Q2 2020 Molson Coors Beverage Co Earnings Call

[music].

Good day, everyone and welcome to the Molson Coors beverage company second quarter 2020 earnings Conference call.

All participants will be in listen only mode.

Sure you need assistance leasing all conference specialist 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 website.

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 S., DNA and Investor Relations. Please go ahead.

Thank you, Jamie and Hello, everyone.

Following premier prepared remark 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 expectation that projection is contained in such statements are disclosing the company that 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 objective 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 believed 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 a 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 or more increase of culture and 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 increased the representation of people live colorfully now U.S. operation by 25% by the end of 2023.

Across the country amongst salaried employees and also your leadership positions improve our hiring practices and leadership development programs to bring in highly skilled diverse tenant.

Develop a future leaders and much more.

We've already committed to donate one of the half million dollars.

23, local and national organizations dedicated to quality in 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 dine in day two weeks ago. When did you start and he'll sustainability report, which we announced progress against our 2025 sustainability goals.

Highlights from the reports include further reductions in emissions effect that more than 99% of our packaging is not considered reusable recyclable or compostable and an increase the number about zero waste to landfill facilities.

Addressing racism and protecting the environment, they're 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.

But that is very clear fostering a more diverse an inclusive 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 probably just 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 was centered on two objectives.

Navigating the short term to protect our employees and to mitigate the short term business challenges of the Corona virus.

So it can be 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 as well 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 that 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 was 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 Boston Yeah.

Coors light achieved its highest sigman shade ever in the United States.

Pete that good luck achieved its highest segment should ever in the U.S.

Really lots cod became the top sitting near beer 2020 per Nielsen and if not ranks amongst the top three growth brands in the entire cross segment, most apparent Nielsen behind them in Belgium, what.

[noise] 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 Butler 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 derived CBD beverages in Colorado.

We have driven progress in Canada through growth in Croft and the off premise leveraging the North American innovation, Belgian Moon, Lux Guy as well as Grayson local craft brands in Canada, such as Creemore and B D N.

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 and non alcoholic hop water.

We became an early entry into the European Hot cell space by signing an exclusive agreement with British hard sell 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 will put us and I'm stronger cash and leverage position during the pandemic.

And lots of these steps we were pleased that Moody's affirmed our credit rating and kept our outlook 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 is dropped dramatically hubs in the UK with 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 establish since a lot to reopen typically in phases.

Some of these would quickly close down again in the United States.

Consumer demand has shifted anyway, no one could unforeseen six months ago, when bars and restaurants are shut it in the early parts of Q2.

Im on 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 cannot 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 cans.

At Molson Coors, we had been producing and shipping can be a at significantly higher rates than in recent years.

So 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 Weve clips July 4th week shipment days in the United States for Tom's already this year, that's unheard of.

You remember about Q1 cool I said constraints on cans in paperboard, we'd 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 toll Ken but are seeing the situation begin to improve with respect to 12 ounce industry standard cans.

We're also making progress and security more paperboard as I supplies recently added today, but I'm catching up on some escaped use.

Despite all of these obstacles, we continue to navigate the corona virus effectively today, while simultaneously in the long term.

There is no better example that on new investments, 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 <unk>, Texas brewery.

Treats the installation of and you can't England Fleeted earlier this year.

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 eastern parts of the Midwest and one that produces cross sell says in beverages that extend beyond the Bureau.

We're excited about our newpark 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 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 the 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 finished 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.

Hey, good I didn't have anything line.

I will say habit of coal [laughter] validated and regional basis, they need to act.

Well the continued I havent seen the currency 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 is Ryan if our future.

We do not expect to continue to keep this doesn't even if he wants condition that stabilized all we resumed gotten.

Thank you we catch it okay.

So saving it decreased to 14 point seems to think in constant currency Logstica, you keep brain volume decline.

The team on premise channel.

During the quarter along with it was.

Salting make it just makes indication.

Additionally, I understand position in a unique continued during Q2 nice teacher to constrain the tide of trial that's okay.

And just mentioned.

These impacts if possible.

Hey, pricing in <unk> and Canada.

Maybe I'll speak to any selling it brands our USA.

[laughter] increase 0.3 themes in constant currency, reflecting positive make 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 correct if I.

