Q2 2020 Molson Coors Beverage Co Earnings Call
[music].
Good day, everyone and welcome to the Molson Coors average company second quarter 2020 earnings Conference call.
All participants will be able to listen only mode.
Sure you need assistance leasing all conference specialist I, Kristina Starkey followed by zero.
After today's presentation, there will be an opportunity to ask questions.
Ask your question you May Press Star, then one and you touched on telephone.
John Your questions you may pressed aren't you.
Participants can find related slides on the Investor Relations page of the Molson Coors Web site.
Our speakers today are Gavin Hattersley, President and Chief Executive Officer.
And Tracy Joe Bear Chief Financial Officer.
Please also note today's event is being recorded.
With that I'll turn todays call over to Greg journey, Vice President of F., DNA and Investor Relations. Please go ahead.
Thank you, Jamie and Hello, everyone.
Following premier prepared remarks from Gavin and Tracy we will take your question. Please limit yourself to one question. If you have more than one question. Please ask your most pressing pressing question first.
And then reenter the queue to follow up.
To the extent you have technical questions on a quarter, we ask that you pick them up with me in the days and weeks that follow.
In today's discussion includes forward looking statements within the meaning of applicable securities laws important factors that could cause actual results could differ materially from the expectations and projections contained in such statements are disclosed in the company's <unk> filings with NBC.
Company does not undertake to update forward looking statements, whether it's <unk> result of new information future events or otherwise.
GAAP reconciliations for any non-GAAP U.S. non U.S. GAAP measures are included in our news release or otherwise available on the company's website at Www Dot Molson Coors dotcom.
And also unless otherwise indicated all financial results the company discusses our versus the comparable prior year period and in U.S. dollars.
With that over to you Gavin.
Thanks, Greg Good morning, and thank you everybody for joining us today.
We had a strong second quarter as is evidenced by the results released this morning executing well against our two main objectives as the world continues to adjust to the ongoing Corona virus pandemic.
But before we talk about our second quarter performance I would like to address the challenge of systemic racism.
Racism is not a new issue.
And I'm not even after believes that our business alone can solve a problem has plagued the United States in many parts of the world for so long.
But I do believe we have the opportunity and the responsibility to try and be part of the solution that is why we'd be an unequivocal that we believe black lab Xmeta and that's why we're backing up our words with action.
We developed a new action plan designed to build a more inclusive culture at an increase diversity within Molson Coors.
Our intent is to conduct a culture assessment of our practices and policies to God for the future improvement across all of our business units.
I used to representation of people live colorfully now U.S. operation by 25% by the end of 2023.
Across the country among salaried employees and also your leadership positions improve our hiring practices and leadership development programs to bring in highly skilled jobs. This tenant.
Develop a future leaders and much more.
We've already committed to donate one of the Hoffman in dollars to 23, local and national organizations dedicated to your quality and problem Justice and community boating.
Engaging our own employee resource groups in the process of selecting which groups to support.
This is only a start.
Cannot be a moment in common causes bus seem to be forgotten.
We are committed to meaningful long term change inside and outside our business.
Our efforts to lead leave a positive imprint died in the two weeks ago, but at least a and he'll sustainability report, which we announced progress against our 2025 sustainability goals.
Highlights from the reports include further reductions in emissions. The fact that more than 99% of our packaging is not considered reusable recyclable or compostable and an increasing number of hours zero waste to landfill facilities.
Addressing racism and protecting the environment and not societal issues to be addressed by someone else you're talking to us to help build a bit of future.
And doing so it's good for our business and the communities in which we operate.
The data is very clear fostering a more diverse an exclusive environment and exhibiting social responsibility increases employee engagement, which leads to more discretionary if it and stronger performance, which leads to better business outcomes.
Yeah actions, we're taking will help our business compete and win in the future.
All in the progress we are making today.
As is evidenced by our strong second quarter results.
Last quarter, we told you the overarching focus is the whole well deals with the Corona virus pandemic were centered on two objectives.
Never getting a short term to protect our employees and to mitigate the short term business challenges of the Corona virus.
And secondly, positioning our business for long term success.
And that's just what we've done.
Through sound management, an incredible work by our teams we had a strong second quarter executing well against these two objectives and beating expectations for both top and bottom line performance in Q2.
We did it while delivering an improved cash position and preserving the biggest fire power and our marketing budgets. So they can be ramped up in the back half of the yeah. We we expect I will be most effective.
We have also benefited from affected our business is not as exposed to challenging markets as many of our competitors.
Such as the continued problems facing supplies with much more sizable operations in places like South Africa and Mexico.
At the end of Q2, the benefits of our work to navigate the short term impacts of the Corona boss are clear.
Coors light achieved its highest sigman shape ever in the United States.
Let me repeat that good luck achieved its highest segment share ever in the U.S.
Really lots God became a top sitting near beer 2020 per Nielsen and it not ranks amongst the top three growth brands in the entire cross segment, most apparent Nielsen behind <unk>, Belgium wide.
Busy has already made a name for itself in increasingly crowded U.S. hard sell for market.
Despite not launching nationally until April it is already the number three sell through in a number of markets and is beating Bud light felt in repeat purchase rates.
I Trust candidate a joint venture shipped its first production, we're very encouraged by the consumer reception.
And then they do this on your joint venture Trust USA, he's already piloting opportunities for non non alcoholic <unk> derived CBD beverages in Colorado.
We have driven progress in Canada through growth in craft and the off premise leveraging the North American innovation Belgian Moon, Luxco as well as growth in local craft brands in Canada, such as Creemore and BTM.
Our Canadian innovation portfolio is also off to a strong start with Ecweru a line of vodka based kendricks, Arizona hard green tea and vine non alcoholic hop water.
