Molson Coors Stays at Neutral - Analyst Blog

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We reaffirm our Neutral recommendation on Molson Coors Brewing Company ( TAP ). While the company has been delivering solid quarterly results, the continued volume decline in major markets remains a concern.

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 appealing.

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. ( STZ ) 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 ( PF ) and Green Mountain Coffee Roasters Inc. ( GMCR ). Both the stocks hold a Zacks Rank #2 (Buy).



GREEN MTN COFFE (GMCR): Free Stock Analysis Report

PINNACLE FOODS (PF): Free Stock Analysis Report

CONSTELLATN BRD (STZ): Free Stock Analysis Report

MOLSON COORS-B (TAP): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: GMCR , PF , STZ , TAP

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