Why It Matters
Understanding Molson Coors' refinancing risk offers a window into how legacy consumer‑goods firms navigate debt amid structural market declines and margin pressure. Investors and credit analysts can gauge the broader implications for the U.S. beer industry and similar businesses facing shrinking categories, making the episode timely for anyone tracking credit quality and strategic pivots in a challenging macro environment.
Refinancing Into Deterioration
Morson Coors Research Brief
Molson Coors has a $2.4 billion refinancing problem that arrives at a tough time operationally for the broader company. Management will need to return to the bond market in July 2026, and the company’s operating trajectory suggests they will not like the pricing they find there. It is at this point that we might get better relative value. Third-quarter results delivered the bad news with little ambiguity: underlying income before taxes fell 11.9%, full-year guidance was marked down across every metric, and net leverage climbed to 2.28x despite management’s stated commitment to deleveraging. The U.S. beer industry contracted by 4.7% in the quarter, hitting lower-income and Hispanic consumers especially hard, two cohorts that matter significantly to Molson Coors’ business. Then came the impairment charge. $3.6 billion in goodwill was written down in Q3, signaling that management’s prior assumptions about earnings power have crumbled. When a company takes that hit, investors should pay attention. We expect new issuance in the first half of 2026, likely at spreads wider than those at which the 4.2% 2046 notes currently trade. The gap between these bonds and the 5% 2042 issue could narrow substantially as credit investors reassess the company’s ability to stabilize volume and restore margin.
The Maturity Wall: $2.4 Billion Waiting
The numbers are stark. Molson Coors must refinance $2 billion of 3% dollar-denominated notes and C$500 million of 3.44% Canadian-dollar debt, both due in July 2026. Management’s actual plan remains opaque. CFO Tracey Joubert offered only this: “We do have some debt coming due in 2026, and as with all our debt, we’ll review that as we get closer to the due dates.” Translation: we will refinance, but we are not saying when or at what price.
The company has the liquidity to manage this. Cash sits at $950 million with an undrawn $2 billion revolver. Access to capital is not the issue. The real problem: EBITDA has begun to crack. Consensus calls for 2025 EBITDA around $2.3 billion, down from $2.5 billion in 2024. That deterioration matters immensely when you are raising $2.4 billion in new debt. You cannot refinance a maturing bond with declining cash flow generation and expect to do so at your prior cost of capital. Or at least it is very tough to do, let’s see Kevin Hassett try his best.
The guidance numbers make this concrete. Full-year income before tax should decline 12% to 15%, with the company now expecting the low end. That means pretax income is heading south. Free cash flow guidance of $1.3 billion plus or minus 10% could land at $1.17 billion. Subtract $650 million of capex, add in the $376 million annual dividend, and the company has squeezed out little room for error or debt reduction beyond forced refinancing.
The Volume Problem Keeps Getting Worse
The quarter painted an ugly picture of demand. Consolidated net sales fell 3.3% while underlying pretax income dropped 11.9%. Financial volume tanked 6%, with brand volume off 4.5%. But look at the Americas segment, where most profits actually come from: net sales revenue down 3.5%, financial volume down 6.5%. That spread between revenue and volume declines tells you the company is fighting volume losses with price increases that aren’t sticking.
New CEO Rahul Goyal tried to spin this as cyclical: “Pre 2025, the last few years, our category has been in the minus 3-ish range. And if you look at this year, we’ve been in the minus 4 to minus 6... So there’s definitely something happening this year.” The calendar matters here. The beer category has been shrinking for over a decade, from minus 1% to minus 2% historically, to minus 3% in recent years, and now to minus 4% to minus 6%. Calling it cyclical provides psychological comfort. The data does not really care about our labels.
Where is Molson Coors losing the most share? Economy brands and flavored alcohol. Not peripheral stuff. Economy is so big that Goyal himself noted: “If you just look at our economy portfolio, we probably be fourth or fifth largest beer company in the country.” Bleeding market share in a segment that size is not a rounding error.
Margin Compression: It’s Everywhere
The company does not break out gross margin, so we infer gross margin from trends in COGS per hectoliter. In Q3, underlying COGS per hectoliter rose 3.7%, driven by volume deleverage of 190 basis points, unfavorable mix of 210 basis points, and inflation of 30 basis points offset by cost savings. The narrative is grim: volumes are falling, so fixed costs spread over fewer units; premiumization attempts are ruining the mix by shifting to lower-margin products; and input costs keep climbing despite efforts to control them.
Then there is the Midwest premium. This aluminum cost premium began at $0.20 per pound in 2025. By October, it spiked to $0.86-$0.87 per pound (an all-time high). Management’s guidance assumed $0.60 to $0.75 per pound, implying a $40 million to $55 million cost hit for the whole year, now expected at the high end of that range. But October’s spike suggests they could face even larger headwinds into year-end and 2026.
