Q3 2020 Molson Coors Beverage Co Earnings Call
[music].
Good day and welcome to the multiple cores beverage company first quarter 2014 earnings conference call.
Finally, the slides on the Investor Relations page of the Muslim cord website.
Our speakers today are Gavin Hattersley, President and Chief Executive Officer.
Hey, Joe Bear Chief Financial Officer, with that I'll hand, it over to Greg tyranny, Vice President of F G and H and Investor Relations.
Thank you Daniel and Hello, everyone.
Following prepared remarks from Gavin and Tracy we will take your questions. Please limit yourself to one question.
You have one more more than one question now please ask your most pressing question first.
And then reenter the queue to follow up if you have technical questions on the quarter. Please pick them up with me or Traci mangini in the on the IR team in the days and weeks to follow.
Today's discussion includes forward looking statements actual results or trends could differ materially from our forecast.
For more information please refer to the risk factors discussed in our most recent filings with the SEC.
We assume no obligation to update forward looking statements.
And GAAP reconciliations for any non U.S. GAAP measures are included in our news release or otherwise available on our website.
Also unless unless otherwise indicated all financial results the company discusses our versus the comparable prior year period and in us dollars.
And with that over to you Kevin.
Thank you Greg and thank you all for joining us today.
Well, what do you it's been so far.
If you like most people there are probably a lot of words that come to mind, when you think of 2020, but.
But for Molson Coors this year can be summarized in three words assistance perseverance and progress.
That is how 2020 has been defined by the Molson Coors beverage company as we drive for topline growth.
We are very pleased with our performance in the third quarter as we'd be top and bottom line expectations and made tangible progress on our revitalization plan.
We had both plans at the beginning of 2020 to build on the strength of our clinical brands aggressively growing our above premium portfolio expand beyond the bureau, investor not capabilities and support our people and our communities.
The 2020 is presented new obstacles for everyone.
For which we've had to adjust.
Like all other beverage companies one of the biggest challenges. This year has been packaging supply to put into perspective, the scope of the challenges we sold 300 million more cans of beer in the first nine months of 2020, and we did in the same period in 2019 in the United States alone.
And there have been times over the past few months when demand for total cash was four times what it was in 2019.
I'm pleased to report that well work remains inventory is steadily improving in the U.S.
We are approaching historical levels of paperboard supply, we're confirming most orders for bottled beer and seeing steady improvement in supply a 12 ounce industry extended can supply stabilizing and we anticipate it will continue to increase through the year as we return to full inventory.
And we are starting to more fully covered demand for tokens and expect steady improvement inventory through the balance of the year.
When 2020 as soon as China, just like this we've met each challenge head on and we have never lost started on plan.
Now, we're able to show what's possible as we execute that plan as we drive to topline growth.
Who's lots of money lot grew 6% and not at a hospice introspectively in the U.S off premise. So far this year that's off today.
Bonds segment share has grown for 24 consecutive quarters that is six straight years.
Im now is to stabilize our biggest brands in the total beer category.
The above premium products are record high portion of our U.S portfolio. Some business formed in 2008, despite the on premise restrictions.
By the end of 2021, we plan to capture a double digit share to the U.S. seltzer market backed by what arguably is the most complete seltzer portfolio in the business.
Trust a Canadian joint venture has quickly become a market share leader, a ready to drink kind of us beverages in Canada.
The company estimates market share of over 50% in key markets such as Quebec.
And we believe that our emerging brands division can become a 1 billion dollar business in revenue terms industry as Tom.
We are expanding our production capacity for selfless by over 400% and full bloom in Alaska by approximately 400%. We will continue prioritizing capital projects that will allow us to further expand our seltzer and innovation production capacity.
We redefined our company values did not to increase representation of people of color at all levels of our company and redirected some social media spending.
Organizations dedicated to social Justice equity an impairment.
We will continue to take tangible steps to build a brighter future for our people and our communities.
I want to pause here.
I know there are questions about the complexity of our revitalization plan and about our ability to execute but.
Nobody can it be done in the future we already doing it today.
As you can see we are building on the strength of our coal while growing our above premium portfolio planting the seeds for future growth beyond yeah.
And we're investing in our capabilities and our people to make it all possible.
I wanted to drill down in each of these a little more.
As I mentioned earlier, there is a great sign of strength of our core brands Coors light and Miller Lite grew 6% and not in a hospice introspectively in the U.S off premise so far this year.
The combined segment share about two largest U.S brands has grown for six straight years.
And Coors light again achieved a record high sigman shared in the U.S. since the business formed to.
2008 per Nielsen.
And our market research shows cost like to see the biggest yesterday improvement in consideration across the category, especially was 21 to 34 year old consumers.
In Canada, Molson Ultrus performed very well this year up 32%, so far and it's supposed to large competitor to ensure of grocery and Crick based on the recent four week data from Nielsen.
A national champion brands in Europe saw significant trend improvement, there's a large percentage of the on trade has already reopened at the beginning of the third quarter.
In Twentytwenty, we have increased our number of major sports alliances across all of North America, and while we aren't spending money against a lot of them. This year during the pandemic. These partnership should benefit our biggest brands for years to come.
We have also seen great progress in growing our above premium portfolio.
Above premium products grew in the third quarter and have reached a record high portion of our overall portfolio in the United States since the business was formed in 2008.
Moving to Glasgow, which launched in February has sold over 1.6 million cases through the end of the third quarter and is 2020 top selling new beer in the United States put Nielsen.
Lots got highly incremental to the Bloomin brands.
