Q1 2020 Earnings Call
[music].
Good day and welcome to the Molson Coors beverage company first quarter 2020, <unk> earnings Conference call. All participants will be in listen only mode should you need assistance. Please signal a comprehensive, especially blessed by pressing the star P. followed by zero. After today's presentation, there will be and all.
Opportunity to ask questions to ask a question you May present Star then one on your Touchtone phone withdraw your question. Please press Star then to.
Participants can find related slides on the Investor Relations page at Molson Coors is website <unk>.
Our speakers today, our Gavin Hattersley, President and Chief Executive Officer, and Tracy's you Bear Chief Financial Officer. Please note. Today's event is being recorded with that I will turn the conference over to Greg Tierney, Vice President of S.P., and eight and and Investor Relations. Please proceed sir.
Yeah.
Thank you, Eric and Hello, everybody.
Following prepared remarks today from Gavin and Tracy will take your questions.
Please limit yourself to one question and if you have more than one question. Please ask your most pressing question first and then you can reenter the queue to follow up.
To the extent you have technical questions on a quarter, we will ask that you pick those up with me and the days and weeks that follow.
Today's discussion includes forward looking statements within the meaning of applicable securities laws important factors that could cause actual results to differ materially from expectations and projections contained in such statements are disclosed in the company's filings with the FCC.
Company does not undertake to update forward looking statements, whether as a result of new information future events or otherwise.
GAAP reconciliations for any non U.S. GAAP measures are included in our news release or otherwise available on the company's website at www Dot Molson Coors Dot com.
And also unless otherwise indicated all finance financial results the company discusses our versus the comparable prior year period and in U.S. sellers.
So with that I'll turn it over to you Kevin.
Thanks, Greg Thanks, everybody for joining us this this morning.
Safe to say that the first quarter of Twentytwenty was unlike any other companies long history.
We came out of a significant restructuring in Q4 of 29 team that was designed to free up resources to invest back in our business.
Really parts of Q1, resold mounting confidence and enthusiasm for our plans and for our brands internally and externally.
But in late February that was interrupted by tragic shooting at I'm, a walk in February and for the past few months the entire global economy as being disrupted by the continued spread of Corona bars and the if its two container.
In a few short months the landscape for all businesses has changed not only for our industry, but for all of industry and so necessarily the metrics by which we measure our business have also changed.
What you will see today is that in the short term, we are making adjustments and no longer measuring ourselves against the five components of the revitalization plan that we outlined for the past two quarters, which was a demonstration of how we would reapplying savings generated by the restructure.
Rather we are looking at two overarching it's simple matrix.
Firstly, taking the necessary steps to protect our employees and to mitigate the immediate business challenges of the Corona virus, and secondly, positioning our business to succeed in the medium and long term as we enter a new normal that's the context, what we will discuss today.
I do think it's important to discuss what we were accomplishing before the pandemic hit in full force.
Before the impact of Corona bars became widespread throughout North America, and Europe, we were making progress against the revitalization plan.
We continue to invest and maintained momentum with a chronic core brands, including continued positive share of segment trains from underlying cause lot in January and February.
This provides further evidence that our marketing campaigns its mother, Tom and made to show are resonating with new legal age drinkers.
And in Europe, We ended February showing total volume growth and growth national champion brands, including calling.
We were also seeing early positive signs around a big innovation base in the above premium segment in the U.S. movement, Alaskan say entre gold burst started the euro strong two Nielsen for the four weeks ended April 11, they'll both top 10 brands encase shape for new products loads nationally this year.
And we recently launched busy hard Seltzer MOBA can one SPRIX is nationally.
Both of which are generating significant excitement from distributors and retailers.
In Europe, we were growing above premium brands in February with double digit growth in our cross portfolio.
And in Latin America in February we were growing volume, 18% versus the prior year.
We also made progress on our organizational restructure.
Recently finalized a European organization, which means our entire organizational structure is now said.
Now focused on transitioning all work to the instate organization.
And we have been very successful in starting to generate the expected revitalization plan savings.
So in the short term we are using these dollars to protect our cash and liquidity position given the uncertainty in the economy.
Despite the early progress in our revitalization plan. Our Q1 results were disproportionately affected by two events. The first was corona bars, which I'll talk more about shortly and the second with the terrific shooting at our Milwaukee brewery.
Well this may have been a parsing tragedy for those outside the company. It impacted every employee in different ways to change the employee experience in our company forever and it materially impacted sales to wholesalers in late February in early March.
The brewery was shut down for an entire week and when it reopened took a few days to get back to full capacity.
This downtime effective shipment levels in March and together with a pen Sheila the took place during the last half of March resulted in lower than planned distributor inventory at the end of the quarter.
This was a major moment in the history of our company, we lost friends and colleagues.
People lost a sense of security.
And the culture issues that were raised following the shooting must be addressed and they will be addressed.
We've already conducted listening stations with brewery and corporate employees and hired a new director of divers to inclusion.
To ensure we have a robust do you know strategy that anchored in all areas of our business and we will continue taking meaningful long term actions helped build our culture and ensure we have a more diverse and inclusive workplace.
The second lien event that materially affected our Q1 results was corona virus, a pandemic that has changed the world.
No just for our business and our industry, but for the entire global economy.
Like everyone else, the full impact and what our new normal looks like going forward is still uncertain. The Corona virus has had and we'll have a material impact on our business.
With a financial impacts of Corona var slow very uncertain, we recently announced the real withdrawn our financial outlook for 2020 and beyond.
This remains true today, as we will not be providing financial guidance on this call.
We will however provide additional data to help you better understand our business.
And how it could be impacted by Corona virus.
