A month has gone by since the last earnings report for Molson Coors Brewing (
TAP Quick Quote TAP - Free Report) . Shares have added about 2.8% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Molson Coors due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Molson Coors Q1 Earnings & Sales Surpass Estimates
Molson Coors reported impressive first-quarter 2022 results, wherein earnings and sales surpassed the Zacks Consensus Estimate and improved year over year. Notably, the company marked the fourth successive quarter of top-line growth. Results reflected gains from the revitalization plan and premiumization of its global portfolio. Strength across its Coors Light and Miller Lite brands, as well as its beyond beer approach, bodes well. Lesser on-premise restrictions and the robust performance of flagship brands like Carling resulted in significant growth in Europe.
However, inflationary pressure acted as a deterrent. To mitigate this, management is undertaking pricing actions and a favorable sales mix. Also, it remains on track with increased investments toward core brands and innovations. Quarter in Detail
The company’s adjusted earnings of 29 cents per share grew significantly from a penny reported in the year-ago quarter. The figure also beat the Zacks Consensus Estimate of 18 cents.
Net sales increased 16.7% to $2,214.6 million and surpassed the Zacks Consensus Estimate of $2,121 million. Lower-than-expected sales can be attributable to financial volume growth, as well as solid pricing and positive mix, including favorable brand mix related to portfolio premiumization and favorable channel mix due to lesser on-premise channel restrictions. On a constant-currency (cc) basis, net sales rose 17.6%. Net sales per hectoliter increased 10.2% on a brand-volume basis, driven by strong net pricing, and favorable brand and channel mix stemming from portfolio premiumization and lesser on-premise channel restrictions. Molson Coors’ worldwide brand volumes advanced 1.7% to 16.5 million. Financial volumes rose 5.1% to 17 million hectoliters, primarily driven by higher brand volumes in EMEA and APAC, a rise in factored volumes, and the cycling of lower U.S. distributor inventory levels in the prior year, partly offset by reduced brand volumes in the Americas. Underlying (non-GAAP) EBITDA grew 14.5% year over year to $320.5 million. Segmental Details
Molson Coors operates in the following geographical segments.
North America: Net sales in the segment rose 8.5% to $1,836.2 million on a reported basis and 8.6% at cc, driven by favorable pricing and positive sales mix, which partly offset reduced financial volumes. Financial volumes inched down 0.8% year over year due to reduced brand volumes, partly offset by the cycling of lower U.S. distributor inventory levels in the prior year stemming from the March 2021 cybersecurity incident and the February 2021 Fort Worth, TX-based brewery shut down. Meanwhile, North America brand volume dropped 3.1% on a 4.3% fall in the United States, owing to weakness in the economy portfolio as a result of de-prioritization and rationalization of non-core SKUs, which partly offset growth in the above-premium portfolio. Also, brand volume fell 4.5% in Canada, while the metric grew 13.8% in Latin America. Net sales per hectoliter, on a brand volume basis, rose 9.8% at cc on a favorable brand mix and higher net pricing. Underlying EBITDA increased 39.6% on a reported basis to $144.2 million and 9% at cc, driven by positive pricing, reduced depreciation expenses and favorable sales mix, which somewhat offset cost inflation, particularly in input materials, elevated transportation costs and lower financial volumes. EMEA & APAC: The segment’s net sales (on a reported basis) rose 84.2% to $381.2 million and 92.3% at cc. The uptick was due to financial volume growth, favorable pricing and a positive sales mix. Net sales per hectoliter (on a brand volume basis) for the segment advanced 30.1% at cc, resulting from a favorable sales mix as well as higher pricing. The segment’s financial volumes grew 29.4% and brand volumes were up 19.8%, owing to growth in the premium portfolio and core brands, as well as higher factored volumes. The segment’s underlying EBITDA surged 64% on a reported basis to $48.5 million and 62.1% at cc on higher financial volumes, favorable pricing and sales mix. These somewhat offset cost inflation, particularly in input materials, elevated transportation costs and higher MG&A spend. Other Financial Updates
Molson Coors ended the first quarter with cash and cash equivalents of $358.7 million. At the end of first-quarter 2022, the company had a total debt of $7,313.4 million, resulting in net debt of $6,954.7 million. It also repaid its $500 million 3.5% USD notes following their maturity on May 1, 2022, via commercial paper borrowings and cash on hand.
In the three months ending Mar 31, 2022, it used $119.3 million in cash for operating activities, resulting in an underlying free cash flow of $358.8 million. The company paid out a quarterly dividend of 38 cents on its class A and class B common shares on Mar 18. In the quarter, TAP bought back 280,000 shares worth $14.1 million. It also approved a share-repurchase program, wherein the company can purchase up to an aggregate of $200 million of its Class B common stock till Mar 31, 2026. Outlook
Despite the continued uncertainties related to the pandemic as well as rising cost inflation, management retained the 2022 view. Net sales are projected to grow in the mid-single digits at cc. Underlying EBITDA is likely to grow year over year in the high-single digits at cc. Management estimates achieving a net debt to underlying EBITDA ratio of 3.0X by 2022.
Underlying depreciation and amortization are projected at $750 million, plus or minus 5%. The company expects an underlying effective tax rate of 22-24%. Consolidated net interest expenses are anticipated to be $265 million, plus or minus 5%. How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
The consensus estimate has shifted -25.99% due to these changes.
At this time, Molson Coors has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Molson Coors has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.