I've been Belgian White, the largest cross brand in the United States has seen a third highest growth than the off premise among all cross brands and 2020 according to Nielsen.
There's a lot of sky number one the Bloomin family is easily achieved the highest off premise growth and 2020 month old crop franchises. According to Nielsen.
And this progress in above premium beer extends to Europe in Europe and outside of a time out at the start of prominent brand grew by 9% in volume in the quarter.
And our exports and license team grew volumes by 3% in the quarter, thereby expanding the footprint and size of our premium position brands across the why the European segment.
Turning to sell says this isn't and number eight on the Nielson top 10, good friends Chalking 2020, selling over two and a half million cases since its April launch and it is seeing the highest repeat purchase rate amongst all sales is made by the major disciplines.
And we are incredibly excited by the early results of of course, Seltzer, which has matched disease hot sales in its first month some shelves.
In some key retired as the course seltzer variety pack is outselling the Bud light Seltzer variety pack.
Folks we are building out all give me the deepest most diversified portfolio of hog sales is in the industry.
Moving to 2020 with an under to share. The segment. We are now four shave and by the end of next year, we plan to capture a double digit share of the U.S. sell to market.
That is possible because of the depth and differentiation of our self support failure.
We believe busy with its actually relatively hot antioxidants from vitamin C is the base position product in the market and the better for you space.
We believe quiz cells that can become a number one beer brand in the segment through the strength of its name and its social mission around restoring America's waterways.
Type of Chico hard Seltzer has something no other product offers the benefit of the massive flooding of the Coca Cola company's type at Chico's sparkling mineral water in a number of major markets across the United States.
Proof point, but also launched next year differentiating itself with premium ingredients like real spirits.
And I would remind you that with our distribution deal for good day Goodbye hard sell through in the UK and Ireland.
This of course is an early mover among European hard sell houses.
We have even more about premium growth opportunities coming in 2021, when we bring yingling Westwood under a new joint venture. There are 25 states open for expansion under the JV all with zero, you mean distribution today tens of millions of legal age drinkers.
As a significant growth opportunity for our company and for Yang Ming.
Our emerging drug division has been doing a great job planting the seeds for future growth opportunities beyond the Bureau.
Earlier in the year, we launched mobile first canned won the trust joint venture launched very well CBD and THC drops in Canada and in the third quarter, we stepped it up.
Trust launched its first ready to drink cannabis beverages in Canada partway through the quarter and already it has become a market share leader the company estimates market share by over 50% in key markets like quite big.
We launched a new line of non alcohol products created from the beverage incubator elevations, we took a minority stake in xin water by noted beverage innovator launch columns, and we launched bond botanical hub portrait in Canada.
In Europe, we signed an exclusive agreement with Miami cocktail company to distribute the growing brands in the United Kingdom an island.
This is really just the beginning for US we learning in some of the spaces in a capital efficient way I would add and we'll apply what we learned to future growth opportunities young yeah.
That is why I'm confident that altogether, our emerging growth division can become a 1 billion dollar business.
For as much activity as you've seen in the past few months you can expect to see more coming.
In the next few weeks, our newest trust joint venture with Hicks says will launch its first CBD based products in Colorado, making us an early mover in this area.
And soon Molson Coors, we distributed a lot cullum's incredible lineup of ready to drink coffees and the off premise starting with drug and convenience store channels. Another Great example of how we can leverage our strengths to find meaningful profitable top line growth.
And to achieve growth and our revitalization plan. We can just rely on us telemarketing team, we are investing in our capabilities to make it happen.
We intend to expand our heartfelt to production capacity by over 400% by the end of this year.
Already 2021, we expect to complete a project to expand Blue Moon lot Scott production capacity by approximately 400% as well.
We just turned on a new sleek can production line at the Rocky Mountain metal company a.
Our joint venture with bulk operation capable of producing 750 million cans a year.
We're modernizing our brewery and Golden Colorado, making it easier to bring the beverages in the future.
During the current advice, we have improved online sales in the U.S. by approximately 200% through the three tier structure, while also developing new E commerce and direct to consumer channels for our business in Canada.
These investments will help power our business forward and we will continue prioritizing capital projects.
Continued expanding our production capacity for self says and innovations in 2021 and 2022.
I've talked a lot about how the revitalization plan shapes, our business actions and it's also shaping how we support our people and our communities.
That started earlier this year, when we redefined our company values, starting with putting our people first.
Both from the all year long.
Just this month, we held our first week of inclusion.
Full week of forums presentations in conversations about how to be more inclusive ought to be analyzed to teammates.
How to hold ourselves accountable.
We set out to increase representation of people of color at all levels of our company and then the early months of shut a business that is growing more diverse.
We read directed social media spending to Ptwenty, five national and local organizations working to address issues of equality empowerment racial justice and community building.
We launched the new started scholarship program supporting people of color and LGBTQ plus students seeking degrees in brewing Fermentations Sciences.
We have the opportunity and the responsibility to drive change and we are doing just that and we're not going to slow down.
When complete the modernization project and Golden will significantly reduce C. O two emissions from the brewery it will reduce energy usage by 15% and it will reduce our water usage.
100 million gallons per year.
Look we made a lot of news over the past two months from our continued investments behind our core brands to the expansion of Seltzer production capacity to our joint venture with yingling to unused line of non alcoholic beverages. So the launch of course self service to the addition of type a cheek a hard sell such as the distribution deal with local.
These are not a series of one offs. They all represent parts of one single strategy.
How about business topline growth.