As I mentioned earlier the savings you continue to generate from our revitalization plan are being used to protect our cash and liquidity position.
We expect a significant negative impact to revenue and profit due to the closing of on premise accounts around the world in many instances the on premise has been reduced to zero.
To help give you a sense of how we've been impacted based on 2019 numbers approximately 17% of our North American NSR comes from the on premise.
Pantry loading did create a significant surgeon off premise sales in North America. During the latter part of March across a number of our band brands.
Benefiting our STR performance at the end of March.
Hi, but this pension load is not continued into April and well off premise sales continued to perform well, we do not expect them to fully offset the loss of the on premise volume.
In Europe based on 2019 numbers the on premise channel accounts for approximately 50% to 55% of NSR and it's even higher in the United Kingdom, Our most profitable European market were approximately 70% to 75% of NSR.
Comes from the on premise channel.
Well, we are benefiting from some pantry loading and the shift to consumption to the off premise. We expect the continued closure of the on premise trade will have major implications for the performance of our European business in the second quota in particular.
As outlined earlier in the call. We're looking at two overarching it's simple metrics as we manage the impact from Corona virus.
Firstly, taking the necessary steps to protect our employees and mitigate the immediate business challenges with the Corona virus, and secondly, positioning our business succeed in the medium and long term as we enter a new normal.
That is how we have approached decision, making during the pandemic and these two metrics will continue to guide our decision making moving forward.
So with the crisis started we took immediate steps to protect our employees support our communities and ensure the continuity of our business.
We implemented a crisis management and business continuity plans to God decision, making and our team have led us through the series of steps we have already taken.
We've implemented additional health and safety measures in our breweries and distribution centers, ensuring these federally and provincially designated essential operations can continue operating and we can protect our employees.
We have stepped up cleaning sanitization and hygiene and change business practices to encourage social distancing.
We instituted temperature screenings provided club face marks and made hand sanitizer widely available for all employees, who are continuing to work on site.
North America, we created a new paid leave policy, adding up to 80 hours of paid leave to ensure anyone who contracts. The corona bars was forced to swap current team can do so without losing pay or being forced to use the normally a lot of sick leave.
We are thinking are essential North American brewery employees with a pay incentive for $5 per hour for hourly employees and $200 per week for salaried employees, who are continuing to work on site.
And we created a voluntary pay leave program in North America, So any employee deemed by federal health authorities to be at high risk.
Can receive paid leave of 60% of irregular wages.
And we instituted an unpaid leave program for any employee who doesn't feel safe coming to work.
We also supporting our communities and most most impacted by Corona biased across North America in Europe.
We are using marketing plans charitable if it's an industry trade associations to support service professionals an on premise locations.
We are helping truck drivers across North America homeless shelters in our communities for providing them with fresh water.
We also producing hand sanitizer to provide to our frontline employees and first responders in our local communities.
Consumer buying habits have changed significantly during the pandemic until we've also taken steps across North America, and Europe to shift how remarketing our brands.
We have prioritized and shifted media to platforms, where we expect higher viewership like gaming online video social media also spending on premise activation and reducing or eliminating other platforms that have been impacted.
We have also focused investments against our best known brands to stay on top of mind with significant economic uncertainty concerning consumers are turning to big brands that trust.
In fact since pantry loading began in mid March in the United States, We're seeing industry share trends improved for both Coors light and middle output Nielsen.
Both brands are seeing better share trains and in mid March and both are growing segment share as an increasing rate.
We will continue to meaningfully support these brands and look for ways to make and culturally relevant like we did with middle lots virtual cookie jar support hospitality workers.
And cause like social activation with all of the 93 year old, Pennsylvania grandmother, which generated over 2 billion PR impressions.
We also have a diverse portfolio of products, including a strong economy segment in the U.S. Our economy segment is to yours and in particular, the Keystone family of brands are performing well.
We've always said that all segments matter and that has never been truer than today as consumers seek value in these difficult times.
Clearly this is a less than ideal time to launch new products and that is while we have delayed some of our new innovations and test and learn launches for the time being to ensure they are best positioned to succeed when they do hit shelves.
However, we remain very optimistic about the brands that have launched recently in Vicki Hollub Seltzer proven in Glasgow, Saint Archer Gold and mobile CAD. One SPRIX is all of these brands have clear points of differentiation and are generating excitement from distributors and consumers.
Beyond the products, we have in the market. We were also adapting the way we get them to consumers by accelerating our E commerce, if it's subject to government regulations.
We are partnering with a number of alcohol delivery pest platforms, and other click and more to retail sites to merchandise.
It make it easier to find the abuse online.
We are launching new ecommerce tools like a product locator online purchases.
We've also taken a number of financial actions to protect our balance sheet and put ourselves in the best positioned to weather the storm.
We are reducing 2020 capital expenditures by approximately $200 million.
For substantially reducing discretionary spending limiting new hiring in a furloughed certain employees within Europe, and our North American hospitality businesses.
And we're taking a hard look at all about marketing investments and eliminating insisting that must deliver value in the current environment.
We will continue to take additional financial actions, if necessary and our desire is to maintain high investment grade rating.
It may be cliche, but these are uncertain times for all industries, we will continue to navigate this challenging calm.
Mitigating a short term risks and ensuring that we positioned the business to compete and win in the medium and long term.
So while we will continue to evaluate the situation and take all prudent and proactive actions are isn't the best interest to the company in the medium and long term.
We will not take actions that could have unintended consequences to our future success.
Now I'll turn it over to Tracy for our Q1 financial results Trice. Thank you again, Hello, everyone. I will think how does a quarter on a consolidated and regional basis, mainly of catch up.
Yes sequencing the current entitlements, we won't be giving additional forward visibility, including some April arguments on an offering a perspective on how we think equally will be impacted by the correct if I actually fully.
