Feb 12, 2008
Executives
Leo Kiely III - Chief Executive Officer, Director; CEO of Coors Brewing unit Timothy V. Wolf - Global Chief Financial Officer Kevin T.
Boyce - President and Chief Executive Officer, Molson Canada Peter Swinburn - President, Chief Executive Officer of Coors Brewing Company
Analysts
Judy Hong - Goldman Sachs Joe Herak - Guttermer Research Kaumil Gajrawala - UBS Christine Farkas - Merrill Lynch Mark Swartzberg - Stifel Nicolaus Bryan D. Spillane - Banc of America Securities
Operator
Good day, ladies and gentlemen, and welcome to the Molson Coors Brewing Company 2007 fourth quarter and year-end earnings conference call. (Operator Instructions) I would now like to introduce your host for today’s conference, Mr.
Leo Kiely, President and Chief Executive Officer of Molson Coors Brewing Company. Sir, you may begin.
Leo Kiely III
Thanks, Matt. Hello and welcome, everybody.
Thanks for joining us today. With me on the call today are Tim Wolf, our global CFO; Kevin Boyce, President of Molson Canada; Peter Swinburn, CEO of Coors Brewing Company; Mark Hunter, CEO of Coors Brewers Limited; Sam Walker, our Chief Legal Officer; Mike Gannon, global Treasurer; Marty Miller, Global Controller; and Dave Dunnewald, Vice President of Investor Relations.
This morning Tim and I will take you through some highlights of the fourth quarter and full year 2007 results for the Molson Coors Brewing Company, along with some initial perspective on 2008 and then we’ll open it up for questions. In 2007, despite significant competitive and cost inflation challenges in each of our markets, our company results showed the value of building brands, reducing costs, and staying keenly focused.
Equally important, we continue to deliver on the promise of the Molson Coors merger three years ago. For the second consecutive year, we achieved solid top line momentum and substantial cost reductions that exceeded our goals and double-digit earnings growth.
So let’s review some highlights for 2007. At the global level, we grew Coors Light comparable sales to retail nearly 4% globally for the full year 2007 and more than 5% on the second half.
We achieved net sales growth of nearly 6% in 2007, driven by brand strength, positive pricing, and the benefit of favorable foreign currency. We grew net pricing in all three of our businesses on the strength of our brands and the discipline of our sales teams.
We kicked off our next generation resources for growth cost reduction program early in the year and wrapped up our original three-year merger synergies program at the end of 2007. For both programs, we exceeded our 2007 financial goals.
Across the company, we captured more than $146 million of cost reductions, including $55 million of merger synergies and $91 million of resources for growth cost savings in the year. The success of these cost reduction programs allowed us to offset more than 80% of the $175 million of cost inflation that challenged our company in 2007, including more than $120 million of commodity and other inflation in the U.S.
business alone. We continue to invest at the high level in our brands and sales capability in each of our businesses.
We generated $226 million of free cash flow in 2007 despite the need to fund more than $250 million of one-time cash uses. We strengthened our financial foundation and reduced interest and other non-operating expenses more than $26 million annually by refinancing more than a fourth of our debt, making substantial voluntary pension contributions and streamlining our corporate legal structure.
Excluding special and other one-time items in both years, we grew 2007 consolidated income from continuing operations 40% to $507 million after tax. This increase was driven by our strategic brand growth, positive pricing and cost initiatives, as well as favorable currency movements and a lower tax rate.
In the U.S., we are seeing the results of more than two years of focused work to transform the front-end of the business and reduce costs. In 2007, our team stayed focused and achieved very strong sales to retail and market share growth on each of our four largest brands.
For our U.S. portfolio -- excuse me, our U.S.
portfolio also showed broad-based strength by growing sales to retail in 45 out of 50 states and all major channels. As a result, we grew market share in the U.S.
at an accelerating pace in 2007. We reduced transportation and other costs and improved service to our East Coast customers by opening up our new brewery in Virginia, and we developed plans to make our U.S.
business even more competitive by announcing an agreement with SABMiller to merger our U.S. operations into a joint venture and capture $500 million of cost reductions over three years.
This deal also offers substantial growth benefits and represents potentially the biggest value driving deal in global beer today. In Canada, our team continued to make significant progress against our commitments from the merger three years ago, including accelerating volume growth and balance share and pricing priorities.
In 2007, our team gained market share on a full-year basis for the first time in six years and only the second time in 17 years, driven by Coors Light and our other strategic brands. At the same time, we continued to strategically increase net pricing in a very competitive market, based on the growing strength of our brands.
An important achievement for future growth was the team’s success in securing new relationships with each of our major partner brands in Canada for the long haul. These relationships give our Canadian business the three largest import brands, Corona, Heineken, and MGD, and the broadest portfolio in that market.
We reduced cost and improved access to the Canadian maritime markets by closing our brewery in Edmonton, Alberta and opening a new brewery in Moncton, New Brunswick. In Europe, our team continued to make the best of a very challenging competitive environment by building strong brands and growing pricing and profit.
In 2007, our Europe team grew net pricing for the first time in three years and increased operating profit for the second consecutive year by staying focused and disciplined at retail, by building our strategic brands, and by reducing costs aggressively. These results represent a substantial achievement in the U.K.
market that faced smoking bans, weak consumer spending, and record-breaking wet weather, which resulted in a volume decline of approximately 4% for the industry in 2007. So in total, we are pleased with the progress of Molson Coors Brewing Company and what we achieved in the past year in both top line and bottom line growth, as well as in strengthening the company’s financial foundation and competitive position.
