For the most part, Adolph Coors' (NYSE: RKY) first-quarter results, released this morning, were lackluster, but showed improvement. Earnings came in at the low end of estimates, rebounding nicely from $800,000 last year to $4.8 million ($0.13 per share) on net revenues of $923.5 million. The fact that Coors was able to wring out substantial earnings from a modest 11% uptick in sales speaks well of recent cost-cutting initiatives, but domestic volume actually fell fractionally.
Coors is still clinging to a distant third place in the U.S. beer market. With an 11% share of the domestic beer market, it trails Altria Group's (NYSE: MO) partially owned Miller Brewing, which has 19%, as well as the 50% of industry giantAnheuser-Busch's (NYSE: BUD) Budwesier. Coors has long established a reputation for using high-quality ingredients and has built a loyal following, particularly in Western states, where the firm was once strictly a regional brewer.
While domestic volume was largely stagnant in the first quarter at 4.9 million U.S. barrels, results from other segments were encouraging. In Canada, pretax earnings jumped 56% to $12.5 million on the strength of higher pricing and substantial volume growth. Likewise, European operations earned $6.2 million pretax on a 27% sales increase to $383 million. Portions of these gains, however, are attributable to favorable currency fluctuations, with rises in both the Canadian dollar and the British pound.
Coors has its work cut out. It not only has to contend with traditional megabrewers Miller and Budweiser, but also smaller rivals such as Boston Beer's (NYSE: SAM) Samuel Adams, a growing handcrafted microbrewery market, and a surge in the popularity of imported beer. More importantly, the overall domestic beer market is growing by a scant 1% annually. Finally, Coors' profitability measures are questionable. Management has addressed cost-cutting concerns, but with an operating ratio of 6.4% versus 22.6% for Budweiser, there is obviously room for improvement.
Regardless, Coors does have a quality product and a loyal following. Furthermore, hopes are high for the success of the new low-carbAspen Edge, set to roll out this summer to compete with Budweiser's Michelob Ultra, which has already built a 2.1% market share. If Coors can capitalize on a new marketing strategy designed to reach a target demographic of twenty-something males, it might finally gain a little traction in the three-way race.
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Fool contributor Nathan Slaughter owns none of the shares mentioned.
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