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Will On-Premise Woes Continue to Undermine Molson Coors Stock?
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Molson Coors Beverage Company (TAP - Free Report) has displayed a resilient quarterly performance despite the looming impacts of the coronavirus pandemic on the on-premise business of most beverage makers. Notably, the closure of restaurants and bars across all regions due to the pandemic has been taking a toll on the top line of almost every beverage company. However, Molson Coors’ second-quarter 2020 results marked a strong performance, thanks to gains from favorable net pricing, cost savings, and lower marketing, general and administrative (MG&A) expenses.
This led the company to deliver the top and bottom-line beat in the second quarter, marking its fourth consecutive quarter of earnings beat. Moreover, the top line beat the Zacks Consensus Estimate in the second quarter, after reporting negative surprises in the past three quarters. Also, adjusted earnings improved year over year, while sales declined. Molson Coors’ diligent cost-containment efforts led to improved bottom-line results in the second quarter.
Notably, the company’s reported cost of goods sold (COGS) per hectoliter declined 5.4%, driven by gains from unrealized mark-to-market commodity positions, cost savings and a favorable resolution of our property tax appeal for our Golden, Colorado brewery, partially offset by volume deleverage. Additionally, marketing, general & administrative (MG&A) expenses declined 31.9% on a reported basis and 30.8% on an underlying basis in constant currency. This deleverage was aided by the company’s efforts to prioritize, shift and significantly reduce marketing spend by shifting to media platforms with greater audiences in the current situation.
Further, it suspended on-premise activation spending and eliminated expenses in areas that are significantly impacted like sports and in-market activations. Moreover, the company adjusted the timing of spend on brands and packs that witnessed constrained supplies. Collectively, these actions along with contributions from cost savings related to the revitalization plan led to a decline in marketing spending on a year-over-year basis, which also aided the earnings performance.
Will Softness in On-Premise Over Shadow This Performance?
Although Molson Coors’ top line beat estimates in second-quarter 2020, the impacts of the closure of the on-premise channel across major markets persisted. This led to a year-over-year sales decline in the second quarter and has also been a key reason for investors’ mixed view on the stock.
Notably, the Zacks Rank #3 (Hold) company, with a market capitalization of $8.24 billion, has gained 2.9% in the past three months, which lagged the industry’s 15.6% growth. Moreover, the stock has underperformed the Consumer Staples and the Zacks S&P 500 composite’s growth of 12.9% and 14.7%, respectively.
In the second quarter, the closure of on-premise channels across the major markets on impacts of the coronavirus pandemic mainly impacted the company’s global mix and financial volume. On a constant-currency basis, net sales fell 14.3%. North America net sales declined 8.3% on a reported basis and 7.9% in constant currency. Net sales in Europe declined 44.6% on a reported basis and 42.4% in constant currency.
While the company has been witnessing unprecedented strength in demand in the off-premise channel, this growth has not fully offset the on-premise losses. Despite all efforts, the company expects these disproportionate trends in on-premise and off-premise to continue hurting sales in the quarters ahead.
Apart from the impacts on on-premise, Molson Coors witnessed shifts in demand for the off-premise and certain package types during the second quarter. This strained the supply chain and package availability, particularly hurting the aluminum can demand and other packaging materials. This led the company to strategically prioritize certain brands and package types to adjust to these changing consumer dynamics. Eventually, this weighed on its top and bottom-line performance in the second quarter.
Moreover, the company expects the industry-wide supply constraints for cans to remain a headwind in the third quarter.
AnheuserBusch InBev SANV (BUD - Free Report) delivered an earnings surprise of 48.4% in the last reported quarter. The company presently carries a Zacks Rank #2 (Buy).
Monster Beverage Corporation (MNST - Free Report) currently has a long-term earnings growth rate of 12% and a Zacks Rank #2.
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Will On-Premise Woes Continue to Undermine Molson Coors Stock?
Molson Coors Beverage Company (TAP - Free Report) has displayed a resilient quarterly performance despite the looming impacts of the coronavirus pandemic on the on-premise business of most beverage makers. Notably, the closure of restaurants and bars across all regions due to the pandemic has been taking a toll on the top line of almost every beverage company. However, Molson Coors’ second-quarter 2020 results marked a strong performance, thanks to gains from favorable net pricing, cost savings, and lower marketing, general and administrative (MG&A) expenses.
