Post date: 04/10/2018 - 11:25
Molson Coors Performance Trends 2013-2017 - results dataIn February, Molson Coors released its full-year results for the 12 months of 2017, its first full year since taking control of the MillerCoors joint-venture in the US. The top-line came in flat on the corresponding period a year earlier, with the final quarter pulling up the rest of 2017. Here is the brewer's performance over the last five years.
In February, Molson Coors released its full-year results for the 12 months of 2017, its first full year since taking control of the MillerCoors joint-venture in the US. The top-line came in flat on the corresponding period a year earlier, with the final quarter pulling up the rest of 2017. Here is the brewer's performance over the last five years.
When Molson Coors CEO Mark Hunter, following the completion of the US$12bn MillerCoors deal in 2016, warned that 2017 would be a year of "transition", his major competitors, analysts and industry observers would have anticipated nothing more adventurous than that. What they might not have expected to see was the business turn in a 379% increase in profit to US$1.4bn, on the back of sales of $11bn and cost savings of $200m, $80m ahead of expectations.
Molson Coors, though, is a company that keeps on surprising - if not always surpassing - analyst and industry expectations.
The brewer's last five-year trading performance has seen it sidle up to and overtake other brewing giants to become the third biggest player in value terms, and fifth largest by volume, in the world. Of course, this position has been achieved thanks to the deal in October 2016 to take on the remaining 58% of the MillerCoors joint venture in the US from SABMiller. The transaction was by far the biggest deal in the company's history and, crucially, also gave Molson Coors control of Miller's overall global brand portfolio.
It has also put the business on a different footing, particularly in how it is being viewed and judged, not only its competitors, but also by investors and industry analysts. The latter had made it clear in the past that they felt Molson Coors has been under-performing the market compared to its rivals. Now, the group is well-placed to reverse that situation.
Particular focus has been placed on the speed of global expansion and its mixed performance over the last five years in key growth markets such as Asia, China, Africa, and South America. In 2016, 40% of total sales still came from its Canadian operations. All of this doesn't compare favourably to the global strategy and international expansion of its two bigger rivals, Anheuser-Busch Inbev and Heineken.
Along with other global brewers, Molson Coors has had to navigate its way through a number of stormy waters between 2014 and 2018. For a start, the company has had to re-evaluate its beer portfolio and look to tackle continued lower beer consumption, particularly in its core North America and Western Europe markets. This has seen the company introduce more premium brands, and rework existing ones to try to offset losing sales to wine and spirits.
On the back of 2014 results, CEO Hunter set out the challenge facing the business when he said it had been hit by "weak consumer demand across our largest markets". That's a worrying place for a CEO to be.
Noticeably, he countered the line by setting out the journey he has essentially been following for the three years since; targeting "good progress in building a stronger brand portfolio, delivering value-added innovation, strengthening our core brand positions, and increasing our share in above premium".
Where Molson Coors has struggled to keep pace with its rivals is how it has faced up to the challenge from the craft beer segment. The group has built up a modest portfolio of only seven craft breweries - Saint Archer, Terrapin, Hop Valley, Revolver, Creemore, Granville Island and Trou du Diable - plus a minority position in Canada's Brasseur de Montréal, compared to the 16 craft brewery businesses that Anheuser-Busch InBev controls in North America. By comparison, then, Molson Coors has been much more risk-averse with its craft acquisitions.
This approach has left the company's bigger brands even more exposed to the decline in beer drinking trends, particularly the performance of its flagship brands, Miller Lite and Coors Light in the US.
Meanwhile, its share price has been as volatile as the global beer market, losing 21% of its value in 2017.
How low can Molson Coors go?
Molson Coors, along with its competitors, is also looking seriously at how to be an effective player in the burgeoning low- and no-alcohol beer category. The company already sells a number of low-alcohol and alcohol-free brands in some markets, and has stated it wants to be able to offer consumers a low- or no-alcohol option in all the markets it operates in by 2025. And, with the category now making up 14% of the overall beer market in major countries such as Germany and Spain, it is an offer the company has to get right.
