MILWAUKEE—Consumers bought less beer made by Molson Coors in its third quarter, but profit rose 37 percent because of price increases and cost savings from the company’s joint venture in the U.S.
Molson Coors said it raised prices across its major markets but discounted some prices to compete, which some analysts took as a sign that the higher prices might not be sticking. It also credited better cost controls for the increase in profit.
Despite the profit boost, shares tumbled Wednesday, with some analysts citing concerns about consumers spurning beer in the wake of price hikes. Others said a tax gain that helped the company beat estimates in the quarter was not likely to be repeated.
Shares fell $3.55, or 7.2 percent, to $45.85 on heavy volume late Wednesday.
The worldwide volume of beer sold slipped 2.9 percent in the quarter, reflecting the continuing trend of consumers holding back on their spending amid the recession—and in the face of price hikes by brewers. This has led to volume drops for key Molson Coors markets like Canada and Britain.
One way to stimulate sales would be to lower prices. But Molson Coors CEO Peter Swinburn said the brewer is more interested in protecting its brands for future growth. So while the brewer is discounting some of its products in competitive markets like Canada, for the most part it is holding the line on prices.
Molson Coors and other major brewers have been raising prices, saying they must cover rising costs for key ingredients used to make and transport their beer. Swinburn said the company won’t back down on prices, which he said would confuse consumers and erode brand value.
“We try and be consistent in what we say and do irrespective of what the economy is doing and what the markets are doing,” he told The Associated Press in an interview.
Stifel Nicolaus analyst Mark Swartzberg said results in the quarter show that consumers are trading down to less expensive products, which aren’t as profitable.
Still, he rates the stock a “Buy” and said that even amid all the pressure, Molson Coors is mostly holding firm on price.
“Industry shipment declines are a concern, but we believe management and its largest competitor—Anheuser-Busch InBev—are demonstrating an unwillingness to press the panic button by stepping up promotions to drive volumes,” he wrote.
The maker of Coors Light, based in Denver, earned $235.3 million, or $1.26 a share, in the period ending Sept. 30, up from $171.3 million, or 92 cents a share, last year. Net sales at Molson Coors Brewing Co. fell 7.3 percent to $853.7 million.
Excluding one-time items, the company earned $1.14 a share.
Analysts predicted earnings of 98 cents a share on revenue of $837 million. Those estimates typically exclude one-time items.
Deutsche Bank-North America analyst Marc Greenberg told clients in a note although the company beat estimates the results were of “lower quality than expected.” He said without the tax benefit, the company earned 90 cents a share, which was below estimates. That, along with concern over price increases in Canada and “sluggish category volumes” pushed the stock down, he said.
Sales to retailers in Canada fell 3.2 percent, while volume in Britain dropped 6.3 percent, in part as the company sheds less-profitable business there.
In the U.S., where the company makes and markets its beers with former rival SABMiller’s U.S. unit, net revenue per barrel increased 3.7 percent, driven by price increases and reductions in discounting. Sales to retailers there dropped 1.3 percent.
Molson Coors recognized some $31 million in savings in the third quarter due to the MillerCoors joint venture.
The pairing, which generated $73 million in cost savings in the third quarter, is expected to generate about $500 million in savings in three years. The companies said Thursday they expect an additional $200 million by the end of 2012.
