Why Is Molson Coors (TAP) Down 4.7% Since Last Earnings Report?
It has been about a month since the last earnings report for Molson Coors Brewing (TAP). Shares have lost about 4.7% in that time frame, outperforming 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 Q2 Earnings Beat Estimates, Sales Miss
Molson Coors has reported second-quarter 2022 results, wherein earnings surpassed the Zacks Consensus Estimate, while sales lagged the same. Both metrics declined year over year. Results have been hurt by inflationary pressures, a strike at its Quebec brewery and the cycling of a solid shipment in the prior-year quarter.
However, gains from the revitalization plan remained an upside. Strength in Coors Light, Miller Lite and Coors Banquet, driven by brand positionings and better marketing, bodes well. Molson Canadian and Carling beer in the U.K., and Central and Eastern Europe witnessed significant market share gains.
The company has also highlighted that it is making efforts to change the shape of its product portfolio and expand in growth areas. Its U.S. above-premium portfolio witnessed sales that outpaced its U.S. economy portfolio, driven by rapid growth of its hard seltzers, the successful launch of Simply Spiked Lemonade, and the continued strength in Blue Moon and Peroni’s.
Quarter in Detail
The company’s adjusted earnings of $1.19 per share declined 24.7% year over year but surpassed the Zacks Consensus Estimate of $1.18.
Net sales fell 0.6% to $2,921.7 million and missed the Zacks Consensus Estimate of $2,976 million. On a constant-currency (cc) basis, net sales rose 2.2% due to positive pricing, and favorable brand and channel mix stemming from portfolio premiumization and fewer on-premise channel restrictions, somewhat offset by a decline in financial volumes.
Net sales per hectoliter increased 7.1% on a brand-volume basis, driven by strong net pricing, and favorable brand and channel mix stemming from portfolio premiumization and lesser on-premise channel restrictions.
Molson Coors’ worldwide brand volumes fell 1.8% to 21.7 million due to sluggishness in the America segment, stemming from softer industry performance and the impacts of the Québec labor strike, as well as slight weakness in the EMEA and APAC as a result of the Russia-Ukraine conflict. On the flip side, strength across Western Europe, and Central and Eastern Europe acted as an upside.
Financial volumes declined 4.6% to 22.7 million hectoliters due to the cycling of lower U.S. distributor inventory levels in the prior year, lower shipments in Canada in the reported quarter. On the flip side, higher volumes in EMEA & APAC driven by a rise in brand volumes in Western Europe, as well as Central and Eastern Europe, along with higher factored volumes remained upsides.
Underlying (non-GAAP) EBITDA declined 24.3% year over year to $328.1 million.
Segmental Details
Molson Coors operates in the following geographical segments.
Americas: Net sales in the segment fell 2.3% to $2,367.4 million on a reported basis and 1.7% at cc due to an 8.1% decline in financial volumes, which partly offset favorable pricing and the positive sales mix. Financial volumes declined 8.1% year over year due to reduced U.S. domestic shipments stemming from the cycling of U.S. distributor inventory levels in the prior year and the Texas storm. Also, a decline in Canada shipments due to the Québec labor strike hurt volumes.
Meanwhile, Americas brand volume dropped 2.2% on a 1.7% fall in the United States, owing to softer industry performance. Brand volume fell 8% in Canada due to the Québec labor strike, while the metric grew 1.8% in Latin America.
Net sales per hectoliter, on a brand volume basis, rose 6.2% at cc on a favorable brand mix and higher net pricing. Underlying EBIT decreased 20% on a reported and cc basis to $348.1 million, owing to a decline in financial volumes, cost inflation and a rise in MG&A spend, somewhat offset by favorable pricing, reduced depreciation expenses and a positive sales mix.
EMEA & APAC: The segment’s net sales (on a reported basis) rose 7.2% to $558.2 million and 20.5% at cc. The uptick was due to financial volume growth, favorable pricing and a positive sales mix. Net sales per hectoliter (on a brand volume basis) for the segment advanced 15.5% at cc, resulting from a favorable sales mix, as well as higher pricing.
The segment’s financial volumes rose 6.2% due to brand volume growth in Western Europe, and Central and Eastern Europe, stemming from strength in the company’s above-premium portfolio as well as higher factored volumes. Meanwhile, brand volume inched down 0.7% due to volume declines stemming from the Russia-Ukraine conflict, somewhat offset by brand volume growth across Western Europe, and Central and Eastern Europe.
The segment’s underlying EBIT declined 34.3% on a reported basis to $34.7 million and 22.7% at cc on cost inflation, particularly in materials, transportation and energy costs, as well as higher MG&A spend. However, higher financial volumes, favorable pricing and sales mix acted as upsides.
Other Financial Updates
Molson Coors ended the second quarter with cash and cash equivalents of $442.1 million. At the end of second-quarter 2022, the company had a total debt of $6,804.8 million, resulting in net debt of $6,362.7 million. It also repaid its $500 million 3.5% USD notes, following their maturity on May 1, 2022, via commercial paper borrowings and cash on hand.
In the six months ending Jun 30, 2022, the company provided $666.8 million in cash for operating activities, resulting in an underlying free cash flow of $287.2 million.
The company paid out a quarterly dividend of 38 cents on its class A and class B common shares on Jun 15. In the six months ending Jun 30, 2022, TAP bought back 510,000 shares worth $26.2 million. It also approved a share-repurchase program, wherein the company can purchase up to an aggregate of $200 million worth of its Class B common stock till Mar 31, 2026.
Outlook
Despite the continued uncertainties related to the pandemic, as well as rising cost inflation, management has retained the 2022 view. Net sales are projected to grow in the mid-single digits at cc. Underlying EBIT is likely to grow year over year in the high-single digits in constant-currency. Management estimates achieving a net debt to underlying EBITDA ratio below 3.0X by 2022.
Underlying depreciation and amortization are projected to be $750 million, plus or minus 5%. The company expects an underlying effective tax rate of 22-24%. Consolidated net interest expenses are anticipated to be $265 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 a downward trend in estimates revision.
The consensus estimate has shifted -8.68% due to these changes.
VGM Scores
At this time, Molson Coors has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward 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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