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Molson Coors’ Multi-Billion-Dollar Stock Buyback, Explained. (Sort Of.)

It is normally our pleasure here at Hop Take to ignore the vulgarities of high finance, as we are often concerned with more pressing matters like the fall of draft beer and the rise of non-alcoholic hard seltzer. But as we went to press with last week’s column about Blue Moon’s upcoming rebrand, news broke that the beer’s parent company, Molson Coors, was planning to move some numbers around — 2 billion, to be exact.

That’s the size, in dollars, of the stock buyback program the macrobrewer signaled last week in New York at its “strategy day” with investors. “[O]ur expected compelling free cash flow generation supports reinvestment in value creation,” chief financial officer Tracey Joubert said in an official release announcing the move, which she characterized as part of a “balanced and cohesive approach of prioritizing capital allocation among investing in our business, reducing net debt, and returning cash to shareholders.” The buyback is effective immediately and will take place over the next five years.

For rank-and-file members of the American drinking public, this probably reads like impenetrable corporate gibberish. It is! But even though this move shouldn’t have much, or any, effect on the flow of the “beverage company’s” beverages down the national gullet, it’s worth trying to decipher, because it signals some broader truths about shifts in the United States’ beverage-alcohol industry, and Molson Coors’ changing place within it.

The first thing it signals is that things are going pretty well for Molson Coors lately. Struggling companies do not typically announce plans to buy back billions of dollars of their own stock. $2 billion is a considerable chunk, even for the country’s second-largest brewery: The firm earned $1.1 billion in pre-tax net income on $10.7 billion in sales in 2022. So the fact that the company is embarking on such a sizable repurchasing program over the next half-decade is a clear statement — to investors, business partners, and competitors alike — that its core business is in good shape.

Molson Coors executives have been shouting that from the rooftops nearly since Gavin Hattersley took over chief executive duties in September 2019 vowing to turn a volume slide into volume and dollar growth on the quick. The Hattersley Doctrine — in so many words, “premiumize what you can, prune what you can’t, and pay down debt” — has mostly worked, even in the face of the Covid-19 pandemic. The company closed out its 2021 fiscal year by booking annual growth for the first time in over a decade on the strength of a diversified portfolio, red-hot marketing, and some price hikes, too. Miller Lite and Coors Light performed so well in 2022 that the firm bought them Super Bowl air time for the first time in over three decades. And, of course, this year’s biggest beer industry story — Bud Light’s implosion at the hands of the nation’s transphobes and Anheuser-Busch InBev’s own flat-footed leadership — has been an indirect boon for Molson Coors, too. In August 2023, the firm reported that Q2 sales of its dual flagship brands outsold its rival’s Big Blue Albatross by 50 percent.

Touting all this “game-changing momentum” to Molson Coors-aligned distributors gathered last month in Orlando for the company’s annual wholesalers conference, Michelle St. Jacques, Molson Coors’ chief commercial officer, outlined the company’s plan to keep its foot on the gas pedal.

“We can’t take this growth for granted,” she said, according to Brewbound’s report from the event. “We can’t get complacent. We need to stay focused on keeping this hot streak going.”

Hattersley, for his part, promised “acceleration” in Molson Coors’ core offerings, beyond-beer diversifications, and premiumization efforts. “That’s what we’re after, and that’s what our plans are designed to deliver, acceleration for our business, and for yours.”

Let’s stipulate that this is indeed the auspicious moment for Molson Coors that its execs claim. (I have some doubts: Bud Light is stabilizing, Modelo is roaring, overall beer is bleeding share, Molson Coors is still carrying tons o’ debt, and so on. But follow me here.) Why, then, is the firm choosing now to hand $2 billion back to shareholders, rather than earmark that cash to, well, capitalize on the change in its fortunes? What would a $2 billion marketing spend do for promising portfolio newcomers like Simply Spiked or ZOA, the brewer’s non-alcoholic energy drink with Dwayne Johnson? How many more blue-chip spirits labels like Blue Run could Molson Coors cop with all that guap?

