We reaffirm our Neutral recommendation on
Molson Coors Brewing Company
). While the company has been delivering solid quarterly results,
the continued volume decline in major markets remains a
Why the Reiteration?
Molson Coors posted better-than-expected results in three out
of the last four quarters. Product innovation, expansion
strategies and cost savings program have remained the company's
strong points. However, the continued volume declines in major
markets remain an overhang.
The company is positioned as 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. Molson Coors has expanded its market share
through innovation. It has launched several drinks and expanded
its existing product line. We are encouraged by the fact that the
company is generating a mid-single-digit sales growth through
product innovation. The company's above-premium brand portfolio
is growing at a double-digit rate globally, which is also
Molson Coors is also on track with its cost savings program
and cash generation targets. The company paid back nearly $282
million worth of net debt in the third quarter, which in turn
will improve its efficiency. The company has already 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 brand
building and innovation.
Molson Coors has made several acquisitions to expand its
portfolio in new and emerging markets. However, the most
significant acquisition was that of the nine breweries of StarBev
in Jun 2012, which not only enhanced the premium brands portfolio
of Molson Coors, but accelerated its expansion in the emerging
markets of Czech Republic, Hungary, Romania, and Bulgaria. It has
also created opportunities for the company in Central Europe to
extend its key brands, taking advantage of the attractive beer
market, despite a sluggish European economy.
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 investing in
brand marketing. The acquisition of the StarBev business also has
the potential to boost volumes but it should take time. Moreover,
management expects weak consumer demand in the coming quarters
due to ongoing macroeconomic headwinds.
Moreover, the acquisition of StarBev has tightened the
company's liquidity position and has restricted the use of cash
for share buybacks. Molson Coors expects to use its cash flows to
repay its debt (taken for acquiring StarBev) by the next 2-3
years instead of buying back shares.
Molson Coors holds a Zacks Rank #4 (Sell).
Other Stocks to Consider
Constellation Brands Inc.
) is a better-ranked beverage company with a Zacks Rank #1
(Strong Buy). Other better-ranked companies in the consumer
staples sector include
Pinnacle Foods Inc
Green Mountain Coffee Roasters Inc.
). Both the stocks hold a Zacks Rank #2 (Buy).
GREEN MTN COFFE (GMCR): Free Stock Analysis
PINNACLE FOODS (PF): Free Stock Analysis
CONSTELLATN BRD (STZ): Free Stock Analysis
MOLSON COORS-B (TAP): Free Stock Analysis
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