The April results suggest one data point and represent only a portion of the second quarter Vicki some visibility to impact actually seen on our business now.
We do not expect you continue to get this visibility on future calls.
Thank you we kept the quota.
Sounds saving you decreased eight point keep the thanking constant currency.
This decline was largely driven by I understood position in North America, coupled with the impacts of the client of ours to costing higher business.
These impacts including volume decline.
Let me tell for kids and lean basis up $31.5 million, resulting mainly from the cleanup key related to the on premise channel as Glenn is unfavorable mix.
Steve impacts it partially offset by higher globally.
Net sales per hectoliter on a brand volume basis decreased 1.6 to thanking constant parent.
Let's take to impact the estimated make sounds like kings and green business related to the on premise impacts at the kind of art. It's what is unfavorable mix, partially offset by positive packing.
Well, we continued to deliver positive talking in the quarter on mixes and favorably impacted by the various market dynamics and kind of see Misha horse article and if I.
Specifically the shutdown of unplanned application, that's when it's timing of when stay at home OIBDAN swings and keep pace across that David if market.
I had an adverse impact on geographic mix.
And now as many of our high end products are skewed towards the on payment catastrophes establishment had an unstable the impact on our brand.
Worldwide brain volume decreased 1.8, the same driven by declines in Europe, while financial volumes decreased eight point seating, reflecting unfavorable shipment timing in.
Another contract brewing volumes.
Underlying cogs per hectoliter increased 3.3 things on a constant currency basis, driven by volume de leveraging inflation, partially you'll see a cost saving.
Underlying mdna decreased 2.2% on a constant currency basis, driven by cost savings and targeted introduction, partially offset by slightly increasing marketing spend.
As a result underlying EBITDA decreased 15.8% on a constant currency basis.
Underlying free cash flow, let's take the catch you up 216.6 million.
Which is $53.5 million favorable prior year.
Driven by favorable changes in working capital and lower interest payments, partially offset by lower underlying EBITDA and higher capital expenditures.
In North America sales revenue decreased 7.2% in constant currency.
This decline was driven by unfavorable shipment timing immediately.
Including Burley downtime associated with the Milwaukee tragedy, another contract brewing volumes, coupled with estimated it sounds like kings and green basement.
$19 million driven by a cake retain probably plan.
We anticipate that the U.S. under shipment physician large can you update at this point, yes, and expect the unit shipments Inc. outperformed release brain volume Crane in a second quarter.
North American brand volumes increased point, focusing benefiting from the timing of trading days this year as well as the March pantry loading anyway.
Net sales to hit to the yet on a brain volume basis decreased 1.3% in constant currency.
And by the on premise sales occasionally in basin.
Well its unfavorable geographic mix driven by increased losses volume in Mexico, partially offset by me passing but.
Underlying EBITDA decreased 11.9% in constant currency due to lower financial volume and favorable mix and Cogs inflation.
Partially offset by lower NGL, <unk> cost saving in Cogs and meat processing clay.
The Indian a reduction was driven by cost savings related to the revitalization plan as well is battling higher project cost in the prior year relate to keep really system implementation coffee Allstate backlog, increasing marketing spend around on your innovation dedicate ending the quarter such as came in last Scott in Saint Archer called.
That's been was in line with our initial paying for 20 to 25 to actions taken to mitigate the impact associated with the current about it.
In North America, and particularly in the U.S., we benefited from pantry loading at the end of March that positively impacted our brain volume and sales should be headed in the humid finished the quarter, reflecting improved claim.
In the quarter.
In the four weeks ended April the 24th Twentytwenty anyway, if t., obviously down 14.1% driven by lower premium and if that premium brand train with economy brand performance down 4.1 sustained in the four weeks.
We continue to see strong HCR training of payment, but these things are not fully of taking the feature the elimination of the on premise sales.
We expect the negative unconstrained continues while special oscillate oscillation continues to be practice and expect that any increase in total painless volumes due to channel shifting well not be sufficient to offset the losses experienced enclave.
We estimate that this will result in negative changing volume any our end mix spaces that pie if.
And expect those chains do continue equity through the ended the year any particular in the second quarter.
Turning to Europe, Nick sales on a reported basis decreased 18.4% in constant currency due to lower volumes.
Seven itself, the hate to Nita and fell for teens related to our payments impact, resulting from the current evolves.
Net sales per hectoliter on a brain volume basis declined 5.2% in constant currency.
Given by unfavorable geographic mix, particularly due to the impact to the high margin UK business, partially offset by net positive pricing.
Financial volumes decreased 10% and brand volumes decreased 8.5% as the result of that pandemic.
Europe underlying EBITDA, our fixed the loss of $4.1 million compared to income of $18.5 million in the prior year driven by gross margin impact of volume declines and compensation, partially offset by lower NGL <unk> expenses as a result of cost mitigation actions taken in response to the.
Correct about as pandemic.
In Europe brand volumes were down more than 20% in March driven by purchase up on payments accounts, which began roughly a state of the way through the month.
In the most recent four weeks brand volumes are down approximately 40%.
I relative sheet positioning unit is significantly higher in the on premise channel bending the off payment.
We expect to be disproportionately impacted by the visual shutdown of this channel.
And expect she losses during the shutdown period.
It was pretty much I capacity and staffing constraints will result in us not being able to meet the full demand offshore Tim channel shift.
Based on 2000 and launching results our on premise business comprised the pocs approximately 50% to 55% of in its our.
We are taking significant steps in reducing spending for both capital NXP and have taken steps around cash collections to minimize collection risks.
Despite these actions a prolonged shutdown of the on premise business due to the current Nevada, what has a meaningful impact on European in total company gross margin and profitability.
