Will Restructuring Drive Molson Coors’ (TAP) Q2 Earnings?

Molson Coors Brewing Company TAP is slated to release second-quarter 2018 results on Aug 1.

The company has exhibited a dismal earnings surprise history, having lagged estimates in four of the last six quarters. It has pulled off an average negative earnings surprise of 12.7% in the trailing four quarters.

Nevertheless, the Zacks Consensus Estimate for second-quarter earnings is pegged at $1.84, reflecting 10.8% growth year over year. Estimates were revised downward in the past 30 days.

Let’s see how things are shaping prior to the earnings announcement.

Factors Likely to Impact 2Q18

Apart from a dismal earnings trend, Molson Coors has missed sales estimates for the last seven quarters. The company has been witnessing softness in the U.S. beer category, which in turn is hurting its top- and bottom-line performance. It has been posting weak beer volumes in the United States for quite some time due to tough industry conditions. In fact, consumers’ changing preferences, aging population and strong competition from other alcohol beverages have been the primary reasons behind the company’s bleak performance.

Furthermore, soft financial and royalty volumes, unfavorable global mix, impact of indirect tax provision cycling in Europe and adoption of a new revenue recognition accounting standard negatively impacted the company’s sales in the first quarter of 2018. Consequently, the top line decreased 4.8%.

The Zacks Consensus Estimate for second-quarter revenues is pegged at $3.05 billion, down 1.4% from the year-ago actual figure. The estimate for net sales in the United States, Europe and Canada stands at $2,075 million, $578 million and $407 million, respectively. In the year-ago quarter, the company’s revenues from these three segments came in at $2,138.9 million, $524.7 million and $407.6 million, respectively.

Also, Molson Coors continues to battle input cost inflation, which has been posing challenges for a while now. Management expects these hurdles to linger in 2018, and it reiterated the company’s previously issued COGS per hectoliter outlook for the United States and Canada. For 2018, the company expects cost of goods sold per hectoliter to increase in low-single-digits across these segments. In Europe, it anticipates cost pressure to increase on rising costs of key inputs like aluminum, and higher freight and fuel expenses. These hurdles, in turn, might hurt Molson Coors’ bottom line in the to-be-reported quarter.

So far this year, shares of the company have lost 20.7%, wider than the industry’s decline of 6.5%.

Nevertheless, Molson Coors’ restructuring initiatives to reduce overhead costs and boost profitability are impressive. These initiatives included closure of underperforming breweries, improvement of efficiencies in finance, administration and human resources, and reduction of labor and general overhead costs. Additionally, the company has been making efforts to improve its supply-chain network and build on efficiencies across the business to generate additional resources for investing in brand building and innovation. Notably, the company has surpassed its cost-savings target by more than $80 million in 2017. For 2018, management expects cost savings of nearly $210 million. These cost-saving efforts are likely to help the company in expanding its EBITDA margins.

Molson Coors also aims to augment top line through its First Choice commercial excellence plans. The company focuses on expanding its portfolio through acquisitions and agreements besides having a strong portfolio of well-established brands.

Given the company’s pros and cons, let’s wait and see whether Molson Coors will be able to reverse its dismal surprise trend in the soon-to-be-reported quarter.

What Does Zacks Model Say?

Our proven model conclusively shows that Molson Coors is likely to beat earnings estimates in the second quarter. This is because a stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Molson Coors has an Earnings ESP of +0.29% and a Zacks Rank #3, which makes us pretty confident of an earnings beat.

Stocks With Favorable Combination

Here are some other companies you may want to consider as our model shows that these too have the right combination of elements to post an earnings beat:

Dean Foods Company DF has an Earnings ESP of +11.63% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Estee Lauder Companies Inc. EL has an Earnings ESP of +1.31% and a Zacks Rank #3.

Monster Beverage Corporation MNST has an Earnings ESP of +0.31% and a Zacks Rank #3.

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