E-Malt.com News article: 3377

Brazil: Molson Inc. revealed that Brazil is the right place to be. Company's CEO, Dan O'Neill, announced on Friday, 01 October 2004 that a proposed merger with Adolph Coors Co would help its troubled brewery there, which faces a C$200 million writedown. "In Brazil we feel most importantly it would give us time to recapture and not sell too early and to make sure if there's an opportunity there we can capture that opportunity," Dan O'Neill said at an investors conference in Quebec city. "Also there's been a lot of testing of Coors Lite in Brazil and they feel in several markets there is an opportunity."

O'Neill's comments come less than 24 hours after Molson warned of a second-quarter profit shortfall because of weaker summer beer sales in Canada and a write-down at its Brazilian unit Kaiser, Reuters revealed. Molson, which is trying to complete a friendly merger with Coors by the end of the year, said that its earnings before nonrecurring items would be below the current range of estimates published by financial analysts.

The company said it could face a C$200 million write-down on its Brazil brewer, whose operations are being reevaluated to cope with eroding revenues and profit margins. The warning prompted brokerage Raymond James to reduce its target price on the company's stock to C$33 a share from C$36.

National Bank Financial lowered its forecast on the company's earnings per share for fiscal 2005, which ends March 31. National Bank also cut its target price on the brewer's shares to C$36 from C$39.

UBS placed its rating and target price on the company's stock under review and said "We had grown to view our outlook as being a bit on the optimistic side, but clearly did not anticipate a shortfall of this magnitude."

Desjardins Securities reduced its financial forecast for fiscal 2005 and cut its target price on Molson's stock to C$34 from C$35 a share and said "should the merger with Coors not be approved, we expect the share price to fall below C$30."

A union between Canada's oldest brewer and Colorado-based Coors will create the world's fifth largest brewer by volumes and will help shoulder the burden of Brazil.

Molson bought Kaiser in March 2002 for $765 million hoping that it would give the company a platform for growth. Instead the brewer has dropped from second to third spot in the Brazil beer market and has proven to be a drain on profits.

"Certainly the Brazilian losses on the combined company are much less as a percent of earnings...Brazil becomes less important in the merged company," said Bill Chisholm, an analyst with Dundee Securities Corp. "Were the share price unsupported by the proposed Coors deal, the share price would likely decline to the mid C$20s," said Chisholm, who has a C$33 share price target.

Chisholm said Molson should get out of Brazil even though Molson touts the area as the fourth largest beer market. "It clearly looks as though they need better assets or some better depth of management to compete down there," he said. This is the second time this year that Molson has warned of a profit shortfall because of lower volumes from Kaiser. Shares of Molson Inc. fell as low as C$31.25 in early morning activity on Friday before easing to C$32.05 on the Toronto Stock Exchange, for a loss of 5 Canadian cents.


01 October, 2004