Much will rely on its confirmed plans to launch a new non-alcoholic beer in North America in 2018, with an initial launch expected in Canada, before rolling out across the US.
Demand for low alcohol options in North America has been much lower but, being one of the first to market could prove crucial as the trend increases amongst health-conscious younger consumers.
Discussing the segment in a recent interview with the Denver Post, chief growth officer Kandy Anand said: "We think conditions are right for what happened in the last five years in Europe to start happening in North America."
The road ahead
The company is currently trading at reasonable valuations, and 2018 could be the year that sees Molson Coors rewarded by the market for its management's sterling efforts to drive shareholder value. Shares have declined by more than 30% since its peak, and are currently trading at a significant discount, compared to Heineken and Anheuser-Busch InBev.
This year, Molson Coors is targeting annual cost savings of around $210m, and has updated its initial cost savings forecast for 2017 to 2019 to a healthy $600m. This comes on the back of $255m-worth of saving in 2017, $80m higher than expectations.
But, as per-capita beer consumption continues its inexorable slide, perhaps more radical action is required for the group as a whole. One area in which it is looking to lead is in its approach to sustainability, and the publication last summer of its first 'Our Beer Print Report'. In it, Molson Coors set out targets to achieve zero landfill waste at its major facilities by 2025. The group has already achieved that figure at 13 of its sites.
The company also wants to improve water use efficiency by 22% across its breweries and achieve a 2.8hl/hl water-to-beer ratio, and reduce carbon emissions by 50% within its own business and by 20% across the subsequent distribution and after-sales service chain.
In the company's latest full-year results, Molson Coors also acknowledged the threat - and opportunity - that has emerged as the result of the increased legalisation of cannabis in the US. How the brewer responds to this threat will have a major impact on how it performs over the next five years.
Molson Coors' Full-Year Sales 2013-2017
Molson Coors' sales performance over the last five years reflects how the business was jump-started on the back of the MillerCoors deal in 2016. In 2014, group sales stood at $4.14bn, before sliding back alarmingly, by 14% in 2015 to $3.56bn, before climbing to US$4.88bn in 2016.
The leap to $11bn in 2017 reflects the first year of trading to incorporate outright ownership of MillerCoors in the US. In real terms, however, sales were effectively flat, at 0.3% growth.
The fact that 2017's performance was helped by a strong final quarter, where sales rose by almost 2.5%, helped put a better gloss on a year that had started with a 1% sales dip for the first nine months to September as it was hit in the first quarter by currency issues and difficulties in North America.
In the fourth quarter, the top-line was strengthened by healthy European sales, while international markets also contributed in the three months. Sales in the US, however, were disappointing, sliding 2.4% on the corresponding period a year earlier.
The brewer is not alone in having suffered a crisis in confidence between 2014 and 2015, when an over-reliance on power brands was a common problem across the sector, as declining beer consumption, particularly in the US, started to hit. Molson Coors was also struggling with the loss of a number of big brand distribution agreements between 2013 and 2015, which came home to roost in 2015's bottom line.
Hunter attributed the 2017 performance to "demonstrating balance and progress against both our bottom-line and top-line goals".
Molson Coors' volumes performance has also been on a rollercoaster for the last four years, in keeping with the beer drinking trends in its major markets. Prior to the MillerCoors deal, Molson Coors' volumes performance had been unremarkable, moving from 58.9m hectolitres in 2014 to 62.9m hectolitres in 2016.
The decline in beer consumption in North America took its toll on volumes in 2017, when, despite growth in Europe and Canada, volumes fell 2.3%.
Its best performing year volumes-wise came in 2016, with an 8.3% jump to 62.9m hectolitres, which came on the back of a 900,000 hectolitre decline between 2014 and 2015.
With the Miller Coors deal now firmly under its belt, there's going to be increased expectations on volumes going forward, placing even more pressure on its global performance, developing sales in more countries and rolling out a better portfolio of premium and craft lines at one end, and low and no-alcohol brands at the other.
