In February 2017, Molson Coors released its full-year results for 2016; the year in which the brewer took full control of the MillerCoors joint-venture in the US. While the transaction has skewed the numbers for 2016 - full details of which can be found here - the results from the four years prior provide an interesting guide to Molson Coors' longer-term performance.

The five-year trading period for Molson Coors that ended with the release in February of its results for 2016, will be seen as pivotal in the company's longstanding history, for it marked the time when the group became the world's third largest brewer, thanks to October 2016's US$12bn deal to acquire 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, also giving it control of Miller's overall global brand portfolio.

It's time for the real Molson Coors to stand up

The deal has put the business on a completely different footing. It's time for the real Molson Coors to stand up. The brewer finally has full control of some of the world's most iconic beer brands, and the chance to build on the performance of its core North American business by developing a far stronger and more effective, profitable business in Europe and the rest of the world.

But, there will also now be far more pressure for Molson Coors to perform and quickly turn around a largely sluggish performance in recent years. It will certainly need to deliver on its target of $550m of all-in cost savings over the next three years, including $175m in 2017 alone.

Molson Coors certainly believes it now has the platform to drive sales, volumes and profits forward: A position the company has said it will use to concentrate purely on its core brands, push a more premium branded agenda and ensure it is supported by genuinely innovative products focused on key industry trends.

All of which is easier said than done. Molson Coors will now be under intense scrutiny to reverse declining core beer sales, particularly in Canada and the US. Here, the performance of its flagship brands of Coors Lite and Miller Lite have been hit over the last four years by the perfect storm of the rise of craft beer trends and the switch by many younger drinkers, particularly women, over to wine and spirits. 

It is certainly talking the talk and looking to take matters into its own hands. In the last year alone, the group has acquired four US craft brewers and launched Henry's Hard Soda. Such moves may not do a lot to the bottom line, but the arrival of Texas-based Revolver Brewing, Terrapin Beer Co in Georgia, Oregon's Hope Valley Brewing Co and Saint Archer Brewery in San Diego, have certainly given its beer portfolio a much-needed adrenaline shot. 

With the MillerCoors deal, Molson Coors now has all of its businesses and brands under one roof for the first time. It also has the opportunity to drive and target key trends and brand growth in different markets around the world. 

Back in the US, Molson Coors is looking to hit current drinking trends through its recently-announced ten-year distribution deal to import and sell Heineken's Mexican Sol brand in the US. The move also fills an important gap in Molson Coors portfolio with the kind of brand that should also help it diversify into new accounts.

Molson Coors' Full-Year Sales 2012-2016

Source: Company results

Time will tell but, for many, the jury is still out on a brewer that clearly now has a lot of internal issues to sort out as well as address significant regional performance issues.

Molson Coors' performance over the last five years has been at best patchy. In 2013, sales dipped by 1.4%. This was followed by a more-alarming near-14% fall in 2015. Changes in consumers' drinking behaviour have accelerated throughout the time period, both in North America, but particularly so in Europe and the UK, where the trends for more premium spirits, cocktails and the rise of Prosecco have been even more acute. 

Having a beer portfolio heavily reliant on super brands such as Miller and Coors clearly took its toll on the combined Molson Coors and MillerCoors performance between 2012 and 2015, as has the fact Molson Coors has lost a succession of big brand distribution agreements over this time and been bruised by a series of currency headwinds that hit its Canadian businesses in particular. 

On a pro-forma basis - including the full MillerCoors holding for the year - 12-months net sales performance in 2016 were down a further 2.3% on a 2% decrease in volumes. That said the MillerCoors deal means Molson Coors net sales in 2016 stood at $4.89bn, compared to $3.92bn in 2012.

Molson Coors' Full-Year Volumes 2012-2016

Source: Company results

Molson Coors' volumes performance requires close attention. Including MillerCoors' figures on a pro-forma basis for the full-year, volumes for the group came in flat last year. This is in keeping with recent years, with volumes slipping by 1.6m hectolitres between FY 2013 and 2015.