This takes me to our financial outlook.
On March 27th we withdrew out guidance due to uncertainty driven by the current antibody and Danny.
The pandemic is impacting our business due to on premise losses across the entire business and disproportionately in Europe.
We expect an outcome of lower volumes negative mix and unfavorable fixed cost absorption in call. While the on premise channel remains shutdown and slightly we open but the magnitude integration of these impacts hostile and Satan.
Despite this risk I continue to tie it to maintain our investment grade rating and as Kevin mentioned, we are taking steps to ensure we protect our balance sheet and put ourselves in a base position to weather the storm.
Given the uncertainty fallen volatility and lockie continued impact of the kind of ours, we continue to monitor and take corrective, Steve kinship profit business continuity and adequate liquidity for our company.
Before we are at $750 million effective March 18th and another $250 million effective March that 25th I'll now $1.5 billion revolving credit facility.
We could goal of $1 billion at the end of March Twentytwenty.
As of April the ticket, we have paid back $400 million on the oxy eight leading us with leaving us with an aggregate goal of $600 million and they for an additional $900 million of capacity to cool.
As we discussed it yet we already have entered into the numbers, including reducing our twentytwenty capital expenditures by approximately $200 million substantially reducing discretionary spend limiting new hiring feline sitting employee and significantly reducing marketing investments.
In addition, we and our board actively evaluating various capital allocation options, including a suspension reduction or Tempe elimination of our dividend.
Obviously this is a very fluid situation as governments in companies evaluate the impact of Colorado, Nevada, MP, but pay for the opening of the economy.
Our management and Apple will continue to take prudent and corrective actions, which I'm a bit interest of the company.
Please on CMS customers and our stockholders as things become clearer in the rapidly evolving situation.
Our decisions will be guided by and consistent with the Companys overall financial discipline, ensuring adequate liquidity liquidity and our desire to maintain our investment grade rating.
As we contemplate taken additional actions to navigate this unprecedented environment, we remain mindful not taking any action that would have unintended negative radically ramifications job business over that we keep adopt our medium or long term succeed.
So with that thank you for your time and attention and I'll turn it back to Grateful Tonight.
Eric.
Thank you we will now begin my question and answer session to ask your question you May Press Star then one on your Touchtone phone.
If you are using a speakerphone. Please pick up your handset before passing the keys to withdraw your question. Please press Star then too.
As previously stated in the interest of time, please limit yourself to one question. So that others may be able to ask there's if you wish to ask a follow up you may reenter. The question Q you made by doing so by pressing the Star then one key.
Our first question today will come from Andrea two zero.
JP Morgan. Please proceed with your question.
Thank you very much I was just trying to get and I hope I'm, sorry, I hope all is well I wanted to get a sense of them shipments the SGR swimmer on premises against at home, obviously, we talked a number for a total and I was just wondering if you have capacity and you have put.
So for improvement there in there in the at home. Thank you.
Thanks, Andrea and good morning to you hope all is well with you as well.
From a from a from an SCR point of view.
Obviously, the on premise is virtually shots across almost all of our markets.
And.
We've had some significant skew shifts into the into the off premise I think similar to other beverage companies.
Pack mix has shifted quite fundamentally because of the deferring shopping habits and and so capacity has been.
I would say strained mostly an area of 12 ounce cans.
And folding cartons, it's it's not an issue that's unique to our business. It seems it's across the whole beverage.
Segment, so we working with our packaging supplies to prioritize skews we are.
Looking at quantifying alternative supply applications to help out with it.
I wouldn't say that we've had minimal out of stocks in our north American markets because of this but we're running from an off premise.
Large pack point of view are pretty much.
Flat out in North America.
In Europe, we have had some capacity constraints, particularly in the United Kingdom.
Given that that market is has been substantially more on premise focused with less focus on on off premise.
We have had some out of stocks in the off premise in Europe, because we haven't been able to meet fully the demand.
Good answers your question.
It does and then thank you very much thin, but the other there the question would be on the marketing spend I understand that shifted and some of the discretionary spending me.
Not be may not be realized so wonder if you can kind of weve that comment with your cost savings and.
How we can because perhaps you had excess expenses now for keeping your employee safety and obviously unfortunate for the tragedy and the and my my sentiment income bonuses.
In one impacted so if we should be thinking that the impact to be lower as we progress and a year or.
Fortunately that that some of the things are you can't change given the timing and and some of them are fixed so just to understand your fixed cost and expense ratio going forward. Thank you.
I've got a lot of questions in there I think Andrew So let me try and trying to address them enough. Our Doug you can come back to games.
Obviously, there's no doubt was really tried challenging time for us not just for our business, but for everybody.
Industrial.
Our focus as I said recognize mitigating a short term business challenges and positioning our business to succeed in the in the long term.
From a sales to wholesalers point of view the impact of the more Cadbury tragedy.
As Tracy I think said was was from a shipments point of view in February in early March and because of that inventory levels. At the end of March were lower than we would have liked.
Subsequent to that Tom.
Supply chain FERC has done a tremendous job building inventories back up again, and I would say that.
There are.
Pretty much where we would like them to be with the exception of shortages and sort of a large pack sizes, where we have.
Some supply constraints from a from a packaging point of view.
So we would expect.
Shipments to wholesalers to migrate closer to two sales to retailers.
In the second quarter from a marketing standpoint, you that consumes a slow drinking lots of beer in the U.S., 80% of our beer is is consumed in the on premise and so it's really important that we keep our biggest most recognized brands top of mind when they when they when they're shopping so from a marketing standpoint, we're taking five clear steps to meet the consumer.
Needs and consumer habits, which have developed right now.