Joubert’s candid assessment of their hedging capacity is worth examining: “We do hedge it, but one of our least hedged commodities... It’s difficult to hedge it just far out... It’s very expensive to hedge. And because it’s so volatile, it makes it expensive.” What she is really saying: we cannot protect ourselves from this cost, and it will keep hitting us. That is not a reassuring position to be in when you are trying to maintain leverage ratios and service debt.
Operating margins compressed in every segment except International. The Americas operation saw underlying income before tax fall 7.1%, while revenue declined 3.5%. That operating deleverage is brutal for a capital-intensive brewing and distribution business. EMEA APAC was worse, down 15.1% on a 2.4% revenue decline.
The company’s holistic margin management program promises annual cost savings of roughly 5% of COGS. Those savings are real. Management deserves credit for execution here. The problem is structural: you cannot save your way out of volume declines, deteriorating margin mix, and uncontrollable commodity inflation hitting at once. The company is running hard to avoid falling backward.
Premiumization: One Win, Many Struggles
Molson Coors has built its strategy around premiumization, shifting the mix upmarket from roughly 23% to 24% several years ago to 27% today. This has worked outside the U.S., particularly in Canada and the U.K. Inside the U.S., where the money is, results have been far messier.
Peroni is the rare bright spot. Brand volume grew 25% in Q3 after the company fully onshored production and activated its commercial plan. Goyal sounded genuinely excited: “And with expected increases in media investment next year, including programming for the Olympics and with only about 13% of the distribution of the other major competitors, we see significant runway ahead.”
But here is the honest assessment: Peroni remains small relative to the total business. It will take years of sustained high growth to move consolidated results. The company needs multiple brands like Peroni, not just this one.
Blue Moon is the counterargument. Big brand, important brand, and deeply challenged. Goyal did not hide from this: “Blue Moon’s been hard. And frankly, we have work to do on that... We are going to be looking closely with a fresh commercial perspective at what we can do differently to best ensure that this big and important brand supports our premiumization objectives.” What that means in plain language: the brand is not working.
Innovation in non-alcoholic and high-ABV extensions shows some promise, but the core Blue Moon Belgian White continues to struggle. The core drives most volume. Margin innovation cannot compensate for core brand deterioration. On-premises trends in Q3 improved marginally compared to Q2, but this is stabilization, not growth.
Flavored alcohol adds complexity. Topo Chico successfully pivoted from seltzer to full-flavored margaritas and achieved positive dollar-share gains in targeted regions during Q3. Simply Spiked, by contrast, has become a significant problem. Goyal was blunt: “Simply is where the majority of our drag is in the flavor side.”
The flavored alcohol category itself is volatile. Consumer preferences move rapidly and unpredictably. Molson Coors entered late, found initial traction with Simply Spiked, and now watches as the category consolidates around a handful of winners. The company also identified a critical gap it cannot fill: RTD spirits. Management states it will fill this gap, but that requires either acquisitions or partnerships, both of which consume time and capital.
Beyond Beer: Fever Tree Shines, but Scale Remains the Problem
Fever Tree, the partnership executed in February 2025, represents the most concrete success beyond beer. Volume has performed strongly, and distributors and retailers have embraced the brand. This is real. Goyal emphasized: “We believe our partnership with Fever Tree in the U.S. provides a strong base from which to grow our total non alc portfolio. In fact, Fever Tree volume has been performing strongly, and it has been very well received by distributors and retailers, and we are excited by the opportunity to significantly grow the brand in the years to come.”
None of that changes a fundamental reality: Fever Tree remains small. For a company with $11 billion in annual net sales, moving the needle requires brands generating hundreds of millions, not tens of millions. Fever Tree may get there in a decade. That does not help with the refinancing in 2026.
The company is making infrastructure investments in people and systems to support the beyond-beer business, which is strategically sound but puts near-term margins under pressure. Full-year MGA expenses are expected to decline slightly, driven by lower incentive compensation. Still, this advantage is offset by higher non-alcoholic infrastructure costs and $30 million of one-time Fever Tree transition and integration fees, concentrated in the first half.
Goyal has signaled a shift toward greater willingness to deploy capital for acquisitions. References to filling portfolio gaps, particularly in RTD spirits, suggest the company sees organic growth as insufficient. The strategic intent is clear. The capital constraint is equally clear: the company has roughly $725 million of debt capacity before hitting its 2.5x leverage target, assuming a 100% debt-funded deal. Using that capacity while simultaneously refinancing $2.4 billion of debt in July would leave minimal room for error if integration goes sideways or category headwinds intensify.
Economy Portfolio: Triage, Not Growth
Goyal’s emphasis on the economy segment represents a notable shift from prior CEO Gavin Hattersley’s premiumization focus. Management now explicitly states that “all price segments matter,” which is code for “we are losing too much share in economy and need to stop the bleeding.”
