E-Malt.com News article: 2607

Canada, Toronto: Molson Inc., Canada's oldest brewer, posted a lower fourth-quarter profit on May 5, hurt by increased costs for its new Brazilian sales team. The Montreal-based brewer said it earned C$42.2 million ($30.8 million), or 33 Canadian cents a share, for the quarter ended March 31, down from C$59.6 million, or 46 Canadian cents a share, a year earlier.

Sales in last year's fourth quarter jumped 66 % thanks to its acquisition of the Kaiser brewery in Brazil. Analysts had expected, on average, earnings of 36 Canadian cents a share, according to Reuters Research, a unit of Reuters Group Plc. Revenues rose to C$729.6 million from C$704.3 million.

Molson's initial decision not to react to competitive beer prices last year along with weak advertising for its flagship Molson Canadian brand caused the company's domestic market share to dip 1.4 points to 43.8 % from 45.2 %. "Overall the results are pretty disappointing. It faces continued challenges with market share in Canada," said Krista Mackay, analyst with Salman Partners Inc.

"Core brands were pretty much flat. They're holding ground, but certainly not building up the brand equity at this point." Molson reorganized its Canadian business unit in April to shore up its market share, and chief executive Daniel O'Neill said that will address the company's "previous shortfalls."

"Regaining the momentum is the critical objective of our management team," O'Neill told analysts on a conference call. In Brazil, Molson was unable to recoup market share as its new Sao Paulo sales team was put in place only in January. However, Molson said beer volume improved month over month in the fourth-quarter.

For fiscal 2004, the total Brazilian market share stood at 12.4 %, well behind its Brazilian counterpart Ambev , which holds more than 60 %. "The early signs of the revised model is very positive. We're starting to see some traction," said O'Neill. "When you are looking at a long term vision, you have to have the courage to stick to what you believe and in this case we feel that the earnings power is there."

The improving fourth-quarter performance in Brazil prompted cautious optimism from some analysts. "Very early signs of progress," wrote Jason Bilodeau, an analyst with UBS. "Going forward we expect a better economic and competitive environment in Brazil."

"Hopefully (the new sales force) will begin to give them some traction in terms of volume," said Mackay. "But the next couple of quarters will be critical to watch." Molson made the foray into Brazil in 2002, touting it as the place where Molson would expand internationally.

But it lost significant volumes and market share as it restructured the Brazilian business and was left with a weak sales force when local brewer Schincariol reinvented itself with an aggressive marketing campaign. Molson also said it would raise its quarterly dividend by 1 Canadian cent to 15 Canadian cents a share.


07 May, 2004