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Checking in on Molson-Coors

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GuruFocus.com
·3 min read
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- By Praveen Chawla

It has been six months since I last wrote about Molson Coors Beverage Co. (NYSE:TAP) in an article entitled "Molson Coors Is a Steal." Even today, I still think the stock price is illogical. I thus took advantage of Mr. Market's seeming loss of reason.

While six months is too early to judge the success or failure of a deep value investment (I like to give it a minimum of three years), it's good to keep an eye on your basket of eggs.


Recent earnings results

Molson Coors released its fourth quarter and full-year 2020 earnings results on February 11. It had some good news that its off-premise business (i.e., outside of being served at arenas, bars and restaurants) is doing well with both its large brands, Miller Lite and Coors Lite, gaining share, as well as super-premium beer brands like Belgian Moon and Yuengling. The company has also made good progress in non-beer categories like hard seltzer as well as non-alcoholic drinks.

For the quarter, revenue was down 8.3% year-over-year mainly due to closures in Europe and Canada due to the pandemic. This will likely remain this way for the first half of the year. The company expects U.S. results to improve faster.

Overall Ebitda was down -33.6% from a year ago. The company reported that it had paid off $1.1 billion in debt and is on track to get its leverage ratio to less than 3 by 2022. It also guided that it expects to reinstate its dividend in the second half of 2022.

Checking in on Molson-Coors
Checking in on Molson-Coors

Source: Company Presentation

So while the company is still getting hit by the pandemic because of the impact on bars and restaurants, it is making good progress on off-premises sales and its debt load. The company recognized a $1.5 billion non-cash goodwill impairment charges for its European business. Total goodwill impairment came to ~1.7 billion for 2020. Cash flow has been much better for the company as compared to net income, which has tanked due to the impairments.

Checking in on Molson-Coors
Checking in on Molson-Coors

Conclusion

The following growth rate per share table from GuruFocus puts the situation with Molson Coors in perspective. While the near term (12-month) picture is horrendous, the situation begins to clarify when looked at on a longer-term (five years and beyond).

Annual Rates (per share)

10 yrs

5 yrs

12 months

Revenue Growth (%)

12.20

20.30

-8.70

EBITDA Growth (%)

1.00

-15.00

-65.90

Operating Income Growth (%)

13.20

32.70

-9.60

EPS without NRI Growth (%)

N/A

N/A

-494.60

Free Cash Flow Growth (%)

6.40

17.60

-14.00

Book Value Growth (%)

4.50

7.40

-8.10



Therefore, I am optimistic that three to five years from now, looking beyond this valley of the pandemic, the situation will be much better. While the stock price may not attain the triple-digit heights it reached in 2016 any time soon, I think it is very much possible that the share price can double from here when the situation normalizes. I'll close with a very famous quote from Warren Buffett:


"I will tell you the secret to getting rich on Wall Street. You try to be greedy when others are fearful. And you try to be fearful when others are greedy."



Disclosure: The author owns shares of Molson Coors Beverage Co

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This article first appeared on GuruFocus.