Molson Coors' Full-Year Operating Profits 2013-2017
The movement of the group's operating profits has reflected the huge swings in the five-year trading performance. Starting out in 2014 with a 9.8% slide in operating profits to $726.5m, Molson Coors fell again in 2015 by a worrying 30% to $521.8m, the result of losses across all its non-US business. That was before the MillerCoors deal transformed the picture, taking operating profits in 2016 up to a giddy $3.31bn.
These figures also demonstrate how important it is for Molson Coors to get its regional and international strategy right and ensure it isn't distracted by domestic markets in North America.
Molson Coors' Full-Year Net Profits 2013-2017
Although the final acquisition of MillerCoors in the US had an instant impact on net profits, soaring to $1.98bn in 2016 from $359.5 in 2015, the trajectory wasn't sustained over the following 12 months. Last year saw a 30% drop in net profits to $1.41bn, as the company continues to "transition" its way through the deal.
It's hard to compare the business before and after the MillerCoors deal by figures alone, but the last four years has returned a mixed net profit performance. Back in 2013, Molson Coors' net profits sat at US$567m, before dipping 9.4% to $514m in 2014 and then nosediving by an alarming 14% to $359m in 2015.
There have been mitigating circumstances along the way. Net profits in 2015, for example, were skewed by a US$500m impairment charge in Canada, as well as an indirect tax provision in Europe.
Molson Coors' Full-Year Sales by Region 2013-2017
Shining a light on Molson Coors' performance on a regional basis reveals in sharp focus where its strengths and weaknesses lie. Indeed, considering that its Canadian and European businesses saw sales in the five years to 2016 dip by 30% and 15%, respectively, and a major shake-up was clearly long overdue.
Although the brewer's global performance lags behind its competitors, particularly in the M&A arena, there are signs it is moving in the right direction. In 2017, its overall international sales - $264m - were up on 2016 - $163.6m - which itself returned a 13.2% uplift on 2015. Of course, this must be framed against a small sales base.
The international numbers were helped by factoring Puerto Rico into its sales mix, thanks to the MillerCoors deal. Also, Coors Light has been helping to push sales up in Latin America and Australia.
Overall, however, Molson Coors will be expected to deliver a more aggressive approach to its international network in the coming years, now that it has the power of the MillerCoors brands and distribution networks to roll out. Analysts estimated, for example, that the deal gave Molson Coors an instant 25% extra volume distribution in Mexico, thanks to having the rights to Miller Lite and other Miller brands in the country. Indeed, as Hunter himself put it in late-2016, the transaction should help accelerate Molson Coors' growth strategy "by strengthening our international beer portfolio ... as well as expand our presence in high-growth markets".
Molson Coors is not alone in having found the US market "challenging" over the last four years. And, having drawn a MillerCoors-shaped line in the sand in 2016, the country has become even more important to the group.
Troubles in the US continued for the brewer in 2017, with a poor showing in the premium-light segment being blamed for the 2.4% sales dip, down from $7.6bn in 2016 to US$7.5bn. The declines in the US are an ongoing headache for all the major brands. Meanwhile. the craft and independent brewing sectors continue to be hard nuts to crack as they nibble away at the major brewer's market share.
Molson Coors has been building its own craft beer platform in the country during 2016 and 2017 with the purchases of four craft beer businesses; Texas-based Revolver Brewing, Terrapin Beer Co in Georgia, Oregon's Hope Valley Brewing Co and Saint Archer Brewery in San Diego.
At the same time, the company has moved to capitalise on the country's thirst for hard soda in recent years. Having set up the Henry's Hard Soda range in 2015, Molson Coors extended it to also scratch the low carb itch.
The company is also looking to sweat its assets in the US by striking new distribution deals, such as the ten-year deal signed in mid-2017 to handle Heineken's Mexican beer brand Sol in the country. In this instance, Molson Coors has brought in a brand that also fills a gap in its portfolio, in light of the huge success of Mexican beer brands such as Corona Extra in the US.
This year, Molson Coors expects its US sales to remain flat, but return to growth in 2019 as the full effects of its MillerCoors deal kick in.
