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Is Molson Coors (TAP) Poised for a Beat in Q1 Earnings?

Zacks Equity Research

Molson Coors Brewing Co. TAP is set to report first-quarter 2017 results before the opening bell on May 3. The question lingering in investors’ minds is, whether this beverage company will be able to post a positive earnings surprise in the to-be-reported quarter. The company’s earnings exceeded the Zacks Consensus Estimate in two and missed in the remaining two of the trailing four quarters, marking an average miss of 5.70%.

Let us see how things are shaping up for this announcement.

What Does the Zacks Model Unveil?

Our proven model shows that Molson Coors is likely to beat earnings because it has the right combination of two key ingredients.

Zacks Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +0.76%. This is because the Most Accurate estimate is $1.32, while the Zacks Consensus Estimate is pegged lower at $1.31. This is very meaningful and a leading indicator of a likely positive earnings surprise for shares. You may uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Molson Coors currently carries a Zacks Rank #3 (Hold). Note that stocks with Zacks Ranks #1 (Strong Buy), 2 (Buy) and 3 have a significantly higher chance of beating earnings. The sell rated stocks (#4 and 5) should never be considered going into an earnings announcement.

The combination of Molson Coors’ Zacks Rank #3 and an Earnings ESP of +0.76% makes us very optimistic about a possible earnings beat.

Molson Coors Brewing Company Price, Consensus and EPS Surprise


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

Which Way Are Estimates Trending?

Let’s look at the estimate revisions in order to get a clear picture of what analysts are thinking about the company right before earnings release. The Zacks Consensus Estimate for the first quarter and 2017 has been declining over the last 30 days. In fact, the current Zacks Consensus Estimate of $1.31 per share and $6.30 for the first quarter and full-year 2017 reflect a year-over-year surge of 143.1% and 98.7%, respectively.

Further, analysts polled by Zacks expect revenues of $2.5 billion for the said quarter, up 275.5% from the year-ago period. For 2017, Zacks consensus revenue is pegged at $11.2 billion, reflecting a 128.3% year-over-year increase.

Factors to Consider

We note that Molson Coors has been reporting sluggish results since the past many quarters due to lower volumes and currency headwinds. Though Molson Coors’ fourth-quarter 2016 earnings increased year-over-year, it was way behind the Zacks Consensus Estimate by 47.7%. Net sales declined 4.2% year over year and also lagged the Zacks Consensus Estimate by 3.9%.

Sales in the International regions improved, driven by the acquisition of the Miller global brands. However, it declined in the regions of Canada and Europe. Continued difficult economy and competitive pressure, along with lower volumes and significant unfavorable foreign currency also remain company’s headwinds.

We observed that the stock has not only underperformed the Zacks categorized Beverages-Alcoholic industry but also the broader sector on a year-to-date basis. Molson Coors’ shares fell 1.6% in comparison to the Zacks categorized Beverages-Alcohol industry’s growth of 8.6% and sector’s growth of 7.3% year to date.

The industry is part of the top 39% of the Zacks Classified industries (104 out of the 265). The broader Consumer Staples sector is placed at the bottom 38% of the Zacks Classified sectors (10 out of 16). We believe the sector’s underperformance is impacting the shares of the company in the near term.

The company is therefore focusing on improved marketing strategies for beers and targeting the above-premium brands to boost its market share. The company’s recent acquisition of 58% stake in MillerCoors, cost savings efforts and marketing investments are encouraging.

In the area of cost savings, the company exceeded its 2016 goal by achieving more than $165 million of in-year cost reductions. After the acquisition of the remaining 58% stake in MillerCoors, the company expects to drive substantial cost synergies in the next three years and continues to expect this transaction to be significantly accretive to underlying earnings in the first full year of operations. This will also help the company to drive top-line growth, profit, cash generation, debt pay-down and total shareholder returns in the years ahead. The company expects cost savings of $550 million over the next three years till 2019.

Stocks to Consider

Stocks in the consumer staple sector that have both a positive Earnings ESP and a favorable Zacks Rank are:

Energizer Holdings, Inc. ENR has an Earnings ESP of +5.88% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Treehouse Foods, Inc. THS has an Earnings ESP of +4.62% and a Zacks Rank #3.

Altria Group, Inc. MO has an Earnings ESP of +1.35% and a Zacks Rank #3.

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