Molson Coors posts disappointing results
Published Wednesday August 6th, 2008
MONTREAL - Molson Coors Brewing Co. says it's committed to improving the position of its legacy Canadian brands in the United States, despite recognizing that their value has dropped by US$50.6 million.
"Our commitment to the Molson brand in the U.S. is, if anything, even stronger now because we realize that we haven't got it right," Peter Swinburn, the brewer's newly installed chief executive, said in an interview to discuss second quarter results.
Molson Coors failed to meet market expectations Tuesday when higher costs, poor Canadian weather and unusually high tax rates caused second-quarter profits to take a dive.
The results prompted a sharp selloff with shares dropping to their lowest level since the company was formed in 2005.
The stock slid $5.08 or 9.14 per cent to C$50.50 in trading on the Toronto Stock Exchange and plummeted $6.25 or 11.48 per cent to US$48.18 on much heavier volume in New York.
Net income for the period ended June 29 fell by 56 per cent to US$80.9 million on lower income from continuing operations.
Sales increased to US$1.76 billion, up 4.8 per cent from the same time last year when the beer maker had net income of US$184.9 million.
Earnings were 43 cents per diluted share, compared to $1.02 a year earlier. Excluding special items related to the joint venture creating MillerCoors and the Molson brand charge, the company earned 93 cents per share.
The Denver and Montreal-based brewer took the non-cash charge because the brand's value in the U.S. was deemed to be lower than had been anticipated when the Molson Coors joint venture was completed.
Volume of Molson brands has declined and pricing Molson Canadian as a premium didn't make sense given consumer perceptions of it being like a domestic product.
Swinburn said the company will focus on improving the brand's performance in about 18 months, although he said it will take longer to complete the task.
He called the second quarter an aberration, as higher product prices and operational cost savings couldn't overcome increased energy, agricultural and commodity costs that have become bigger challenges for Molson Coors and the global beer industry.
"The fundamentals of the business remain very, very strong, our brands are performing well. We're getting pricing, we're getting volume and we need to manage the input inflation and I'm sure we'll do that."
But Craig Hutson of Gimme Credit said the selloff was prompted by investor concerns about input costs.
"We think most investors were caught off guard by the rise in input costs and the likelihood that this pressure on margins could get worse before it gets better," he wrote in a report.
Overall productivity savings of US$18 million failed to offset a 5.9 per cent cost per barrel increase. The company said it has achieved more than 60 per cent of its $77 million target for 2008.
In Canada, costs are expected to be contained later this year in comparison to 2007 when the company closed its Edmonton and Moncton breweries.
Cost of goods sold per barrel increased 1.4 per cent, driven by an eight per cent increase in packaging, materials, energy and transportation costs and higher overhead costs.
Canadian operations saw beer volume drop by more than 275,000 barrels, or nearly 12 per cent.
The company attributed the decline to the shifting of some beer sales to the Modelo Molson joint venture and the termination of the U.S. production contract for Foster's. Net sales from Canada fell less dramatically, to $532.6 million from $534.5 million.
A soggy spring caused Molson Coors sales to retail to fall by 0.8 per cent, slightly above the industry declines in Canada. 17:36ET 05-08-08
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