Molson Coors continues to benefit from the Bud Light boycott

By Ciara Linnane

Earnings showed a strong profitability beat, says MKM Roth analyst Bill Kirk

Molson Coors Beverage Co. posted better-than-expected earnings for the third quarter on Thursday and raised profit guidance for the full year as it continues to gain market share from the boycott of Bud Light.

But the stock (TAP) fell 1.7% as full-year guidance implied some softness in the fourth quarter, which the company sought to explain would not be the case.

The company posted net income of $430.7 million, or $1.98 a share, in the third quarter, almost double the $216.4 million, or 99 cents a share, posted in the year-earlier period. Adjusted per-share earnings came to $1.92, well ahead of the $1.56 FactSet consensus.

Sales rose 12% to $3.298 billion from $2.935 billion a year ago, also ahead of the $3.242 billion FactSet consensus.

The company is now expecting its full-year sales to come in at the high end of guidance for a high single-digit increase.

It is raising its adjusted pretax profit guidance to growth of 32% to 36% versus prior guidance of a 23% to 26% increase.

"The guidance increase is driven by a healthier U.S. beer industry than previously anticipated, more robust brand volume performance, higher than expected pricing primarily in Canada, as well as lower net interest expense due to higher cash balances generating increased interest income," the company said in a statement.

See also: Molson Coors OKs $2 billion buyback program, targets long-term sales growth in the low single digits

On a call with analysts, Chief Financial Officer Tracey Joubert said the U.S. beer market has been stronger than the company expected when it updated guidance in August. At the time, beer sales were being hurt as high inflation was encouraging consumers to cut back on discretionary spending.

"In other words, its rate of decline is better than we had expected and better than it was earlier this year," Joubert told analysts, according to a FactSet transcript.

Brand volume growth was also better than expected and is set to accelerate in the fourth quarter.

"Food pricing across our global markets and in particular, in Canada, has been better than we had planned. And fourth, due to higher-than-expected cash balances, we now anticipate lower net interest expense,"Joubert said.

The company expects full-year interest costs of $210 million, plus or minus 5%, versus prior expectations of $225 million, plus or minus 5%.

Joubert sought to explain what looks like soft guidance for the fourth quarter, as the full-year guidance implies mid-single-digit sales growth and at the midpoint, a high single-digit decline in underlying pretax income for the quarter.

That does not mean the market-share gains are slowing, but rather the company will be impacted by a reduced level of pricing benefit in the U.S., EMEA and APAC. In the U.S., it's overlapping a roughly 5% price increase this fall.

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A strong brewery performance in the quarter left Molson with healthy inventory levels and it will now give employees time off and execute planned downtime for system maintenance.

The company expects to retain the share gains it has won since Bud Light has been the subject of a conservative-led boycott following the use of a transgender influencer in its marketing, sending beer drinkers to Molson Coors for light-beer alternatives.

Roth MKM analyst Bill Kirk said the earnings showed a strong profitability beat, with adjusted EBITDA of $734 million, against a consensus of $671 million.

"We believe the market share shift away from Bud Light and towards Miller Lite and Coors Light will be sticky and likely very profitable," Kirk wrote in a note to clients. "The prospect of reversing 5 years of U.S. volume declines over a much more productive cost structure is compelling."

Kirk has a buy rating on the stock, which has gained 11% in the year to date, while the S&P 500 has gained 10%.

-Ciara Linnane

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11-03-23 1303ET

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