That said, Molson Coors is still in a very different place to where it was in 2012, when volumes sat way back at 55.1m hectolitres.

It is difficult to see how the brewer is going to be able to resurrect those lost volumes when all mutinational brewers are having to deal with wider drinks trends that have resulted in a slow, but consistent decline in overall beer consumption across all key markets over the last five years. This is particularly the case for beer brands in the US and Canada. Noticeably, 40% of Molson Coors sales performance still comes from Canada.

The company can switch its focus to more craft and premium offerings, or could widen the appeal of its core brands and claw back some volumes here and there. But, with per-capita beer figures continuing to go down, a more radical approach is going to be needed.

The fact that Molson Coors' volumes are already down 2.8% in the US for the first quarter of 2017 shows quite what a transitional period this year is going to be. That the company put the decline down to a "mix shift to higher-cost products" shows how much it needs to shake up its portfolio performance with more premium beer products.

Molson Coors' Full-Year Sales by Region 2012-2016

Source: Company results

Breaking down performance on a regional basis shows more clearly where the cracks have started to appear; cracks that will need a clear and well-executed strategy to fix. Indeed, considering that its Canadian and European businesses have seen sales dip by 30% and 15% respectively over the last five years, then clearly major surgery is needed.

Canada's sales were down a further 5.7% in volumes also 2.8% in value sales in 2016 (although it was hit by a one-off impairment charge in the year of $495.2m), with Europe slipping 8.1% in volumes and 1.7% in value.

Molson Coors really needs to get its Canadian business rocking again. It is still licking its wounds from 2014, when it lost distribution rights for the Miller portfolio in the country to SABMiller. This came on the back of losing the Grupo Modelo portfolio to the Mexican company's new owner, Anheuser-Busch InBev.

It has also suffered from changing consumer trends to drink more wine and spirits. But, its biggest hit in Canada has been currency depreciation against the US Dollar over the last four years.

The huge structural changes taking place in the UK grocery sector over the last five years have hit all the major brewers with significant range reductions in the 'Big Four' supermarket chains. The country has also seen the rise in niche, craft beer players and brands like Carling have been hit by a move towards more premium products. Brand extensions like Carling's flavoured cider range are where we can expect the company to go further.

There have been winners and losers across its European business over the last five years. Conditions in Central and Eastern Europe, particularly in Romania,  Bulgaria and Serbia have been challenging. These have been offset, though, by stronger performances in Czech, Croatia, and, at times, the UK.

Currency actually worked in favour of Molson Coors' European performance for the first half of the five-year trading period. Over the last two years, however, the Euro has struggled against the US Dollar.

There are signs Molson Coors' US performance could be brought back a little more easily. Sales were virtually flat in 2016 with just a 0.4% dip and volumes down by 1.5%. Noticeably, volumes fell in Molson Coors' 'below-premium' and 'premium light' beer segments and there will be increased pressure to revive the fortunes of Miller High Life and Keystone Light. These might be economy brands, but they are the third and fourth best-selling lines in the MillerCoors portfolio (according to IRI).

Ultimately, it will be how Molson Coors responds to the ongoing trends towards more premium beers in the US that will be key. Crucially, as part of the MillerCoors deal, it can now sell the Peroni Nastro Azzuro and Pilsner Urquell brands in the US.

Looking forward, Molson Coors says it expects its US volumes to be flat again in 2018, but will return to growth in 2019. Significantly, the group has changed its advertising in the US for Miller Lite and Coors Lite in a bid to reach new consumers, particularly women, Millennials and Latinos.

The big success story has been Molson Coors International, which saw sales in 2016 up 13.2% and 7.3% in volumes albeit from a lower base. This is an area the company can now look to fully exploit, not just with the MillerCoors portfolio, but with the other brands that Molson Coors can now market in non-US markets. Investors will certainly be looking to see the company embrace a more global approach and look to build volumes, value and margin share away from North America and into the growing BRIC countries, particularly India, Latin and South America and Asia.

