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Our Molson Coors Investment Case is a 6-Pack

June 22, 2022
1. Social Media is Buzzed on Molson Coors

When AB InBev’s CEO called consumer demand “resilient” it reinforced our thinking that owning a beer maker in this market makes sense. 

But owning any old brewer won’t do. 

It must be a company whose strategy is in-line with industry trends. One that is connecting with drinkers at a higher level. 

Bartender, another round of Molson Coors, please! 

LikeFolio’s proprietary comprehensive demand data is pointing westward—to Golden, Colorado. That’s where the world’s 5th largest beer company is headquartered—and where a lot of the social media buzz is focused in the alcoholic beverage space.
The above chart shows that the total mention of Molson Coors’ products is outpacing industry peers. 

Let’s dig deeper to find out why.

2. Legacy Brands are Still Popular

Last summer Molson Coors announced a plan to retire 11 of its economy brands. Milwaukee’s Best, Keystone, Icehouse, and Miller High Life, and others were tagged to sail into the sunset. 

We felt the collective moan of college students everywhere. 

Really, the Beast is retiring? What’s gonna fill the beer pong cups?! 

And why get rid of budget-friendly brands in a tough economy? 

Frat party supply chain disruption aside, the move is working out great. 

Turns out management’s confidence in the strength of its core brands was well-founded. 

In Q1, Coors Light and Miller Lite had their best industry share performance in 5 years! And in the U.K., Carling held onto its #1 beer ranking. Yeah, not Heineken, mate! 

Strength in these iconic brands drove a 17% jump in sales and EPS that made the Street look, well, intoxicated. 

Our proprietary purchase intent (PI) metric confirms that consumer interest in these beers has persisted into Q2: 

On a 30-day basis, Coors Light PI is up 16% YoY and Miller Lite PI is up 18% YoY. 

Then when we look at the entire Molson Coors portfolio it looks like this:
The above chart shows that consumer PI mentions are trending higher over the past year. Demand is accelerating in June which bodes well for the beer industry’s peak season. 

Meanwhile, Molson Coors stock has been dragged lower by market weakness. 

This is a disconnect that should eventually be reconciled by share price appreciation. And we don’t even have our beer goggles on! 

But there’s more to the story… 

3. Premiumization Plan is Working

Make no mistake, though, this is not your grandfather’s Banquet Coors

The main reason why the company dumped its economy brands is the ‘premiumization’ of its portfolio. It is a strategy that puts a greater focus on ‘above-premium’ beer and ‘beyond beer’ products. 

Why ‘above premium’? Because it’s the fastest-growing area of the beer industry

Makes financial sense too. With more premium offerings comes better margins and better financial results. 

Initially, the strategy was led by hard seltzers. The category has taken off in recent years but is highly seasonal with demand peaking during the summer months. 

Still, Molson Coors-owned Topo Chico is the fastest-growing hard seltzer in the U.S. In the growing Canadian hard seltzer market, Vizzy and Coors Seltzers are performing well. 

Then came a greater emphasis on craft and specialty beers like Leinenkugel’s and Hop Valley. Blue Moon and Peroni also fall under this category—and both recorded double-digit sales growth in Q1. 

The newly launched Praha pilsner is off to a good start in Europe as is Madri lager in the U.K. 

Molson Coors also entered the hard soda space with Henry’s Hard and the energy drink space with ZOA Energy. 

Heck, it even introduced beer-flavored lollipops during March Madness! 

Through the end of Q1, the above-premium segment accounted for the highest percentage of trailing 12 months revenue (26%) since 2016—when the MillerCoors acquisition took place. 

In the U.S., Molson Coors’ above-premium business has gained market share in each of the last 5 quarters.
We wondered if the introduction of a bunch of non-beer products would hurt Molson Coors’ consumer happiness data. 

Not so. 

Consumers are as happy as ever. Over the past decade, the company’s happiness reading has been remarkably consistent bouncing between 70% and 80%. 

