Mixed 1Q for Molson Coors - Analyst Blog

Molson Coors Brewing Co. (TAP) reported adjusted earnings of 47 cents per share in the first-quarter 2012, exceeding the Zacks Consensus Estimate of 43 cents. Earnings also surpassed the prior-year quarter earnings of 43 cents. Though the company has been facing some challenging market conditions, Molson Coors' earnings were positively impacted by solid pricing, sales growth, cost reduction initiatives and favorable foreign currency movements. In addition, Molson Coors continued to focus on its growth strategies of maximizing profitable growth opportunities in the core markets, expanding into new and emerging markets.

Revenues and Operating Profits

Net sales edged up 0.1% to $691.4 million in the quarter. It lagged the Zacks Consensus Revenue Estimate of $704 million.

Total worldwide beer volume slipped 0.4% in the quarter to 9.9 million hectoliters in first quarter 2012.

Molson Coors generated a gross profit of $252.6 million, compared with $263.2 million profit generated in the prior-year period. Operating income slipped to $121.8 million compared with $126.0 million in the prior-year period.

During the quarter, special and other non-core items led to pretax charge of $6.4 million, offset by release of a tax reserve of $3.5 million in the U.K. and a $0.5 million unrealized mark-to-market gain on aluminum and diesel hedges in Corporate COGS.

Segment Details

Canada: Molson Coors' Canada segment's net sales climbed to $527.6 million from $519.2 million in the previous year. Sales volume came down to 1.70 million hectoliters in the quarter from 1.71 million hectoliters in the prior-year period.

United Kingdom: Molson Coors' United Kingdom segment's net sales slipped to $450.0 million from the prior-year period. Sales volume came down to 1.74 million hectoliters in the quarter from 1.77 million hectoliters in the first-quarter of 2011.

International: The segment's net sales surged to $32.9 million from $24.1 million in the previous year. Net sales per hectoliter increased to 0.22 million hecoliters from 0.19 million hectoliters in the previous year.

Corporate: The segment's net sales remained flat at $0.3 million during the quarter.

Other Financial Updates

The company exited the year with cash and cash equivalents of $836.3 million as of March 31, 2012, versus $1.1 billion in the previous year. Long-term debt increased to $1.95 billion from $1.91 billion in 2011.

In the first quarter, the company delivered $10 million of Resources for Growth Two (RFG2) cost reductions.

During the quarter, Molson Coors paid beer excise taxes totaling nearly $316.7 million to governments globally.

The company's first quarter effective income tax rate was 18% on a reported basis and 17% on an underlying basis..

Molson Coors estimates that its underlying effective tax rate will be in the range of 17% to 21% for full year 2012, assuming no further changes in tax laws.

Recommendation

We are encouraged by the restructuring initiatives taken by the company to reduce overhead costs and boost profitability. Further, the announcement of a new share repurchase program will strengthen the company's balance sheet. Moreover, it signifies that Molson Coors has substantial cash generation capability.

However, the seasonal nature of business and increased competition from Anheuser-Busch InBev (BUD) are still concerns for Molson Coors.

Currently, Molson Coors has a Zacks #2 Rank, implying a short-term Buy recommendation. On a long-term basis, we maintain a Neutral recommendation on the stock.


 
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