Molson Coors Brewing Co., the world’s fifth-largest beer maker, said today third-quarter profit rose 26 percent on higher sales of Coors Light and Keystone Light, sending the stock up the most in almost three years.
Net income increased to $135.8 million, or $1.56 a share, exceeding analysts’ estimates. Profit a year earlier was $108 million, or $1.26, hurt by costs from the merger of Molson Inc. and Adolph Coors Co. Sales rose 3.3 percent to $1.58 billion, Golden, Colorado-based Molson said today in a statement.
Molson lifted U.S. volume and prices 3 percent, above some analysts’ estimates, after Chief Executive Officer Leo Kiely spent more marketing Coors Light to win drinkers from Anheuser- Busch Cos. and SABMiller Plc. He introduced products such as disposable cardboard beer boxes with insulated linings.
“This is a remarkable performance” in the U.S., wrote Carlos Laboy, an analyst with Bear, Stearns & Co., in a research note today. He is based in New York and rates the shares “underperform.” Shares of Molson Coors climbed $3.54, or 5.2 percent, to $71.35 at 12:17 p.m. in New York Stock Exchange composite trading, the biggest gain since February 2004. The stock increased 1.2 percent this year before today.
Bill Pecoriello, an analyst at Morgan Stanley, estimated Molson’s profit would be $1.33 a share. He is the top-ranked beverage analyst by Institutional Investor. His estimates were 11 cents less than the average of 12 analysts surveyed by Thomson Financial. Thomson doesn’t disclose the basis of its estimates to Bloomberg News.
Plant-Closing Costs Profit was hurt by $28.5 million in costs, or 20 cents a share, related to the closing of a brewery in Memphis, Tennessee; changes to Molson’s supply chain in the U.K.; and benefits paid to executives who left the company following the merger.
Gross margin, or the amount of sales left after subtracting the cost of goods sold, widened to 42.4 percent of sales from 42.26. Selling, general and administrative costs narrowed to 27.6 percent from 28.2.
Total volume was unchanged from a year earlier at 11.2 million barrels, as gains in the U.S. were muted by declines in Canada and the U.K.
U.S. volume rose 3 percent on demand for Coors Light, which increased by “low single digits,” and Keystone Light, which gained more than 10 percent.
The U.S. gain exceeded the 0.5 percent rise expected by Michael Van Aelst, a TD Newcrest analyst. Molson gets 20 percent of its profits from the U.S.
Canadian Volume Volume in Canada, where Molson derives 65 percent of its profits, lost 2.5 percent after rivals including InBev NV cut prices on beers such as Labatt to lure drinkers. TD Newcrest’s Van Aelst estimated Molson’s Canada volume to drop 2 percent.
Molson also had a favorable 7 percent movement in currency exchange rates in Canada. The company benefited from an “improved financial performance” of the Montreal Canadiens hockey team it owns, and a $9 million gain related to a reduction of the company’s financial guarantee obligations to the club.
European volume for the company’s own brands dropped 4.4 percent on lower sales of Carling, and retailers who reduced inventories after the World Cup soccer tournament ended in early July. Van Aelst estimated a 3 percent decline in Europe.
New Products The brewer in April introduced new bottles wrapped with a layer of insulation to keep beer colder longer.
The company also promoted a Cooler Box, which has a liner that allows consumers to add ice to 18-pack cardboard boxes of beer.
“Improved marketing, innovation and sales alignment are driving Coors’ share gains in the U.S.,” wrote Kaumil Gajrawala, an analyst with UBS Securities LLC, in a research note today, referring to the lined cardboard boxes and insulated cans and bottles. He is based in New York and rates the shares “buy.” Molson’s U.S. division in September signed a two-year sponsorship agreement with the National Football League’s New Orleans Saints, which allows the brewer to use the team’s trademark in its marketing.
Coors also gained the naming rights for a bar inside the Superdome in New Orleans as part of the deal, whose terms weren’t disclosed. Coors is the official beer sponsor of the NFL.
Cutting Costs Kiely, 59, has been cutting costs at Molson Coors in the wake of the 2005 merger of Molson Inc. and Adolph Coors Co. The company has said the total cost savings will be $175 million.
Molson said third-quarter savings were about $25 million, matching Pecoriello’s estimate.
The company has exceeded analysts’ estimates twice in the past four quarters. Of the 14 analysts who have tracked the company over the past year, four rate it a “buy,” eight recommend holding and two say “sell.”
