Bear of the Day: Molson Coors Brewing Co. (TAP)

One of the largest global brewers, Molson Coors Brewing Co. (TAP) has acquired a large portfolio of beer and cider brands over the years, including Coors Light, Miller Lite, Carling, Staropramen, Sharp's Doom Bar, Leinenkugel's Summer Shandy, Blue Moon Belgian White, Hop Valley, Creemore Springs Premium Lager and Crispin Cider.

The company operates through Molson Coors Canada, MillerCoors, Molson Coors Europe and Molson Coors International.

Molson Coors’ first quarter was a disappointing one, with earnings and revenues falling short of expectations. The stock is currently sitting at a #5 (Strong Sell) on the Zacks Rank. What’s next for this brewing giant?

Disappointing Q1 Results

Earlier this year, Molson Coors reported earnings of 48 cents per share, falling way short of the Zacks Consensus of 80 cents and plunging 40% year-over-year.

Revenues of $2.33 billion missed our consensus estimate too and declined 4.8% from the prior-year period. In the U.S., sales decreased 5.8%, while Canada and International sales dipped 2.5% and 7%, respectively.

TAP’s worldwide brand volume inched lower by 3.1% to 19.1 million hectoliters due to soft U.S., International, and Canada volumes. Global priority brand volumes dipped 5.6%, while financial volumes declined 4.9% to 20.8 million hectoliters.

Underlying EBITDA was $426 million during the quarter, marking an 18.5% drop from the year-ago period.

A bright spot this quarter, however, was net sales per hectoliter, which inched up a slight 0.1%.

Earnings Outlook

Estimates took a hit in the days following the report.

For the current quarter, three analysts cut their outlook in the last 60 days, and the consensus has dipped five cents from $1.98 to $1.93 per share. However, earnings are expected to grow around 16% for the period.

Five analysts have revised their estimates downward for the current fiscal year, and earnings are projected to increase not even 10%. The consensus has decreased from $5.16 to $4.89 per share.

Looking at the next fiscal year, earnings could grow about 6.7%, and the current consensus sits at $5.22 per share, falling 35 cents in the past 60 days.

Can TAP Stock Turn Around?

Shares of Molson Coors are down 24% so far this year and have slipped about 35% in the past one year. Compared to the S&P 500, the index has gained 1.2% and 13%, respectively.

The company is currently trading at a forward P/E of 12.6X.

Looking ahead, Molson Coors remains committed toward achieving margin growth, bottom-line improvement and solid free cash flow, and the company remains optimistic about its 2018 goals.

The brewer continues to anticipate cost savings of roughly $210 million this year, while it expects cost savings to reach $600 million by 2019. Additionally, Molson Coors expects to deliver underlying free cash flow of around $1.5 billion, (plus or minus 10%).

For investors wanting exposure to beverage stocks, and one with more near-term potential, they should consider The Boston Beer Company (SAM), home of the beer brand Sam Adams. It’s a #1 (Strong Buy) on the Zacks Rank right now, but earnings could grow well over 22% for the current fiscal year.

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