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Molson Coors (TAP) Q2 Earnings Lag, Currency Plays Spoilsport

Global brewer Molson Coors Brewing Company TAP 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. Shares declined 1.3% in the pre-market trading session.

Molson Coors’ adjusted earnings of $1.66 per share were way behind the Zacks Consensus Estimate of $2.04 per share by 18.6%. 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.

If we look into the share price performance of Molson Coors, we note that its shares have underperformed the industry in the last three months. The stock has declined 1.9% in the said time frame against the industry’s growth of 7.3%. Notably, the industry is part of the top 12% of the Zacks Classified industries (31 out of the 265).

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.

Molson Coors Brewing Company Price, Consensus and EPS Surprise

 

Molson Coors Brewing Company Price, Consensus and EPS Surprise | Molson Coors Brewing Company Quote

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.

Zacks Rank & Key Picks

Molson Coors currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the same sector includes Inter Parfums, Inc. IPAR, Kellogg Company K and Nu Skin Enterprises, Inc. NUS, all carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Inter Parfums delivered an average positive earnings surprise of 15.6% over the last four quarters, with a long-term earnings growth rate of 12.3%.

Kellogg Company posted an average positive earnings surprise of 6.2% over the last four quarters, with a long-term earnings growth rate of 6%.

Nu Skin Enterprises recorded an average positive earnings surprise of 8.3% over the last four quarters, with a long-term earnings growth rate of 8.5%.

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Molson Coors Brewing Company (TAP): Free Stock Analysis Report
 
Inter Parfums, Inc. (IPAR): Free Stock Analysis Report
 
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