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 Thousands of newly-labelled bottles of Coors Light beer head for packaging at the Coors brewery in Golden, Colorado October 16, 2007. REUTERS/Rick Wilking
Thousands of newly-labelled bottles of Coors Light beer head for packaging at the Coors brewery in Golden, Colorado October 16, 2007. REUTERS/Rick Wilking
Reuters

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Molson Coors profit growth surprises

By Martinne Geller

NEW YORK (Reuters) - Molson Coors Brewing Co reported a quarterly profit on Tuesday that spilled past Wall Street estimates, helped by price increases, cost cuts and savings from its U.S. joint venture, sending shares up 9 percent.

The brewer also cited the strength of its brands, such as Coors Light and Molson Canadian, and lower incentive compensation for helping it clear the hurdles of lower beer sales, a higher tax rate, increased raw material costs and the stronger U.S. dollar.

Despite its first-quarter success, Molson said it "remains cautious about the rest of the year" due to uncertainty around currency exchange rates, commodity costs and beer trends.

Still, Chief Executive Peter Swinburn expressed optimism about the upcoming summer selling season, when competition in the beer market heats up and often leads to heavy promotions.

"We don't see a lot of excessive discounting," Swinburn said in an interview. "In the U.S., I'm sure there will be some flurry of activity here and there but we've got no major concerns."

Molson, which does not give earnings forecasts, said April sales fell slightly in Canada but rose at low single digit rates in Britain and the United States.

Swinburn said more consumers have switched to lower-priced beers in the recession, citing the recent strength of brands like Miller High Life and Keystone Light as proof.

"That will impact our margins but it won't impact us significantly, because we'll also gain from people coming down from wine and spirits," Swinburn added, referring to some of Molson's more expensive brands, like Blue Moon.

Molson said net income rose to $75.7 million, or 41 cents per share, in the first quarter ended March 29, up from $34.3 million, or 19 cents per share, a year earlier.

Income from continuing operations, excluding one-time items, was 53 cents per share, well above analysts' average estimate of 33 cents, according to Reuters Estimates.

Stifel Nicolaus analyst Mark Swartzberg estimated that savings from MillerCoors, the U.S. joint venture Molson formed in July 2008 with SABMiller Plc , accounted for nearly half the earnings surprise.

"We consider the results a validation of our Buy thesis, predicated on our belief that the MillerCoors joint venture represents at least $8 per share in unreflected value in Molson Coors shares," Swartzberg said in a research note.

Molson said net sales tumbled to $559 million from $1.36 billion in the year-earlier period, before the formation of MillerCoors.

Molson said it sold 10.5 million hectoliters of beer in the quarter, down 2.7 percent from the year-ago period.

ACROSS MARKETS

Molson Coors' U.S. sales are now accounted for by MillerCoors, which said on Tuesday that first-quarter net sales rose 3.8 percent to $1.72 billion [nN05518786].

Price increases helped MillerCoors' sales per barrel rise 5.6 percent. Shipments to wholesalers fell 1 percent, while sales from wholesalers to retailers, a closer measure of consumer demand, rose 0.4 percent.

The joint venture also said it realized some merger-related cost-savings in the first quarter that were originally scheduled for the second quarter.

By the end of 2009, MillerCoors expects to achieve $238 million in cost savings, above its forecast for $225 million. Despite the accelerated timing, the venture's ultimate goal -- to save $500 million -- is unchanged.

Molson's profit in Canada fell, due to the weakness of the Canadian dollar versus the U.S. dollar. Canadian sales to retailers fell 3.2 percent, hurt by discounting by rivals.

In Britain, where price increases led to a 13.8 percent volume decline, Molson posted its best first-quarter profit in five years, aided by expanded contract brewing and reduced marketing and pension costs.

Molson shares were up $3.47 at $41.97 on the New York Stock Exchange.

(Reporting by Martinne Geller, editing by Gerald E. McCormick, Dave Zimmerman)

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