We became an early into into the European Hot cell space by signing an exclusive agreement with British hot cell to make it but they get back and we're extending beyond I'd be a portfolio off the signing with Miami cocktail company to distribute the growing brands in the United Kingdom an island.
And last but certainly not least we strengthened our financial position.
We renegotiated our bank covenants to help ease potential short term liquidity constraints.
And we suspended our dividend payable for the balance of the 2020 fiscal year.
Decision that we believe it put us and I'm stronger cash and leverage position during the pandemic.
In lots of these steps we were pleased that Moody's affirmed our credit rating kept a up looks stable.
So give me wrong it wasn't easy, but we were able to deliver this strong quarter. Despite the challenges facing our world in our industry today.
Tourism in Europe has dropped dramatically hubs in the UK would close through the end of Q2 as a result of the pandemic.
Some of our Latin American markets were shut down completely or partially from much of the quota.
And while the number of establishment so a lot to reopen typically in phases.
He's would quickly close down again in the United States.
[noise] consumer demand is shifting away no one could unforeseen six months ago, when bars and restaurants are shut down in the early parts of Q2 demand for kids in the U.S. went to zero and Conversely demand for cans went through the roof.
Every company that makes anything in the 12 ounce can be challenged to some degree by the global can shortage.
For example, coke and Pepsi of acknowledge challenges and ball Corporation announced new plans to increase production capacity on cat.
At Molson Coors, we had been producing and shipping can be a at significantly higher rates than in recent years.
It hasn't been enough to meet the historically high orders were seeing.
To put a finer point in the level of demand were seeing week tips July 4th week shipment days in the United States for Tom's already this year that's on hurdle.
You remember about Q1 cool I said constraints on cans in paperboard would be a challenge this summer in North America.
All along we've been working with our distributors in North America to try to manage it.
We've been getting as many Kansas possible from our supplies, we have been tremendous partners for us and we've worked to source more kids from countries around the world.
At this point, we remain tight on the Coors light talking but are seeing the situation begin to improve with respect to 12 ounce industry standard cans.
We're also making progress in security more paperboard as I supplies recently added to they put out catching up on some escaped use.
Despite all of these obstacles, we continue to navigate the corona virus effectively today, while simultaneously them along too.
There is no better example than our new investment, which is intended to couldn't couple a U.S. seltzer production capacity.
Building on the strength of disease launch in the upcoming launch of course, Seltzer, We announced a multimillion dollar project about Fulton, Texas Brewery, which includes the installation of and you can't Ilan meeting earlier this year.
On a state of the art filtration system expected to be finished later this fall.
As I mentioned before our brands will have additional marketing support in the months ahead.
We preserved our marketing firepower for Tom when we expected would have the most impact.
Well I wasn't restaurants are starting to come back admittedly in fits and starts and we expect to increase investment.
We completed our acquisition of export a brewing across Brazil that gives us a foothold in the eastern parts of the Midwest and one that produces cross sell to isn't beverages that extend beyond the Bureau.
We're excited about a new partner on their offerings.
And speaking of partnerships, we recently announced we will be an official partner of the new Las Vegas writers football team with the official domestic beer the official craft beer and the official hard seltzer.
One way that we continue to invest behind our brands even in some challenging times.
And for those of you get excited that baseball season is underway I'd remind you that we entered the 2020 with partnerships with 50% of all MLB teams.
We're pleased with how we have managed the short term and are confident in our plans to position the business in the midst of such uncertainty brought on by the Corona virus pandemic.
Based on what we have seen what we've done.
We intend to maintain the strength of our premium business and expand.
Beyond the Bureau.
Financial highlights. Thank you you get an antenna if they line.
I will say havent supported by solid aided and regional basis.
They need to act up.
And the continued I havent seen at Carrington filing we had determined not to reinstate guidance at this time, but we won't be giving additional forward visibility on clean and offering of to speak about how we believe we won't be impacted by this ratified in the future.
We do not expect to continue to get this visibility wise condition that stabilized only resumed gotten.
Thank you we kept this quarter.
So saving it decreased 14.3 thinking constant currency Logstica, you keep brain volume decline.
The team on premise channel and the quota along with it.
So to make it just makes indications.
Additionally, I am just shipped this position in a unique continuing kiki, mostly due to the constraint the types of trial that's okay.
And just mentioned.
These impacts if possible.
Hey processing in <unk> and Canada.
Nick.
Oh, the he said he thought brands argue basis increased 0.3 themes in constant currency, reflecting positive pricing in eastern Canada more than offsetting negative mix effects gladney due to the various market dynamics and I assume a shift caused by the Colorado, Nevada.
Specifically because that is the timing of fragile we opening up on premise location.
Next in Europe.
And that's it.
I skewed towards the on premise occasional Steve establishment had an unfavorable impact on our brand and channel mix.
Well Black brand volumes decreased 11.6, [laughter] <unk> financial bargains decreased 12.5, 15, or 16 and favorable shipment timing and really another contract brewing volumes.
Underlying cost they needed inks and currency basis.
I've been Backlogging de leverage <unk>.
You are fading and a favorable resolution that property tax appeal for Golden Colorado right.
Underlying mdna decreased.
Jason.
Good and bad things get up on premise activation and elimination and reduction of standing areas that have been significantly impacted by the color identified for example, sports and lobby entertainment today.
We also adjusted the timing of marketing investments behind brands and pack.
Maybe experienced a thought constraints.
In addition, I keep an eye.
And with no actually delivered against that cost savings and Reebok Ization okay.
As a result underlying EBITDA increased 2.2% on a constant currency Bang free cash flow of $796.4 million for the six month ended gene that you think you dream team with $235.7 million favorable prior year.
