Q1 2020 Earnings Call
[music].
Good day and welcome to the Molson Coors beverage company first quarter 2020 earnings Conference call. All participants will be in listen only mode should you need assistance. Please signal a comprehensive, especially west by pressing the star key followed by zero. After today's presentation, there will be an opportune.
In the D to ask questions to ask a question. You May proceed 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 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 Tyranny, Vice President of S.P., acne and and Investor Relations. Please proceed sir.
Okay.
Thank you, Eric and Hello, everybody.
Following prepared remarks today from Gavin and Tracy will take your question.
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 olefins <unk> financial results the company discusses our versus the comparable prior year period and in U.S. dollars.
So with that I'll turn it over to you Kevin.
Thanks, Craig Thanks, everybody for joining us this this morning.
Safe to say that the first quarter of Twentytwenty was unlike any other in our company's 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.
Only parts of Q1, we sold mountain 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 has been disrupted by the continued spread of Corona bars, and the if it's too containment.
In a few short months the landscape for all businesses has changed not any for our industry, but for all of the 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.
Other we're 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're making progress against the revitalization plan.
We continue to invest and maintain momentum with our chronic cool brands, including continued positive share of segment trains for Manila and good luck in January and February.
This provides further evidence that our marketing campaigns its mother, Tom and made to chill are resonating with new legal age drinkers.
And in Europe, We ended February showing total volume growth and gross national champion brands, including calling.
We were also seeing early positive signs around a big innovation base and the above premium segment in the U. is moving in Alaska and San Entre Gold bus started the euro strong couldn't Nielsen for the four weeks ended April 11, they'll both top 10 brands and cache for new products load nationally this year.
And we recently launched busy hard Seltzer MOBA can one spirits 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 and across 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 our European organization, which means our entire organizational structure is now sit.
No not focused on transitioning all work to the instate organization.
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 a Q1 results were disproportionately affected by two things. The first was corona bars, which I'll talk more about shortly and the second was 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 not company forever and it materially impacted sales to wholesalers in late February in early March.
Barry was shut down for an entire week and when it reopened took a few days to get back to full capacity.
Lets dotcom effective shipment levels in March and together with the pen Sheila that took place through the last half of March resulted in lower than planned distributor inventory at the end of the quarter.
This was a major moments in the history of our company, we lost friends and colleagues.
People lost a sense of security.
And the culture issues that were raised falling to shooting must be addressed and they will be addressed.
We've already conducted listening stations with various corporate employees and hired a new director of diabetes 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 inclusive workflows.
The second live event that materially affected our Q1 results was corona bars pandemic that has changed the world.
Oh, just for our business and our industry, but for the entire global economy.
Like everyone else the full impact what anew normal looks like going forward is still uncertain. The Corona virus has had and we'll have a material impact on up business.
For the financial impacts of Corona var still 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 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 pretty much.
Pantry loading did create a significant surgeon off premise sales in North America. During the latter part of March across a number about that brands.
Benefiting our STR performance at the end of March.
However, 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 I didn't even higher in the United Kingdom, our most profitable European market approximately 70% to 75% of any saw 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 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 coal we're looking at two overarching it's simple metrics as we managed impact from Corona virus.
First he taking the necessary steps to protect our employees and mitigate the immediate business challenges 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 God, our decision, making moving forward.
So when 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 the 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 in hygiene and change business practices to encourage social distancing.
We instituted temperature screenings provided club Facebooks and made hand sanitizer widely available for all employees, who are continuing to work on site.
North America, we created a new paid leaf policy, adding up to 80 hours of paid leave to ensure anyone who contracts. The corona bars was forced to self current team can do so without losing pay all being forced to use the normally a lot of sick leave.
We are thinking are essential North American brewery employees with a pay incentive of $5 per of hourly employees and $200 per week for salaried employees, who are continuing to work on site.
And we created a voluntary pay leaf program in North America, So any employee deemed by federal health authorities to be at high risk.
Receive paid leave of 60% of the regular 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 and on premise locations.
Helping truck drivers across North America homeless shelters in our communities were 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 and 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 top of mind with significant economic uncertainty concerning consumers are turning to big brands. They 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 with a lot couldn't Nielsen.
Both brands or seeing better share trends and in mid March and both are growing segment share as an increasing right.