We're focusing our investment against our biggest most recognizable brands like met a lot cause lock in Blue Moon.
We reevaluated all of our credit as it was going to market and we've adjusted the to make sure that it's more culturally relevant for example, we pulled or do you have a highly anticipated March madness book was not.
Before it was launched for obvious reasons.
Lifted our media.
Plans towards key platforms, where we expected viewership to be higher like social gaming podcasts online video.
Over the top.
Versus Semana, Santa Maria and out of out of home, which is where we might have been before.
We've been able to a large percentage of our creative to link to E. Commerce beer purchases that consumers can body forbid because from a comfort and safety of their homes.
And finally, we've identified opportunities with our brands could meaningfully and authentically provide.
As you for example, formula like record individual took John the first week of isolation and in Canada Molson his laws has launched.
Right one for you local to support luck Canadian boss.
Gift cards by encouraging more virtual happy hour.
We will be eliminating marketing spend that doesnt add any value at the point of at this point Tom.
Focused on the on premise or if its focus the media channels with our consumers happen to be so you know as we were expecting a large increase in marketing spend in 2020 I don't think you can expect that right now.
Thank you. Our next question will come from Mcdarrah most of them of Morgan Stanley. Please proceed.
Yes.
Hey, guys I hope you all well.
So I.
I wanted to delve into the U.S. STR result, you gave for that for the first week of April a bit more obviously on premise is driving the overall weakness, but it's still worse than I would've expected even with that on premise weakness. So just trying to better understand their performance in terms of what you're seeing by channel in the off premise in the U.S. in April.
To help decompose that a bit.
And then second you highlighted the economy portfolio declines were a lot less severe than the premium brands.
To date number is that more just due to channel mix shift away from on premise are you seeing trade down.
In your portfolio in the off premise channel already.
Any forward thoughts on on potential trade down both within your portfolio and for beer category perspective.
Be helpful. Thanks. Thanks, Thanks, there I'm not trying to get all of your question. So if I Miss I mean, just just come back at me.
I think first point is the retail sales, which Tracy gave in the U.S. was for the four weeks not the first thing I think you said first week, but it's actually the first four weeks of of April obviously, the on premise is reduced to virtually zero in the off premise, we're seeing a meaningful shift into large pick.
Sizes and into brands that consumers know and trust like Middle Latam Coors Light Miller Coors Light's performance has has been particularly good as weve as we've stated.
Into.
Into April we've seen a.
We saw an acceleration behind closed block and middle lags behind our marketing initiatives and 29 team made to chose Coors light.
The brand to see sequential improvement in three straight quarters, and Q1 was actually the vishay performance in three years.
April is has continued on that on that.
Trained and Middleclass continues to do really well, we've said about a 22 quarters now segment share growth and it's actually growing dollar sell shape.
In in the latest 50 to 52 weeks.
A big non trusted brands, we're very pleased with the second part was your our economy portfolio performance and yes, we have seen an improvement in our economy portfolio, whether that's Keystone locked whether that's Miller high life and steel reserve are all brands, which are doing relatively much better.
In the first first part of of April than they were doing before.
Did that answer all your questions there or did I Miss something.
It it does and then just one clarification within off premise.
Can you talk a little bit about the channel performance in the first four weeks or off premise and and the divergence you're seeing from a channel perspective, and then also consumer trade down just just wanted a bit of a forward look on a on your thoughts there and if that is likely to be significant in the industry. Thanks, well, we've seen a strong growth in.
Grocer in the grocery channel, particularly particularly in large format, we have seen.
Sort of first part of the Corona virus. The C store channel did not do as well as the as the larger format. It has.
Somewhat of a recoveries since then but it's still not performing as well as.
As large format, which frankly is not surprising given the.
Impulsive nature of many of the C store purchases.
Our our online sales channel is has certainly seen a meaningful surge as you would expect and hence we're focusing a lot of marketing activity in that direction and partnering with.
Various online delivery.
Platforms to to make sure that our consumers see our brands and the top of mind and we've also launched a product like cater to help our our consumers.
Found out where our where our brands.
Okay.
I hope that answers your questions. Thanks.
Our next question will come from Kevin Grundy of Jefferies. Please proceed with your question.
Thanks, Good morning, everyone I wanted to wish you well because you navigate through a fairly difficult environment.
My question relates to get leverage and to the dividend.
So first you debt covenants four times net debt to EBITDA on a trailing basis you mentioned some of the proactive steps the company is taking around cost and spending.
However, based on where we sit today I was hoping you could comment on your level of comfort with the covenant and what will undoubtedly be a challenging year and then related leave with respect to the dividend maybe you can put some guardrails around potential cuts or suspension to dividend. Thanks.
Thanks, Kevin and thanks to the thanks for the thoughts all Oscar Tracy too to handle those those questions if you're in Montana.
Kevin said look we were aware of all of the current obligations under our credit agreement and willing compliance within you know as as we said we are taking a number of action.
Which.
We will help us navigate the short term impact SAP business and ensure that we have adequate liquidity. So we just to reiterate and reducing capital spending by back $200 million, we are substantially reducing discretionary thing we've limited new hiring we see learning stemming toys, especially in Europe and.
Some of that North American hospitality areas.
The reducing marketing spend as Kevin just mentioned, China, ensuring that all our marketing basis and are delivering value in our current environment.
But you also supporting our big brands as Kevin mentioned and supporting our innovation.
So and this is a very fluid situation on and again you know we are monitoring it to be having discussions with Apple ward.
And evaluating our capital allocation decisions.
Which as we stayed in a in my remarks, you know does include a sustained share reduction what campaign elimination of the dividend that we will of course communicates and in Q course, any key capital allocation measures and decisions as they all night.
