Molson Coors Brewing Co. (TAP) reported its first quarter 2011 results on May 3, 2011. The company reported earnings of 43 cents which was 16.2% higher than 37 cents per share reported in the prior year quarter.
Earnings missed the Zacks Consensus Estimate of 44 cents by 1 penny. Profits were primarily impacted by positive pricing and continued cost reductions.
Revenues and Operating Profits
Net sales for the quarter climbed 5.3% to $997.3 million from $947.0 million in the year-ago period. The growth in net sales was driven by strong core markets, widened exposure to emerging markets, and efficient marketing strategies.
The company generated gross profit of $263.2 million, 2.57% higher than profit generated in first quarter of 2010. Income from continuing operations before tax for the quarter stood at $98.5, which was 32.2% higher than the income of $74.5 million generated in the previous year.
During the quarter, the company had special items composed primarily of Canadian early retirement incentive expenses of $2.7 million, largely offset by the release of a non-income related tax reserve of $2.5 million in the U.K.
Total worldwide beer volume decreased 1.5% in the quarter to 9.961 million of hectoliters in the first quarter of 2011.
Other non-core items generated a $0.6 million net pretax gain, primarily due to a $0.8 million non core gain related to the Foster’s total return swaps and related financial instruments, partially offset by a $0.2 million environmental reserve.
During the quarter, Molson Coors reported special charges totaling $1.4 million, primarily related to relocation costs associated with the joint venture integration.
Segment Details
Molson Coors’ Canada segment‘s net sales inched up 0.1% to $393.8 million from the previous year. Pre tax income in local currency decreased 7.7 per cent. Increased net pricing and overhead reductions were more than offset by mid single digit volume declines and raw material price rise.
Miller Coors’ net sales came down to $1699.1 million from $1700.9 million. Net income, excluding special items of the segment, increased 8.7 percent for the quarter to $236 million, driven by positive pricing, favorable brand mix, continued strong cost management, and a one-time payment from a third party.
Molson Coors’ United Kingdom segment’s net sales inched up 7.7% to $274.7 million from the previous year. Pre tax income for the segment more than doubled to $4.6 million in the quarter, driven by a decrease in defined benefit pension expense and higher pricing, partly offset by lower volumes and higher cost of goods sold.
International and Corporate segment’s net sales surged to $21.9 million from $15.8 million in the previous year. The segment experienced an underlying pretax loss of $62.3 million in the quarter, a 5.3 percent decrease from the previous year.
Sales-to-retail Ratio for all the segments decreased in the quarter owing to continued industry headwinds and Easter moving into the second quarter of 2011.
In Canada sales-to-retail ratio for the quarter decreased 6.9 percent. This was fuelled by continued volume gains from new brands, including the expansion of Molson M into Ontario and Western Canada, Keystone Lager into Ontario and Molson Canadian 67 into Quebec, were more than offset by declines in established brands.
Other Financial Updates
The company exited the year with cash and cash equivalents of $1081.7 million as of March 26, 2011. The company used $45.0 million for operating activities. The amount used for investing activities totaled to $144.6 million.
Recommendation
We remain encouraged by the restructuring initiatives taken by the company to reduce overhead costs and boost profitability. The initiatives include closure of underperforming breweries and efforts to improve efficiencies in finance, administration and human resource activities. However, seasonal nature of business of Molson Coors and increased competition from Anheuser-Busch InBev (BUD) are concerns.
Currently, Molson Coors has a Zacks #3 Rank, implying a short-term Hold recommendation.
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