Wasn’t beer supposed to be recession proof? After six straight quarters of earnings upside and revenue momentum, Molson Coors (TAP), in the words of the bullish Credit Suisse, “came back down to earth hard.”
TAP, which reported Q2 earnings yesterday morning, missed Q2 EPS ($0.93 vs. $1.17 consensus) badly. The brewer was hurt by:
- soaring energy and commodity costs
- a higher tax rate
- a weaker-than-expected topline in Canada
- growing insecurity about the long-term health of the UK business
Credit Suisse trims their target $2 to $63, but tries to give comfort to those investors who thought the beer industry would resist the downturn:
…we believe that the sell-off is overdone and we would be buyers on weakness. We believe MillerCoors [the TAP & SABMiller US joint venture] will be able to both exploit transition issues at A-B [Anheuser-Busch] as well as help offset commodity pressures at the combined Molson Coors.
We think the core business is in solid shape heading into the MillerCoors integration. U.S. volumes were strong as expected and although Canadian volumes were weakened by weather (-0.8%), July STRs bounced back strongly as indicated on the call. The UK issues appear increasingly dire, however the company did manage to grow pricing and share while taking some one-time hits to the bottom line. This should ease into the back half of the year.
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