Driven by favorable working capital and lot of cash paid for Texas as well, it's not a cash paid for interest cost ill say for another underlying EBITDA and high cash paid for capital expenditures.
Working capital and cash tax favorability was driven by the deferred off more than $500 million in tax payment from various government guaranteed propane is to send it back geography in response, which a significant portion.
It should be paid in the second half of the yet, but the remaining cannot be paid frequency trends you want.
Yeah.
In North America, net sales decreased 9% in constant currency.
This decline was driven by brand volume decline unfavorable shifts in timing in the humane and leather contract brewing volumes.
North America brand volumes decreased 7.8, the same as the on premise coaches during the quarter more they all state the continued strength, particularly the anyway any off premise.
In the U.S. brand volumes decreased five point, keeping compete you didnt, except that the costs of 6.5 to think quartet.
Nick South Bay City, so on a brand volume basis increased 8.9 fitting in constant currency driven by favorable geographic mix favorable package mix.
And meat pricing increases in the U.S. in Canada, partially offset by negative brand and channel and from the on premise to the all fitness.
Let me give me make south the heat city to on a brand driven by positive mix with favorable package mix more they owe seeking make it if brent.
In addition to the need pricing increases.
In Canada negative makes more than offset the funny passing increases while in Latin America need sell so he can you tell on a brand volume basis that decline.
Underlying EBITDA increased 18.8.
DNA reduction moving over 50 unstable the impact to gross profit from another bargain.
The mdna reductions taken the shifting assistant marketing spend and reduced discretionary spending limited you hiring and travel restrictions.
In addition, we kind of.
Can you do another cost savings related to the revitalization thing.
Turning to your it which is more heavily skewed towards the on premise Nick sales on a reported basis decreased 42.4% in constant currency due to lower bargains and 11 itself. The heat can lead to reflecting the impact from the Colorado, Nevada.
Net sales that he can you tell on a brand volumes basis declined 12.7 sustained in constant currency.
One button favorable channel and geographic mix, particularly that they get impact to the high margin you type business as well, it's slightly unfavorable pricing.
Financial Bargains increased 24.8 sustained and brand volumes decreased 21.4 sustained.
With any partial on payments I think team during Q2 in some of our smaller European markets.
Your underlying EBITDA of $31 million decreased 66.95 days on a constant currency basis. This is the prior year driven by gross margin impact a bargain declines and compensation.
Okay follow the Indian expenses as a result of cost mitigation Exton osten.
During the carotid Bart pandemic as when it lower incentive compensation.
In Europe brand volumes were down 21.4, but thinking Q2 and in fact catches up on premise account, which were in full force at the beginning of the quota and began to lift any statements more democracy insulin waste and get it towards the it did not reopen until July this fall.
Fishing gear it is significantly higher.
In the on premise channel than any okay. That's impacted by the clashes in this channel and expect she losses during the current period.
Hey off payment, we when they see not a.
The F. Rep channel shift due to our level of capacity action to protect the safety about people.
But this situation has been pretty significantly during the quarter as we have taken measures to increase capacity, while not compromising on the safety of after people.
Based on 2000 and not seen results on premise business in Europe comprised approximately 50 to 55 to things of any socks and a high portion of our gross margin while in the second quarter nearly all of that sales in Europe with some of payment.
We are taking significant steps in reducing spending for bad Kathleen basis, NXP and I've taken steps around cash collections to minimize connection Rick.
Despite these actions probably long closures or limited we opening on the on premise business will continue to have a meaningful impact on our European and total company gross margin and profitability.
[noise], which takes me to our financial outlook.
On March the 27th we withdrew out guidance due to uncertainty driven by the kind of our same Danny.
It's a continued speed up the bar and there was a sort of sitting on premise. We I mean, that's taken to remain.
As a result, we have determined not to reinstate guidance at this time.
The pandemic continues to impact our business due to unplanned losses across all that geography, and disproportionately in Europe, and we expect Dave It's a clean involved in any thought mix and unfavorable fixed cost that sonexion Cogs will continue for the foreseeable future.
The strength of demanding off putting this has been unprecedented.
But it does not fully offset the on premise losses and while the current unfinished trends continue we don't expect any increasing total payment volume due to channel shifting will be sufficient to offset the on premise losses.
Also we expect the industry wants to talk on strains on 12 ounce cans will remain an issue for us in Q3.
How is that you chopra active agents to address this we expect anything shipment trains anyways to be higher than brand volume trends as we build inventory for the balance of the yeah.
As it pertains to engine eight weeks, they time marketing in basin to increase in the second half of the yet in North America disciplines have co brands as well as innovations like the last Scott busy and the August launch of could sell Seth.
Some of this thing will be dependent on a number of factors, including anticipated for tune up last fall.
Finally, we also want to quote out some unfavorable DNA vaccines comparison, as we will be sacking lower incentive compensation, particularly long term incentive compensation from the prior year invested and fourth quarter as well as a nonrecurring thing that benefit anyway in quarter four last year.
Notwithstanding the current.
This environment continued desire to maintain our investment grade rating and we have taken a number of states to ensure we protect hep energy.
And put ourselves in a based physician.
If navigate the credit if octane Danny.
As it pertains to our borrowing capability during the second quarter, we repaid the full $1 billion that was outstanding on our 1.5 billion revolving credit facility AOS, yes.
As a result, you had no borrowings on outstanding on our see if at the ended the second quarter.
We had approximately $200 million of commercial paper outstanding as of June Thirtyth Twentytwenty, resulting in available capacity I know at all if at the city that you have $1.3 billion.
In addition in May to range between C., we established a 300 million dollar pounds commercial paper facility for our UK business.
We did not issue commercial paper under the facility in the second quarter enable had no balance outstanding at quarter end.
