EUR 850.00 For Business Accounts Only

Morningstar | Strong Domestic Pricing Offsets Slow Domestic Beer Demand, Conveying Brand Intangible Asset Intact

Molson Coors has established strong positions in the U.S. (24% share, according to management), Canadian (32% share), and European (20% share) beer markets, and we think its portfolio of leading brands--including two of the top five U.S. beer brands, Coors Light and Miller Lite--provides the firm with sufficient intangible assets to warrant a narrow economic moat. In October 2016, Molson Coors acquired its remaining stake (50% voting interest, 58% economic interest) in its joint venture with SABMiller, MillerCoors, which doubled its revenue base and gave the firm the right to distribute the Miller brands internationally. This acquisition afforded the company with the scale to improve its procurement of brewing inputs, productivity at its breweries, and supply chain efficiency. Further, it cemented Molson Coors’ long-standing relationships with distributors and retailers and should allow the firm to maintain its presence on shelves and taps.Although we expect volume in the domestic beer market to remain tepid in the near term (industrywide volume fell nearly 1% in 2018), we think Molson Coors will be able to increase average revenue per hectoliter around 1% on average annually over our forecast by focusing on its portfolio of above premium brands (which we estimate contribute slightly more than a fifth of volume), particularly on its home turf. In particular, we expect top-line gains as the company’s craft and imported beer business continues to scale the distribution and geographic reach of its brands, combined with our expectation that core brands such as Coors Light and Miller Lite will maintain or gain share of the premium light category. We also see opportunity in the company's international business (sales outside the United States, Europe, and Canada), which only represents a low-single digit percentage of revenue, following the MillerCoors acquisition, which expanded its geographic reach. We expect net sales in this business to grow at a low-single-digit clip as the firm begins to distribute the Miller brands in several developing markets and builds out its routes to market.