Executive Summary / Key Takeaways

• Molson Coors is executing a strategic transformation, moving beyond traditional beer towards a total beverage portfolio focused on strengthening core brands, premiumization, and expanding into non-alcoholic and flavor categories.
• Despite a challenging Q1 2025 marked by macroeconomic pressures and volume headwinds (including cycling prior year inventory build and contract brewing exits), the company demonstrated pricing power and mix benefits, partially offsetting volume declines.
• Core brands like Coors Light, Miller Lite, and Coors Banquet continue to show resilience, retaining significant market share gains in the U.S., while premiumization efforts are yielding results in Canada and EMEA/APAC, with targeted plans underway in the U.S.
• Strategic investments in operational efficiency (brewery modernization, supply chain) and partnerships (Fever-Tree, ZOA) are expected to drive long-term margin expansion and growth, supporting the reaffirmed free cash flow guidance despite revised top and bottom-line expectations for 2025.
• While near-term guidance reflects macro uncertainty and volume deleverage, the company's strong balance sheet, cash generation, and commitment to shareholder returns (dividends, share repurchases) provide financial flexibility to weather volatility and pursue strategic objectives.

A Portfolio in Transition: Setting the Stage for Molson Coors

Molson Coors Beverage Company, a name steeped in over two centuries of brewing history, is actively reshaping its identity. While its foundation remains firmly rooted in iconic beer brands like Coors Light, Miller Lite, and Molson Canadian, the company is strategically evolving into a total beverage entity. This transformation is driven by a clear ambition: to be the first choice for consumers across a wider spectrum of preferences and occasions. The core strategy revolves around three pillars: strengthening core power brands, aggressively premiumizing the portfolio, and scaling its presence beyond the traditional beer aisle, particularly in non-alcoholic and flavor categories. This strategic pivot is a direct response to evolving consumer tastes and a dynamic competitive landscape, aiming to build a more resilient and growth-oriented business.

The beverage industry is characterized by intense competition across various segments. Molson Coors operates alongside global giants like Anheuser-Busch InBev (BUD) and Diageo (DEO), as well as more niche players like Boston Beer Company (SAM) and Constellation Brands (STZ). BUD, the world's largest brewer, leverages immense scale and a vast global distribution network, often achieving lower operating costs per unit and faster time-to-market for new variants compared to TAP. DEO, while spirits-focused, competes in ready-to-drink and flavored beverages, boasting a diverse portfolio and strong brand loyalty, though sometimes facing supply chain disruptions. SAM excels in agile craft beer innovation but lacks TAP's scale and distribution reach. STZ demonstrates strong growth and margins, particularly in premium beer and wine. Indirect competitors, including energy drink producers and hard seltzer brands, also vie for consumer attention, often benefiting from lower production costs and capturing market share in health-conscious segments.

Against this backdrop, Molson Coors leverages its strong brand heritage and significant regional market share, particularly in North America. Its operational efficiency, bolstered by ongoing investments, provides a cost advantage in core beer production. However, TAP has historically lagged some competitors in innovation speed and global scale. The company's strategic evolution, including targeted M&A and partnerships, is designed to address these areas, expanding its reach into higher-growth, higher-margin segments and leveraging its existing strengths in new ways.

While not possessing a single, proprietary "differentiated technology" in the manufacturing process like some specialized industries, Molson Coors is investing in operational and strategic capabilities enabled by technology and process improvements that enhance its competitive position. Modernization projects, such as the multi-year upgrade of the Golden Brewery, aim to improve efficiency, reduce waste, and provide greater flexibility in production. Investments in supply chain infrastructure, including increasing brewing and packaging capacity in the U.K. and onshoring production for brands like Peroni in the U.S., are critical operational advancements. These initiatives are designed to ensure consistent supply, reduce logistics costs, and enable the introduction of new packaging formats, directly supporting premiumization and market expansion goals. Furthermore, the company is leveraging data and analytics to enhance marketing effectiveness, improve shopper insights (e.g., informing the C-store innovation pipeline), and develop consumer-centric innovations. While specific quantifiable targets for these technological/operational improvements are not consistently detailed across all initiatives, the stated goal is to drive efficiencies, mitigate inflation, support growth initiatives, and ultimately contribute to margin expansion and a stronger competitive moat. These capabilities, though perhaps less visible than a novel material science, are foundational to executing the company's strategy and are viewed as essential investments for long-term profitable growth in a competitive market.

Performance Under Pressure: Q1 2025 and Underlying Trends

The first quarter of 2025 presented a challenging operating environment for Molson Coors, significantly impacted by macroeconomic volatility and specific volume headwinds. Consolidated net sales decreased 11.3% to $2,304.1 million compared to $2,596.4 million in Q1 2024. This decline was primarily driven by lower financial volumes (-14.3%) and unfavorable foreign currency movements (-0.9%), partially offset by favorable price and sales mix (+3.9%).

