Molson Coors profit disappoints

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Molson Coors Brewing Co posted a lower-than-expected quarterly profit, hurt by higher expenses and falling sales volume, but its shares pared losses with the announcement of a new venture in China with a local brewer.

Molson said it agreed to pay $40 million for a 51 percent stake in a joint venture with China's Hebei Si'hai Beer Co. The venture will control the Si'hai brewing operations, including its contract brewing business, and will help expand the distribution of other brands, including Molson's Coors Light.

Investors welcomed news of the deal, which gives the company a stronger toehold in a key emerging market. For Molson, whose business is concentrated in the mature markets of Canada, Britain and the United States, it is a step toward competing better with global rivals such as Anheuser-Busch InBev and SABMiller PLC .

This deal isn't going to give them the scale of those two, said Morningstar analyst Philip Gorham. But the more scale they can get, the better it will be.

Gorham said China was the Holy Grail for many consumer packaged goods companies.

Molson shares, which earlier fell as much as 3 percent after its disappointing results, pared losses to close down 0.9 percent and outperformed the wider U.S. stock market.

Molson also said its Coors Light will end its sponsorship as the official beer of the National Football League, after its full value offer to renew the contract expired at midnight.

Anheuser-Busch InBev later said its Bud Light beer would take over the sponsorship.

Molson, which makes Molson Canadian, Blue Moon and Keystone has endured weak sales for several quarters as unemployment curbs beer consumption. Still, the company expects results to improve as the year progresses and the economy mends.

Net income was $104.6 million, or 56 cents per share, in the first quarter that ended on March 27, up from $75.7 million, or 41 cents per share, a year earlier. The increase was largely due to a gain related to discontinued operations.

Excluding items, the brewer earned 37 cents per share, missing analysts' average estimate of 45 cents per share, according to Thomson Reuters I/B/E/S.

Marketing, general and administrative expenses jumped 30 percent to $237.5 million. That was $13 million higher than UBS analyst Kaumil Gajrawala was expecting.

Sales rose nearly 15 percent to $947.0 million, helped by price increases. Volume declined 3.8 percent to 10.1 million hectoliters.

Stifel Nicolaus analyst Mark Swartzberg said he expects volume and profit trends to improve in the second quarter, but for the first quarter, he said a miss is a miss.

DEVELOPED MARKETS

Molson said volume in Canada rose 3.3 percent, but net sales per hectoliter fell 2.7 percent in local currency. In Britain, volume of company-owned brands fell 10.9 percent, underperforming the industry. But net sales per hectoliter rose 21 percent in local currency, helped by price increases.

In the United States, where Molson formed the MillerCoors joint venture in July 2008 with SABMiller PLC , net income edged up slightly as higher beer prices and cost savings offset lower sales volumes and higher commodity costs.

Molson's first-quarter tax rate was 19 percent on an underlying basis. It expects its full-year tax rate to range from 18 percent to 22 percent on the same basis.

The company in March estimated 2010 free cash flow of $760 million, plus or minus 10 percent, on an underlying basis.

Molson shares closed down 41 cents at $44.13 on the New York Stock Exchange after falling as low as $43.18 earlier.

(Reporting by Martinne Geller; Editing by Dave Zimmerman and Richard Chang)

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