Lower volumes accounted for a 3.2% drop in revenue for this company during the most-recent quarter.
However, a restructuring plan has already saved $700 million and a new alliance with a marijuana producer is set to boost sales.
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MOLSON COORS CANADA INC. (Toronto symbols TPX.A and TPX.B), is the world’s fifth-largest largest brewer of beer by market cap. Its top brands include Coors Light, Miller Genuine Draft, Molson Canadian and Carling.
Both baby boomers and millennials are drinking more spirits and wine instead of beer. In response, big brewers like Molson are aggressively cutting their costs.
As part of that plan, in October 2016 the company acquired the remaining 58% of its MillerCoors brewing joint venture from SABMiller for $12 billion (all amounts except share prices and market cap in U.S. dollars). Back in 2008, the two firms combined their U.S. brewing operations.
The company last raised its quarterly dividend for investors with the September 2019 payment. They now receive $0.57 U.S. a share, up 39.0% from $0.41 U.S. The new annual rate of $2.28 U.S. yields a high 3.6% for investors holding the class A shares (3.8% for the class B shares).
Growth Stocks: Marijuana sales drop forces write-down
The company recently formed an alliance with Canadian cannabis producer HEXO Corp. (Toronto symbol HEXO). Molson now owns 57.5% of that joint venture (called Truss) focused on developing cannabis-infused non-alcoholic beverages.
As part of the deal, Molson acquired warrants to buy HEXO shares at $6.00 (Canadian) a share. However, due to slower-than-expected cannabis sales, HEXO’s stock price has dropped from $11 in April 2019 to under $2.
That forced Molson to write down the value of its HEXO warrants by $4 million in the quarter ended September 30, 2019. (Note—Molson reports its earnings in U.S. dollars). If you exclude that charge and other unusual items, its earnings fell 19.6%, to $1.48 a share (or a total of $321.2 million) from $1.84 (or $398.5 million).
Sales in the quarter fell 3.2%, to $2.48 billion from $2.93 billion a year earlier. Factoring out currency rates, sales declined 2.0%. The drop is mainly due to lower volumes, which offset higher selling prices.
Meantime, Molson continues to consolidate its facilities and cut jobs. Its current restructuring plan has saved it $700 million in the past three years. Investors should expect a further $600 million in savings between 2020 and 2022.
Your Molson dividend has grown an average of 9.0% annually over the last 5 years.
Investors holding Molson Coors class B shares have less voting power to elect directors than those with class A shares. But the B shares are more liquid and receive the same solid dividend.
Pot companies seem to come and go and I am interested to know how a possible disappearance of HEXO would affect Molson’s plan to improve beer sales. HEXO, I have heard is one of several pot companies in a court filing in the US. Was HEXO a good choice for Molson to form a partnership with?
Thanks for your question. The U.S. class action lawsuits are typically nuisance lawsuits that typically have little material effect on their targets. Meanwhile, Hexo recently sold shares that should keep its operations going—although its growth prospects appear limited for now. The joint venture is a small one for Molson…likely in part to generate “buzz” during a time of keen investor interest in any cannabis-related stock. So, from that perspective, it was a worthwhile partnership—and one that could still generate some interesting products.
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Pot companies seem to come and go and I am interested to know how a possible disappearance of HEXO would affect Molson’s plan to improve beer sales. HEXO, I have heard is one of several pot companies in a court filing in the US. Was HEXO a good choice for Molson to form a partnership with?
Thanks for your question. The U.S. class action lawsuits are typically nuisance lawsuits that typically have little material effect on their targets. Meanwhile, Hexo recently sold shares that should keep its operations going—although its growth prospects appear limited for now. The joint venture is a small one for Molson…likely in part to generate “buzz” during a time of keen investor interest in any cannabis-related stock. So, from that perspective, it was a worthwhile partnership—and one that could still generate some interesting products.