The Americas segment, the largest contributor, saw net sales fall 12.3% to $1,881.8 million. Financial volumes in the Americas were down a notable 15.6%. This volume softness was attributed to several factors: broader U.S. industry softness stemming from the macroeconomic environment and pressured consumer consumption, the cycling of a higher distributor inventory build in Q1 2024 (undertaken to mitigate the Fort Worth brewery strike impact), and an approximate 4% headwind from the exit of contract brewing arrangements with Pabst and Labatt. Despite the volume pressure, the Americas segment achieved a favorable price and sales mix increase of 4.1%, driven by positive brand mix (including the initial impact of Fever-Tree (FEVT)) and increased net pricing. Segment income before income taxes declined 34.7% to $209.3 million, reflecting the impact of lower volumes, cost inflation (materials, manufacturing), unfavorable other operating expense (related to U.S. craft brewery closures), and higher MG&A (including approximately $30 million in Fever-Tree integration fees), partially offset by favorable mix, pricing, and cost savings.

The EMEAAPAC segment also experienced a net sales decrease of 6.0% to $427.3 million, driven by lower financial volumes (-9.7%) and unfavorable currency impacts, partially offset by a favorable price and sales mix increase of 4.8%. Volume declines across the region were attributed to soft market demand and a heightened competitive landscape. However, the segment's income before income taxes saw a significant increase of 74.5% to $19.2 million, benefiting from lower MGA expenses, increased net pricing, and favorable foreign currency impacts, despite the volume decline. This highlights the segment's ability to improve profitability through cost management and pricing power even in a challenging volume environment.

Consolidated cost of goods sold decreased 11.0%, largely mirroring the volume decline and benefiting from favorable foreign currency impacts. However, cost of goods sold per hectoliter increased 3.8%, primarily due to volume deleverage and unfavorable mix (driven by lower contract brewing volume and premiumization), partially offset by cost savings and favorable mark-to-market commodity derivative positions. Consolidated MG&A was relatively flat (-0.2%), with lower marketing investment and favorable currency impacts offset by higher G&A, notably the Fever-Tree integration costs. Total non-operating expense, net, improved by 38.7%, benefiting from a favorable fair value adjustment on the Fevertree Drinks plc investment and favorable foreign currency transactional impacts, partially offset by higher net interest expense.

From a liquidity perspective, Molson Coors ended Q1 2025 with $412.7 million in cash and cash equivalents, down from $969.3 million at the end of 2024. Net cash used in operating activities was $90.7 million, a shift from cash provided in the prior year, primarily due to lower net income adjusted for non-cash items and the timing of certain payments, including a $60.6 million litigation settlement. Net cash used in investing activities increased to $341.3 million, reflecting the $88.1 million investment in Fevertree Drinks plc, the acquisition of Fevertree USA, Inc., and higher capital expenditures ($237.3 million paid). Net cash used in financing activities decreased to $131.2 million, driven by lower share repurchases. Despite the Q1 cash usage, the company maintains a strong balance sheet with a net debt to underlying EBITDA ratio of 2.47x as of March 31, 2025, in line with its long-term target of under 2.5x. Access to a $2.0 billion revolving credit facility, which remained undrawn, further underscores its financial flexibility. The company's credit ratings (BBB/Baa1/BBB Stable Outlook) reflect this solid financial position.

Strategic Momentum and Outlook

Despite the near-term pressures, Molson Coors remains focused on executing its Acceleration Plan and is confident in its long-term growth algorithm. The strategic pillars are showing tangible progress.

Strengthening the core remains paramount. In the U.S., Coors Light, Miller Lite, and Coors Banquet have successfully retained a substantial portion of the significant market share gains achieved in 2023. Their combined volume share stood at 15.4% in Q1 2025, a meaningful increase from 13.5% in Q1 2023, demonstrating the stickiness of these gains and the effectiveness of commercial plans and unprecedented shelf space retention. Coors Banquet, in particular, continues its impressive run, achieving double-digit volume growth and growing industry share for the 15th consecutive quarter, supported by 20% distribution gains in Q1 2025. Management sees significant runway for Banquet, aiming for it to become a top 10 U.S. brand. In Canada, the company has delivered eight consecutive quarters of share growth, with Coors Light leading the light beer segment and the Molson family gaining share.

