Formed by the merger of the Coors Brewing Company and the Molson Company in 2005, the Molson Coors Brewing Company is the fifth largest brewer in the world by production volume. The company brews and sells 40 different beer products, in addition to selling beer via partnerships with companies like Heineken and Corona. In FY 2009, the company generated $3.03 billion in revenue. Coors thrives particularly in Canada, where it commands over 41% of the market, largely through its sales of flagship brands Coors, Coors Light, and Molson. As premium beers, these brands are sold in a worldwide market characterized largely by the category's maturity and slow growth. In July 2008, Molson and SABMiller combined their US operations in a joint venture. The new venture, MillerCoors, produces approximately 50 million hectoliters, making it a formidable, albeit smaller competitor to U.S. market leader Anheuser-Busch (which sold 134 million hectoliters in 2009). The company also competes in the alcoholic beverage market at large, which includes beer, wine, and other spirits. As the company does not have any significant presence in the wine and spirits segment, a faster growing portion of the industry, Molson Coors must seek growth in Emerging Markets and through partnerships and acquisitions. In 2010 alone, the company has expanded to Russia, Vietnam and entered a partnership with the Si'hai Beer Company in China.
Molson Coors is highly exposed to raw materials costs. Prices for the most important input materials, aluminum, barley, and grain fluctuate widely. For example, aluminum prices have fallen more than 40% from their 2008 highs of $1.50/pound to approximately $1.10/pound. Since September 2009, barley prices have increased more than 50% to $161/ton in August 2010.
Molson Coors was created when the Coors Brewing Company of America merged with Molson Canada on February 9, 2005. In 2007, the company announced a joint venture with SABMiller (SAB-LN). The deal, forming the second largest brewer in the US, after Anheuser-Busch Companies (BUD), was completed on July 1, 2008. Under the agreement, Molson Coors claims a 42% share in the joint venture's profits, but retains 50% voting rights. The joint venture only encompasses the company's operations in the US; its Canadian and UK businesses remain completely under the control of Molson Coors. The combined company benefits greatly from logistical and transportation synergies. Instead of having to brew Coors Light in Colorado and shipping it to the east coast, Molson Coors can now brew the beer in SABMiller's east coast breweries, creating a simpler distribution chain.
In the fourth quarter of 20$09, Molson Coors posted revenues of $820.8 million, an increase of 11% from Q4 2008; net income increased 137% from the previous year to $222.1 million. The company's underlying earnings increased more than 85% than 2008 as a result of a one-time reduction in the tax rate. The company also gained $46 million as a result of the sale of its 19.9% controlling interest in the Montréal Canadiens NHL team. These positive numbers offset a 4% decline in worldwide beer volume, driven by weak consumer demand and the company's decision to forgo selliwer-margin products in the UK. The Canada segment launched three new products and with the increased volume from the purchase of Granville Island Brewing Company overall market share increased 1%; however, associated costs with the new products lead to a 5% decline in underlying earnings. For the United States, surprisingly weak consumer demand hurt volume and lead to a 9% decrease in the segment's income from Q4 2008. The UK segment, maintaining their strategy of focusing on higher-margin products, was able to increase underlying earnings for the quarter by 20% compared to 2008.
In the first quarter of 2010, Molson Coors posted revenues of $661 million, an increase of 18.2% from the previous year; net income increased 38% to $104.6 million. The company's effective tax rate was significantly higher this year, which actually decreased after-tax income by 29.5% to $69.7 million. Operating income for the quarter fell 8.3% to $107.5 million. Worldwide, beer volume fell 3.8% in the quarter. In Canada, volume increased by 3.3% and revenues increased by 20.2% however, higher marketing and administrative costs combined with losses from pensions of workers laid off when the company shifted Blue Moon production from Canada to the US led to an overall decrease in revenues of 3.3%. The company is focusing on growing market share for its various brands in Canada and as of this quarter, Coors Light is the best selling beer in Canada. In the US, volume decreased 3% and revenues decreased nearly 1%, but net revenue per hectoliter increased 2.1%; this combined for a 1.3% increase in net income for the region. In the UK, volume for the entire beer market decreased 5%, partly as a result of bad weather, and Molson Coors saw similar results with volume for the quarter down nearly 11%. Continuing the company's strategy of foregoing lower-margin products, the company's products generated more revenue per hectoliter, which led to a gross profit increase of 15.7%. However, higher administrative and production costs depressed net earnings 42.3% below Q1 2009. During the quarter, Molson Coors signed a multiyear contract to brew ales for Carlsberg, starting in 2011. Volume for International sales increased almost 20% with strong growth in China and Europe. The company also announced their $40 million investment to acquire a 51% share in their new joint venture with China's Hebei Si'hai Beer Company. The company plans to close the transaction this summer with the long-term goal of increasing their market presence in the world's largest beer market by volume.
