In December, I pitched Molson Coors (NYSE:TAP) as my idea of the month for Cheddar TV. So far, this has not gone as I expected. TAP stock was weak - along with other beer companies - throughout the first part of 2018. And then, the company's latest earnings report kicked the selling into high gear.
Shares slumped 15% on a revenue number that missed expectations by a sizable amount and EPS that came up a little short of consensus (after adjusting for the European tax charge that analysts hadn't forecast). As a result, TAP stock has given back all its gains since 2015 and is now at multi-year lows. Is it time to give up on Molson Coors? Not at all, in fact, I purchased more following the latest earnings report.
Why TAP Stock Slumped
The most troubling thing - and the reason the stock was down so far - was that Molson Coors' total beer volumes dropped 3.5% for the quarter. This was a significant deceleration from its -1% unit volume last quarter and its guidance of flattish results for the next couple of years in terms of sales volume following the recent mega-merger. Before we dive into further analysis, let's get a persistent myth out of the way.
No, craft beer isn't killing TAP or other big brewers. According to a recent Washington Post article, small and independent producers made up just 13% of the US beer market. It's easy for us, as mostly high-income upper class folks to assume that our friends and community represent most of the US market. But it simply isn't the case. Craft beer was, is, and will continue to be a luxury item consumed by a niche portion of the market - and expect that niche to stall out or even shrink once a recession hits.
This is an updated excerpt of an Ian's Insider Corner report originally published May 6th.
