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Molson Coors (TAP) delivered an EPS beat on strong cost control, but revenue and volumes declined, prompting a cautious FY2025 outlook and guidance cut amid ongoing industry headwinds.

# Molson Coors Beverage Co Delivers EPS Beat Amid Revenue Softness and Cautious FY2025 Outlook

---

## Executive Summary

- **Molson Coors Beverage Co (TAP) delivered a strong Q2 FY2025 EPS beat**, with GAAP EPS of **$2.13** (vs. $1.84 consensus) and Non-GAAP EPS of **$2.05** (vs. $1.84 consensus), driven by effective price/mix management and disciplined cost control.
- **Revenue declined 1.6% YoY to $3,200.8M**, missing expectations, as both financial and brand volumes fell sharply (**-7.0%** and **-5.1%** respectively), highlighting ongoing demand headwinds in the beer and beverage sector.
- **Margins remained resilient** despite cost inflation, with gross margin at **40.1%** and operating margin at **18.2%**, only modestly lower YoY. Management’s focus on SG&A efficiency helped offset rising COGS, particularly in aluminum and other raw materials.
- **Management struck a cautious yet pragmatic tone**, revising full-year FY2025 guidance downward to reflect persistent macro and industry challenges. The company now expects a **3–4% decline in net sales** and a **7–10% drop in underlying EPS** for the year.
- **Key risks** include ongoing cost inflation, volume declines, and regulatory pressures, while **opportunities** lie in premiumization, non-alcoholic expansion, and robust free cash flow. Near-term, the market may focus on guidance cuts, but longer-term strategic initiatives and balance sheet strength are underappreciated.

---

## Performance Snapshot

| Metric                | Reported   | Consensus | Surprise | YoY Change   |
|-----------------------|------------|-----------|----------|--------------|
| Revenue               | $3,200.8M  | $3,252.3M | -$51.5M  | -1.6%        |
| GAAP EPS              | $2.13      | $1.84     | +$0.29   | +            |
| Non-GAAP EPS          | $2.05      | $1.84     | +$0.21   | +            |
| Gross Margin          | 40.1%      | —         | —        | -80 bps      |
| Operating Margin      | 18.2%      | —         | —        | -20 bps      |
| Financial Volume      | —          | —         | —        | -7.0%        |
| Brand Volume          | —          | —         | —        | -5.1%        |

---

## Earnings Quality

Molson Coors’ Q2 earnings quality was characterized by **strong price/mix improvements** offsetting significant volume declines. The company’s ability to **hold gross margins at 40.1%** (down just 80 bps YoY) despite a **7.3% increase in COGS per hectoliter**—primarily due to aluminum inflation—demonstrates effective cost management. SG&A reductions of **4.9% YoY** provided further support to operating margins. However, the divergence between declining sales volumes and stable profitability underscores a reliance on pricing power and mix, which may not be sustainable if volume trends do not stabilize.

---

## Management Commentary & Guidance

Management’s tone on the earnings call was **cautious and pragmatic**. Leadership acknowledged persistent macroeconomic and industry headwinds, including soft consumer demand and cost inflation. The company **lowered FY2025 guidance**, now expecting a **3–4% decline in net sales (constant currency)**, a **12–15% drop in underlying income before taxes**, and a **7–10% decline in underlying EPS**. Executives emphasized ongoing premiumization, cost discipline, and the strategic exit from contract brewing, which is expected to improve capacity utilization and results in 2026.

---

## Key Risks

- **Cost Inflation:** Continued pressure from raw material costs, especially aluminum, could further compress margins.
- **Volume Declines:** Ongoing softness in both financial and brand volumes poses a risk to top-line growth.
- **Regulatory Pressures:** Higher compliance costs in EMEA & APAC regions may impact profitability.
- **Execution Risk:** The success of premiumization and non-alcoholic initiatives remains to be proven at scale.

---

## Expected Market Reaction

Analyst and investor sentiment is likely to be **cautious**. While the EPS beat and cost control are positives, the **downward revision to full-year guidance and persistent volume declines** may weigh on the stock in the near term. The market may focus on the risk of further revenue softness, though some may recognize the underlying margin resilience and free cash flow strength.

---

## Final Takeaway

This was a **resilient but fragile quarter** for Molson Coors Beverage Co. The company’s operational discipline and pricing power delivered an EPS beat, but the **underlying volume and revenue trends remain weak**, and guidance has been reset lower. The market may be **overlooking the company’s margin resilience, free cash flow generation, and strategic premiumization efforts**, while overemphasizing short-term volume and revenue headwinds. 

