Molson Coors CEO Peter SwinburnSHAUN BEST
Molson Coors Brewing Co. said beer volumes continue to decline in the current fourth quarter as consumers remain focused on value, pushing shares down despite a better-than-expected quarterly profit.
The third-quarter profit jump stemmed largely from a tax benefit and price increases, which offset a 2.9 per cent decline in volume.
"As we look forward to the fourth quarter, we anticipate the global beer markets will remain soft and consumers will continue to look for value in a weak economy, president and chief executive officer Peter Swinburn said during a conference call.
The results echoed reports by MillerCoors, Molson's U.S. joint venture with SABMiller PLC, and by Carlsberg, the fourth-biggest brewer.
Danish Carlsberg beat analysts' profit expectations Wednesday but trimmed its 2009 sales outlook and forecast an "equally challenging" 2010, and its shares fell 5.3 per cent .
While beer's relatively low price has made it more resilient than other discretionary consumer products in the slowdown, early fourth-quarter results suggest that Molson Coors is feeling pressure heading into the holiday season.
The Canadian market is particularly tough, Mr. Swinburn said.
Molson Coors has been promoting its brands, such as Coors Light and Molson Canadian, while raising prices and keeping a tight lid on costs to offset a dip in volume and unfavorable foreign currency fluctuations.
The company plans to spend more to promote its beers in its Canadian, U.S. and international businesses this quarter.
The brewer, whose other beers include Blue Moon, earned $235.3-million (U.S.), or $1.26 per share, in the third quarter ended Sept. 26, up from $171.3-million, or 92 cents per share, a year earlier.
Adjusted earnings per share of $1.14 topped analysts' average forecast of 98 cents, according to Thomson Reuters I/B/E/S. Much of the growth came from a favourable tax resolution.
UBS analyst Kaumil Gajrawala said Molson Coors would have earned 97 cents per share without the tax benefit.
Margins were disappointing as consumers bought less expensive, lower margin beers, said Stifel Nicolaus analyst Mark Swartzberg.
Both analysts have "buy" ratings on Molson Coors and said investors should use the share price drop as a buying opportunity.
Sales excluding excise taxes fell 7.3 per cent to $853.7-million, ahead of analysts' forecast of $837-million. Total worldwide beer volume declined 2.9 per cent.
Sales of Coors Light, by volume, fell slightly after the brand saw strong growth a year earlier.
Overall, volume dipped in Canada, the MillerCoors business in the United States and in the United Kingdom. The small international markets segment saw volume jump 27.7 per cent, driven by Coors Light in China and Carling in Europe.
Sales to retailers, a better gauge of consumer demand than sales to wholesalers, are down so far in the fourth quarter.
In Canada, comparable sales to retail fell at a high single-digit rate for the first four weeks of October, due in part to poor weather around the Canadian Thanksgiving holiday, Mr. Swinburn said.
U.K. sales to retail fell at a low double-digit rate in the first five weeks of the fourth quarter, while MillerCoors sales to retail fell in a mid single-digit rate in the first four weeks of the quarter, he said.
Earlier Wednesday, MillerCoors reported a 28.1 per cent increase in net income, as cost savings and price increases offset a dip in sales volume. The U.S. venture said domestic sales to wholesalers fell 0.7 per cent. Sales from wholesalers to retailers fell 1.3 per cent.
The MillerCoors venture blamed a low single-digit decline in sales volume of its premium light beers, including Miller Lite and Coors Light, and a double-digit decline of its higher-end brands, which include Miller Chill and Killian's Irish Red.
MillerCoors' least expensive beers, including Keystone Light and Miller High Life, saw a low single-digit increase in sales. Molson Coors has a 42 per cent stake in MillerCoors.