Molson Coors

Moat: 2/5

Understandability: 3/5

Balance Sheet Health: 4/5

A global brewer with a portfolio of well-known brands, Molson Coors faces fierce competition in a mature market, requiring continuous innovation and cost management to maintain market share.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview: Molson Coors Beverage Company (TAP) is a major player in the brewing industry, known for a portfolio that includes brands like Coors Light, Miller Lite, and Molson Canadian, and recently acquired full control over the Blue Moon and other brands. The company operates in both the Americas and EMEA (Europe, Middle East, Africa and Asia Pacific) segments, offering a mix of premium, above premium and mainstream beers, along with craft and flavored products. The company has recently started to place more emphasis on selling hard seltzers and other non-beer beverages.

  • Geographic Segmentation:
    • Americas Generates the most revenue for the company. Includes USA and Canada.
    • EMEA&APAC: Includes countries in Europe, Middle East, Africa and Asia Pacific.
  • Product Portfolio:
    • A variety of popular brands including Coors Light, Miller Lite, Miller Genuine Draft, Molson Canadian, and Blue Moon.
    • Growth in the hard seltzer category with products like Vizzy and Simply Spiked.
    • Emphasis on premium and above-premium beers, craft beers, and flavored beverages.

Industry Trends: The alcoholic beverage industry, and beer in particular, is witnessing several key trends.

  • Growth in Emerging Markets: While developed markets show slow growth or decline, emerging markets continue to grow at higher rates.
  • Shift in consumer preference: Premiumization, the trend towards craft and local beers, and the explosion of hard seltzers continue.
  • Increased Competition: The industry is consolidating, but there’s an increase in smaller craft brewers, as well as increased competitive activity from larger players.
  • Focus on Health and Wellness: Consumers are becoming more concerned about calories, sugars, and alcohol contents, driving innovation in new types of beverages, low-carb or no-alcohol drinks.

Competitive Landscape: The brewing industry is highly competitive, with major global players like Anheuser-Busch InBev (AB InBev), Heineken, and SABMiller as the biggest competitors. The market also includes a wide range of smaller regional players and local craft brewers. Companies need to create and maintain moats by having strong brands, efficient distribution networks and a focus on product innovation.

Moat Assessment: 2/5 Molson Coors has a narrow moat based primarily on its brand strength.

  • Brands: Brands such as Coors Light, Miller Lite, Molson Canadian, and Blue Moon, give the company pricing power and brand loyalty from its consumer base.
  • Distribution: Distribution networks for alcohol and beer can be difficult to build, and they are a source of competitive advantage in many cases. * However, many consumers are brand-agnostic and will simply pick the cheapest brand, especially in the US market.

  • The market and industry in general is extremely competitive and susceptible to price-based competition. *The moat is somewhat weak because the main products are commodities and are easy to duplicate. Also, there are new entrants in the market that are able to sell similar products that are cheaper.

  • Competitive Advantages: The company has a recognizable brand, but it’s not unique as many other brands, therefore making it difficult to see a strong moat based on brand recognition alone.

Risks to the Moat and Business Resilience: The following risks have the potential to harm the moat of the company and negatively affect it:

  • Intensified Competition: The industry is extremely competitive, and a major competitor may be able to lure away a significant amount of clients. New smaller craft brewers are constantly entering the market and taking market share from more established companies. * Price wars: Intense competition can cause large price cuts.
  • Shifting Consumer Preferences: Changes in consumer preferences, towards low/no-alcohol beverages and non-traditional beer products, may erode the current brand strength, and create further challenges for a company reliant on popular but more established brands. Also, consumers may become more price conscious, which would hurt its profitability.

  • Regulatory Changes: Tax, tariffs, and regulations can affect the company. Regulations around alcohol and distribution are always subject to change which can lead to a big increase in prices or a complete change in business models.

  • Raw material volatility and disruptions: The ongoing disruptions and volatility can make the costs of raw materials highly unpredictable, which can negatively affect profitability.
  • Low customer loyalty: The customer base can easily move away to new options and it can be difficult to retain long term clients.
  • Brand erosion: Brands can be damaged by bad publicity, lack of innovation, and/or bad product quality which would then negatively affect its profitability and valuation.
  • Limited International Growth: The company’s revenues are mostly centered in North America, and expansion to other countries is extremely important to generate long term growth. Without this the potential may be limited.
  • High debt: The company has a high debt load with high interest rates. This negatively impacts its ability to be profitable and has a high risk if cash flow problems emerge.

Financials and Recent Performance:

  • Q3 2023 Results (Released Nov 2, 2023) : The company announced a 2023 3Q financial results, but the market did not react positively.
    • The adjusted free cash flow fell 20% in the quarter, a substantial decline.
    • The share price went down 10% on the news.
    • Net Sales were flat, with a 0.1 percent increase.
    • Sales volume decreased by 5.1% and financial income from non-core activities was down by 8.7% in the quarter.
  • Recent trends: Since the company’s 2023 Q3 earnings report, the company share price is down more than 10%. This shows a clear weakness and lack of faith from the market.
  • The company also recently had a ratings downgrade from Moody’s due to increasing cost pressures, showing a continued weakness of their competitive advantage.

  • Also, they also face significant foreign currency exchange risk, that can negatively affect net income and margins.

  • Balance Sheet: The company has a debt-to-equity ratio of 1.5, while the debt-to-capital is 0.6. Both are fairly high numbers and should be monitored. However, with a high amount of cash reserves, these financial ratios have earned a rating of 4.

  • Revenues: The revenue of the company can be divided into two segments: America and EMEA & APAC. The American segment accounts for more than 60 percent of the revenue, while the EMEA & APAC segment is almost 40 percent.
  • Margins: Gross margins were approximately 40 percent over the last couple of years, while net margins were in the 5-10% range. These are considered ok for a company in this industry.

Understandability: 3/5 Although the basics of the business—brewing and selling beer—are straightforward, understanding the company’s complex operations, geographic diversification, and financial intricacies requires some work.

Balance Sheet Health: 4/5 Despite some long-term debt, the company has a good level of liquidity and financial reserves, making it resilient.

Conclusion Molson Coors is a company in a difficult industry to generate high returns on capital due to pricing pressures and lack of differentiation. Despite having strong brand recognition and a large distribution network, the moat is relatively small and may not have the long-term resilience for a great long-term stock investment. The company also faces multiple challenges that may impact its business model negatively.