It's when is the timing of fragile really opening up on premise location.

Mixing your.

And that's it.

Oh skewed towards the on premise the closure of these establishment had an unfavorable impact on our brand and channel mix.

Well the black brands Adient decreased 11 point [laughter], while financial volumes decreased 12.5, 15, predicting I favorable shipment timing immediately and let contracts.

Really finding.

Underlying cost they see that increased in currency basis.

Driven by boggy neighborhoods huh.

Hi, fading and a favorable resolution on that property tax appeal for Golden Colorado right.

And the line in DNA decreased 90 basis, driven by the suspension up on payments activation and elimination and reduction of sand in areas that had 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 pocket of strength.

In addition, actually and I think with no actually delivered against that.

Cost savings and Revascularization same.

As a result underlying EBITDA increased 2.2 sustained on a constant currency Bang free cash flow of $796.4 million for the six month ended gene that you have 20 to 22.

$235.7 million favorable prior year.

Given by favorable working capital and lot of cash paid for Texas as well, it's not a cash paid for interest cost ill see if I love the underlying EBITDA and high cash paid for capital expenditure.

Working capital and cash tax favorite then if he was given by the deferred off more than $500 million can textainer from various government guaranteed propane instead seven about geography in response, which a significant portion.

It should be paid in the second half I'll be here, but the remaining cannot be paid frequency trends you want.

In North America, net sales, 9% in constant currency.

This decline was driven by brand volume decline and favorable shipment timing in the humane and lower contract brewing volumes.

North America brand volumes decreased 7.8, the thanks.

That's the on premise coaches during the quarter more they all seem to continue strength, particularly the anyway in the off premise.

Anyway brand volumes decreased five point, keeping compete you didn't stick shipment decline of 6.5 to think in a quarter.

Net sales for hixon, he's out on a brand volume basis increased 8.9, 15th in constant currency driven by favorable geographic mix favorable package mix and meat pricing increases in the eastern Canada, partially offset by negative brand and channel and on the on premise to the openness.

In the U.S.

[laughter] mid south that he'd funny to on a brand.

Then by positive mix.

Favorable package mix more they overstating make it a brand mix.

In addition to the need pricing increases.

In Canada make it it makes more than offset the funny passing increases while in Latin America neat sell so he can do so on a brand volume basis that decline.

Underlying EBITDA increased 18.8.

You know reductions more than offset unfavorable impact.

Gross profit from lethargic.

The mdna reductions taken the shifting I've taken marketing spend and reduced discretionary spending limited new hiring and travel restrictions.

In addition, we continued to deliver cost savings related to that revitalization thing.

Turning to your it which is more heavily skewed towards the on premise make sales.

Reported basis decreased 42.4% in constant currency due to lower bargains 11 itself the heat study to reflecting the impact from the current about it.

Net sales to he thought on a brand volumes basis declined 12.7% in constant currency.

Driven by unfavorable channel and geographic mix, particularly the bigger impact to the high margin you type business, it's when it's slightly unfavorable net pricing.

Financial volumes increased 24.8 sustained and brand volumes decreased 21.4 sustained.

With any partial aren't payments I think team during Q2 in some of our smaller European markets.

Your underlying EBITDA of $61 million decreased 66.9 for things on a constant currency basis bases. The prior year driven by gross margin impact of volume declines in compensation, partially offset by 11 Mdna expenses as a result of cost mitigation actions awesome.

Probably in that kind of five pandemic as well as lower incentive compensation.

In Europe brand volumes were down 21.4 for thinking Q2, good indications of on premise account, which were in full force at the beginning of the quota and began to left any statements more democracy central and eastern Europe towards the <unk> did not we open until July this fall.

Fishing gear it is significantly higher.

In the on premise channel than any offering is impacted by the clashes in this channel and expect she losses during the current period.

Yes.

They all payments, we when you see not eight.

The F. Rep channel shift due to our level of capacity action, particularly safety about people, but this situation has increased significantly during the quarter actually 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% of any socks and a high portion of our gross margin wanting 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 anything.

And I've taken steps around cash collections to minimize connection with.

At this fact, these actions probably long closures or limited we openings.

Payments business will continue to have a meaningful impact on our European and total company gross margin and profitability.

Which takes me to our financial outcome.

