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Global brewer Molson Coors Brewing Company (TAP - Analyst Report) reported third quarter 2013 adjusted earnings of $1.45 per share, beating the Zacks Consensus Estimate of $1.36 per share by 6.6%. The results improved 5.8% from the prior-year earnings of $1.37 per share, driven by improved pre-tax earnings in its U.S., Europe, and International businesses. Lower interest expense and lower quarterly tax rate also led to earnings growth in the quarter.

Revenues and Operating Profits

Net sales, including excise tax, declined 2% to $1.17 billion in the quarter due to sales volume decline of 0.9% to 8.96 million hectoliters. Revenues also lagged the Zacks Consensus Estimate of $1.22 billion. Total worldwide beer volume declined 0.9% to 17.0 million hectoliters. The poor sales results were due to weak consumer demand across all markets owing to macro-economic headwinds.

Underlying (excluding special and other non-core items) pre-tax income increased 4.2% year over year to $318.5 million in the third quarter of 2013. Currency headwinds favorably impacted underlying pre-tax income by $2 million in the quarter.

Segment Details

The company operates through the following geographical segments.

Canada: Molson Coors Canada net sales declined 9.2% to $526.7 million in the quarter due to a 5.2% decline in sales volume. The segment reported underlying pretax income of $130.6 million, down 13.3% from the prior-year quarter due to lower volume and a weaker Canadian dollar compared to the U.S. dollar. On a constant currency basis, underlying pretax income declined 9.6%.

United States (MillerCoors): MillerCoors’ net sales increased 2.9% to $2.05 billion in the third quarter of 2013. Molson Coors U.S. segment’s underlying equity income increased 10.5% to $154.6 million in the quarter. MillerCoors’ underlying net income increased 11.7% to $363.8 million driven by stronger pricing, brand mix and cost reductions, partially offset by the impact of higher commodity costs and lower volumes. Sales volume declined 1.0% in the quarter.

We note that the results were weaker than the sequential quarter, owing to sluggish consumer demand across the market.

Europe: The segment includes the operations of the U.K. segment combined with the results of operations for Central Europe, excluding the Central Europe global export and license business.

The segment reported net sales growth of 5.2% to $607.9 million in the third quarter of 2013. Sales volume also increased 0.7%, owing to favorable weather conditions in Czech Republic, Croatia and the U.K. However, consumer demand was weak in Serbia, Romania and Bulgaria. The segment’s underlying pretax income improved 5.7% to $95.0 million.

Molson Coors International (‘MCI’): Segment net sales declined 12.3% to $37.7 million in the quarter, due to 19.0% decline in sales volume. Sales volume including royalty volume also declined 18% due to industry weakness in Ukrainian and Russia license markets and the negative impact of transferring the Carling travel and export business to the Europe segment. This decline was partially offset by strong growth in Mexico and Latin America.

The segment posted an underlying pretax loss of $2.1 million in the third quarter, an improvement of $5.6 million from a year ago owing to timing of marketing investment in Japan, improved profit performance in the China business and lower overhead expenses. However, transfer of Carling travel and export business to the Europe segment negatively impacted the quarterly performance.

Outlook

Management continues to expect weak consumer demand in the coming quarters due to ongoing macro-economic headwinds. We also note that Molson Coors has been struggling in terms of sales volume decline for the past three years. However, we believe that the company’s initiatives and increased marketing investments in its brands will drive volume growth in the coming quarters.

Molson Coors currently holds a Zacks Rank #3 (Hold). Other beverage companies which are worth considering include Constellation Brands Inc. (STZ - Analyst Report), Boston Beer Co. (SAM - Analyst Report) and Truett-Hurst Inc. (THST). While Constellation holds a Zacks Rank #1 (Strong Buy), Boston Beer and Truett-Hurst carry a Zacks Rank #2 (Buy).

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