The company enjoyed a more impressive performance in Canada last year, where Molson Coors overturned the downward sales trajectory of the past four years and turned in an increase of 7% in 2017, up from $1.42bn in 2016 to $1.45bn. The performance was still down on 2015, when its sales in the country reached US$1.51bn.
Considering its growing global performance, it is still surprising that Molson Coors still relies so much on Canada for its sales. The percentage share might be coming down from its peak of 40%, but it's still significant and the pressure is on Molson Coors to kick-start its sales performance again in this key market.
To be fair, the group has clearly been looking to develop its craft beer strategy in Canada over the last five years. This was strengthened even further with the acquisition in late-2017 of Quebec-based craft brewery Trou du Diable. As Molson Coors Canada chief executive Frederic Landtmeters said at the time: "Partnerships like this one ... demonstrate the importance that we place on the craft and speciality beer segment."
There are some mitigating circumstances to the brewer's performance in its home market during the five-year period. Recall that, in 2014, the company had its distribution rights in the country for the Miller portfolio withdrawn by its then-owner, SABMiller. Then, there has been the issue of currency depreciation against the US dollar, which had a significant role to play throughout much of this reporting period.
The juxtaposition between having a mature set of markets, yet boasting healthy demand in growth categories like premium, craft and low- and no-alcohol beers, means Europe is increasingly being seen as a barometer of how diverse a major brewer's brand portfolio is. It's a challenge Molson Coors looks like getting increasingly right, if its 2017 figures can be built on: Sales last year were sent soaring by 29% from $336.8m to over $473m. Granted, a large part of this growth is attributed to the transfer of royalty and export brand volumes across Europe from Molson Coors' international business unit. But, growth has also come from the group's above-premium brands.
This was a performance that surpassed most analysts' expectations, having come on the back of a lacklustre previous three years. In 2016, European sales fell 8% for Molson Coors on a 1.7% volumes dip.
In craft, the group has looked to build on its presence in Europe, taking a stake in one of Spain's largest craft breweries, Cervezas La Sagra early last year.
Conditions in Eastern Europe have also proved challenging for Molson Coors, particularly in Romania, Bulgaria and Serbia. At the same time, these have been offset to some extent by stronger performances in the Czech Republic and Croatia.
Considering the amount of activity in the UK in recent years, this is clearly an important market for Molson Coors. Over the last five years, the country's off-premise channel has been working through a reset moment for beer. The four largest supermarket chains have been active in reducing the SKUs from major brands and brewers, replacing them either with their own brands or more regional and craft beers. Molson Coors was not exempt from the fall-out and has fought back by introducing more premium and craft beers and drive innovation, not just in beer but also in wine and spirits. In 2015, the group's UK division revamped its wholesale division to reflect the 2,000-plus product range it has across all category areas.
The purchase of Sharp's Brewery way back in 2011 gave the group the opportunity to flex its creative muscle. Not only does Sharp's flagship Doom Bar brand continue to do well - it was the UK's best-selling bottled beer in the off-premise in 2015 - the buy also helped Molson Coors develop more premium and craft beer products.
The brewer has also improved its UK position with a number of distribution deals. In mid-2015, it took over the distribution of the Staropramen from Carlsberg. Then, in towards the end of 2017, Molson Coors signed a strategically-important deal with China Resources Snow Breweries to bring the world's biggest selling beer brand, Snow, to the UK.
What can the beer industry learn from Molson Coors?
Without question one of the more interesting drinks companies to watch over the past few years has been Molson Coors. From the 14% drop in sales posted in 2015 to the boost provided by the acquisition of the 58% of MillerCoors it didn't already own in 2016, from the surprisingly-high cost savings of US$200m in 2017, to the loss in share price value of 21% during the same year, the past half-decade has been nothing short of a rollercoaster for the world's third-largest brewer by value and fifth-largest by volume.
Not surprisingly, such tumult also makes the company one with many lessons to share.
The logical and admittedly most obvious of these lessons relates to that MillerCoors purchase and is simply that a single strategic and significant deal can have a massive impact on the shape and fortunes of a company.
