It wasn't a good sign when Molson Coors (TAP -1.71%) hiked its dividend 57% ahead of its second-quarter earnings release, because a massive increase like that could only herald disappointing results. On that basis the brewer did deliver.

Unlike Anheuser-Busch InBev (BUD 1.43%), which posted sales and volume increases in most foreign markets, helping to boost revenue and earnings and sending its stock soaring, Molson couldn't produce growth anywhere. Sales and volumes fell in the U.S., Canada, Europe, and the rest of its international markets, which it blamed on a combination of bad weather, worsening industry trends, and lapping last year's World Cup event.

Let's take a look at where it all went wrong for the brewer.

Two Coors Light bottles in front of mountains.

Image source: Molson Coors.

A global malaise

Molson said revenue fell 4.4% overall, or down 2.9% on a currency-adjusted basis, as the months of May and June went south after a promising start to the year. Across all of its major markets, Molson experienced weak demand, though as it pushed its portfolio toward more premium products, it did see revenue per hectoliter rise 2.7% to $114.23 on a financial-volume basis. It was also able to increase its market share in the U.S. while stabilizing it in Europe.

Even so, its underlying EBITDA tumbled nearly 13%, and GAAP earnings per share plunged 22% to $1.52.

On a constant-currency basis, the net sales decline in the biggest regions was similar. The U.S. fell 2.9% to $2 billion, Canada was also down 2.9% to $373 million, and Europe was off 2.4% to $538 million.

The biggest decline came in Molson's international market, which is fortunately also its smallest, with net sales plummeting 12% to $59 million. That was slightly better than the 14.4% drop it experienced in the first quarter.

It blamed the decline in both sales and sales per hectoliter on lower volumes and its shift to local production of beer in Mexico. Previously, Molson had imported its Blue Moon, Coors Light, and several Miller brands into Latin America, but last year, it signed an agreement with Heineken (HEINY 1.16%) to have the Dutch brewer brew its beers in its Mexican facilities.

Getting closer to where drinkers live

The shift has lowered Molson's volumes as well as sales per hectoliter, but it has also increased the region's profitability. Even in the current quarter, this change nearly doubled the segment's pre-tax income to $2.5 million, and though underlying EBITDA fell 11% to $5.8 million, that had more to do with lower volume and cost inflation. Molson was able to mitigate the decline by having shifted production to Heineken's facilities.

Molson and Heineken have a number of agreements in place through which they make or distribute each other's beer. Molson, for example, markets, sells, and distributes Heineken products in Canada; its popular Mexican beer Sol, which has been one of the few positive growth stories in the U.S., is licensed from Heineken. Similarly, Heineken sells Coors Light in Ireland.

In central Europe, Molson also brews and distributes Anheuser-Busch brands like Beck's and Stella Artois, as well as distributing Corona there.

Anything but beer

Yet Molson can't get around the shrinking North American beer market that accounts for 80% of its sales. The falloff in net sales was significant, with the U.S. declining by nearly 5% and Canada down more than 6% for the period. Profitability was also whacked, with underlying EBITDA tumbling 8.4% in the U.S. but seeing a quarter of its value evaporate in Canada as demand continues to dry up.

Data from IRI says U.S. beer sales were up 3.5% for the first half of 2019, but that has mostly been due to the surprising popularity of flavored malt beverages like hard seltzer.

Molson has responded with its own brands, such as its Arnold Palmer spiked tea and lemonade, Henry's hard soda, and a new entrant, the Cape Line brand of sparkling cocktails. The brewer says the latter is performing better after just a couple of months than the leading brands of hard seltzer were at a similar point after their introduction. Yet they're too new and too small at this point to offset the decline in beer.

Molson Coors also continues to pay down its debt, and it now stands at $8.5 billion, which keeps the brewer on its path to a better financial position. Yet its future is still one in which its business narrows, and Molson's stock likely has much farther to fall before it can start thinking about growing once more.