On March the 27th we with glad guidance due to uncertainty driven by the kind of our same Danny.

With the continued split up the bar and the reverse enough Susan on pretty much. 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 negative things in volume any thought Nick and unfavorable fixed cost that sonexion in Cogs will continue for the foreseeable future.

The strength of demand any off pretty much has been unprecedented.

But it does not fully offset the on premise losses and while the current unfinished chains 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 constraints on 12 ounce cans for a main issue for I think between.

How is that you Chopra exit if it's just races, we expect anything shipment trains than it used to be higher than brand volume change as we build inventories for the balance of the yeah.

As it pertains to engine eight weeks, they time marketing investment to increase in the second half of the yet in North America, just the first half full brands as well as innovations like do you mean laska busy and August launch of quit sell Seth.

Some of this thing will be dependent on a number of sectors, including anticipated for tune up last fall.

Finally, we also want to quote out some unfavorable DNA vaccines comparison, as we will be socking lower incentive compensation, particularly long term incentive compensation from the prior year.

I assisted and fourth quarter as well as a nonrecurring theme that benefit anyway in quarter four last year.

Notwithstanding the current environment I continue desire to maintain our investment grade rating and we have taken a number of 15 surely protect our balance sheet and put ourselves in a based physician.

If if navigate the credit if octane Danny.

As it pertains SAP borrowing capability during the second quarter, we repaid the full $1 billion that was outstanding on our 1.5 billion revolving credit facility Rcs.

As a result, we 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.

You mean available capacity under our thieves at the fed into June of $1.3 billion.

In addition in Matriarchy Treaty, 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 and they forehead node balance outstanding at quarter end.

I'm not the U.S. commercial paper facility. This you'd pay facility does not impact the capacity of the artsy said as an incremental 300 million pound borrowing capacity for our business.

In June change between C., we entered into maintenance <unk>, Oster, yet, which favorably revises believe refresher under the financial maintenance covenants for the next six fiscal quarter, starting with GE units that you have three institutions.

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 reduction discussed on assays quarter cool.

During the first quarter, we announced a reduction in Twentytwenty planned capital expenditures by approximately 200 million daughter, and this reduction remains on target without sacrificing out of it but listen to invest in its history safety and maintenance projects as well as Kathleen basins that deliver cost savings and high return growth in his name.

To that had a significant investments behind heart health is in our fourth with.

And that's the backdrop of this level Pendennis, we are pleased with FTC financial performance I probation, increasing liquidity and if it's Ted Baun fellow to involved for the business.

While we are confident in our ability to achieve longtime succeed we are mindful of attendances and continued uncertainty that lie ahead.

During this time, a break them safe and see how management and board will continue to take prudent and proactive action, which are in the based interest of the company I'm totally 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 concern you 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.

[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 the best sound quality.

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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 Gavin 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 internationals 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 it occurs.

But just qualitatively maybe you can share with folks how big a priority. It is for Molson Coors to be successful in this category and then just a brief follow up on Europe. Thanks.

Thanks, Kevin Good morning, and a yet where we all wrong here and I had the same applause your said.

Look we put a very clear strategy as far as hard filters are concerned and and we're being pretty smart about how we execute these two new entrance of ours.

Obviously first and foremost refocusing on busy which we launched in April and then of course felt said Kevin smoked was not sell throughs quiz Seltzer in August.

I think it's clear that this celsis hartsfield to segments, it's gonna 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 with our two interim so busy obviously as good a very clear supportive of difference with its S. wrote a charity, which is which is high and antioxidant put him in seat and based on what we're seeing from consumers and the demand for this product, we're actually very confident that the property.

Issue is is resonating well and we'll continue to resonate well and to that end, 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, turning to known and and trusted brands and the cruise brand based fit is the base for two to play in this space based on our tasting, particularly with its Rocky Mountain freshness and water heritage and it's also go to clear appointed difference.

Kevin It's the first talk seltzer with a with a social mission were partnering partnering with changed of course and then on top of that is is it has 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 seltzer hard filter sourcing is coming from outside of beer, which is which is very positive for the big category in beer segment from within the the beer category, we are seeing crofton and flavored malt Barry.

Bridges as being as being big sources of of of deck, which is coming from from the beer category.