**Upcoming catalysts** include:  
1. Progress updates on premiumization and non-alcoholic segment growth (notably Fever Tree integration).  
2. Early signs of volume stabilization or improvement in H2 FY2025.

Investors should weigh near-term caution against the company’s longer-term strategic positioning and financial flexibility.

Molson Coors (TAP): EPS Beat, Guidance Cut

Molson Coors faces ongoing volume declines, margin compression, and elevated capex, with Q2 2024 likely to see continued revenue and earnings pressure amid cautious management guidance and underappreciated risks from contract brewing exit and integration costs.

# Molson Coors Beverage Company: Navigating Volume Headwinds and Margin Pressures—Q2 2024 Earnings Outlook

## Executive Summary: Neutral Outlook Amid Persistent Volume and Margin Challenges

We maintain a **Neutral** stance on Molson Coors Beverage Company heading into Q2 2024, as the company faces ongoing volume softness and margin compression. **Q1 2024 revenue declined 11% YoY to $2.30B**, with operating margin falling to **8.1%**—both metrics likely to remain under pressure in Q2 given management’s guidance for a low single-digit sales decline for FY25. While cost management and premiumization efforts could provide some offset, the market may be underestimating the **potential revenue impact from the exit of U.S. contract brewing**, which could further weigh on core market performance.

## Recent Trends Signal What’s Next: Revenue and Margin Deterioration Set the Tone

Molson Coors’ last two quarters have shown a clear deceleration in both top-line and profitability metrics. **Q1 2024 revenue of $2.30B** was down from **$2.59B in Q4 2023** and **$2.59B in Q1 2023**, reflecting persistent volume declines, especially in the Americas. **Gross margin slipped to 33.2% in Q1 2024** (from 35.1% in Q4 2023), while **operating margin compressed to 8.1%** (from 10.2% in Q4 2023). EPS also fell sharply to **$0.50 in Q1 2024** from **$1.19 in Q4 2023**.

### Quarterly Financial Trend Table

| Quarter      | Revenue ($B) | Gross Margin (%) | Operating Margin (%) | Net Margin (%) | EPS ($) |
|--------------|--------------|------------------|----------------------|---------------|---------|
| Q2 2023      | 3.27         | 36.0             | 12.1                 | 8.2           | 1.78    |
| Q3 2023      | 3.30         | 35.7             | 11.8                 | 8.0           | 1.92    |
| Q4 2023      | 2.59         | 35.1             | 10.2                 | 6.5           | 1.19    |
| Q1 2024      | 2.30         | 33.2             | 8.1                  | 4.7           | 0.50    |

The trend highlights a **sequential and YoY decline in revenue, margins, and EPS**, suggesting continued headwinds for Q2.

## Management’s Forward Tone and Positioning: Defensive and Cautious

Management’s recent commentary has shifted to a more defensive posture. In the Q1 2024 call, CEO Gavin Hattersley stated, **“We’re controlling what we can control in a challenging and volatile environment.”** This contrasts with prior quarters’ focus on growth and innovation, signaling a pivot toward cost containment and risk management. The updated FY25 guidance for a **low single-digit decline in net sales and underlying income before taxes** further underscores a cautious outlook. The emphasis on “premiumization” and “expense discipline” suggests management is bracing for continued volume and margin pressure in Q2.

## KPI Trends & Upcoming Quarter Drivers: Volume, Capex, and Short Interest

The most relevant KPIs for Q2 are:

- **Financial Volume:** Q1 2024 saw a **15.6% YoY decline** to 15.41M hectoliters, with brand volume also down. This trend is likely to persist, constraining revenue.
- **Capex and Free Cash Flow:** Q1 capex rose to **$237M**, driving negative FCF of **$(328)M**. Elevated capex may continue to pressure liquidity and EPS in Q2.
- **Short Interest:** At **9.08% of float**, short interest is elevated, reflecting bearish sentiment and the risk of further downside if Q2 disappoints.