During the second quarter of 2010, Molson Coors generated revenues of $883.3 million, an increase of 10.6% from the previous year; net income for the quarter increased nearly 27% to $238.3 million. Operating income for the quarter was $295.1 million. Overall volume for the quarter increased 2.2%; increased volume for Canada(2.6%) and International markets (24.2%) offset an almost 3% decrease in US volume. In Canada, sales to retail customers increased 2.2%, however higher marketing and administrative costs, along with increased sales of lower-margin products, led to a 3% decrease in pretax income. In the UK, where volume rebounded from an 11% decrease last year to a 0.7% increase this year, pretax income fell 11.1%, mainly as a result of pension expenses. Good weather in June and the FIFA World Cup were both major factors in helping TAPs UK brands to closer match UK beer markets, which increased volume by 3% in the quarter. The costs of production increased 11% as a result of the pension expense and the addition of Cobra to the company's brand stable; marketing and administrative expenses increased 14%, primarily due to the same pension expense. The economic environment in the US led to a weaker beer market nationwide and TAP was no exception with volume decreasing 2.9% and total net revenues falling 0.1%. However, pretax net income increased 19.8% as a result of operational efficiency and higher net pricing. International sales, which increased volume more than 24%, were driven by sales in China, Latin America, and Europe. The company also gained $21.9 million as a result of a potential bidding war for Australia's Foster's Beer, in which the company has an indirect interest that increases in value proportional to Foster's stock price.
In the third quarter of 2010, Molson Coors generated revenues of $875 million, an increase of 2.5% from Q3 2009; net income increased by 8.7% to $257 million. Operating income for the quarter was $417.6 million. Total volume fell 4.6% with weaker volumes in the US and UK offsetting gains in Canada and International. In Canada, net sales increased more than 9% and volume grew 2.5%; total Canadian beer sales for the industry declined by 1.8% during the quarter. The company's market share grew by 1% with strong performance from its newer brands offsetting slight declines in established lines. In the US, net sales remained flat while volume shrank by 2.9%. Higher pricing and decreased overhead costs buoyed revenues while sales volume contracted in accordance with the rest of the US beer market. In the UK, net sales decreased by 7.4% and volume was down 12.5%. Retailer destocking after the FIFA World Cup in Summer 2010 was the primary reason for the decline and led to UK beer sales industry-wide to decrease 10%. International sales grew by nearly 2% with increased volume of 11.2%. The increase was driven by growth in China, Latin America, and Europe. Higher stock prices for Foster's increased the value of Molson Coor's shares in that company by $42.3 million during the quarter.
In the fourth quarter of 2010, Molson Coors generated revenues of $1.21 billion, an increase of less than 2% from Q4 2009; net income for the quarter dropped by more than 50% to $109.8 million. Operating income for the quarter increased 18% to $161 million. The company attributed the drop in income to an unusually low tax-rate in 2009 and claims that underlying pretax earnings increased more than 8%. The company's worldwide beer volume for the quarter fell nearly two percent as a result of a 5% volume decrease in the UK. The company's international sales improved significantly over Q4 2009 with a 55% increase in volume, however it was more than offset by flat volume in Canada, 2-3% drop in US volume, and weak sales in the UK. Approximately half of the international growth was the result of the company's new joint venture with China's Hebei Si'hai Beer Company while the other half was organic growth. China is still growing rapidly while Coors Light's recent introduction in Russia and Carling's expansion to Spain have not yet generated significant returns but look promising for the future. The company has a significant amount of cash on hand and has openly discussed the possibility of making a mid-size acquisition in the near future, similar to their recent venture in China or MillerCoors in the US. The company says that any acquisition would need to have a short and long-term affect on their revenue, reiterating the company's hesitancy to make major investments in risky emerging markets following their previous foibles in the early 2000's.