We will continue to meaningfully support these brands and look for ways to make them culturally relevant like we did with middle lots virtual cookie jar support hospitality workers.
And cause lot 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 why we have delayed some of our new innovations in test and learn launches for the time being to ensure they are best positioned to succeed when they do hit shelves.
We remain very optimistic about the brands that have launched recently in Vicki Hollub Seltzer proven lot, Scott say, an entre gold and mobile CAD. One sponsors all of these brands have clear points of differentiation and generating excitement from distributors and consumers.
Beyond the products, we have in the market 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.
I'd make it easier to find the abuse online.
We are launching new E commerce 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 position to where does the school.
We are reducing 2020 capital expenditures by approximately $200 million.
We're substantially reducing discretionary spending limiting you hiring and 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 in listening that must deliver value in the current environment.
We will continue to take additional financial actions, if necessary and not 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 comp.
Mitigating the 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 say how does the quota on a consolidated and regional basis, they leave catch up.
But the I've taken came at Kings Island people be giving additional forward visibility Keating said April fundamental and offering up to speak about how we can easily though will be impacted by the correct. If I look as we move forward.
The April results I, just one data point and represent only a portion of the second quarter <unk>, some visibility to impact actually seeing on our business now.
We do not expect you continue to keep this visibility on future calls.
Thank you we kept the quota.
So saving you decreased 8.2% in constant currency.
50 Pan with Lockheed driven by I understood. This position in North America, coupled with the impacts of the client of ours to costing higher business.
These impacting seat volume decline.
They didn't meet filter kings and green basis up $31.5 million, resulting mainly from the cannot keep relating to the on premise channel as Glenn is unfavorable mix.
Steve impacts it partially offset by higher global next time.
Net sales to hit to the though on a brand volume basis decreased 1.6, the thanks in constant parent.
Let's take to impact the estimated makes sense for kings and green basically related to the on premise impact at the kind of art. It's what is unfavorable mix, partially offset by positive parking.
Well, we continue to another positive talking in the quota and makes us favorably impacted by the various market dynamics and kind of see Misha who are the current nearby.
Specifically the shutdown of unclean application as well, it's timing of when stay at home orders, we anticipate across our various socket.
I had an adverse impact on geographic mix.
And now as many of our high end products are skewed towards the on premise catastrophes establishment had an unstable the impact on out frankly.
Well black brain volume decreased 1.8 to see driven by decline in Europe, while financial volumes decreased 8.3, 15, reflecting unfavorable shipment timing in the U.S. and another contract brewing volumes.
Underlying cogs per hectoliter increased 3.3 things on a constant currency basis, driven by volume de leverage and inflation, partially you'll see a cost saving.
Underlying in DNA decreased 2.2% on a constant currency basis, driven by cost savings and targeted steam production, partially offset by slightly increasing marketing Spain.
As a result underlying EBITDA decreased 15.8, the same 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 supply yet.
And then by favorable changes in working capital and lower interest payments, partially offset by lower underlying EBITDA and higher capital expenditure.
In North America, and it sounds revenue decreased seven point Keepitsafe constant currency.
This decline was driven by unfavorable shipment timing immediately including Bernie downtime associated with the Milwaukee tragedy and another contract brewing volumes, coupled with it made it needs talented teams and reinvestment.
$19 million driven by a cake retain propane.
We anticipate that the U.S. under shipments position will largely with it at this point, yet and expect the unit shipment change outperform heelys brain volume Crane in a second quarter.
North American brand volume increased point, focusing benefiting from the timing of trading days this year as well as the March pantry loading anyway.
Net sales to heat up on a brain volume basis decreased 1.3 things in constant currency driven by the on premise sales or change and we in basin as well as I'm favorable geographic mix driven by increased losses volume in Mexico, partially offset by me crossing but.
Underlying EBITDA decreased 11.9% in constant currency due to lower financial volume unfavorable mix and compensation, partially offset by lower NGL <unk> cost savings in Cogs and Nick crossing clay.
The Indian a reduction was driven by cost savings related to the revitalization plan as well as bottling high project costs in the prior year related to broadly system implementation.
If you will see backlog, increasing marketing spend around on your innovation Medicaid ending the quarter such as do you mean like Scott in fact, our so called.
