Can Molson Coors (TAP) Brave Industry Woes In Q4 Earnings?

Molson Coors Brewing Company (NYSE:TAP) is slated to release fourth-quarter 2018 results on Feb 12. The company’s earnings performance has been improving lately. It was evident from a positive earnings surprise in the last two quarters. Further, the company delivered earnings beat in three of the trailing four quarters, with average negative surprise of 2.5%.

Nevertheless, the Zacks Consensus Estimate for fourth-quarter earnings is pegged at 79 cents, mirroring 27.4% year-over-year growth. Notably, the consensus estimate has been revised downward in the past 30 days.

Molson Coors Brewing Company Price and EPS Surprise

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

Let’s see how things are shaping prior to the earnings announcement.

Factors at Play

Though tough industry conditions arising from consumers’ changing preferences, aging population and strong competition have been hurting beer volume in the United States, Molson Coors managed to put up strong top and bottom-line performances lately. This strength mainly comes from the focus on cost savings and premiumization of its portfolio.

Driven by these positives, the Molson Coors stock has shown resilience lately. The stock surged 5.1% in the last three months, outperforming the industry’s growth of 0.7%.

Molson Coors remains on track to witness continued segment share gains in premium brands; increased volumes in above-premium brands and bring stability to volumes and market share of its below-premium brands. Additionally, Molson Coors’ restructuring initiatives to reduce costs and boost profitability bode well.

Simultaneously, Molson Coors is well on track with the First Choice plan, which significantly aided performance in the last reported quarter. The company witnessed higher volume outside North America in third-quarter 2018, mainly owing to the smooth progress of the First Choice strategy. This strategy aims at solidifying and preimmunizing portfolio, enhancing customer relations, and generating significant profits from international businesses through improved capability, productivity and continued cost savings.

Notably, Molson Coors’ First Choice approach supports its key priorities, including cash generation, margin improvement and enhancing shareholder returns. Apart from this, the company remains focused on disciplined capital allocation, driven by its Profit after Capital Charge or PACC approach.

Notably, the company’s top line in third-quarter 2018 benefited from favorable global pricing and higher financial volumes in Europe, the United States and Canada, along with favorable mix in Europe.

However, softness in the Canada segment was a deterrent. The company’s sales in this segment dropped due to lower brand volume, which resulted from volume declines in the west, offset by growth in Ontario and Quebec. Further, higher cost of goods sold (COGS) for the segment due to increased supply chain transformation investments and input cost inflation impacted profitability.

For 2018, the company expects COGS per hectoliter to increase in a low-single digit in Canada and Europe segments while it is expected to decline in a low-single digit at the International segment. COGS per hectoliter in the United States are likely to grow in a mid-single digit. The higher COGS are attributed to higher aluminum and freight costs.

These hurdles, along with increased tariffs on aluminum imports and beverage exports (due to the U.S.-China trade war), remain a concern for Molson Coors’ bottom line. Meanwhile, persistent softness in U.S. beer volumes due to tough industry conditions and adverse currency also remains a concern.

The Zacks Consensus Estimate for sales in the fourth quarter for the United States, Europe and Canada stands at $1,703 million, $466 million and $326 million, respectively. In the year-ago quarter, sales from these three segments were $1,745 million, $455 million and $346 million, respectively. Notably, the consensus estimate for overall quarterly sales is pegged at $2,530 million, down 1.9% from the year-ago quarter.

What Does Zacks Model Say?

Our proven model does not conclusively predict that Molson Coors is likely to beat earnings estimates in the fourth quarter. This is because a stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Molson Coors currently carries a Zacks Rank #3 (Hold) and it has an Earnings ESP of -4.00%. The combination of the company’s positive Zacks Rank and a negative Earnings ESP makes surprise prediction difficult.

Stocks With Favorable Combination

Here are some companies that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Coca-Cola (NYSE:KO) European Partners PLC (NYSE:CCEP) has an Earnings ESP of +2.34% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Monster Beverage Corporation (NASDAQ:MNST) has an Earnings ESP of +0.31% and a Zacks Rank #2.

The Estee Lauder Companies Inc. (NYSE:EL) has an Earnings ESP of +0.86% and a Zacks Rank #3.

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