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Molson Coors (TAP) Q4 Earnings & Sales Rise Y/Y; Stock Gains


Molson Coors Brewing Company TAP reported fourth-quarter 2017 results, wherein both the top and bottom line improved year over year and the latter also beat the Zacks Consensus Estimate. Further, the company exceeded its cost-savings target for the year, encouraging management to raise its three-year target for 2019.

The solid results helped this Zacks Rank #3 (Hold) stock gain 2.7% in the pre-market trading hours. Let’s see if this can bring a turn around to the stock’s otherwise drab performance. Well, Molson Coors’ shares have plunged 22.5% in a year, as against the industry’s growth of 14%.

Molson Coors’ adjusted earnings of 62 cents per share surged 31.9% year over year and surpassed the Zacks Consensus Estimate of 56 cents. The upside is attributable to favorable global pricing, net pension benefits, MG&A efficiencies and indirect tax provision cycling. However, this was partly countered by reduced volumes, inflation, greater underlying tax rate and investments in global business capacities.

Molson Coors Brewing Company Price, Consensus and EPS Surprise

Molson Coors Brewing Company Price, Consensus and EPS Surprise | Molson Coors Brewing Company Quote

Delving Deeper

Net sales (excluding excise taxes) advanced 4.5% to $2,579.6 million but was below the Zacks Consensus Estimate of $2,597 million. The sales growth was backed by better global pricing, royalty volume, cycling of indirect tax provision and currency translations, somewhat negated by soft financial volumes. On a constant currency basis, net sales climbed 2.4%. While sales declined in the United States, it witnessed improvements in all other regions. Notably net sales per hectoliter improved 5.8% (up 3.7% on a constant-currency basis), on the back of the same factors that drove net sales.

Molson Coors’ worldwide brand volume inched lower by 1.1% to 22.4 million hectoliters owing to soft U.S. and International volumes, partly compensated by strength in European and Canadian regions. Global priority volumes dipped 1.9%, while financial volumes slipped 1.2% to 23.1 million hectoliters. Financial volumes were hurt by softness in United States.

Underlying EBITDA was $480.3 million in the quarter, marking a 17% jump from the year-ago period. Further, underlying EBITDA ascended 14.3% on a constant currency basis.

Segment Details

The company operates through the following geographical segments.

Canada: Molson Coors Canada net sales rose 7.1% to $352.9 million in the quarter. Net sales per hectoliter grew 1% in local currency, driven by better pricing, partly countered by unfavorable sales mix. Further, Canada brand volume climbed 0.8%, thanks to increased sales of craft and import brands. Financial volumes (which includes contract brewing volumes) inched up 1%. Underlying EBITDA fell 4.2% to $79 million due to higher COGS, partly made up by better pricing; favorable currency and reduced MG&A costs.

United States (MillerCoors): Molson Coors now has complete ownership rights to all the brands in the MillerCoors portfolio for the U.S. market. Segment net sales (on pro-forma basis) decreased 0.6% to $1,724.7 million. Domestic net revenue per hectoliter, which excludes contract brewing and company-owned-distributor sales, improved 1.4%. This stemmed from favorable pricing, partly countered by negative mix. However, U.S. domestic sales-to-retailers volume (STRs) and domestic sales-to-wholesalers volume (STWs) declined 3% and 1.5%, respectively. The former was accountable to soft Premium Light volumes. The segment’s underlying EBITDA grew 4.9% to $346 million thanks to higher net pricing, lower M&A costs and cost savings. This was partly offset by reduced STW volumes and COGS inflation.

Europe: The segment reported net sales growth of 29% to $473.2 million in the quarter. Europe net sales per hectoliter jumped 16.3% in local currency driven by positive mix, inclusion of export brand and royalty revenues and cycling of indirect tax provision. Additionally, Europe brand volume improved 10.4% in the quarter, whereas financial volume (including contract brewing and factored brands, excluding royalty volume) went up by 2.7%. Brand volumes were aided by strength in above-premium brands, transfer of royalty and export brand volumes into this segment from the International segment. Underlying EBITDA surged considerably year over year, from $28.1 million to $102.7 million.

International: Segment net sales surged 19% $71.4 million. Net sales per hectoliter grew 6.1%, courtesy of changes in sales mix and better pricing. However, International brand volume plunged 15.1% in the quarter, marred by transfer of export and royalty volumes to European segment and Modelo contract loss in Japan. This was partly cushioned by inclusion of Puerto Rico’s business from MillerCoors and growth in various markets of Latin America. Segment underlying EBITDA came in at $0.4 million in the quarter, much lower than $1.4 million the year-ago period. This was accountable to increased MG&A costs associated with Miller International’s addition, loss of the Modelo deal and transfer of export and royalty volumes to Europe.

Other Financial Updates

The company’s net cash from operating activities in 2017 came in at $1.866 billion, while underlying free cash flow was $1.449 billion. Underlying free cash flow jumped 67.8% year over year.

The company ended 2017 with cash and cash equivalents of $418.6 million and net debt of $10.895 billion. Notably, the company’s net debt declined substantially from the beginning of 2017. The company also made contributions to its defined-benefit pension plans during the year thus moving ahead with its deleveraging targets.

Notably, the company generated cost savings of more than $255 million in 2017, that surpassed its target by more than $80 million. Encouraged by this, the company raised its three-year savings goal to $600 million, which is expected to be generated by 2019.


Management remains impressed with its 2017 results, which was marked by enhanced top line, global brand volume growth and higher net sales per hectoliter, even amid tough market conditions. Notably, the company’s focus on portfolio premiumization and revenue management have been paying off. Also, the company enhanced its financial position by paying down debt and increased market share in Canada and Europe, while it also exceeded its cost-savings and free cash flow target. Moreover, Molson Coors optimized commercial expenditure, which helped it deliver solid net income and underlying EBITDA growth in 2017.

Further, the company remains committed toward First Choice, and remains focused on strengthening its brand portfolio. Given these factors, along with focus on achieving cost savings and solidifying balance sheet, we remain optimistic about Molson Coors ongoing prospects.

For 2018, Molson Coors anticipates generating cost savings of roughly $210 million. Further, it expects to deliver underlying free cash flow of around $1.5 billion in 2018, (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 range from 18-22%, thanks to the latest tax reforms.

Molson Coors expects 2018 to also be impacted by new revenue recognition standard (which became effective in 2018 beginning) and the updated pension guidance.

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Constellation Brands STZ with a long-term earnings per share growth rate of 19% carries a Zacks Rank #2 (Buy).

Brown-Forman BF.B, with the same Zacks Rank as Constellation Brands, has delivered back-to-back positive earnings surprises in the past two quarters.

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