We reaffirm our Neutral recommendation on
Molson Coors Brewing Company
) as the benefits of StarBev acquisition was offset by
unfavorable currency impact, increased marketing costs and poor
weather conditions in the first quarter 2013 results.
Why the Reiteration?
On May 7, Molson Coors reported its first quarter 2013
results. The company's sales in the first quarter increased 19.8%
year over year owing to the addition of the StarBev operations
(Jun 2012), which also boosted worldwide beer volumes. However,
earnings of 30 cents per share declined 36.2% due to unfavorable
currency impact, increased marketing costs and poor weather
The acquisition of StarBev has significantly enhanced the
company's portfolio of premium brands, despite sluggish European
economy. It has also created opportunities for the company in
Central Europe to extend its key brands, taking advantage of the
attractive beer market. Also, with economic recovery underway in
the U.S. and China, the company expects increased consumer
Overall, we are encouraged with the company's strong brand
portfolio and its growing market share from product innovation.
The company has a strong product pipeline ahead and plans to
introduce new non-beer drinks as well as premium beer products.
Molson Coors is also focusing on the highest-potential
opportunities in the U.S. beer market.
The company has undertaken cost-saving initiatives and
achieved $200 million of cost savings through its synergy program
named Resources for Growth Two (RFG2) since 2010.
Other than this, the company liquidated its under-performing
China joint venture, restructured its Coors Light business in the
rest of China, improved performance in Japan, and integrated the
Central Europe license and export business in 2012. These
initiatives are expected to improve the efficiency of the
organization and generate additional resources to invest in
brands and innovation.
However, Molson Coors has been posting sluggish sales volume
trends in the U.S., U.K. and Canada for the past three years. The
company is making efforts to revive its volumes and has been
investing in brand marketing. The recovery in the U.S. economy
and the acquisition of the StarBev business also has the
potential to boost volumes. However, we still wait for a
substantial improvement in these markets.
Moreover, the acquisition of StarBev has tightened the
company's liquidity position and has restricted use of cash for
share buybacks. Molson Coors prefers to deleverage its debt
(taken for acquiring StarBev) by the next 2-3 years instead of
buying back shares.
Molson Coors holds a Zacks Rank #3 (Hold). Other stocks in the
consumer staples sector that are worth considering are
B&G Foods Inc
Flower Foods Inc
The J.M. Smucker Co
). While B&G Foods holds a Zacks Rank #1 (Strong Buy), Flower
Foods and Smucker carry a Zacks Rank #2 (Buy).
B&G FOODS CL-A (BGS): Free Stock Analysis
FLOWERS FOODS (FLO): Free Stock Analysis
SMUCKER JM (SJM): Free Stock Analysis Report
MOLSON COORS-B (TAP): Free Stock Analysis
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