Shares of Molson Coors (NYSE:TAP) have been struggling of late after it reported a lackluster conclusion to 2018. It's nothing new for the big beer conglomerate. The stock is down 28% since the start of 2018.

The craft beer movement has been on the rise for years now (craft beer volume sales increased 5% in both 2017 and 2018) as consumers go in search of variety, innovative flavors, and new brewing techniques. However, overall beer volumes in the U.S. dropped roughly 1% in each of the last two years, mostly at the expense of big brewers like Molson Coors. With the outlook not exactly a rosy one, this beer stock could continue to struggle.

2018 wasn't all bad...

That isn't to say all was terrible at Molson Coors in 2018. Even though full-year sales fell and beer volumes decreased 2.1% and 1.9%, respectively, earnings per share adjusted for one-time items still managed to increase 12.5% over the year prior. Free cash flow (money left over after basic operations and capital expenditures are paid for) also remained stable, falling only $27 million for a full-year total of $1.4 billion. That means Molson Coors' dividend yield of 2.8% has solid footing to support it.

Metric

Full-Year 2017

Full-Year 2018

YOY Change

Revenue

$11.0 billion

$10.8 billion

(2%)

Gross profit margin

43.5%

38.9%

(4.6 p.p.)

Operating income

$1.73 billion

$1.63 billion

(6%)

Earnings per share

$6.52

$5.15

(21%)

Adjusted earnings per share

$4.48

$5.04

13%

Data source: Molson Coors. YOY = year over year. p.p. = percentage points.  

The biggest pain point was North America, where falling beer volumes more than offset growth in Europe and the rest of the world. During the fourth quarter, U.S. and Canadian volumes tumbled 5% and 2%, respectively. That's significant, as the two countries comprise 80% of Molson Coors' total sales.

Reprieve may not be in the cards anytime soon. The number of brewers in the U.S. continues to chug stubbornly higher. The Brewers Association said the total surpassed 7,000 in 2018, a 20% annual increase and an acceleration over the 16% growth in 2017. With so many new options to choose from, corporate beer brands like those Molson Coors produces has the most to lose.

Check out the latest Molson Coors earnings call transcript.

Various alcoholic beverages lined up on a table.

Image source: Getty Images.

Problems present and future

Some investors have felt optimistic about the burgeoning cannabis industry, and Molson Coors was the first big beer maker to get a foothold in the space. Last summer, the company announced a joint venture with Canadian company HEXO (NYSE:HEXO) to make cannabis-infused beverages. It's a fast-growing industry, but with marquee beer brands continuing to struggle, it isn't likely to provide game-changing growth for Molson Coors anytime soon.

That shows up in the valuation numbers for the company. The P/E ratio for the last 12 months of profits is at 7.9, a bargain price considering the P/E on the S&P 500 overall is currently at 20.1. However, 12-month-forward P/E for the stock is 11.8, implying that profits are going to suffer in the year ahead.

But what about that dividend? With a 2.8% yield, there are better options out there. Though it's being plagued with similar issues, Budweiser maker Anheuser-Busch InBev (NYSE:BUD) pays a yield of 4.3% a year. For the foreseeable future, reducing debt will be the name of the game for megabrewers like Molson Coors and AB InBev. With sales struggling and profit margins under pressure, it's hard to get excited about beer stocks right now.