Molson Coors Brewing Co. (TAP) is facing a tall order. Fewer consumers are buying beer these days as they tighten their belts amid high unemployment rates and weak economic growth. Plus commodities and fuel prices are rising, making it more expensive to brew beer.
It’s not all bad news for beer. Volumes improved in United States and in several other international markets. Net sales were up 4.4 percent on year at $690.4 million during the first quarter of 2011.
Higher costs of doing business, however, ate into profits. Net income was down 21 percent to $82.9 million, or 44 cents a share during the first quarter, compared with $104.6 million, or 56 cents, during the same period in 2010.
The company remains optimistic. “We continued to exceed our cost reduction goals, which provided resources to invest in our brands, grow earnings, and generate cash,” says company CEO Peter Swinburn in an earnings statement.
“Continuing to deliver strong earnings growth in the face of substantial headwinds bodes well for our ability to perform even better when economic and industry conditions improve.”
To back up the company’s views that better days await, Molson Coors has announced plans to increase quarterly dividends on its Class A and Class B common shares by 14 percent to 32 cents per share.
With this fourth consecutive annual increase, the company's quarterly dividend rate has doubled from four years ago, Molson Coors says.
Goldman Sachs is maintaining a neutral rating on Molson Coors. Zacks Investment Research has assigned the brewer a short-term hold recommendation.
“We remain encouraged by the restructuring initiatives taken by the company to reduce overhead costs and boost profitability,” Zacks says.
“The initiatives include closure of underperforming breweries and efforts to improve efficiencies in finance, administration and human resource activities. However, seasonal nature of business of Molson Coors and increased competition” from Anheuser-Busch InBev (BUD) are concerns, report analysts at Zacks.
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