Why Is Molson Coors (TAP) Down 5.6% Since Last Earnings Report?
It has been about a month since the last earnings report for Molson Coors Brewing (TAP). Shares have lost about 5.6% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Molson Coors due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Molson Coors Q4 Earnings Beat, Sales Lag Estimates
Molson Coors reported fourth-quarter 2022 results, wherein the bottom line surpassed the Zacks Consensus Estimate, while the top line missed the same. Both metrics improved year over year. Results gained from strength in core brands, particularly Coors Light and Miller Lite, as well as the above premium portfolio and contributions from its Revitalization Plan.
The company’s adjusted earnings of $1.30 per share surged 61% year over year and surpassed the Zacks Consensus Estimate of $1.06.
Net sales inched up 0.4% to $2,629.5 million and missed the Zacks Consensus Estimate of $2,669 million. On a constant-currency basis, net sales rose 3.8% due to positive pricing, and a favorable sales mix stemming from portfolio premiumization, offset by a decline in financial volumes.
Net sales per hectoliter increased 11.4% on a financial-volume basis, driven by strong net pricing, a positive channel mix and a favorable sales mix from portfolio premiumization.
Molson Coors’ worldwide brand volumes fell 5.2% to 18.7 million due to sluggishness in the America segment, stemming from a sluggish industry performance. Financial volumes declined 6.9% to 19.7 million hectoliters due to lower volumes in the Americas, partly offset by increased EMEA and APAC volumes.
Underlying (non-GAAP) earnings before income taxes (EBT) advanced 52.5% year over year to $328.6 million. On a constant-currency basis, EBT rose 51.1%.
Molson Coors operates under the following geographical segments.
Americas: Net sales in the segment decreased 0.7% to $2,131.3 million on a reported basis but rose 0.4% on a constant-currency basis due to favorable pricing and the positive sales mix, offset by a decline in financial volumes. Financial volumes dipped 10.5% year over year on reduced Canada shipments and an 11.2% decrease in U.S. domestic shipments.
Brand volume for the segment dropped 6.6% on a 6.8% decline in the United States, owing to softer industry performance and a 5% dip in Canada due to the weak beer industry and a 6.9% decline in Latin America.
Net sales per hectoliter, on a brand volume basis, rose 12.1% on a constant-currency basis due to a favorable sales mix and higher net pricing. Underlying EBT improved 31% and 30% on a reported and constant-currency basis, respectively, to $346.5 million. The increase can be attributed to higher pricing, favorable sales mix and lower MG&A expenses, offset by cost inflation on materials, transportation and energy costs.
EMEA & APAC: The segment’s net sales (on a reported basis) grew 6.2% to $503.2 million and improved 20.3% 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 14.9% on a constant-currency basis, resulting from a favorable sales mix, as well as higher pricing.
The segment’s financial volumes rose 4.7% due to growth in the above-premium portfolio. Brand volume decreased 1% due to volume declines resulting from the Russia-Ukraine conflict, somewhat offset by volume growth.
The segment’s underlying EBT increased significantly from $4.6 million to $28.1 million on a reported basis and improved $23.7 on a constant-currency basis, driven by higher financial volumes, favorable pricing and sales mix, which offset cost inflation, particularly in materials, transportation and energy costs.
Other Financial Updates
Molson Coors ended the fourth quarter with cash and cash equivalents of $600 million. At the end of fourth-quarter 2022, the company had a total debt of $6,562.3 million, resulting in net debt of $5,962.3 million.
As of Dec 31, 2022, the company provided $1,502 million in cash by operating activities, resulting in an underlying free cash flow of $852.9 million. For 2023, capital expenditure is likely to be $700 million, plus or minus 5%
In the quarter under review, the company declared and paid out cash dividends of 38 cents per share, with the CAD equivalent totaling C$1.95 per share. On Feb 20, 2023, the board declared a quarterly dividend of 41 cents per share, to be paid on Mar 17, 2023, to shareholders of Class A and Class B common stock of record as of Mar 3, 2023.
On Feb 17, 2022, it approved a share repurchase program worth $200 million of Class B common stock valid till Mar 31, 2026. As of Dec 31, 2022, TAP repurchased 995,000 shares for $51.5 million.
Despite continued inflationary pressures and weakness in the beer industry, management issued the 2023 view. Net sales are projected to grow year over year in the low-single digits on a constant-currency basis. Underlying EBT is likely to grow year over year in the low-single digits on a constant-currency basis.
Underlying depreciation and amortization are projected to be $690 million, plus or minus 5%. The company expects an underlying effective tax rate of 21-23%. Consolidated net interest expenses are anticipated to be $240 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?
In the past month, investors have witnessed an upward trend in estimates revision.
The consensus estimate has shifted -9.75% due to these changes.
Currently, Molson Coors has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Following the exact same course, 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 A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Molson Coors has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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