August 5, 2008 / 1:00 PM / 9 years ago

Molson Coors profit misses view; shares fall

<p>Thousands of newly-labelled bottles of Coors Light beer head for packaging at the Coors brewery in Golden, Colorado, October 16, 2007. REUTERS/Rick Wilking</p>

NEW YORK (Reuters) - Molson Coors Brewing Co (TAP.N) reported quarterly profit that missed Wall Street estimates on Tuesday, hurt by soaring energy and commodity costs and a higher tax rate, sending its shares down as much as 15 percent.

The brewer, which recently combined its U.S. operations with those of SABMiller Plc SAB.L, said second quarter net profit tumbled 56 percent to $80.9 million, or 43 cents per share, from $184.9 million, or $1.12 per share, a year earlier.

Excluding special items such as charges of $103.9 million related to the MillerCoors venture and a write-down of Molson brands, Molson earned 93 cents a share, well below analysts’ average estimate of $1.17, according to Reuters Estimates.

Chief Executive Peter Swinburn, who has had the top job for just over a month, said the results reflected a few items that were unforeseen by the brewer of Molson Canadian and Coors Light. Swinburn cited weakness in Canada due to there being more rain than usual, a higher-than-expected tax rate and a bigger-than-expected surge in the price of oil.

Yet “the fundamentals of the business are still very, very strong,” Swinburn said in an interview. “We do need to manage the cost inflation going forward and we expect to be able to do that.”

Molson said its quarterly tax rate excluding special items was 23 percent, up from 20 percent a year earlier. It said it now expects a full-year rate of 20 percent to 24 percent, up from a prior estimate of 14 percent to 18 percent.

UBS analyst Kaumil Gajrawala said the higher tax rate drank up 9 cents per share of second-quarter earnings. He said the higher full-year rate would likely lead analysts to cut their earnings expectations.

Yet Gajrawala maintained his “buy” rating on Molson shares, saying overall results were in line with expectations excluding the impact of higher prices for fuel and commodities such as grains and aluminum. Going forward, savings from the MillerCoors combination should offset that, he said.

Molson shares closed down 11.5 percent, or $6.25, at $48.18 on the New York Stock Exchange. Earlier in the session they fell to $46.18, their lowest in nearly six months.

HIGHER PRICES, U.S. STRENGTH HELP

Net sales in the second quarter rose 4.8 percent to $1.76 billion as the company sold 11.6 million barrels of beer, a 0.9 percent increase.

Sales to retailers, a closer measure of consumer demand, rose 2.3 percent.

Price increases helped net sales per barrel rise 3.9 percent, but could not offset a 5.9 percent increase in costs per barrel, due mostly to energy and commodity cost inflation.

Volume in the United States, the company’s largest market, rose 7 percent, while higher prices lead to a 3.8 percent increase in sales per barrel.

“If opportunities arise for us to take additional pricing in the third and fourth quarters than we will take advantage of that, but do it on a market-by-market and brand-by-brand basis,” Swinburn said.

U.S. sales to retailers rose 5.1 percent, driven by mid- single-digit growth of Coors Light, which gained market share relative to rivals such as Anheuser-Busch Co Inc’s (BUD.N) Bud Light and SABMiller’s Miller Lite.

U.S. sales of Coors Banquet rose at a high single digit rate, while Blue Moon and Keystone Light beers grew at a double digit rate.

Despite the weak economy in the United States, Swinburn said Molson was not seeing any evidence that consumers were “trading down” to cheaper beers or “trading out” of beer all together.

Volume in Britain fell 2.6 percent due to a weakening economy and recent smoking bans that have hurt the pub business. Income fell by nearly half due to higher cost inflation.

Molson’s Canada unit earned higher profit as the benefits of foreign currency exchange rates and higher prices were only partially offset by higher commodity costs. Volume fell 11.7 percent due to the transfer of sales to a joint venture with Grupo Modelo GMODELOC.MX and poor weather.

“Volumes in the U.S. and the U.K. were better than forecast, volumes were worse in Canada,” Morgan Stanley analyst William Pecoriello wrote in a research note.

Reporting by Martinne Geller, editing by John Wallace and Andre Grenon

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