Molson Coors Brewing Co. posted a drastic increase in quarterly profits Thursday – its second strong showing in a row – indicating that the 2005 merger of the two family-owned brewers is beginning to pay off.
Also, the planned March opening of a new brewery in Virginia, close to heavily populated East Coast markets, should contribute to long-range savings and future profits, said Coors Brewing Co. chief executive Frits van Paasschen.
Increased sales of key brands in the U.S. and Canada during the last quarter drove earnings higher than analysts expected. The company also benefited from merger-related cost savings and a lower tax rate.
The news sent the Denver- based brewer’s share price climbing 5.53 percent, or $4.56, to close at $87.03.
Molson Coors earned $99.2 million, or $1.15 a share, up from $22.4 million, or 26 cents a share, in the same period a year earlier. A consensus of analysts had expected earnings of 94 cents a share on revenue of $1.42 billion, according to Thomson Financial.
The more-than-fourfold increase in profit followed a 25.5 percent increase in profit for the third quarter.
The solid results signal that the 2005 merger of Coors and Molson is working, Stifel Nicolaus analyst Mark Swartzberg wrote in a research note.
“We consider the result the most persuasive indicator yet that the Molson merger is a value-creator,” he wrote.
In spite of the good news, the company continues to face challenges with the price of fuel and other commodities climbing, and consumers switching from beer to wine and spirits.
Coors also may face tougher competition in Canada from discounted beers such as Lakeport Brewing, which is being bought by Belgium- based InBev NV’s Labatt Brewing Co.
And higher costs for aluminum used in cans and kegs, diesel fuel for beer trucks and other commodities could pose significant risk to profit growth in the U.S., Molson Coors CEO Leo Kiely said on a conference call with analysts and media.
The company had revenues for the year of $7.9 billion, up from $7.4 billion in 2005.
Net sales in the U.S. climbed 10 percent, and in Canada net sales were up 11.3 percent. In Europe, net sales were essentially unchanged amid lower prices for beer and higher commodity costs.
“Coors Light, Blue Moon and Keystone Light together really drove the growth story in the U.S.,” van Paasschen said in a telephone interview.
Coors and other major brewers have been struggling to increase sales even as wine, liquors and craft beers have all gained market share.
Coors’ brands “are outpacing their more direct and competitive brands as well,” van Paasschen said, noting the company’s creative marketing approach.
Marketing for Coors Light featured fake news conferences at which former Indianapolis Colts coach Jim Mora offers advice to a group of young men on talking to girls at a party.
Coors Light is the official beer sponsor of the National Football League.
In the U.S., Molson Coors boosted sales of Belgian-style wheat beer Blue Moon and Keystone Light by adding more shelf space at retailers.
Blue Moon sales don’t rely on the mass marketing that sells Coors Light and other brands, van Paasschen said.
“The brand-building proposition for Blue Moon is considerably different and really focuses on going to the right places on premises and having the consumer discover what we believe is a great beer,” he said.
Va. plant to open next month
The company posted about $33 million in cost savings in the quarter related to the $3.4 billion merger. For the year, Molson Coors said acquisition- related cost savings totaled about $104 million, which offset nearly 60 percent of higher energy-related and commodity costs.
Merger-related savings next year will total about $55 million, which will be used to offset inflation expenses, chief financial officer Timothy Wolf said on the conference call.
The company plans to open its new Shenandoah brewing plant in Elkton, Va., in March. The plant can brew 7 million barrels annually, and its proximity to East Coast markets is expected to cut transportation and other costs by about $30 million annually.
The brewery won’t be fully operational until mid-2007.
Kiely declined to comment on a Brazilian newspaper report detailing talks to unite InBev SA and Anheuser-Busch Cos., the world’s two largest beermakers.
Deutsche Bank Securities Inc. analyst Marc Greenberg told clients in a research note the reports about InBev and Anheuser-Busch put all global brewing companies “in play,” helping their stock prices.
Kiely declined to say if there are any acquisitions in Molson Coors’ future other than saying the business will expand if it continues to grow.
Denver Post wire services contributed to this report.
Staff writer Tom McGhee can be reached at 303-954-1671 or tmcghee@denverpost.com.
