Insights

Why Molson Coors Stock Dropped Today

What happened 

Shares of global beer company Molson Coors (NYSE: TAP) fell as much as 11% in trading on Tuesday after reporting second-quarter 2022 financial results. Shares were down 10% as of 1 p.m. ET. 

So what 

Sales were down 0.6% in the quarter to $2.92 billion, but without currency impacts, they would have been up 2.2%. That’s not what concerned investors, though.

Net income plunged 88% to $47.3 million, or $0.22 per share. What management calls underlying net income even fell 24.3% to $260.1 million, or $1.19 per share. Higher commodity costs are impacting the company’s ability to add even modest sales growth to the bottom line. 

Now what 

The problem for Molson Coors is that it’s feeling pressure from both sides. Revenue has become stagnant as craft beers take more market share, and that’s made it almost impossible to have any pricing power. 

On the cost side, there have been higher prices for everything from aluminum to wheat, which will naturally increase costs for a beer company. That’s why we’re seeing the shrinking margins above. 

I don’t see how this turns out well for Molson Coors. The company doesn’t have much pricing power and has been losing market share to smaller brewers for years. That’s not going to change, and the only answer might be to raise prices, giving competitors another opportunity to undercut the business. This was a bad quarter, but I don’t see how things will get better for big beer companies in the long term. 

Travis Hoium has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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