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Molson Coors (TAP) Stock Falls on Q1 Earnings & Sales Miss

Zacks Equity Research

Molson Coors Brewing Company TAP reported a dismal first-quarter 2019, wherein top and bottom lines missed estimates. This marked an earnings miss after three straight quarters of positive surprise. Meanwhile, sales missed estimates for the second consecutive quarter. The top line was impacted by soft volume and unfavorable currency, offset by higher pricing.

Following the soft results, shares of Molson Coors declined nearly 3.4% in the pre-market trading session. Moreover, shares of this Zacks Rank #4 (Sell) company have declined 2.5% in the past three months against the industry’s 9.3% growth.

 


Delving Deeper

Molson Coors’ underlying adjusted earnings of 52 cents per share rose 8.3% year over year but missed the Zacks Consensus Estimate of 57 cents. This increase was attributed to positive global net pricing in all segments, lower G&A expenses and cost savings as well as lower interest expenses. This was partly negated by soft volume and cost inflation in all segments.

Molson Coors Brewing Company Price, Consensus and EPS Surprise

 

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

The aforementioned factors, except for lower interest expenses, also drove the company’s underlying EBITDA. Underlying EBITDA was $422.3 million, reflecting a decline of 0.9% from the year-ago period. Further, underlying EBITDA dipped 0.2% in constant currency.

Net sales declined 1.2% to $2,303.3 million, missing the Zacks Consensus Estimate of $2,316 million. The top-line miss can be attributed to lower volumes and adverse currency movements, partly negated by higher pricing in all segments and favorable sales mix in Europe. On a constant-currency basis, net sales grew 0.6% on the back of higher pricing, offset by soft volume.

Notably, net sales per hectoliter inched up 2.3% on a reported financial-volume basis. Moreover, net sales per hectoliter on brand-volume basis improved 3.7% in constant currency, owing to favorable pricing in all segments and positive mix in Europe.

Molson Coors’ worldwide brand volume declined 4.7% to 18.2 million hectoliters while financial volume dropped 3.4% to 20.1 million hectoliters. The decline was mainly attributed to soft volume across all segments, due to industry and share declines particularly in the United States and Canada.

Segmental Details

The company operates through the following geographical segments.

Canada: Molson Coors’ Canada net sales declined 8% to $261 million. Net sales per hectoliter (brand-volume basis) rose 1.9% in constant currency due to favorable pricing, partly negated by adverse sales mix. Further, Canada brand volume fell 6% and financial volume decreased 4.9%, owing to industry declines. Underlying EBITDA declined 24.4% to $33.8 million, with a constant-currency decline of 22.4%. The decline mainly stemmed from the impacts of soft volume and cost inflation on gross margin, partly offset by the timing of G&A expenses.

United States: Molson Coors now has complete ownership rights to all the brands in the MillerCoors portfolio for the U.S. market. Net sales for the segment increased 0.7% to $1,659.2 million. Domestic net sales per hectoliter (on a brand-volume basis) improved 3.7% due to higher net pricing.

However, U.S. brand volume decreased 3.8%, accountable to lower volume, partly due to industry declines. Sales-to-wholesalers (STWs) volumes, excluding contract brewing, declined 2.7% on account of lower brand volume, partly offset by quarterly timing of wholesaler inventories. Nonetheless, the segment’s underlying EBITDA grew 3.4% to $402 million.

Europe: The segment reported net sales decline of 3% to $362.9 million. Europe net sales per hectoliter (brand-volume basis) rose 8.2% in constant currency due to positive pricing and favorable sales mix. Europe brand and financial volume declined 2.3% each, courtesy of planned declines in low-margin value brands, owing to increased focus on national champion and premium portfolios. Underlying EBITDA declined 10.6% year over year to $21.9 million, with 2% increase in constant currency.

International: Net sales for the segment declined 16.7% to $47.9 million. Net sales per hectoliter, on a brand-volume basis, declined 8.1%, owing to unfavorable geographic mix and shifting to local production in Mexico. This was partly negated by positive pricing. Further, International brand volume dropped 6.7%, backed by balancing of higher pricing with lower volume in Mexico, and cycling strong post-hurricane results in Puerto Rico during the first quarter of 2018. This was partly offset by growth in several focus markets. The segment’s underlying EBITDA was $2.7 million versus $7.1 million in the year-ago period.

Other Financial Updates

Molson Coors ended the reported quarter with cash and cash equivalents of $234.4 million and total debt of $10,125.9 million. This resulted in net debt of $9,892 million as of Mar 31, 2019.

Net cash used in operating activities at the end of first-quarter 2019 was $98.5 million compared with operating cash flow of $315.2 million in the year-ago period. Underlying free cash flow was negative $270.1 million.

Outlook

Management reiterated its guidance for 2019. Molson Coors anticipates generating cost savings of roughly $205 million in 2019, remaining on track with the target of generating total cost savings of $700 million for the 2017-2019 period. In 2019, the company expects to deliver underlying free cash flow of around $1.4 billion (plus or minus 10%).

Capital spending is expected to be roughly $700 million (plus or minus 10%). Underlying tax rate for the year is likely to be 18-22%. Additionally, net interest expenses are projected to be $300 million (plus or minus 5%).

Further, the company estimates double-digit percentage increase for underlying EBITDA in constant currency for the International business.

It plans to reinstitute a dividend payout target of 20-25% of annual trailing underlying EBITDA for the second half of 2019 and ongoing thereafter.

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