Molson Coors (TAP) Q3 Earnings Beat Estimates, Sales Miss

Global brewer, Molson Coors Brewing Company (NYSE:TAP) delivered mixed results in the third quarter of 2016. While earnings beat the Zacks Consensus Estimate, revenues lagged the same.

Molson Coors’ adjusted earnings of $1.03 per share beat the Zacks Consensus Estimate of $1.01 by 2.0% but plunged 26.4% from the prior-year earnings of $1.40 per share.

Earnings declined due to a drop in revenues, lower worldwide volume, a higher underlying tax rate, and higher brand investments globally, which were partially offset by positive mix and higher underlying U.S. equity income.

Revenues and Operating Profits

Net sales, including excise tax, declined 6.9% year over year to $947.6 million in the third quarter of 2016. Sales also lagged the Zacks Consensus Estimate of $973 million by 2.6%.

Sales declined in all the regions of Canada, Europe and International regions, as a result of a continued difficult economy and competitive pressure, along with lower volumes and significant unfavorable foreign currency.

Currency had a negative impact of $47.2 million on overall sales in the quarter. On a constant currency basis, sales dropped 2.2% in the quarter. Molson Coors’ worldwide beer volume declined 3.8% to 15.9 million hectoliters.

Sales volume fell 3.5% to 8.642 million hectoliters in third-quarter 2016. Sales declined in all the regions of U.S., Europe, Canada and International regions.

Underlying (excluding special and other non-core items) pre-tax income decreased 6.2% year over year to $277.2 million due to a decline in the geographical segments of Canada, Europe and the International region, which offset the improvement in MillerCoors (42% share). Currency had a net positive impact of $1.9 million in the third quarter. On a constant currency basis, underlying pre-tax income declined 6.8%.

Segment Details

The company operates through the following geographical segments.

Canada: Molson Coors Canada net sales dropped 2.2% to $402.2 million in the quarter due to a decline in sales volume and sales-to-retailers volume(STRs). Canada sales volume decreased 2.9% in the third quarter. Net sales per hectoliter increased 0.6% in local currency, driven primarily by positive mix. On a constant currency basis, segment sales decreased 2.5%.

The segment’s underlying pretax income fell 14.8% to $91.6 million in the quarter due to lower volume and higher cost of goods sold and brand investments, partially offset by results of cost savings initiatives. Currency positively impacted earnings by $1.5 million. On a constant-currency basis, underlying pretax income decreased 16.2%.

United States (MillerCoors): MillerCoors is a U.S. joint venture of Molson Coors Brewing Company and SABMiller (LON:SAB) plc, where Molson Coors has a 42% economic interest.

On Oct 12, Molson Coors completed the acquisition of remaining 58% stake in the MillerCoors’ joint venture, along with the Miller global brand portfolio. It now has full rights to all the brands in the MillerCoors portfolio for the U.S. market, including Redd’s and import brands such as Peroni and Pilsner Urquell. The deal makes Molson Coors the largest brewery in the U.S. and the third largest in the world.

MillerCoors’ underlying U.S. segment equity income increased 16% to $156.9 million, driven by higher net pricing, positive sales mix, and lower cost of goods sold. Underlying pre-tax income for the quarter increased 9% to $160.4 million.

Europe: It includes the U.K. segment combined with the results of operations in Central Europe, excluding the Central Europe global export and license business.

The segment reported net sales decline of 9.4% to $512.6 million in the third quarter of 2016, due to unfavorable currency impact of $50.2 million. On a constant currency basis, segment sales decreased 0.6% due to a decline in volumes. Europe net sales per hectoliter increased 1.2% in local currency backed by positive brand and geographic mix.

Europe underlying pretax income decreased 11.7% to $83.5 million in the quarter due to unfavorable foreign currency movements, higher brand amortization expenses and lower net pension benefit. Foreign currency movements negatively impacted underlying results by $6.1 million. On a constant currency basis, underlying pretax income decreased 5.3%.

Molson Coors International (MCI): Segment net sales declined 19.1% to $33.4 million in the quarter. On a constant currency basis, segment sales fell 23.2%, due to sales volume declines. Sales volume including royalty volume decreased 20.5% due to the enactment of total alcohol prohibition in Bihar, India, earlier this year, and the transfer of Staropramen in the U.K. to the company’s Europe segment.

The International segment’s underlying pretax loss was $2.7 million in the third quarter, wider than a loss of $2.1 million a year ago. The decline was due to the impact of total alcohol prohibition in Bihar, the transfer of the Staropramen U.K. business and higher brand investments in Latin America, partially offset by favorable sales mix and lower expenses in China. On a constant currency basis, underlying pretax income decreased 28.6%.

Other Financial Update

Total debt at the end of the third quarter was $9.888 billion, and cash and cash equivalents totaled $9.982 billion, resulting in a net cash position of $93.9 million, primarily due to the proceeds received from the Feb 2016 equity and Jul 2016 debt offerings.

Zacks Rank

Molson Coors currently has a Zacks Rank #2 (Buy).

Some well-positioned food stocks in the industry include Anheuser-Busch InBev SA/NV (NYSE:BUD) , Constellation Brands Inc. (NYSE:STZ) and Craft Brew Alliance, Inc. (NASDAQ:BREW) . All these stocks hold a Zacks Rank #2. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Constellation Brands has delivered positive earnings surprises in all the past four quarters, with an average positive surprise of 5.77%. It also has a long-term earnings growth rate of 17.94%.

Anheuser-Busch has a long-term earnings growth rate of 11.09%, while Craft Brew has a long-term earnings growth rate of 25.00%.

Confidential from Zacks

Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>