TAP - Q1 Misses, We See Issues for Balance of Year as Well

This morning TAP reported Q1 2013 EPS, missing consensus by $0.04 ($0.30 versus $0.34) and coming in light on revenues as well.  It’s a seasonally unimportant quarter, but it would be refreshing to see some business momentum, anywhere.  We suspect the bulls will say that the weather was crappy (it was) and that the Maple Leafs are in the playoffs (they are, for the time being) but we still think that ’13 consensus is too high even if the company continues to not have to pay any taxes (tax rate in the quarter was 11.5% versus 17.3% in the prior).

What we liked:

  • Very good FCF quarter despite higher levels of capital spending  - FCF per share was $0.27 versus $0.09 in the prior
  • Continued pricing momentum in Canada (constant currency sales per hectoliter +1.0%)
  • Strong cost savings in Canada were able to somewhat offset input costs and impact of deleveraging
  • Strong pricing in the U.S. – sales per hectoliter +3.0%

What we didn’t like:

  • STRs in Canada -1.4%
  • Lower earnings versus consensus even with tax rate favorability
  • Fixed cost deleveraging driving increases in constant currency COGS per hectoliter of 6.0% in Canada
  • 1.0% volume decline in European business

The basic theme in the release is lower volume, better price/mix and higher COGS per hectoliter offset by costs savings.  Unless volume trends improve (unlikely in the U.S. and Canada in the near-term, in our view) or cost trends improve (likely, in our view, though not in the near-term), we struggle to see how the company can deliver consistent operating income growth.  Consequently, it remains on our least preferred list.


Call with questions,




Robert  Campagnino

Managing Director





Matt Hedrick

Senior Analyst

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