From a shelf space point of view it should be coming from from over obviously underperforming items, which right now or would would include crofton and certain slower moving if MBS.

Shouldn't be coming at the expense of you know the fast moving economies.

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, you could assume the decent chunk of that we'll be going behind.

Behind our busy and cause 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.

Truly seems to be domestically focused just perhaps comment on the opportunity relative to the U.S. market and how big an open investment the company plans to make a behind the category there.

What did your if we have recently signed a deal with them with the Miami cocktails with Bodega Bay. It's the first one of the early entrance into the Seltzer market, there I'm going to keep a little bit close to my change some of other plans around seltzer, because we haven't been public about demand in Europe.

But you can assume that we we will be showing up there beyond just just a bigger today goodbye.

Good very good. Thank you guys. Good luck.

Thank you.

Our next question comes from letter on Grand It from Guggenheim. Please go ahead with your question.

Hey, good morning, getting that person so two questions from me.

The first one regarding the UK as the size of the you can commit 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 says you know rubenstein and July 4th on the west equal rights, enabling us inventory in that channel.

Thanks, Darren so.

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 of hubs in restaurants, we're opening but obviously there were a good use 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 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 non existant for most of the second quarter.

Oh, the I've started opening up on July the false weekend and and the gains same scenario, we we have seen and decent proportion of of on premise outlets reopened, but again that lower capacities and lower volume levels as far as inventory is concerned.

In the.

Both the UK and and Central Europe are our on premise supply for KCS is not an issue at the sporting trademark our constraint is more a me in the off premise, which has seen a C. A similar sewage as we've seen.

In the North American business.

Thanks.

Especially on the Crystal is really about the.

The U.S. and you could in the light segment. So as we are entering into a into a recession.

AH you, maybe you could expect when a consumer and thanks for the some of your whole centers offsetting these doesn't trade down to a more affordable Vernon. So is this something that you kind of confirmed and do you have experienced some thoughts recession that you could share reasons.

I learned we haven't actually seen at this time around yet certainly support for a premium blocks above premium self was has as being stronger and we haven't seen a lot of trade down into the into the economy segment now that much still come given some of the actions which which.

National governments are taking in terms of support for the full four unemployed first but we haven't seen that too to date in prior Rescissions, 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 of 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. I know Tracy you mentioned that you had a onetime benefit from a favorable Saturday night tax situation.

You know by my math that was you know not quite half, but a 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, Lauren so, yes, it and SBC that underlying Cogs per hectoliter on constant currency increased 5.4 pertains.

So we had bought him de leverage [noise], which would account for around 250 basis points.

We also had to thank you pay and which we we and 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 and that is huge that is helpful for you.

And yes, there [laughter] just Tonight [laughter] Tonight, Lauren you know the 100 basis points that at that 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 the cost savings Daniel.

Very very stang, <unk> and the tank Nancy 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 there that may well be part of the you know the longer term restructuring plans, but.

Yeah, you're going to buy X out that tax benefit the Cogs per hectoliter when it comes through in a much much better I think than most people had modeled and with the amount of volume de leveraged their age. So how does that cost saving team you know pretty sticky.

Does that would give a lot of support kick the can Alan and EBITDA growth looking ahead.

Loren, maybe I'll just give it a couple of top lines and then trusts can add color to it but you know we're very pleased with high revitalization plan is going notwithstanding this circumstance, which we were which were operating.

The I'm enormously proud of how all of our people actually but.

Include 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 you noted that is certainly hoping cogs and our revitalization plan as far as it.

As cost goes is is on track.

Yes, I mean, we've you know we've mentioned and cost savings.

Ron to 600 million. So you know over the next three years and as Kevin safely, 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 immediate around I quote strategic review, there's been debate about about Europe.

Just wondering if there's other assets.

You have that may not Easter TJ and can give you more flexibility.

For the balance sheet standpoint. So for example, I believe you still have I guess, one distribution business, which maybe is it because like a a legacy.

In addition, and I'm just curious if you kind of thinking about noncore assets within the context of this transformation plan, it's going 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 over the rheumatism hypotheticals and speculation that goes on outside of our organization.

Decisions that we making right 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 drug putting up 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 our 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 due to 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] and our next question comes from Andrea to share from JP Morgan. Please go ahead with your question.