So at this point I will turn it over to Tim to review fourth quarter financial highlights and trends and then we’ll provide some perspective on 2008, so Timothy.
Timothy V. Wolf
Thanks, Leo and hello, everybody. I will start with fourth quarter financial highlights.
In the last quarter of 2007, each of our businesses faced difficult competitive conditions and cost inflation, as well as cycling the 53rd week in the fiscal 2006 calendar. Still, our company maintained momentum to grow net sales and gross profit and reduced cost, which allowed us to invest in our brands and grow total company operating income and after-tax earnings strongly in the fourth quarter, as we detailed in our earnings release earlier today.
On the bottom line, we achieved income from continuing operations of $133 million, or $0.73 per diluted share in the fourth quarter, and this is up 23.6% from a year ago excluding special and other one-time items. Foreign exchange movements increased our total company pretax profit by approximately $12 million in the fourth quarter, excluding special and other one-time items, driven by the appreciation of the Canadian dollar and the British Pound versus the U.S.
dollar. On the other hand, cycling the additional week in our 2006 fiscal calendar reduced fourth quarter pretax profit this year by approximately $6 million and reported sales volume by about 600,000 barrels.
These results exclude one-time tax rate benefits in the fourth quarter this year, restructuring and brewery closure costs in Europe and Canada, as well as expenses related to our proposed U.S. joint venture.
These adjustments are described in more detail in the earnings release, news release we had distributed this morning. Unless otherwise indicated, all financial results we share with you today will be in U.S.
dollars. In segment performance highlights, starting with Canada, pretax income of $129.6 million excluding special charges in the fourth quarter was 2.9% lower than the year ago.
The decline was driven by the impact of the additional week of sales in the prior year and higher cost of goods per barrel, which was largely offset by positive net pricing and $18 million benefit from favorable foreign currency. Our Canada sales to retail, or STRs, for the fourth calendar quarter ended December 31st increased seven-tenths of 1% versus a year ago, driven by mid-single-digit growth of our strategic brands, which account for more than 85% of our total volume.
Coors Light continues to fuel this growth by posting a high-single-digit increase in the quarter while Rickard’s, Creemore, Carling and our partner import brands all grew at double-digit rates. Molson Canadian experienced a mid-single-digit volume decline in the fourth quarter.
Total Canadian beer industry sales to retail grew an estimated eight-tenths of 1% in the calendar fourth quarter, resulting in a very slight market share decline for our Canada business compared to prior year, as we ran fewer price promotions on our strategic brands than some of our competitors. For the full calendar year, we grew share slightly in the Canada market, driven by share growth over the key summer selling period on the strength of our strategic brands.
Our Canada sales volume totaled 1.9 million barrels for the fiscal fourth quarter ended December 30th, which is a decrease of 3.8% from a year ago excluding 130,000 barrels of sales volume in the 53rd week in our fiscal 2006 calendar. This decline was entirely due to the termination of our Foster’s U.S.
production contract earlier in the fourth quarter, partially offset by a slight increase in our Canada market sales volume. Net sales per barrel increased 4.5% local currency, driven by positive net pricing and increased sales mix toward higher revenue-per-barrel products.
Net pricing contributed half of this increase as we benefited from selective price increases over the past year and less price discounting in Ontario. The remainder of the increase was due to improved sales mix in the quarter, driven by the termination of our low revenue-per-barrel Foster’s U.S.
production contract. The cost of goods sold per barrel increased approximately 11% in local currency in the fourth quarter.
The majority of the increase was again due to the termination of the Foster’s U.S.A. production contract, a shift in sales mix to partner import brands, and a favorable currency adjustment of $4 million in the prior year.
The remaining cost of goods sold per barrel increase was limited to a 3% increase due to inflation and other costs, partially offset by cost reduction initiatives. Marketing, general administrative expense in the quarter decreased approximately 7% in local currency, driven by cost reduction initiatives implemented in the year and lower overhead expenses, including lower non-cash amortization.
For our U.S. business, fourth quarter pretax income was up $71.5 million, up 39.7% excluding special items this year.
This increase was driven by sales volume growth, higher net pricing and continued savings from our operations cost initiatives, offset by continued inflation and key commodities and transportation costs. Recall that we’re cycling the 53rd week in our fiscal 2006 calendar, which added about 330,000 barrels to U.S.
sales volumes and was approximately break-even in profit. So looking at U.S.
highlights, sales to retail in the 50 states U.S. increased 6.2% on a comparable basis and we accelerated our market share growth in the fourth quarter.
This increase was driven by mid-single-digit growth for Coors Light, which achieved its 11th consecutive quarter of growth, along with strong double-digit growth of Blue Moon and low-double-digit growth of Keystone Light. Coors Banquet accelerated its turnaround momentum in the fourth quarter by growing at a low-double-digit rate.
U.S. volume to wholesalers grew 2.0% due to strong sales-to-retail growth offset by cycling the 53rd week in 2006.
Without the impact of the extra week in 2006, shipments increased 8.1% in the fourth quarter. U.S.
net sales per barrel increased 2.1% in the fourth quarter, driven by higher frontline pricing. Cost of goods per barrel increased 2.0% in the quarter, driven by higher commodity, transportation, and packaging material costs, which were partially offset by over $20 million of cost-saving initiatives and lower depreciation expense.
Our operations cost savings in the fourth quarter offset about two-thirds of our U.S. cost-of-goods inflation.
On a full year basis, our cost of goods per barrel increased nine-tenths of 1%, driven by more than $120 million of cost inflation. Nearly two-thirds of this inflation was offset by our merger synergies and other operation cost reduction initiatives.
