Molson Coors (TAP) Up 1.2% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Molson Coors Brewing (TAP). Shares have added about 1.2% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Molson Coors due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Molson Coors Q2 Earnings & Sales Beat
Molson Coors has reported second-quarter 2020 results, wherein earnings and sales beat estimates. Moreover, adjusted earnings improved year over year, while sales declined.
While the company began witnessing positive trends in the on-premise channel in some markets in June, its U.K. business remained affected until early July. Further, it expects uncertainty to prevail in the quarters ahead regarding the return of its business to normalcy. It continues to expect significant adverse impacts on top and bottom lines for the third quarter as well as 2020 and beyond.
Molson Coors’ underlying adjusted earnings of $1.55 per share was up 2% year over year and beat the Zacks Consensus Estimate of 65 cents. Despite the impacts of the coronavirus outbreak on top-line growth, the company’s earnings benefited from favorable net pricing, cost savings, and lower marketing, general and administrative (MG&A) expenses.
Underlying EBITDA rose 2.4% to $692.3 million year over year. Further, underlying EBITDA improved 2.2% year over year in constant currency.
Net sales declined 15.1% to $2,503.4 million but surpassed the Zacks Consensus Estimate of $2,438 million. The year-over-year decline was mainly caused by unfavorable global mix and a decline in financial volume due to closure of on-premise channel across the major markets on impacts of the coronavirus pandemic. This was partly offset by higher net pricing in the United States and Canada. On a constant-currency basis, net sales fell 14.3%. Notably, net sales per hectoliter inched up 0.3% on a brand volume basis.
However, Molson Coors’ worldwide brand volume declined 11.6% to 21.5 million hectoliters and financial volume declined 12.5% to 22.6 million hectoliters. The declines in the worldwide brand and financial volumes were mainly attributed to the impacts of the pandemic and the related closure of on-premise outlets. Moreover, market share declined partly due to the prioritization of some key brands and packaging to meet the off-premise demand. Additionally, unfavorable shipment timing in the United States due to aluminum can supply and other packaging material constraints, and lower contract brewing volume hurt financial volume.
Segmental Details
The company operates through the following geographical segments.
North America: Molson Coors’ North America net sales declined 8.3% to $2,002.2 million on a reported basis and 7.9% in constant currency, driven by a decline in financial and brand volume, offset by higher net sales per hectoliter (brand volume basis). North America brand volume declined 7.8%, while financial volume fell 8.3%. Financial volume decline was attributed to lower brand volume, a decline in contract brewing and unfavorable shipment timing in the United States due to aluminum can supply and other packaging material constraints.
The segment’s brand volume was hurt by the closure of on-premise outlets and market share declines. In the United States, brand volumes fell 5.2%, while domestic shipment was down 6.5%. In Canada and Latin America, brand volume declined 9.8% and 48.1%, respectively, in the quarter.
Meanwhile, net sales per hectoliter rose 0.9% on favorable geographic and package mix as well as higher net pricing in the United States and Canada, offset by negative brand and channel mix due to the shift of volume from on-premise to off-premise. Underlying EBITDA increased 13.8% on a reported and constant-currency basis to $651.8 million.
Europe: The segment’s net sales on a reported basis declined 44.6% to $307.1 million and 42.4% in constant currency. The net sales decline was attributed to lower volume and drop in net sales per hectoliter due to the closure of on-premise channel. Net sales per hectoliter (brand volume basis) for the segment were down 12.7%, resulting from an unfavorable channel and geographic mix as well as unfavorable net pricing.
The adverse mix mainly related to its high-margin U.K. business that has greater exposure to the on-premise channel, which remained closed until early July, while the other European markets started to re-open gradually by the end of May and early June. The segment’s financial volume fell 24.8% and brand volumes were down 21.4%. The segment reported underlying EBITDA of $31 million, reflecting a decline of 67.3% on a reported basis and 66.9% in constant currency.
Other Financial Updates
Molson Coors ended the second quarter with cash and cash equivalents of $780.8 million, and total debt of $8,686.7 million. This resulted in net debt of $7,905.9 million at the end of the quarter.
The company had cash flow from operating activities of $1,059.9 million at the end of the second quarter, with an underlying free cash flow of $796.4 million.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -11.06% due to these changes.
VGM Scores
At this time, Molson Coors has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Molson Coors has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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