Molson Coors Brewing Company (NYSE:TAP) reported solid third-quarter 2018 results, wherein both top and bottom lines surpassed estimates. In fact, this marked the company’s second straight quarter of positive earnings and sales surprises. Results were backed by the company’s First Choice strategy, strong and diverse brand portfolio, and improved performance in Europe and International business units as well as global brands.
Molson Coors’ underlying adjusted earnings of $1.84 per share rose about 34.3% year over year and surpassed the Zacks Consensus Estimate of $1.57. This increase is attributed to robust net sales, benefit from the resolution of a dispute with a vendor and cost savings. These factors also benefited the company’s underlying EBITDA along with its Canada, U.S. and International businesses.
Net sales rose 1.8% to $2,934.2 million, beating the Zacks Consensus Estimate of $2,895 million. The top line beat can be attributed to favorable global pricing and improved financial volumes in Europe, the United States and Canada along with favorable mix in Europe, partly negated by currency headwinds and adoption of the new revenue recognition accounting standard. On a constant-currency basis, net sales grew 2.5%.
Notably, net sales per hectoliter advanced 0.9% on a reported financial-volume basis, while it rose 0.4% on a constant-currency basis, owing to positive global pricing and favorable mix in Europe. This was partly offset by the adoption of the new revenue recognition accounting standard.
Molson Coors’ worldwide brand volume declined 1% to 25.3 million hectoliters due to soft volumes in the United States and Canada, offset by the strength in Europe and International businesses. Global priority brand volumes dipped 1.4%, while financial volumes rose 0.8% to 26.5 million hectoliters. Financial volumes grew on the back of strong volumes in Europe, the United States and Canada.
Underlying EBITDA was $756.7 million, reflecting an increase of 9.9% from the year-ago period. Further, underlying EBITDA rose 11.1% in constant currency, due to solid net sales, cost savings and benefit from the resolution of a dispute with a vendor.
Molson Coors Brewing Company Price, Consensus and EPS Surprise
The company operates through the following geographical segments.
Canada: Molson Coors’ Canada net sales dipped 4.3% to $388.9 million. Net sales per hectoliter (brand-volume basis) slipped 2% in local currency due to adoption of the new revenue accounting standard. Further, Canada brand volumes fell 1.4% on account of volume constraints in the West, offset by growth in Ontario and Quebec. Meanwhile, financial volumes rose 0.4%. Underlying EBITDA rose 3.5% to $112.6 million.
United States: Molson Coors now has complete ownership rights to all the brands in the MillerCoors portfolio for the U.S. market. Net sales for the segment increased 2.3% to $1,935.8 million. Domestic net sales per hectoliter (on a brand volume basis), which excludes contract brewing and company-owned-distributor sales, improved 1.3%.
Excluding the new revenue accounting standard, net sales per hectoliter (on brand volumes) increased 1.2%. The upside stemmed from a favorable pricing, which was partly countered by a negative mix.
However, U.S. brand volumes decreased 3.3%, accountable to soft Premium Light volumes. In fact, sales-to-wholesalers volumes (STWs), excluding contract brewing, grew 1.1%. The segment’s underlying EBITDA grew 10.2% to $526.1 million.
Europe: The segment reported net sales growth of 3% to $577.9 million. Europe net sales per hectoliter (brand volume basis) improved 2.1% in local currency due to favorable sales mix, offset by lower pricing, the impact of the new excise-tax guidelines in one of the company’s European markets and higher investment in First Choice Agenda in 2018.
Europe brand volumes rose 2.1%, courtesy of growth in above-premium and core brands. Financial volumes went up 1.1%. Underlying EBITDA increased 5.8% year over year to $144.1 million.
International: Net sales for the segment grew 2% to $67 million. Net sales per hectoliter, on a brand-volume basis, declined 10.3%, owing to unfavorable sales mix and shifting to local production in Mexico. This was partly negated by positive pricing. Further, International brand volumes inched up 13.8%, backed by organic growth in focus markets. The segment’s underlying EBITDA was $2.9 million, against loss of $1 million in the year-ago period.
Other Financial Updates
Molson Coors ended the reported quarter with cash and cash equivalents of $750.1 million and a total debt of $10.6 billion. This resulted in a net debt of $9.8 billion as of Sep 30, 2018.
Net cash from operating activities for the nine months ended Sep 30 was $1,791.4 million, which marks a significant improvement from the year-ago period. The company generated underlying free cash flow of $1,025.4.
Management retained its previously issued forecasts for 2018 except for certain metrics. Molson Coors now anticipates generating cost savings of roughly $700 million for the 2017-2019 period, up from its earlier projection of $600 million. In 2018, the company still expects to deliver underlying free cash flow of around $1.5 billion (plus or minus 10%).
Capital spending is expected to be roughly $670 million (plus or minus 10%). Underlying tax rate for the year is likely to be 17-19% compared with the prior guidance of 18-22%, thanks to the latest tax reforms. Additionally, net interest expenses are projected to be toward the lower end of $330 million, plus or minus 10%, guided earlier.
Molson Coors expects 2018 to remain impacted by new revenue recognition standard (which became effective in the beginning of 2018) and the updated pension guidance.
We note that Molson Coors carries a Zacks Rank #4 (Sell), which is subject to change following the company’s quarterly performance. However, we note that the stock has lost nearly 16% in the past three months, almost in line with the industry’s decline.
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