Sector financial performance:

This company, who has been grouped into regular or mass-produced or premium beer sector of beer industry, is a brewer.

This is a downturning sector in which all major beer makers have suffered from considerable declining demand in the past several years while have trying to raise price to offset the decreased volume. Since 2017, the trend in US beer market has continued worse as indicated by more than 3% annual decrease in sales volume. However, the decrease in US market seems to have been largely offset by increase in demand from international market. The major reason behind the trend can be explained with economy and changes in beer drinkers’ lifestyle (shifting to premium product and service).

While continuingly declining sales volume in US market hurt companies’ profitability, rising price, especially largely rising price in international market, and improved operation efficiency as a result of active consolidation helped some of major players in this sector successfully improve their margins. The average gross margin of typical companies is about 46% with 24% SG&A/sale. The average operating margin is about 22% (2018). The increasingly intensive competition also caused additional spending on selling and marketing. 

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Company performance:

The declining trend in demand of US market for its brand beers has continued in the past several years as indicated by the declining sales volume to its wholesalers (3-4% annual rate) and in retail. However, the positive STW in the recent quarter may be a signal that demand may be coming back in US market. Units price seems to have been rising (about1% annually) during this period. Its performance in international market seems to be better than in its domestic market.

For the first nine months of fiscal 2018 compared with same period of 2017(ended 20180930)

Global sales volume decreased about 2% offset by increase of 0.5% in price/mix.

US STR (volume) declined 4% and US STW (volume) declined 3 due to lower sales in light.

US price (per hectoliter) increased 1%

For fiscal 2017 compared with 2016

Global sales volume decreased about 2% offset by increase of 2% in price/mix.

US STR (volume) declined 2.9% and US STW (volume) declined 3.3 due to lower sales in light and below premium beers.

US price (per hectoliter) increased 1%

For fiscal 2016 compared with 2015

Global sales volume decreased about 2%  and price/mix was flat.

US STR (volume) declined 2.5% and US STW (volume) declined 1.3 due to lower sales in light and premium beers.

US price (per hectoliter) increased 1.3%

In the current situation, this company’s merger and acquisition with Miller Coors indeed give it an opportunity to improve operating efficiency and save synergies and the input costs decreased actually in 2017. However, the continuingly decreasing sales volume further hurt its gross margin due to deleveraging input of costs in 2018 while price has been rising. Its gross margin is about 41% with about 27% SG&A% and thus it presents an about 14% operating margin.

Stocks price

Our relativity of valuation methods and analysis indicate that, after stock market reaction to the complete of acquisition, its stock has currently an enterprise price/EBI ratio of 19 ($64) with about 12% INTEREST/EBITDA, which we think may be a little undervalued relatively to its peers based on potential growth in sales from global market and improvement in margins.