U.S. marketing and general administrative decreased 6.1% in the fourth quarter, driven by year-over-year timing differences in marketing expense.
Our Europe business fourth quarter pretax income was $38.1 million excluding special items, which is an increase of 17.9% from a year ago, driven by higher revenue per barrel, savings in general administrative expense, and $2 million of favorable foreign exchange. These factors were partly offset by the negative impact of lower volumes as a result of recently enacted smoking bans along with weak consumer spending.
Year-over-year results, the comparisons are also affected by the additional week in our fiscal 2006, which include volume of about 140,000 barrels and a pretax loss of $1 million in our 2006 fourth quarter results. Our Europe owned brand volumes decreased 10.7% on a reported 13-week versus 14-week basis.
Excluding the additional week, volume decreased by 6.0%, reflecting a weak on-premise market in the U.K., aggravated by the smoking bans implemented earlier in the year. In this difficult trading environment, our market share in the quarter declined slightly versus prior year.
Our Europe net revenue per barrel in local currency increased by 6% in the fourth quarter, with approximately four percentage points of this change related to non-owned factory brands that we deliver to retail, driven by our acquisition of the Cameron’s on-premise distribution business early in the third quarter. The addition of this business will raise our Europe net sales per barrel and cost of goods per barrel several percentage points for the next year, due to a step up in our factory brand sales.
U.K. owned brand net revenue per barrel in local currency increased nearly 3% in the fourth quarter as a result of higher pricing, mainly in the on-premise channel.
This represents our fourth consecutive quarter of year-on-year growth in owned brand pricing. Total Europe cost of goods sold per barrel in local currency increased by 5% in the fourth quarter, with all this change related to factory brand sales, including Cameron’s.
Cost of goods sold for our U.K. owned brands per barrel was relatively flat year-on-year in local currency, with increases driven by cost inflation and fixed cost deleverage as a result of lower volumes, offset by cost savings.
Marketing, general and administrative expense in the U.K. decreased approximately 13% in local currency, as a result of continued aggressive cost control and lower expenses related to cycling the additional week in 2006.
Moving beyond operating business unit performance, our fourth quarter effective tax rate was negative 15% on a reported basis and positive 24% excluding special and other one-time items. The $50.4 million one-tax tax benefit in the quarter resulted primarily from a 3.5 percentage point reduction in the Canada corporate income tax rate to be phased in through 2012, along with a one-time U.K.
tax benefit. Free cash flow for 2007 totaled approximately $226 million, which was made up of $616 million of operating cash flow plus $38 million of proceeds from asset sales minus capital spending of $428 million.
Recall that our 2007 free cash flow was reduced by several significant non-recurring events totaling about $250 million this year. These include the net effects of buying back our U.K.
kegs, additional CapEx to complete two new breweries, premiums to repurchase debt, and voluntary pension contributions partially offset by non-strategic asset sales. Total owned debt at the end of the fourth quarter was $2.15 billion, excluding approximately $113 million of non-owned joint venture debt.
Cash and cash equivalents totaled $377 million at the end of the quarter, resulting in owned net debt of $1.78 billion. We will use a portion of the cash on hand to buy back up to $225 million of our 2012 senior notes during this month.
Now I’ll preface the outlook session as usual by paraphrasing our Safe Harbor language -- some of what we talk about now and in the Q&A may constitute forward-looking statements. Our actual results could differ materially from what we project today so please refer to our most recent 10-K, 10-Q, and proxy filings for a more complete description of the factors that could affect our projections.
We do not undertake to publicly update forward-looking statements whether as a result of new information, future events, or otherwise. Regarding any U.S.
GAAP measures that we may discuss during the call, please visit our website, www.molsoncoors.com, for a reconciliation of these measures to the nearest U.S. GAAP results.
Looking forward, we anticipate 2008 corporate net interest expense of approximately $95 million to $100 million on a foreign exchange neutral basis. This $13 million reduction from last year -- this roughly $13 million reduction from last year is attributable to the debt repayments and restructurings we’ve undertaken in the past year to strengthen our financial foundation, partially offset by the higher interest costs of a stronger Canadian dollar.
We plan full year 2008 corporate general administrative expense of approximately $110 million plus or minus $5 million, which is in line with 2007. Note that about one-fifth of this total expense is related to projects for our resources for growth cost reduction programs.
Turning to our effective tax rate, we anticipate that our full year 2008 rate will be in the range of 10% to 15%, excluding special and other one-time items and assuming no further changes in tax laws. We expect our 2008 rate to be lower than our long-term range of 22% to 27% because of the release of unrecognized tax benefits this year.
Note that the settlement of additional open tax years or passage of tax legislation in Canada could indeed alter our tax rate outlook. Our capital spending outlook for this year is approximately $280 million, excluding self-funded capital spending by consolidated joint ventures.
Note that the completion of the Miller Coors joint venture in the U.S. could change this outlook.
Our view of 2008 free cash flow remains approximately $550 million, plus or minus 10%. Formation of the U.S.
JV again would also affect this outlook as we plan to hit the ground running following completion of the transaction, which we anticipate could be around mid-year 2008. Now, highlights of our cost reduction initiatives -- first, we over-delivered against our three-year, $175 million merger synergies target and wrapped up this program with $180 million of savings delivered, including an incremental $5 million of merger-related synergies in 2007.
Second, we are already ahead of schedule on our three-year, $250 million resources for growth cost reduction initiatives. We’ve achieved $91 million of savings during 2007, which is the first year of this program, which is $25 million more than the initial 2007 target we shared a year ago.
