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Molson Coors (TAP) Up 11.7% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Molson Coors Brewing (TAP). Shares have added about 11.7% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Molson Coors due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Molson Coors Q3 Earnings Miss Estimates, Sales Beat

Molson Coors reported third-quarter 2022 results, wherein sales surpassed the Zacks Consensus Estimate and improved year over year. Meanwhile, earnings missed the consensus mark and declined year over year. The top line continued to benefit from a favorable sales mix and improved pricing trends across regions. However, consumer inflationary pressures, a strike at its Quebec brewery and the cycling of a solid shipment in the prior-year quarter hurt results.

The company’s adjusted earnings of $1.32 per share declined 24.6% year over year and missed the Zacks Consensus Estimate of $1.36.

Net sales rose 4% to $2,935.2 million and surpassed the Zacks Consensus Estimate of $2,858 million. On a constant-currency basis, net sales rose 7.9% due to positive pricing, and a favorable sales mix stemming from portfolio premiumization, offset by a decline in financial volumes.

Quarterly Details

Net sales per hectoliter increased 9.2% on a brand-volume basis, driven by strong net pricing, and a favorable sales mix from portfolio premiumization.

Molson Coors’ worldwide brand volumes fell 2% to 22.1 million due to sluggishness in the America segment, owing to lower Canada shipments and continued impacts of the Québec labor strike. This was partly offset by higher EMEA & APAC financial volumes on increased brand volumes in Western Europe.

Financial volumes declined 0.2% to 22.8 million hectoliters due to a 1.5% decline in the Americas on soft industry performance and continued impacts of the Québec labor strike, and a 3.1% decrease in EMEA & APAC due to the impacts of the Russia-Ukraine conflict and consumer inflationary pressures across Central and Eastern European countries. This was partially negated by growth in Western Europe.

Underlying (non-GAAP) earnings before income taxes (EBT) declined 5% year over year to $364.6 million. On a constant-currency basis, EBT rose 0.5% year over year.

Segmental Information

Molson Coors operates under the following geographical segments.

Americas: Net sales in the segment increased 6.8% to $2,376.6 million on a reported basis and 7.4% on a constant-currency basis due to favorable pricing and the positive sales mix, offset by a decline in financial volumes. Financial volumes declined 1% year over year on reduced Canada shipments due to the Québec labor strike, offset by a 1.4% increase in U.S. domestic shipments.

Brand volume for the segment dropped 1.5% on a 0.9% fall in the United States, owing to softer industry performance and an 8.6% decline in Canada due to the Québec labor strike, offset by 3.5% growth in Latin America on gains in Mexico.

Net sales per hectoliter, on a brand volume basis, rose 7.5% on a constant-currency basis due to a favorable sales mix and higher net pricing. Underlying EBT improved 7.5% and 10.5% on a reported and constant-currency basis, respectively, to $378.1 million. The increase can be attributed to higher pricing, lower depreciation expenses, favorable sales mix and lower MG&A expenses, offset by cost inflation on materials, transportation and energy costs, and lower financial volume.

EMEA & APAC: The segment’s net sales (on a reported basis) declined 6.4% to $562.6 million but improved 9.6% on a constant-currency basis. Higher constant-currency sales resulted from financial volume growth, favorable pricing and a positive sales mix. Net sales per hectoliter (on a brand volume basis) for the segment advanced 14.3% on a constant-currency basis, resulting from a favorable sales mix, as well as higher pricing.

The segment’s financial volumes rose 2% due to brand and factored volume growth in Western Europe, partly negated by consumer inflationary pressures across Central and Eastern Europe. Brand volume declined 3.1% due to volume declines resulting from the Russia-Ukraine conflict and consumer inflationary pressures across Central and Eastern Europe, somewhat offset by brand volume growth across Western Europe.

The segment’s underlying EBT declined 8.4% on a reported basis to $41.5 million and 38.9% constant-currency basis due to cost inflation, particularly in materials, transportation and energy costs, as well as higher MG&A spending. However, higher financial volumes, favorable pricing and sales mix were offsetting.

Other Financial Updates

Molson Coors ended the third quarter with cash and cash equivalents of $525.2 million. At the end of third-quarter 2022, the company had a total debt of $6,587.7 million, resulting in net debt of $6,062.5 million.

In the nine months ending Sep 30, 2022, the company provided $1,117.5 million in cash by operating activities, resulting in an underlying free cash flow of $597.4 million.

In the first nine months of 2022, the company declared and paid out cash dividends of $1.14 per share, with the CAD equivalent totaling C$1.45 per share. On Jul 14, 2022, it declared a cash dividend of $0.38 per share, which was paid out on Sep 15, 2022, to shareholders of Class A and Class B common stock of record on Sep 2, 2022.

In the nine months ending Sep 30, 2022, TAP bought back 740,000 shares worth $38.8 million. On Feb 17, 2022, the company approved a share-repurchase program to buy back up to an aggregate of $200 million worth of its Class B common stock till Mar 31, 2026.

Outlook

Despite the continued uncertainties related to the pandemic, as well as rising cost inflation, management retained the 2022 view. Net sales are projected to grow year over year in the mid-single digits on a constant-currency basis. Underlying EBT is likely to grow year over year in the high-single digits on a constant-currency basis. Management estimates achieving a net debt to underlying EBITDA ratio below 3.0X by 2022.

Underlying depreciation and amortization are projected to be $700 million, plus or minus 5%, compared with the $750 million mentioned earlier. The company expects an underlying effective tax rate of 21-22% compared with the 22-24% stated earlier. Consolidated net interest expenses are anticipated to be $265 million, plus or minus 5%. Underlying free cash flow is likely to be $1 billion, plus or minus 10%.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month.

The consensus estimate has shifted 5.31% due to these changes.

VGM Scores

At this time, Molson Coors has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Molson Coors has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Molson Coors belongs to the Zacks Beverages - Alcohol industry. Another stock from the same industry, Anheuser-Busch Inbev (BUD), has gained 19% over the past month. More than a month has passed since the company reported results for the quarter ended September 2022.

Anheuser-Busch Inbev reported revenues of $15.09 billion in the last reported quarter, representing a year-over-year change of +5.7%. EPS of $0.81 for the same period compares with $0.50 a year ago.

For the current quarter, Anheuser-Busch Inbev is expected to post earnings of $0.73 per share, indicating a change of -18.9% from the year-ago quarter. The Zacks Consensus Estimate remained unchanged over the last 30 days.

Anheuser-Busch Inbev has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.

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