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Molson Coors (TAP) to Post Q1 Earnings: What's in the Offing?

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Molson Coors Brewing Company (TAP - Free Report) is slated to release first-quarter 2019 results on May 1. The company’s earnings performance has been improving lately. This is evident from a positive earnings surprise in the last three quarters. However, it delivered average negative earnings surprise of 3.2% in the trailing four quarters.

Nevertheless, the Zacks Consensus Estimate for first-quarter earnings is pegged at 58 cents, mirroring 20.8% growth from the year-ago reported figure. Notably, the consensus estimate has been revised downward in the past 30 days.

Let’s see how things are shaping prior to the earnings announcement.

Factors at Play

Molson Coors’ robust earnings trend in recent quarters indicates that it is reaping benefits of positive global pricing, strength in Europe and International, and cost savings. Further, the company is encouraged by the portfolio premiumization efforts and robust innovation pipeline. Moreover, its restructuring initiatives to reduce overhead costs and boost profitability bode well. These efforts should help retain the positive earnings trend in the to-be-reported quarter.

However, the company’s top line in fourth-quarter 2018 was plagued by lower volumes in the United States and Canada, which also impacted global brand volume. Though it witnessed volume gains in Europe and International businesses, this was not enough to offset declines in Canada and the United States. The persistence of soft volume in these regions might prove detrimental to first-quarter 2019 results.

Volume in the Canada business segment reflects declines in the West and Ontario while beer volume in the United States has been weak for a while due to tough industry conditions. Consumers’ changing preferences, aging population and strong competition from other alcohol beverages mainly contributed to this decline. Looking at the year ahead, the company expects further contraction of the U.S. beer industry volume. While it plans to offset these by accelerating its portfolio premiumization and improving industry volume share trends, uncertainty regarding the execution of these plans still remains. This is likely to pull down sales numbers again in first-quarter 2019.

The Zacks Consensus Estimate for sales in the first quarter for the United States, Europe and Canada stands at $1,656 million, $352 million and $268 million, respectively. This reflects sales growth of 0.5% year over year in the United States and declines of 5.9% and 5.6%, respectively, in Europe and Canada. Notably, the consensus estimate for overall quarterly sales is pegged at $2,328 million, down 0.2% from the year-ago quarter.

Additionally, Molson Coors continues to battle input cost inflation, which has been a hindrance for a while now particularly due to higher aluminum and freight costs. Management expects these hurdles to linger in 2019. Notably, the United States remains the biggest driver of increased cost of goods sold (COGS) for the company.

For 2019, it estimates COGS per hectoliter to increase in a mid-single digit in the United States, which is similar to the 2018 level, mostly due to higher aluminum and other input costs. Clearly, these hurdles along with increased tariffs on aluminum imports and beverage exports (due to the U.S.-China trade war) remain a concern for Molson Coors’ bottom line in the upcoming results. Furthermore, unfavorable foreign exchange rates are likely to mar top and bottom lines in the first quarter of 2019.

What Does Zacks Model Predict?
 
Our proven model does not conclusively predict that Molson Coors is likely to beat earnings estimates in the fourth quarter. This is because a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Molson Coors’ Zacks Rank #4 (Sell) and an Earnings ESP of -11.82% makes surprise prediction difficult.

We caution against stocks with a Zacks Ranks #4 or 5 (Strong Sell) going into an earnings announcement, especially when the company is seeing a negative estimate revision.

Stocks With Favorable Combination

Here are some companies that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

The Estee Lauder Companies Inc. (EL - Free Report) has an Earnings ESP of +1.08% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Church & Dwight Co., Inc. (CHD - Free Report) has an Earnings ESP of +0.30% and a Zacks Rank of 2.

Keurig Dr Pepper, Inc (KDP - Free Report) has an Earnings ESP of +1.08% and a Zacks Rank #3.

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