For that kind of money, it wouldn’t have to cram its flagships awkwardly into a single Super Bowl spot like it did this year. It could buy Miller Lite and Coors Light 60 seconds apiece for the next five years, and still have like $1.5 billion left over. Wouldn’t that fuel more “acceleration” (to borrow Hattersley’s term) than a buyback program?

Molson Coors didn’t respond to a request for comment for this column, so it’s impossible to say for sure. According to the firm’s release announcing the buyback, the newly minted “Acceleration Plan” has five pillars, and two of them — ”scale and expand in beyond beer” and “invest in its capabilities” — gesture pretty directly at funding growth by spending money. “In Molson Coors’ case, they have actively been paying down debt and putting themselves in a better liquidity position, which has allowed for their free cash flow to increase generously over the prior quarters,” Andrew Nadeau, a certified financial planner and senior wealth advisor at Bigelow Investment Advisors, tells Hop Take in an email exchange. Combined with some reductions in operating costs and promising growth and premiumization beyond beer, that “seems to be partly helping free up the capital for the share repurchases.” In other words, Molson Coors isn’t quite weighing reinvestment in its brands against redistribution to its shareholders in a zero-sum game.

Make no mistake, though, the latter interest typically benefits from a buyback, especially in the short term. “A lot of companies have been utilizing stock buybacks over the past five years or so to help continue to make their earnings growth appear strong and help keep shareholders happy,” says Nadeau. “Essentially, they are tapping their piggy bank [$2 billion in retained earnings over the next five years] to take their stock off the street [via share buybacks] instead of deploying those funds toward capital expenditures” to fuel growth and development.

Without making a moral judgment on Molson Coors’ buyback plan in particular, it’s easy to grasp why stock buybacks in general aren’t broadly popular. They take money that might have flowed into communities in the form of increased wages, new construction, etc., and instead move it into the pockets of shareholders. (And executives: Hattersley and St. Jacques, like most of their c-suite peers across every American industry, receive the bulk of their compensation in stock.) If you were, say, a Teamster worker who spent seven weeks in the heat of summer picketing Molson Coors’ Leinenkugel’s plant in Chippewa Falls, Wis. for better wages, benefits, and working conditions a couple months ago, you might not look so kindly on the gambit.

But here’s the rub: Wall Street doesn’t appear to, either, not in this case. Molson Coors stock fell ~5 percent following its announcement of the program in early October, suggesting that investors are skeptical that it can achieve the long-term growth it’s projecting while also rewarding shareholders for helping it pull off its turnaround. Oh, the vulgarity.

? Hop-ocalypse Now

As Benjamin Franklin once probably didn’t say, “Beer is proof that God loves us and wants us to be happy.” What, then, is Happy Thursday proof of? Molson Coors this week announced a new line of “bubble-free,” fruit-forward “spiked refreshers,claiming that’s what the (legal-drinking-age!) kids are clamoring for. It’s a bold bet to place for the macrobrewer that brought us Two Hats, one of the saddest exercises in corporate pandering since Anheuser-Busch InBev tried to corner the lucrative necromancy niche with Oculto. Speaking of which… maybe Happy Thursday is proof that God hates you and wants you to feel old?

? Ups…

The National Beer Wholesalers Association advises its constituents to “leave our brand hats at the door” and behave as independent businesses, what a concept… But the NBWA has to be happy about Coca-Cola’s emphatic disinterest in becoming a distributor a la PepsiCo.’s Blue Cloud… Formerly hard-to-find hazecannery Other Half Brewing Co. is expanding again, this time to Chicago… The National Black Brewers Association celebrated the inaugural national #BlackBrewersDay on Oct. 10… Good on Sierra Nevada Brewing Co. for supporting California’s efforts to tamp down on greenwashing…

? …and downs

The latest jobs report shows on-premise employment back to pre-pandemic levels, but still way off-trend Chicago’s venerable Metropolitan Brewing filed for Chapter 11 bankruptcy earlier this month in hopes of retooling its “struggling” business… Per CGA’s latest, on-premise beer prices have been hiked almost double that of spirits year-over-year, making the former seem more expensive

The article Molson Coors’ Multi-Billion-Dollar Stock Buyback, Explained. (Sort Of.) appeared first on VinePair.

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