Kevin just wanted to point I'd make is you mentioned a four times debt covenant ratio. That's at the moment is actually less than that I'll. Just refer you sorry higher than that so it's a 4.25 terms I think.
If you look at ITC financial filings, you'll you'll see it laid out there is too as to the path.
Okay fair enough up I'll pass it on thank you guys.
Yes, Kevin.
Our next question will come from Sean King of you'd be S. Please proceed with your question.
Hey, guys. Thanks My question.
Sorry, I missed this but Oh you referred to estimated kegs were CAG returns in Q1 does that account for I guess, all shipments expected to be all shipments that that are expected to be return I mean is there any anyway to quantify what continuing overhang there would be in Q2.
Yeah. Thanks, Sean Good morning look I mean, the estimate that we've made would would cover all of the cake returns that we would be expected to two to take back.
So the $50 million in aggregate between the impact to net sales revenue and and cost of goods sold is our is our best estimate right now and then obviously, we'll adjust that as.
As as the actual numbers come through but.
We'll use would you say an overhang.
I would say, we've we've tried to get as close to 100% of what we expect all our ability to be.
Based on what we know.
Great. Thank you.
Our next question will come from Vivien Azer of Cowen. Please proceed with your question.
Hi, Thanks for the question hope everyone is well Gavin given your experience with your industry I was hoping that you could offer on historical context, as we think about I do anticipate shifts in consumer purchase behavior.
When consumers under pressure, so just thinking back negative financial crisis. If you do about is that helpful. Analog just remind us the clock category dynamics that you saw between your wine and spirits, and then specifically within the or how meaningful that the downtrading. Thanks.
Thanks, Mary Anne and good morning to you as well yeah, because certainly the Unprecedent Tom when you know we've been through decisions before I don't think we've been through something quite like this before but but but certainly ultimately the question is what this will do for consumer behavior. It's it's not about whether or not drinkers will continue to consume because.
They will.
Well, it's about how where or what they will consume and and the early results in what we're seeing it the mom and show the consumers are continuing to purchase beer, particularly pantry loading to during the pantry loading phase of this of the pandemic, we're seeing a lot more purchases of large peck and we're seeing.
More on premium and economy versus above premium.
I would say crossed in particular is is as being I think.
Currency negatively impacted we have got a very diverse portfolio of products pickups and price points, which are going to help us capture the volume regardless of where the consumer trends actually take us we will position because we play in in.
In all segments.
You know, we it's clear that the whole industry is impacted we believe that we've got the.
They've got the segments in the brands and we got the broad approach.
Ultimately, we were confident that take with that we've taken the rights steps to mitigate the short term risks and the and position the company to compete in the long in the long term.
We will suddenly we still tracking towards the vision laid out in the revitalization plan. Despite.
The current environment and you know, we'll we'll put it as necessary in the short term, depending on where the consumer trends take us.
That's really helpful. Thank you so much sure.
Our next question will come from Bonnie Herzog Goldman Sachs. Please proceed with your question.
All right. Thank you good line Gavilon hope you're doing Lombardi. Thank you I am I wanted to touch briefly on busy so it sounds like the brand is doing well based on your comments that you know that said we are hearing.
A lot of our contacts about that the top environment right now for newer brands such as just in general So would love to hear you know your take on how the launch has been potentially impacted by Kobe. It and then maybe what you've done can mitigate some of the unforeseen impacts you likely had maybe around distribution and marketing.
Brad Thanks.
Thanks, Bonnie and hope you doing well to yeah look I mean, obviously, if not the audio product to a time to launch a new you products in the in the marketplace on I'm sure you to lead me to tell you.
To tell you there isn't as a result of Corona virus, we have made some adjustments to original innovation plan, which we had you know we played some innovations and we're using those savings to to protect.
Cash and liquidity positions, but as far as the seltzer market is concerned.
We we've got a very clear strategy and in hard sell says and we being what we think we're being smarter in how we execute our first two launches the first focusing on vizio is the big bet and then we rolling into cooler stopes in the in the fall or this is a huge segment and it's got.
Plenty of room for multiple brands and solutions.
Our approach was busy is making sure that we committed with a real point of difference not just another seltzer.
To carve out a meaningful space for ourselves and what's an increasingly crowded category and that proof point of difference for US is the first hard seltzer made with as wrote a check which is the super fruit, which is highly actually on antioxidant vitamin C.
Let me confident that this proposition is going to resonate very well with consumers.
We're not going to shake specifics on what our media investments going to be but we're in the midst of rolling out a pretty robust campaign, which will include a national TV in the rock spots digital and social.
Retails tools, and I and a something if its a.
It's our biggest play yet in the salt hard sell to market Barney and lost it still only a few weeks.
Into the launch we're actually very pleased with the early reads.
We believe that the clear point of difference and the pierpoint a different from visual identity point of view is going to set us apart as a as a preferred.
As a preferred seltzer as far as Coors light sell through is concerned we got that coming towards the back end of the of of the year. We we believe that at this time in particular people are turning to known and and trusted brands and is a big opportunity for popular beer brands to enter into the space and we believe we've got the best prop.
Position with cause for a number of reasons it best fits to play in the space. We've tested the clear cell to proposition head to head with other beer brand itself was and Coors one across the board on multiple levels, whether it was purchase intent whether it was differentiation distinctiveness.
And and so on its history of Rocky Mountain freshness in water credentials are a perfect fit for for hard sell throughs and we've got a clear point of difference, which is also very important that's the first hard sell through was a social mission.
And it's one of the top three drivers of blocking for consumers and finally, we bought a great tasting product. So we're particularly excited about that launch as well.