We exceeded our first-year cost target by more than 37% by accelerating a number of our cost reduction programs, particularly in our North American supply chain. Combining both cost reduction programs, we have captured $146 million in total 2007 cost savings.
For 2008, we continue to target an incremental $77 million of cost reductions from the resources for growth programs. Regardless of when the U.S.
JV might be completed, we intend to capture these cost savings and the JV will provide substantial additional savings beyond our existing resources for growth program. At this point, I’ll turn it back over to Leo for a look ahead to 2008 for our other businesses.
Leo.
Leo Kiely III
Thanks, Tim. In 2008 we remain focused on building strong brands and reducing costs in each of our businesses, and we’ve ended the new year with encouraging momentum.
Our strategic brands in Canada are building volume momentum and taking share. In the U.S., we have strong and broad volume and market share momentum on our four largest brands.
We are holding the line on pricing in Europe and helping our retail customers work through the smoking bans and in all three of our businesses, the strength of our brands is supporting positive pricing and cost reductions are providing resources to offset inflation and grow our business. To keep this momentum rolling in 2008, in Canada we’ll continue to build on the momentum of our strategic brands, where we’ve experienced strong volume growth.
We’ll continue to bring innovation to the market in new packages, promotions, and advertising platforms, including the cold certified can for Coors Light and new advertising creative for all the Molson brands that will launch and evolve in 2008. We’ll continue to build on our super premium portfolio of owned and partner brands through new programming and unique SKUs, leveraging the double-digit growth of these brands in 2007.
The most recent example of our efforts in this critical segment is our new long-term joint venture with Grupo Modelo effective at the beginning of this year, to import and distribute and market the Modelo beer portfolio across Canada. The joint venture builds on the previous successful relationship we have with Modelo as we now pick up these super premium brands for our portfolio in the Western Provinces.
In the U.S., we are staying focused in 2008 on maintaining our strong volume and share momentum while continuing to aggressively reduce costs. Coors Light, Keystone, and Blue Moon will remain our primary focus in 2008, along with maintaining strong momentum behind the Coors Banquet brand.
We also have designed initiatives to improve sales trends for Killian’s and Molson Canadian. In 2008, we’ll continue to drive sales by increasing our marketing and sales spending at a mid-single-digit rate, growing our retail key account business to increase distribution, and becoming better aligned with our distributor network by pushing accountability for profitable brand growth to our local levels.
We will drive sustainable volume and profit growth by continuing to make a disciplined approach in both front-end pricing and discounting, while continuing to build our core brand equities which, as you know, for Coors Light is all about Rocky Mountain cold refreshment. Turning to Europe, in addition to strong marketing investment behind Carling, we’ll continue the relaunch of Coors Light.
We’ve recently secured distribution for Coors Light in J.D. Witherspoon, a major on-premise customer and a particularly attractive venue for building a brand loyalty among our core consumers.
We’ll also continue to roll out our new cold dispense technology in distinctive above-bar fonts, which support our whole portfolio via cold positioning and modern brand representation. We completed 46,000 installations in 2007 and plan to install another 40,000 in 2008.
We expect that our new Carling distribution contract with Marstons, a major on-premise customer, will drive market share in the important on-premise channel for 2008. In 2008, there are a few additional considerations regarding volume.
In Canada, our sales to retail in January have increased at a low-single-digit rate on a comparable basis, though as always it’s hard to call a full quarter based on only a month of results. With the termination of Foster’s U.S.
production contract in the fourth quarter of last year, we expect Canadian sales volume to be lower in the first three quarters of 2008 compared to 2007. The loss of this contract will result in lower reported sales volume but will have no impact on sales to retail.
The Foster’s termination will also increase net sales per barrel as well as cost of goods per barrel over the next three quarters, due to lower fixed cost leverage on lower production volumes. We continued our solid momentum in the U.S.
to start the first quarter. Overall in the first five weeks of the first quarter, our 50-state U.S.
sales to retail grew at a high-single-digit rate from a year ago. In Puerto Rico, we expect continued challenging economic conditions to impact our volume trends.
Based on the particularly strong volume momentum of our largest brands in the past several months, we expect our distributors to build their inventories approximately 180,000 barrels more in the first quarter this year than a year ago as they prepare for peak season. This will benefit our U.S.
volume and financial results in the first quarter versus last year. In Europe we continue to face challenges from a weak U.K.
economy, a highly competitive industry and the smoking bans in England and Wales, which will not cycle until July of this year. In the first six weeks of the first quarter, Europe sales to retail decreased at a mid-single-digit rate from a year ago.
Regarding cost reductions, our teams exceeded their goals in 2007 and are striving to repeat this accomplishment in 2008. Looking at the cost outlook by business, in Canada we anticipate that our reported cost of goods per barrel will increase at a mid-single-digit rate in local currency for the full year 2008.
But if you exclude the mix impacts from increased partner import volume and lower contract brewing volume, we expect costs of goods sold per barrel to increase at a low-single-digit rate. In the U.S., we currently expect our 2008 cost of goods per barrel to increase at a low-single-digit rate as well.
We are confident that we will meet or exceed our cost reduction goals this year via the resources for growth program, which continues to be a top priority because we anticipate cost challenges again in two major areas. First, based on the current outlook for commodities and other inputs, we expect transportation and fuel costs to increase significantly in the year, along with moderate increases in packaging costs.
Second, we’ll have higher contract packaging fees and a full year of Shenandoah brewery depreciation expense in 2008. This outlook excludes the proposed Miller/Coors joint venture which would accelerate our potential cost savings in the U.S.
