Declining beer demand and a shrinking market segment have contributed to the underperformance of key brands at Molson Coors.
While the company’s earnings are rising, so are costs and the company is facing increasingly strong competition from larger rivals. The revenue and earnings gains may not be sustainable despite the firm’s efforts to control costs and diversify its portfolio into non-beer products.
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MOLSON COORS CANADA INC. (Toronto symbols TPX.A and TPX.B; www.molsoncoors.com) is the world’s fifth-largest beer brewer. Its main brands include Molson Canadian (Canada), Coors Light (U.S.) and Carling (U.K.).
Like other makers of consumer products, Molson raised its selling prices in response to rising costs for ingredients, packaging materials and fuel. It’s also benefiting from the re-opening of bars and restaurants.
Molson’s sales in the quarter ended September 30, 2023, rose 12.4%, to $3.30 billion from $2.95 billion a year earlier (all amounts in U.S. dollars).
The higher revenue plus savings from an ongoing cost control plan lifted its earnings before unusual items by 45.5%, to $1.92 a share (or a total of $418.5 million) from $1.32 a share (or $286.8 million).
Value Stocks: Earning should rise but competition remains strong for Molson Coors
As part of a plan to add more non-beer products to its portfolio, Molson recently paid $78 million for a 75% stake in Blue Run Spirits. Based in Kentucky, that firm makes bourbon and rye whiskies.
Molson’s earnings probably jumped about 31% to $5.36 a share in 2023. The class B stock, which is up 25% in the past year, trades at just 11.7 times that estimate. However, the company faces increasingly strong competition from larger brewers such as Anheuser-Busch InBev (New York symbol BUD).
Molson last raised your quarterly dividend with the March 2023 payment. Investors now receive $0.41 U.S. a share, up 7.9% from $0.38 U.S. The new annual rate of $1.64 U.S. yields 2.7% for the A shares, and for the B shares too.
As well, the company intends to buy back $2 billion U.S. of its shares over the next five years. However, rising costs for ingredients, labour and transportation add risk.
Recommendation in The Successful Investor: Molson Coors Canada Inc. is a hold.
