Thursday's third-quarter earnings report from Adolph Coors (NYSE:RKY) has a lot to say about the direction in which the company is moving -- and why. While it reported increased sales and U.S. barrel volume year over year, the domestic market continues to be a challenge.

Seen all those Coors Light advertisements on TV? While popular -- and a needed brand boost for a company long associated with white-haired gentlemen surrounded by snow-capped mountains rather than energetic, free-spending young dudes surrounded by the likes of commercial cheerleader Bonnie-Jill Laflin -- they reflect a difficult and competitive domestic environment as much as they do renewed energy at the $2 billion brewing company.

The company says it plans to reduce distributor inventories for Q4, bringing them in line with last year's levels, which will likely hurt both sales and economies of scale, raising profit questions. In the U.S., the beer business will always be a battle with top dog Anheuser-Busch (NYSE:BUD) and Miller, part of SABMiller. The latter, formed last year when South African Breweries bought the company, is partly owned by Altria Group (NYSE:MO).

But Coors struck back when it completed the acquisition of Carling from Interbrew in 2002. While the chance to produce homegrown Coors brands overseas doesn't look like a huge long-term opportunity -- despite the strange popularity of Budweiser in some European bars -- the overseas brands it did pick up have performed well. In Q3, for example, European net sales rose 6.2% year over year compared with a 2.6% rise in Coors' Americas market segment.

The U.S. still represents the lion's share of Coors' revenue and operating income, but the company's overseas brand positioning -- with such names as Carling, Caffrey's (a personal favorite), and Grolsch in the stable -- is arguably better. In 2002, European sales growth outpaced what the U.S. delivered by a considerable margin on a percentage basis.

Based on the information available today, Coors is going to continue needing strong performance from Europe to maintain sales and profit growth for the foreseeable future. The Interbrew deal looks great in hindsight. A sad fact for American consumers and Coors investors, however, might be that the more we see of Bonnie-Jill, the more challenging the domestic business is proving to be for Coors.

Dave Marino-Nachison can be reached at