Molson Coors Brewing Co. (TAP) is surging as international sales and cost cuts power profit growth to the best among its peers while job gains stoke prospects for a pickup in U.S. sales.
Shares of North America’s second-biggest beer company, known for its mass-market brews such as Coors Light and Molson Canadian, soared to a record today and have advanced 26 percent this year, the most among 15 global rivals tracked by Bloomberg News.
“They’re sort of in the right place at the right time,” Andrew Holland, an analyst at Societe Generale SA, said in a June 5 telephone interview. The bulk of the company’s business is in stable markets that are more optimistic about the economy and cost cuts have boosted the company’s cash position, he said. “The major attraction is strong cash generation.”
Molson Coors rose 5.4 percent to close at $70.71 in New York after touching a record $71.39 earlier. Earnings per share at the Denver and Montreal-based company grew 83 percent in the first quarter from a year ago, leading gains among 14 North American beverage peers, according to Kenneth Shea, senior analyst of food and beverage at Bloomberg Industries, in Skillman, New Jersey.
The company has five buys, five holds and three sells from analysts, according to data compiled by Bloomberg.
Sales of Coors Light grew more than 30 percent in the U.K. in the first quarter from a year earlier, helping to boost European volumes by 5.6 percent, Chief Executive Officer Peter Swinburn said on a May 7 earnings call. Sales also more than doubled in Mexico and Latin America.
U.S. net sales rose 0.1 percent during the first quarter, company documents show though Coors Light, introduced in 1978 when a health and fitness craze prompted drinkers to drink lower-calorie brews, continued “to be a drag” in Canada, Stewart Glendinning, CEO of Molson Coors Canada Inc., said in the same call. Weak consumer demand and promotional challenges contributed to a 5.5 percent drop in sales volumes the first three months of 2014, according to company documents.
Big brewers lost loyal light-beer drinkers during the recession as customers spent less on alcohol, said Andrea Riberi, senior vice-president at Nielsen, a company which analyzes consumer trends. That trend is expected to rebound as the economy recovers because traditional light beers still have the lion’s share of the market and the most loyal drinkers, she said.
The U.S. generated 217,000 new jobs in May, the fourth consecutive month above 200,000 while the unemployment rate dropped to 6.3 percent from 7.5 percent a year ago. Canada’s unemployment rate has wavered around 7 percent for the past year.
“People weren’t switching, they were drinking less,” Riberi said in a June 2 telephone interview from Pittsburgh. “Hopefully as the economy rebounds we’re going to see those heavy loyal beer drinkers drink more.”
Cost cuts are also driving profits. The company reduced costs by more than $70 million in 2013, primarily in Europe, to boost profitability, and had an additional $102 million in savings at its MillerCoors unit, according its Feb. 13 earnings report. Molson Coors cut about 910 jobs from 2012 to 2013 and closed underperforming breweries, according to a May 27 report from Zacks Investment Research.
Net cash flow from operating activities rose to $149.7 million in the first three months of 2014, up from $118.4 million a year earlier, due to higher net income and lower cash paid for pension contributions, interest, taxes and restructuring, company documents show.
That could put it in a good position to purchase MillerCoors from its joint venture with SABMiller Plc if Anheuser-Busch InBev (BUD) NV proceeds with a takeover bid for SABMiller, Holland at Societe Generale said.
“That puts Molson Coors in a very strong position to buy that 58 percent at a very low price,” Holland said.
SABMiller Chief Executive Officer Alan Clark told Bloomberg News in January that a case could be made for a tie-up of SABMiller and Anheuser-Busch, which would likely require divesting some U.S. operations to appease regulators. He declined to say whether there have been any discussions or how likely such a deal may be.
Molson Coors doesn’t comment on market speculation, Colin Wheeler, a spokesman for the company, said in an e-mail yesterday. The company declined an interview request with Bloomberg News.
While Molson Coors has made headway in Europe, mass-market beers are losing ground to craft brews, wine and specialty spirits, and the company hasn’t shown solid volume growth in Canada and the U.S., said Brian Yarbrough, an analyst at Edward Jones & Co. in St. Louis.
“I just think we’ve seen a shift in younger kids that are drinking age,” Yarbrough said in a May 28 telephone interview. “They’re not buying 12 packs of the Miller Lights of the world. They’re buying a 6-pack of a craft beer and enjoying the flavor more.”
Craft beer sales rose 17 percent in the U.S. last year while the number of microbrewers operating in the country jumped nearly 23 percent amid a 1.9 percent drop in overall beer sales, according to the Brewers Association, a Boulder, Colorado-based group that represents craft brewers.
Molson Coors has set up a unit called Tenth and Blake Beer Co. to focus on Blue Moon and other niche brews. The large brewers have massive scale and distribution networks and their forays into niche brands may be helping drive more beer drinkers into craft brews, said Paul Gatza, director of the Brewers Association.
Consolidation within the beer industry will help support prices and profits for all major brewers, Shea at Bloomberg Industries said. Anheuser-Busch InBev, the world’s largest beer maker, acquired Grupo Modelo SAB last year for $20 billion, the largest deal in the brewery industry ever.
“Maybe there’s some pent up optimism about what that means for the upcoming summer selling season,” Shea said.
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