They will be encouraged by first-quarter 2017 figures that show Molson Coors' international volumes up 65.2%, although this is skewed by the inclusion of its Puerto Rico business.

Molson Coors' Full-Year Operating Profits 2012-2016

Source: Company results

The brewer now has a rare opportunity to press the reset button

What the MillerCoors deal has done has allowed Molson Coors to rally around and buy some time to regroup both internally and externally. The brewer now has a rare opportunity to press the reset button.

After all, it is only still coming out of a near-30% slide in operating profits in 2015, after a steady three years, on the back of losses in all its non-US regions. These figures demonstrate how important it is for Molson Coors to get its regional and international strategy right and ensure it is not distracted by its domestic markets in North America.

The fact it was able to emerge in 2016 by closing the MillerCoors deal - a deal that has seen Molson Coors' operating profits leap from $521.8m in 2015 to $3.31bn in 2016 - points to a healthy, positive future for the business.

Molson Coors' Full-Year Net Profits 2012-2016

Source: Company results

One need only to look at Molson Coors' net profits over the last five years to see how this is now a very different business. Back in 2012, net profits sat at $443m, before going on a well-publicised rollercoaster through to 2015, where it saw its net profits slide down to $359.5m, from $514m just the year before.

The MillerCoors deal has seen a surge in Molson Coors' profits, up to $1.98bn in 2016. This does not reflect the full picture, as net profits last year were skewed by the fore-mentioned impairment charge in Canada, as well as an indirect tax provision in Europe.

It still means Molson Coors average net profits over the last three years have topped 20% with back-to-back positive results seeing 40.4%, 10% and 12.4% profits, respectively.

Encouragingly, the building blocks are there for Molson Coors to build on those figures. Its 30.3% overall profit margin in 2016 provides the company with a positive cash flow it can use for internal expansion, further acquisitions and healthy dividend payments to keep investors on board. But, it is Molson Coors' pre-tax profit level of 46.8% that is winning plaudits amongst drinks analysts as a stock to watch.

Molson Coors is also now a business that is generating - rather than consuming - cash and has the buying power and strength to fully-fund expansion activities both domestically and, vitally, internationally, rather than having to take on debt.

2017 will provide a much clearer gauge of Molson Coors' profits performance going forward.

Where is Molson Coors today and where will it be tomorrow? - Comment


Almost 30 years ago, in his 1988 book The New World Guide to Beer, the late beer-writing maven Michael Jackson offered a snapshot of global brewing in the form of a graphic showing the world's ten largest brewing companies. Numbers one and two were both American-owned, Anheuser-Busch and Miller, with respective annual production of 90.1m and 47.2m hectolitres. Heineken came in at number three with 43m hl, while Kirin claimed the number four spot with 30.4m hl and Bond of Australia ranked fifth with 29.9m hl.

How quaint it all seems now. Today, the largest wholly American-owned brewing company is Pennsylvania's DG Yuengling & Sons with a mere 3.2m hl produced in 2016, while AB is, of course, now part of Anheuser-Busch InBev, which last year reported 433.9m hl of production - almost 90m hectolitres more than all the residents of Jackson's 1988 chart combined.

Only one-half of Molson Coors figured in the top ten of 1988, that being Coors, which claimed the number nine position with 19.2m hl. Having long since combined with Canada's Molson to form Molson Coors, the new company has been busier than some - though not nearly so busy as others - in the acquisitions game, claiming a pair of breweries in Canada, a quartet in the US, one brewery plus some of Bass' assets in the UK, another in Ireland and a relatively- minor brewery in Spain.

Then came the AB InBev and SABMiller tie-up, and the competitions-authority-mandated divestment of SAB's joint-venture in the US, MillerCoors, which Molson Coors was only too happy to snap up for US$12bn. Overnight (or at least over the period of approvals and finalisations), Molson Coors soared to close to 100m hl of production, becoming the fifth-largest brewing company in the world in terms of volume, and third-largest in value terms.