Now we face a lot of criticism over the years about the shape of our portfolio in the U.S., we're just too heavily weighted towards our two premium light brands.
I understand the viewpoint, but I believe our coal is our strength.
As I've outlined a key part of our plan is to build on the strength of our iconic core brands.
And interestingly under this strategy as we rollout plans to aggressively grow our above premium portfolio and expand into fast growing above premium beverages beyond the Bureau.
There have been questions is to enter these actions at too much complexity or distraction that we should stick to a cold.
But to suggest that we must focus only on our Cobra and so only on innovations is a false choice, it's not binary but.
Part of our revitalization strategy, we organized our business to do exactly that the.
The progress we are making is promising.
A 2020 above premium innovations have already delivered an incremental 5.7 million cases for our business.
The health of iconic core brands continues to improve and we are planting the seeds for new growth opportunities beyond the Bureau.
That is the plan, we announced last October that is the plan were executing and that is the plan. We believe will deliver topline drugs for this business and now pass it over to Tracy for the financial highlights price. Thank.
Thank you Devin Lynnhaven line and Okay, how did the quarter.
Holidays and regional basis in mainland China.
Thank you Pete Petit <unk> net sales revenue decreased three point [laughter] thinking kind of hi, it's significantly preparing for an outstanding quarter for Fourq.
Net sales for every school volume decline principally in the on premise channel along with the current funding needed channel mix implications across all major markets.
These impacts were partially offset by higher net pricing is there anything you eat and becoming channel mix challenges to deliver positive frankly.
Behind strong performances in baby, he may not Scott and Chris How's that.
No one can make a shipment timing was positive in the third quarter <unk> impacted added packaging material constraints.
Net sales to hit can you kind of have grant funding basis increased 2.1 to sales in constant currency, reflecting positive net pricing in the <unk> and Canada moving off getting maybe that makes it takes place.
Sure the biggest market dynamics and consumer shift caused by the corrective eye and Danny.
Why did significant number of the ice cream is established names.
Okay, that's what I said.
Not operating at full capacity.
This had an FX impact, albeit improving from second quarter levels I think Brad.
As many of our higher end products the skew towards the ice cream is just always pictured in this channel and I'm, saying <unk> impact on our brand and channel mix.
Well black friends volume decreased 5.2%, while financial volume decreased five to date.
Underlying cost to hit to EBIT increased 1.5 to see kind of constant currency basis. They define sanctioning body can be leveraged cost fuel cost savings initiatives.
Underlying mdna decreased 6.68 on a constant currency basis.
It is not a good marketing spend partially offset by slightly higher DNA as the stock was one time benefits related to announce anything to compensation residual interstate quarter of 2019.
This is largely offtake Ami backlog based on cost savings and lower discretionary thing.
As a result underlying EBITDA grew 3.5 15 on a constant currency basis.
Underlying free cash flow of $1.16 million to $7 million for the nine nine into September that you think your dream team.
$275 million favorable to the prior year period.
Then not favorable working capital.
The working capital benefit was driven by the dust settled over $200 million in tax payment.
Various government sponsored payments to sales programs relates to the cut right. If I can dig out of which we currently anticipate approximately half to be paid in the fourth quarter upstream twinkie, while the remaining amounts to be paid beyond this fiscal year.
In North America, and it sounds maybe you decrease 0.8% in constant currency driven by financial backing to kind of focusing the 15 left brain fine.
North American brand volumes decreased five point keeping at the ice cream is clashes limited capacity I think during the quarter moving O fit that screen investigating and Canada in the off site.
Also contributing to the decline with packaging constraints, which primarily impacted economy and premium segments as we prioritize high margins ski.
Can you give me brand volumes decreased 5.3, the same compete to Denise equipment declined 3.9, being you know if it's to address the year to date under ship insufficient attributed to the aluminum cans a pocket of strength.
Net sales to he said he thought on a brand volume basis increased 3.6% in constant currency driven by need price increases in the <unk>, and Canada and favorable brand and package mix and really ask you if I may get it right.
Brand and channel mix in Canada introduce it to the shift of volume from on premise to the old paint.
In the United States, South, but he can you kind of rank on your basis increased 4.6, the thing driven by favorable sales mix and the pricing.
The U.S. delivered its eighth quarterly sales performance in the not vacate and the base Bank makes this woman since the first quarter 2014.
In Canada, maybe.
He could it makes more than offsets any pricing increases finally, Latin America need sales to hate to any kind of brand buying basis was largely consistent with the prior year.
Underlying EBITDA increased 2.5 to sales in constant currency and mdna reductions more than offset unfavorable gross profit from the other financial bargains and compensation.
The Mdna was actually driven by lower marketing spend in areas impacted by decline if I think they make such as sports events and favorable.
We also adjusted the timing of marketing investments behind brands in Texas, which we experience a time constraint.
How is that need you and as a timing thing rents have sequentially, but in the quarter and increased compared to the prior year period as he supported cool brands and key innovation.
Also contributing to the Mdna reduction the other cost mitigating action and the continued progress in realizing cost savings related to the revitalization tank.
Well, if this was partially offset by fracking lower incentive compensation in the prior year period, largely due to the onetime benefits from long term compensation, but they sort of in the same quarter of 2019 as mentioned area.
Well, Europe, which is more heavily skewed towards the onstream it needs sales on a reported basis decreased 15.3% in constant currency due to nullifying.
Another need sales the heated heated reflecting the impact from the collective eyes.
Net sales to hate to any kind of brands on your basis declined 5.9 sales in constant currency driven by unfavorable channel brand and geographic mix, particularly in a high margin UK business.
