of Shock Top in Seattle, Portland and elsewhere. Yet available evidence so far suggests pricing overall remains broadly intact. Each of AB and MC still seemingly have levers to pull to make their US profit numbers.

Then too, gotta keep in mind that ABI is a truly massive global enterprise with 2013 revs of $43 bil and EBITDA of $17 bil. So US only 1 piece of puzzle. In 1st qtr, global EBITDA jumped more than 10% as it fired on many different cylinders, in-cluding synergies in Mexico, growth of global brands (Bud up 8% and Corona up 10.5% worldwide) and strong growth in Brazil and China. Santander's Tony Bucalo sees far more potential with ABI's big global brands in May 14 report called: "Big Brands, Big Punch." He models fully $20 bil in EBITDA for global ABI next yr. Molson Coors has had nice run on its stock so far in 2014, including bump after it reported major earnings beat in 1st qtr with superior cost-cutting. Also on May 14, Goldman Sachs pointed to TAP's "increased capital discipline focus" with more cost cutting to come. Neither of these ABI and TAP analyst reports seem troubled by continued volume losses in US.  

Lotsa familiar faces at Beer Inst annual mtg in DC last week -- leaders at top brewers have been stable for several yrs -- but also some new news and one bold new direction. Just-named CEO/prexy Jim McGreevy on hand to say hello. Jim previously sr veep of govt affairs for American Bev Assn. Tho he's not slated to start 'til Jun 23, Constellation's Bill Hackett declared "honeymoon's over" (lasted a coupla days) and "you have already started." Jim's not only got challenge of leading strong-willed, very competitive board, but he has to navigate a number of tricky commodity issues (aluminum, spent grains) where BI's already been making progress, advance new initiative to supplant distillers' "drink is a drink" drive to equivalence and help "figure out" how to move forward on fed excise taxes. At BI mtg, several DC insiders strongly advised that brewers big and small get be-hind single tax bill. There has been at least some discussion about hammering out a BEER/BREW compromise. AB ceo and incoming BI chairman Luiz Edmond said he'd "love to see" BI "work with BA and NBWA on an approach to excise taxes."

While fed tax issue remains #1 priority for BI, "Know Your Drink" initiative will be one of BI's "biggest commitments" over the next yr, said Luiz. KYD is new prong in BI's Brand Beer efforts to raise industry's reputation, "win policy debates" over taxes, regulatory issues and "defeat efforts to blur the line between beer and hard liquor," com-munications veep Chris Thorne said. Specifically, KYD aimed to counter distiller-advanced "standard drink" and graphic that equates 0.6 oz of alcohol in a beer, glass of wine or mixed drink. Distillers have 20-yr head start. So this will be similarly long-term ef-fort. BI created new graphic that shows "customary" mug of beer with one dot to represent alcohol amount (actually less than 0.6 oz), then "customary" glass of wine with dot and a half, up to martini with 3.5 dots. Includes note that "every mixed drink is different and may contain even higher levels of alcohol." Net-net: BI seeks to protect commercial freedoms and tax advantages that beer still enjoys vs spirits.

KYD focused for now on DC elites: policy makers, fed agencies, staffers, media, think tanks, etc. No consumer component yet, but BI has tested KYD message vs "drink is a drink" with positive results. MillerCoors director of beer policy Bill Young detailed BI's specific goals: 1) alignment with current TTB guidance on alc labels (recall TTB "serving facts" are voluntary and do not adopt specific "standard drink" definition); 2) get definition of "one drink as 0.6 fl ozs of alcohol" out of fed dietary guide-lines; 3) broader adoption of KYD's "truthful and easy to understand assistance"; 4) restoration of earlier "note" from fed agency NIAAA in the dietary guidelines including language that "a mixed drink can contain from one to three or more standard drinks." One of BI's key talking points is that while 80% of beer still served in 12 oz pkg with avg alc content of 4.6%, those who drink cocktails typically get 50-300% more alcohol than 0.6 oz.  

Lotsa familiar faces at Beer Inst annual mtg in DC last week -- leaders at top brewers have been stable for several yrs -- but also some new news and one bold new direction. Just-named CEO/prexy Jim McGreevy on hand to say hello. Jim previously sr veep of govt affairs for American Bev Assn. Tho he's not slated to start 'til Jun 23, Constellation's Bill Hackett declared "honeymoon's over" (lasted a coupla days) and "you have already started." Jim's not only got challenge of leading strong-willed, very competitive board, but he has to navigate a number of tricky commodity issues (aluminum, spent grains) where BI's already been making progress, advance new initiative to supplant distillers' "drink is a drink" drive to equivalence and help "figure out" how to move forward on fed excise taxes. At BI mtg, several DC insiders strongly advised that brewers big and small get be-hind single tax bill. There has been at least some discussion about hammering out a BEER/BREW compromise. AB ceo and incoming BI chairman Luiz Edmond said he'd "love to see" BI "work with BA and NBWA on an approach to excise taxes."

