Molson Coors drink (NYSE: TAP) is down more than 7% after the company released a mixed earnings report on Aug. Earnings for the adult beverage company came in at $1.19 per share. However, sales were a slight miss at $2.92 billion, while the forecast was to be $2.94 billion.
On a better note, management maintained its full-year revenue and profit forecast. But that may not be enough for investors who see the company trying to rely on its premium brands to lift it through a shaky economy.
In this article, we’ll look at what the company said and some things you may want to consider before taking or adding a position in TAP stock.
Premium sales grow
The good news is that earnings for Molson Coors are back to pre-pandemic levels. The company reports that this is due to a significant increase in on-site sales. Molson Coors reported that on-site sales are still not at pre-pandemic levels. However, it is at 93% of pre-pandemic levels and continues to increase revenue on a sequential basis.
As the company reported, this is part of the the company’s “premiumization strategy”. According to president and chief executive officer (CEO) Gavin Hattersley, the company’s “above-premium brands” contributed to a record-high share of net sales for our global portfolio on a 12-month trailing basis. And net sales from the company’s US high-premium portfolio now exceed net sales from the US economy portfolio on a trailing 12-month basis.
If this trend continues, it could dispel the trend that Molson Coors lacks pricing power as the popularity of craft beers continues to grow. But a convincing argument for this statement is the weakening of the global economy. There are already indications that consumers are starting to “trade in” to cheaper brands. However, if the economy continues to weaken, the company says it has a portfolio of brands that will allow the company to compete at different price levels.
The balance is getting stronger
Molson Coors continues to pay off his debts well. And as the company notes, the bulk of its $6.4 billion in net debt is of the fixed-rate variety. That means it is less affected by rising interest rates. However, guilt is guilt. And if the company can’t find a way to significantly increase revenue, it will still be a headwind to earnings.
So how likely is it that the company will continue to grow sales? On the one hand, Molson Coors acknowledges that it has to do with inflationary pressures. On the other hand, the company plans a price increase in the fourth quarter.
Fundamentals suggest TAP stocks are cheap
The company has a current P/E ratio of 10.97 and a future P/E ratio of just under 12x earnings. And the company’s profit margin of 10.13% is higher than the industry average of 6.61%.
Post-earnings analysts are lowering their price targets for TAP stocks. And at a current price of $54.19, the stock is trading above the consensus price target.
On the other hand, Molson Coors stock is up 19% in 2022, which is no small feat. And if the company delivers an upward surprise in earnings, the stock may reward investors. But if not, the TAP stock could remain in the range for several months.