His logic is sound: “Our economy portfolio is a sizable part of our business. I just use this as a frame of reference. If you just look at our economy portfolio, we probably be fourth or fifth largest beer company in the country.” The company has been ceding ground here, and management now plans to selectively increase focus on Miller High Life and Keystone Light, brands with “loyal consumer bases.” The approach is regionally focused and hyperlocal, not national campaigns.
This makes sense as a defensive move. Stabilizing the economy stops the company from hemorrhaging. Call it what it is, though: triage. Economy brands offers virtually no pricing power, minimal margin expansion, and zero premiumization upside. The company is investing here because it has to, not because it sees compelling returns.
Goyal characterized it this way: “We just got to stop the leaky bucket in a way.” There is the real thesis. Stopping a leak is not an offensive strategy. It is a defensive necessity. The fact that a new CEO with fresh perspectives is talking about the economy segment reveals how challenged the core business has become.
Leverage and Free Cash Flow: The Math Does Not Work
Net leverage sat at 2.28x at the end of Q3, comfortably below the 2.5x target but moving in the wrong direction. A year earlier, it was 2.10x. EBITDA declined from $2.48 billion to $2.34 billion over the same period. This is the classic warning sign: leverage rising despite deleveraging efforts because EBITDA is eroding faster than debt is paid down.
Management has committed to staying below 2.5x and to preserving its investment-grade rating. But if EBITDA continues declining at current rates, maintaining leverage below 2.5x will require debt reduction that outpaces free cash flow generation. That is mathematically impossible without cutting the dividend or suspending buybacks, neither of which management shows an appetite for.
Nine months of 2025 generated $782 million of underlying free cash flow, down 8.6% from the prior year. Full-year guidance calls for $1.3 billion plus or minus 10%, suggesting a range of $1.17 billion to $1.43 billion. The annual dividend is roughly $376 million, and the company has repurchased $539 million of shares over the trailing twelve months. Capex is expected to be $650 million for the whole year.
The arithmetic here is unforgiving. Free cash flow of $1.3 billion, minus capex of $650 million and dividends of $376 million, leaves roughly $274 million for debt reduction or share repurchases. Against this, $880 million remains on a $2 billion buyback authorization that management has already committed to execute. The math is broken. Something gives, whether through suspended buybacks, reduced acquisition spending, or leverage drifting closer to the 2.5x threshold. All three outcomes are unappetizing.
Restructuring: Reactive, Not Proactive
October brought news of a corporate restructuring of the Americas business unit intended to create “a leaner, more agile organization.” The company will eliminate approximately 400 salaried positions, or 9% of its headcount, by year-end. Charges are expected to run $35 million to $50 million, with substantially all of that for severance.
The actual cost savings remain undefined and, based on Joubert’s comments, likely modest. She noted: “A meaningful amount of the head count reductions was from the elimination of open positions in 2025, so we wouldn’t expect to get a full benefit in 2026 because we did have the open head count as we prioritized our costs in 2025.” In other words, the company was already not paying people through hiring freezes and attrition. Formalizing those cuts and then redeploying some savings to invest in brands means the net bottom-line benefit approaches zero.
The restructuring feels reactive rather than proactive, a response to deteriorating results rather than a strategic repositioning anticipated months in advance. Goyal took the CEO role just weeks before announcing the restructuring. That timing suggests urgency born of necessity, not confidence born of strategy.
Conclusion
Molson Coors enters 2026 from a position of operational weakness. The U.S. beer category continues its structural decline. The company is losing share in the economy offering and flavored alcohol segments, two segments it cannot afford to cede ground in. Margins are being compressed by volume deleverage, uncontrollable commodity inflation, and strategic investments that have yet to generate sufficient returns. EBITDA will likely decline 10% from 2024 to 2025, pushing leverage higher despite deleveraging efforts.
The strategic pivots toward premiumization and beyond-beer are in the right direction. They have not gained sufficient traction to offset structural headwinds in the core beer business. Peroni and Fever Tree are performing adequately but remain too small to move the needle. Blue Moon underwhelms. Flavored alcohol has proven volatile.
The $2.4 billion July 2026 refinancing arrives during a period of operating deterioration. We expect the company to come to market in the first half of 2026. The 4.2% 2046 notes currently trade wide to peers. Still, they should widen further toward the 5% 2042 bond given the operating backdrop, the overhang of new issuance, and the company’s disproportionate exposure to economically stressed consumer cohorts. There isn’t much to play for here in TAP credit. When the subscriber request came in, I wondered if this was for a possible equity investment. At some point, someone will make a lot of money investing in these established beverage companies. I am not going to be one of them. Leadership still has a lot to do here, and there are variables beyond its control. The sentiment can become overly pessimistic, but negative sentiment can actually be positioned correctly, as it seems to be here. I will keep a close eye on any changes to the capital structure or the underlying business.
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