Global brewer Molson Coors Brewing Company (TAP) reported better-than-expected adjusted earnings of 69 cents per share in the fourth quarter of 2012, beating the Zacks Consensus Estimate of 64 cents per share. The results however declined 28.9% from the prior-year earnings of 97 cents, due to higher tax rates this year and strong earnings in the prior-year period due to an extra week.
Revenues and Operating Profits
Net sales, including excise tax, grew 9.9% to $1.03 billion in the quarter compared with $0.94 billion reported a year ago, due to the addition of Central European operations in the reported results. It, however, lagged the Zacks Consensus Estimate of $1.05 billion. Total worldwide beer volume increased 15.3% in the quarter to 14.1 million hectoliters.
Underlying (excluding special and other non-core items) pre-tax income plummeted 19.2% year over year to $153.9 million in the fourth quarter of 2012, despite the impact of favorable foreign exchange in the quarter.
The company operates through the following geographical segments.
Canada: Molson Coors’ Canada segment net sales declined 7.5% to $471.5 million in the quarter, due to 12% decline in sales volume. The segment reported underlying pretax income of $101.0 million, down 22.2% from the prior-year quarter, due to lower volume, focus on higher-cost products, higher pension expense, and positive adjustments in the prior-year period due to an extra week.
United States (MillerCoors): MillerCoors’ net sales climbed 1.7% to $1.78 billion in the fourth quarter of 2012. The segment’s underlying U.S. segment pretax income decreased 5.4% to $80.9 million in the quarter, due to increased marketing expenses.
United Kingdom: Molson Coors’ United Kingdom segment net sales slipped 6.8% to $363.2 million from the prior-year period. The segment reported underlying pretax income of $22.6 million, down 35.1% from the prior-year quarter, due to volume decline, higher input costs and increase in pension cost offset by improved product mix, cost saving initiatives and lower marketing expenses.
Central Europe: The segment reported net sales of $159.7 million in the fourth quarter of 2012, down 8.3% from the prior-year quarter. Sales volume declined 5%, primarily due to the inventory destocking and a focus on maintaining price growth in all markets. The segment reported underlying pretax income of $12.9 million, down 12.2%, owing to lower volumes due to destocking of inventories.
Molson Coors International (‘MCI’): The segment’s net sales declined 7.0% to $38.8 million in the quarter. The segment reported underlying pretax income of $0.3 million, up from a loss of $7.5 million in the prior-year quarter, due to improved performance in Japan, the inclusion of Central Europe export results, reduced overhead costs, and the elimination of losses related to the China joint venture, which was deconsolidated in the third quarter. The Central Europe export business contributed underlying pretax income of $2.7 million in the third quarter.
Full Year 2012 Results
The company’s adjusted earnings increased 4.0% to $3.91 per share in 2012. The results also beat the Zacks Consensus Estimate of $3.84 per share. Net sales, including excise tax, grew 11.4% to $3.92 billion in the year compared with $3.52 billion reported a year ago, due to the addition of Central European operations in the reported results. It, however, lagged the Zacks Consensus Estimate of $3.93 billion. Total worldwide beer volume increased 13.9% in the year to 55.1 million hectoliters.
Overall, we are encouraged with the company’s strong brand portfolio, continuous innovation and cost-saving initiatives. Moreover, we believe that the company’s acquisition of the Central Europe business in Jun 2012 significantly enhanced the company’s portfolio of premium brands. It has also created opportunities for the company in Central Europe to extend its key brands, taking advantage of the attractive beer market.
In addition, Molson Coors continues to focus on its strategy of maximizing profitable growth opportunities in the core markets and expanding into new and emerging markets. The company is also undertaking restructuring initiatives to reduce overhead costs and boost profitability.
However, the company’s susceptibility to the global economic downturn predominantly in mature and low-growth markets, coupled with currency headwinds undermine its growth prospects and profitability. Molson Coors currently holds a Zacks Rank #3 (Hold).
Other stocks in the consumer staples sector that are worth considering are Tyson Foods Inc (TSN), Kellogg Co. (K) and The J.M. Smucker Co. (SJM). Tyson holds a Zacks Rank #1 (Strong Buy), while Kellogg and Smucker carry a Zacks Rank #2 (Buy).
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