Global brewer Molson Coors Brewing Company TAP delivered better-than-expected earnings in the second quarter of 2015 but revenues fell short of expectations. Though the company continued to focus on building brand strength and achieve positive pricing, results declined year-over-year due to foreign currency movements and lower volumes.
In the second quarter, Molson Coors posted adjusted earnings of $1.41 per share, beating the Zacks Consensus Estimate of $1.33 by 6%. However, the figure declined 10.2% from the prior-year earnings of $1.57 per share.
Earnings declined owing to lower sales, unfavorable foreign currency impact and a higher tax rate. Continued volume pressure in the biggest markets and termination of business contracts in the U.K. and Canada also resulted in the earnings decline.
Revenues and Operating Profits
Net sales, including excise tax, declined 15.4% year over year to $1.006 billion in the second quarter. Sales slightly missed the Zacks Consensus Estimate of $1.011 billion by 0.5%. Sales declined in all the geographical segments of Canada, Europe and International. Currency had a negative impact of $143.3 million on overall sales in the quarter, which overshadowed the impact of positive pricing. On a constant currency basis, sales decreased 3.3% in the quarter.
Net sales per hectoliters also declined 14.4% to $116.63, while it declined 2.2% in constant currency. Total worldwide beer volume declined 1.9% year over year to 16.3 million hectoliters.
Sales volume declined 1.2% to 8.623 million hectoliters in the second quarter of 2015. The lower volume was due to a decline in volumes in Europe and Canada.
Underlying (excluding special and other non-core items) pre-tax income declined 0.9% year over year to $327.9 million due to softness in geographical segments of Canada, Europe and International. Currency had a negative impact of $22.4 million in the second quarter. On a constant currency basis, underlying pre-tax income grew 5.9%, driven by positive pricing and cost saving measures.
Segment Details
The company operates through the following geographical segments.
Canada: Molson Coors Canada net sales declined 13.9% to $444.9 million in the quarter due to a 6.6% decline in sales volume. However, net sales per hectoliter increased 4.1% in local currency, driven by positive net pricing and mix. On a constant currency basis, segment sales decreased 2.8%.
The segment’s underlying pretax income declined 5.5% to $114.3 million in the quarter due to unfavorable currency movements. On a constant currency basis, underlying pretax income increased 4.3%, driven by positive net pricing and sales mix, along with substantial cost savings.
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 increased 9.3% to $487.2 million driven by lower brewing and packaging materials and fuel costs, as well as higher net pricing and supply chain cost savings. Molson Coors’ underlying U.S. segment equity income increased 8% to $205.5 million.
Europe: The segment includes the operations of 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 16.6% to $524.8 million in the second quarter of 2015. On a constant currency basis, segment sales declined 3.7%. Sales volume declined 1.1% due to the loss of the Modelo brands in the U.K. earlier in 2015.
Underlying pretax income declined significantly by 21.5% to $68.1 million in the quarter due to currency headwinds and the termination of contracts in the U.K. On a constant currency basis, underlying pretax income decreased 8.3% due to the termination of Modelo brands and Heineken brewing contracts in the U.K. earlier this year. Excluding the impact of the terminated contracts, Europe constant-currency pretax income increased in the quarter, driven by higher sales volume, positive pricing and lower costs.
Molson Coors International (MCI): Segment net sales declined 14.9% to $37.2 million in the quarter. On a constant currency basis, segment sales decreased 3.7%. Sales volume including royalty volume increased 17.8%. Volumes were driven by strong performance of existing business and the acquisition of Mount Shivalik Breweries earlier in Apr 2015, along with double-digit growth in Coors Light in Latin America.
The segment posted an underlying pretax loss of $5.8 million in the first quarter, wider than $3.7 million loss incurred in the year-ago period as foreign currency movements, business restructuring in China and geographic mix overshadowed higher volume and lower marketing expenses. On a constant currency basis, underlying pretax income decreased 27%.
Other Financial Details
During the quarter, Molson Coors repurchased about 0.7 million shares of its Class B Common stock at an average price of $74.38 under its $1 billion, four-year stock repurchase program, which was authorized by the company's board in Feb 2015.
Additionally, early in the third quarter, the company used an additional $50 million of cash for Class B Common stock repurchases.
Molson Coors currently holds a Zacks Rank #3 (Hold). Better ranked brewers in the alcohol industry include Compania Cervecerias Unidas S.A. CCU and Constellation Brands Inc. STZ, holds a Zacks Rank #2 (Buy). Dr. Pepper Snapple Group, Inc. DPS is a soft beverage stock which also holds a Zacks Rank #2.
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