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Will Soft U.S. Volumes Dent Molson Coors (TAP) Q1 Earnings?

By Zacks Investment ResearchStock MarketsApr 25, 2018 09:44PM ET
www.investing.com/analysis/will-soft-us-volumes-dent-molson-coors-tap-q1-earnings-200309402
Will Soft U.S. Volumes Dent Molson Coors (TAP) Q1 Earnings?
By Zacks Investment Research   |  Apr 25, 2018 09:44PM ET
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Molson Coors Brewing Company (NYSE:TAP) is slated to release first-quarter 2018 results on May 2. This global brewer has a mixed record of earnings surprises over the trailing four quarters. Let’s see what’s in store for Molson Coors this time around.

Factors Likely to Impact the Quarter

We expect Molson Coors to continue gaining from its solid focus on cost savings, which have been driving year-over-year growth at its bottom line for nearly a year now. Notably, the company has been undertaking several restructuring initiatives to reduce overhead costs and boost profitability. These initiatives include closure of underperforming breweries, improving efficiencies in finance, administration and human resources and reducing labor and general overhead costs. Also, the company has been focusing on improving supply chain network and building on efficiencies across the business to generate additional resources to invest in brand building and innovation. These endeavors helped Molson Coors generate cost savings of more than $255 million in 2017 that surpassed its target by more than $80 million. Encouraged by this, management raised its three-year savings goal (up to 2019) to $600 million, which is likely to help the company expand its EBITDA margins. These dedicated efforts give out positive signals for the quarter to be reported as well.

However, input cost inflation remains a concern, as management expects input cost inflation in 2018 to be nearly $50 million greater than 2017, on account of aluminum and diesel fuel among other inputs. Incidentally, for 2018, the company expects cost of goods sold per hectoliter to increase in low-single-digits across all segments, except International. These factors may act as hurdles in the company’s upcoming release.

Can Molson Coors Cheer Investors?

Molson Coors’ top line has been gaining from focus on strengthening brand portfolio. Armed with a robust portfolio of well-established brands, the company has been steadily progressing with growth of its above-premium segment. Impressively, the company has also been gaining share in the premium light segment in the United States through Coors Light and Miller Lite brands. We believe the company’s shift of focus on expanding the above premium category along with solid innovation program is likely to positively impact the upcoming quarter.

However, we remain cautious about the company’s U.S. volumes, which remained soft and ended up hurting Molson Coors’ overall worldwide brand volume as well as its financial volumes in the last reported quarter. In fact, Molson Coors has been posting weak beer volumes in the United States for quite some time owing to tough industry conditions. Consumers’ changing preferences, aging population and strong competition from other alcohol beverages have been the main contributors to the decline.

A Look Back & Expectations for Q1

Molson Coors ended 2017 on a superb note as in the fourth quarter, both the top and bottom line improved year over year and the latter also beat the Zacks Consensus Estimate. Results were backed by sales growth in most regions (except United States), favorable global pricing, net pension benefits, greater royalty volumes, cost-saving benefits, MG&A efficiencies and cycling of indirect tax provision. However, the U.S. region continued with its dull volumes, as it witnessed a decline in both sales-to-retailers (STRs) volume and sales-to-wholesalers’ volume, which fell 3% and 1.5%, respectively. These factors pose concerns over the company’s top line for the quarter to be reported.

For the quarter under review, analysts polled by Zacks expect net sales in Central Europe to dip 1.8% year over year to $375 million. The consensus marks for net sales in Canada and International is pegged at $288 million and $66 million, compared to $291 million and $62 million reported in the year-ago period respectively. Also, the consensus estimate for U.S. sales stands at $1,734 million. The Zacks Consensus Estimate for overall revenues is $2,436 million, down from $2,449 million recorded in the year-ago period.

Nevertheless, management remained impressed with its performance amid the tough market conditions. Given these factors, along with expected gains from tax reforms and focus on First Choice, we remain optimistic about Molson Coors prospects. Well, underlying tax rate for the year is likely to range 18-22%, which is considerably low and also makes us hopeful about first-quarter earnings. The Zacks analysts expect earnings for the quarter to grow 5.3% year over year to 80 cents. However, the estimate has gone down by 4 cents over the past 30 days.

What the Zacks Model Unveils

Our proven model doesn’t show that Molson Coors is likely to beat bottom-line estimates this quarter. For this to happen, a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Molson Coors Zacks Rank #4 (Sell) and Earnings ESP of -0.21% makes us less confident about earnings beat. In fact, we caution against stocks with a Zacks Rank #4 or 5 (Strong Sell) going into earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks Poised to Beat Earnings Estimates

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

Church & Dwight (NYSE:CHD) a Zacks #3 Ranked stock, has an Earnings ESP of +0.52%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Colgate (NYSE:CL) , a #3 Ranked company, has an Earnings ESP of +0.69%.

Estee Lauder (NYSE:EL) has an Earnings ESP of +0.50% and a Zacks Rank of 3.

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Molson Coors Brewing Company (TAP): Free Stock Analysis Report

The Estee Lauder Companies Inc. (EL): Free Stock Analysis Report

Colgate-Palmolive Company (CL): Free Stock Analysis Report

Church & Dwight Co., Inc. (CHD): Free Stock Analysis Report

Original post

Zacks Investment Research
Will Soft U.S. Volumes Dent Molson Coors (TAP) Q1 Earnings?
 
Will Soft U.S. Volumes Dent Molson Coors (TAP) Q1 Earnings?

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