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Global brewer Molson Coors Brewing Company (TAP - Analyst Report) posted adjusted earnings of $1.57 per share in the second quarter of 2014, exceeding the Zacks Consensus Estimate of $1.44 per share by 9%. The results surged 6.8% from the prior-year earnings of $1.47 per share driven by growth in underlying pre-tax income and expanded margins owing to lower interest expense.

 

 

Revenues and Operating Profits

Net sales, including excise tax, increased marginally by 0.9% to $1.19 billion in the second quarter driven by positive pricing and mix, which made up for the beer volume decline in the quarter. Sales, however, lagged the Zacks Consensus Estimate of $1.20 billion by 1.2%. Sales improved 0.5% on a constant currency basis.

Sales volume declined 0.3% year over year to 8.726 million hectoliters in the second quarter of 2014 but improved from the preceding quarter volume of 5.913 million hectoliters. Total worldwide beer volume also declined 0.9% year over year to 16.6 million hectoliters but was higher than 11.9 million hectoliters in first quarter 2014.

Molson Coors has struggled hard in the past one year owing to weak consumer demand in the face of macro-economic headwinds and also in terms of sales volume for the past three years. However, we believe that the company’s initiatives and increased marketing investments in its brands will drive volumes over the long term.

Underlying (excluding special and other non-core items) pre-tax income shot up 8.6% year over year to $330.8 million in the second quarter of 2014, driven by improved performance in Miller Coors and Europe and lower interest expense. On a constant currency basis, underlying pre-tax income increased 8.9%.

Segment Details

The company operates through the following geographical segments.

Canada:Molson Coors Canada net sales declined 7.5% to $516.5 million in the quarter due to a 2% decline in sales volume and currency headwinds. The segment’s underlying pretax income declined 6.5% to $120.9 million in the quarter due to the loss of the Modelo brands (due to termination of Modelo brands joint venture at the end of Feb 2014) and unfavorable foreign currency, which overshadowed the benefits of cost savings. On a constant currency basis, underlying pretax income decreased 1.6%.

United States (MillerCoors):MillerCoors’ net sales increased 2.2% to $2.2 billion in the second quarter of 2014, while sales volume declined 0.9% in the quarter. MillerCoors’ underlying net income increased 8% to $445.7 million driven by stronger pricing, positive sales mix and cost savings. Molson Coors’ underlying U.S. segment equity income increased 10.3% to $190.3 million.

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 7.4% to $629.4 million in the second quarter of 2014. Sales volume declined 1.3% as parts of Serbia, Bosnia, Croatia and Bulgaria were negatively impacted by a devastating flooding. Weak consumer demand in Romania due to poor weather conditions also dented sales volume in the quarter. Lower volume in these markets was partially offset by strong growth in the U.K., Hungary and Czech Republic. However, Europe underlying pretax income increased 13.3% to $86.8 million in the quarter, driven by cost savings and positive geographic mix. Foreign currency also benefited the quarter.

Molson Coors International (MCI):Segment net sales increased 25.9% to $43.7 million in the quarter. Sales volume including royalty volume increased 21.6% owing to strong Coors Light growth in Mexico and Latin America and significant growth in India, partially offset by continued industry weakness in the Ukraine and Russia license markets.

The segment posted an underlying pretax loss of $3.7 million in the second quarter, wider than the $3.1 million loss in the year-ago period due to higher marketing investments.

Molson Coors currently holds a Zacks Rank #2 (Buy).

Other players worth considering in the beverage industry include Boston Beer Co. Inc. (SAM - Analyst Report), Castle Brands Inc. (ROX) and Anheuser-Busch InBev SA/NV (BUD - Snapshot Report). While Boston Beer and Castle Brands sport a Zacks Rank #1 (Strong Buy), Anheuser-Busch InBev holds a Zacks Rank #2.

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