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Molson Coors Loses 21% in 3 Months: Will Hurdles Persist?

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Molson Coors Brewing Company (TAP - Free Report) has been off investors’ radar for quite some time now, owing to persistent softness in U.S. beer volumes and escalated input costs. Given these factors, this Zacks Rank #5 (Strong Sell) stock has lost 20.5% in the past three months, wider than the industry’s 8.7% decline.

These hurdles also weighed on Molson Coors’ first-quarter 2018 results, following which the company has seen its shares tumble 13.5%. So, let’s delve deep into these obstacles and see if they are likely to persist.

Will Molson Coors Remain Troubled?

Molson Coors has been posting weak beer volumes in the United States for quite some time, owing to tough industry conditions. Consumers’ changing preferences, aging population and strong competition from other alcohol beverages have been the main contributors to the decline. During the first quarter of 2018, Molson Coors continued to witness softness in the U.S. beer industry hurting overall top and bottom line of the company.

During the quarter, the U.S. region reported net sales decline of 5.8% to $1,647.8 million, with U.S. brand volumes down 3.8% accountable to soft Premium Light volumes. Also, sales-to-wholesalers volume (STWs) remained soft, which declined 6.7% mainly as a result of overall U.S. industry headwinds and unfavorable timing of wholesale inventories. The segment’s underlying EBITDA also plunged 12.2% to $388.9 million, thanks to reduced STW volumes, COGS inflation, unfavorable mix sales and reduced volumes.

Apart from this, the company has been battling input cost inflation for a while now, especially due to aluminum and fuel costs. Management expects these hurdles to linger in 2018. The company reiterated its previously issued COGS per hectare outlook for the United States and Canada.

For 2018, the company expects cost of goods sold per hectoliter to increase in low-single-digits across these segments. In fact, it anticipates increased cost pressure in Europe now, owing to rising costs of key inputs like aluminum and higher freight and fuel expenses. Clearly, these hurdles remain a concern for Molson Coors’ bottom line.

The aforementioned challenges dented Molson Coors in the first quarter, wherein both top and bottom lines dropped year over year and missed the Zacks Consensus Estimate. Other than these hindrances, unfavorable global mix, impact of indirect tax provision cycling in Europe and adoption of a new revenue recognition accounting standard hurt the company’s performance. Management retained its outlook and expects 2018 to remain impacted by new revenue recognition standard.

Although Molson Coors’ focus on premiumization and cost savings initiatives bode well, the U.S. beer industry softness and tough input cost environment seems to have marred analysts’ confidence. Evidently, the Zacks Consensus Estimate for the second quarter and 2018 has gone down from $1.98 to $1.93 and from $5.16 to $4.89, respectively over the past 60 days.

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