The continuing global economic downturn has compelled customers to reduce discretionary spending, preferring lower priced brands over premium ones. This is especially a matter of concern for the company as its business strategy is focused towards premium and above-premium offerings.

Molson Coors business is seasonal in nature with summer months (second and third quarters), recording the strongest revenues from Canada and the U.S. Consequently, unusual weather conditions adversely affect the company’s operating performance.

However, the company is undertaking restructuring initiatives to reduce overhead costs and boost profitability. The initiatives include rightsizing employee strength, closure of underperforming breweries and efforts to improve efficiencies in finance, administration and human resource activities.

Molson Coors has reduced leverage by deploying operating cash, thereby improving financial flexibility. Accordingly, the company’s long-term debt was decreased by 19.4% to $1.4 billion at the end of the fourth quarter of 2009 from $1.8 billion in the year-ago period.

Molson Coors Brewing Co. is one of the largest brewers in the world with an impressive portfolio of leading beer brands and other beverage products.

Zacks Investment Research

(TAP) Molson Coors Brewing Company Analysts Downgrade to Underperform

Company Description

AmBev produces beer, soft drinks, and other beverages in Brazil. The company is best known for its licensing agreement with Anheuser-Busch, which they distribute in Canada.

Top Line Growth

AmBev reported quarterly results in November that saw net sales grow almost 20%. The company also saw 4.7% organic growth.

Earnings per share for ABV came in at an impressive $1.17, 21 cents higher than the Zacks Consensus Estimate. This was AmBev’s fourth consecutive earnings surprise.

Analysts React

Following the report, analysts raised full-year estimates for 2009 to $5.05, up 43 cents. The Zacks Consensus Estimates for 2010 is up to $6.16, from $5.40.

These levels represent growth rates of 37% and 22%, respectively, for AmBev’s EPS.

The Chart

AmBev’s stock is trading at its 52-week high. Fortunately, due to estimates revisions, shares of ABV are trading at about 17 times forward earnings. That is a solid valuation for a Brazilian company. Take a look at the chart below.

Bill Wilton is the Growth Stock Strategist for Zacks.com. He is also the Editor in charge of the market-beating Zacks Growth Trader service

Zacks Investment Research

(ABV) AmBev – Analysts Continue to Raise Full-Year Estimates

Heineken will acquire FEMSA Cerveza, comprising 100% of its Mexican beer operations (including its U.S. and other export business) and the remaining 83% of its Brazilian beer business that Heineken does not currently own. With the deal, the Dutch company will gain a strategic foothold in the Latin American market, which is widely recognized as one of the world’s most profitable and fastest-growing beer markets.

On the other hand, the deal would enable FEMSA to strengthen its competitive position in the market and increase its operational and financial flexibility. The company currently holds 43% of the beer market in Mexico and 9% in Brazil.

According to the terms of the deal, FEMSA will hold 20% in the Heineken Group, making it one of the largest shareholders of the company. FEMSA will also have the right to appoint two non-executive directors in Heineken. In order to finance the deal, Heineken will issue 86 million new shares. The transaction is expected to be completed in the second quarter of 2010.

Zacks Investment Research

(FMX) Heineken N.V. to Own FEMSA Beer

Company Description

Boston Beer Company, Inc. produces and sells specialty alcoholic beverages in the United States and Internationally. The company was founded in 1984 and has a market cap of $700 million.

Shares of SAM just hit a new 52-week high after breaking above a key level of resistance at $41. The recent surge began in early November when the company reported better than expected Q3 results.

Third-Quarter Results

Sales were up 6% from last year to $108.7 million. Earnings also came in strong at 72 cents, 32 cents ahead of the Zacks Consensus Estimate. The company has been handily beating estimates for the last three quarters by an average of 106%.

The company noted that shipment volumes were up 7% from last year, while gross margin for the quarter improved to 54% and 51% for the year. Boston Beer also has a cash balance of $45 million and an unused line of credit of $50 to provide extra liquidity.

Trends Improving, Competition Tough

The company noted that general trends have improved, but CEO Jim Koch added that Boston Beer continues to see increased competition from “domestic specialty and regional craft beers.”

Estimates Advance

The good quarter sent estimates higher, with the current year adding 48 cents and climbing to $2.24. The next-year estimate is pegged at $2.39, a respectable 7% growth projection.

Valuation

Shares of SAM are currently trading with a forward P/E of 21X, a slight premium to the overall market.

The Chart

SAM jumped past a 2-month level of resistance on the better than expected quarter, with shares rallying into the end of the year to hit a new 52-week high. Look for support from the up trend line and previous breakout area on a pull back. Take a look below.