That's been was in line with our initial paying for Twentytwenty part 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 brand volumes.
Sales to be headed in the humid finished the quarter, reflecting increased clean.
In the quarter.
In the four weeks ended April the 24, Twentytwenty anyway, if the odds were down 14.1% driven by lower premium and if that premium grain trains with economy brand performance down 4.1 sustained in the four weeks.
We continue to see strong it yaccarino off premise, but these things are not fully or seeking to pay to the elimination of the on premise sales.
We expect the negative on payments James continues while special Optimists 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 on claims.
We estimate that this will result in negative changing volume any our end mix bases that pie if.
And expect those chains to continue at least through the ended the year end in particular in the second quarter.
Turning to Europe neat sales on a reported basis decreased 18.4% in constant currency due to lower volumes.
11 itself the hits, Anita and sell for teens related to our payments impact, resulting from the current about it.
Net sales per hectoliter on a brain volume basis declined 5.2 proceed in constant currency.
Driven 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 brain volume decreased 8.5 perceived as the result of the 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 cost inflation.
Actually offset by lower NGL <unk> expenses as a result of cost mitigation actions taken in response to the current antibodies pandemic.
In Europe brand volumes were down more than 20% in March driven by closures 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 really it's a sheet position Europe is significantly higher in the on premise channel spinning off payments.
So we expect to be disproportionately impacted by the visual shutdown of this channel.
[laughter] and expect she losses.
During the shutdown period.
It was pretty much I capacity as dolphin constraints will result in us not being able to meet the full demand offshore Tim channel shift.
Based on 2019 results our on premise business composite pocs, approximately 50% to 55% of any at all.
We are taking significant steps in reducing spending for both capital NXP and have taken steps around cash collections to minimize collection, but.
Despite these actions a prolonged shutdown of the on premise business due to the current Nevada, well it 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 pandemic.
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 volume 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 so uncertain.
Despite this risk I continue to Psi is 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 the 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 it to Steve Fisher profit business continuity and adequate liquidity for our company.
Before we are at $750 million effective Mosfets 18, and another $250 million effective lost the 25th I'll now 1.5 billion dollar revolving credit facility for an aggregate goal of $1 billion at the end of March Twentytwenty.
As of April the tickets, we had paid back $400 million on the Aussie eight leading us with leaving us with an aggregate goal of $600 million and equal 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 you hiring feline, Sydney employee and significantly reducing marketing investments.
In addition, we end up old actively evaluating various capital allocation options, including a suspension reduction or temporary elimination of out dividend.
Obviously this is a very fluid situation as governments in companies evaluate the impact of Colorado, Nevada, MP, but pay for the we opening of the economy.
Our management and Apple will continue to take prudent and proactive actions. We're trying to based interest of the company I employees on CMS customers and our stockholders as things become clearer in a rapidly evolving situation.
I decisions will be guided by and consistent with the company several 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 or anything ramifications job business, all that could keep it on medium or long term succeed.
So with that thank you for your time and attention and I'll turn it back to quit for Tonight.
Eric.
Thank you we will now begin my question and answer session.
Ask your question you May Press Star then one on your Touchtone phone.
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Our first question today will come from Andrea James Era of 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 always well I wanted to get a sense of them shipments the S.G. ours for on premises against at home. Obviously, we've got the number for a total and I was just wondering if you have capacity and you have but.
So for improvement there in there in the at home. Thank you.
Thanks, Andrea and good morning to you a high point as well with you as well.
And 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 the folding cartons, 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 allocations to help act with it.
I wouldn't say that we've had minimal out of stocks in our north American markets because of this but we are running from an off premise.
Large pack point of view are pretty much.
Flat out in North America.
In Europe, we haven't 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 at the other there the question would be on the marketing spend I understand that shifted and some of the discretionary spending me.
Not be I'm not 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 to access a expenses now for keeping your employee safety and obviously unfortunately for the tragedy and <unk> and my my sentiment income bonuses. So everyone impacted so if we should be thinking that the impact to be lower as we progress in the 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 why don't you can come back again.
Obviously, there is no doctors, who really tried challenging Tom for us not just for our business, but for everybody.
Industry and you know our focus as I said right now is mitigating the 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 to the Milwaukee Barry tragedy.
As Tracy I think said was was from a shipments point of view in February in early March because of that inventory levels at the end of March were lower than we would have liked.