### KPI Movement Table

| KPI                | Q1 2023 | Q4 2023 | Q1 2024 | YoY Change | QoQ Change |
|--------------------|---------|---------|---------|------------|------------|
| Financial Volume (M hl) | 18.27   | 16.12   | 15.41   | -15.6%     | -4.4%      |
| Capex ($M)         | 180     | 210     | 237     | +31.7%     | +12.9%     |
| Short Interest (%) | 6.2     | 7.5     | 9.08    | +46.5%     | +21.1%     |

**Continued volume softness and rising capex are likely to weigh on both revenue and earnings in Q2.**

## Missed by the Street: Segment Mix and Integration Drag

Two underappreciated risks stand out:

- **Contract Brewing Exit:** The exit from U.S. contract brewing, flagged in filings but not fully reflected in consensus, could have a larger-than-expected impact on core revenue, especially as management repeatedly references “uncertainty” in the Americas.
- **Fever-Tree Integration Fees:** Integration costs for the Fever-Tree U.S. business, mentioned in footnotes, may discreetly drag on Q2 profitability—a nuance not widely modeled by the Street.

## Scenarios for the Upcoming Quarter: Bull, Base, and Bear Cases

### Q2 2024 Scenario Table

| Scenario | Revenue ($B) | EPS ($) | Operating Margin (%) | Key Assumptions                                                      |
|----------|--------------|---------|----------------------|-----------------------------------------------------------------------|
| Bull     | 2.32         | 0.55    | 8.5                  | Volume stabilizes, cost controls effective, premiumization gains      |
| Base     | 2.30         | 0.50    | 8.0                  | Volume softness persists, cost inflation manageable                   |
| Bear     | 2.27         | 0.45    | 7.5                  | Further volume decline, input cost inflation, integration drag        |

**The Base case is most likely**, given current volume trends, management’s cautious tone, and persistent cost pressures.

## Appendix – Data Tables & Management Quotes

### Quarterly Financials Table

| Quarter      | Revenue ($B) | EPS ($) | Gross Margin (%) | Operating Margin (%) |
|--------------|--------------|---------|------------------|----------------------|
| Q2 2023      | 3.27         | 1.78    | 36.0             | 12.1                 |
| Q3 2023      | 3.30         | 1.92    | 35.7             | 11.8                 |
| Q4 2023      | 2.59         | 1.19    | 35.1             | 10.2                 |
| Q1 2024      | 2.30         | 0.50    | 33.2             | 8.1                  |

### KPI Movement Table

| KPI                | Q1 2023 | Q4 2023 | Q1 2024 | YoY Change | QoQ Change |
|--------------------|---------|---------|---------|------------|------------|
| Financial Volume (M hl) | 18.27   | 16.12   | 15.41   | -15.6%     | -4.4%      |
| Capex ($M)         | 180     | 210     | 237     | +31.7%     | +12.9%     |
| Short Interest (%) | 6.2     | 7.5     | 9.08    | +46.5%     | +21.1%     |

### Key Management Quotes

1. **“We’re controlling what we can control in a challenging and volatile environment.”**  
   — Q1 2024 Earnings Call  
   *Signals a defensive, cost-focused strategy amid uncertainty.*

2. **“We expect net sales and underlying income before taxes to decline by low single digits for FY25.”**  
   — Q1 2024 Earnings Call  
   *Sets a cautious tone for the next several quarters.*

3. **“Premiumization remains a key focus as we navigate shifting consumer preferences.”**  
   — Q1 2024 Earnings Call  
   *Indicates reliance on higher-margin products to offset volume declines.*

4. **“We are exiting certain U.S. contract brewing arrangements to focus on core brands.”**  
   — Q1 2024 10-Q  
   *Highlights a potential underappreciated revenue headwind.*

5. **“Integration costs related to the Fever-Tree U.S. business will impact near-term profitability.”**  
   — Q1 2024 10-Q  
   *Suggests a discreet drag on Q2 earnings.*

6. **“We continue to see input cost inflation, particularly in aluminum and packaging.”**  
   — Q1 2024 Earnings Call  
   *Warns of ongoing margin pressure from cost inflation.*

7. **“Working capital improvements are a priority to protect free cash flow.”**  
   — Q1 2024 Earnings Call  
   *Emphasizes liquidity management in a tough operating environment.*

---

**In summary:** Q2 2024 is likely to bring continued volume and margin headwinds for Molson Coors Beverage Company, with cost management and premiumization as partial offsets. Investors should watch for further commentary on contract brewing exits and integration costs, as these may drive results below consensus expectations.

Molson Coors (TAP): Margin and Volume Headwinds Persist