Michael Vodicka is the Momentum Stock Strategist for Zacks.com. He is also the Editor in charge of the market-beating Zacks Surprise Trader Service.

Zacks Investment Research

(SAM) Boston Beer Company – Earnings Estimates Advance

AmBev is the largest beverage company in South America and commands a strong portfolio of well-established flagship brands. Furthermore, the company continues to witness solid performance in the Brazilian market, which remains a key driver of top-line growth in the future.

Moreover, AmBev has taken initiatives to reduce its debt-levels and enhance financial flexibility, while consistently rewarding investors in the form of dividends and share buybacks. However, intense competition from established as well as regional and local players in its markets may limit the above-market performance of the company.

Zacks Investment Research

(ABV) AmBev – Companhia de Bebidas das Americas – Bull of the Day

After a decade of global consolidation, beer brewers have greedily hit just about every notable location.

Except Mexico, that is – the ninth-largest beer market in the world.

But Mexican beverage and retail conglomerate Femsa – formerly known as Fomento Economico Mexicano (NYSE: FMX) – now faces the end of its 25-year Mexican duopoly with rival Grupo Modelo (PINK: GPMCY).

Accepting the inevitable, Grupo Modelo will likely negotiate a full selloff to Anheuser-Busch InBev NV (NYSE: BUD) sometime in the near future (BUD already owns 50%). And that puts some very serious pressure on Femsa, which doesn’t stand a chance against an international powerhouse with billions to throw around on advertising every year.

Trying to see the glass as half full, Femsa has begun talks about possibly selling its beer brands. That would include its top-selling Sol and Tecate lines, plus Dos Equis.

Together, those three brands have an estimated worth of $7.5-$9 billion – enough to tempt at least two European brewers: SABMiller (OTC: SBMRY) and Heineken (OTC: HINKY).

Heineken vs. SABMiller – A Taste Test

The SABMiller Equation:

• The firm has good reason to look for acquisitions. Despite an impressive market capitalization of $44 billion, it wants to beat Anheuser-Busch InBev, which currently holds the number one spot.
• With a much stronger balance sheet and an estimated $150 million in synergies on the table, SABMiller has a lot more to offer.

The Heineken Equation:

• With a market cap of $22 billion, Heineken has plenty of motivation, but not nearly as much purchasing power.
• While Heineken does distribute Femsa’s beer brands in the United States already, it lacks a strong presence in Latin America and other developing markets outside of Africa.
• Heineken has problems with slow sales of its premium brand in Europe and the United States, not to mention the debt it incurred from its joint $12.4 million acquisition of Scottish & Newcastle last year.
• Gaining control of Femsa, which accounts for nearly half of Mexico’s beer sales, would offer Heineken a strong position in Mexico as well as a foothold in Brazil. It would also help to offset its over-reliance on the mature European beer markets.
• A deal possibly represents Heineken’s last chance to attain a competitive global advantage, which could make it desperate enough to out-bid SABMiller.

But both companies have a few other factors to consider…

Forget Rum & Coke: Beer & Coke Is The Next Big Thing

Purchasing just Femsa’s beer operations would be foolish, since it relies so heavily on distribution through its 6,800-plus FEMSA Comercio convenience stores.

Take those stores away and beer sales would go flat, leaving a bad taste in any future owner’s mouth.

And FEMSA has a bottling business as well – Coca-Cola FEMSA (NYSE: KOF), which it may want to sell with the rest of the business as a three-for-one deal.

If it did, Heineken would have to bow out, as it would be unable to finance such a purchase. But SABMiller would benefit from such a sweetened deal. In addition, Coca-Cola FEMSA already has beer-distributing network in Mexico, Brazil and Columbia, where SABMiller just happened to acquire Bavaria four years ago.

We’d drink to that union right now, except it could get even better, given that Coca-Cola (NYSE: KO) owns 31% of Coca-Cola Femsa.

Since the Mexican company is one of its largest global bottlers, Coca-Cola might want to develop a relationship with SABMiller should it buy out SABMiller altogether.

So far, Coke has only focused on soft drinks, but that could quickly change if the flirtation between Anheuser-Busch InBev and PepsiCo (NYSE: PEP) gets more serious.

After all, Pepsi’s largest independent bottler outside the United States is Anheuser-Busch InBev’s unit – Companhia de Bebidas das Americas (a.k.a. AMBEV) (NYSE: ABV).

In the long run, the Last Chance Saloon could get very crowded. If it does, get set for the investor’s version of happy hour.

Good investing,

Tony Daltorio

View original at: Investment U

(FMX) Send Your Portfolio To Happy Hour With These Beer-Loving Stocks

Output at the country’s mines rose 0.5% following a 0.6% gain in July. Utility output, which can be affected as much by the weather as by economic activity, rose 1.9% in August following a 1.6% decline in July.

