Molson Coors Brewing Co. TAP is set to report second-quarter 2015 results before the opening bell on Aug 6. Last quarter, this beverage company posted a positive surprise of 6.98%. Let’s see how things are shaping up prior to the announcement.
Factors to Consider
Molson Coors has been struggling with weak volumes in the major markets of Canada, the U.S. and Europe since the past many quarters. Despite better-than-expected results, Molson Coors’ earnings and revenues declined in double-digits year over year in the first quarter of 2015 due to lower volumes and unfavorable foreign currency movements.
In Europe, beer volumes have been falling due to declines in the overall alcohol market while in the U.S., the company is witnessing volume declines, partially due to relatively weak economic conditions.
The premium beer segment in Canada has been gradually losing volume to the above premium and value segments, mainly due to an aging population and a sluggish economy. The substantial excise tax increase in Québec in Aug 2014 has also hurt volumes of retail beers as the company holds a significant share of the Québec market. The loss of the Modelo brands in Canada in Feb 2014 also led to volume declines. A tax increase in Québec and the loss of the Modelo brands are expected to hurt volumes and earnings in the soon-to-be reported quarter.
Weak consumer demand in the face of macro-economic headwinds and unfavorable foreign currency are also hampering growth and might hurt results in the second quarter as well.
Nevertheless, we believe that the company’s cost-savings initiatives, continuous focus on brand building and increased marketing investments have the potential to drive volumes over the long term.
Earnings Whispers?
Our proven model does not conclusively show that Molson Coors is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Zacks ESP: Earnings ESP for Molson Coors is -3.01% as the Zacks Consensus Estimate of $1.33 is higher than the Most Accurate estimate of $1.29.
Zacks Rank: Molson Coors has a Zacks Rank #3 (Hold). Though Molson Coors’ Zacks Rank #3 increases the predictive power of ESP, we need to have a positive ESP to be confident about an earnings surprise.
We caution against stocks with Zacks Rank #4 and 5 (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Stocks to Consider
Here are some consumer staple companies, which are worth considering, as our model shows that they have the right combination of these two elements:
Campbell Soup Company CPB, with an Earnings ESP of +2.38% and a Zacks Rank #2 (Buy).
Dean Foods Company DF, with an Earnings ESP of +3.85% and a Zacks Rank #2.
The J. M. Smucker Co. SJM, with an Earnings ESP of +3.28% and a Zacks Rank #3.
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