I still see a lackey hi, Nick Pi.
Financial volumes decreased 7.7% and brand volumes decreased 5.4% is significant improvement from the year on year declines experienced in the second quarter. It's more on premise accounts I think.
Even though maybe not not operating at full capacity in the quarter.
We have also greatly improved our capacity levels to meet the high levels of demand in the off premise.
Yes, its underlying EBITDA decreased 8% on a constant currency basis sales at the prior year driven by price margin impact of volume to Cogs, and I favorable geographic and channel mix.
Well see I know the Mdna expenses as a result of cost mitigation actions to navigate the current antibody endemic.
Which takes me to our financial outlook on March the 27th we will do that guidance GTT I see can keep driven by the pending.
With Iraq, and then use our paces in that North American Angolan government mandating you'd crashes when fighting locked activating degree and that that I'm speaking to your name.
As a result, we had not reinstated guidance at all providing additional visibility unforeseen and if it speaks about how we believe we will be impacted by the classified.
We do not expect to continue to give us visibility once conditions as stabilized or even gotten.
And we are very proud of outperformance and agility navigating the current environment anything executing against our revitalization thing.
Great and not there so he brings the heat.
The same day Mi continues to impact our business in Q2, I'm pretty much losses, and Oh, well actually all the fees and disproportionately in Europe.
Well said, we continue to face the talk on strike I.
However, we do expect to return to full England field trials and industry standard can I hearing and then making probably at least on Remediating constrain well the clearest lactose okay.
As a result, we expect to meet peak shipment trends in the U.S. to be high I think brands on increasing the full quota as we continue to build inventory.
Well in DNA big sales marketing and base it to increase in the fourth quarter from the pie yet as we build on the strength of our core brands and ramp up support for key innovations that do you mean like Scott Dizzy and Chris felt that in alignment with additional supply coming on line.
We will continue to be nimble adapting to the environment tissue to be achieving the highest possible return on our marketing in basin.
Oh supporting strong brand equity.
Before end of the third quarter some of the anticipated fourth quarter thing will be dependent on factors impeding the occurrence of live sports anything.
And finally as discussed in our second quarter call in the fourth quarter, we will soco lower incentive compensation and a nonrecurring vein that benefit which occurred in the fourth quarter of 2019 and totaled approximately $27 million.
In response to create enough I think Danny and they make we have shifted our focus to ensure adequate liquidity for the near Tim well positioning the business for medium and long term 60.
This included the <unk> desire to maintain our investment grade rating, which is important for all of our stakeholders.
Being investment grade rated reduces our cost of debt improved access to capital markets, including commercial paper and gives us more operational flexibility to execute against our strategy.
As previously discussed we have significantly improved our liquidity position my favorite be a meaning that covenant to about $1.5 billion revolving credit facility.
Adding a 300 million pounds commercial paper facility for our UK business, which is incremental to the borrowing capacity under the $1.5 billion vicinity.
Spinning that dividend is made for the remainder of Twentytwenty figure.
Did you think previously planned capital expenditures by around $200 million for Twentytwenty, and generally reducing discretionary spend way possible.
And in the third quarter, we continued to reduce our disposition with the payments of 500 million Canadian dollars that is GE using a combination of cash and commercial paper.
As of quarter end, we had reduced our need be sufficient at just over $1.2 billion. Since we began the revitalization program.
And we have maintained strong borrowing capacity under that facility.
As of October 29th Street between T., We had $1.4 billion, Andrew I used facility and a full 300 million pounds and the UK the synergy and available capacity.
So we invested in our business to support medium and long term growth objectives in.
In addition to necessary safety and maintenance projects, we are making catching basement that deliver cost savings and high return growth initiatives, such as our significant investment behind hot Celsis and innovations in our fourth within mobile capability.
Now over the next few years, we plan to prioritize capital investments include hundreds of millions of dollars to add significant capacity for innovation, including South is ensign can capacity.
Given the operating environment, we are very pleased with our second quarter financial performance, making another quarter of progress on our revitalization tend to drive long term value creation.
We achieved solid financial and operating results and again exceeded top and bottom line expectations.
And we did so while navigating the continued challenges posed by the credit of our pandemic further improving our liquidity any baking in if it's Ted Foster long term goals.
We are mindful of the challenges and continued on taking T. I hate and remain focused on doing what is based not only the niton positioning the business for medium and long term succeed and we look forward to updating you on our continued progress.
And with that we look forward to taking your questions operator.
Operator.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if.
If you are using a speakerphone please pick up your handset before pressing the keys.
Let's try a question. Please press Star then too.
At this time of Pos and materially to assemble the roster.
The first question comes from Bill Kirk of MKM Partners. Please go ahead.
Yeah. Thanks for taking the question Gavin I guess I guess this one's for you as as aluminum can supply improves what are what are the brand priorities do reintroduce some of the economy brands and packs or do you put the cans toward the premium offerings and I guess I'm asking it in the context of what you expect from.
Consumer spending strength going forward.
Thanks, Bill and good morning look I pull downs industry since supply stabilizing and you know we've already seen that increase incrementally over the last four to five weeks and we expect that to continue incrementally increasing through the balance of the year.
We've had to.
Constraints, particularly one would be the the toll cam for cohort 12 ounce, which is what causes lots and on Keystone might go into into primarily and then b. Obviously the tool that the tallgrass tools slum, Ken that's being more driven by the success of Vizio and believe me like Scotland, it hasn't necessarily been bar by shortages.