In Europe, the team will continue to attack costs to offset input inflation and provide fuel for our brand investments. Additional cost reduction initiatives are being pursued with initiatives already under way in the supply chain and head office support services.
We announced late in 2007 that we’ve entered into an agreement with Scottish & Newcastle to contract brewing kegs selected S&N lager brands. Brewing will begin around the middle of 2008 and reach full production in 2010.
We’ll be producing up to 3 million hectoliters of lager for S&N annually. This will generate additional income and fixed cost leverage in our U.K.
brewing footprint. Based on improved projected longevity for retirees in the U.K., we do not expect to benefit from U.K.
pension income in 2008, a departure from the past two years. And finally, looking at the quarterly flow of pretax earnings, cycling the England smoking ban at mid-year and picking up the benefit of the S&N production contract starting in the second half, yields a Europe financial plan weighted toward the second half of the year.
In summary, we are pleased with our progress in 2007 and we are excited about the future for Molson Coors Brewing Company. We took several bold steps last year towards our vision to become a top performing, global brewer.
We’re building an innovative brand-led organization that can compete and win in a dynamic global beer industry. Our proposed U.S.
joint venture with SABMiller represents an important step in this direction. The joint venture will create a stronger U.S.
brewer with the scale, resources, and distribution platform to compete more effectively in the highly competitive U.S. beer market.
The opportunities provided by the joint venture include $500 million of annual cost synergies by the third full year of the JV, which will strengthen our business and enhance financial performance. And the U.S.
JV will provide tremendous momentum and resources for Molson Coors to compete in the global marketplace, while offering substantial benefits for our U.S. distributors, retailers, and beer drinkers.
While working diligently to complete this transaction, we signed a definitive agreement in December and are cooperating fully with the regulatory clearance process. The closing of the transaction is subject to obtaining clearance from the U.S.
Department of Justice, other regulatory clearances, and third-party consents. We look forward to closing the deal in mid-2008.
Pending completion of the JV, we will stay focused on delivering strong results. I continue to be impressed with the focus, energy, and commitment that our U.S.
team has applied to maintaining record-breaking momentum in that business. Globally, we are building a strong, deep team and are confident we can manage through this period of JV approval with solid momentum and emerge stronger than ever.
All of our business unit CEOs have their teams tightly focused on driving profitable growth in each of their markets as we continue to focus on becoming a top-performing global brewer. So now before we start the Q&A portion of the call, just a quick comment -- our prepared remarks will be on the website for your reference within a couple of hours this afternoon.
Also, at 3:00 p.m. Eastern Time today, our investor relations team, led by Dave Dunnewald, will host a follow-up conference call, which is essentially a working session for analysts and investors who have additional questions regarding our quarterly results.
This call will also be available for you to hear via webcast and recorded replay on our website. So at this point, Matt, let’s open it up for questions.
Operator
(Operator Instructions) Our first question comes from Judy Hong from Goldman Sachs.
Judy Hong - Goldman Sachs
Tim, I was hoping, if you could just give us a little bit more color in terms of this lower tax rate forecast for 2008. I mean, it’s clearly a much lower number than your ongoing rate.
What’s driving that? Is it not affecting your cash flow?
And thirdly, whether there’s sort of an opportunity to take down your long-term tax rate?
Timothy V. Wolf
We’ll save a lot of the detail for Dave’s call but this doesn’t immediately reduce cash taxes. As I said, this phases in over the next few years.
There’s a reasonable possibility sure that this could over time lower that range that I gave you, the 22% to 28% and again, we’ve got to just see what happens on the legislative front. Obviously this is good news when our biggest profit, biggest cash generating market, its government deems that lower taxes is a good thing.
It’s a good thing for Canada and it’s a good thing for Molson Coors. So yeah, I think this will play itself out to be a slightly lower over time tax rate and certainly in 2008.
Judy Hong - Goldman Sachs
Okay, and then just a question on Canada, Kevin. It looked like in the fourth quarter you saw better net pricing per barrel growth and you’ve talked about reducing discounting in Ontario.
Can you just talk about the competitive dynamics there and as you look out 2008, is this sort of a trend that we could look forward to in terms of getting better pricing and still maintaining the improved share trend that you’ve seen in that market?
Kevin T. Boyce
Judy, if you look at the fourth quarter, our net pricing was probably about 2.5% on a national basis and clearly we did pull back on our activity compared to a year ago, so it’s encouraging to see that our share performed pretty well in the face of that. If you look at what’s happening so far year-to-date, the activity is about the same, maybe a little bit less in Ontario than what’s happened last year at this point in time.
But this is early in the year and these are pretty small from a volume perspective, so we’ll have to kind of play it by ear going forward, but certainly our performance in the fourth quarter was encouraging.
Judy Hong - Goldman Sachs
Thank you.
Operator
Thank you. Our next question comes from Bryan Spillane from Banc of America.
Joe Herak - Guttermer Research
Actually, this is Joe [Herak] with [Guttermer] Research. A couple things, Leo; congratulations on the solid numbers.
You always seem to come through in very challenging times. Can you provide some more color as to what you are doing for your supply chain initiatives to reduce manufacturing cost per hectoliter as you originally promised $150 million in synergy or savings to decrease working capital?
Leo Kiely III
Tim, you want to speak on that?
Timothy V. Wolf
Yeah, and I’m assuming you’re referring now to our resources for growth effort for this past year and the next few years. We’re continuing to look for ways to optimize our footprint.