Subsequent to that Tom on supply chain focused on to a tremendous job building inventories back up again, and I would say that they're all.
Pretty much where we would like them to be with the exception of shortages on sort of a large pack sizes, where we we have.
Some supply constraint 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, do you know it 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 consuming.
Needs and consumer habits, which have developed right now.
We're focusing our investment against our biggest most recognizable brands like mother lot quiz 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 a highly anticipated March madness book was not.
Well before it was launched for obvious reasons.
We've shifted our media claims towards key platforms, where we expected viewership to be higher like social gaming port costs 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 consumers can bodies favored because from a comfort and safety of their homes.
And finally, we've identified opportunities with our brands could meaningfully and authentically provide.
Venue for example from a lot recruited the virtual took during the first week of isolation and in Canada. Molson has lot has launched a you know the raised one for you local to support the Canadian boss.
Three 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 it's Tom.
It's focused on the on premise or if it's focused immediate channels with our consumers happen to be so you know as we were expecting a large increase in marketing spend in 2020 I'd I don't think you can expect that right now.
Thank you. Our next question will come from Mcdarrah Mohseni of Morgan Stanley. Please proceed.
Yes.
Hey, guys I hope you all well.
Sure.
I wanted to delve a 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 and equal to date number is that more just due to channel mix shift away from on premise are you seeing trade down within your portfolio in the off premise channel already.
Any forward thoughts on on potential trade down both within your portfolio and procure category perspective.
Helpful. Thanks. Thanks, Thanks, there I'm not trying to get all of your question. So if I'm, assuming just just come back at me Yeah. I think first point is the retail sales, which Tracy gave in the U.S. was for the four weeks not the first week 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 pack sizes and into brands that consumers know and trust like Miller Latam Coors Light Miller Coors Light's performance has has been particularly good as weve as we've stated.
Two.
Into April we've seen a.
We saw an acceleration behind clears locks and middle lot behind our marketing initiatives and 29 team.
Made to chose Coors light brand to seen sequential improvement in three straight quarters, and Q1 was actually the vishay performance in three years in.
April is has continued on that on that a trend.
But a lot continues to do really well, we've said about a 22 quarters now sigman share growth and is actually growing dollar sales she.
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 Darrow 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 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 significantly industry. Thanks, well, we've seen a strong growth.
And grocer in the grocery channel.
Particularly in large format, we have seen in 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 had 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.
The impulsive nature of many of the C store purchases.
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 that 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.
Yeah.
[noise] hopefully 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 as you navigate through a fairly difficult environment.
My question relates to get leverage and to the dividend.
So first do you debt covenant.
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 Lee 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 don't Montana.
Kevin So look we went live on if the current obligations under our credit agreement and willing compliance within you know, it's actually CPR, taking a number of action.
On which you know will help us navigate the short term impact top business and ensure that we had adequate liquidity. So we just to reiterate and reducing capital staying buybacks $300 million, we are substantially reducing discretionary thing we've limited new hiring and we see learning semi.
The speaking in Europe, and some of that North American hospitality areas and you also reducing marketing spend as Kevin just mentioned generic ensuring that all our marketing basin and are delivering value in our current environment and but they also supporting our big brands as Kevin mentioned in supporting our innovation.
So this is a very fluid situation on and again you know we are monitoring it to be having discussions with apple or and evaluating our capital allocation decision, which as we say do not in my remarks. You know does include a suspension reduction what can be 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 one point I'd make is you mentioned a four times debt covenant ratio. That's at the moment, it's actually less than that I'll, just refer you certainly higher than that.
It's a 4.25 times 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 I'll pass it on thank you guys Thanksgiving.
Our next question will come from Sean King of you'd be S. Please proceed with your question.
Hey, guys. Thanks, a question I'm, sorry, I missed this but Oh you referred to estimated kegs were CAG returns in Q1 and does that account for I guess, all shipments expected to be all shipments that that are expected to be returned 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 keurig 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 use when you say an overhang I, what I would say, we've we've tried to get us close to 100% of what we expect to allow 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 Goblin given your experience with your industry I was hoping 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 maybe to the financial crisis. If you view that as a helpful. Analog just remind us the clock category dynamics that you saw between your wine and spirits, and then I'm, specifically within the or how meaningful downtrading. Thanks.
