Anheuser-Busch InBev (NYSE: BUD) completed its acquisition of SABMiller last month, giving the megabrewer even greater global reach, but the real winner from this merger will actually be Molson Coors (NYSE: TAP), which acquired the other half of MillerCoors it didn't already own. The one-time joint venture will now be the engine that fuels its new parent's frothy gains.
There should be a lot to celebrate going forward, now that Molson Coors has fully acquired a portfolio of brands that will allow it to sell both north and south of the Canadian border. Image source: Coors Light.
Beer sales going flat
The tale of brewers quarterly earnings is telling, with Big Beer still facing less heady times.
- Anheuser-Busch InBev reported falling sales, lower volumes, and plunging profits, the sixth consecutive quarter its earnings missed expectations. With Brazil, its second largest market, coming apart, it definitely needs the Miller acquisition to work out.
- Molson Coors also suffered a hangover, with lower sales, volumes, and adjusted profits, though the latter came in ahead of Wall Street expectations. With even its flagship Coors Light brand getting hit, the brewer needs something to spice it up.
- MillerCoors, though, in its last quarterly report before being consumed by Molson Coors, was able to notch marginally higher sales and wider profits. While not even it could buck industry trends, as both sales to retailers (STRs) and sales to wholesalers were down, it saw both the Miller Lite and Coors Light brands gain market share -- the former for the eighth consecutive quarter.
- Conversely, the original Coors Banquet brand grew STRs, and it looks to be on track for a 10th straight year of growth.
While there were some notable failures in the quarter, such as Miller Genuine Draft's posting double-digit declines, the real beneficial changes will occur once Molson Coors integrates MillerCoors portfolio fully into its operations.
A two-way street
The brewer is looking to see which brands it owns that would work well north of the border, as well as the ones it's fully acquired that could now move south and be sold in the United States.
The joint-venture agreement that created MillerCoors in 2007 mainly allowed it to distribute beer in the U.S. and Puerto Rico, while granting Molson permission to market and distribute certain Miller brands in Canada, primarily Miller Genuine Draft. A few years ago, that set-up created a
Molson Coors could be golden after fully acquiring the MillerCoors joint venture and planning to enlarge the markets its brands are sold in. Image source: Miller Genuine Draft.
The two eventually settled their differences mainly by agreeing to allow Miller to take over the sales of Miller products, including MGD, which had been part of Molson's Canadian portfolio. Now, though, all of that has been folded into Molson, and it plans to migrate brands in both directions over the border.
On the brewer's conference earnings conference call with analysts, CEO Mark Hunter said, "We're also assessing the opportunities for Miller High Life and other U.S. brands that we can lift and shift into the Canada market."
A global craft-beer market
He hinted at that strategy a couple of weeks ago in an interview with The Canadian Press, when he said the brewer intends to introduce into Canada various mass-brewed and craft beers from the U.S. and Europe, such as Leinenkugel, Miller High Life, Sharp's, and Staropramen. At the same time, he saw the opportunity to bring some of Canada's craft beers, such as Creemore and Granville Island, south and introduce them into the burgeoning U.S. craft-beer market.
Not that the strategy doesn't carry some risks. While the U.S. craft-beer market is large and growing, it has been suffering of late from an
Image source: Getty Images.
Still, starting from zero gives Molson Coors a chance to nibble away at some of the market share held by the industry leaders, and imported beers have been one of the
Anheuser-Busch InBev may have the global beer market to target, and its results mean it needs the megamerger to work out quickly. But Molson Coors now has the U.S. and Canadian markets to itself, and that could let it see frothy gains in its future.
10 stocks we like better than Molson Coors Brewing
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the
*Stock Advisor returns as of November 7, 2016