Be Patient with This Beer Company
Molson Coors is suffering from weak consumer demand in all its markets and it expects this trend to continue. However, Molson Coors still plans to increase its marketing and innovation in order to drive growth and reward shareholders. Only time will tell if Molson Coors will be successful in reigniting its growth, but for Foolish investors looking for an intelligent way to invest in the beer industry, it might be just the ticket.
In the second quarter, Molson Coors saw worldwide beer volume skyrocket 20.2% year over year. However, its acquisition of StarBev, which is now called Molson Coors Central Europe, supported this growth in a big way. For instance, Molson Coors International volume jumped 51%, but if you take away Molson Coors Central Europe, the company's sales volume declined 13.6%.
Molson Coors Central Europe is the key for Molson Coors at the moment. It came into existence after Molson Coors purchased StarBev for $3.54 billion in April 2012. StarBev was attractive because it owned nine breweries and 20 brands, most notably Staropramen, which is distributed in 30 countries. Therefore, top-line growth potential certainly exists.
You can also feel somewhat at ease knowing that Molson Coors owns several household brand names and the company is good at generating cash flow. For instance, for the first half of the year, Molson Coors increased its cash flow 8.8% to $365.8 million year-over-year. Also, in the second quarter Molson Coors reduced its net debt by $373 million.
Molson Coors is good at finding ways to boost the top line, improve cash flow, and reward its shareholders -- it offers a 2.60% yield. However, considering the economic landscape, you're going to want to make sure you invest in the top company in the space.
Molson Coors vs. peers
Molson Coors sports a market cap of $9.06 billion, making it a much smaller company than Anheuser-Busch , which sports a market cap of $157.57 billion and has an impressive brand portfolio, including Budweiser, Bud Light, Michelob, and Becks. On the other end of the spectrum is Boston Beer , with a market cap of $2.91 billion and brands Samuel Adams, Twisted Tea, and Angry Orchard.
Let's take a look at how these companies look on a fundamental basis:
Despite Boston Beer's stellar debt management and solid return-on-equity, it doesn't pay a dividend. Boston Beer's trading at 38 times forward earnings makes it higher risk because there are no dividend payments to fall back on if the stock heads south.
When you invest in Molson Coors or Anheuser-Busch, you're getting dividend payments as well as growth potential. Molson Coors is a little more impressive in this area at 2.60% yield versus Anheuser-Busch's 2.00% yield, and Molson Coors is trading at just 12 times forward earnings versus 18 times forward earnings for Anheuser-Busch. On the other hand, Anheuser-Busch converts more revenue and investor dollars into profit. Thanks to its sheer size, the stock should also be more resilient to market corrections.
Investments in the future
Prior to StarBev becoming Molson Coors Central Europe, it generated sales of approximately $1.0 billion in 2011. Therefore, there's plenty of demand. Molson Coors expects this acquisition to lead to approximately $50 million of pre-tax operational synergies by 2015, and to improve Molson Coors beer volumes.
The StarBev acquisition is key for Molson Coors, because it gives Molson Coors a stronger foothold in the craft brewing segment -- the fastest growing segment in the beer industry. This is also why Boston Beer is so expensive (current trend toward smaller craft brewers). Molson Coors has recognized the trend and is getting on board.
With this acquisition, it's also evident that Molson Coors is targeting emerging markets, which makes sense considering an increase in the middle-class consumer, and the hesitant consumer in mature markets.
Anheuser-Busch is likely to be the safest and best long-term investment in this group, but Molson Coors is a fine company in its own right. When Molson Coors faces a headwind, it seems to use that headwind as motivation to respond to the challenge, and this is done while its debt is kept under control. This is the type of company you want to invest in. The valuation and generous yield are added selling points. Just keep in mind that the company's recent acquisition will take time to pay off, and it could be a bumpy road over the next few years.
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The article Be Patient with This Beer Company originally appeared on Fool.com.Dan Moskowitz has no position in any stocks mentioned. The Motley Fool recommends Boston Beer and Molson Coors Brewing Company. The Motley Fool owns shares of Boston Beer. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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