As terms of prioritize Asian noticed because lot gets.
First priority for us when it comes to the to the Torquay and and we've made some adjustments I'm on slide moving products that are out there that have been packaged in the can and to make sure that we can fulfil coors.
Coors light the to your second question from a trend upward of units, but we haven't actually seen that at this point in time in fact, we're seeing quite the opposite both in the U.S. and in and in Europe as well as Canada is I think consumers are finding that the that the dollar stretches a little further than the off premise than it does in the on premise are actually seeing the offer.
Is it.
That that's that's super helpful. I'll jump back in the queue for a follow up.
So.
The next question comes from Laurent Lauren Lieberman of Barclays. Please go ahead.
Great. Thanks, good morning, and good.
Kevin I mean, he was it was great that I'm missing in your prepared remarks, you addressed that the complexity conversation.
But I would like to just go maybe a step further I understand.
How you're evolving the organization to handle the increased complexity and then with regard to distributor relationships and you know how do you work with them to prioritize to set priorities I guess and and can manage.
Sort of what's working what's not how long do you give is done.
None of the activity to you know to click into okay. This one's got you know back some lags that's really push it because they.
The activity has been tremendous and obviously looking at the price mix. This quarter, it's it's helping and mattering and it's getting attention, but there will be a point, where resource allocation and having to make choices comes into play and I'd love to know a little bit more about that.
Thanks learn and good morning look.
It depends what lends you look at this through I'd say there's.
There's other through three lenses from a from a retailer point of view, they well prepared for innovation, they're hungry for them and I'm expecting it so I see no issues, Dave from a distributor point of view, 80% of them already carried non alcohol products and 50 of them, 50% of them carry wine and spirits are ready so that actually ahead of us and we're playing catch up.
With him.
They manage and deal with with tons of complexity and Loren I would tell you. The vast majority of them are very excited about the moves that we're making and can't wait to have these brands in their houses and then you look at our business and you know that's exactly why we structured ourselves as we did at the time of the of the joint venture informed us emerging growth team under Pete's marinas leaders.
It's.
It's a it's a small team of passionate and very dedicated specialists in the in the field and Hello, and arguably there is even more focus behind the core since we actually made this organizational structural shift under the revitalization plan and you can see that in the strength of co brands and the innovation coming through in above premium.
Of course, we're going to continue to leverage capability through the CCOH you and back office, but is that is this there's little additional complexity for our sales and marketing groups that focus on our core business and our above premium business and then from a supply chain point of view these products and not going through our breweries that no complexity to our breweries at all.
We are expanding our warehouse capacity and obviously they use the same ordering ordering systems and tools and then the final point I would make is these things are although we announced them all within a talked probably two months period wouldn't know these things are all the timing of that is all different you know yingling will come in the back half of next year.
Luckily I will come in the front half of the first quarter type of Chico himself. So we'll be in a second.
In the first quarter is early in the second quarter. So from a timing putting these things and auto lending at the same time. So you know I think there obviously there are questions about it but we're managing it now and we are managing it effectively.
Okay, that's great and then with regard to the sticking with portfolio with some of the bigger brands. You know obviously the work on unbeknown really rejuvenated that that franchise, but as you're thinking about adding is there anything in the portfolio that you're also looking at in terms of trimming you know because we still get back to the question of.
You know some bigger brands that you know, it's still been slower to turn and maybe there's a point at which we say.
The new is way, but in a way better use of our resources, then we need to kind of cut our losses and some bigger brands in the portfolio is that is that part of the thought process as well.
Well in some of the cans orders in the current device they didn't make a forced us into making decisions around slower moving brands and skews learn and we've done that and you know I would I would expect some of those skews one come back so from a complexity point of view from a from a brewery point of view I would.
I would expect that we will have less skews coming off when we come out of this pandemic than we than we did coming into the pandemic.
Okay, that's great I could keep going but Gregg said, we realise just ask Martin some passing it on thank you [laughter].
The next question comes from Laurent Grandet of Guggenheim. Please go ahead.
Hey, good morning, everyone I'm thinking of grid for far stronger shrunk water. My question review about the sense that category I mean, you mentioned you.
You, where you are plenty to achieve double digit market share in the sense that category next year.
My son gets you to 8% next year, so could you give us a bit more granularity or color as to how you get there and Oh.
And be deliberate outcomes, she does for reform for investors.
I never saw them not raising that enough hi, how are you I'm not plenty to motivate or incentive it's your whole centers most spot I mean.
Or already carrying that brands like truly your white so might you understand this before thank you very much.
Well, Thanks, Laurent look I mean, we've got what we think is arguably the strongest well.
Put player of Celsis for both consumers and for a while for our distributors you know if you look at it at busy repositioning busy too to lead for the better for you space, we're aiming for cross sell so to become the number one beer brand in this in this segment. The addition of taper chica.
It's going to help drive a meaningful scale for us with a portfolio approach, it's a known and loved by a very large number of consumers in the United States and then.
Proof point, we expect you to leave spurious Bates the Celsis. So you know we think we've got a highly differentiated very powerful and very attractive seltzer portfolio for consumers and our distributors are I'm getting behind them you can see that in the performance of busy.
And you can see it in the performance of course, Seltzer and I've not seen him I'm as excited though while around type of chico's, particularly in the markets with a type of CICC a mineral water does so well for the Coca Cola company. So we.
We think we've got the portfolio and we think we got the distributor buying.
Thanks, Kevin and you say, Hey man I don't on sales or not is the is the manufacturing them in a school or contract manufacturer for took what Chico something we should expect just for this coming year as you do your bidding a pure you're testing sensor and we shoot you.
