MOLSON COORS CANADA INC. (Toronto symbols TPX.A $91 and TPX.B $91; Conservative Growth and Income Portfolios, Consumer sector; Shares outstanding: 185.0 million; Market cap: $16.8 billion; Price-to-sales ratio: 3.0; Dividend yield: 2.4%; TSINetwork Rating: Average; www.molson coors.com) merged its U.S. brewing operations with those of rival SABMiller in July 2008 to form MillerCoors. Each company has a 50% voting interest in this joint venture, but Miller gets 58% of the profits, while Molson Coors gets 42%.
Since the merger, MillerCoors has saved roughly $1 billion by combining plants and distribution networks (all amounts except share price and market cap in U.S. dollars).
In the quarter ended June 30, 2015, lower raw material, packaging and fuel costs increased the company’s share of earnings from MillerCoors by 9.3% from a year earlier. However, unfavourable currency rates cut its Canadian earnings by 5.5% and its European profits by 21.5%. A restructuring in China also increased losses at its international operations by 56.8%.
If you exclude all unusual items, Molson Coors’s earnings fell 9.9%, to $263.8 million from $292.7 million a year earlier. Per-share earnings declined 10.2%, to $1.41 from $1.57. Currency rates and the termination of a joint venture cut sales by 15.4%, to $1.0 billion from $1.2 billion.
Meanwhile, Molson Coors continues to expand into craft beers and other premium drinks. For example, it has acquired the U.K. distribution and marketing rights to the Rekorderlig line of ciders, brewed by a firm in Sweden. Molson Coors’s well-established distribution networks and marketing expertise should boost Rekorderlig’s sales.
The company’s strong balance sheet will support its ongoing expansion: it ended the latest quarter with long-term debt of $2.3 billion, or a low 18% of its market cap, and cash of $413.8 million.
The stock trades at a reasonable 18.3 times the $3.75 a share Molson Coors will probably earn in 2015. The $1.64 dividend yields 2.4%.
The Molson Coors 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.
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