Molson Coors Beverage Company (NYSE : TAP) in its SEC (Form 8 –K) filing stated that the board has approved to suspend their regular quarterly dividends on the Class A (have more voting rights) and Class B(less voting rights compared to class A) common shares. The current market capitalization of the company is about $8.04 Billion with total volume of 2,851,337 common shares. The company has a Dividend yield of 5.40% with an average dividend declaration of $0.41 per share every quarter for past 4 years.
View points of Board’s Decision
The company in the filing stated that the Board’s decision to suspend the dividend is taken in view to protect the company’s liquidity position as company reported a negative consolidated income (loss) of $115.4 million in its 1st quarter F.Y.2020 due to the global pandemic of coronavirus which has created a global uncertainty on hospitality industry and other industries as well.
The company said to protect its financial position it will take certain steps, which includes to reduce its planned capital expenditure (Capex) by approximately $ 200 million, and to reduce its discretionary spending , as the company reported an increase of 9.30% in its operating expenditure in Q1 F.Y 2020 compared to Q4 F.Y 2019 and a negative operating income of $92.5 million which might have led the board to take this step to control its financial position. The company also will limit its hiring and will decrease its marketing expenditures in view of the current environmental conditions. The company aims to use the various liquidity programs of the European government available to the company and its other subsidiaries.
The company also mentioned in the filing that, it will grant a leave of absence (furlough) to certain employees in the Europe and North America hospitality centers, the company as of 2019 data has around 17,700 employees. The company also mentioned in the filing that it aims to shift its marketing investments to the key media platforms which the company’s current consumers are using and will try to eliminate the expenditures the company believes will not add value to its sales in the current environment. In order to protect the company’s financial position it plans to use its savings from the revitalization plan announced in Oct 2019 which included that company will use savings generated by simplifying its structure in coming quarters, the company will reduce its office foot print and mentioned the sources form which the company is expecting cash inflows respectively.
So what now?
As for now the company’s revenue has decreased by 15.42%, from $2.48 billion in Q4 F.Y 2019 to $2.10 billion Q1 F.Y 2020 due to the pandemic effect on hospitality industry, resulting in an increase in the inventories of the company which led to a loss as mentioned previously. Although, the company has paid some of its long term debts in the past quarter resulting in change from $8.10 Billion in Q4 F.Y 2019 to $8.03Billion Q1 F.Y 2020, the company has also taken on some short term debt there is a sharp rise in its short term debts by 55.67% from $928 million Q4 F.Y 2019 to $1.45 Billion in Q1 F.Y 2020, as this short term debts are current liabilities, the company will need to pay some of the debt in the current fiscal year which might be a tough task for the management as it does not have any long term or short term investments with them and also the revenues are falling and might fall further if the pandemic has a long lasting effect of the industry.
As mentioned to overcome the financial position the company will use its revitalization plan and to support this, the company has cash and cash equivalents of $666 million on its assets side to pay some of the debt if need arises, this might give the company some liquidity along with the cash that will be left out by suspending the dividend payment to keep the company away from crisis in the next quarters of F.Y 2020.
(Source : https://seekingalpha.com/symbol/TAP?s=tap )
The stock of the company is volatile for past 6 months which led to its 52 week low of $34.01 and also lost some of its market share for short period and gained it back in the mid trading sessions of month April and May which led to a fall in the Share holder’s Equity from $13.41 Billion Q4 2019 to $12.68 Billion Q1 2020 , it closed on $36.83 in the yesterday’s trading session.