The past few weeks have been a time for Molson Coors Brewing (NYSE:TAP) investors to say "cheers," thanks to a 20% dividend increase and a roll-out-the-barrel first quarter that decisively beat Wall Street estimates.

However, the U.S.-Canadian brewer still must address significant issues before investors can decide if its recent advance is full-bodied or just the stock market equivalent of too much froth.

Since mid-March, Molson Coors' stock climbed from the low $30s to the mid-$40s, then eased back to the low $40s. It is still down 24% for the last 12 months.

The key test is how Molson Coors can overcome discouraging trends in its major markets: The U.S. and Canada markets are mature, while beer consumption in the United Kingdom has been declining for several years -- with no relief in sight.

Marketplace challenges
Molson Coors also is fighting the effects of a worldwide recession and a stronger U.S. dollar. During the first quarter, its total beer volume dropped 2.7% from the year-ago quarter. There was an unfavorable 20% move in the Canadian dollar and a 28% depreciation for the British pound, cutting into reported results from those markets.

Still, Molson Coors earned $0.53 a share -- excluding special items -- for the first quarter, trumping analysts' forecasts of $0.33. For the rest of the year, however, exchange rates, beer-volume trends, and rising commodity costs are causing uncertainty.

The U.S. market poses the most dramatic challenge. Molson Coors faces a fortified Anheuser-Busch InBev, thanks to last year's takeover of the St. Louis-based King of Beers by the Belgian-Brazilian brewer.

Last year, Molson Coors won U.S. Justice Department approval for a joint venture with SABMiller in the U.S., putting the Coors and Miller brands under a unified administration.

The goal of the MillerCoors joint venture is to cut costs, consolidate operations, and try to reduce the Budweiser brand's dominance. The Miller and Coors brands individually run a distant second and third, respectively, to the Budweiser family of beers. But together, by the end of 2008, they accounted for 29.4% of U.S. beer shipments, versus Anheuser-Busch InBev's 48.9%, according to the trade publication Beer Marketer's Insights.

Making changes
The joint venture has a lot of work ahead. In 2008, shipments of the Coors and Miller brands were lower than in 1999, according to Beer Marketer's Insights. During that time, Anheuser-Busch enjoyed rising shipments, as did several smaller competitors, such as Heineken USA; Boston Beer (NYSE:SAM), which produces the Samuel Adams brand; and Crown Imports, a joint venture of Mexico's Grupo Modelo and Constellation Brands (NYSE:STZ), whose signature beer is Corona.

Meanwhile, the U.S. beer growth forecast looks as cloudy as a glass of hefeweizen, with a compound annual volume growth of 0.6% for 2009-2012, versus 0.9% for 2004-2008. That mature-market situation is common for other "sin" companies such as Altria (NYSE:MO) and Diageo (NYSE:DEO).

Over the long run, that means the joint venture will have to exercise greater marketing muscle. In the short run, the joint venture will be defined by cutting costs and increasing efficiencies.

Here's one example: The joint venture will enable Molson Coors to better distribute the Coors brand. Previously, the company relied heavily on its Golden, Colo., plant to make and ship its products. Now, it can use six Miller plants located throughout the country.

So far, the joint venture has cut costs faster than executives had expected. On a pro forma basis, first-quarter sales of $1.72 billion were 3.8% higher than the year-ago quarter. Joint-venture net income, excluding special items, climbed 46.3%, to $216.4 million.

Future considerations
Whereas the U.S. market may be the greatest source of competition for Molson Coors, Canada remains the greatest source of profit, while the UK is the biggest headache. Excluding one-time items, Canada accounted for 54% of Molson Coors' pre-tax business-unit income last year, compared to 37% for the U.S., and 9% for the UK.

Molson Coors can't let down its guard in Canada, where it must invest heavily in marketing for a slow-growth environment. Molson Coors is a close second to Labatt Brewing. Together, they account for 85% of the market. Labatt is controlled by Brazil's AmBev (NYSE:ABV), whose majority owner is Anheuser-Busch InBev. In the UK, Molson Coors has an approximate 20% market share by volume, making it the second-largest brewer.

But should you invest?
Molson Coors offers mixed results for long-term investors. Over the past five years, its stock has trailed peers such as SABMiller, AmBev, and Mexico's Fomento Economico Mexicano (NYSE:FMX). But it has outperformed Anheuser-Busch InBev. At 18, its trailing P/E looks high, but on that basis the stock is cheaper than most of its large competitors.

The joint venture with SABMiller adds another layer of complexity to Molson Coors.

So far, Molson Coors has handled the extra complexity. If its MillerCoors joint venture continues its cost-cutting pace in the short term and produces marketing/distribution benefits in the long term, Molson Coors investors can raise a glass to rising shareholder value.

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Fool contributor Robert Steyer doesn't own shares of any companies named in this article. Diageo is a Motley Fool Income Investor pick. FEMSA and SABMiller are Motley Fool Global Gains picks. The Motley Fool has a disclosure policy.