Our distributors have done tremendous job in a very difficult in challenging environment getting busy onto the onto the Florida and into the into the into the coolers and.
Since we just a few weeks in but we're very pleased with what we see.
That was really helpful. Thank you so much from that.
Sure.
Our next question comes from a low ran Grand Bank.
We Didnt Heim. Please go ahead with your question.
Yes, good morning, giving an entre Seattle.
So on June.
LTE.
Got a question on the on all the extra costs can you mentioned that will be actions you to protect your employees.
So showing bank disappointing and rates stay amongst others.
Could you please give us at least directionally.
The total financial impact you guys in the quarter by segment.
Oh, I am not Europe on the U.S. and those actions are just one Nazi nature, and we should think I mean do six record skew like you just be lifted once we reach into some kind of normality clean. This is on top of the year. Thank you.
Thanks, Lauren Thanks for the for the questions. Obviously as I said one of on start when our top priority is protecting our employees and ensuring that there so that they're safe so I'm in many respects.
Yes, most of those costs will as as as last gets back to two new normal disappear.
Weve. The thank you pay bonus for example, we'll we'll deal will be removed that at a point in time, when we would you believe it is it as appropriate.
We took steps in Europe and in North America to ensure that our employees that were higher risk.
I would have a certain age or who had pre existing conditions, we given the opportunity to.
To stay away from working and not be disproportionately financially impacted in the United Kingdom, There's actually a program with 80% of they pay is reimbursed by the by the government. So the impact in the United Kingdom for for the folks that have.
Stayed at home is not as as impactful as for example in the in the United States.
So I rambled, a little bit there I think there the answer to your question is no they won't be permanent negatives.
Forever, they will only be there for as long as we believe it's it's necessary our number one value.
We launched we launched new values in January our number one various people first and that's how we're making making all of a followed our decisions I think obviously, our social dispensing practices will remain in place for quite some time.
But the cost of that is relatively relatively low you know I breweries a big there there's a lot of space in our breweries and and you know I think the fact that we put in all these policies fairly early on in the in the process is certainly going a long way to make sure that weve that we've mitigated any impact from a from us.
Slide 10 points of view.
Thank you congrats again, thank you.
Our next question will come from Bryan Spillane of Bank of America. Please proceed with your question.
[laughter] excuse me good morning, Gavin Tracy Hope you all well.
Just wanted to follow up I guess on on Kevin Grundy question about the balance sheet, the dividend and Tracy I think if we're thinking about liquidity and cash need believe you've got a maturity. The September maturity right coming due which is I think $500 million later this year.
I'm, sorry, I guess, it's worth thinking about that maturity.
Liquidity you have now right you still have about 900 million and the credit facility.
You could draw it decision on whether or not you you touched a dividend really predicated on.
Painting investment grade and terms around refinancing avoiding things like steps and other things.
Or would touching a dividend really be just a function of.
It's bad year and you just you get into the extra cash just trying to understand what the decision tree would be.
The need to touch the dividend and then again, how your how your comfort level around that September maturity.
Okay, all Brian good morning, Thanks, all else closely to onto the that question, but just to create one quick point is it's not 500 million US dollars is 500 million Canadian dollars, so somewhat less than that.
In us dollars, yes, so resi sort of 357 million equivalent.
On the.
As he mentioned you'd have to pay Dimmock spawn, we'll continue to monetize takes 15 ship profit business continuity, an adequate liquidity for the company.
And we are actively evaluating our capital allocation decisions with our board the as it relates to that 500 million dollar Canadian and note that comes due this year and that's a capital structure decision that we will make in contrast in consultation with our board if we get closer to the maturity of this date.
And then being sort of makes the decision.
The conversations at me, having with Apple would around capital allocation that think feedback.
What do you mentioned around the dividend and again I just want to say that we'll communicate that into of course is seen as any decision is made.
But keep the final points I mean, we are aware of all the current obligations on you know under our credit agreements as Ive stayed and and you know we often comes onto them and we'll continue to take the actions needed because we do you have to continue designed to maintain our investment grade rating.
Thanks, Tracy Thanks, Kevin.
Thanks, Brian.
Our next question will come from Bill Kirk MKM Partners. Please proceed with your question.
Hey, thanks, everyone.
I think cores Seltzer was originally set to launch in July. So I guess the question is if covert pressures some allergies or begin to ease would there be a willingness to pool what is a delayed launch forward again and do it again in July or is it now definitely in the fall.
Yeah, Hi, both things and I look based on what we're seeing in the marketplace. I think you can safely assume that it will be in before.
In other words, we will I would I would say based on what we know right now we will not be bringing forward. The launch we will keep it as to where we've moved the two now.
Okay. Thank you.
Our next question will come from Rob Ottenstein of Evercore. Please proceed with your question.
Great. Thank you very much I'd like to kind of first circle back to the U.S. and just make sure.
I Didnt Miss anything here you gave us some April numbers in terms of Ah you know down volumes I think a 14% I believe can you just aggregate how much of the.
Impact of pantry loading is or de loading at at at this point hit the April number so to give us a little bit better sense of what the ongoing rate is in April.
And then you obviously, there's there's a negative mix impact.
Can you maybe perhaps touch on.
What the pricing environment is today is there.
The industry's had really good pricing discipline for.
Yes, you know number of years is that is that staying in there and then you know just kind of circling.
You know kind of finishing off with the U.S. If you could then contrast, Canada, which which.
Hasn't really come up on the call or in the press release is Canada, looking kind of better or worse than the U.S. Thank you.
Thanks, Robert Good morning to so several different maybe unpack what you said this a from a from a mix point of view obviously.
On premise to offer business has has.
Negative mix implications for us.
