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One of the largest brewers in the world, Molson Coors Brewing Co. (NYSE:TAP) is scheduled to release its second-quarter results before the market opens on August 2. The Zacks Consensus Estimate for the quarter is $1.30 per share, representing about 4% growth over the year-ago quarter.

Although Molson Coors is expected to post improved results from the prior-year earnings, but the company is expected to remain under pressure primarily due to soft beer sales, global economy and rising fuel costs.

Previous Quarter Performance

Molson Coors first quarter earnings came in at 43 cents, which was 16.2% higher than 37 cents per share reported in the prior year quarter. Profits were primarily impacted by positive pricing and continued cost reductions. Net sales for the quarter climbed 5.3% to $997.3 million from $947.0 million in the year-ago period, driven by strong core markets, wider exposure to emerging markets, and efficient marketing strategies. However, total worldwide beer volume decreased 1.5% in the quarter to 9.961 million of hectoliters in the first quarter of 2011.

Agreement With Analysts

Ahead of the earnings release, we see some downward movement in analyst estimates over the past 30 days. However, over the past seven days, the estimates have moved in both the directions, showing no clear trend. Hence, the estimate revision trends and the magnitude of such revisions justify a neutral sentiment on the street.

In the last 30 days, four of the nine analysts have revised their estimates downward for the second quarter of 2011, while three of the 10 analysts reduced their estimates for both fiscal 2011 and 2012. No upward revisions were witnessed in the second quarter over the same period, whereas only one analyst came up with an upward trend in the fiscal 2011. Two out of 10 analysts upgraded their estimates for fiscal 2012. This implies that the analysts do not foresee any significant upward pressure on the second quarter results.

However, the positive approach towards Molson Coors also gives scope for some positive surprises in the second half of 2011, keeping in mind the company’s healthy balance sheet and cost saving programs, which support its investment in brands and innovation.

Magnitude of Estimate Revisions

Over the last 60 days, there have been significant downward revisions in the earnings estimate of 2011 and 2012. As a result, earnings per share plummeted by 2 cents to the current level of $3.68 per share for the fiscal 2011, while the same fell by 3 cents to $3.95 for fiscal 2012. However, the estimates for the second quarter of 2011 remain unmoved.

The trend reveals a cautious outlook in the analysts’ opinion given the fall in worldwide beer volume and rise in the raw material prices. Moreover, the company’s susceptibility to the global economic downturn and predominant operations in mature and low-growth markets, coupled with stiff competition and seasonality of business undermine the company’s future growth prospects and profitability.

Surprise

With respect to earnings surprises, Molson Coors has topped as well as missed the Zacks Consensus Estimate over the last four quarters in the range of negative 2.9% to positive 14.3%. The average remained at positive 5.5%. This suggests that Molson Coors has beaten the Zacks Consensus Estimate by an average of 5.5% in the trailing four quarters.

Our Take

We remain encouraged by the restructuring initiatives taken by the company to reduce overhead costs and boost profitability. The initiatives include the closure of underperforming breweries and efforts to improve efficiencies in finance, administration and human resource activities.

Molson Coors also takes keen interest in forming joint ventures to expand its presence globally. Recently in June, Molson Coors purchased a controlling stake of 51% of Cobra India to form a company called Molson Coors Cobra India, to brew and market Cobra beer in South Asia including India, Bangladesh, Bhutan, Maldives, Nepal, Pakistan and Sri Lanka. The joint venture will be headquartered in Mumbai.

However, the seasonal nature of business of Molson Coors and increased competition from Anheuser-Busch InBev (NYSE:BUD) are concerns.

Currently, Molson Coors has a Zacks #3 Rank, implying a short-term Hold recommendation. On a long-term basis, the company provides a Neutral rating on the stock.

Source: Molson Coors Earnings Preview