Diageo Guinness USA reported organic volume down 8% and revs down 10% for 6 mos thru Dec.   Beer volume declines comparatively modest, -3% and beer revs down just 1%.  And Guinness brand revs up 2%.  The real hit came in FMBs, with volume down 10% and organic net sales down 17% (and “reported net sales” down 30%).  Decline “driven by category decline and destocking in the pouch segment, weakness in Smirnoff Ice, which continued to face competition from innovation in beer, and in Red Stripe,” reported Diageo.  On conference call, CFO Deidre Mahlan said: “Performance in Guinness USA and in Canada is expected to improve, although net sales in Guinness USA is likely to continue to be negative.”  But Guinness brand was a bright spot, “improved its performance... benefitting from increased marketing investment on a new campaign.” Guinness “basketball” ad generated 18 million views on YouTube.  

Diageo came in below expectations with organic sales up just 1.8% globally because of emerging market weakness.  Stock down 5% at presstime.  But US mkt stayed strong.  US spirits and wine organic net sales up 6%, even tho organic volume down 1%.  That’s right 7 points of “positive price mix, super and ultra-premium segments and new innovations launches fueled growth” but “weaker” Smirnoff main culprit in volume decline.  

That volume decline for Diageo in US corroborates other data showing spirits slowdown in 2013, tho $$ stayed strong and operating profits in North America up 3%.  Sound familiar?  Kinda amazing that biggest and most profitable unit (US) of world’s largest distiller continues to chug along, while its Diageo Guinness USA subsidiary (11% of revs last time Diageo gave #) struggles.  

Craft share in Mo, about 5.7 in 2013, actually about 2 pts below natl craft share last yr, not 1.

Mixed bag of preliminary results for 2013 from Craft Brew Alliance yesterday raised some interesting questions about 4^th-largest craft brewer (on our list; BA excludes CBA due to AB ownership stake) going forward.  CBA confirmed that it put up 3d-straight yr of solid volume growth, but profits clearly not where they want ’em to be. At same time, CBA announced intriguing “brewery footprint” expansion in southeast in 2014 to handle eastern US and intl growth.  That’s even while CBA already has brewery in northeast and overall capacity utilization for 9 mos thru Sep 2013 was 71%.  Didn’t detail how or with whom it would expand brewing footprint, only that it would happen “mid-year.”  One key could be anticipated contract brewing revenue growth of 25-50% this yr “as a result of new partnerships,” that CBA also announced. (Its contract revs contracted by 40% in 2013.)

CBA’s portfolio approach across Kona, Widmer, Redhook families appears to be on track, at least volume-wise.  Depletions increased 11%; shipments up nearly 8%.  We figure that put shipments between 725K and 730K bbls for the yr, about 65K bbls behind New Belgium.  CBA did not disclose any profit numbers, but several signals suggest they weren’t so hot.  First, gross margin shrunk by 1.5 pts to 28.1, due to “product mix and distribution costs” and thinner restaurant margins.  Then too, sales rev up just 6%, well behind volume.  These figures suggest cost of sales up about 8% for the yr, as they were for 9 mos.  Meanwhile, selling, gen and admin expenses up 3.6%, which were shaved slightly in Q4.  So, while operating income improved in Q4, still looks like operating income down over 20% for the yr.  Drop in earnings per share of 13 cents to 10 cents suggests same.  Then too, chief exec Andy Thomas noted that while he was “extremely proud” of sales/brand momentum, CBA committed to “improving our bottom line.”  

Among “anticipated financial highlights” for 2014 and beyond is bumping gross margin back to 28.5% to 30.5% this yr and improving gross margin rate by ambitious 500-700 basis points over the next 5 years.  But CBA also expects to increase selling, gen and admin expenses by heftier 12-16% this yr and increase capex from $8.8 mil in 2013 to $15-$20 mil this yr.    How specifically can CBA get to better bottom line results?  “Continue to drive the top-line” via portfolio strategy, said CFO Mark Moreland, and “expanding gross margin with focus on key initiatives such as SKU rationalization and our new brewing partnership

Craft got 30% share of beer $$ sales in Buffalo Wild Wings during 2013, said Buffalo Wild Wings director of bev innovation at Beer Summit.  Domestic at 52 share, imports 14, cider at 3 (editor’s note: that adds to 99 share, so must be some rounding).  “Every single category grew by double digits,” in BWW outlets, he noted, but that’s because it opened so many new restaurants.  In same store sales, domestic and imports down, and “craft is the name of the game.” 

Even within craft, lotsa variation.  “Blue Moon is a top 4 brand for us” and Tenth and Blake has “done an amazing job.” Blue Moon “continues to grow.” At the same time “some of the mature craft brands are really taking a hit” with “many down double digits.”  Somewhat surprisingly, Patrick named names of some decliners in BWW, including NAB, Yuengling, Summit, New Belgium, Boulevard, but even hi-fliers like Left Hand.  Another interesting data point: at Starwood hotels, craft getting close to 50%, said Starwood’s director of food and beverage Mac Gregory.  Only 3 yrs ago it was 30%.   

Is AB “throwing too much” on wholesalers, David was asked. “We could be,” he conceded. In effort to drive results, AB “may be” trying to do “too much at once,” David added.  But mkt becoming more competitive, “so we need to be able to walk and chew gum at the same time.”

