Our headline may lack the panache of "Great taste, less filling," but it succinctly tells the story of Molson Coors' (NYSE: TAP) second quarter.
The U.S.-Canadian brewer beat Wall Street's earnings expectations even though beer-volume sales slipped -- a testimony to reducing costs and raising prices.
Excluding special items, Molson Coors earned $1.11 per share from continuing operations in the March-June period, beating the year-ago period's $0.92 per share and the Wall Street consensus of $0.96 as determined by Reuters.
Molson Coors succeeded even as its worldwide beer volume dropped 3.2% from the year-ago period and as unfavorable currency comparisons cut into reported profit. Molson Coors' major markets -- Canada, the U.S., and the U.K. -- are mature, and the company said the rest of 2009 will be challenging because of rising companywide costs and price discounting in Canada.
Joint venture forges ahead
I realize the slogan "Great taste, less filling" belongs to the Miller Lite brand, but Miller played an important role in Monday's announcement, thanks to the U.S. joint venture between Molson Coors and SABMiller, the parent of the Miller brand. The joint venture took effect in July 2008, and Molson's results reflect its 42% equity share.
The joint venture's cost-cutting remains ahead of schedule, with $110 million in savings during the first half of the year. At this rate, the joint venture expects $260 million in cumulative savings by year-end, or $35 million ahead of its original forecast. The goal of $500 million in total savings remains the same.
On a pro forma basis, the joint venture's second-quarter net income, excluding special items, rose 16.4%, to $325.3 million versus the year-ago period. Total sales rose 1.6%, to $2.14 billion, even though domestic sales to retailers dropped 0.8% and domestic sales to wholesalers declined 1.1%.
Selling in a soft market
The joint venture described the U.S. beer market as soft, and the same could be said for wine and spirits. In recent weeks, U.S.-based companies have announced results with a common theme. Constellation Brands (NYSE: STZ) and Brown-Forman (NYSE: BF-B) both said earnings per share fell below the year-ago quarter, but the results still beat analysts' forecasts.
Fortune Brands (NYSE: FO) -- the spirits, hardware, and golf equipment conglomerate -- also beat Wall Street, but it couldn't beat the year-ago quarter. The world's biggest wine and spirits company, Diageo (NYSE: DEO), will announce fiscal year results in late August.
Two other upcoming announcements should reveal if Molson Coors' cost-cutting and price-raising results can be emulated. Anheuser-Busch InBev will report second-quarter results on Aug. 13, and Boston Beer (NYSE: SAM) will issue its second-quarter report later today (Aug. 4). Because Boston Beer emphasizes more expensive craft beers, it faces the challenge of adjusting to consumers' trading down during the recession.
Anheuser-Busch InBev also is rigorously reducing expenses, too. If it can match Molson Coors, investors in both companies will tap into higher share prices.
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