No-Moat Molson Coors’ Premiumization Efforts Progressing Despite Tough Conditions

Molson Coors’ TAP 2022 sales and EPS exceeded our expectations despite weak beer volumes in the Americas and inflation. While its initial 2023 guidance of low-single-digit growth for both constant-currency sales and pretax income is modest, it is understandable given the economic and industry uncertainty and is in line with our forecast. Thus, we do not expect to make any material change to our per-share $67 fair value estimate, leaving shares undervalued. Although we rate Molson Coors as a no-moat firm, we believe it is making progress in supporting its core brands (such as Coors Light and Miller Lite) while boosting its premium brands (such as Blue Moon and Topo Chico). Specifically, between 2019 and 2022, premium’s share of Molson Coors’ total sales increased to 28% from 23%. In the long run, a continuation of this trend should allow the firm’s operating margins to approach 15%, up from around 13% at present, due to the premium brands’ healthier pricing.

Molson Coors’ 2022 sales rose 4% (7% in constant currency), outperforming our 1% estimate. However, this result was tempered by the weak volumes in the Americas, where shipments dropped 5.4% for the year (our estimate was negative 4.5%), including a 10.5% decline in the fourth quarter. While Molson Coors acknowledged that the beer market softened late in the year, it attributed the trend to slower consumer spending due to inflation rather than a rejection of price increases by its customers, which we view as reasonable.

Molson Coors’ 2022 19% adjusted EBITDA margin was about 180 basis points below our forecast. Although the firm took two successful price increases in the year, an 11% increase in constant-currency underlying cost of goods sold per hectoliter was difficult to overcome. Even so, aided by the sales outperformance, cost cuts, and a lower tax rate, its 2022 underlying EPS came in at $4.10, $0.29 better than our estimate.