We are currently downgrading shares of Molson Coors Brewing Company (TAP) to Underperform. The company’s susceptibility to the global economic downturn and predominant operations in mature, low-growth markets is adversely affecting its top-line potential. Moreover, intense competition from other established players, along with seasonality of business and exposure to adverse foreign currency translations, severely undermine the company’s future growth prospects and profitability.
The continuing global economic downturn has compelled customers to reduce discretionary spending, preferring lower priced brands over premium ones. This is especially a matter of concern for the company as its business strategy is focused towards premium and above-premium offerings.
Molson Coors business is seasonal in nature with summer months (second and third quarters), recording the strongest revenues from Canada and the U.S. Consequently, unusual weather conditions adversely affect the company’s operating performance.
However, the company is undertaking restructuring initiatives to reduce overhead costs and boost profitability. The initiatives include rightsizing employee strength, closure of underperforming breweries and efforts to improve efficiencies in finance, administration and human resource activities.
Molson Coors has reduced leverage by deploying operating cash, thereby improving financial flexibility. Accordingly, the company’s long-term debt was decreased by 19.4% to $1.4 billion at the end of the fourth quarter of 2009 from $1.8 billion in the year-ago period.
Molson Coors Brewing Co. is one of the largest brewers in the world with an impressive portfolio of leading beer brands and other beverage products.
Read the full analyst report on “TAP”
Zacks Investment Research
