The Silver Bullet is slowing down. Adolph Coors (NYSE: RKY), the nation's third-largest brewer, reported a 4.4% increase in third-quarter net income to $64.1 million, but with more shares outstanding, earnings were unchanged at $1.68 per share -- well short of estimates. Despite another drop in volume, favorable pricing helped lift sales 5.5% to $1.1 billion.
Reporting weak domestic volume growth is nothing new, nor is it specific to Coors. Other brewers have also had to contend with overall volume growth measured in fractions of a percent and three consecutive years of declines in per-capita consumption. For the quarter, Coors shipped 5.9 million barrels in North America, 0.6% fewer than the year before. Net sales for the segment, though, managed to climb 3.4% to $662.2 million.
Once again, strength in Canada was able to partially offset domestic weakness. Though volume registered a single-digit decline, higher pricing and favorable currency fluctuations helped generate a 15.9% increase in Canadian pre-tax income to $17.5 million. Year to date, gains from the sale of Coors Light in Canada (distributed through a partnership with Molson) stand at $45 million, a 28.7% improvement. Incidentally, the proposed merger between Molson and Coors has drawn increased scrutiny from SABMiller.
European operations, however, were a disappointment. Despite a double-digit appreciation of the British pound against the U.S. dollar, Europe pre-tax earnings fell 12.9% to $40.6 million, on a 6.2% drop in volume. This stands in stark contrast to last quarter, when European sales jumped 15.4% and revenues jumped 22.2% on higher volume.
Meanwhile, it hasn't exactly been happy hour around Anheuser-Busch (NYSE: BUD) either. Yesterday, the St. Louis-based beer giant posted results that looked similar to Coors'. Net income rose 3% to $684 million, on a 5.1% increase in net revenues to $4.1 billion. The company reported a slight 0.1% decline in domestic volume, and a 1.8% drop (excluding the recently acquired Harbin) from international operations.
While Americans' collective thirst for light, mainstream domestic lager appears to have been quenched, demand for premium brands is on the rise. Anheuser-Busch, for example, is continuing to see unusually high interest in the upscale Michelob line, which includes Michelob Amber Bock, Marzen, and Honey Lager.
Coors has had success with Killian's Irish Red, but if the beer battle is moved to high-end terrain, the company lacks the necessary ammunition to compete with imports, microbreweries, and quality products from traditional rivals. Coors might do well by introducing a few new brands occasionally. Nevertheless, with a stronger pricing environment and a proposed merger, which will vault the company to the No. 5 position worldwide, I continue to view Coors' pint glass as half full rather than half empty.
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Fool contributor Nathan Slaughter will not be purchasing any beer until he has finished the Pumpkin Ale and Apricot Wheat that he is brewing. He owns none of the companies mentioned.
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