Oh, Thank you and I hope always well.

Based on market said you'd have been seen a resurgence in cases and are you see similar logical off the off premise UPCIC versus what you saw in March and need crew and just a clarification on a point that you need about marketing spending just circling the half should we expect marketing should go back to the cycling.

Half of 19 levels. 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 saves into first half flow through or in other words like because it does it make sense to increased promotions nowadays.

Outcome consumption is so strong thank you.

Thanks, Andrew So I'll take your second question first you know the at the beginning of the pandemic. We we obviously took really quick action with our marketing spending 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.

Messaging.

We made sure that we prioritized us being behind a big trusted co brands like Blue Moon, and well a lot and Coors light or we did choose to delay some other significant spend behind certain products due to change you know the chain resets were delayed and consumer behavior in stores.

Just changed fundamentally.

We also shifted our media two to two channels like Twitch and you tube and ready to do too is you know where we're not consumers were migrating to.

In fact, we created a significant number of new programming. It very short notice I'm like the mother like virtual took jar and of course lots America could use a bit campaign, which both of which connected extremely well with ER with consumers.

Our focus has been to maintain top of top of mind awareness for a for a big brands 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 year to be higher than the second half of last year. So to answer your question directly we expect right now that the six months or remaining in this year will be higher than the then the second six months in 29 team we're gonna.

Make sure we've got strong pressure behind a big trusted brands like like Middle lots and Coors light and we're going to drive trial, an awareness behind our new innovations are busy and of course, seltzer and Blue Moon bitumen like Scott, but just as we've shown in Q2, well, obviously monitor what's happening around us and if things change.

Well, we've shown that we can that we can pivot our marketing as a as appropriate as far as your first question is concerned because it's it's quite a tough question to on so we haven't seen that you know huge spike that we saw in that one week 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 this is 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 a in the prior question.

Ill kind of fund these increase Oh in other what should we say margins would be under more pressure or actually or not so much pressure into second half.

As a couple of ways that I can answer that question. What is we're deferring it 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 Thats it 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 whether you think hard shelter shelf space should be coming from like are you correctly that you think crops should be a shared jonah.

Hi, Good morning, Vivien, yes crop should be underperforming craft brands should be.

A shade diner my comment really really relates to the word underperforming Rotten there're a number of underperforming craft brands that exist opt 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 down there as well because it seems to be the the leading laggard if you will.

Yes. Thanks.

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 notice.

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.

Fairly challenged into the back half of the of this year and into next.

That's helpful. Thanks, if I can squeeze one more in busy any insights in terms of your underlying consumer demographics are starting to get some of that detail 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. So 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 how thin a channel inventories are as we enter August and then ultimately.

Your line of sight able to more fully will more fully catch up on that clearly you want to ship above.

Consumption in the back half, but I, just I'm, just trying to get a little bit more sense for where we are they and what the magnitude of that might be as we progressed through the through the next couple of quarters.

Yeah. Thanks, Steve Good morning look I mean, as I said in my opening remarks, and and as you referenced rhodri producing and shipping can be at significantly higher rates than we have in in recent years the.

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 sourced or seeing of those as well.

Yes. This is being more pronounced for the 12 ounce tool a slim can and then also the strong success of busy and Blue Moon lots scar 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 packaged in the 12 ounce cans. So that we can fulfil oh foster moving packs.

And we've had to adjust orders from from wholesalers for some packages Tibetans supply levels across the across the country. We are seeing the situation begin to improve with respect to the 12 ounce industry standard cannon. So you know some of the slow moving products, we'll see we'll start to turn those back on in the in the in the in the weeks ahead, but.

We do remain talked on the quizzed like 12 on talk in and that there will probably continue impacting us through through summer. It is of course dependent upon on premise.

Hi, this is all or reopenings.

Yes, it did have some packaging supply constraints, specifically for four paperboard, but our supplies making.

Progress as far as that is concerned as well so I.

I think Tracy said in his opening remarks, I mean, it is our intention to to ship to consumption for the put a full year and.

Yeah, I think that's about it.

Okay. That's that's helpful. If I could I mean.

Maybe there's 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.

I'm trying to get 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 flexion.

I don't sit in a couple of I started to get onto the the EBITDA ratio is as it relates to the end of the second quarter.

