Molson Coors Canada Inc. $92 – Toronto symbol TPX.A and TPX.B

Molson Coors continues to benefit from its purchase of SABMiller’s stake of MillerCoors. At the same time the company believes it has found a way to offset stagnant alcohol sales and capitalize on the legalization of cannabis.

MOLSON COORS CANADA INC. (Toronto symbols TPX.A $80 and TPX.B $87; Conservative Growth and Income Portfolios, Consumer sector; Shares o/s: 215.8 million; Market cap: $18.8 billion; Price-to-sales ratio: 0.6; Divd. yield: 2.5%; TSINetwork Rating: Average; took its current form in 2005 when Canadian brewer Molson merged with U.S.-based Adolph Coors. Canadian investors received shares of Molson Coors Canada, which are equivalent to shares of Molson Coors Brewing (New York symbol TAP). Today, the merged company gets most of its sales from the U.S. (65%), followed by Europe (20%), Canada (13%) and other countries (2%).

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Molson Coors’ sales fell 15.2%, from $4.2 billion in 2013 to $3.6 billion in 2015 (all amounts except share prices and market cap in U.S. dollars). That’s partly because the higher U.S. dollar hurt the contribution of sales outside the U.S. Earnings during that time also fell from $3.08 a share (or a total of $565.3 million) to $1.93 a share (or $639.1 million).

Big acquisition spurred sales, earnings

In October 2016, the company acquired the remaining 58% of its MillerCoors brewing joint venture from SABMiller for $12 billion. (Back in 2008, the two firms agreed to combine their U.S. brewing operations.)

With 100% of that business, Molson Coors saw its overall sales for 2016 rise to $4.9 billion; in 2017, they more than doubled to $11.0 billion. Thanks to the higher sales and savings from eliminating overlapping operations, earnings improved to $4.42 a share (or $954.6 million) in 2016, and rose again in 2017 to $4.47 a share (or $968.6 million).

In the third quarter of 2018, Molson Coor’s sales rose 1.8%, to $2.93 billion from $2.88 billion a year earlier. Unfavourable exchange rates offset higher selling prices and volumes. Without currency rates, sales improved 2.5%.

The company continues to cut costs following its acquisition of SABMiller’s MillerCoors stake. Excluding restructuring costs, earnings jumped 34.3%, to $1.84 a share (or a total of $398.5 million) from $1.37 (or $296.5 million).

More savings on tap for Molson

Molson now expects merger savings and other cost cuts will save it a total of $700 million between 2017 and 2019. That’s more than its initial goal of $600 million. The savings will help the company pay down its long-term debt of $9.0 billion (as of September 30, 2018). That’s a high, but still manageable 63% of Molson’s market cap. The company also held cash of $750.1 million.

In response to slowing beer sales, Molson has formed a new alliance with Canadian cannabis producer HEXO Corp. (Toronto symbol HEXO). Molson now owns 57.5% of that joint venture to develop cannabis-infused non-alcoholic beverages. Ottawa will probably legalize food and drinks containing cannabis in late 2019.

Moderate p/e adds to its appeal

Molson will probably earn $4.98 a share in 2018. The class A shares trade at 12.1 times that estimate (13.2 times for the B shares). The $1.64 dividend yields 2.7% for the A shares (2.5% for the B shares).

Holders of Molson Coors’s class B shares have less voting power to elect directors than those holding class A shares. But the B shares are more liquid and get the same dividend.

Molson Coors B is a buy.

Will Molson’s new venture to create a non-alcoholic cannabis-infused drink succeed in offsetting stagnant alcohol sales?

What to Read Next 

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This article was originally published in 2007 and is regularly updated.

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