Shareholders in Molson Coors (TAP) woke up to a bit of a hangover this morning and in this instance, the headache is coming straight from Canada where Canadians evidently spent the first quarter drinking beverages other than Coors Light and Molson Canadian. So much for the thesis that Canadians would turn to alcohol after seeing national treasure Sydney Crosby knocked into 2012.
The results for TAP up North were really pretty lousy and the market has responded by sending TAP to the penalty box for “low-selling.” Here are the gory details. In the first quarter, TAP’s sales-to-retailers (STRs) were down 6.9%. More specifically, STRs of Coors Light were down mid-single digits while STRs of Canadian Molson were down by low double-digits. This later number suggests that TAP may have done away with selling cases and instead chose to sell their beer in twenty-one packs during March.
Now some of this weakness can be explained by the fact that 2011 was lapping the mother of all parties in Vancouver and therefore a pullback was expected. But not ~7%. And when you look at the two-year stack, you see that Canadian STRs for TAP are down ~2 percent which is not exactly a bullish signal for investors.
This is not the first time that the “The Lair” has discussed TAP and a short thesis was sketched back in October. But that story was more predicated on problems in TAP’s U.S. business which are still working but don’t seem to be getting worse. However, these Canadian problems are somewhat new to the story so let’s call them complementary for now.
In the big picture, Coors is struggling with a pretty lousy beer environment in the U.S. It’s JV with Miller is probably running low on synergy contribution (this quarter, those synergies were well below JPM’s plan). And now, they seem to have a problem up North where some market share has been lost. None of that is good news and if commodity-related cost pressures ever show up, the income statement could get stressed.
That said, I am not an enthusiastic seller down here at $46. There may be ten percent of downside from there as TAP tests its March lows but I would be more interested puking this thing above $48 with a $50 stop.