Does AB cut costs at branches? “Not necessarily,” claimed David, “not for P&L…. We want to sell more in that market. There are huge opportunities to invest more,” he said.  AB has to “have a competitive edge…. Our goal is to make sure we have the best route to market” and AB is “making progress,” he added.

What about anchor distribs?  AB “very specific” about what makes anchor, according to David. Then he repeated several characteristics noted back in its consolidation guide: “Financial capability,” “deep bench,” “good results” and of course “alignment.”  If “we are out fighting a wholesaler in the market legislatively,” it’s “difficult” to consider them “aligned,” said David. (That doesn’t make it sound like Indiana AB distribs likely to be approved any time real soon, unless they get the law changed).

There is “much more that bonds us than separates us,” said David of sometimes tense relationship between AB and its distribs. “There needs to be tension,” he said and “we don’t see it as a popularity contest,” but “there are a lot of commonalities.” While there is “a lot of anxiety” about AB owning branches and “to some degree I understand and empathize,” that’s “shortsighted” and anxiety also “hard to understand” because it helps make system better and AB pays “fair value” and “top $$$.” And overall, “our business is not owning branches,” noted David, “it’s selling beer.” 

“Systems integration had not really been a priority in the early years,” at MillerCoors, SABMiller’s Alan Clark told BBD’s Summit. “It was a surprise to me,” he added, when he became chief operating officer.  “There must have been good reasons.”  And he also praised increased profits and scale that MillerCoors has achieved.  But Alan very clear that system integration “is a priority now.”   He added: “we’ve been too slow” and “it’s created complexities. We’re behind” and “possibly should have moved quicker.”  Recall that MC still has two legacy ordering and pricing systems (Miller and Coors). MC has made “decision now to move to a standardized operating platform,” and while implementing that may still be a couple of years away, it will “make a significant difference. It’s about time,” Alan emphasized.

Alan also said that SABMiller under his leadership is “a business in transition rather than a sharp break” from the biz that Graham Mackay led for many yrs.  He outlined 3 important changes in SABMiller going forward.  SABMiller is moving from “portfolios on a local country basis” to a “global beer category and structure.”   SABMiller also looks to leverage its scale more on global basis. (This is more like ABIn And finally “the whole question of alcohol and health” has gotten “much noisier” and SABMiller will devote even more attention to role of alcohol in society across globe. 

Little has publicly emerged so far about ABI’s ongoing labor negotiations with Teamsters, but AB sales veep David Almeida acknowledged they are “tense and noisy” with “a lot of agitation,” at BBD’s Summit, in response to a question. He also praised AB’s team of negotiators and added: “Let them do their work.”

In midst of ongoing negotiations, there’s also been comparatively little public conjecture, perhaps because of the many sensitivities regarding the possibility of a brewery closure.  Yet INSIGHTS got provocative report from earlier this mo that is worth noting, even if brewery closing turns out not to be in cards.  “Brewery Closures a Real Possibility” headlined Consumer Edge Research’s Brett Cooper.  “To deal with the increasing cost to compete and lost volume,” Brett wrote, “we believe that ABI and MillerCoors will look to shed a brewery in the coming 12 months in order to have the funds necessary to compete in the future.” He estimated savings of $125-150 million for the 2 of them (about $65 mil for ABI).  “At the very least,” said Brett, “we see the threat of a brewery closure as a negotiating tactic by ABI to win concessions from the union, similar to recent negotiations between Boeing and its union.”  

Metropoulos & Co is of course inveterate dealmaker and currently “in the process of reviewing two other branded companies at this time…. With the great progress Pabst has made during our ownership and with a strong platform for growth in place, Metropoulos & Co has decided to focus on the core of our private equity acquisition business.” And so family is taking less of a daily interest in Pabst.  Pabst is looking both at “accretive acquisitions and financial alternatives” said letter to distribs. 

INSIGHTS has recently heard that it is also exploring selling the co.  Mike said that it gets offers to sell and/or partner and it listens to what others say, though he did not acknowledge that it is looking to sell the co.  At another point, he said: “We’re looking to partner with some other people” and Kevin also referred to the co’s “phenomenal financial shape.”  In meantime, search has begun for ceo “who can strategically, independently as well as operationally take Pabst forward.” Given that the average tenure of Pabst ceo so far under Metropoulos & Co  is well under a year, and the company may yet again be transformed, it will be interesting to see who is next Pabst ceo.  

Pabst prexy Kevin McAdams announced he would be leaving to employees this morn to pursue other opportunities in bevs.  Search for a new prexy has begun.  Kevin had seemed to provide a steadying hand at Pabst, but he had only been prexy since last July.  Pabst is searching for its 5^th president in 4 yrs.

“We’re not happy about Kevin leaving,” sr veep Mike Cramer told INSIGHTS.  Some of other changes were “unfortunate” “wrong place, wrong time.”  Kevin would like to run a large scale distribution co as he has in past.  That’s his intended objective, he told INSIGHTS.  He remains “very good friends” with Metropoulos family and will be “participating in the transition.”  “We may do business again” with Kevin, said Mike, referring to the Metropoulos family. 

Pabst down nearly 3% in 2013 in all.  Letter to distribs, employees and others didn’t mention that, but rather 7.4% gain in Nielsen data.  Pabst brand still showing “double digit growth in several key states” and gained share in 40 states. 

In yesterday’s Express, reference to ABI’s EBITDA of $17 bil from Santander report should have noted that’s for entire co worldwide, not just its US operations.