Premiumization efforts are gaining traction, particularly outside the U.S. In EMEA and APAC, where over half of net brand revenue is already above premium, Madrí continues to drive growth, with net brand revenue up high single digits in Q1 2025. Madrí is already a top 10 global brand and is expanding geographically, with a recent launch in Romania and a non-alcoholic version introduced in the U.K. Canada is also premiumizing, led by Miller Lite's strong growth and the performance of the flavor portfolio. In the U.S., premiumization is a key focus area with targeted plans. The Blue Moon brand family is showing signs of stabilization, and innovations like Blue Moon non-alc are gaining dollar share in their segment. The strategy for Peroni, involving onshoring production, is just beginning to unfold, aiming to improve supply consistency, introduce new pack sizes, and leverage cost savings to fund increased marketing, with the long-term goal of rivaling major European imports.

Expansion beyond beer is accelerating, particularly in the non-alcoholic space. The multi-pronged approach includes pure players like ZOA, alcohol-adjacent products like Fever-Tree, and alcohol replacements like Naked Life. Molson Coors increased its stake in ZOA to a majority position in late 2024 to drive brand awareness and distribution leveraging its network. The strategic partnership with Fever-Tree in the U.S., effective February 1, 2025, is a significant step, adding approximately 500,000 hectoliters of volume (based on 2024 figures) and providing substantial upside potential by leveraging Molson Coors' extensive distribution network (500,000 outlets vs. Fever-Tree's tens of thousands). The integration of Fever-Tree USA and the investment in Fevertree Drinks plc underscore the commitment to this partnership, despite initial integration costs.

The company's outlook for 2025 has been updated to reflect the greater-than-expected impact of macroeconomic pressures and industry softness observed in Q1. Guidance now calls for a low single-digit net sales revenue decline (constant currency), a low single-digit underlying pre-tax income decline (constant currency), and low single-digit underlying earnings per share growth. This compares to previous expectations for low single-digit growth across net sales and pre-tax income, and high single-digit EPS growth. The revised outlook assumes U.S. industry trends will improve from the Q1 pace, annual net price increases in North America of 1-2%, mix benefits from premiumization and cycling contract brewing, but also higher volume deleverage than previously anticipated. MG&A is expected to be up due to non-alc investments and Fever-Tree fees, partly offset by discretionary cost controls. Capital expenditures incurred guidance has been reduced to $650 million, plus or minus 5%, from $750 million, plus or minus 5%, as certain projects are postponed to prioritize growth and productivity initiatives. Crucially, the underlying free cash flow guidance is reaffirmed at $1.3 billion, plus or minus 10%, highlighting the company's strong cash generation capabilities despite the revised profit outlook.

Risks and Considerations

While the strategic direction is clear and the balance sheet is healthy, several risks could impact Molson Coors' performance. The primary near-term risk is the continued volatility in the global macroeconomic environment. Persistent consumer uncertainty and economic pressures could lead to further industry softness and value-seeking behavior, negatively impacting volumes and potentially limiting pricing power. The magnitude and duration of these macro impacts remain difficult to predict.

Competition remains intense across all markets and segments. While Molson Coors has successfully retained core beer share, maintaining momentum in premium and beyond beer segments requires sustained investment and effective execution against rivals with strong brands and agile innovation pipelines. The anticipated increase in competition in the Ontario market due to regulatory changes could also pressure performance in that region.

Operational risks, while mitigated by investments in supply chain and brewery modernization, still exist. Unexpected disruptions or higher-than-anticipated cost inflation could impact margins. The successful integration of recent acquisitions and partnerships, particularly Fever-Tree, is crucial to realizing the expected benefits and avoiding further one-time costs.

Finally, changes in tax laws or regulatory environments in the various jurisdictions where the company operates could impact its effective tax rate and profitability.

Conclusion

Molson Coors is undergoing a significant strategic transformation, moving beyond its traditional beer core to build a diversified total beverage portfolio. While the first quarter of 2025 highlighted the company's vulnerability to macroeconomic headwinds and specific volume challenges, it also demonstrated the resilience of its core brands, the effectiveness of its pricing and mix management, and the initial impact of strategic investments in premiumization and beyond beer. The updated 2025 guidance reflects a realistic assessment of the near-term operating environment, acknowledging softer industry trends and volume deleverage. However, the reaffirmation of strong free cash flow generation and a healthy balance sheet underscore the company's underlying financial strength and ability to continue investing in its strategic priorities and returning cash to shareholders. The success of premium brands like Madrí, the potential of initiatives like Peroni onshoring and the Fever-Tree partnership, and the continued strength of core brands like Coors Banquet provide a foundation for future growth. While the path forward may face ongoing macro uncertainty and competitive pressures, Molson Coors' strategic focus, operational improvements, and financial flexibility position it to navigate these challenges and pursue its long-term growth algorithm. Investors should monitor the evolution of consumer demand, the effectiveness of premiumization efforts in the U.S., and the successful integration of new partnerships as key indicators of the company's progress.