Molson Coors operates in four geographic regions (corporate expenses are not allocated to either segment so individual segment net income is not reported):
The Canada segment brews, markets, sells and nationally distributes a wide variety of beer brands in Canada. Besides its own brands, the company also has distribution agreements with several foreign brewers to distribute their beers throughout Canada. The company currently controls 40% of the Canada market, second only to Labatt's 44%. Molson Coors' most popular Canadian brands by sales volume include:
The company has licensing agreement to distribute:
In 2008, Molson Coors entered into a joint venture with SABMiller (SAB-LN) to create MillerCoors in the United States. Molson Coors has a 42% interest in the joint venture and accounts its stake under the equity method, meaning that it claims 42% of the net income for the new company. MillerCoors controls 30% of the US market, second to Anheuser-Busch InBev's 50% market share. MillerCoors brews, markets, sells and nationally distributes a wide variety of beer brands in the US. The most popular brands by sales volume include:
The United Kingdom segment brews, markets, sells and nationally distributes a wide variety of beer brands in the UK. In 2009, approximately 64% of the UK segment's sales were to "on-premise" customers, predominantly pubs and restaurants, while the remaining 36% was to "off-premise" customers, mainly supermarket chains and convenience store chains. The company is the third largest brewer in the UK with approximately 19% market share. The most popular brands by sales volume include:
The company has licensing agreement to distribute:
The Global Markets segment grows and expands Molson Coors' product lines in Emerging Markets, mainly in Japan, China, southern Europe, and central America. The segment's production is licensed to third party brewers, mainly the company's flagship Coors Light brand.
In late June 2010, Molson Coors announced the launch of Coors Light in Russia, the world's fourth largest beer market (behind China, US, and Brazil). The company will handle the marketing and advertising of the brand while the Moscow Brewing Company brews and bottles the product. This latest expansion follows recent distribution deals in Spain, Vietnam, and China. In March 2010, the company announced a partnership with Mahou San Miguel to distribute Carling in Spain. In May 2010, Molson Coors announced a partnership with Viet Thai International to establish the Coors Light in Vietnam, one of the world's fastest growing markets. This partnership is the company's second attempt to penetrate the Vietnam market after a failed partnership with Vietnam Brewery from 2006-2008. Also in May 2010, Molson Coors paid $40 million to acquire a 51% stake in a joint venture with China's Si'hai Beer Company. The deal, which closed in September 2010, is expected to result in 50% increase in sales for both Coors Light and Si'hai Beer brands.
Molson Coors sells 65 different brands of beer worldwide (14 in the U.S.). But the majority of their sales volume is concentrated in 3 different products across 3 countries: Coors Light in the U.S.; Carling in the U.K.; and Molson in Canada. In 2009, the company controlled 40% of the market share in Canada (Coors Light alone has 14% market share), 30% market share in the US, and 19% market share in the UK (Carling accounts for nearly 75% of UK sales). These three mature markets have minimal annual growth, and especially in the US, Molson Coors must compete with small, local breweries for consumers' tastes and preferences. In 2009, almost 1600 craft brewers produced a combined 9.1 million barrels of beer; the size of this competition pales in comparison to the 69 million barrels that MillerCoors produces in the US alone. However, the company must overcome staunch loyalties when marketing products in regions with strong local breweries.
The brewing industry tends to be categorized by a few large, dominant-players, along with many smaller, specialty and niche companies (e.g., micro-breweries). Consolidation of smaller outfits with larger ones has been common among players like Molson Coors, Anheuser-Busch, InBev, and SABMiller, all of whom have sought growth through acquisition. In October, 2007, Molson Coors Brewing Company (TAP) and SABMiller plc (SBMRY) announced the combination of their US operations. The new venture, MillerCoors, was formed to better challenge the American beer king, Anheuser-Busch Companies (BUD).
The company utilizes a variety of agricultural and commodity products in brewing and bottling its beverages. For beer, the most important inputs are hops and barley. Barley typically constitutes 8% of the brewing costs of beer, and a significant price increase in barley, for instance, would increase the cost of the company's goods sold and put pressure on margins. Barley prices have increased 85% because of a dwindling supply. Farmers are increasingly attracted to farming crops such as corn and soybeans instead of barley because of the burgeoning biofuel industry. During the commodities superspike of 2007 and 2008, the prices of these commodities rose drastically with general commodities bubble and dramatically pressured margins. They receded in late 2008, but remain elevated, and the possibility of another significant rise in Commodities represents a constant threat to profits. The company increased prices in Q4 2009 to help cover the increased ingredient costs.
Molson Coors is the 5th largest brewer in the world. However, it has a much larger market share in its three primary countries - United States, Canada, and United Kingdom.
Molson is the second largest brewer by volume in Canada with 40% of the market share by volume, while the Labatt brand (owned by the world’s largest brewer, InBev (INB-BT)), has 44% market share. Coors Light has 14% of the market share and Molson Canadian has 8%. Canada is a mature market that is characterized by heavy competition among large-scale producers, regional breweries and microbreweries. While the trends in overall beer consumption have been more positive than those in the US, volume fell less than 1% in 2009 after six years of steady annual growth of 1%.
Coors Breweries Limited is Molson Coors’s arm in Western Europe and is the third largest brewer in the UK, controlling 19% of Europe’s second largest market. In this market, Scottish and Newcastle UK have the largest market share with 26% followed by Inbev UK with 20%, then Molson Coors, and lastly Carlsberg UK with 13%.