Molson Coors Q3 profit up 37 per cent on price increases, cost controls

By Ross Marowits, The Canadian Press

MONTREAL - Molson Coors (TSX: TPX-B.TO) continued to lose market share in the third quarter as discount regional brewers took a disconcerting slurp out of its business outside of Quebec and Ontario.

The Montreal and Denver-based brewer said its Canadian sales to retail decreased by 3.2 per cent in the third quarter, well above the 0.7 per cent decrease faced by the industry as a whole.

Coors Light continued to grow but Molson Canadian and Molson Export declined.

While the brewer claimed to have made progress in its competitiveness and share in major markets in Canada's two largest provinces, it faced challenges from smaller regional players in the rest of the country.

"No question we saw smaller regional brewers in each market grow share at the expense of the two major brewers combined and that's something we'll continue to be focused on," Molson Canada CEO Dave Perkins said in a conference call about third-quarter results.

The company plans to introduce three new brands in the fourth quarter along with new advertising to support Molson Canadian and promotions tied to being the official beer supplier of the 2010 Winter Olympics.

The three new brands are Rickard's Dark, Molson M (a microcarbonated lager) and Molson Canadian 67 (its lowest calorie beer in Canada).

Molson Coors president and chief executive Peter Swinburn said the Canadian market will continue to be challenging for the rest of the year despite efforts to improve its brand portfolio.

"In Canada, for the balance of 2009, we expect a continued challenging environment due to overall weak economic conditions, soft beer industry volume, continued price discounting and the cost of offering enhanced value propositions to consumers," he told analysts.

October's sales to retail early in the fourth quarter decreased by high single digits due to the weak economy, poor weather and industry volume declines.

"We will be competitive in Canada," Swinburn said, adding that the Canadian team is "getting its act together."

Overall, Molson Coors says its third-quarter profit rose 37 per cent although the international brewing company recorded lower revenue in Canada as currency fluctuations compounded a decline in the amount of beer sold.

The brewer said it raised prices across its major markets but discounted some prices to compete. It also credited better cost controls for the higher profit.

The company, which reports in U.S. dollars, says it earned US$235.3 million, or $1.26 a share, in the three months that ended in September. That's up from $171.3 million or 92 cents a year ago.

Net sales at Molson Coors Brewing Co. fell 7.3 per cent to $853.7 million in the quarter.

Analysts predicted the company would earn 98 cents a share on revenue of $837 million. Those estimates typically exclude one-time items.

Worldwide, the volume of beer sold fell 2.9 per cent amid a slight decrease in worldwide Coors Light volumes compared with a strong quarter in 2008.

Swinburn said the summer quarter was successful, with underlining earnings rising 22 per cent despite lower volumes. Excluding non-operating and one-time adjustments, earnings grew 13 per cent.

In Canada, underlying pretax income decreased 7.7 per cent to $139.3 million.

Excluding the currency adjustments, income fell two per cent as higher prices and cost savings were offset by lower volumes and higher expenses. This included costs related to the deconsolidatation of Molson's interest in the Beer Stores in Ontario.

Total Canadian sales volume was 2.5 million hectolitres, down 1.8 per cent from a year ago.

In the United States, pretax income grew 16.6 per cent to $107.4 million due to strong growth by MillerCoors.

MillerCoors revenue increased 3.1 per cent to $2.01 billion even though sales to retailers decreased 1.3 per cent due to a slight decline in premium light volumes and continued softness in above premium and premium brands.

Molson's British business saw income increase 6.5 per cent to $32.7 million. In local currency, income grew more than 20 per cent, driven by moves to forgo low-margin volume.

On the Toronto Stock Exchange, Molson's shares fell more than seven per cent, or C$3.72, to $48.50 in afternoon trading.