We should seek about jewelry pet treats in DC in house.
From Twentytwenty two thank you.
Between 2021, it will be primarily outsourced and and in 2022 and beyond it will be in sort of slower and so you've got that you got that right. Okay. Thank you very much I touched on thanks.
The next question comes from Andrea Teixeira from JP Morgan. Please go ahead.
Oh. Thank you. Good morning, So I was hoping if you can give us an idea of the cadence sebaski ours entry queue, and particularly your exit rate in September.
And if you're going to help us with October yard is how it shapes up in the U.S. and all 10 European life has been Neil lock down.
And I would say if we step back broadly how do you feel inventory levels. If they just talking and I was normalized at the trade at this point.
Chris why don't you take the sort of shipments from STR was home for Q4, and then on to Europe.
So what did you see any thoughts with she thinks I appreciate the shipment outpaced brand volume changing in Q3, and as we expected and when we look at September year to date from the U.S shipments and shipments were down 6.1 to stand up and thought he was down 3.8 the thing.
For Q4, we expect shipments to outpace brain volume trends as well as we build inventory during the balance of the U.S. I mean, do you expect to see the reduction and in as good.
As it relates to you, Nick and giving STR tool you know fourth quarter, we actually moved away from that if a couple of quarters ago, Andrei S., So I'm not really going to comment on that Kevin.
Kevin Yeah, Andrew from a from a.
How about overall environment point of view you know the off premise in the in in North America continues to remain strong and the on premise seems to have settled down at sort of roughly 60% of historical levels from a from a sales point of view. So you know down roughly 35% to 40% on an.
Ongoing basis, and we haven't seen much move on that recently so.
That that's sort of North America from a from a Europe point of view you know in.
In central and Eastern Europe, We you saw about 85% of outlets reopened.
I would point out that the fourth quarter is on premise is less of an impact for central and eastern Europe, because it was much less tourist activity during that time period that takes place more in the in this in the second and third quarters I'm in the UK for the third quarter. We had we've had good weather there was support.
And by the government's program to eat up at on premise outlets and so we saw a much.
Much better performance from on premise point of view in in.
In the third quarter and obviously.
As we head into the fourth quarter, there's a lot of uncertainty around that because it has obviously spiked in the in the UK and they're all localized lockdowns. So you.
So we'll have to I guess see how the the quarter and in the UK progresses.
Your third question that it was around inventory levels and you know certainly our 12 ounce industry standard can supply stabilizing.
Has improved consecutively for the last four or five weeks and we see it continuing to improve I'm into the balance of the year.
The shortage for some of our exciting.
Innovations like busy and blew me lots Guy is driven by the strong success of those two brands and we would expect to see the inventory for both of them improve meaningfully as we head into the fourth quarter and that new capacity comes online in Milwaukee and.
And Fort worth and you know obviously the shortage be more pronounced for htwo.
For the.
12 ounce a toll cans.
We are seeing that stabilizing and starting to improve.
Super helpful. Thank you so much.
Sure.
The next question comes from Sean King of FBR. Please go ahead.
Hi, Thanks for the question I'm looking into 2021, what Matt what metrics are a cash generation levels would you need to see to consider returning a dividend.
Especially when taking a dozen Christian.
Yes, I have shown on the left you know as you know we suspended our dividend in may for the remainder of 2020 situation remains to it and you know we having ongoing conversations with imports have you kind of really coming on our dividend policy beyond 2020.
What I can tell you that it's you know the companies that have very long history of paying dividends and.
And we fully intend to reinstate the dividend as soon as appropriate.
I'm right now the the current focus is to ensure we have adequate liquidity and as I mentioned in the prepared remarks, we think ranging from improvements have liquidity as you know we've reduced any update by about $1.2 billion as I say since we announced the relaxation fan and <unk> you know we continue to introduce.
Our net debt to EBITDA and ratios and quarter after quarter.
And that's about as much as I can tell you you know until we have to see the discussions with the board.
Thank you very much.
The next question comes from Brian Lane of Bank of America. Please go ahead.
Hey, good morning, guys and Tracy Thanks for taking the question.
David I guess my question is just around the seltzer portfolio and.
You know like what it will take to support the marketshare ambition that you articulated earlier and [noise].
So maybe if you could just give us a little bit of color in terms of how you're approaching that is it.
Will that come with you know significantly you know increased like amounts of advertising is there or it will it will require spending to get product on the shelf. You know just seems like it's it's yeah, there's a big opportunity, but there's also a lot of brands.
You know trying to get into the market next year, just trying to understand kind of you.
You know what resources it'll take to really differentiate what with what looks like a pretty good product lineup for next year. Thanks.
Thanks, Brian look I mean from a from a focus point of view next year as we as we look at marketing spend obviously, we've got a big focus on AUC on our coal brands Miller Coors lights, and Blue Moon, and then we've got a really big focus on our on our Seltzer portfolio. So you know, we will be giving b b the required investment behind.
Busy and and.
Good point in time, but she can cause seltzer next year that they need in order to be successful in in the third quarter, we actually spent.
We doubled our media spending from Q2 behind Coors light middle Ensenada, and up to big bets, a busy and like Scott and in the in the fourth quarter. You can expect to see a ramp up of support for both of those self says and Blue Moon, a lot Scott I'm as the as the additional supply comes on.
On online. So you know those are our two primary focus areas, our core focus a co brands and our social portfolio, Brian and we'll put the necessary money behind it to make sure they're successful.
