Molson Coors Suspends Dividend; Cuts Costs By $200M


Moslon Coors Beverage (TAP) is suspending its regular quarterly dividends on its Class A and Class B common shares otherwise payable in the 2020 fiscal year, as it seeks to boost liquidity during this challenging time.

Similarly, Molson Coors Canada has also decided to suspend its regular quarterly dividends on its Class A and Class B exchangeable shares payable in the 2020 fiscal year.

As well as suspending dividends, the TAP board has also taken several cost-cutting measures, citing the global economic uncertainty created by the coronavirus pandemic.

These steps include: (i) reducing planned 2020 capital expenditures by $200 million; (ii) reducing discretionary spending, limiting new hires and decreasing marketing spend; (iii) furloughing some employees in the Europe business and North America hospitality businesses; (iv) shifting marketing investments to key media platforms; (v) using savings from the revitalization plan announced in October 2019; (vi) using its $1.5 billion credit facility as necessary; and (vii) actively evaluating European government liquidity programs.

The company has already suspended its full-year guidance, after reporting disappointing results for the first quarter. For 1Q20, Molson Coors reported net sales of $2.1bn (vs consensus at $2.2bn) and adjusted EPS of $0.35 (with consensus at $0.33). In April, as pantry loading waned, Molson Coors North America STR’s (Sales to Retailers) were down 14%. In Europe, brand volumes were down ~40% in the first four weeks of April.

“We are seeing evidence of North America consumer trade-down, with economy brands outperforming the broader product portfolio in April” wrote MKM Partners analyst Bill Kirk, adding “Further, we under-estimated the contribution from on-premise account to the Europe business, accounting for the 1Q net sales miss versus our numbers and the outsized disappointment in Europe.”

Nonetheless the analyst maintained his buy rating on the stock with a $59 price target (60% upside potential). Shares are currently trading down 32% year-to-date. Overall, analysts display a more cautious outlook on TAP with a Hold consensus and $45 average price target (22% upside potential). (See Molson Coors stock analysis on TipRanks).

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