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Why Is Molson Coors (TAP) Down 3.4% Since the Last Earnings Report?

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A month has gone by since the last earnings report for Molson Coors Brewing Company (TAP - Free Report) . Shares have lost about 3.4% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Molson Coors Q2 Earnings Lag, Currency Plays Spoilsport

Molson Coors reported dismal results in the second quarter of 2017, after posting weaker-than-expected earnings in the second quarter of 2017. Revenues marginally beat the Zacks Consensus Estimate.

Molson Coors’ adjusted earnings of $1.66 per share were way behind the Zacks Consensus Estimate by 21.3%. However, it increased 3.1% from the prior-year figure of $1.61, driven by increased brand volume, higher net pricing, positive sales mix, cost savings and lower marketing spending, partially offset by a higher tax rate.

Revenues and Operating Profits

Net sales, including excise tax, were $3.09 billion in the second quarter of 2017, which marginally beat the Zacks Consensus Estimate of $3.08 billion by 0.2%. Sales dipped 0.6% year over year due to a 0.2% decline in net sales per hectoliter. While sales declined in Canada, it witnessed improvement in Europe and U.S., the Canada and International regions. Currency had a negative impact of $57.3 million on overall sales in the quarter. On a constant currency basis, sales increased 1.3%. Notably sales per hectoliter improved 1.7%.

Molson Coors’ worldwide brand volume grew 2.3% to 26.4 million hectoliters in the second quarter driven by strong growth in Europe and International regions owing to the addition of Miller global brands business and also from growth in some of the company’s core brands. Financial volume of 28.3 million hectoliters dipped 0.4% from the prior-year quarter recorded figure.

Underlying EBITDA was $793.8 million in the second quarter, an increase of 4.2% from the year-ago period driven by higher pricing, positive sales mix, cost savings and lower marketing spending. Further, underlying EBITDA on a constant-currency basis increased 5.7% from the year-ago figure.

Segment Details

The company operates through the following geographical segments.

Canada: Molson Coors Canada net sales declined 4.3% to $407.6 million in the quarter due to currency headwinds. On a constant currency basis, segment sales dipped 0.3%. Net sales per hectoliter grew 2.3% in local currency, driven primarily by positive pricing and brand mix. However, Canada brand volume declined 1.3%, while financial volume fell 2.6% in the quarter. The segment’s underlying EBITDA declined 9.7% to $100.4 million.

United States (MillerCoors): On Oct 12, 2016, Molson Coors completed the acquisition of the remaining 58% stake in the MillerCoors’ joint venture, along with the Miller global brand portfolio. It now has complete ownership rights to all the brands in the MillerCoors portfolio for the U.S. market, including Redd’s and other import brands such as Peroni and Pilsner Urquell.

Segment net sales inched up 0.3% to $2.14 billion in the quarter. Domestic net revenue per hectoliter, which excludes contract brewing and company-owned-distributor sales, improved 1.0% in the quarter, owing to favorable pricing and positive sales mix. However, both U.S. domestic sales-to-retailers volume (STRs) and domestic sales-to-wholesalers volume (STWs) declined 1.9% and 0.4%, respectively in the quarter as lower volume in Premium Light and Below Premium offset growth in Above Premium. The segment’s underlying EBITDA grew 7.9% to $619.4 million driven by higher net pricing, positive sales mix and cost savings.

Europe: The segment reported net sales growth of 0.5% to $524.7 million in the second quarter of 2017. Unfavorable currency impacted sales by $40.5 million. On a constant currency basis, segment sales increased 8.3%. Europe net sales per hectoliter grew 3.7% in local currency driven by positive mix and net pricing. While Europe brand volume increased 11.5% in the second quarter, financial volume declined 4.4%. Europe underlying EBITDA increased 13.8% to $118.3 million, driven by higher volume, positive sales mix, lower brand investments, increased net pension benefit, and favorable timing of Easter this year, partially offset by unfavorable foreign currency.

International: Segment net sales grew significantly by 66.1% to $65.1 million in the quarter. On a constant currency basis, segment sales increased 65.8%, driven by higher sales volume. Net sales per hectoliter increased 15.2%, driven by sales mix changes and higher pricing. Total International brand volume increased 43.2% in the second quarter, driven by the transfer of the Puerto Rico business from MillerCoors, the addition of the Miller global brands, and Coors Light growth, primarily in Latin America. These factors were partially offset by the transfer of royalty and export brand volume to Europe.

International underlying EBITDA suffered a loss of $0.9 million in the second quarter, narrower than the loss of $1.7 million a year ago. The upside came on the back of higher volume and positive pricing.

Other Financial Update

Total debt at the end of the second quarter was $11.9 billion, and cash and cash equivalents totaled $502.9 million, resulting in net debt of $11.4 billion. Net cash from operating activities in the first half of 2017 was $818.5 million, while underlying free cash flow was $586.7 million in the first half.

Outlook

The company expects to deliver underlying free cash flow of around $1.2 billion in 2017 and expects capital spending of around $750 million. The company anticipates to generate cost savings of more than $175 million.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the past month as none of them issued any earnings estimate revisions.

VGM Scores

At this time, Molson Coors' stock has a nice Growth Score of B, while it is lagging a bit on the momentum front with C.  The stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is more suitable for growth investors than momentum and value investors.

Outlook

The stock has a Zacks Rank #5 (Strong Sell). We are expecting a below average return from the stock in the next few months.




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