Better trends, but lockdowns coming? (TAP)
Molson Coors reported Q3 EPS of $1.62, beating the consensus estimate of $1.02 and growing above last year’s $1.48 driven by better margins and aggressive cost reductions. Revenue decreased by 3.6%, improving sequentially from -14.3%. In the U.S., brand volumes decreased by 5.3% while shipments declined 3.9%. Sales per hectoliter increased by 4.6%, driven by mix and pricing, which was due to shifting can supply to higher-priced items. In Europe, sales decreased by 15.3% due to the higher on-premise mix. On-premise had recovered to a much greater extent than in the U.S., where it is down 40%. Europe’s underlying EBITDA decreased by 8%. COGS per hectoliter increased by 1.5%, driven by inflation and deleverage. MG&A decreased by 7.6% due to reduced marketing.
Molson Coors entered the year at a 2% share in hard seltzer and is now at 4%. Management announced a goal to reach 10% next year, which obviously is a very aggressive goal, but it has an ability to push distribution. Hard seltzer production is planned to increase by 400% by year-end. If the company's hard seltzer gains achieve market share gains anywhere near its goals, it will mean beer overall, including Coors and Molson, cannibalized further. Management expects to return to a full inventory of the standard industry cans by year-end and continue to make progress on the Coors light tall can. Management has made several distribution agreements in recent months with Topo Chico, Yuengling, and La Colombe, which seem to be added from a position of weakness and capacity utilization than brand heat or dynamism. The economics of the new agreements will be apparent next year.
We lowered TAP one spot on our short bias list as cost cuts are a near term salve. New lockdowns in France and Germany and the likelihood that other countries will as well limit the near-term upside from the better than expected results. Our updated position monitor is below:
Recovery delayed (BUD)
Anheuser-Busch InBev reported Q3 EPS of $.80 vs. consensus of $.77 driven by better revenue results. Most regions were better than expected except APAC. Total volume grew 1.9%, with beer volumes up 2.6%, and non-beer volumes fell 2.5%. Revenue grew 4% with price/mix growth of 2.3%. Corona grew 5.3% outside of Mexico (not including the U.S.). Brazil was a standout with a volume growth of 25%. In the U.S., hard seltzer is estimated to be more than 75% incremental. EBITDA grew 7.5% with margin expansion over 100bps.
The company will skip its upcoming dividend payment, joining TAP, which suspended its dividend in May. We recently lowered BUD on our Long Bias list and would like to get more aggressive, but new lockdowns will push out the on-premise recovery we expected.
Quick comments on AMZN, SAFM, and PPC (Grocery, M&A, MCD)
Amazon’s Physical Stores sales declined 10%, improving from -13% the previous Q. The majority of Amazon’s physical store revenue is from Whole Foods, but online orders picked up at the store are not counted in physical stores.
Sanderson Farms said it received an unsolicited offer from Durational Capital for $142 per share, which it rejected. There were rumors earlier in the day Durational Capital and Tyson made an offer, but Sanderson Farms said only the former made an offer. According to the firm’s website, Durational Capital focuses on the consumer sector with focus areas that include agriculture, supply chain, and restaurants. It has made two previous investments in Bojangles and Churchill Downs. We do not view the offer as starting a bidding war for the company or a sign of more M & A activity.
Pilgrim’s Pride said its European chicken operations are improving with revenue 18% above the prior quarter driven by retail and foodservice demand driven by QSR. In PPC’s US Prepared Foods business revenue declined 23%, 70% of the decline came from schools being closed, which is running down 40%.