Beverage maker Molson Coors Brewing Co. (TAP - Analyst Report) is set to report second quarter 2013 results on Aug 6. Last quarter, it posted a negative surprise of 14.3%. Let’s see how things are shaping up for this announcement.
Factors to Consider this Quarter
Molson Coors is struggling in terms of sales volume decline for the past three years. In Canada, the substantial excise tax increase in Québec, which was enforced in Nov 2012, lowered volumes further as the company has a significant market share in Québec.
Despite its marketing investments in the Miller Lite and Molson Brands, volume growth has been rather inconsistent. The recovery in the U.S. economy and the acquisition of the StarBev business are likely to boost volumes eventually but we do not expect the change to reflect in the second quarter.
Moreover, the company’s limited cash due to debt obligations related to StarBev acquisition has forced the company to discontinue its buyback policy. The company expects to use its cash principally for deleveraging debt for the next 2-3 years and therefore it does not expect to make any further repurchases in the coming quarter. This is expected to hurt earnings growth in the second quarter.
However, we feel that Molson Coors’ increased focus on non-beer drinks and high-profitable areas of the U.S. beer market is expected to drive sales in the second quarter, as it had in the first quarter.
Our proven model does not conclusively show that Molson Coors is likely to beat earnings this quarter. That is because a stock needs to have both a positive earnings expected surprise prediction (ESP) (Read: Zacks Earnings ESP: A Better Method) and a Zacks Rank #1, #2 or #3 for this to happen. That is not the case here as shown below.
Negative Zacks ESP: The Most Accurate estimate stands at $1.38 while the Zacks Consensus Estimate is higher at $1.39. That is a difference of -0.72%.
Zacks Rank #4 (Sell): Molson Coors holds a Zacks Rank #4 (Sell). We caution investors against stocks with Zacks Rank #4 and #5 (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Other Stocks to Consider
Here are some other companies in the consumer staples sector that can be considered as our model shows that they have the right combination of elements to post an earnings beat this quarter:
Sanderson Farms Inc (SAFM - Snapshot Report), Earnings ESP of +5.66% and a Zacks Rank #3 (Hold).
Monster Beverage Corp. (MNST - Analyst Report), Earnings ESP of +3.13% and a Zacks Rank #2 (Buy).
General Mills Inc. (GIS - Analyst Report), Earnings ESP of +1.43% and a Zacks Rank #3 (Hold).