Molson Coors Brewing Co.(TAP) reported adjusted earnings of 97 cents per share in the fourth-quarter 2011, exceeding the Zacks Consensus Estimate of 71 cents. The earnings also surpassed the prior-year quarter earnings of 66 cents.
Adjusted earnings in fiscal 2011 were $3.76 per share, which also exceeded both the Zacks Consensus Estimate and the prior-year earnings of $3.50 and $3.56 per share.
Including special one-time items, Molson Coors reported earnings of 95 cents per share, up 61.0% from 59 cents per share. Molson Coors’ reported earnings also increased 1.4% to $3.62 per share in fiscal 2011 from $3.57 per share in fiscal 2010.
Though the company has been facing some challenging market conditions, Molson Coors’ earnings were positively impacted by solid pricing, robust earnings and sales growth, cost reduction initiatives, favorable foreign currency movements, and an additional trading week. In addition, Molson Coors continued to focus on its growth strategies of maximizing profitable growth opportunities in the core markets, expanding into new and emerging markets, and looking for M&A opportunities to generate shareholder value.
Revenues and Operating Profits
Net sales climbed 12.2% to $937.3 million in the quarter. However, it lagged the Zacks Consensus Revenue Estimate of $957 million. In fiscal 2011, net sales increased 8.0% to $3.52 billion, beating the Zacks Consensus Revenue Estimate of $3.51 billion.
Total worldwide beer volume increased 2.6% in the quarter to 12.20 million hectoliters in the fourth-quarter of 2011. However, it plummeted 0.7% to 48.36 million hectoliters in the fiscal 2011.
Molson Coors generated a gross profit of $389.8 million, 8.4% higher than the profit generated in fourth-quarter 2010. Gross margin was 41.6% in the reported quarter, down 140 basis points (bps) from the prior-year quarter. In fiscal 2011, Molson Coors posted gross profit of $1.47 billion, 1.7% higher than the profit generated in fiscal 2010. Gross margin, however, declined 260 bps to 41.7% in fiscal 2011.
During the quarter, Molson Coors incurred special charges and other non-core items of $8.6 million pretax, which was driven by a $6.7 million non-core, non-cash loss related to a change in hedge designation and a $1.6 million unrealized non-core mark-to-market loss on aluminum hedges in corporate cost of goods sold.
Segment Details
Canada: Molson Coors’ Canada segment‘s net sales surged 9.3% to $509.9 million from the previous year. Sales volume was slightly up to 2.2 million hectoliters in the quarter from 2.1 million hectoliters in the fourth-quarter of 2010. Net sales per hectoliter increased 4.0% in local currency, where more than one-third increase was due to continued positive pricing and the addition of contract brewing sales to North American Breweries.
In fiscal 2011, segment‘s net sales surged 6.7% to $2.07 billion from the previous year. Sales volume was slightly down to 8.85 million hectoliters in the year 2011 from 8.92 million hectoliters.
United Kingdom: Molson Coors’ United Kingdom segment’s net sales inched up 12.7% to $389.9 million from the previous year. Sales volume was slightly up to 2.8 million hectoliters in the quarter from 2.3 million hectoliters in the fourth-quarter of 2010. Net sales per hectoliter of owned brands decreased 1% in local currency, driven by 6% lower net pricing, largely offset by the mix benefit of adding the higher-priced Modelo brands.
In fiscal 2011, segment‘s net sales surged 8.0% to $1.33 billion from the previous year. Sales volume was up to 9.15 million hectoliters in the year 2011 from 8.87 million hectoliters.
International:The segment’s net sales surged 87.8% to $41.7 million from $22.2 million in the previous year. Net sales per hectoliter increased 24%. International business volume was 51.0% higher in the quarter, primarily due to the addition of the Modelo brands in Japan, along with the growth of Carling in Europe and Coors Light in Latin America and China.
In fiscal 2011, the segment’s net sales surged 53.3% to $122.6 million from $80.0 million in the previous year 2010.
Corporate: The segment’s net sales plummeted to $0.3 million from $0.5 million in the fourth-quarter 2010, while net sales were flat at $1.3 million in fiscal 2011.
Other Financial Updates
The company exited the year with cash and cash equivalents of $1.08 billion as of December 31, 2011, versus $1.22 billion in the previous year. Long-term debt decreased to $1.91 billion from $1.96 billion in 2010.
Molson Coors’ Board approved a new program authorizing the repurchase of up to $1.2 billion of the company’s Class B common shares in August 2011, with an expected program term of three years. In the fourth quarter 2011, the company repurchased 1.2 million Class B common shares for $50 million.
Since the inception of the program, shares repurchased have totaled approximately 7.5 million for $321.1 million. These share repurchases have increased underlying earnings per share by 4 cents in the fourth quarter and 4 cents in the full year 2011.
Further, in the fourth quarter 2011, Molson Coors delivered $20 million of Resources for Growth Two (RFG2) cost reductions. In fiscal 2011, Molson Coors achieved $60 million of RFG2 cost savings.
MillerCoors achieved cost savings of $27 million in the fourth quarter and synergies and other cost savings of $111 million for full year 2011, bringing the total to $765 million in synergies and other cost savings since beginning operations on July 1, 2008. Molson Coors benefits from 42% of these cost savings.
In 2011, Molson Coors paid beer excise taxes totaling nearly $2.2 billion to governments globally, including 42% of MillerCoors excise taxes.
The company’s fourth quarter effective income tax rate was 5% on a reported basis and 7% on an underlying basis, driven by the favorable resolution of unrecognized tax positions in the fourth quarter. The company’s full year 2011 effective tax rate was 13% on a reported basis and 14% on an underlying basis.
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.
Recommendation
We are encouraged by the restructuring initiatives taken by the company to reduce overhead costs and boost profitability. Further, the announcement of a new share repurchase program will strengthen the company’s balance sheet. Moreover, it signifies that Molson Coors has substantial cash generation capability.
However, the seasonal nature of business and increased competition from Anheuser-Busch InBev (BUD) are still concerns for Molson Coors.
Currently, Molson Coors has a Zacks #3 Rank, implying a short-term Hold recommendation. On a long-term basis, the company maintains a Neutral recommendation on the stock.
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