Neutral on Molson Coors

We maintain our Neutral recommendation on Molson Coors Brewing Company (TAP - Analyst Report). Molson Coors boasts of a strong portfolio of well-established brands, which include Coors Light, Miller Lite, Coors Banquet, Miller Genuine Draft, MGD 64, Miller Chill, Sparks, etc. Furthermore, the company also distributes products under license from third parties, which include Heineken, Amstel Light, Murphy's, Asahi, Asahi Select, Miller Lite, etc.

Moreover, Molson Coors is undertaking restructuring initiatives to reduce overhead costs and boost profitability. The initiatives include closure of underperforming breweries and efforts to improve efficiencies in finance, administration and human resources.

Besides, a rational pricing strategy, easier comparisons, improving mix and the ability to generate healthy cash flow, ensure that the company is well positioned to take advantage of growth opportunities and drive exceptional performance as economic conditions improve.

On the flip side,  the continuing global economic downturn has compelled customers to reduce discretionary spending and choose lower priced brands in preference over premium ones. This is especially a matter of concern for the company as its business strategy is focused on premium and above-premium offerings.

Also, the company faces intense competition from larger rivals, such as Anheuser-Busch InBev (BUD - Snapshot Report) in the U.S. and Labatt Breweries in Canada. In the U.K. the company’s major rivals are Scottish & Newcastle, and Carlsberg. Furthermore, Molson Coors also competes with producers of other alcoholic beverages, including wines and spirits. Consequently, the company is under severe stress to maintain profitability.

Moreover, Molson Coors’ business is seasonal in nature with the summer months (second and third quarters) recording the strongest revenues from Canada and the U.S. Unusual weather conditions nevertheless adversely affect the company’s operating performance.

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