Molson Coors' Cost Savings Need Time to Materialize

We reiterate our $91 fair value estimate for narrow-moat

During the meeting, Molson Coors provided additional detail on the sources of its cost savings, with 40% of savings expected to stem from North American supply chain efficiencies, 40% from improved procurement, and the remainder related to reduced overhead costs. We appreciate that these savings are not coming at the expense of investments behind the firm’s brands, which we believe will be crucial in driving sales of its core premium light offerings in the face of a sluggish domestic beer market. Beyond updating its financial and strategic outlook, we also note that Molson Coors recently signed a 10-year agreement with Heineken to import and distribute the Sol brand in the U.S. We think this deal is strategically sound, as it will provide the company with exposure to the fast-growing Mexican import category (around 8% of overall U.S. beer market); domestic volumes of imported beers grew nearly 7% in 2016, compared with the overall beer category, which remained roughly flat, and should facilitate more robust sales performance longer term.

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