I'm not that you its commercial paper facility that you pay facility does not impact the capacity up the artsy that as an incremental 300 million pound borrowing capacity for our business.
In June change between C., we entered into maintenance, Yeah, Rcs, which favorably revises believe refreshers under the financial maintenance covenants for the next six fiscal quarters talking with Janus said you between between.
Our near term liquidity position was visiting Prebuy boards decision in may to sustain that 40 dividends for the remainder of the Twentytwenty fiscal year.
As well as the benefits of the Capex and cost reductions discussed on assays quarter cool.
During the first quarter, we announced the reduction in Twentytwenty planned capital expenditures by approximately $200 million and this reduction remains on target without sacrificing our ability to invest in its history safety and maintenance projects as well as Kathleen basin fits into the cost savings and high return growth businesses.
To such as a significant investments behind Hearts houses in our fourth with.
And that's the backdrop of this level pandemic, we are pleased with FTC financial performance I probation, increasing liquidity and if it's Ted baun to long term goal for the business.
While we are confident in our ability to achieve Tim succeed we are mindful of the challenges and continued uncertainty that lie ahead.
During this time, a fragrance agency management and board will continue to take prudent and proactive action, which are in the based interest of the company I employees consumers customers and our stockholders.
Our decisions will be guided by and consistent with the company's overall financial discipline, ensuring adequate liquidity for our continued decide to maintain our investment grade rating.
Hi actions remain focused on doing what is based not only in the near Tim but positioning the business for medium and long it seems that space.
With that thank you for your time and attention and I'll turn it back to Jamie for Q today.
Yes.
[noise], ladies and gentlemen at this time will begin the question and answer session.
To ask a question. Please press Star then one using your telephone keypad. If you are using a speaker finally do ask you. Please pick up the handset before pressing the numbers to ensure that sound quality.
To withdraw your question as you May press star into.
Once again in order to ask your question. Please press star in one.
Our first question today comes from Kevin Grundy from Jefferies. Please go ahead with your question.
Hey, good morning, everyone and I hope that you're doing well, Kevin I wanted to pick up on the other companies a hard seltzer strategy, maybe we could talk a little bit about U.S. and then you mentioned international well so on the U.S. I'd, probably just to stay the union I have a number of questions with respect to busy and where do you believe that sourcing share in your.
Early impressions, there and market share potential for that brand and then as you roll out Coors light what had been sort of the learnings here with the busy launch how do you intend to keep your distributors focused on both brands to hopefully ensure that both of them. Our success and then just qualitatively I will expect you to talk about how much you intend to spend behind that of course.
But just qualitatively maybe you can share with folks how big a priority. It is for most recourse to be successful in this category and then just a brief follow up on Europe. Thanks.
Thanks, Kevin Good morning, and Yep, well, we all wrong here and I have to same applause your sorry.
Look we put a very clear strategy as far as a whole itself is concerned and and we're being pretty smart about how we execute these two new entrants evolves.
Obviously first and foremost refocusing on busy which we launched in April and then Chris Seltzer, Kevin It's not good luck selling through his quiz Seltzer in August.
I think it's clear that this celsis hogs sold to segments, it's going to be a huge segment and there's room for multiple brands and multiple solutions.
From our perspective, we're making sure that we've got very clear point of differences without two interim so busy obviously as good a very clear supportive of difference with its actually wrote a charity, which is which is high and antioxidant with them and C and based on what we're seeing from consumers and the demand for this product, we're actually very confident that the proposition.
<unk> is is resonating well and we'll continue to resonate well and today and we kicked off a TV and the video online campaign. This week. So you know the early sounds very promising.
Chris Phillips. It comes in August people are in this in this corona virus pandemic tuning to known and and trusted brands and the cruise brand best fit is the base for two to play in this space based on our tasting, particularly with its Rocky mountain freshness and why.
Got it heritage and it's also go to clear appointed difference Kevin. It's the first hard seltzer with a with a social missions were partnering partnering with change the cost and then on top of that it is it is a great tasting product just like busy is.
As far as sourcing is concerned look I mean, it's coming from every way obviously, but the majority of cell. So hard filter sourcing is coming from outside of beer, which is which is very positive for the big category and beer segment from within the the beer category, we are seeing crofton and flight.
Which is being as being big sources of overall deck, which is coming from a from the beer category.
From a shelf space point of view it should be coming from from over obviously underperforming projects, which right now which would include crofton and certain slower moving if MBS.
You shouldn't be coming at the expense of the foster moving economies and.
And premium Lux as far as our spend is concerned when as Tracy said in the in her opening remarks, we are expecting to increase our marketing spend in the second half of the year versus the second half of last year and you could assume the decent chunk of that we'll be going behind.
Behind our.
The enquist salsa launches.
And then you said you had a follow up on Europe.
Yeah that they can you just mentioned that the company is pursuing the hard sell through category in Europe as well. So like law has announced that they are investing in western Europe, a truly seems to be domestically focused just perhaps comment on the opportunity relative to the U.S. market and how big it doesn't have an investment the company plans to me.
Make a behind the category there.
What did in Europe, we have recently signed a deal with.
With the Miami cocktails with Bodega Bay, it's the first one of the early entrance into the seltzer market there.
Im going to keep a little bit customer change some of other plans around seltzer, because we haven't been public about demand in Europe.
Kevin, but you can assume that a we will be showing up there beyond just just a big it today goodbye.
That's very good. Thank you guys. Good luck.
Thank you.
Our next question comes from Laronde Grand It from Guggenheim. Please go ahead with your question.
Hey, good morning, getting that person. So two questions from me. The first one we're getting the UK as decides whether you can come its recovery.
Yes, again for your top and bottom line could you give us.
Yes, I mean, you were going to use happening I know he has been rubenstein and July 4th on the west equal rights, enabling us inventory in that channel.
