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Molson Coors Q2 Earnings Beat Estimates; Revs Lag

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Global brewer Molson Coors Brewing Company (TAP - Free Report) reported second quarter 2013 adjusted earnings of $1.51 per share, exceeding the Zacks Consensus Estimate of $1.39 per share by 8.6%. The results improved 9.4% from the prior-year earnings of $1.38 per share, owing to higher sales on account of the acquisition of StarBev operations (June 2012). Lower tax rate in Canada and improved performance in Europe and International businesses also led to earnings growth in the quarter.

The company was able to gain market share in its key brands in core markets, despite weak consumer demand and poor weather across all of its markets. The introduction of a new brand and packaging innovations helped the company gain market share in the quarter.

Revenues and Operating Profits

Net sales, including excise tax, grew 17.9% to $1.18 billion in the quarter due to the addition of the StarBev operations. Sales volume also improved 50.9% to 8.7 million hectoliters. Revenues however, lagged the Zacks Consensus Estimate of $1.20 billion. Total worldwide beer volume increased 20.2% in the quarter to 16.7 million hectoliters.

Underlying (excluding special and other non-core items) pre-tax income declined 0.7% year over year to $138.0 million in the second quarter of 2013. Currency headwinds reduced the 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 4.2% to $558.2 million in the quarter due to a 2.6% decline in sales volume. The segment reported underlying pretax income of $138.0 million, down 0.7% from the prior-year quarter due to lower volume and negative sales mix. On a constant currency basis, underlying pretax income improved 0.1%.

United States (MillerCoors): MillerCoors’ net sales declined 2.9% to $2.16 billion in the second quarter of 2013 due to decline in sales volume of 5.5% in the quarter. Molson Coors’ U.S. segment’s underlying equity income decreased 6.5% to $172.6 million in the quarter. MillerCoors’ underlying net income decreased 5.3% to $412.7 million due to lower beer volumes.

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 1.5% to $586.2 million in the second quarter of 2013, driven by positive pricing and cost savings measures adopted by the company. Foreign currency translation had no significant impact on the region’s results. Sales volume decreased 2% due to poor weather, including a significant flood in the Czech Republic in June. The segment’s underlying pretax income improved 14.4% to $82.4 million.

Molson Coors International (‘MCI’): Segment net sales declined 6.5% to $34.7 million in the quarter. Segment sales volume declined 13.6%. However, sales volume including royalty volume increased 51% due to the inclusion of the Central Europe export business and volume growth in Mexico.

The segment posted an underlying pretax loss of $2.4 million in the second quarter, an improvement of $11.0 million from a year ago owing to elimination of losses in the China joint venture, which was deconsolidated in the third quarter of 2012, improved profit performance in the non-joint venture business in China, lower overhead expenses, and the net positive impact of business transfers between the Europe and International segments.


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. The recovery in the U.S. economy and the acquisition of the StarBev business are likely to fuel volumes eventually. The reduction in tax rate in Canada in the reported quarter is also expected to boost volumes. Moreover, we believe that the company’s acquisition of the StarBev business will continue to enhance the company’s brand portfolio and create many opportunities, going ahead.

However, the debt servicing costs related to the StarBev acquisition along with unfavorable currency might act as a headwind in the coming quarters. Molson Coors currently holds a Zacks Rank #4 (Sell), while another beer company Craft Brew Alliance Inc (BREW - Free Report) is better placed with a Zacks Rank #2 (Buy).

Other consumer staples stocks worth considering are B&G Foods Inc (BGS - Free Report) and Dole Food Co. , both carrying a Zacks Rank #1 (Strong Buy).

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