Molson Coors cuts spending. Its outlook still gets worse.
Cost savings are falling short of the pressure on beer profits. Shipment timing also makes the U.S. quarter look stronger than demand for its brands.
Molson Coors lowered its annual sales, profit and cash-flow forecasts even after cutting marketing and administrative spending. Weak beer demand and higher production and transport costs are absorbing the savings.
The brewer behind Coors Light and Miller Lite had defended its full-year targets in August. Its November update now assumes the industry's softer volumes will persist through the final quarter.
The savings do not cover the squeeze
Research by Ticker Byline shows that the quarter's $53.2 million reduction in marketing, general and administrative expenses covered only about 37% of the $143.1 million fall in reported gross profit, the money left after production costs.
The company spent less on marketing and reduced employee-related costs. But underlying production costs per unit rose 8.1% after removing currency effects. Materials, logistics and manufacturing inflation, along with lower volumes, outweighed the savings.
Third-quarter net sales fell 1.6% to $2.93 billion. Underlying pretax profit, which removes specified restructuring costs, asset write-downs and other adjustments, fell 17.4% at constant currency to $349 million.
Shipments flatter the U.S. result
U.S. financial volume fell 2.2%, helped by shipment timing. Brand volume, which adjusts for distributor stocks and better reflects demand for the company's brands, fell 5.6%.
Molson Coors expects those two trends to converge in the fourth quarter. That reduces the support from shipping patterns just as the company expects beer demand to remain weak.
There is a brighter counterpoint outside the Americas. Underlying pretax profit in Europe, the Middle East, Africa and Asia-Pacific rose 5.5% at constant currency, helped by lower marketing and administrative expenses.
A lower bar for the full year
| Measure | August outlook | November outlook |
|---|---|---|
| Net sales, constant currency | Down 1% to up 1% | Down 1% to 2% |
| Underlying pretax profit, constant currency | Down 15% to 18% | Down 21% to 24% |
| Underlying EPS | Down 11% to 15% | Down 16% to 19% |
| Underlying free cash flow | $1.1 billion, plus or minus 10% | $1.0 billion, plus or minus 10% |
The pressures were already visible at a September investor conference. The November figures put a lower numerical forecast behind them.
Cash provides support, with some help from timing
Nine-month operating cash flow rose to $1.28 billion from $1.24 billion. That included a $107.5 million interest-rate-swap settlement and favorable payment timing. Cash left after capital spending was $811.4 million; the company's $852 million underlying free-cash-flow figure adds back specified cash costs.
Molson Coors had $602 million of cash and about $1.7 billion of available revolving credit at September 30. It remained within its debt covenants.
Reported net income recovered to $271.5 million from a loss a year earlier, when large asset write-downs depressed results. The lower forecasts also prompted a fresh valuation test of Americas goodwill as of October 1. At filing, the company had not determined whether another write-down was needed.
Our Molson Coors company profile tracks the earnings comparison, debt and cash position, revised targets and completed acquisition of Monaco Cocktails' owner.