Thanks, Darren so.
As far as the on premise in Europe is concerned you can divided up into central Europe in Western Europe Central Europe opened up started to open up in the second quarter and a we quite quickly got above the sort of 50% level hubs in restaurants, we're opening but obviously they were at reduced capacity.
And we've seen the that's sort of level level out in this in the sort of 70% to 80% of pubs in restaurants opening volume impact is obviously greater than that because of the load capacity and social distancing.
Processes and procedures is that that Theyve got obviously tourism as being very hard hitting in central Europe, particularly in countries like we operate in Czech Republic Croatia.
And so and so on from a from a UK point of view.
On premise was pretty much nonexistent for most of the second quarter.
Already I persuaded opening up on July 4th weekend, and and again same scenario, we we have seen and decent proportion of of on premise arguments reopened.
But again that lower capacities and lower volume levels as far as inventory is concerned in the in both the UK and and Central Europe are our on premise supply for kegs is not an issue at the sporting trademark our constraint is more a me in the off premise, which has seen a seat.
Some of the surge as we've seen.
In the North American business.
Thanks.
Yes, there is on the Crystal is really about the.
The U.S. and you could in the light segment, So I was where I'm curious where out into a recession.
AH you, maybe you could expect when a consumer and thanks for the some of your whole centers on Sandy.
Doesn't trade down to a more affordable brand. So is this something that you kind of comes from and do you have experienced some thoughts recession that you could share reasons.
Oh, no we haven't actually seen that this time around yet certainly support for our premium blocks above premium selfless has as being strong and we haven't seen a lot of trade down into the into the economy segment now that might still come given some of the actions which which.
National governments are taking in terms of support for the full four unemployed FERC, but we haven't seen that too to date in prior recessions, we've actually have seen ongoing support for for premium and above premium brands at the same Thomas some for because.
I've tried to down so at this point in time, we're not seeing it.
Okay. Thank you very much good guys.
Thank you.
Our next question comes from Lauren Lieberman from Barclays. Please go ahead with your question.
Great. Thanks, good morning.
The first thing I was hoping to get some color on why the I'm the Cogs per hectoliter in in the quarter and how to think about that going forward. Any Tracy you mentioned that you had one can benefit from a favorable Saturday night tax situation.
You know by my math that was you know not quite half, but good portion of the upside to earnings in the quarter until we think forward and think about marketing going up to support the all the innovation you're doing I just wanted some perspective on how to think about Cogs per hectoliter. Thanks.
Hi learns the yes, it am SBC that underlying Cogs per hectoliter constant currency increased five point for the same.
So we had bought him de leverage [noise], which you would account for around 250 basis points.
We also had the thank you pay and which we we had a portion of that in the into Cogs line.
And then all sitting there the favorable resolution to the property tax appeal and was just under 100 basis points.
And then obviously, we had favorability coming from cost savings as well. So that's funny that is huge that is helpful for you.
And yes, [laughter], just Tonight [laughter] sadness Tonight, Laura <unk>, you know the 100 basis points within the property tax appeal and it is sitting in an unusual.
Sorry that isn't unusual and that's why we called it out.
Okay. So in the cost savings Daniel.
Very very sang and transparency could you maybe you didn't just give us a little bit more color on your new productivity initiatives are things that we're going on I didn't mean won't be part of the you know the longer term restructuring plans, but.
I can't even if I accept that tax benefit the Cogs per hectoliter. When it comes through you know much much better I think than most people had modeled and with the amount of volume de leverage there and so how does that cost savings.
[laughter] sticky.
Because that would give a lot of support kick that Tim Allen and EBITDA growth looking ahead.
Loren, maybe I'll just give a couple of top line and then try it's going to add color to it but you know we're very pleased with high revitalization plan is going notwithstanding this circumstance, which we were it which were operating.
I I mean enormously proud of how all about people actually but.
It's mostly the the supply chain and procurement operations a functioning during what is clearly a very very difficult time I'm curious are operating as efficiently as I can remember them and I've been here for quite some time now so.
That is certainly helping Cogs and our revitalization plan as far as.
As cost goes is is on track.
Yes, I mean, we've you know we've mentioned and cost savings around to 600 million. So yeah. The next three years and as Kevin said, I mean, we well on track to hit the targets.
Okay. That's great and then if I could just off the second question I mean, clearly I get that you're making great project progress with the transformation plan, we're seeing it in that the cost like we just talked about.
But when we think about balance sheet and I know that you guys have you know there's been quite a bit in the in the media around I quote strategic review, there's been debate about about Europe.
Like you know I just wondering if there's other assets.
You have that may not be strategic and can give you more flexibility.
For the balance sheet standpoint, and so if for example, I believe you still have I guess, one distribution business, which maybe is a bit I was like a legacy.
In addition, and I'm just curious if your any kind of thinking about noncore assets within the context of this transformation plan to give you some more flexibility on the balance sheet.
Let me take that one.
I'm, just not going to get into engaging in older. The rheumatism hypotheticals and speculation that goes on outside of our organization odd decisions that we make in rock now to navigate the.
Corona virus in the global economic downturn have and will continue to be guided by the two principles I've spoken about first rod putting out people first and mitigating the short term business risks and then secondly, ensuring that the actions we take two day during this pandemic position our business to succeed in the in the long term.
As it regards our distribution company, we love our distribution company in in Denver. It gives gives great learnings for us to help Oh sales spoken our operations FERC.
Learn and be put in a better position to know what it's like on the other side of the of the the did the the desk so to speak and I'm. Just we believe makes us significantly better partners to to a other distributors around the country.
Thanks, a lot I really appreciate it.
Sure.
[noise] [noise] [noise] and our next question comes from Andrea to Sheriff from JP Morgan. Please go ahead with your question.
