Turnaround Letter Buy-recommended Molson Coors (TAP) reported third quarter 2019 adjusted earnings of $1.48/share, slightly below consensus estimates and down 20% from a year ago. Underlying EBITDA of $703 million was slightly ahead of estimates and fell by 7% from a year ago. Revenues fell 3.2%. On a constant-currency basis, “Brand” volumes fell 2.4%, while “Financial” volumes (which include contract brewing, royalties and wholesaler inventory adjustments) fell 5.5%. Pricing for Brand volumes increased by 3.0%.
As we had hoped, and as an important part of Molson Coors’ turnaround, the company is now more directly addressing its strategic issues. Newly-appointed CEO Gavin Hattersley is moving quickly: scaling up investments in their core brands, expanding their scope to “beverages” not just beers (and is tweaking the company’s name to reflect this), bringing Molson Coors’ operations into the digital age, and sensibly consolidating its Canadian and US management teams into a single North American operation. We anticipate that the company may make more “bolt-on” acquisitions. Molson Coors maintained their 2019 guidance but provided guidance for a weaker 2020, with EBITDA down about 5% and Underlying Free Cash Flow down 21% (disappointing to see such a large decline, although most of the decline is from an ending of improvements in working capital). It increased its cost savings goal for the next three years by $150 million, to a new goal of $600 million. We think the changes make eminent sense.
Importantly, Molson Coors is maintaining their debt paydown and dividend priorities.
The turnaround is now formally underway Molson Coors.
Molson Coors Press Release: 3Q Earnings
Disclosure Note: One or more employees of the Publisher own shares of all Turnaround Letter recommended stocks including Molson Coors (TAP).