MOLSON COORS CANADA INC. (Toronto symbols TPX.A and TPX.B; www.molsoncoors.com) is one of the world’s leading brewers. Its main brands include Coors Light, Molson Canadian and Carling.
The company’s sales fell when it merged its U.S. brewing operations with those of rival SABMiller to form MillerCoors in 2008. Because it owns less than half of MillerCoors, accounting rules forced Molson Coors to stop including the sales from this business in its overall sales.
However, sales rebounded in 2012, reaching $3.9 billion. That’s partly due to the contribution of StarBev LP, which owns nine breweries in Central and Eastern Europe. Molson Coors paid $3.4 billion for StarBev in June 2012. Earnings also rose, to $3.91 a share (or $710.5 million), in 2012.
Buying StarBev should cut Molson Coors’ exposure to slow growth in its traditional markets, including the U.S., which supplied 48% of its 2012 earnings; Canada (40%); and the U.K. (4%). Central Europe accounted for the remaining 8% of its earnings. The company has now merged its U.K. operations with StarBev, which will help it cut $50 million from StarBev’s annual costs by 2015.
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The savings from the StarBev deal will also help Molson Coors pay back the money it borrowed to make the acquisition. At March 30, 2013, its long-term debt was $3.4 billion, which is still a manageable 38% of its market cap. It also held cash of $511.5 million, or $2.82 a share.
The extra earnings from StarBev and ongoing savings from MillerCoors should let the company raise its $1.28-a-share dividend, which yields 2.6%. In 2012, Molson Coors paid out just 25.3% of its cash flow as dividends.
Molson Coors also aims to spur its long-term growth with joint ventures and licensing deals with foreign brewers.
The stock is up 17% in the past year. Of the two classes of shares, the B shares have better liquidity.
In the latest edition of The Successful Investor, we look at whether Molson Coors’ deals with foreign brewers will have a significant impact on the company’s earnings and whether the shares can keep on rising. We conclude with our clear buy-sell-hold advice on this stock.
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Molson Coors obviously believes it must expand into new markets to compensate for slower growth in its traditional markets. Does this indicate to you that beer drinking is declining somewhat in North America, or simply that the competition among brewing companies, wineries and distilleries is getting stronger?
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