Molson Coors Beats Q1 Earnings, Lags Revs - Analyst Blog

Global brewer Molson Coors Brewing Company TAP posted adjusted earnings of 55 cents in the first quarter, exceeding the Zacks Consensus Estimate of 36 cents per share by 52.8%. The results also surged a whopping 111.5% from the prior-year earnings of 26 cents per share driven by improved performance of all its businesses and margin expansion, which made up for the sales decline in the quarter.

Revenues and Operating Profits

Net sales, including excise tax, declined 1.5% to $816 million in the first quarter due to unfavorable foreign exchange and sluggish beer volumes. Sales also lagged the Zacks Consensus Estimate of $838 million by 2.6%. Sales improved 0.3% on a constant currency basis.

Though sales volume increased 2.8% year over year to 5.913 million hectoliters in the first quarter of 2014, it has been declining sequentially. First quarter sales volume declined 16.2% from fourth quarter 2013 and 21.2% from third quarter 2013.

This signals continued weak consumer demand across all markets owing to macro-economic headwinds. Total worldwide beer volume also declined 0.1% year over year to 11.9 million hectoliters, lower than 14.1 million hectoliters in fourth quarter 2013 and 17.0 million hectoliters in the third quarter of 2013.

Underlying (excluding special and other non-core items) pre-tax income shot up 94.7% year over year to $106.5 million in the first quarter of 2014, driven by improved performance in all the regions of the company and lower underlying interest expense. Currency positively impacted first quarter underlying pre-tax income.

Segment Details

The company operates through the following geographical segments.

Canada: Molson Coors Canada net sales declined 12.3% to $347.1 million in the quarter due to a 5.5% decline in sales volume. However, the segment reported underlying pretax income of $35.3 million, up 20.5% from the prior-year quarter driven by higher net pricing and lower marketing spending in Canada. On a constant currency basis, underlying pretax income surged 28.7%.

United States (MillerCoors): MillerCoors' net sales were essentially flat at $1.79 billion in the first quarter of 2014, while sales volume declined 3.2% in the quarter. MillerCoors' underlying net income increased 7.4% to $291.9 million driven by stronger pricing, brand mix, cost savings and lower marketing expenses. Molson Coors' underlying U.S. segment equity income increased 4.9% to $123.1 million.

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

The segment reported net sales growth of 7.7% to $437.6 million in the first quarter of 2014. Sales volume also increased 5.6%, owing to improved performance in all the markets except Serbia and improved weather conditions. The segment's underlying pretax income was $16.2 million in the reported quarter, which improved from the prior-year loss of $5.3 million, driven by volume growth, cost savings and favorable currency movements.

Molson Coors International MCI: Segment net sales increased 19.3% to $32.2 million in the quarter. Sales volume including royalty volume increased 13.7% owing to strong Coors Light growth in Mexico and Latin America and the addition of the Australian market, partially offset by industry weakness in Ukraine and Russian license markets.

The segment posted an underlying pretax loss of $3.0 million in the first quarter, an improvement from $5.2 million losses in the year-ago period due to strong volume and profit growth in Mexico and Latin America, improved performance in China, and lower overhead expenses.

Molson Coors has struggled in the past year, owing to weak consumer demand in the face of macro-economic headwinds and also in terms of sales volume for the past three years. However, we believe that the company's initiatives and increased marketing investments in its brands will drive volumes over the long term. But we continue to expect volume declines and economic uncertainty in the near term.

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