While fed tax issue remains #1 priority for BI, "Know Your Drink" initiative will be one of BI's "biggest commitments" over the next yr, said Luiz. KYD is new prong in BI's Brand Beer efforts to raise industry's reputation, "win policy debates" over taxes, regulatory issues and "defeat efforts to blur the line between beer and hard liquor," com-munications veep Chris Thorne said. Specifically, KYD aimed to counter distiller-advanced "standard drink" and graphic that equates 0.6 oz of alcohol in a beer, glass of wine or mixed drink. Distillers have 20-yr head start. So this will be similarly long-term ef-fort. BI created new graphic that shows "customary" mug of beer with one dot to represent alcohol amount (actually less than 0.6 oz), then "customary" glass of wine with dot and a half, up to martini with 3.5 dots. Includes note that "every mixed drink is different and may contain even higher levels of alcohol." Net-net: BI seeks to protect commercial freedoms and tax advantages that beer still enjoys vs spirits.

KYD focused for now on DC elites: policy makers, fed agencies, staffers, media, think tanks, etc. No consumer component yet, but BI has tested KYD message vs "drink is a drink" with positive results. MillerCoors director of beer policy Bill Young detailed BI's specific goals: 1) alignment with current TTB guidance on alc labels (recall TTB "serving facts" are voluntary and do not adopt specific "standard drink" definition); 2) get definition of "one drink as 0.6 fl ozs of alcohol" out of fed dietary guide-lines; 3) broader adoption of KYD's "truthful and easy to understand assistance"; 4) restoration of earlier "note" from fed agency NIAAA in the dietary guidelines including language that "a mixed drink can contain from one to three or more standard drinks." One of BI's key talking points is that while 80% of beer still served in 12 oz pkg with avg alc content of 4.6%, those who drink cocktails typically get 50-300% more alcohol than 0.6 oz.  

AB's 2.1% shipments gain in Q1 almost 5 points ahead of its depletions trend (-2.6%). That's about 1 mil bbls and as big a differential as we've ever seen. And it really throws off short-term shipments view. Combo of BI taxpaid estimate and import number shows US shipments basically flat in Q1, tho depletions down slightly. Shipments off a half-percent or so for 12 mos. That's slight improvement, but includes AB inventory pop. Take that out and biz still running down 1% or so for 12 mos.

As AB reduces inventories it built in case of labor strife, that 475,000-bbl increase Jan-Mar will get whacked in Q2. Question is how much. So, while AB gained share on ship-ments basis in Q1, and off just 0.2-0.3 for 12 mos, it continued to lose share of deple-tions,-0.4 by its own estimate, a bit more based on others'. Bud Light depletions down low-single digits, AB reported; share for Bud Light family "marginally ahead," it said. Bud brand share dipped 0.25 and AB "pleased" with that "progress." And high-end brands gained 0.2 share, AB figures. In IRI scan data thru Apr 20, AB lost 0.9 share of volume, 1.5 share of $$. As AB down double digits on premise thru Mar 23, according to GuestMetrics, it lost share on-premise too. So share neutrality remains a challenge.

Meanwhile, MC's Q1 shipments continued down at same 3% pace that it posted in 2010, 2011 and 2013. Depletions were down 3.4%. MC had some good news from Redd's, modest pop from Fortune and better can trend on Lite. But each of Coors Light and Miller Lite down mid-single digits, below premium biz down high-singles. Those two segments still over 90% of its biz. Then too, Tenth & Blake posted rare loss in Q1, down mid-single digits. Constellation Brands Beer Division revved it up in Q1, gaining estimated 290,000 bbls, 11%. Constellation Beer clicking on all cylinders, across portfolio, especially Modelo Especial. It's pushin' toward 1-mil-bbl gain on 12-mo basis. At HUSA, Dutch brand softness offset Mexican brand strength. Our estimate of -2.1% shipments drop excludes gain from Strongbow. Recall, Heineken STRs down 1.2% in Q1, so HUSA share of depletions about even. Pabst shipments took turn for the worse. Tumbled high-single digits in Q1, we estimate, tho like all of top players, scan trends better than that.

As it often is in Q1, "Others" trend a bit of a puzzle. Diageo-Guinness and NAB numbers are soft. Yuengling got pop from Mass entry, overall about even. But Boston reported stunning 34% depletions gain, including runaway success of Angry Orchard. Its malt bevs up double-digits, we estimate. So was total craft. And that suggests a gain for craft in neighborhood of half-mil bbls. Others figure in table above looks a little light. Still could be some beer from newbie crafts flyin' under radar of govt and Beer Inst.  

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