The brewer has sold more shares and taken on additional debt to gain full ownership of MillerCoors, but the acquisition should expand its revenue and cut its costs, including its tax bill.
MOLSON COORS CANADA INC. (Toronto symbols TPX.A and TPX.B; www.molsoncoors.com) is the world’s fourth-largest beer brewer by market cap. Its main brands include Molson Canadian, Coors Light and Carling.
In response to slowing global beer sales, the company continues to cut costs and improve its efficiency. Much of this plan centres on MillerCoors —the 2008 merger of Molson’s U.S. brewing and bottling operations with those of rival SABMiller.
Molson recently agreed to buy the 58% of MillerCoors it doesn’t already own. That’s because SABMiller has accepted a takeover offer from rival Anheuser-Busch InBev that will create the world’s largest brewer. To satisfy competition regulators, SABMiller will sell its stake in MillerCoors to Molson for $12.0 billion (all amounts except share prices and market cap in U.S. dollars).
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Thanks to Molson’s 2012 purchase of Eastern European brewer StarBev, its sales rose 19.6%, from $3.5 billion in 2011 to $4.2 billion in 2013. However, the higher U.S. dollar cut sales to $4.1 billion in 2014, and to $3.6 billion in 2015.
Earnings gained 9.8%, from $3.76 a share (or a total of $701.5 million) in 2011 to $4.13 a share (or $768.5 million) in 2014. Earnings then declined to $3.76 a share (or $700.4 million) in 2015.
In the three months ended June 30, 2016, the company’s sales fell 1.9%, to $986.2 million from $1.0 billion a year earlier. However, if you disregard currency rates, sales gained 1.9%.
Overall earnings in the quarter fell 9.2%, to $239.5 million from $263.8 million. Molson sold $2.5 billion in common shares to help pay for MillerCoors. Due to more shares outstanding, earnings per share fell 21.3%, to $1.11 from $1.41.
The company also sold $6.9 billion in bonds. That raised its long-term debt to $9.6 billion, or a high 45% of its market cap.
However, gaining full control over this business will let Molson claim all of MillerCoors’ revenue. That will add $4.7 billion to its annual sales. In addition, the company should save $200 million a year by merging its purchasing and distribution operations. Moreover, Molson expects to save $250 million annually in tax for the next 15 years.
The company aims to complete the MillerCoors purchase by the end of 2016. The new operations should lift Molson’s earnings in 2017 to $5.18 a share. That stock trades at a reasonable 19.1 times that forecast. The $1.64 dividend yields 1.7%.
Molson’s class B shares have less voting power to elect directors than the class A shares, but they are more liquid and receive the same dividend.
Recommendation in The Successful Investor: BUY Molson Coors B.
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Good choice for steady dividends. Its earnings will also probably spike in the latest quarter as hot weather in North America drives up beer sales.
Beer and hot weather. Never heard of that connection before. 😉