When Molson Coors originally partnered with SABMiller to create MillerCoors, it was largely a defensive measure. After Anheuser-Busch was acquired by InBev in 2008, the number two and number three brewers in the US - respectively, SABMiller and Molson Coors – suddenly found themselves dwarfed by a powerhouse corporation, even more so than they had been when an independent A-B was top dog in the country. The merger of their US operations wasn't enough to topple the goliath from the number one spot, but at least it closed the gap somewhat.
Fast-forward to 2016, as the goliath is seeking to grow even larger by consuming SAB, thereby alerting competition authorities who demanded divestment in the US, and Molson Coors was presented with a genuine once-in-a-lifetime opportunity, which they seized with both hands.
The benefits have proved sizable.
In 2016, 40% of Molson Coors' sales came from the Canadian market. A year later, sales leapt from $4.88bn to $11bn and the Canadian market grew correspondingly less consequential. Further, on the back of MillerCoors integration and costs savings $80m higher than expected by analysts, the company's profits increased by a startling 379% to $1.4bn.
Of course, the deal also exposed what many thought had long been a problem with the Molson Coors make-up; too strong a reliance on a North American market, which, as has been well-documented, is at very best stagnant in overall sales year-to-year. Further, the part of the market that had been occupied by the sort of high-profile brands upon which Molson Coors tends to place a great deal of emphasis continues to lose ground year-to-year to the craft and imported segment.
Herein resides the cautionary tale of just-drinks' five-year analysis of Molson Coors; specifically, about assembling the bulk of one's armoury upon a boat that appears to be, if not quite sinking, then at least taking on water.
The company's key brands, Coors Light and Miller Lite most prominent among them, are heavily reliant upon the Canadian and US markets, which is what analysts are referring to when they question Molson Coors' excessive reliance on "power brands". This could change with growth for Miller in Mexico and a US market returning to growth in 2019, as the company projects - neither are guaranteed and the latter is a greater challenge than the former. Both will need to happen quickly if Molson Coors is going to assuage such concerns.
Of course, another way to counter an excessive reliance upon those 'power brands' would be to build up other brands, particularly those within the strong growth category of craft. Here, Molson Coors has two sides of the same story to tell.
On the positive side, the company has long been proactive in acquiring what appear today as key brewers in Canada and the UK, and has benefitted greatly from their targeted, if cautious, approach. In Canada, the company bought Ontario's Creemore Springs Brewery as far back as 2005 for what seems today like a bargain price of CAD25m. Four years later, for an undisclosed price, but likely still in the neighbourhood of the Creemore price, it added to its Canadian craft portfolio by purchasing British Columbia's Granville Island Brewing.
In the UK, meanwhile, having had some success with the Worthington family it acquired with the former Bass brewery in Burton-upon-Trent, Molson Coors bought the Cornwall brewer Sharp's in 2011 for GBP20m (then-US$32.4m), also a bargain when compared to some of the craft price tags seen since.
With all three of these brands, Molson Coors has moved carefully but with great success, particularly so with Creemore and Sharp's. In the US, on the other hand, development of the company's four acquisitions has been agonisingly slow, particularly so when viewed in relation to the aggressive approach A-B InBev has taken with its ten properties in the country. Time will tell as to whether this ends up being a matter of 'slow and steady wins the race' or a cautionary tale of opportunity missed.
What Molson Coors does with one of its few craft acquisitions in continental Europe, Spain's La Sagra, will be viewed very closely as an indicator of whether or not Molson Coors can 'do craft' in regions outside of North America and the UK.
Finally, diversification - once a dirty word in the brewing game - seems to be a cornerstone of the future for Molson Coors, particularly so in the UK. With its recent purchase of cider-maker Aspall's, as well as its ownership of the distribution rights for Sweden's Rekorderlig line and development of a Carling line of ciders, the company has made a firm commitment to beverages outside of beer, even launching a gin brand through the Sharp's Brewery.
It is likely still too early to tell if such product variety will prove beneficial or detrimental to Molson Coors, but it is certainly something well worth watching, as success will no doubt move the company to expand its diversification efforts. A lesson still very much in progress, one might say.