This led the company to deliver the top and bottom-line beat in the second quarter, marking its fourth consecutive quarter of earnings beat. Moreover, the top line beat the Zacks Consensus Estimate in the second quarter, after reporting negative surprises in the past three quarters. Also, adjusted earnings improved year over year, while sales declined. Molson Coors’ diligent cost-containment efforts led to improved bottom-line results in the second quarter.
Notably, the company’s reported cost of goods sold (COGS) per hectoliter declined 5.4%, driven by gains from unrealized mark-to-market commodity positions, cost savings and a favorable resolution of our property tax appeal for our Golden, Colorado brewery, partially offset by volume deleverage. Additionally, marketing, general & administrative (MG&A) expenses declined 31.9% on a reported basis and 30.8% on an underlying basis in constant currency. This deleverage was aided by the company’s efforts to prioritize, shift and significantly reduce marketing spend by shifting to media platforms with greater audiences in the current situation.
Further, it suspended on-premise activation spending and eliminated expenses in areas that are significantly impacted like sports and in-market activations. Moreover, the company adjusted the timing of spend on brands and packs that witnessed constrained supplies. Collectively, these actions along with contributions from cost savings related to the revitalization plan led to a decline in marketing spending on a year-over-year basis, which also aided the earnings performance.
Will Softness in On-Premise Over Shadow This Performance?
Although Molson Coors’ top line beat estimates in second-quarter 2020, the impacts of the closure of the on-premise channel across major markets persisted. This led to a year-over-year sales decline in the second quarter and has also been a key reason for investors’ mixed view on the stock.
Notably, the Zacks Rank #3 (Hold) company, with a market capitalization of $8.24 billion, has gained 2.9% in the past three months, which lagged the industry’s 15.6% growth. Moreover, the stock has underperformed the Consumer Staples and the Zacks S&P 500 composite’s growth of 12.9% and 14.7%, respectively.
In the second quarter, the closure of on-premise channels across the major markets on impacts of the coronavirus pandemic mainly impacted the company’s global mix and financial volume. On a constant-currency basis, net sales fell 14.3%. North America net sales declined 8.3% on a reported basis and 7.9% in constant currency. Net sales in Europe declined 44.6% on a reported basis and 42.4% in constant currency.
While the company has been witnessing unprecedented strength in demand in the off-premise channel, this growth has not fully offset the on-premise losses. Despite all efforts, the company expects these disproportionate trends in on-premise and off-premise to continue hurting sales in the quarters ahead.
Apart from the impacts on on-premise, Molson Coors witnessed shifts in demand for the off-premise and certain package types during the second quarter. This strained the supply chain and package availability, particularly hurting the aluminum can demand and other packaging materials. This led the company to strategically prioritize certain brands and package types to adjust to these changing consumer dynamics. Eventually, this weighed on its top and bottom-line performance in the second quarter.
Moreover, the company expects the industry-wide supply constraints for cans to remain a headwind in the third quarter.
Better-Ranked Stocks to Consider
The Boston Beer Company, Inc. (SAM - Free Report) delivered an earnings surprise of 26.1%, on average, in the trailing four quarters. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
AnheuserBusch InBev SANV (BUD - Free Report) delivered an earnings surprise of 48.4% in the last reported quarter. The company presently carries a Zacks Rank #2 (Buy).
Monster Beverage Corporation (MNST - Free Report) currently has a long-term earnings growth rate of 12% and a Zacks Rank #2.
Biggest Tech Breakthrough in a Generation
Be among the early investors in the new type of device that experts say could impact society as much as the discovery of electricity. Current technology will soon be outdated and replaced by these new devices. In the process, it’s expected to create 22 million jobs and generate $12.3 trillion in activity.
A select few stocks could skyrocket the most as rollout accelerates for this new tech. Early investors could see gains similar to buying Microsoft in the 1990s. Zacks’ just-released special report reveals 8 stocks to watch. The report is only available for a limited time.
See 8 breakthrough stocks now>>