Molson Coors (TAP) Down 7.1% Since Last Earnings Report: Can It Recover?

It’s been about a month since Molson Coors Brewing (TAP) last reported earnings. Shares have lost about 7.1% in that time, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Molson Coors due for a breakout? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the key drivers.

Molson Coors’ first-quarter earnings and sales beat estimates

Molson Coors posted impressive first-quarter 2024 results, with both the bottom and top lines surpassing the Zacks Consensus Estimate. Both indicators also improved year by year.

The company’s adjusted earnings of 95 cents per share rose 75.9% year over year and surpassed the Zacks Consensus Estimate of 71 cents.

Net sales increased 10.7% year-over-year to $2,596.4 million and surpassed the Zacks Consensus Estimate of $2,499 million. On a constant currency basis, net sales increased by 10.1%, driven by a positive price and sales mix, increased financial volumes and the positive impact of foreign currencies.

Gross profit increased 25% year over year to $963.5 million. We note that gross margin increased by 430 basis points (bps) to 37.1% in the quarter under review.

Segment information

Americas: Net sales in this segment increased 10.6% year-over-year to $2,145.4 million on both a reported and constant currency basis, driven by positive pricing and sales patterns as well as higher financial volume. Financial volumes increased 7.5% year-over-year, driven by growth in U.S. brand volumes driven by higher core brand volumes, partially offset by lower contract brewing volumes.

Brand volume increased 5.3% year-over-year, with growth of 5.8% in the United States, primarily driven by core brand expansion. Both Coors Light and Coors Banquet experienced double-digit growth, while Miller Lite achieved high single-digit growth. Canadian brand sales volume increased 3.6%, driven by growth in premium brands.

Net sales increased 3.1% on a price and sales mix basis, primarily due to higher net prices and a favorable change in sales mix resulting from reduced contract brewing volumes in the United States. Underlying EBT increased 37.8% in constant currency to USD 321.1 million. The growth can be attributed to higher net prices, rising financial volumes, favorable sales mix and cost-saving initiatives, offset by material cost inflation and higher MG&A costs.

EMEA and APAC: Segment net sales (based on reports) increased 10.9% year-over-year to USD 454.7 million and improved 8% on a constant basis, driven by favorable pricing and sales structure and favorable currency, partially offset decline in financial volumes.

Financial volumes decreased 0.2% year-on-year due to lower volumes in Western Europe, impacted by challenges in the UK off-premises channel, partially offset by increased volumes in Central and Eastern Europe due to easing inflationary pressures there market. Brand volumes increased by 1.9%, mainly due to increased volumes in Central and Eastern Europe as inflationary pressures eased on consumers, partially offset by lower volumes in Western Europe.

The pricing and sales mix positively impacted net sales by 8.2%, mainly due to premiumization and higher net prices for customers. The segment’s underlying EBT increased 28.4% year-over-year to $17.3 million in constant currency, driven by higher net customer pricing and favorable sales mix, partially offset by higher MG&A costs.

The story continues

Other financial updates

Molson Coors ended the first quarter with cash and cash equivalents of $458.4 million. As of March 31, 2023, the company had total debt of $6.22 billion, resulting in net debt of $5.76 billion.

Net cash provided by operating activities amounted to USD 25.4 million for the three months ended March 31, 2024. The company’s capital expenditures in 2024 are estimated at USD 750 million.

During the three months ended March 31, 2024, the company repurchased 1,760,115 shares under the program approved on September 29, 2023.

Perspectives

Management issued guidance for 2024. Net sales are expected to grow year over year at a low single-digit rate at constant currency. Underlying EBT is likely to grow in the mid-single digits at constant currency. Underlying earnings per share are likely to grow by mid-single digits compared to reported earnings in 2023.

Basic depreciation is expected to be $700 million, plus or minus 5%. The company expects that in 2024 the effective tax rate will be 23-25%. Consolidated net interest expense is expected to be $210 million, plus or minus 5%. Basic free cash flow is likely to be $1.2 billion, plus or minus 10%.

How have estimates changed since then?

Investors have witnessed a downward trend in estimate revisions over the past month.

VGM results

Currently, Molson Coors has a weak Growth Score of D, but its Momentum Score is slightly better at C. However, the stock is rated an A on the value side, putting it in the top quintile of this investment strategy.

Overall, the stock has a Total VGM Score of B. If you’re not focused on one strategy, this score should interest you.

Perspectives

Estimates for this company are generally on a downward trend, and the magnitude of these revisions indicates a downward shift. Notably, Molson Coors carries a Zacks Rank #3 (Hold). We expect a linear rate of return on the stock over the next few months.

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