DBRS Morningstar Confirms Molson Coors Beverage Company at BBB (low) and R-2 (low), Stable

DBRS Limited (DBRS Morningstar) confirmed Molson Coors Beverage Company’s (Molson Coors or the Company) Issuer Rating and Senior Unsecured Debt rating at BBB (low), and Commercial Paper rating at R-2 (low). In addition, DBRS Morningstar confirmed its rating on Molson Coors International LP’s Senior Unsecured Notes at BBB (low). All ratings carry Stable trends. The rating confirmations reflect Molson Coors’ relatively steady operating performance through 2022 in the context of the challenging operating environment resulting from inflationary pressures and decreased consumer purchasing power. The ratings are further supported by an improvement in the Company’s key credit metrics as a result of additional debt reduction during the year. The Stable trends reflect DBRS Morningstar's view that the Company will continue to navigate this environment within the current BBB (low) rating category. Molson Coors’ ratings remain supported by its strong brands and solid market positions, free cash flow-generating capacity, and geographic diversification despite the intense competition, exposure to mature beer markets, and commodity price volatility.

DBRS Morningstar believes that Molson Coors’ earnings profile should remain appropriate for the current BBB (low) rating despite expecting a continued structural volume decline in the beer segment combined with persistent near-term inflationary pressures. DBRS Morningstar forecasts sales to increase in the low-to-mid-single digits to approximately $11.0 billion in 2023 and $11.4 billion in 2024 from $10.7 billion in 2022, driven primarily by price increases and continued momentum in other, beyond-the-beer products. That said, DBRS Morningstar expects absolute volume growth to remain a challenge in Molson Coors core markets. DBRS Morningstar believes that EBITDA margins will remain in the range of 18.5% to 19.0% in 2023 and 2024, materially below the historic levels of around 22.0% because of persistent inflationary pressures on input, commodity, and transportation costs and despite price increases and ongoing cost-saving initiatives. As such, DBRS Morningstar forecasts EBITDA to remain relatively flat in 2023 at around $2.0 billion and recover only modestly in 2024 to $2.1 billion.

Molson Coors’ financial profile is likely to further strengthen within the current rating category as credit metrics are forecast to benefit from further debt reduction. DBRS Morningstar expects cash flow from operations to track operating income and be in the range of $1.5 billion to $1.6 billion in 2023 and 2024. Capital expenditures are expected to remain at around $650 million annually to support capital improvement programs at production facilities in the U.S., UK, and Canada, while dividend outflow is expected to grow in the mid-to-high-single digit range to approximately $375 million in 2024. DBRS Morningstar therefore estimates the free cash flow (after dividends but before changes in working capital) to be around $550 million in the near term and likely to be used for shareholder returns, bolt-on acquisitions (if any), and further debt reduction. As such, DBRS Morningstar expects lease-adjusted debt-to-EBITDA to remain below 3.5 times (x) over the near to medium term, a level that is considered comfortable for the current rating category.

A positive rating action could occur if Molson Coors’ debt-to-EBITDA leverage moved below 3.0x on a normalized and sustainable basis because of stronger-than-expected operating performance and/or further debt reduction. Conversely, a negative rating action could occur should debt-to-EBITDA leverage rise above 4.0x on a sustained basis as a result of weaker-than-expected operating performance and/or more aggressive financial management.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no environmental, social, and governance factors that had a significant or relevant effect on the credit analysis.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/396929 (May 17, 2022).

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology applicable to the rating is Global Methodology for Rating Companies in the Consumer Products Industry (https://www.dbrsmorningstar.com/research/402329; September 2, 2022). Other methodologies and criteria include DBRS Morningstar Criteria: Commercial Paper Liquidity Support for Nonbank Issuers (https://www.dbrsmorningstar.com/research/410196; February 24, 2023), and DBRS Morningstar Criteria: Guarantees and Other Forms of Support (https://www.dbrsmorningstar.com/research/394683; April 4, 2022).

The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

A description of how DBRS Morningstar analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/397223 .

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at [email protected].

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This rating is endorsed by DBRS Ratings Limited for use in the United Kingdom, and by DBRS Ratings GmbH for use in the European Union, respectively. The following additional regulatory disclosures apply to endorsed ratings:

Each of the principal asset class methodologies employed in the analysis addressed one or more particular risks or aspects of the rating and were factored into the rating decision. Specifically, “Global Methodology for Rating Companies in the Consumer Products Industry” (September 2, 2022) was the primary rating methodology applied to determine the ratings assigned to Molson Coors. “DBRS Morningstar Criteria: Guarantees and Other Forms of Support” (April 4, 2022) was applied to assess the corporate structure of Molson Coors and to determine the rating on the Senior Unsecured Notes issued by subsidiary Molson Coors International LP. “DBRS Morningstar Criteria: Commercial Paper Liquidity Support for Nonbank Issuers” (February 24, 2023) was applied to ensure that the provided liquidity that supports the Commercial Paper rating was consistent with the DBRS Morningstar criteria.

The last rating action on this transaction took place on March 4, 2022, when DBRS Morningstar confirmed all ratings and changed the trend to Stable from Negative.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.

Lead Analyst: Vikas Munjal, Vice President, Diversified Industries
Rating Committee Chair: Tim O'Brien, Managing Director, Global Head of Diversified Industries
Initial Rating Date: March 21, 2005

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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Global Methodology for Rating Companies in the Consumer Products Industry (September 2, 2022) https://www.dbrsmorningstar.com/research/402329.
DBRS Morningstar Criteria: Commercial Paper Liquidity Support for Nonbank Issuers (February 24, 2023) https://www.dbrsmorningstar.com/research/410196
DBRS Morningstar Criteria: Guarantees and Other Forms of Support (April 4, 2022) https://www.dbrsmorningstar.com/research/394683
DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (May 17, 2022) https://www.dbrsmorningstar.com/research/396929

DBRS Morningstar will publish a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, contact us at [email protected].