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 price accounting line and filtration system not neither of those were were necessarily planned into this year and we've made and have full board support to invest a meaningful amount of money behind our our cell.

So a 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 where we.

Invest to be successful for the long term and 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 could quickly and again you know leverage ratios, obviously you'd have quarter by quarter. It a deficit.

If I look it out.

On leverage ratio at the end of our net debt to EBITDA ratio at the end of gene I'm on a trailing 12 month basis that we were around 3.4 times. So you know that's an improvement from the industry yeah.

They 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 and that's all right. Thank you very much.

And our 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.

Morning.

My question is just related to the marketing spend in the back half of the year.

Yes, 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 shift 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 kind of inflation overtime.

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 to answer your first question no. We haven't seen that I think as as maybe marketeers or or upping they spend in the six.

In part because it makes sense there was some industries, where you know it still doesn't on premise national chains.

Would would be a beginning.

No we haven't seen any impact from that perspective. The second part is the effectiveness of the spend and actually we.

Source.

Results either late last week or earlier this week that showed that the that the marketing effectiveness 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 them at a lot virtual took John the because Latin America could you could use a a beer so you know.

Our marketing effectiveness and return on investments actually getting better.

To be the case in the <unk>.

Yeah programs that we've got coming.

Thanks, if I could 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 is for some reason in the back half or would that at all if that's your spending plans.

Yeah. It would I mean, it would Ics would probably affect how much we spend but I would also third way we would spend so our marketing team.

I've been very nimble enough.

Block so to speak given that we weren't expecting.

A pandemic and.

Places where consumers are so right.

No we're obviously expecting.

Season, and we've got major League baseball underway in hockey starting in the N.B. I started but you know that that should change how good a good based on what they did in the second quarter I've got absolute confidence that we would be able to be nimble.

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.

The 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 the quarter due to out of stocks, a and maybe remind us what percentage of your business 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 out of stocks that are at our wholesaler is 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 I'm quite sure that Weve that we have lost.

So I'm I'm retail sales, but consumers have been shifting between a package types when they when they preferred package tough is not.

Available I'd also point to that we are shipping more can be a and then we have in in many many yes Robert.

As far as the is 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 takes floaters.

Oh I just feel it.

Total 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 reason would have come off because because there's a strong on premise.

Safe to say that Oh.

Our.

Top 10 fastest growing skews at the moment okay.

And Andy.

You know just in terms of dealing with the cans 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, I love it.

Our view is I would say to you, though our partners have been a tremendous partners with us from a supply point of view and.

Well there obviously is this is an uptick in input costs.

Maybe a girl from Africa Roe from Italy.

This is also being a bit of an off take to that so.

Oh I thought there would be in super from this perspective.

Okay, Great and then just one follow up on course Seltzer.

Are 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.

Yeah, it's not the easiest time to launch.

A new innovation, Robert you're right, but if we mean luxco busy all are off to of two very strong starts notwithstanding that.

The reaction that we received from our retailers, particularly the chain customers for of course so.

Well for is very strong I'm I'm very pleased with the Chinese placements that we've that we've received and if the initial orders from our distributor any indication of success, then we're going to 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 you know just asked a few questions, but maybe asking I'll definitely yeah 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.

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 remember the image the M. generic companies, both North America, and Europe, and so we have pulled back and the team in Europe have done a tremendous job prioritizing spend and pulling back spend based on [noise] affected due over index to the on premise in your.

Okay, 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 data is I think I said in response to an earlier question that the marketing effectiveness.

On a core 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 should ever in the second quarter and get on with a lot different delivered a 23rd consecutive sigman share growth. 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 get you gave us a sense of how the business. Since then training as maybe we're seeing some [noise].

Opening 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 or 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 it or a 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, yeah. It might be giving you a bit of an advantage. During this difficult cared 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 of ours.

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.

Fans 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 is it primarily produces the.

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've had full well Coors light large packs primarily that plant is running effectively.

You know and efficiently.

Alright, thank you.

And our next question comes from Bill Kirk from Enrique 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 you 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 coax 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 question.

Look forward to speaking you do you soon thanks much.

Ladies and gentlemen went that will conclude today's conference call. We do thank you for attending you may now disconnect your lines.