Molson Coors Lags Earnings, Sales on Fx & Contract Loss

Global brewer Molson Coors Brewing Company TAP delivered weaker-than-expected earnings and revenues in both the fourth quarter and 2015. Though the company continued to focus on cost saving, pricing and brand building, results declined year over year due to foreign currency movements and loss of business contracts in Canada and U.K.

Molson Coors posted adjusted earnings of 49 cents per share in the fourth quarter of 2015. Earnings lagged the Zacks Consensus Estimate of 52 cents by 5.8% and declined 10.9% from the prior-year earnings of 55 cents per share.

Earnings declined due to lower sales, unfavorable foreign currency and increased brand investments. Volume decline in Canada and the termination of the Miller brands agreement in Canada and the Modelo brands and Heineken brewing contracts in the U.K. in 2015 also resulted in the earnings decline.

 

Revenues and Operating Profits

Net sales, including excise tax, declined 13.3% year over year to $844.4 million in the fourth quarter. Sales also missed the Zacks Consensus Estimate of $848 million by 0.4%, as a result of a continued difficult economy and competitive pressures, along with significant unfavorable foreign currency and the termination of major business contracts.

Sales declined in all the geographical segments of Canada, Europe and International. Currency had a negative impact of $95 million on overall sales in the quarter, which overshadowed the impact of positive pricing. On a constant currency basis, sales decreased 3.5% in the quarter.

Net sales per hectoliters declined 12.5% to $119.69, while it declined 2.7% in constant currency. Total worldwide beer volume decreased 1.7% year over year to 13.8 million hectoliters despite volume gain in Coors Light worldwide, especially Europe and International.

Sales volume declined 0.9% to 7.055 million hectoliters in the fourth quarter of 2015. The decline in volume was due to decrease in volumes in Europe, Canada and the U.S., partially offset by volume gain in the International region.

Underlying (excluding special and other non-core items) pre-tax income declined 21.1% year over year to $106.3 million due to softness in the geographical segments of Canada, U.S., Europe and the International region. Currency had a negative impact of $6.1 million in the fourth quarter. On a constant currency basis, underlying pre-tax income declined 16.6%.

Segment Details

The company operates through the following geographical segments.

Canada: Molson Coors Canada net sales declined 19.2% to $341.9 million in the quarter due to a 5.4% decline in sales volume. While STRs decreased 6.8% due to the termination of the Miller brands agreement, net sales per hectoliter increased 0.5% in local currency, driven by positive net pricing. On a constant currency basis, segment sales decreased 5.0%.

The segment's underlying pretax income declined 32% to $51.8 million in the quarter due to unfavorable currency movements. On a constant currency basis, underlying pretax income decreased 23% due to lower volume, higher brand investments and increased distribution costs.

United States (MillerCoors): MillerCoors, a U.S. joint venture of Molson Coors Brewing Company and SABMiller plc, was launched on Jul 1, 2008. Molson Coors has a 42% economic interest in MillerCoors.

MillerCoors' underlying net income decreased 10.2% to $191.5 million due to lower volume and increased marketing investment, partially offset by lower cost of sales, positive sales mix and net pricing growth. Nevertheless, the Coors Light and Miller Lite brands each gained market share in the Premium Light segment for the third consecutive quarter. Molson Coors' underlying U.S. segment equity income decreased 10.4% to $80.6 million.

Europe: It includes the UK 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 $466.2 million in the fourth quarter of 2015. On a constant currency basis, segment sales decreased 3.1%. Sales volume decreased 0.2% due to the loss of the Modelo brands in the U.K., which was largely offset by strong growth in Coors Light, Doom Bar and Bergenbier brands.

Underlying pretax income declined 5.5% to $36.2 million in the quarter due to currency headwinds. On a constant currency basis, underlying pretax income decreased 4.2% due to the termination of Modelo brands and Heineken brewing contracts in the U.K.

Molson Coors International MCI: Segment net sales declined 0.3% to $36.9 million in the quarter. On a constant currency basis, segment sales increased 5.9%. Sales volume including royalty volume increased 12.4%. Volumes were driven by significant volume growth in India due to the acquisition of Mount Shivalik Breweries in Apr 2015, along with double-digit Coors Light growth in Latin America.

The segment posted an underlying pretax loss of $5.1 million in the fourth quarter, wider than $3.9 million loss incurred in the year-ago period, due to currency headwinds, unfavorable sales mix and higher investment in new markets. This was partially offset by higher volume in India and Latin America, along with lower general & administrative expenses. On a constant currency basis, underlying pretax income decreased 20.5%.

2015 Results

In 2015, Molson Coors reported adjusted earnings of $3.76 per share, which lagged the Zacks Consensus Estimate of $3.78 by 0.5% and declined 9% from the prior-year earnings of $4.13 per share.

Net sales, including excise tax, declined 14% year over year to $3.568 billion in 2015. Sales also marginally missed the Zacks Consensus Estimate of $3.571 billion.

Molson Coors currently holds a Zacks Rank #5 (Strong Sell). Better-ranked brewers in the alcohol industry include Truett-Hurst, Inc. THST and Constellation Brands Inc. STZ, holding a Zacks Rank #2 (Buy). Keurig Green Mountain, Inc. GMCR, a soft beverage stock with a Zacks Rank #2, is also worth considering.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
MOLSON COORS-B TAP: Free Stock Analysis Report
 
KEURIG GREEN MT GMCR: Free Stock Analysis Report
 
CONSTELLATN BRD STZ: Free Stock Analysis Report
 
TRUETT-HURST THST: Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research