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Global hop market

A local alternative to mass beer suggested by independent brewers has been successful and is now altering the global market. Beer is becoming more diversified, so transnational companies have to accept the new game rules and to switch focus to young and fast growing markets. All these processes increased the demand for aroma and bitter hop as well as their acreage expansion on two continents. However now there appeared a downward trend of alcohol consumption in the world, so even special sorts can soon turn to be sufficient. In this connection the dynamic American hop market is already facing some problems. EU hop producers have become more cautious, they are not racing to exceed the demand and look forward with more confidence, judging by the contract terms. 

Hop Market in Russia

Germany still dominates the Russian market, yet over the recent two years one has been able observe a continuous success of Czech hop suppliers. Their expansion and growing popularity of hops from the United States became the drivers of supplies growth in 2016 despite the preceding modest harvest crop in the EU, as well as the factor of relative stability in 2017. In this connection, in 2017, the ratio of the varieties continued to shift towards the aroma ones, and the supplies of Magnum hop and other alpha varieties were reduced. However, the import of bitter hop pellets is partially replaced by extracts, especially from the major beer manufacturers. Total volumes of alpha acid supplies, according to our estimation, decreased by approximately 5% and returned to the level of 2015. Barth Haas Group continues dominating the hop products market; HVG also increased its weight. At the same time, Morris Hanbury significantly reduced the supplies in 2017.

Molson Coors: Anyone But Income Seekers Should Avoid

Beer brewing company Molson Coors Brewing Co. may have one of the best stock symbols in the beverage sector or even the entire market. Although the company has merged or acquired a portfolio of the best known North American beer brands, the company is still a mid-sized fish in a big ocean of beer sales. This once robustly growing company struggled in 2011 to maintain the growth and meet the Wall Street expectations.

An article on a beer stock is not interesting without some history, and this company has a lot of history. John Molson started his brewery in Montreal in 1786 and Adolph Coors built his Golden, Colorado, brewery in 1873. Molson offered shares to the public in 1945 and Coors started to trade publicly in 1975. In 2002, Coors acquired Bass Brewers of the U.K. to become the largest brewer in that country. Molson and Coors merged as a partnership of equals in 2005 to become the fifth largest beer company in the world. In 2008, Coors and SABMiller (SBMRY) formed a joint venture to produce and market the two companies' brands in the U.S. The main markets for Molson Coors are the U.S., Canada, and the U.K., and the company opened a brewery in China in 2010 as part of a plan of international expansion.

With a market cap of $8 billion, Molson Coors competes with large cap companies like Anheuser-Busch InBev (BUD), with a market cap of $100 billion, down to craft brewers like The Boston Beer Company (SAM), at $1.3 billion, and Craft Brew Alliance (HOOK), worth $120 million. Competing in the crowded beer market requires a large amount of advertising spending to build brand recognition and the beer version of sex appeal. To cap off the competitive difficulties, Anheuser-Busch controls more than 50 percent of the U.S. beer market, leaving less than half for the rest of the brewers to fight over. The Molson Coors alliance has benefited the company and Canadian beer sales generate over half of the company's underlying pre-tax income.

For the third quarter of 2011, Molson Coors reported an 11 percent decline in underlying to $1.14 per share on a 9 percent increase in sales compared to the 2010 third quarter. Corporate management attributed the profit decline to less beer being purchased by the company's core customer base due to high unemployment and higher costs of raw materials and higher general expenses. Lower U.K. sales volumes were a surprise to company management in the quarter. For the full year 2011, Molson Coors is forecast to earn $3.50 per share, down slightly from $3.56 earned in 2010.

Another point of worry for investors is the company's string of quarterly earnings misses. Molson Coors has come up short of the Wall Street consensus for the last four consecutive quarter. The result is actual earnings of $3.46 for the four quarters compared to a total of $3.69 when the individual consensus estimates are totaled together. The fourth quarter and year-end financial results will be released on Feb. 16. The consensus earnings estimate for the quarter is 70 cents per share, compared to earnings of 66 cents in 2010's Q4. It will be interesting to see if Molson Coors can make the expected number or post another miss.

At this point, Molson Coors is not a compelling buy as an investment. The company generates nice profits in Canada, but that is a smaller market than the U.S. In the U.S. the high level of competition plus slow economic growth makes meaningful growth problematic. The company's international ventures ??? not including the U.K. ??? results are still posting losses. The biggest change the company could make to return to growth would be a rapid rise in profitability of the international operations.

Molson Coors does pay an attractive dividend with a current yield of just under 3 percent. The quarterly rate has been doubled since the first quarter of 2008, so investors could be primarily interested in a growing dividend stream if they choose to buy shares of TAP rather than the product from a beer tap.

23 Jan. 2012



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