Oh, Thank you and I hope always well.
Based on markets that you haven't seen a resurgence in Kaizens and are you see the same level off the off premise UPCIC versus what you saw in marching need crew and just a clarification on a point that you need about marketing spending just circling the house should we expect marketing should go back to the second half.
Half of 19 level. So in other words flat year over year or even higher due to the launches, especially as the south So long answer launch and should we see part of the savings into first half flow through or in other words like because it does it make sense to increase promotions now that.
Tom consumption is so strong thank you.
Thanks, Andrew So I'll take your second question first you know the at the beginning is a pandemic. We we obviously took really quick action with our marketing spend in basically three ways. We right size. The overall spend we delayed some spending on new products and we shifted media to consumer relevant channels with the consumer relevant.
Surging, we made sure that we prioritized us being behind a big trusted co brands like Blue Moon, and Miller Lite and Coors light.
We did choose to delay some other significant spend behind certain products due to change you know the chain receipts were delayed.
And yeah consumer behavior in stores, just changed fundamentally and we also shifted our media two to two channels like Twitch and you tube and ready to do too is that we were not consumers were migrating to in fact, we created a significant number of new programming. It very short notice like the mother like virtual took jar and.
Coors lots America could use a bit campaign, which both of which can make did extremely well with ER with consumers.
Our focus is being to maintain top of top of mind awareness for a for a big brands is as far as the remainder of the year is concerned as we discussed and Tracy said, we expected a marketing spend in the second half of this yet to be higher than the second half of last year. So to answer your question directly we expect.
Right now that the six months.
Remaining in this year will be higher than the than the second six months in 29 team, we're going to make sure we've got strong pressure behind.
Trusted brands like like mother lots and Coors light and we're going to drive trial and awareness behind our new innovations are busy and cause seltzer and blue Moon.
We would like Scott, but just as we've shown in Q2, well, obviously monitor what's happening around us and if things change a we've we've shown that we can that we can pivot to our marketing as a as appropriate as far as your first question is concerned look it's it's it's quite a tough question to on so we haven't seen that you know huge spark duck we.
So in that one weekend in March, but certainly the the continued off premise.
Trains in some of the states, we've seen opening openings and closings again of on premise outlets have has has continued.
And just look like there's a super how forgotten I just to clarify when you see the second half like them Jenny Eddelson total or just marketing will be up would you see you just say that youre cost savings that you just it's got signed the prior question will kind of fun. These.
Increase Oh, I mean, other what should we say margins would be under more pressure or actually not so much pressure into second half.
A couple of ways that I can answer that question what is were different than as well based on what we know now are we going to increase our marketing spend in the second half.
Our revitalization cost savings will continue to flow through but as Tracy mentioned there are some one off items, which were beneficial to us in the second half of last year, which wasn't obviously be in the second half of all of this year. So we're not giving a specific guidance on that but that's broadly.
How you should look at it.
That's helpful pass it on thank you.
Our next question comes from Vivien Azer from Cowen. Please go ahead with your question.
Hi, good morning, Thank you Gavin.
A follow up on a comment that you need and earlier in regards to where do you think cards helps our shelf space should be coming from like are you correctly that you think crops should be sure Donna.
Hi, Good morning, Vivien, Yes, Croft should be underperforming craft brands should be.
She has done a comment really really relates to the word underperforming rod to mirror a number of of underperforming craft brands that exist.
In various channels and that should be a a shade done or the same would apply to slow moving underperforming flavored malt beverages.
Okay that makes sense I'm curious you think that below premiums to be sure donor as well because it seems to be the leading lager and if you will California.
Well I noted the extensive foster turning sub premium economy brands.
The Vivian and and we've always said all segments matter or they and they do and you know.
To an earlier question Ross, we haven't seen an impact of of trade and you know one can assume that that will happen if the consumer spending unemployment remains.
Really challenged into the back half of the of this year and into next.
That's helpful. Thanks, if I can squeeze one more and on busy any insights in terms of your underlying consumer demographics are starting to get some of that detailed from your peers. Thanks.
Yeah look really is is being.
Well received by all consumer demographics, but particularly by the 21 to two to 29 year old.
Very helpful. Thank you so much.
And our next question comes from Steve Powers from Deutsche Bank. Please go ahead with your question.
Yeah. Thanks.
Hey, guys.
You talked about this to a degree and in the prepared remarks, but is there are ways you could give us a little more color on the supply constraints, you're facing throughout the value chain as we stand here today, maybe a maybe a bit more perspective on just helps in Chile inventories are as we enter August and then ultimately.
Your line of sight able to more fully will more fully catch up on that a clearly you want to ship above.
Bump consumption in the back half, but I, just I'm, just trying to get a little bit more sense for where we are today and what the magnitude of that might be as we progressed through the through to a couple of quarters.
Thanks, Steve Good morning look I mean, as I've said in my opening remarks, and and as you referenced rhodri producing and shipping can be a significantly higher rates than we have in recent years. The you know the demand for 12 ounce, Kansas, just I'm pretty unprecedented and you know comment or competitors in the alcoholic ended on a call exposed or seeing it does.
As well for US this is being more pronounced for the 12 ounce tool slum can and then also the strong success of busy and Blue Moon lots Guy that has also at a two the to the to the pressure. We've we've addressed this in a number of ways. One is we have suspended production of slower moving products.
I can just in the 12 ounce cans, so that we can fulfil or foster moving packs.
And we've had to adjust orders from from wholesalers for some packages to balance supply levels across the across the country. We are seeing the situation begin to improve with respect to the 12 ounce industry standard can and so some of the slow moving products will slow start to those back on in the in the in the in the weeks ahead, but we do.
