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Molson Coors (TAP) Hikes Dividend: What Else You Should Know?

Zacks Equity Research

Molson Coors Brewing Company TAP is focused on boosting investors’ sentiments through several growth initiatives and shareholder-friendly moves. In an effort to boost shareholder value, the company announced a 39% increase in its quarterly dividend, taking it from 41 cents a share to 57 cents. The raised dividend is payable on Sep 13, 2019 to shareholders of record as on Aug 30, 2019.

In addition, Molson Coors Canada Inc., its Canadian subsidiary, declared a quarterly dividend of C$0.74, which is equivalent to the parent company’s raised dividend rate. This dividend is also payable on Sep 13, 2019 to shareholders of record as on Aug 30, 2019.

We appreciate Molson Coors’ efforts to consistently enhance long-term shareholder value. Markedly, dividend hikes not only enhance shareholder returns but also raise the market value of the stock. Through this strategy, companies try to win investors and persuade them to either buy or hold the scrip instead of selling it.

Notably, the company has reduced debt by nearly $2 billion since the closing of the MillerCoors transaction. In 2019, the company expects to deliver underlying free cash flow of around $1.4 billion (plus or minus 10%). It plans to reinstitute a dividend payout target of 20-25% of annual trailing underlying EBITDA upon achieving 3.75x leverage, which is likely to occur by the second half of 2019 and ongoing thereafter.

The company has undertaken restructuring initiatives to reduce overhead costs and boost profitability. These initiatives included the closure of underperforming breweries, improving efficiencies in finance, administration and human resources, as well as reducing labor and general overhead costs. Moreover, it has been focusing to improve its supply-chain network and build on efficiencies across the business to generate additional resources and invest in brand building and innovation.

Progressing on these lines, Molson Coors anticipates to generate cost savings of roughly $205 million in 2019, remaining on track with its targeted total cost savings of $700 million for the three-year period from 2017-2019. This $700 million cost-saving target is $150 million ahead of its initial goal of $550 million under the program. Further, it plans to achieve cost savings of another $450 million between 2020 and 2022, driven by procurement and supply chain, including brewery optimization.

What’s Weighing on Molson Coors?

This Zacks Rank #4 (Sell) stock has lost approximately 11% in the past year compared with the industry’s growth of 2.3%. This softness clearly reflects the ongoing turmoil in the alcohol space resulting from consumers shifting to healthy drinks and wines, which is particularly hitting the beer makers hard. This resulted in weak beer volume in the United States for the company. Moreover, it expects further contraction of the U.S. beer industry volumes.



Additionally, the company continues to battle input cost inflation, particularly due to higher aluminum and freight costs. Management expects these hurdles to linger in 2019. The company estimates COGS per hectoliter to increase in mid-single-digits in 2019 (in constant currency) mostly due to higher aluminum and other input costs. Clearly, these hurdles, along with the increased tariffs on aluminum imports and beverage exports (due to the U.S.-China trade war) remain a concern for Molson Coors’ bottom line. Also, soft volume, adverse currency, and cost inflation in all segments is denting the company’s performance.

Key Picks

General Mills, Inc. GIS delivered average positive earnings surprise of 11.4% in the trailing four quarters and carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

PepsiCo, Inc. PEP has a long-term earnings growth rate of 7% and a Zacks Rank #2.

McCormick & Company, Incorporated MKC has a long-term earnings growth rate of 8% and a Zacks Rank #2.

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