The release in February of the full-year results for Molson Coors in 2016 marked the first year in which MillerCoors has been wholly reported by the company and, in a sense, the coming-of-age for the company.

Molson Coors has predicted a cost-saving of US$550m over the next three years. While this is of unquestionable significance to how the company moves forward, perhaps of greater import will be how it addresses three factors: Its ability to alter stagnant or declining volumes in North America; whether it is able to further favourable trends for itself outside of Europe and North America, and how it grows and expands its modest portfolio of craft breweries.

On the last front, Molson Coors has lagged behind rival AB InBev in Canada and the US. Whereas the world's largest brewer now commands a portfolio of ten craft breweries in the US, plus a pair in Canada, Molson Coors has thus far acquired only a collective half-dozen – not counting Miller's 1998 purchase of Jacob Leinenkugel Brewing, which is now part of MillerCoors. More significant than the number of breweries each has assumed, however, is what the companies have done with them.

In the US, AB InBev has been aggressive in not just purchasing high-profile breweries like Goose Island, Elysian and Wicked Weed, it has also been extremely proactive in growing and expanding the volume and territories of each, with Los Angeles-based Golden Road now sold on the east coast, for example, and Oregon's 10 Barrel Brewery now boasting six branded on-premise outlets across four states. Fellow acquirer Constellation Brands has displayed similar tendencies, with its Ballast Point Brewing, bought in late-2015, only now easing off a bit after over a year of accelerated and high-profile growth.

Conversely, Molson Coors has been much more cautious with its acquisitions, with Georgia's Terrapin Beer Co showing the greatest development thus far, and still only taking its distribution so far as the north end of the mid-Atlantic region.

In Canada, where Molson Coors had a considerable head-start with their purchases of Ontario's Creemore Springs Brewery and Vancouver's Granville Island Brewing in 2005 and 2009, respectively, AB InBev has still been the faster mover, with their Mill Street Brewery, acquired in only 2015, having opened three brew-pubs, an airport bar and a distillery and beer hall since its purchase. Molson Coors has in the meantime opened one Creemore brew-pub, and that only after the demise of its Beer Academy in the same premises.

If Molson Coors plans to match its larger competitor in North America, it will need to start treating its properties more in the way it has handled Sharp's of Cornwall in England, which has witnessed terrific growth since joining the Molson Coors fold in 2011.

Elsewhere in the Canadian and US markets, with now full control of MillerCoors, one expects that the days of Canada accounting for 40% of group sales will soon be but a memory. That does not, however, alter the challenges Molson Coors faces both north and south of the US-Canadian border.

Sales in Canada have been in decline for some time now and, even with a diminished impact on the fiscal bottom-line, the company must do something to staunch the bleeding. Key to that will be how the Molson Canadian family of brands is handled going forward. To that end, Molson Coors might be tempted to try its hand again at tapping the patriotic market at a time when Canadians on the whole are nursing less positive feelings about their neighbours to the south.

In the US, the company predicts sales to stay flat through 2018, but to return to growth in 2019. This may be wishful thinking, as craft and imported beer continues to cut into mainstream beer sales, albeit at a slower pace and with Molson Coors' Blue Moon family remaining a bright light in the company's portfolio. If the light beer market can somehow be coaxed back to growth, Molson Coors might be able to use the combined strength of Miller Lite and Coors Light to snag share from the overwhelming market leader, Bud Light.

Finally, turning to the Molson Coors International division, the company is showing its best growth, but on a relatively tiny sales base. However, with Heineken strengthening its position in Brazil through this year's purchase of Kirin's former interests there and Chinese-owned breweries looking aggressive in the wake of a declining domestic market, the going will be rough in at least one half of the BRIC countries.

In the end, though, while there are certainly opportunities awaiting the newly-created number three brewing company, it seems that Molson Coors will need to shed its conservative nature and become more aggressive in the global field if it wishes to stay a strong international player and avoid becoming a target for other hungry and growing companies.