I think you saw in the fourth quarter the work that our Canadian team lead on optimizing how they would source volume for Canada by the careful shutdown of Edmonton is a great example. And as we found, the more we work this, whether it’s optimizing the Canadian production footprint, doing the same thing in the U.S., obviously we’re seeing the impact this year and we’ll see a continued impact in the first part of ’08 from the construction of the Shenandoah facility is the sort of work we are going after.
Clearly leveraging procurement deals, not just directs but indirects, are the sort of things we’re taking a look at. We announced our North American supply chain optimization, which resulted in much more efficient use of our skills and talent.
We don’t need three engineering groups. We don’t need three design groups and we’re starting to push that as an opportunity.
So what’s most exciting about the production, manufacturing, cost of goods work and resources for growth is it really spans all areas. It’s not focused on one area.
It’s not focused on a couple of SKUs. It’s really across the business, across all activities throughout the supply chain.
Joe Herak - Guttermer Research
Okay. You had $50 million targeted for your packaging operations at Golden.
How is that coming along?
Timothy V. Wolf
Well. Again, we try to be really careful about what we say versus what we invest.
I mean, the U.S. has done a great job in the last year and it has an exciting pipeline of ideas for ’08 and ’09 on packaging initiatives.
So make no mistake -- as we save money on packaging, on line productivity, on line optimization, on plant scheduling, we also want to make sure that we are investing back in packages and liquids and ideas that our consumers and distributors and retailers can get behind and that’s exactly what the U.S. business has and is doing.
Joe Herak - Guttermer Research
What metrics are you guys using to measure success? Are you looking at RONA, ROE -- how are you guys making sure you stay number one in the industry with the right metrics in your manufacturing process?
Timothy V. Wolf
Well, I’ll defer to our supply chain folks and if you’re talking about the U.S. to Peter Swinburn, but we look at COGS per barrel, we look at line rates, we look at efficiency rates, we look clearly at safety metrics because no amount of productivity is ever worth comprising the safety and health of our employees, so we look at all of that.
Quality scores, we have a battery of important metrics that we look at not just in the U.S. but in the U.K.
and Canada as well.
Joe Herak - Guttermer Research
Okay, and final question; going forward for 2008 -- Leo, what would you like to tell all the shareholders on the call is your number one goal to reduce costs to make sure your stock price continues to go up, you stay number one in the industry, and you continue to provide the best brand for the value?
Leo Kiely III
You know, Joe, it’s interesting -- it’s really about engaging people. It’s remarkable to me.
I mean, we’ve set some pretty high goals but once those goals are owned by our teams and rolled down to the people close to the action, we get ideas better than these stretched targets. So to me, it’s really keeping our people focused, having them understand why we’re so focused on costs to remain competitive, because it gives us the resources to invest in the top line and grow the bottom line at the same time.
And the more people get that, the more yield we see, plain and simple. So that’s our game plan and we’re staying with it.
Timothy V. Wolf
And we will share the progress and resources for growth. Some of the ideas, the new ideas that have come to the fore and show you how that’s working because we think, to Leo’s point, by engaging people across the entire organization -- and it’s G&A too.
It’s how we get more efficient in the back office as well as on the production floor. We think we’ll have some more positive and encouraging things to share with you next month in New York.
Joe Herak - Guttermer Research
Great. Thank you very much.
Continued success down the road.
Operator
Thank you. Our next question comes from Kaumil Gajrawala from UBS.
Kaumil Gajrawala - UBS
Thanks, everybody. Can you talk a little bit about the cost savings programs that have been planned, particularly in brewery optimization between the Coors and Molson merger and if anything has been put on hold between now and when the deal closes?
Timothy V. Wolf
I think you misspoke. I think you mean Miller and Coors?
Kaumil Gajrawala - UBS
No, actually I mean the old plants from Molson and Coors.
Timothy V. Wolf
I’m sorry. I didn’t understand your question.
Absolutely, positively not. We, as you saw, we over-delivered by $25 million on our total resources for growth program separate from in addition to what we did with synergies in 2007 and as I shared in my remarks, we’re going after $55 million more in 2008 on resources for growth.
So absolutely, again on the production floor, procurement, back office, we are not slowing down our resources for growth for Molson Coors at all because of what may happen and the great opportunities that we see in the Molson Coors joint venture down the road.
Leo Kiely III
We’ve taken a point of view that no matter what our future is, these initiatives are right for our business. And in a sense, what’s good for the goose is good for the gander.
If this is right for our North American matrix, it’s going to be right for the JV. And I am very impressed the way our teams have stayed focused because you’re right -- there’s a tendency to say why should we do this now and something else is coming.
The fact is we are out ahead of it, it sets the tone for the JV, gives us positive momentum for going into the JV and really tackling those synergy challenges with great momentum. So that’s the posture we’ve taken and the team is delivering.
Kaumil Gajrawala - UBS
Great, that’s useful. And then quickly on Blue Moon, I noticed there’s some print advertising out now.
Is this a bit of a change in strategy or is Blue Moon so large now that it’s going to require some media support going forward?
Peter Swinburn
No, no, we’re not changing strategy on Blue Moon. We’ve been pretty consistent with our approach.
I mean, nothing remains exactly the same forever but the strategy is pretty consistent. That’s exactly what we -- we plan to keep to that going forward because quite frankly, the sort of success we’ve had with it, why on earth would you bother to change?
Kaumil Gajrawala - UBS
Great. Thank you.
Operator
Thank you. Our next question comes from Christine Farkas from Merrill Lynch.
