Molson Coors Taps Pricing

Molson Coors Brewing Company (TAP - Analyst Report) reported strong second quarter results with earnings of $1.11 per share. Earnings were 18 cents above the Zacks Consensus Estimate of 93 cents, and up 19.4% year-over-year.

The increase in earnings was driven by increased pricing and substantial cost reductions, which were partially offset by unfavorable currency translations, cost-push inflation and lower worldwide volume.  

Net sales declined 54.5% year-over-year to $798 million, primarily due to the company’s adoption of new accounting standards for Non-controlling Interests in Financial Statements (FAS160). This eliminated net sales from the 42%-owned Miller Coors joint venture, making year-over-year comparisons of consolidated and U.S. segment net sales (along with cost of goods sold and SG&A) less meaningful. However, net sales declined in both Canada (-11.6%) and the U.K. (-15.6%).

Overall beer volume declined 3.2% to 13,533 hectoliters. Volume declined in all the three operating segments: in Canada volumes declined 2.9% year-over-year, while the U.K. witnessed a decrease of 12.4%. However, the top line benefited from positive pricing and favorable mix.

Additionally during the second quarter, Molson Coors generated an incremental $32 million of cost savings as part of its three-year, $250 million Resources for Growth (RFG) cost reduction initiative. Savings from the RFG program for the past two-and-a-half years were $229 million. Apart from the RFG savings, the company delivered $60 million of incremental cost synergies from the Miller-Coors joint venture during the second quarter.

Management also provided an outlook on the operating segment for the remainder of fiscal 2009. In Canada, TAP expects a challenging environment due to weak economic conditions. In addition, the company plans to increase its market share by ensuring price advantage while increasing investments in the brands.

In the U.S., during the key summer selling season, the company remains focused on driving the platform of Miller Lite, while accelerating Coors Light growth with the new Rocky Mountain promotion and packaging. The company also intends to add new legal-age drinkers to the premium light category through repeat purchases.

In the U.K., management expects the challenging trading environment to continue for the rest of 2009. This is due to a weak local economy and cost inflation. However, the U.K. business benefits from the contract brewing arrangement, the Magners cider agreement, supplier renegotiations and the strategy of foregoing low-margin volume.