We remain talked on the quiz lot 12 on talk in and that there will probably continue impacting us through through summer. It is of course dependent upon on premise.
Closures or or Reopenings.
We also did have some packaging supply constrains, specifically for four paperboard, but our supplies making.
Progress as far as that is concerned as well so I.
I think Tracy said in her opening remarks, I mean, it is our intention to to ship to consumption for the for the full year and and.
Yeah, I think that's about it.
Okay. That's that's helpful. If I could I mean.
Maybe this is a bit more theoretical but you just given given where your your balance sheets of say in current leverage.
Level and your desire to remain investment grade, which is which is which is clear.
Do you see any constraints at all on your ability to invest more aggressively than planned yes, optimistically you get the sense of conditions unexpected.
Hi, good at wasn't up as a risk that you may have to be a bit more patients versus versus some of your more under levered competitors.
Which is good plate placemark shares under pressure if.
We encounter such a such a point of demand inflection.
I don't sit in a couple of I started to get onto the EBITDA ratio is as it relates to the end of the second quarter on a 12 month trailing basis, and where we are but you know it certainly hasn't constrained us from investing behind what we think or or or or going to.
I'm very successful entrance and you know point to a fort worth or Fort worth expansion of or Bros. Kenny Klein and filtration system not neither of those were.
Mr. Certainly planned into this year and we've made and have full board support to invest a meaningful amount of money behind our our seltzer portfolio. I think it's also you can you can draw the same conclusion from effect that we're increasing our marketing spend in the in the in the back half of the year well. That's our current plan is to do that based on current.
I think what I'm, saying is we are quite willing and able to invest way we.
Invest to be successful for the long term that really plays.
Steve to my point about doing things in the short term, but not hobbling us for the long term just want to comment on our ratio.
He had been making and I think if we need that publicly and again you know leverage ratios, obviously, you know quarter by quarter. It addresses that if I look at out maybe trade show at the end.
Oh for our net debt to EBITDA ratio at the end G. I'm on a trailing 12 month basis that we were around 3.4 times. So you know that's an improvement from the Indicee yet.
And then have lost yet and you know well they'll continue to focus on on and they tend to pay down and maybe trade shows as it is I decide to maintain our investment grade rating.
Great. That's okay. Thank you very much.
[noise] enter next question comes from Bryan Spillane from Bank of America. Please go ahead with your question.
Hi, Thank you operator, and good morning, Gavin Tracy.
Good morning.
My question is just related to the marketing spend in the back half of the year.
I guess, there's kind of two components to it one is you know there's a lot of companies across our food and beverage coverage universe. We're also planning to have plans to ship their marketing spend to the second half of the year. So curious if you know there's a lot of demand for advertising channels, if that's creating any kinda.
Of inflation over time.
Right and maybe 'cause it costs more and then the second would be.
Given that you're gonna be spending a lot more in the back half the year, just curious how you're thinking about the effectiveness of that span given that being concentrated in a short period of time. So just how do you sort is you don't think about the return on investment or just how you're planning to spend just given that it's kind of unusual to have such a back half loaded plant.
Yeah, Thanks, Brian I'm John to your first question no. We haven't seen that I think as as maybe.
Marketeers or or upping they spend in the six.
In half because it makes sense there was some industries, where you know it still doesn't on premise national chains.
We would be a beginning.
No we haven't seen any impact from that perspective.
Second part is the effectiveness of the spending and actually we.
So some results or the late last week or earlier this week that showed that the that the a marketing effective.
Most on some of our programs in the second quarter was as high as we've seen them and in quite some time and I'm, referring to campaigns like the mother like virtual took John because Latin America could you could use a a beer so you know.
Our marketing effectiveness and return on investments actually getting better but to be the case in the <unk>.
Yeah programs that we've got coming.
Thanks, if I can just follow up on one more if it how much of the spending plans in the back half of the year are dependent on live sports.
Coming back to a fuller schedule. So like if the NFL ended up with a shorter season or there's no NFL and for some reason in the back half.
With that at all if that you're spending plans.
Yes, it would I mean, it would Ics would probably affect how much we spend but it would also said way we would spend so you know our marketing team.
I've been very nimble in.
Last so to speak given that we weren't expecting.
And then making.
Places where consumers are so right.
No. We're obviously expecting all season, and we've got major League baseball underway and hockey starting in India, starting but you know that that should change how good a good based on what they did in the second quarter I've got it.
Absolute confidence that we would be able to be nimble in the in the third and we would adjust a spin dependent on whether it was a whether it was effective going on.
Great. Thanks, Kevin.
And our next question comes from Rob Bodenstein from Evercore. Please go ahead with your question.
Great. Thank you very much I just want to kind of go back to a couple of a big topics no can situation and hard seltzer. So on the cans side could you give you quantified or ballpark. What you think you're lost sales were in in the quarter due to out of stocks a and maybe.
We remind us what percentage of your business, a last and what percentage. It is oh this year and I'm, assuming that it's that you know movement to can positive mix.
Thanks, Robert look I mean from a from a.
Lost sales point of view.
No I'm not going to quantify that I mean, obviously, we have lost.
I'm, sorry, I'm going to message of determining out of stocks Rod. It's it's out of stocks that are at our wholesalers out of stock on the shelf and obviously the the former tends to be higher than the led out because of just the way the whole system works.
I'm quite sure that we that we have lost.
So I'm I'm retail sales, but consumers have been shifting between a package tops when they when they preferred package tough is not.
Available.
Also point to that that we are shipping more can be a and then we have in in many many years Robert.
As far as the as the mix is concerned look I'm not I think I can refer you to historic numbers I'm not in our in our 10-K as far as the canon and bottling Keurig Splitters <unk>.
Oh I'm.
I just feel it.
