just On Call - Molson Coors struggles with weak demand
Canada hits Molson Coors hard in Q1
Weak demand for beer in Molson Coors' key markets has blighted an increase in net sales and operating profits for the brewer in its latest quarter.
Molson Coors said today (3 May) that beer sales in its native Canada fell by 6% in the three months to the end of March. Volume sales to retailers at the group's MillerCoors venture in the US were down by 1.4%, while Molson Coors' UK volumes slipped by 1.6%.
The Canadian brewer's reliance on large yet relatively lacklustre beer markets has been its key weakness in recent years, particularly since the onset of the economic downturn.
This weakness dominated reaction to the company's first quarter results today: Molson Coors' share price was down by 4.6% in morning trading on the New York Stock Exchange. Weak demand for beer in the brewer's key markets outshone a 4% rise in net sales and a 17% increase in operating profits. Net profits fell by around a fifth, to US$82.9m, though largely due to the group cycling a one-off gain of $42.6m that boosted profits in the first quarter of 2010.
Molson Coors' CEO, Peter Swinburn, attempted to soothe concerns about Canada by forecasting that the 6% volume drop in the first quarter is unlikely to be repeated throughout the year.
"The overall North America trend is pretty similar," he said, referring to the low single-digit, beer market volume decline that has prevailed in both the US and Canada since the onset of the global financial crisis. In the first quarter, the group said, Canadian beer sales were also hit by poor weather, together with a tough comparative figure due to last year's quarter including the country's hosting of the Winter Olympics.
Some analysts were keen not to exaggerate Molson Coors' volume sales problems. "Although weak volume and cost inflation are plaguing Molson Coors' results, the market appears to be overreacting to these results," said Morningstar analyst Philip Gorham. "Near-term weakness in the stock may provide an attractive entry point."
However, he added: "We continue to believe that Molson Coors will underperform the industry until a meaningful drop in unemployment occurs."
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