Risk-Reward Balanced at Molson Coors - Analyst Blog

On Apr 02, 2014, we issued an updated research report on Molson Coors Brewing Co TAP. This beverage company reported fourth-quarter 2013 results on Feb 13.

Molson Coors' fourth quarter adjusted earnings of 68 cents per share missed the Zacks Consensus Estimate by 5.6% and declined 1.4% from the prior-year quarter due to lower sales. Net sales declined 0.2% to $1.03 billion in the fourth quarter due to unfavorable foreign exchange. Sales were however in line with the Zacks Consensus Estimate.

Sales volume increased 2.3% year over year to 7.06 million hectoliters but declined 21.2% sequentially due to weak consumer demand across all markets owing to macro-economic headwinds. Total worldwide beer volume increased 0.1% to 14.1 million hectoliters. However, volumes were lower than 17.0 million hectoliters in the sequentially preceding quarter due to weaker sales of Miller Lite in the U.S. and Coors Light in Canada.

Molson Coors has been posting negative beer volumes in the U.S. and Canada for quite some time due to weak consumer demand owing to a difficult consumer spending environment. Molson Coors will continue to witness weak demand in the coming quarters due to macroeconomic headwinds.

Since 2001, the premium beer segment in Canada has been gradually losing volume to the above premium and value segments, mainly due to an aging population and a sluggish economy. In Canada, the substantial excise tax increase in Québec, which was enforced in Nov 2012, has hurt volumes as the company holds a significant share of the Québec market. In 2013, apart from Canada and U.S., beer volumes declined in Europe too, primarily due to declines in the overall alcohol market.

Though the company has been spending on marketing and advertising to increase brand awareness, there has been no consistent improvement. The company is also hoping that the gradual recovery in the U.S. economy and the acquisition of the StarBev business (in Jun 2012) will boost volumes. However, it seems that the company will continue to face significant macroeconomic and promotional challenges in the near term.

Despite the surrounding challenges, Molson Coors is still one of the world's largest brewers and boasts a strong portfolio of well-established brands, including Coors Light, Molson Canadian, Carling and Staropramen, as well as craft and specialty beers like Blue Moon, Creemore Springs and Cobra. Through continuous innovation, the company has been able to grow its market share. The acquisition of StarBev breweries has also enhanced the premium brands portfolio of Molson Coors and accelerated its expansion in the attractive beer markets of Central Europe. The company is also growing its online presence in Canada in partnership with CafePress Inc. to provide a wide array of personalized branded apparels and other consumer products to online customers.

The company also has a solid cost savings program in place. Molson Coors has undertaken restructuring initiatives to reduce overhead costs and boost profitability. The initiatives include closure of underperforming breweries and efforts to improve efficiencies in finance, administration and human resources. The initiatives also focus on reducing labor and general overhead costs.

Molson Coors holds a Zacks Rank #3 (Hold).

Other Stocks to Consider

Some better-ranked stocks in the beverage (alcohol) industry include Beam, Inc. BEAM, Brown-Forman Corp. (BF.B) and Diageo Plc DEO, all of them holding a Zacks Rank #2 (Buy).