So little competitively sensitive right in Europe, where we're pretty low in the second quarter and came off a lot in the in the North American business.
Well for the same reasons would have come off because because there's a strong on premise.
It's safe to say that.
Oh God.
Talked in fastest growing skews at the moment okay.
And Andy.
You know just in terms of dealing with the can situation.
How much price increase do you think.
You're gonna have to see in in a second half of the year or into next year, given the extreme shortage on chance.
Yeah, a lot of.
Our view is I would say to you that apartments have been a tremendous partners with us from a supply point of view and you know US. There. Obviously is this is an uptick in input costs.
Maybe a girl from Africa ROE for the Middle East.
This is also being a bit one offs stick to that so.
Oh I thought it would be in Super from this perspective.
Great and then just one follow up on course Seltzer.
You know tough tough time of the year to bringing a new product can you talk about where retailers are in terms of their shelf sets.
I'm getting a lot of mixed messages.
Some suppliers, saying, it's just not even going to happen. This year, others say they expect something in the fall. So I'd I'd love to hear from you on that and then you know based on that around that.
What is your sense of the kind of shelf space commitments.
That you're you're hearing from your your top retail partners.
Yes, it's not the easiest time to launch.
A new innovation, Robert you're right, but if we mean luxco and busy all are off to of two very strong starts notwithstanding that.
The reaction that we receive from a retail is particularly the chain customers for of course Seltzer is very strong I'm very pleased with the Chinese place.
What's that we've that we've received and if the initial orders from our distributor any indication of success than we're gonna get off to a very strong start.
Terrific. Thank you very much.
And our next question comes from Bonnie Herzog from Goldman Sachs. Please go ahead with your question.
Alright. Thank you good morning, everyone.
I actually wanted to circle back on your marketing spend that you know just asked a few questions, but maybe asking all definitely you know first you pulled back a lot in the quarter. So I guess I wanted to understand from you. If you see a potential risk you know a disproportionate negative impact on your topline into.
Q3, or maybe even Q4 since typically there is a lag effect on spending I guess, you know you guys seeing any signs of this so far there maybe some color on your trends in July would be helpful to here.
Hi, Thanks, Bonnie the rent remember the image the M. generic cut is both North America, and Europe, and so we have pulled back and the team in Europe have done a tremendous job prioritizing spend in pulling back spend based on [noise].
Did you do over index to the on premise in Europe, and obviously it was nonexistent in the UK full for three months of the of the here as far as I'm hitting a a brands I'm no in fact of I have the opposite dangerous I think I said in response to an earlier question the marketing effectiveness I behind them encore.
Brands in the in.
North America is actually being has actually been a very positive.
And when you when you look at a quiz lots segment share I think it had its highest segment share ever in the second quarter and good I'm at a lot of delivered its 23rd consecutive sigman should grow. So we're not seeing that in fact, we're seeing somewhat of the of the opposite.
Kevin I can you share how your trends have been in July just to give you gave us a sense of how the business. Since then training as maybe we're seeing some openings in the last few weeks granted things are shutting down again, so just curious to hear how your business has been performing.
Yeah, you know Bonnie we wind off I'm, giving you know short term sales trends many years ago, we gave it last quarter because we thought it was helpful. Given that you are right in the middle of the of the of the pen of depend damage, but you know we don't we don't believe the short term trend is terribly helpful to the market. So we don't plan to give it.
Okay and that's just one final quick question, if I, if I may kind of circling back on sort of the can shortage situation I'm just.
Yeah, I'm curious because you have a joint venture with ball Corp. So it'd be helpful. If you maybe could give us a little more color on that relationship and you know if in fact, you know it might be giving you a bit of an advantage. During this difficult period for the entire industry. Because obviously, it's an industry wide issue I'm just wondering you know how that.
May or may not happy just giving it again your relationship like ballpark. Thanks.
Yeah, both being a tremendous partner about during this this pandemic Bonnie gets you know just just like we're constrained constrained and you know they've they've helped us look for ken's around the globe. So the current I'm sorry enough positive about Oh partners. During this during this time as far as our joint venture is concerned that problem or that probably.
Early produces the the at the year quiz luck tool and obviously, the the Keystone Poland, We're running the plant as hard as fast as it as it can and it it wouldn't be giving us and advantage at this point in time, but it is still very constrained given the huge demand that we pay.
Had full well Coors light large pecs, primarily that plant is running effectively.
And efficiently.
Alright, thank you.
And our next question comes from Bill Kirk from and Mckay and partners. Please go ahead with your question.
Hi, Thanks, everyone. I know you won't give the the July trends and that's fine, but maybe just just help me with my math.
Inter quarter for the reported period.
The U.S. brand volumes started in April at minus 14 and ended at minus five does that imply may and June where were roughly minus one year over year is that kind of the the exit rate that you ended the quarter in for brand volumes in the U.S.
Look I think we can say that our global brand volumes did sequentially improve and and obviously given that the first few weeks in in July. We said was down 14. We ended up at five you can do that you can do the math as youve as you've clearly done bold, but we're not gonna give month to month retail sales.
Okay. Thanks, Sorry April sorry, the down 14 was April yeah.
And ladies and gentlemen, with that will conclude today's question and answer session I'd like to turn the conference call back over to management for any closing remarks.
Sure. Thank you everybody.
Again, thanks for joining us today, just wanted to remind everyone. A point of that our 10-K has been filed it has all of the details on our segment reporting.
Well as both U.S. GAAP and non-GAAP measures.
And then again, please I'm looking forward to reaching out to all you. Please do not hesitate to reach out to me. This is Greg Siani again, if you have any questions.
Look forward to speaking you do you soon thanks much.
Ladies and gentlemen, with that will conclude today's conference call. We need. Thank you for attending you may now disconnect your lines.