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Molson Coors (TAP) Issues Business Update, Retains 2021 View

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Zacks Equity Research
·4 min read
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Molson Coors Beverage Company TAP recently provided an update on the impacts of system outage stemming from the cybersecurity incident that occurred on Mar 11 and 11-day long closure of the Fort Worth, TX brewery due to winter storms in February. The company stated that it is on track with the restoration process and has made significant progress toward the same. Also, all its breweries have resumed production and are ramping up to near-normal levels.

However, it continues to witness disruptions in production and operations, along with delays in shipment across the United Kingdom, Canada and the United States. Also, the pandemic-led on-trade shutdowns in the United Kingdom remain a concern. The company expects all these headwinds to affect first-quarter 2021 results. Management expects adverse impacts of the cybersecurity incident and winter storms in Texas to shift 1.8-2.0 million hectoliters of production and shipments from first-quarter 2021 to the rest of the year. Also, the company is likely to witness a similar shift in underlying EBITDA of $120-$140 million from the first quarter to the rest of the year. Management forecasts an additional one-time cost related to the cybersecurity issue in the first and second quarters of 2021.

However, Molson Coors remains well poised for growth on the back of the revitalization plan, core brand strength, robust growth in the above-premium portfolio, expansion of beyond beer and increased investment in omni-channel capabilities. As a result, the company retained its 2021 view, irrespective of the timing and recovery of these incidents as well as persistent uncertainty surrounding the COVID-19 situation. It still anticipates net sales to grow in mid-single digits at constant currency in 2021. Underlying EBITDA is likely to remain almost flat year over year at constant currency, with net debt-to-underlying EBITDA ratio of nearly 3.25 by the end of 2021 and below 3.0 by 2022-end. Moreover, management envisions resumption of dividend in second-half 2021.

We note that the stock has gained 16.9% in the past three months against the industry’s decline of 3.6%.

What’s More?

Molson Coors is progressing well with the revitalization plan aimed at achieving sustainable top-line growth by streamlining the organization and reinvesting resources into its brands and capabilities, which should position it well to sustain growth in the near as well as longer term. The company has been focused on building the strength of iconic core brands, growing the above-premium portfolio, expanding beyond beer and investing in capabilities to drive top-line growth. To facilitate investments in the same, it plans to generate savings of nearly $150 million by simplifying the structure.

However, the Zacks Rank #5 (Strong Sell) company is grappling with higher cost of goods sold per hectoliter and marketing, general and administrative expenses, along with COVID-induced weakness in Europe. Also, impacts of the pandemic-led on-premises restrictions and North America packaging material constraints remain a threat to the worldwide brand, as well as financial volumes.

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