Christine Farkas - Merrill Lynch
Thank you very much. Some follow-up questions on Canada, if I could, Kevin or maybe Tim; I’m trying to reconcile your reported volume decline down 9.9% according to your press release and your reported sales up 9.2%.
I think your price mix was up 4.5 points. Can you just talk a little bit about currency or other factors that would have driven that big swing in the top line?
Leo Kiely III
Kevin, you want to take shot at that?
Kevin T. Boyce
Christine, I’m having a hard time reconciling your numbers, to be honest. Can you go over your first nine and your second nine?
Christine Farkas - Merrill Lynch
Well, the reported barrels on your press release show volumes down 9.9%. Is that actually incorrect?
Because you talked about volumes down 3.8 excluding Foster’s impact.
Kevin T. Boyce
Right. Okay, so -- okay.
Christine Farkas - Merrill Lynch
So was Foster’s six points of volume, negative volume hit year over year?
Kevin T. Boyce
There’s a -- you’ve got to compared 14 weeks a year ago to 13 weeks this year, so 130,000 hectoliters I think there, and then the rest is Foster’s.
Christine Farkas - Merrill Lynch
And your overall revenue per barrel growth was 4.5 points?
Kevin T. Boyce
Right.
Christine Farkas - Merrill Lynch
Okay, that included a couple points from mix?
Kevin T. Boyce
Yes, it did.
Christine Farkas - Merrill Lynch
Okay, and can you tell us maybe in dollars how much currency added to your Canadian top line?
Kevin T. Boyce
How much in -- in Canadian dollars?
Christine Farkas - Merrill Lynch
Yeah, either points to growth or dollars, U.S. dollars would be fine.
Kevin T. Boyce
Okay, bear with me. We’re going to grab that -- $17 million.
Christine Farkas - Merrill Lynch
On the top line? Okay.
If I could just follow-up then with respect to a broader question on Canada, how is it progressing throughout the year, the overall mix impact from value brands growing faster than premium brands? Has that changed and how do you find your activities are working there?
Kevin T. Boyce
The value segment has actually stopped growing and is in a slight decline, so what you are seeing when you look, if you stand back and look at the whole market is you are seeing accelerated growth in the super premium and you are seeing the premium brands -- because remember it’s done by what the regular retail price is, so as regular brands increase their discounting and you saw that throughout the course of all last year, they are still classified as premium brands, if you like. So that stunted the growth and actually turned the value segment into a decline.
So you are seeing some normalization there driven by the growth of the premium light segment but also the premium segment beginning to stabilize and the super premium continuing to outperform the whole market, clearly.
Christine Farkas - Merrill Lynch
Okay, that’s helpful. Thanks.
And just moving lastly to the U.S., Peter, we’ve head some comments from other beverage companies about slowing immediate consumption trends. Now your brands have performed very well and it may be less relevant to Molson Coors but can you talk about what you are seeing in perhaps some of the on-premise trends or other immediate consumption trends with respect to those channels in your brands?
Peter Swinburn
Yes, certainly. It really varies by market.
Overall we are very comfortable with consumption trends, though we are seeing softer trends over in the Northeast.
Christine Farkas - Merrill Lynch
Okay, great. Thanks a lot.
Operator
Thank you. Our next question comes from Mark Swartzberg, Stifel Nicolaus.
Mark Swartzberg - Stifel Nicolaus
Thanks. Good morning, guys.
Tim, on the free cash flow for ’08, a couple of clarifications, if I could -- the 550 number is where you remain. If you think about that number in terms of what might be possible puts and takes against it besides the JV as you move through the year and besides, of course, an earnings view you might have that could obviously change but things like pension contribution, CapEx, some of the things historically we’ve seen cause that number to be different than you thought at the beginning of the year.
What are some of the items you’re at least contemplating as notable -- as potential notable changes to that 550?
Timothy V. Wolf
Good question. I mean, obviously our objective is to park it above the 550, right?
I mean, that’s -- but we want to make sure that we are flexible enough to be investing in ideas. You’ll see that the guidance I gave on the CapEx, a plan of about $280 million, is a bit more than what we shared at the 250 level earlier last year, and so because when opportunities like a contract packing project with S&N in the U.K.
arise and it’s very, very high return, very attractive, we want to make sure we can fund that and go after it. So discrete projects that have very attractive returns, that are cash positive, we’re going to take a look at.
So could the 280 be a little bit higher, a little bit lower? Certainly.
That’s one of them. Pensions -- perhaps, but as we’ve been sharing, we’ve made very significant pension contributions, we’ve de-risked our pension asset allocations.
We think we’re pretty darn close -- again, you’re never done but we are very, very far along in terms of being fully funded. I think those are the two main areas where we’ve had variability in the past, to your point, so I’ve got to presume that’s where we are going to see the most variability -- again, still within a pretty tight band in ’08.
Restructuring opportunities -- I mean, you saw the great opportunity to close Edmonton. I can’t think of anymore plants we’re inclined to shutter but it’s those sort of instances that when we have an opportunity, we’re going to go after it.
If it requires cash to restructure or improve or tighten, we’re going to do it and of course we’ll be forthcoming in details on how we do it and why we do it but it’s business opportunities that we want to seize or momentum we want to chase that could cause us to alter that 550.
Mark Swartzberg - Stifel Nicolaus
That’s great. Very helpful, Tim and if I could, same topic but if we bring the JV into the picture here and perhaps I missed this but if we think about the timing of the $450 million in CapEx that the total JV would invest to get the $500 million in savings, how are you thinking about the timing of that 450?
I mean, is it particularly first year, second year? How does it weight among those three years?