The current 77% reading tells us that beer and non-beer drinkers alike are embracing the expanded drink menu. By comparison, 63% of Sam Adams’ consumers are happy. 

4. Right Products are Available at More Places

Consumers are not only happy with Molson Coors but hitting up more happy hours! 

Brewers are undoubtedly benefitting from loosened restrictions at bars and restaurants. The return of concerts, casinos, and full sports stadiums are providing a big boost too. 

Remarkably, U.S. distributor inventories have returned to pre-pandemic levels. 

In addition to the macro tailwinds, there are some more subtle trends that are playing in the group’s favor. 

More people are working in office environments, which means happy hours and after-work socialization are up

At the same time, people are trying new things. Canned cocktails are a hot item especially at weddings—a shorter line at the bar! Soon hard seltzers will be cool again as warmer temps prevail.
Molson Coors is connecting with consumers because it is in tune with evolving tastes and preferences…especially those of the youngest generation of drinkers. 

A key tenant of the company’s revitalization plan is to recruit “new legal age drinking consumers” by gearing marketing and innovation to new 20-somethings. A plan to enhance digital capabilities like social media outlets will come in handy here. 

It is also winning by being quicker to market with new products. A “test and learn” approach followed by rapid scaling is dramatically reducing time to market, from 18 months to as little as 4 months. 

5. Molson Coors is Inflation-Proof

Like the rest of corporate America, Molson Coors has its share of inflation challenges. Packaging and transportation costs are up significantly as are wages. 

But the company has stayed relatively inflation proof by raising prices and shifting to a more favorable sales mix. It can continue to hold up well to inflation because it has:

- Pricing Power
- Premium Products
- Cost Savings Initiatives
- A Hedging Program 

Inflation sure didn’t faze management from maintaining an upbeat outlook for the remainder of the year. It is expecting a mid-single-digit increase in 2022 sales. This speaks to an ability to pass along higher costs to consumers backed by the strength of an expanding beer and beyond beer lineup. 

Should the economy dip into a recession, Molson Coors should also fare relatively well. Alcoholic beverage companies are among the “sin stocks” that tend to perform well during economic downturns. To many consumers, their favorite bevies become security blankets that them get through the tough times. 

Meanwhile, at-home consumption has proven resilient as pandemic conditions improve. Management recently noted continued momentum in the off-premise channel. If we go back into recession-induced ‘lockdown’ mode, at-home consumption is bound to stay strong. 

Granted, the restaurant, bar, and events channels could pare back orders in a recessionary environment. 

But based on the strength of Molson Coors’ underlying consumer trends, we don’t expect a detrimental effect on purchase behavior. It could even get a boost from a recession. 

6. Growth Outlook is Bright

This summer Molson Coors is teaming up with Coca-Cola to roll out Simply Spiked Lemonade. The canned cocktail is based on the nation’s leading juice brand and will come in slim-can 12-packs and 24-ounce standalone cans. 

Delicious juice with a splash of fun…sounds refreshing to us! 

We’ll be tracking the consumer response to this launch. It could be a big sales contributor. 

Simply Spiked exemplifies a push into non-beer markets that is a big part of why management is feeling good about the rest of the year and beyond. 

By 2023, the emerging growth portion of the Molson Coors portfolio is expected to be a $1 billion business. Products like Five Trail American Whiskey and La Colombe RTD coffee are leading the way. 

The international growth prospects are also promising. Molson Coors sells beer in about 100 countries, sales outside North America account for less than 20% of total sales. 

With inflationary pressures expected to subside and higher-margin premium brands leading the charge, the Street is projecting 8% EPS growth in 2023. This would mark the company’s best profit growth in the last 5 years. 

It also means that Molson Coors is trading at 13x FY23 earnings. The S&P 500 currently goes for 15x next year’s earnings estimate. 

On top of the growth outlook, it’s hard not to like the stock’s 3% forward dividend yield. And the recently approved $200 million buyback program through March 2026. 

After advancing 7 straight months, TAP is taking a breather in June. It's looking like a good time to crack open a position.

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