Thanks, everyone and good morning to you as well.
So certainly the unprecedented.
And you know we've been through decisions before I don't think we've been through something quite like this before 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 but it's about how where or what they will consume.
Women and the early results and what we're seeing at the mom and show the consumers are continuing to purchase beer, particularly pantry loading to during the pantry loading phase of this of this pandemic, we're seeing a lot more purchases of large peck and we're seeing more.
More on premium and economy versus above premium.
I would say crossed in particular is is has been.
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 a we're well positioned 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 right approach.
You know ultimately, we're we're confident that take 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 also believe we still tracking towards the vision laid out in the revitalization plan. Despite.
The current environment and you know, we'll we'll put that 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 blind Galvan 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, but that said we are hearing.
A lot of our contacts about the the tough 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 coal bed and then maybe what you've done to 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, it's not the audio product.
On to launch a new you products in the in the marketplace. So I'm 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 the original innovation plan, which we had you know weve laid some innovations and we're using those savings to protect our cash and liquidity positions, but as far as the seltzer market is concerned.
We we've got a very clear strategy in hard soldiers and we'd be 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 S. wrote a check which is the super fruit, which.
It 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 within the list of rolling out a pretty robust campaign, which will include national TV in the rock spots digital and social.
Retails tools and I and I saw something if its a.
It's our biggest play yet into cells 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 their point of difference for visual identity point of view is going to set us apart as a as a preferred.
As a preferred seltzer as far as good luck Seltzer is concerned we got that's 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 quiz Seltzer 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 perfect fit for for hard sell throughs and we've got a clear point of difference, which is also very important it's the first hard seltzer with a social mission.
And it's one of the top three drivers of blocking for consumers and finally, we've got 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.
Let's say that we just a few weeks in but we're very pleased with what we see.
That was really helpful. Thank you so much fraud that.
Sure.
Our next question comes from a low ran Grand Bank.
Guggenheim. Please go ahead with your question.
Yes, good morning, giving an entre see I hope you saw on June no LT shape.
Got a question on the on all the extra costs that you mentioned that will be actions you to protect your employees includes social and then dispensing and raised standalone so others.
Could you please give us at least directionally.
The total financial impact you guys in the quarter by segment.
Oh, I know you're up on the U.S. and those actions I just want to us in nature, and we should think I mean do six rajkowski loans would just be lifted once we reach into some kind of nobody's going to sit on top of the year. Thank you.
Thanks, Lauren Thanks for the for the questions. Obviously as I said, one of our top priority is protecting our employees and ensuring that there so that they say so.
In many respects.
Yes, most of those costs will as as as last gets back to two a new normal disappear.
Weve. The thank you pay bonus for example, we'll deal will be removed that at a point in time when we believe it is a 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 where 80% of they pay is reimbursed by the by the government. So the impact in the United Kingdom pool for the folks that have.
Stayed at home is not as as impactful as for example in the in the United States.
So I've ramble, a little bit there I think there the answer to your question is no they weren'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 the values in January our number one various people first and that's how we're making making all of a full about decisions I think obviously, our social distancing practices will remain in place for quite some time.
But the cost of that is relatively relatively low you know I breweries, a big data there there's a lot of space in our breweries 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 a.
Supply chain point of view.
Thank you congrats once 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.
Well.
One of the 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.
So I guess is we're thinking about that maturity. The liquidity you have now right you still have about 900 million and the credit facility.
You can draw.
The decision on whether or not you you touched the dividend really predicated on.
Maintaining investment grade and terms around refinancing avoiding things like steps and other things or would touching the dividend really be just a function of.
You know, 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, Brian Good morning, Thanks, All goes crazy to onto the that question, but just create one quick point is it's not 500 million US dollars. Its 500 million Canadian dollar so somewhat less than that.
In the U.S. those yes, so resi sort of 357 million equivalent.
So you know as he mentioned you have to peak remarks, Brian will continue to monetize take 15 ship profit business continuity, an adequate liquidity for the company.
And you know we are actively evaluating our capital allocation decisions with our board the as it relates to that 500 million dollar Canadian and noted that comes due this year and that's a capital structure decision that we will make in contrast in consultation with our board as we get closer to the maturity of the state.