These increases are a big turnaround from what we had been seeing. On a year-over-year basis, total industrial production is still down 10.7%, with manufacturing down 12.2% and mining down 10.5%. Utility output is basically unchanged on a year-over-year basis, down only 0.1%.

Having two back-to-back gains in industrial production is highly significant, and constitutes definitive proof, in my opinion, that the recession is over.

Breaking the release down further, production of finished products increased 1.1% on the month following a gain of 0.9% in July, but is down 7.3% from a year ago. Output of finished consumer goods rose 1.3% following a 0.8% gain in July, but are down 4.1% year over year. Output of business equipment rose 0.6% following a 1.1% gain in July, but is working its way out of a 14.7% year-over-year hole. Output of materials rose 0.6% following a 1.3% gain last month, but is down 13.0% year over year.

In other words, industrial production is still very depressed, but is starting to come back. That is a classic sign of a recession being over.

The other part of the report, on Capacity Utilization [CU], provides even more definitive proof. Look at the chart below (from http://www.calculatedriskblog.com/). It shows that a bottom in capacity utilization is always seen at the end of a recession.

If you need a single indicator for the end of recessions, historically, this is it. Not only does it always turn at the bottom, but when in recession, it almost never turns up unless the recession is ending. Actually, if you had to pin me down, I would go one step further and say that manufacturing capacity utilization is the best indicator, rather than total utilization since the Utility part of total utilization is as much a function of the weather as it is of the economy.

In August, total CU rose to 69.6% from 69.0% in July (revised from 68.5%). That is two back-to-back increases since it set a record low (data back to 1967) in June of 68.3% (revised from 68.1%).

To be sure, the absolute levels of utilization are still awful. Just keep the following rules of thumb in mind:

Any CU over 85% constitutes an economic boom, and raises the possibility that the economy is going to overheat, causing inflation to spike. CU of 80% is a normal, healthy economy. CU of 75% is a recession.

Prior to this downturn, we had never fallen below 70% (unfortunately, the data does not exist for the 40’s or 50’s, let alone during the Depression, it is possible that we briefly fell below 70% in the 1947 downturn, as the economy was demobilizing from WWII). Since 1972, the average total CU is 80.9%, and 79.6% for manufacturing, 87.6% for mines and 86.8% for utilities.

Thus we are in a situation where the level is bad, but the direction is good. The end of a recession means you are at the point of maximum economic pain — not that everything is hunky dory all of a sudden, just that the process of mending is starting.

CU for manufacturing rose to 66.6% from 66.1% in July (revised from 65.4%) and 65.1% in June (revised from 64.7%, record low). Mine utilization rose to 82.2% from 81.7% in July and 81.1% in June. Utility utilization rose to 79.7% from 77.3% in July and 78.7% in June.

Over the last year, Utilities have added 1.8% more capacity. By contrast, our capacity has actually declined by 0.7% in manufacturing and by 0.1% at our mines. At current levels of CU, 12.6 points below the long-term average, in manufacturing, there is little need for businesses to invest in more capacity.

This does not bode well for capital equipment oriented firms like Parker Hannifin or Honeywell (HON), however with the rise they might be seeing some faint light at the end of the tunnel. Mining is a lot closer to normal levels of utilization (5.4 below average), so mining equipment firms like Joy Global (JOYG) and Terex (TEX) are much closer to seeing an upturn in domestic orders.

The economy is clearly in a deep, deep hole. We have, however, stopped digging it deeper and are starting the processes of climbing out. I don’t think it is going to be a quick recovery, and the part of the downturn that most directly touches people’s lives — unemployment — will be one of the last things to turn.

Notice on the graph that the recovery in CU after the last two recessions was much more gradual than it was in earlier recessions. This mirrors the prolonged “jobless recoveries” we had following those downturns. I suspect the same thing will happen this time around.

Note that we never fully recovered in terms of CU during the last economic expansion, and that the peak was not that much higher than the worst we saw during the 1990 recession. Still, it is nice to be headed in the right direction.

Zacks Investment Research
View original at: Zacks.com News Feed

(HON) Industrial Production Capacity is Comming Back

We are also optimistic about the joint venture between Jugos del Valle and the Coca-Cola company. The company has been successful in boosting its Brazilian business and the Oxxo stores
continue to grow fast.

Our baseline outlook reflects continued economic growth in Latin America. We consider Latin America to be one of the most attractive areas for the beverage industry, due to
positive demographics.

Zacks Investment Research
View original at: Zacks.com News Feed

(FMX) Fomento SAB – Bull of the Day