Early signs are good they are very differentiated they got that clearly resonating.
Consumers and yeah lots.
Lots of excitement from the distributors as well.
Yeah. Kevin This is there any sign that just there's there's competitors are spending to get shelf space just trying to understand if there is anything that we should be looking at thinking about there in terms of.
No. It's it's slotting or just you know it is it getting expensive to get get product on the shelf.
Yeah, Brian a mini Alco space, it's illegal to pay slotting fees. So they wouldn't be in the United States. So they wouldn't be doing that or if they would it would be a problem for them certainly from a from a median national spend point of view and the strength of our chain teams in our selling teams. That's how you get shell.
Space in the in the U.S. and we're confident we're going to get it for all four brands.
Thanks, Kevin.
The next question comes from Steve Powers of Deutsche Bank. Please go ahead.
Yes, hey, thanks to I'm not sure. This is disclosed somewhere that maybe I overlooked today, but you're.
Can you talk about where the above premium part of your portfolio sits as a as a percentage of the total in the U.S. at least I know you said it was at an all time high of which makes sense I'm. Just wondering if you can give us an order of magnitude and.
And more importantly around that just given all the learnings you've had and all the new initiatives that you've developed.
In that in that space Seltzer, inclusive, but not not limited to shelter. How are you thinking about the aggregate above premium opportunity going forward I mean, how much came in above premium growth contribute to total molson Coors portfolio growth over time. Thanks.
Thanks, Steve I'm, the guy, but premium shared about portfolio in the U.S., which I think was your question is is it is just north of 10% and.
As you rightly point out I think what we pointed it grew very meaningfully in Q3.
As far as the potentially is concerned look we've tried to give you some indication of where we think the above premium portfolio can go we do believe we can get a 10%.
Well double digit market share of the of the self care.
Kinda degree, we think that that is a is a big category and it's you know despite some of what you might have read recently, we don't see it.
Moving down a meaningfully I mean, you know 50%, 75% hundred percent growth in 2021, there was another part of the beer category that.
Well industry that has that kind of growth potential I think everybody's always said that it's not going to grow 300% forever. So you know I will take 50 75, 100% anytime.
From an overall segment point of view and we believe that our differentiated portfolio can get double digit share of that will have which will have a meaningful impact on our above premium share about portfolio and then of course, there's the beyondbio space in the emerging gross division, which you know all of it really is is in the above premium space from.
From a price point of view from a revenue point of view, we can see that getting to a billion dollars in the next in the next three years.
Yeah, I think that was I think does your questions. Yeah that that's good like I can I can work with that thanks, so much. Thanks.
The next question comes from Rob Ottenstein from ever.
Therefore, please go ahead, great. Thank you very much so I want to kind of focus on the core brands Coors light and Miller Lite.
And in kind of two questions on those in it can you give us a sense of how you feel.
About you know kind of where you are on the creative on the creative marketing side of things you know, whether whether you're getting the kind of the right message across now are you happy with that happy with how the you know the brands are differentiated and and how you're segmenting the business or where the brands and maybe you know.
Any any data on brand health would be helpful. And then tied to that and kinda back to prior questions on complexity.
How how do you keep the distributors focused on those when they've got so many additional brands that they need to get placed and put on the shelf.
Right and you know are you going to have to kind of adjust.
You know some of your turns or distributors to make sure that you get the you know them their mind share you know given you know the incredible so refreshing of innovation and brands, it's going on right now and it's it's got to be absolutely.
Overwhelming for a lot of distributors. Thank you.
Hi, Good morning, Robert Yeah lot in their lives me I'm trying to parse that out this starts with a with Coors light I mean, we feel really confident in the brand's directionally were seeing strong brand health improvements.
Regularly amongst the 21 to 34 year old consumers, which is really good.
Who's lots improvement in consideration amongst 21 to 34 year olds is higher than any other brand in the category that we that we track. So I feel very good about the direction of the of the Coors Light brand health. The team continues to reinvigorate the brand, we launched a refreshed and board and packaging design across all of our skews in early August and based on the two.
Testing that we've seen we fund the consumer response to the new design is much more refreshing its memorable its unique particularly when you compare it to two quiz lots of competition.
Based on the early results that we've seen we've seen volume and velocity gains as a result of that of that that new packaging and I think it will be fully in really two food.
Before you really do if if if if if if.
Otherwise, we'll be there in the next week or so from.
From the made to Chill campaign, we've had U.S. its that we've that we've put out plus we have a new brand campaign promoting all expenses paid trip to your video conference background, which is being well received by the by the consumer base. So overall I feel very good about a quiz like we saw in Q2 the brand.
To drive significant share growth in premium lots and it continued to gain share of the segment in in Q3, and we will build on that as we as we head into into Q4.
From a mother Loxa point of view, it's also accelerated both of them from a segment point of view and an industry point of view it.
Sure. It was we were very proud of the 24 consecutive.
Quotas of share growth that we've had is a six years of gross and we think it's got a nice opportunity to continue to to accelerate a weve launched new creative.
Particularly around its its calorie message and targeting a competitor and we believe that the middle class proposition can can strongly challenged that competitor.
And we also have.
Big plans to to to continue to bode Miller a lot during the Ti vo moments I'm, including football.
Yeah, we've we've launched the container weve.
We are leveraging our NFL partnerships and in November I think it is we will launch a larger than ever holiday probably them behind us, but a lot. So you know overall Robert in this environment, we're very pleased with the with the strength and the share gains that both of those brands have.