In terms of Canada, or and how they're performing relative to the U.S. and the first part of April pretty similar quite quite frankly, Robert you know.
Not to not a number that's terribly dissimilar to the 14%, which which which Tracy mentioned, Canada actually as they share performance in the first quarter in quite some time.
We launched Molson ultra nationally and in Q1 minute producing a much better results than the brand, which has replaced which was Molson Canadian 67.
But a lot continues to grow strongly in in Canada as strong double digits with the functional masons you have caused some calories and Belgian moon is growing.
Is growing strongly sick, so kind of direction.
Reasonably good well one of the basic first quarters that Weve that we've had for for some time from a pricing point of view pricing in the first quota in the U.S. was was pretty similar to what have been for the last three quarters. So it's it's holding up.
Mix was relatively flat and.
Yeah, we do have some negative in any saw per hectoliter in the United States in freight and fuel is we as we pause.
Substantial savings across back to our distributors in line with our with our a frightening fuel program, which which took the freight and fuel per hectoliter number down by about 50 basis points in the in the U.S.
Obviously, we've got the cake return negative hit in the US which is impacting our our NSR per hectoliter. That's that's a 500 hundred 10 basis points for unusual in in in total kind of the pricing has held up well from a frontline point of view.
You know frontline or by two point.
260 basis points.
And then I think the final follow your question was the impact of pantry loading.
In.
The March versus what's happened in April obviously, we had the timing shift of Easter. So the numbers go a little bit.
Difficult to compare between March and April and even within April.
I would say to you that that strong the the strong performance in the off premise I mean, it's though it's still continues but it's it's just not enough to offset the loss of 100% of the of the on premise business.
Okay that helps.
Robert.
Certainly and I understand that would would use thinks that if you maybe took out the pantry de loading.
Instead of being down 14%, maybe you were down kind of mid single digit does that sound about right.
Robert look I'm, not going to try and on this call unpack that to that level of detail. All I can say to you is that in March with initial pantries load. We we had the you know fourth of July kind of weak.
Performance and obviously that has not a continued and and we don't expect it to continue but.
Outperformance is still being has still been good in the in the off premise.
Great and and just I actually just got a well we're on a a question from a large shareholder asking me to ask you what what's going on with promotions all in a lot of industries. The promotions have have been reduced significantly is that happening in the beer industry as well.
Well, we as it regards the large packs the I mean, we're not promoting large pecs because we're as I said earlier on in the call where we're actually you know we've got we're we're a little bit of hand to mouth from a from an input material packaging material basis, you know from from our perspective.
We're not we're not promoting large fixed I can't speak for for our competitors, but from our perspective, we're not.
Thank you very much.
Our final question will come from Lauren Lieberman of Barclays. Please proceed with your question.
Great. Thank you.
I just wanted to know if we if you could help us at all when we think about Cogs per hectoliter.
Anything that you can offer us on fixed versus variable costs and now we'll have to sort of manually platelet some assumptions in terms of mix dynamics.
Which is anything that you could offer help from Texas travel cost and the Cogs line.
Right. So I'll ask 'em, obviously Tracy to answer the.
Cost of goods. So the question obviously there are some.
Impacts within cost of goods sold which are somewhat unusual in nature, we not treating them as unusual but there are one off of nature, which is over.
The extra steps that we've taken to protect our employees. The trust you want to get into Cogs in more detail, yes, I mean, a captive drive as you know we did mention that our Cogs and was up 3.3% in constant currency on a consolidated basis I mean, the big drivers with around the volume de leverage which was around 200 basis points of that's anything.
In addition, this quarter, we did have the cake late teens any unclean between basins program is what are some finished goods obsolescence and which drive higher Cogs citrus Rafi around 90 basis points, and then and we did see sensation.
And that was partially offset by some of the cost savings I do you want it just remind you from an inflation point of view I'm. You know, we do have a robot teaching probably about 10 minutes multiyear program, we will see while haste coming into this yet so you know anything commodity prices being Ricky.
We will probably be participating that but any today. It seems that you know we haven't unhedged portion for those commodities.
Okay. That's really helpful. And then I wanted to just ask actually for something else on Cogs. If there's been no mention of that but any issues in terms that steel to just the news headlines that had been out there on a check in on your see had to position.
Yes.
And obviously you know what this crop and in the profit if at all about a month ago and many of the ethanol producers has stopped producing.
And since that ethanol is he fast here to supply the I speak to shortages in the markets and we monitoring this very closely and how do we do you have taken resources in pain and is here to me, it's not had any disruptions to our supply and we also are conducting as much yet you laid out for you.
As possible so they can be self sufficient.
But at this point no disruption.
Okay, Great and the final piece I was just in the release there was an intent on on tax and the pop for 100 200 million dollar tax expense in the second quarter. So anything you could elaborate on their or a sense yet cash component of that whether it's in a second quarter.
Yeah.
Yes, I think we still being a full technical and legal analysis of the text weeks, then kind of lead you understand the full impact in the implications unfold for cash taxes as well is the timing.
And so the answer to 200 million I think it didn't really is a piano impact and correlates to the periods from theater January 2018, right up until March safety 2020, so that if it considers the full range of impact and that he can be still doing some of that legal and technical analysis, and we'll be able to.
To give more in Q2.
Okay, all right. Thanks, so much.
Thank you.
I will conclude our question answer session I would like to hand, it to Gavin Hattersley for closing remarks.
Thanks, Eric and look I know they may be some questions, we weren't able to answer today. So you know please follow up with Greg.
If you have been directly and then Tracy and I look forward to talking with many of you as the as the year progresses, so stay self safe and healthy everybody and thank you for participating in this morning's call.
The conference has now concluded. Thank you very much for attending today's presentation. You may now disconnect.
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