Molson Coors Brewing Company
(
TAP
) reported adjusted earnings of $1.38 per share in the second
quarter of 2012, exceeding earnings of $1.23 in the year-ago
quarter by 12.2%. Reported earnings beat the Zacks Consensus
Estimate of $1.20 per share.
Though the company has been facing challenging market conditions,
Molson Coors' earnings were positively impacted by growth in the
U.S. segment and addition of two weeks of Molson Coors Central
Europe (MCCE) operations in the reported results.
In addition, Molson Coors continues to focus on its strategy of
maximizing profitable growth opportunities in the core markets and
expanding into new and emerging markets.
Revenues and Operating Profits
Sales including excise tax were $1.44 billion compared with $1.38
billion reported a year ago. Net sales, excluding excise tax, grew
7.0% to $999.4 million in the quarter compared with $934 million
reported a year ago. It surpassed the Zacks Consensus Estimate of
$947 million. Total worldwide beer volume increased 6.4% in the
quarter to 13.9 million hectoliters in the second quarter of 2012.
Underlying (excluding special and other non-core items) pre-tax
income increased 8.2% year over year to $302.7 million in the
second quarter of 2012, despite the impact of unfavorable foreign
exchange.
Segment Details
The company operates through the following geographical segments.
Canada:
Molson Coors' Canada segment's net sales climbed to $582.9 million
(excluding excise tax) from $564.7 million in the previous year.
Sales volume increased 1.8% to 2.4 million hectoliters in the
quarter. The segment reported underlying (excluding special and
other non-core items) pretax income of $139.0 million, down 0.6%
from the prior-year quarter, owing to unfavorable currency
translations.
United States (Miller Coors):
The segment includes the operations of its U.S. subsidiary,
MillerCoors, a joint venture with SABMiller. Molson Coors has as a
42% share in MillerCoors and income from the joint venture is
reflected as equity income for Molson Coors.
MillerCoors' net sales climbed 4.3% to $2.22 billion in the second
quarter of 2012. Sales volume rose to 21.7 million hectoliters in
the quarter from 21.5 million hectoliters in the prior-year period.
The segment reported underlying (excluding special and other
non-core items) pretax income of $184.6 million, up 7.2% from the
prior-year quarter, driven by pricing growth, favorable mix and
efficient cost control.
United Kingdom:
Molson Coors' United Kingdom segment's net sales slipped 4.5% to
$326.2 million (excluding excise tax) from the prior-year period.
Sales volume declined 8% to 2.2 million hectoliters in the second
quarter of 2012. The segment reported underlying (excluding special
and other non-core items) pre- tax income of $28.0 million, down
19.3% from the prior-year quarter, due to volume decline, increase
in pension cost and marketing expense.
Central Europe:
Molson Coors' Central Europe segment includes newly-acquired
StarBev. StarBev is one of the largest brewing companies in Central
Europe, brewing 13.3 million hectoliters of beer annually and
boasting top brands in the markets. StarBev was acquired for $3.4
billion, including the assumption and payoff of pre-existing
StarBev debt. The company completed the StarBev acquisition process
in mid June 2012.
Molson Coors' Central Europe segment reported net sales of $57.3
million (excluding excise tax) in the second quarter of 2012. Sales
volume was 0.9 million hectoliters in the second quarter of 2012.
The segment reported underlying (excluding special and other
non-core items) pretax income of $19.7 million.
International:
The segment's net sales surged 31.6% to $37.1 million in the
comparable prior-year quarter. Sales volume increased to 0.32
million hectoliters from 0.25 million hectoliters in the previous
year quarter. The segment reported underlying (excluding special
and other non-core items) pretax loss of $13.4 million, up
from a loss of $10.1 million in the prior year quarter, owing to
expenses in Cobra India business, infrastructural investments and
the impact of asset-value and expenditure adjustments in a China
joint venture.
Other Financial Updates
The company exited the quarter with cash and cash equivalents of
$516 million as of June 30, 2012, compared with $836.3 million as
of March 31, 2012.
The company's second quarter effective income tax rate was 21% on a
reported basis and 18% on an underlying (excluding special and
other non-core items) basis.
On July 19, 2012, Molson Coors declared a quarterly cash dividend
of $0.32 per share which is payable on September 17, 2012 to
stockholders of record as of August 31, 2012.
Guidance
Molson Coors estimates that its underlying effective tax rate will
be in the range of 17% to 21% for full year 2012, assuming no
further changes in tax laws.
In the previous guidance, the company expected cost of goods sold
to go up to a mid single-digit rate per hectoliter in local
currency in Canada and the U.K. and remain in low single-digits in
the U.S. for fiscal 2012.
Our Recommendation
Currently, we have a Neutral recommendation on Molson Coors. The
stock carries a Zacks #3 Rank (a short-term Hold rating).
We believe that the company's recent agreement to buy StarBev is
significant because it brings on board StarBev's flagship brand
Staropramen and help it to expand in untapped markets. However, the
company's susceptibility to the global economic downturn, its
operations in predominantly mature and low-growth markets, stiff
competition and seasonality of business severely undermine its
growth prospects and profitability.
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