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Molson Coors (TAP) Misses Q2 Earnings on Volume Decline

Zacks Equity Research

Global brewer Molson Coors Brewing Company TAP delivered mixed results in the second quarter of 2016. While earnings missed the Zacks Consensus Estimate, revenues beat the same.

Molson Coors’ adjusted earnings of $1.11 per share missed the Zacks Consensus Estimate of $1.14 cents by 2.6% and declined 21.3% from the prior-year earnings of $1.41 per share.

Earnings declined due to a drop in revenues, lower worldwide volumes, higher brand spending and currency headwinds, which were partially offset by positive mix, lower underlying net interest expense and higher underlying U.S. equity income.

MOLSON COORS-B Price and Consensus

MOLSON COORS-B Price and Consensus | MOLSON COORS-B Quote

Revenues and Operating Profits

Net sales, including excise tax, declined 1.9% year over year to $986.2 million in the second quarter, as a result of a continued difficult economy and competitive pressure, along with lower volumes and significant unfavorable foreign currency. Currency had a negative impact of $38.7 million on overall sales in the quarter. On a constant currency basis, sales increased 1.9% in the quarter. While sales declined in Canada and Europe, it grew in International regions.

Sales beat the Zacks Consensus Estimate of $942 million by 4.7%.

Molson Coors’ worldwide beer volume declined 0.8% to 16.1 million hectoliters, despite volume gain of 4% in Coors Light worldwide.

Sales volume declined 0.5% to 8.579 million hectoliters in the second quarter of 2016. The volume gain in Europe was more than offset by volume decline in the U.S., Canada and International region.

Underlying (excluding special and other non-core items) pre-tax income declined 8.6% year over year to $299.6 million due to a decline in the geographical segments of Canada and Europe, which offset the improvement in the U.S. and the International region. Currency had a negative impact of $5.6 million in the second quarter. On a constant currency basis, underlying pre-tax income decreased 6.9%.

Segment Details

The company operates through the following geographical segments.

Canada: Molson Coors Canada net sales declined 4.3% to $425.9 million in the quarter due to a decline in sales volume and sales-to-retailers volume(STRs). Canada sales volume decreased 0.8% in the second quarter. Net sales per hectoliter increased 1.2% in local currency, driven primarily by positive pricing. On a constant currency basis, segment sales increased 0.3%.

The segment’s underlying pretax income decreased 21.3% to $89.9 million in the quarter driven by higher brand investments and input cost inflation, partially offset by results of cost savings initiatives. Currency negatively impacted earnings by $1.9 million. On a constant-currency basis, underlying pretax income decreased 19.7%.

United States (MillerCoors): MillerCoors, a U.S. joint venture of Molson Coors Brewing Company and SABMiller plc, was launched on Jul 1, 2008. Molson Coors has a 42% economic interest in MillerCoors.

In Nov 2015, Molson Coors agreed to purchase the remaining 58% stake from London-based SABMiller plc in MillerCoors. Molson Coors has received approval from the U.S. Department of Justice to acquire SABMiller’s 58% stake in MillerCoors, as well as the Miller brand portfolio outside of the U.S. However, the acquisition can close only after the proposed AB InBev-SABMiller merger happens, which is still subject to clearance from the Chinese regulatory authorities, as well as other non-regulatory conditions. The clearance is expected by the end of 2016.

MillerCoors’ underlying U.S. segment equity income increased 1.4% to $208.4 million due to Molson Coors' $11.1 million anticipated refund of federal excise tax paid on imports. Underlying net income for the quarter decreased 3.8% to $468.8 million due to the timing of shipments as a result of year-over-year calendar shifts, partially offset by lower cost of goods sold, higher net pricing and positive sales mix.

Europe: It includes the UK segment combined with the results of operations in Central Europe, excluding the Central Europe global export and license business.

The segment reported net sales decline of 0.5% to $522.1 million in the second quarter of 2016. On a constant currency basis, segment sales increased 3% due to volume gains. Europe net sales per hectoliter increased 1.3% in local currency due to positive brand and geographic mix, partially offset by negative net pricing in the quarter.

Europe underlying pretax income decreased 10.0% to $61.3 million in the quarter due to higher brand investments and amortization expenses, lower net pension benefit, the termination of the Heineken contract brewing arrangement in the U.K., and unfavorable foreign currency movements, partially offset by higher sales volume and cost savings. On a constant currency basis, underlying pretax income decreased 6.8%.

Molson Coors International (MCI): Segment net sales improved 5.4% to $39.2 million in the quarter. On a constant currency basis, segment sales increased 4.3%, despite volume declines. Sales volume including royalty volume decreased 9.3%.

The International underlying pretax loss was $2.6 million in the second quarter compared with a loss of $5.8 million a year ago. The improvement was due to volume growth in Latin America and Japan and favorable sales mix, as well as lower price promotion and overhead expenses due to the substantial restructuring of its China business last year. On a constant currency basis, underlying pretax income increased 60.3%.

Molson Coors currently has a Zacks Rank #3 (Hold). Constellation Brands Inc. STZ is a better-ranked brewer in the alcohol industry. Investors can also consider Post Holdings, Inc. POST and Ingredion, Inc. INGR from the broader consumer staples sector. While Ingredion sports a Zacks Rank #1 (Strong Buy), Constellation and Post Holdings carry a Zacks Rank #2 (Buy).

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