Molson Coors Brewing Co. has shored up its finances, boosted sales of its flagship Coors Light and other brands and is preparing to aggressively market Molson Canadian here in the States.
The company has reaped roughly $125 million in cost savings in the past two years since the merger of Adolph Coors Co. and Molson Inc. It is on track to exceed the $175 million in savings it originally projected for its first three years.
Thanks to the savings, Denver-based Molson Coors will be able to invest more in building its brands, company executives said Tuesday at an analysts’ meeting in New York.
Molson Coors, the third-largest brewer in the U.S., expects to reduce expenses another $250 million beyond the $175 million by 2010. It may use some of that savings to repurchase shares or increase dividends.
“It is a significant number in size, and management has a track record of achieving what they target,” said Mark Swartzberg, an analyst with Stifel Nicolaus. “The important question is how much will the shareholders see on the bottom line.”
About two-thirds of the $250 million cost reductions will come as the company finds less expensive ways to make beer and deliver it to the marketplace, and the rest will come from other areas, chief financial officer Tim Wolf said.
Since its 2005 merger, Molson Coors has closed a brewery in Memphis and jettisoned its money-losing Brazilian brewery. It has shed 100 jobs at its Canada unit, part of $11 million in savings there.
A new brewery in Elkton, Va., is expected to cut transportation costs, making it cheaper to serve customers in the Northeast.
Some of the savings will go toward an advertising drive promoting Molson Canadian in the U.S., Dan Lewis, global chief public-affairs officer, said in a recent interview.
“Molson Canadian doesn’t have a lot of exposure in the U.S. market. We have a big opportunity,” he said.
The beer has a strong presence in the Northeast, and the company sees an opportunity in the steadily growing market for imports and craft beers throughout the United States.
Craft brewers’ sales rose 11.7 percent in 2006, according to the Brewers Association, an increase that followed strong growth in each of the prior three years. And import sales grew from 12.5 million barrels in 1996 to 29.5 million last year, according to trade magazine Beer Marketer’s Insights.
Swartzberg questioned whether U.S. consumers would flock to buy Molson Canadian, which has been struggling in the Canadian market.
“It is going to be tough to have consumers believe that Canadian is a craft – and Canadian beers (don’t) have the cachet of European imports,” he said.
Still, introducing it in places where the beer currently isn’t sold can’t hurt, he said.
Just 700,000 barrels of Molson products were sold in the U.S. last year, down from 800,000 before the two family-owned brewers merged, said Eric Shepard, executive editor of Beer Marketer’s Insights.
Competition and “a little bit of neglect” after the merger led to the drop-off, said Shepard. “Molson Coors didn’t spend a whole lot of time and effort when they did the merger. The Molson brands in the U.S. weren’t No. 1, top-of-the-mind projects for them. Molson has suffered for that.”
Canadian beers in general haven’t fared well in the U.S. market over the past 10 years as Mexican and other imported beers have poured in, Shepard said.
Since the merger, Molson Coors has concentrated on boosting sales of Coors Light, Blue Moon and Keystone, competing in the U.S. against Anheuser-Busch Cos. and SABMiller Plc, the two largest U.S. beermakers.
Coors Light sales have grown in each of the past seven quarters, and sales of Keystone and Blue Moon have been increasing.
Increased sales in the U.S. and Canada during the last quarter drove earnings higher than analysts expected.
Molson Coors earned $99.2 million, or $1.15 a share, up from $22.4 million, or 26 cents a share, in the same period a year earlier. The more than fourfold increase in profit followed a 25.5 percent increase in profit for the third quarter.
The company had revenues for the year of $7.9 billion, up from $7.4 billion in 2005.
Bloomberg News contributed to this report.
Staff writer Tom McGhee can be reached at 303-954-1671 or tmcghee@denverpost.com.
42.1 MILLION
Molson Coors’ sales volume in barrels last year, up from from 40.4 million barrels in 2005
8.2 MILLION
Canadian segment sales, in barrels, for 2006, up 11.1 percent from 7.5 million barrels in 2005
23.5 MILLION
U.S. segment sales in barrels last year, up 3.6 percent from 22.6 million in 2005
10.39 MILLION
European segment sales, in barrels, for 2006, up 0.6 percent from 10.32 million in 2005
Merger payoff
Coors merged with Molson in February 2005, generating savings of:
- 2005: $59 million
- 2006: $66 million
- 2007: $50 million expected
Where it comes from
- Sale of a 68 percent stake in its money-losing Brazilian brewery, Cervejarias Kaiser, for $68 million in cash
- Elimination of $60 million in debt
- Closure of a Coors brewery in Memphis, Tenn., last year, expected to save about $35 million
