Back to top

Image: Bigstock

Molson Coors (TAP) Stock Declines Despite Q2 Earnings Beat

Read MoreHide Full Article

Molson Coors Brewing Company (TAP - Free Report) reported a solid second-quarter 2018, wherein both the top and the bottom lines surpassed estimates. The reported quarter reflected an improvement from the dismal first-quarter 2018 results. In fact, this marked the company’s first top-line beat, after reporting sales miss for seven consecutive quarters.

Despite the beat, Molson Coors’ shares have edged down 1.6% in the pre-market trading hours. However, this Zacks Rank #3 (Hold) stock has rallied 10.5% in the last three months compared with the industry’s decline of 1.2%.



Molson Coors’ adjusted earnings of $1.88 per share rose about 10.6% year over year and surpassed the Zacks Consensus Estimate of $1.84. This increase is attributed to a favorable global net pricing, realized cost savings, lower marketing spend and a lower tax rate.

Molson Coors Brewing Company Price, Consensus and EPS Surprise

Molson Coors Brewing Company Price, Consensus and EPS Surprise | Molson Coors Brewing Company Quote

Delving Deeper

Net sales fell 0.2% to $3,085.2 million, beating the Zacks Consensus Estimate of $3,048 million and marking a sequential improvement from the decline of 4.8% in the first quarter. While the sequential gain and top-line beat are attributed to a favorable global pricing and currency tailwinds, the year-over-year decline is accountable to lower financial volume and the adoption of the new revenue recognition accounting standard. On a constant-currency basis, net sales tumbled 1.9%.

Notably, net sales per hectoliter advanced 1.9% on a reported financial-volume basis, while it dipped 0.3% on a constant-currency basis, owing to the adoption of the new revenue recognition accounting standard. This was partly offset by positive global pricing and favorable mix in Europe and International.

Molson Coors’ worldwide brand volume declined 2.4% to 25.7 million hectoliters due to soft volumes in the U.S. and Canada, offset by the strength in Europe and International. Global priority brand volumes dipped 4% and financial volumes declined 2.1% to 27.7 million hectoliters. Financial volumes were hurt by lower brand volumes and contract brewing.

Underlying EBITDA was $783.3 million, reflecting a decline of 2.6% from the year-ago period. Further, underlying EBITDA slumped 3.8% in constant currency, due to a lower financial volume, increased input cost inflation and effects of the new accounting standards. This was partly negated by positive global pricing, cost savings and lower marketing expenses.

Segmental Details

The company operates through the following geographical segments.

Canada: Molson Coors’ Canada net sales dipped 2.5% to $397.4 million. Net sales per hectoliter (brand-volume basis) slipped 4.5% in local currency due to the adoption of the new revenue accounting standard. Further, Canada brand volume fell 2.4% on account of volume constraints in Ontario and the West, as well as lower Premium Light volumes, offset by growth in the Value segment. Financial volume descended 2.3% on account of lower brand volume. Underlying EBITDA declined 5.1% to $96.2 million, thanks to the unfavorable sales mix and soft volumes, as well as the negative impact of the new accounting standard, partly negated by a lower marketing spend.

United States: Molson Coors now has the complete ownership rights to all the brands in the MillerCoors portfolio for the U.S. market. Net sales for the segment dropped 3.1% to $2,072.5 million. Domestic net sales per hectoliter (on a brand volume basis), which excludes contract brewing and company-owned-distributor sales, improved 0.9%. Excluding the new revenue accounting standard, net sales per hectoliter (on brand volumes) increased 1.6%. The upside stemmed from a favorable pricing, partly countered by a negative mix.

However, U.S. brand volume decreased 4.8%, accountable to soft Premium Light volumes. In fact, sales-to-wholesalers volume (STWs), excluding contract brewing, declined 3.6%. The segment’s underlying EBITDA plunged 7.2% to $576.3 million, thanks to reduced volumes, higher COGS (particularly aluminum and freight), unfavorable mix sales and the effects of the new revenue accounting standard. Better pricing and lower MG&A costs provided some respite.

Europe: The segment reported net sales growth of 11.7% to $586.1 million. Europe net sales per hectoliter (brand volume basis) improved 1.5% in local currency due to favorable sales mix and pricing. This was partly offset by the impact of the new excise-tax guidelines in one of its European markets and higher investment in First Choice Agenda in 2018. Europe brand volume rose 2.9%, courtesy of growth in above-premium brands and national champion brand as well as World Cup consumption. Financial volume went up 3%. Underlying EBITDA increased 18.2% year over year to $135.8 million.

International: Net sales for the segment grew 4.3% $67.9 million. Net sales per hectoliter, on a brand-volume basis, rose 3.8%. An improved pricing and a favorable sales mix aided results. Further, International brand volume inched up 0.6%, backed by organic growth in focus markets, partly negated by the loss of Modelo contract in Japan. The segment’s underlying EBITDA was $6.5 million against loss of $0.9 million in the year-ago period. This was backed by an improved pricing, a favorable mix and a lower marketing spend, partly compensated by the loss of the Modelo brands in Japan.

Other Financial Updates

Molson Coors ended the reported quarter with cash and cash equivalents of $792.9 million and a total debt of $10.9 billion. This resulted in a net debt of $10.1 billion as of Jun 30, 2018.

Net cash from operating activities for the six months ended Jun 30 was $1,297.8 million, which marks a significant improvement from the year-ago period. The company generated underlying free cash flow of $659.8 million.

Outlook

Molson Coors remains committed toward achieving full-year free cash flow and cost savings targets, even though industry demand challenges persist in the U.S. and Canada alongside inflationary pressures. Moreover, the company aims to augment the top line through its First Choice commercial excellence plans. It also remains focused on disciplined capital allocation, driven by its Profit after Capital Charge or PACC approach.

Management retained its previously issued forecasts for 2018. Molson Coors continues to anticipate generating cost savings of roughly $210 million in 2018 while it expects cost savings to reach $600 million for the 2017-2019 period. Further, in 2018, it expects to deliver underlying free cash flow of around $1.5 billion in 2018, (plus or minus 10%). Capital spending is expected to be roughly $670 million (plus or minus 10%). Underlying tax rate for the year is likely to be 18-22%, thanks to the latest tax reforms.

Molson Coors expects 2018 to remain impacted by new revenue recognition standard (which became effective at the beginning of 2018) and the updated pension guidance.

Don’t Miss These Consumer Staples Stocks

Some better-ranked stocks in the broader consumer staples sector are The Boston Beer Company, Inc. (SAM - Free Report) , Archer Daniels Midland Company (ADM - Free Report) and Dean Foods Company , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Boston Beer has long-term earnings growth rate of 9.5%. Moreover, the stock has surged 20.7% in the last three months.

Archer Daniels has rallied 20.4% year to date. The company delivered an average positive earnings surprise of 13.3% in the last four quarters.

Dean Foods delivered positive earnings surprise of 16.7% in the last reported quarter. Moreover, the stock has rallied 18.6% in the last three months.

Looking for Stocks With Skyrocketing Upside?

Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.

Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.

See the pot trades we're targeting>>

Published in