Every Tuesday we bring you “Best Canadian Stocks.” You get our specific recommendations on the stocks we profile, with a full explanation of how we arrived at our opinion. Molson Coors is the world’s third largest brewer. Its main brands include Molson Canadian (Canada), Coors Light (the U.S.) and Carling (the U.K.). In October 2016, Molson Coors acquired the remaining 58% of the MillerCoors brewing joint venture from SABMiller for $12 billion (all amounts in U.S. dollars). It now owns 100% of this business.
Overall beer consumption in North America has declined in the past few years, mainly because baby boomers are switching to wine and spirits.
MOLSON COORS CANADA INC., (Toronto symbols TPX.A $84.14 and TPX.B $81.00; Shares outstanding: 216.3 million; Market cap: $17.5 billion; www.molsoncoors.com) took its current form in 2005 when Canadian brewer Molson merged with U.S.-based Adolph Coors. Canadian investors received shares of Molson Coors Canada, which are equivalent to shares of Molson Coors Brewing (New York symbol TAP).
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In October 2016, Molson Coors acquired the remaining 58% of the MillerCoors brewing joint venture from SABMiller for $12 billion (all amounts except share price and market cap in U.S. dollars). It now owns 100% of this business. MillerCoors was formed in 2008, when Molson and SABMiller entered an agreement to combine their U.S. brewing operations.
Today, the company gets most of its sales from the U.S. (71%), followed by Europe (16%), Canada (11%) and other countries (2%).
In response to slowing beer sales, Molson has formed a new alliance with Canadian cannabis producer HEXO Corp. (Toronto symbol HEXO). Molson now owns 57.5% of that joint venture to develop cannabis-infused non-alcoholic beverages.
The beer brewer last paid a quarterly dividend of $0.57 U.S. a share on March 20, 2020. However, it has now suspended dividend payments for the rest of 2020.
The stock was down 24% in the three months following the onset of COVID-19 pandemic, which forced many bars and restaurants to close. That has hurt Molson’s sales and earnings, as those businesses accounted for 23% of its 2019 sales (17% in North America and about 50% in Europe).
Eliminating the next three quarterly dividend payments will save the company roughly $370 million U.S. It has also cut its 2020 capital spending by $200 million.
The savings will bolster Molson’s balance sheet until bars and restaurants reopen. The company held cash of $666.1 million as of March 31, 2020. However, its long-term debt of $8.0 billion is a high 94% of its currently depressed market cap.
Suspending the dividend and reducing other costs should put the company in a better position to resume dividend payments in 2021. For now, we’re cutting the company’s TSI Dividend Sustainability Rating to Below Average from Above Average.
OUR RECOMMENDATION: Molson Coors B is a hold.
How does Molson’s marijuana-related investment affect your interest in the stock?
This post was first published in October 2014 and is updated regularly.
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