03 Sep Molson Coors Beverage Company (TAP)
It’s amazing to me that the market is at all-time highs whilst in the midst of a global pandemic. Many states in the US attempted to reopen their economies after the initial bout of coronavirus cases but were quickly shut down again as the numbers started to increase as a result. But as we have seen the greatest recovery in Wall Street history has been extremely lopsided so far, with only certain sectors and companies benefitting from the bounce back.
While technology companies and online retailers, who don’t rely on people being out and about, are all trading at all-time highs there have been many other industries which have suffered heavily. Think bricks and mortar retailers, travel companies, airlines, and the restaurant industry.
Today’s stock report subject, Molson Coors, is in the latter group. It’s a multinational brewing company which was formed due to a merger between Canada’s Molson Brewing and the United States’ Coors back in 2005. They’ve been badly affected by restaurant shutdowns, the elimination of sporting events and concerts, and the closing of theatres and cinemas. Molson Coors derives approximately 25% of sales through these channels which have all but disappeared since the breakout of Covid19.
And the share price has fallen accordingly. Back on the 11th of February TAP was trading around the $58 mark after suffering a tough few years that it spent readjusting its offerings and moving into more popular segments. In my opinion, it was just about to break out of this rut before the pandemic hit. A few short weeks later it had dropped 40% to around $35, and even now has only recovered a few dollars to be trading at $37 at the time of writing.
Its share price falls are understandable. Its last two earnings reports have been terrible. In the latest July earnings sales were down 15%, while US revenue was down by 8% and Europe by 21%. There is a lot of pessimism around this stock at the moment, some of which is justified and some of which is not. But sometimes these moments provide the best buying opportunities. When the price is beaten down and no one wants a piece of it is exactly the right time to buy. Assuming you think the company can recover of course. In this case, you will be backing that restaurants and bars and clubs will eventually reopen again, and sporting fixtures, concerts and theatre shows will once again have the general public attending.
Molson Coors cover some of the biggest names in beers. Besides its two biggest selling brands Molson in Canada and Coors in the US it also owns such names as Carling, Grolsch, Miller, and Peroni. However, beer sales have been declining worldwide for a few years now. Flavoured malt beverages are the new favourite in town, none more popular than the alcoholic (hard) seltzer market. We haven’t really experienced this yet in Australia, but sales for these types of drinks were up 193% in the US in 2018 and another 210% in 2019. It’s an area that Molson Coors is moving aggressively into with its new Vizzy brand that was released in May.
CEO Gavin Hattersley recently commented about the new products “as a result of coronavirus, we’ve made some adjustments to our original innovation plan. We’ve delayed some innovations, and we are using those savings to protect our cash and liquidity positions. But as far as the seltzer market is concerned we’ve got a very clear strategy in hard seltzers. And we think we’re being smart in how we execute our first two launches. We are first focussing on Vizzy as the big bet, and then we’re rolling into Coors Seltzer in the fall. This is a huge segment, and it’s got plenty of room for multiple brands and solutions.”
The company knows how to sell beverages and I’m sure it won’t have any trouble breaking into these new markets. It’s got brand recognition around the world to rely on and a sales and marketing team who have been in the business for decades. These new beverages are more likely to be consumed in the home, thereby decreasing Molson Coor’s reliance on its “outside the home” business as economies continue to be shuttered.
At some time in the near future, these markets will reopen and sales will quickly be restored to 2019 levels. It may not be before the end of 2020 but it will hopefully be at some stage in early 2021. It’s move into new business segments will keep it going forward into the future. Notice in the company name, it’s no longer a brewing company it’s a beverage company. Its says everything about what this company is aiming to do. But as we mentioned earlier the share price is being suppressed right now. It may just be the perfect time to get on board.