Timothy V. Wolf
Mark, just a couple of things -- first of all, the $430 million that we shared in New York in October and have been consistent since then is the total CapEx and restructuring costs, so restructuring and any write-offs, relocations, severance -- those sort of expenses costs, cash use, is also in there. What we shared is we would be spending roughly $200 million plus or minus 10%, 15%.
And again, the bulk of that CapEx is going to deliver logistics synergies and production synergies that we detailed by optimizing what will be an eight plant versus a two plant or a six plant supply chain footprint. To your point, the best thing for the JV, the best thing for SABMiller value, the best thing for Molson Coors value, is to spend that money wisely but to spend it quickly because we would love to be in a situation, I think, and certainly wouldn’t speak for our colleagues in Milwaukee, but think about the -- we’d love to be in a position where most of if not all of the eight plants in the JV footprint are ready to rock and roll as one system as quickly as possible -- certainly, certainly in time for all of peak season ’09 but maybe even a portion of ’08.
Mark Swartzberg - Stifel Nicolaus
Great. Thank you, Tim.
Operator
(Operator Instructions) Our next question comes from Bryan Spillane with Banc of America.
Bryan D. Spillane - Banc of America Securities
Good morning, guys. Just a couple of follow-up questions; first, Tim, getting back to the free cash flow, any thoughts on the potential for share repurchases and also how you are thinking about your balance sheet now going forward, where repurchases, dividends, and acquisitions kind of stand?
Timothy V. Wolf
Your second point first -- we like our balance sheet. You know, the tender that we just announced really in my mind kind of completes our three-year journey as we begin our fourth year of Molson Coors, of paying down all the debt that we can cost effectively pay down.
We have said and will continue to repeat the soundness and solid funding of our pension plans in all three geographies. We have dispatched the Brazil investment just a year ago so overall we feel pretty darn good about our balance sheet and sure, you will see -- as you look at our K, you will see movements, much of which is triggered by FX.
Obviously when you have an asset like the Canadian business and the Canadian currency does what it does, you are going to have some of the values really spiking up on you. But in terms of the overall health of the balance sheet, I think we all collectively feel really good about where we are, the financial strength that we have to go forward and do some great things over the next couple of years.
That’s point one. Point two, in terms of disposition of free cash flow, don’t forget -- I mean, again not to repeat myself but we’ve been hard at work the last couple of years building plants, making pension contributions, paying down debt, and so now as we embark on ’08, this will be a year where we don’t have lots of earmarks, so to speak, for our $550 million.
We’ve begun, we’ll continue a conversation with our board in terms of the right thing to do in terms of cash disposition but also acknowledge it’s been -- you know, Leo’s challenge to us, it’s been our mantra that we want to invest money to become more competitive to make money and our first commitment is to the business to build it, and that free cash flow will help do that. Certainly, certainly not ignorant or blind to the fact that our dividend hasn’t moved in three years.
I mean, we are clearly aware of that and that’s part of the conversation that we would and will have with our board.
Bryan D. Spillane - Banc of America Securities
Would you think timing of that is -- is that conversation better had once you’ve got the clarity on the JV closing? It’s kind of hard to make that -- make those sorts of decisions until that happens.
Is that fair to say?
Timothy V. Wolf
I think it’s for our board to direct and counsel on timing. I think that would be premature and inappropriate of me to say it.
I’d be presumptuous in talking about timing.
Bryan D. Spillane - Banc of America Securities
Okay, and then Leo, can you talk a little bit about the transition? Again, assuming that the JV is approved and you move into your new role, what the succession plan is now?
Leo Kiely III
You know, I think as we’ve said before, we have a really robust succession dialog with our board you know, as evidenced by the way we are able to move behind the Frits van Paasschen departure this year, with Peter Swinburn moving to the U.S., Mark Hunter moving into the U.K., we really feel good about our leadership team. You know, this is obviously board work and the dialog will continue but I feel very confident we have the talent on board we need to move forward.
We won’t announce any of the new team for the JV other than what’s been announced. Until we have DOJ approval, it just wouldn’t be appropriate.
But in that sense too, we feel like we’ve got tremendous depth as we head into this venture.
Bryan D. Spillane - Banc of America Securities
Okay, and if I could, just one last question relative to the DOJ -- are you still providing information to the DOJ or have you pretty much provided everything they asked for?
Leo Kiely III
We’re still in process. This is a -- you know, a process that just plain has a pace to it, you know?
So we are still in document transfer. We are preparing white papers on key issues.
We’ll have executive interviews in the month of March, for example, so this is a process that’s -- you know, we’re just working our way through and frankly there aren’t any tea leaves to read. What we do feel positive about is we anticipate a decision early to mid-summer and we obviously think it’s going to be a positive one.
Bryan D. Spillane - Banc of America Securities
Okay, great. Thanks, guy.
Operator
Thank you. Mr.
Kiely, I’m showing no further questions at this time.
Leo Kiely III
Thanks for being with us, everybody, and I appreciate your questions. I want to remind you that to win in the beer business, you have to grow, you have to make money, you have to have a great team, okay?
And I think underlying our results this year, the investment in growth and the bang for the buck in our investments for growth is one of the things I’m most excited about and building a team that’s market-facing, brand led, and focused on bringing meaningful innovation to the market is the way we believe we’ll win in the beer business. And obviously to do that, we’ve got to grow the bottom line and have resources for those investments.
That’s our game plan. We’re sticking with it.
Really, thanks for being with us today. That’s it, Matt.
Thanks.
Operator
Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program.
You may now disconnect. Have a great day.