Molson Coors Earnings: Great Taste but Less Filling

Feb. 9.10 | About: Molson Coors (TAP)

Molson Coors (NYSE:TAP) (BBB-/BBB(H)) came out with earnings today. Headlines look decent, but a deeper look shows results were driven by a -2% effective tax rate (versus a 22% normal tax rate).

Net income attributable to Molson Coors increased 137.0 percent to $222.1 million for the fourth quarter, up from $93.7 million a year ago. Underlying after-tax income increased 85.5 percent in the fourth quarter to $190.3 million, or $1.02 per diluted share. Analysts were expecting $1.09. Swing and a MISS! Some other details:

“Underlying earnings for our company increased more than 85 percent in the 4th quarter versus a year ago, driven by a one-time reduction in tax rate. Behind the headline number, our results were affected by weak volumes across all markets, cost inflation in the U.S. and U.K. and brand investments in Canada,” said Peter Swinburn, Molson Coors president and chief executive officer.

"Overall consumer demand remains sluggish, and we see these conditions continuing to impact volume and mix in the near term... maintain a strong balance sheet, so that when market conditions improve we are better positioned to accelerate our growth and capitalize on opportunities.

"Underlying pretax income decreased 6.0 percent to $124.4 million.

"Molson Coors worldwide beer volume decreased 4.0 percent, driven by challenging markets, a weak global economy, and the Company’s continued strategy in the U.K. to forgo low-margin volume."

Looking forward:

Looking to 2010, we expect volume to remain challenging, especially in the first half, but we are focused on continuing to establish a strong brand base to our business that ensures we not only manage the current market but that we take full advantage of revenue upsides when momentum improves.

Overall consumer demand remains sluggish, and we see these conditions continuing to impact volume and mix in the near term.

Financial statement comments and datapoints:

As of December 26, 2009, cash and cash equivalents totaled $734 million, and total debt was $1.71 billion. Cash is up YOY by approximately $500MM, LT debt is down $300MM as it has shifted to ST debt - company has $300MM 4.85% due 9/10 rolling off this year.
  • Debt/Cap is 19% versus 22% at YE '08.
  • Debt/EBITDA is 1.8x versus 2x YE '08 1.9x.

Pension and OPEB are up $300MM (offsetting debt if one views this as a financial obligation).

CFO is up $400MM on the year, driven by working capital and the tax effect.

CAPEX is half of 2008 levels (prudent given the environment and sales trends. Hopefully see it pick back up in order to grow the business as currently it is below depreciation and amortization.

Management has done a fair job reducing costs both in the primary business ($92MM in "resources for growth" cuts) and in realizing synergies in the MillerCoors JV. For the year, SG&A costs were reduced by $400MM

Bottom line: Would like to have seen growth due to more than income taxes and sales are down (due to volume and price), but the balance sheet is in good shape. Should not have a credit impact.

Stock looks to be opening down.

Bonds rarely trade.

Disclosure: no positions