The Street's Wide-Ranging Take On Molson Coors Earnings, CEO Change

Molson Coors Brewing Co TAP hit multi-year lows Wednesday after reporting second-quarter sales, gross profit and operating income below the Street's expectations. The company also unexpectedly announced Gavin Hattersley will replace Mark Hunter as CEO.

Multiple Street analysts weighed in to offer a wide range of perspectives on the report, management transition and outlook.

Poor Q2

Molson Coors' second quarter was negatively impacted by weather in the U.S. and Europe, but management discussed how trends improved in July, said Morgan Stanley's Dara Mohsenian. However, the company's reputation of weak innovation and poor subcategory positioning remains the same so volume struggles are likely to carry over.

"[W]e remain cautious longer-term with weak volume trends and uncertainty around TAP's new CEO strategy," Mohsenian wrote.

Related Link: Bank Of America Taps Out Of Molson Coors, Downgrades Stock

New CEO Adds Confidence

Hattersley's promotion from U.S. chief to CEO is intended to speed up the pace of change across premium categories and footprint optimization, UBS's Sean King wrote in a note. Being an internal candidate implies the prior bullish thesis won't change much as the company can see growth through a premium portfolio transformation.

Even if sales fall 2.9% for 2019 and EBIT margins decline by 160 basis points, the company should still be able to hit its free cash flow guidance of $1.26 billion to $1.54 billion.

The CEO transition was unexpected although the timing "seems right," according to Bank of America's Bryan Spillane. The change comes at a time when the company is looking to generate sustained sales growth. Under a new CEO, the company has a new opportunity to increase brand support by re-energizing consumers, retailers, wholesalers and investors.

"While this could involve a step back in earnings growth in the short-term, if done successfully, as we have seen with other food and beverage companies, it could have more sustained benefits over time," Spillane wrote. "It does appear that TAP is laying the ground work for that in 2019."

Competitors Are Getting It Right

Molson's recent performance points to continued market share losses, lower margins, increased costs and investments, along with a need to heavily market itself to stabilize its core brands, Tigress Financial Partners' Ivan Feinseth said. At the same time, rival Boston Beer Company Inc SAM deserves credit for expanding its offering, including exposure to alternative alcoholic beverages.

"I would be a seller of Molson Coors as I believe there is little upside potential and possibly further downside from current levels," Feinseth wrote in his daily newsletter.

Ratings And Price Targets

• Morgan Stanley maintains at Equal-Weight, price target lowered from $59 to $55.
• UBS maintains at Buy, price target lowered from $76 to $71.
• Bank of America maintains at Underperform, $50 price target.

Shares of Molson Coors closed lower by 2.8% at $52.49 Thursday.