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Molson Coors (TAP) Rises 15% YTD: Can the Momentum Continue?

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Molson Coors Beverage Company (TAP - Free Report) has been resilient in a tough market, thanks to an impressive diverse portfolio of owned and partner brands. Gains from investments, partnerships and product launches as part of its Revitalization Plan have been driving the stock. It is also capitalizing on the increased at-home consumption trend and the strong demand for hard seltzers.

The company is on track with its revitalization plan focused on achieving sustainable top-line growth by streamlining the organization and reinvesting resources into its brands and capabilities, which should position it to sustain growth in the near and longer term. It remains committed to growing its market share through innovation and premiumization.

Driven by the above-mentioned factors and better-than-expected top and bottom-line results for the past two quarters, shares of this Denver, CO-based company have rallied 15.2% in the year-to-date period against the industry’s decline of 1.3%. The Zacks Rank #3 (Hold) stock has also comfortably outperformed the Consumer Staples sector, which advanced 4.7% in the same period.

 

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Factors Driving the Momentum

Molson Coors remains poised to surge, backed by its innovation and premiumization efforts as well as the hard seltzer ambition. The company remains committed to growing its market share through innovation and premiumization. With a view to accelerate portfolio premiumization, it has been aggressively growing its above premium portfolio in the past few years. The significant premiumization of its portfolio is led by strong growth of U.S. hard seltzers.

Molson Coors is on track with its hard seltzer ambition, which is a key part of its “beyond beer” approach. The company’s share in the U.S. hard seltzer segment doubled in the second quarter. Its Topo Chico Hard Seltzer and Vizzy are gaining share in the United States. The Vizzy brand gained almost a full point share in the United States in the second quarter, driven by the launch of the new Lemonade variety pack. The company also launched the Vizzy Watermelon pack, which has been a hit with retailers.

Outside the United States, the Canada hard seltzer portfolio is performing well, with the Vizzy and Chris Hard Seltzer. In Europe, the company is witnessing strong growth for Three Fold in the U.K., and Wai Moment in Central and Eastern Europe.

Apart from the seltzer portfolio, it is on track with the expansion into various other lines. The Blue Moon LightSky has attained the top volume share gainer rank in the U.S. craft segment. Truss — its Canada cannabis joint venture — is holding strong as a market leader in the entire Canada cannabis beverage market. The company has also entered the fast-growing RTD cocktails space with an exclusive equity and distribution agreement with Superbird and above-premium tequila-based Paloma.

It expects to deliver significant growth through the entire lineup of hemp-derived CBD beverages and the fast-growing RTD cocktails. This is likely to drive its emerging drug division to become a $1-billion business, in revenue terms, by 2023.

The investments and actions aided the company’s second-quarter top and bottom lines. The top line was aided by higher financial volume and net sales per hectoliter. Positive brand and channel mix along with higher pricing in North America and Europe remained upsides. Management reiterated its 2021 view as it continues to make progress on its revitalization plan.

The company expects 2021 to be a year of top-line growth and investments in its business. The guidance also assumes continued strength in the above-premium portfolio, particularly hard seltzer. The company expects net sales growth in mid-single digits at constant currency for 2021. Underlying depreciation and amortization are projected at $800 million, while the underlying effective tax rate is likely to be 20-23%.

Possible Headwinds

Molson Coors’ underlying COGS per hectoliter continue to be impacted by cost inflation, unfavorable brand and channel mix, increased inventory obsolescence, and cycling the prior-year favorable resolution of a property tax appeal for the Golden, Colorado brewery. Cost inflation mainly resulted from higher transportation and packaging materials costs. The company continues to anticipate inflationary COGS headwinds for 2021.

Additionally, higher marketing costs related to investments in brands, innovation and cost-reduction efforts hurt EBITDA in the second quarter. The cycling of targeted reductions and shifts in the timing of marketing spend related to the pandemic-led restrictions in the prior year also hurt year-over-year comparisons.

Through the rest of 2021, the company plans to increase marketing investments to further strengthen its core brands and support innovations. Consequently, it anticipates significant year-over-year growth in marketing investments for the rest of 2021, with most significant growth expected for the third quarter. It expects third-quarter marketing investments to be higher than the second-quarter 2021 as well as the third quarter of 2020, owing to the continued ramping up of the plan. This is likely to hurt the bottom line to some extent in third-quarter 2021.

Better-Ranked Stocks to Consider

Heineken NV (HEINY - Free Report) currently has a Zacks Rank #2 (Buy). It has an expected long-term earnings growth rate of 25.2%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Hormel Foods Corporation (HRL - Free Report) has a long-term earnings growth rate of 7.4% and a Zacks Rank #2, currently.

Pilgrims Pride Corporation (PPC - Free Report) , another Zacks Rank #2 stock, has a long-term earnings growth rate of 31%.