updated 11/6/2007 6:28:26 PM ET 2007-11-06T23:28:26

By Martinne Geller

NEW YORK (Reuters) - Molson Coors Brewing Co said on Tuesday quarterly net profit fell slightly on one-time items and weak sales in Britain, helping to push the brewer's shares down as much as 4 percent.

The maker of Molson Canadian and Coors Light said third-quarter net income dipped nearly 1 percent to $134.7 million, or 74 cents per share, from $135.8 million, or 78 cents per share, a year earlier.

Excluding items, earnings were 95 cents a share, topping the analysts' average forecast of 92 cents, according to Reuters Estimates. The company cited price increases, a lower tax rate, the weak dollar, cost cutting and growth of its brands, which include Blue Moon, Carling and Keystone.

In Canada and the United States, Molson's largest markets, the company said it had gained share and sales had increased.

But UBS analyst Kaumil Gajrawala called the results mixed, noting that the earnings beat came from a lower-than-expected tax rate. He also said that while sales rose in the United States and Canada, which together account for about three-quarters of the company's total, margins in both regions were below his expectations.

Molson said net sales in the quarter rose 6.9 percent to $1.69 billion, helped by the weak dollar, which boosts the value of overseas sales when they are converted to dollars for inclusion on the company's income statement.

Sales by volume fell 0.2 percent to 11.2 million barrels, due mostly to the impact of colder-than-usual weather in the UK.

Sales to retailers rose 2.1 percent as a 6.4 percent increase in the United States and a 0.8 percent rise in Canada offset a 6.9 percent decline in the UK.

Coors Light U.S. sales to retailers grew at a mid-single-digit percentage rate while Blue Moon grew at a strong double-digit rate, Keystone Light grew at a low double-digit rate and Coors Banquet grew at a high single-digit rate.

U.S. net sales per barrel rose 2.5 percent as the company raised beer prices to offset higher costs of commodities such as grain and aluminum.

Goldman Sachs analyst Judy Hong said sales were much better than she had expected and that she would recommend buying Molson shares on their weakness. Hong has a "buy" rating on the stock.

"The key item to focus on is the very strong performance in the North American businesses, where sales trends remain strong and Molson Coors is gaining share, pricing looks healthy and cost savings are driving solid operating profit growth," Hong wrote in a research note.


Chief Executive Leo Kiely said third-quarter U.S. sales reflected the best quarter in a long time, and added in an interview that trends appeared to be even stronger for the start of the fourth quarter, which is usually a smaller quarter for beer companies than the third.

In a conference call, Molson said sales to retailers in October, the first month of the quarter, rose at a high single-digit rate in the United States and a mid-single-digit rate in Canada.

The No. 2 U.S.-listed brewer behind Anheuser-Busch Cos Inc was formed by the 2005 merger of Canadian brewer Molson Inc and U.S. rival Adolph Coors Co. Last month, Molson, which is third in the U.S. by market share, said it planned to combine its U.S. operations with those of SABMiller Plc , which has the No. 2 spot.

Kiely said Molson filed with U.S. antitrust regulators on October 19 and the U.S. Department of Justice was reviewing the deal.

Kiely, tapped to run the venture that will be called MillerCoors, also said there would be little near-term disruption to the company's operations, a concern of several analysts.

"My sense of both our U.S. organization and our distributor network is that they're very focused. I don't think we're going to miss a beat," Kiely told Reuters. "And I think that's reflected by the continuing strong sales to retail we're seeing kicking off the fourth quarter here."

Molson shares were down $1.37, or 2.4 percent, at $55.21 on the New York Stock Exchange after falling to $53.67.

At Monday's close, the stock, which trades at 18.5 times next year's earnings estimates, had gained nearly 23 percent over the last three months, outperforming a 2.3 percent gain by the Standard & Poor's 500 Index <.SPX>.

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