We reaffirm our Neutral recommendation on
Molson Coors Brewing Company
) following an appraisal of its fourth quarter 2012 results.
Why the Reiteration?
Molson Coors reported better-than-expected adjusted earnings
of 69 cents per share in the fourth quarter of 2012. In fact,
Molson Coors has surpassed the Zacks Consensus Estimate in the
last five quarters, with an average surprise of 14.2%. Earnings,
however, declined 28.9% from the prior-year quarter due to higher
tax rates this year and strong year-ago comparisons. Net sales,
though short of the Zacks Consensus Estimate, increased 9.9% to
$1.03 billion year over year due to addition of the StarBev
operations (Jun 2012), which boosted worldwide beer volumes and
thereby overall profits.
The acquisition of StarBev has significantly enhanced the
company's portfolio of premium brands, despite sluggish European
economy. It has also created opportunities for the company in
Central Europe to extend its key brands, taking advantage of the
attractive beer market. Also, with economic recovery underway in
the U.S. and China, the company expects increased consumer
Overall, we are encouraged with the company's strong brand
portfolio and cost-saving initiatives. Molson Coors has also
grown its market share through innovation. Molson Coors achieved
$74 million of cost savings through its synergy program named
Resources for Growth Two (RFG2) and delivered $200 million of
savings since 2010.
Other than this, the company liquidated its under-performing
China joint venture, restructured its Coors Light business in the
rest of China, improved performance in Japan, and integrated the
Central Europe license and export business in 2012. These
initiatives are expected to improve the efficiency of the
organization and generate additional resources to invest in
brands and innovation.
However, Molson Coors has been posting sluggish sales volume
trends in the U.S., U.K. and Canada for three straight years. The
company has also spent on marketing and advertising for its
Miller Lite and Molson Brands but this has not led to consistent
growth in volumes. The recovery in the U.S. economy and the
acquisition of the StarBev business has the potential to boost
volumes but we do not expect the change to happen in the near
Moreover, the acquisition of StarBev has tightened the
company's liquidity position and has restricted use of cash for
share buybacks. Molson Coors prefers to deleverage its debt
(taken for acquiring StarBev) by the next 2-3 years instead of
buying back shares.
Molson Coors holds a Zacks Rank #2 (Buy). Other stocks in the
consumer staples sector that are worth considering are
Companhia De Bebidas Das Ame
Hillshire Brands Co.
). While ABV holds a Zacks Rank #1 (Strong Buy), Kellogg and
Hillshire carry a Zacks Rank #2.
AMBEV-PR ADR (ABV): Free Stock Analysis
HILLSHIRE BRAND (HSH): Free Stock Analysis
KELLOGG CO (K): Free Stock Analysis Report
MOLSON COORS-B (TAP): Free Stock Analysis
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