Molson Coors Brewing Co. (TAP) is set to report second-quarter 2014 results before the opening bell on Aug 6. Last quarter, this beverage company posted an impressive positive surprise of 57.14%. In fact, the company has delivered positive surprises in three out of the last four quarters.
Let’s see how things are shaping up prior to the announcement.
Factors to Consider This Quarter
Estimates have been rising for the current quarter and the year ahead of the release, which is a positive for the stock.
The company is consistently generating mid-single digit percentage increase in sales owing to product innovation. The company owns a strong brand portfolio and focuses on expanding its premium beverage category in the U.S. The company expects to bring new advertising and fresh packaging of the Coors Light and Coors Light Summer Brew in the second quarter.
The company is also on track with its cost savings program and cash generation targets. Molson Coors has also made substantial progress in paying down its debt in 2013 with respect to the loan taken for the acquisition of StarBev (in Jun 2012), which in turn should lower interest costs. After paying off its debt, the company expects to use its cash flow to increase dividend payments and share buybacks over the next couple of years. This in turn should increase earnings per share.
Molson Coors’ international sales are also growing with increasing sales coming especially from Coors Light. Sales of Coors Light grew more than 30% in the UK in the first quarter, which helped boost volumes in the European markets. Sales also more than doubled in Mexico and Latin America. However, sales were to an extent hurt by weak consumer demand and promotional challenges. We continue to expect these headwinds to hurt sales in the upcoming quarter.
We also cannot ignore the fact that Molson Coors has been posting negative beer volumes in the U.S. and Canada for quite some time due to a difficult consumer spending environment. In 2013, beer volumes declined in Canada, the U.S. and Europe, primarily due to declines in the overall alcohol market.
Though the company has been spending on marketing and advertising to increase brand awareness, we do not expect a significant improvement in volumes in the upcoming quarter. Also, it seems that the company will continue to face significant macroeconomic and promotional challenges in the near term.
Our proven model does not conclusively show that Molson Coors is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Zacks ESP: The ESP for Molson Coors is 0.00% as both the Zacks Consensus Estimate and Most Accurate Estimate stand at $1.44 per share.
Zacks Rank: Molson Coors has a Zacks Rank #2 (Buy). However, the favorable rank when combined with a 0.00% ESP makes surprise prediction difficult.
We caution against stocks with Zacks Rank #4 and #5 (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Other Stocks to Consider
Other stocks in the consumer staples sector that have both a positive earnings ESP and a favorable Zacks Rank are:
Pinnacle Foods Inc. (PF), with an Earnings ESP of +3.03% and a Zacks Rank #2
Supervalu Inc (SVU), with an Earnings ESP of +9.09% and a Zacks Rank #3.
Inventure Foods Inc. (SNAK), with an Earnings ESP of +5.56% and a Zacks Rank #3.