And then being sort of makes it a decision you know the conversations that we having with Apple would around capital allocation on that thinking that you know 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 point I mean, we are a wave of all the current obligations on you know under our credit agreement as I stated and you know, we arent, sometimes with him and he will continue to take the actions needed because we do you have to continue desire to maintain our investment grade rating.
Thanks, Tracy thank Kevin.
Thanks, Brian.
Our next question will come from Bill Quirk of MKM Partners. Please proceed with your question.
Hey, Thanks, everyone. So I think cores Seltzer was originally set to launch in July. So I guess the question is if cobot pressures some allergies or begin to ease would there be a willingness to pull well what is the delayed launch forward again and do it again in July or is it now definitely in the fall.
Yeah, Hi, both things I look based on what we're seeing in the marketplace. I think you can safely assume that it will be an awful.
In other words, we we I would I would say based on what we know right now we will not be bringing forward. The launch we will keep us 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.
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 you know the industry's had really good pricing discipline for last 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, which you said, there's a from a from a mix point of view obviously.
On premise to two off premise 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.
I'm not a lot a number that is terribly dissimilar to the 14%, which which which Tracy mentioned I kinda actually had its vishay performance in the first quarter in quite some time.
You know, we launched Molson ultra nationally in Q1, and it's producing a much better results than the brand, which replaced which was Molson Canadian 67.
But a lot continues to grow strongly in in Canada as strong double digits with the functional may since you have caused some calories and Belgian moon is growing is growing strongly so so canada are actually had a.
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 it's been for the last three quarters. So it's it's holding up.
Mix was relatively flat and.
I've been in any software hectoliter in the United States in freight and fuel is we as we paused substantial savings across back to our distributors in line with our with our a freight in fuel program, which which which took the freight and fuel per hectoliter number down by about 50 by.
Its importance in the in the U.S.
Obviously, we've got the Congress to negative hit in the U.S., which is impacting our our NSR per hectoliter. That's that's about 100 110 basis points for unusual in in in total Canada pricing has held up well from a frontline point of view frontline is good but too.
Points.
260 basis points.
And then I think the final follow your question was the impact of pantry loading in.
In 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 the 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.
I've got to help.
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 he was that in March with initial pantries load. We we had the you know fourth of July kinda weak.
Performance and obviously that has not a continued and and we don't expect it to continue but.
Performance is still being has still been good in the in the offering.
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 are but little bit of hand to mouth from a from an important material packaging material basis.
From from our perspective.
We're not we're not promoting large pex is I can't speak for where our competitors, but from our perspective, we're not.
Great. 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 [noise].
But just anything that you can offer helps on fixed or variable cost and the Cogs line.
Right. So I'll ask 'em, obviously tracy to on so the.
Just a good 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 with a 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 after five 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 affects ending.
In addition, you know this quarter, we did have the case with kids any unclean between baseband program is what are some finished goods obsolescence and which drives higher Cogs citrus Rafi around 90 basis points, and then and we just see some inflation.
And that was hockey offtake bought some of the cost savings I do want it just remind you for many patients point of view you know, we do have a right about teaching program and it's a multiyear probably when we would see while haste coming into this yet so you know anything commodity prices being Ricky.
We will all be participating that that any today. It seems that you know we have an unhedged portion for those commodities.
Okay. All right. 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 she'll to just the news headlines that I've been out there on a check on your she had to position.
Yes look and learn obviously, you know with its crop and in a profit ethanol about a month ago and many of the ethanol producers had stopped producing.
And since that ethanol is he's fast here to supply they are expected shortages in the markets and we monitoring that very closely.
And how do we do you have taken resources into <unk> and if he has not had any disruptions to our supply and we also are conducting as much yet to 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 there will be there was an intent on on tax in the possibly 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 the second quarter.
Yeah.
Yeah, Steve Mcqueen, resulting a full technical and legal analysis of the the text weeks, then kind of we understand the full impact in the indications and pool for cash taxes as well is the timing.
And so the answer to 200 million estimation didn't really is a piano impact and you know correlates to the periods from state to January 2018, right up until March. They 23, so that if the considers the full range of impact and that he can be still doing you know some of them, England technical analysis, and we'll be able 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.
Coal.
The conference has now concluded. Thank you very much for attending today's presentation. You may now disconnect.
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