Gained from a distributor mantia point of view, you're not quite like that but a lot of dog really big meaning.
Meaningful talks about distributors houses.
Like what we're doing on those two brands and that's reflected in the <unk> in their ordering profile. So I I don't have concerns with our distributors, placing focus on on Coors light and what a lot. It's it's a it's the it's the sort of foundation that many of the distributor ships.
It's just just just want to make sure I summarize it. So at this point now because it's it's been a little Rocky obviously over time. Your your youth you believe that the creative is where it needs to be and the brand health trends are going in the right direction and you kind of like how the the two brands are segmented.
Yes.
Great. Thank you very much.
The next question comes from Kevin Grundy of Jefferies. Please go ahead.
Great. Thanks, Hello, everyone I got one question for you or do you like joint venture. So a three of them. If I may a one how quickly do you intend to roll out the brand into new territories.
Question number two would be are you prepared you commented on the financial impact level of spend or earnings accretion, though I suspect not giving the guidance is off the table altogether for the company.
I think the weaving that in with the focus on the core within your portfolio and sell through is it doesn't sound like you're really going to be a huge priority in terms of investment at least for next year, but maybe maybe you can correct me on that and then just lastly, it'd be helpful. I think if you could comment on the potential for cannibalization or given the overlap.
With the premium and premium lights in your in your existing portfolio. So thanks for all that.
Thanks, Kevin look from a from a an economic point of view. It's a it's a 50 50 ownership structure. So 50 50, 50% of the benefit will come out when 50% of the benefit will go to two yingling from a speed point of view you know Weve I think we'll we'll and expect to have.
Moving onto that's first market in the in the second half of next year will well be in a position to advise which market that is going to be soon and.
We will roll out in a deliberate pace beyond that if you look at with Yingling has traditionally sourced. It's it's it's it's volume from when it's gone to a new territory. It has not primarily come from our brands its source of market shares has come.
From a from one of our largest competitors and we wouldn't expect that to be any different as we roll out into into new territories, a will be accounting for it on the on the the equity method, but you know you can you can be assured that we wouldn't have entered into this joint venture. If we didnt believe that it was going to be a key.
Creative to a profit in our earnings.
Okay very helpful. Thanks for the color.
Sure.
The next question comes from tail Kashmola from Credit Suisse. Please go ahead.
Hi, Good afternoon, everybody <unk> you gave a lot of puts and takes on Mdna and I just want to make sure I understand I believe you're looking for the Mdna for the fall in the second half to be up.
However, obviously it was down in this particular quarter Im just curious if that has changed is maybe fourq do you intend to be a catch up from these numbers, perhaps coming in lighter in the third quarter and then if you could drill down a little bit on that Mdna number Kevin you provided some insights on your advertising spend however, just Q.
So if you can give maybe a little bit more on your what's your AD spend was in its entirety for.
For the third quarter, and maybe where do you expect it to go for Fourq you. Thank you. Thanks.
Thanks, Carol look I mean, we I'm going to give you specific numbers, we just don't do that but I can give you some color from a from a media and advertising spend point of view it ramped up significantly within the quarter and compared to two to prior year in in the third quarter, we actually spent more in a U.S. national local media than the U.
Previously and as I said earlier, we've doubled though our media spend from a second quarter I'm on Coors light middle item and a a big bets vizio and lot Scott our media spend in Canada was also higher in Q3.
You know Weve, we really have been focused on trying to be nimble given the given the environment and particularly with areas like sports and then some.
And festivals.
You know we have.
Lack of sports events, and and the lack of snowfall, perhaps effective sports events in some cases, it's allowed us to renegotiate payment requirements and and that's we've taken you know less expense in the third quarter and based on those on those very successful.
Renegotiations that we've that we've had in terms of the fourth quarter marketing spend we do expect our marketing investment to increase from the prior year as we continue to build on marketing spend behind our core brands and the strength of that of the brand health of both Miller Lite, and Coors light and we all going to ramp up spend on.
We went a lot Scott because you include itself in alignment with when the additional supply coming on in the in the fourth quarter.
But of course, we'll monitor what's going on we'll monitor the environment and will be fluid and nimble. If we if we have to be but you know our plan is to spend more in marketing in the fourth quarter from GE and I point of view Tracy's anything you want add to what you'd said originally yeah. I mean, I think Oh quoted to me and we would probably flat versus the prior year and on the DNA.
You know, we spoken about our revitalization savings and be delivering well against those targets and as well as you know the comedy I, just sort of discretion me Todd themed.
Due to the environment, you're getting is actually operating in when we look at Q4 I do want to remind you again that they have got some unfavorability basis part yeah that that's the movie yeah, they'll be talking of some one off Austin, which.
Related to onetime a onetime thing that benefits and then also on diving into the cool in the prior year and as you know given that number I'm, Nick that's roughly about $27 million in the quarter that that's going to be stocking. So hopefully that helps a little bit on the <unk> side.
Okay got it thank you.
Second first of all congratulations you've announced quite a few deals in recent recent weeks or I suppose recent months. If we were to think about all of these deals collectively is.
Is there any insight you could give us on how much of an incremental contributor perhaps all of these.
All of these new initiatives Jvs product launches how much they could contribute at all to the at the group level.
Yeah, Let me answer that question this way Como.
As I stated in my prepared remarks that we expect the emerging division under Pete's leadership, two to two to get to a billion dollars in revenue.
Industry is three as Tom and served under Pete's leadership, we've got the cannabis joint ventures in Canada. We've got the the did you kind of as a joint venture in Colorado, We thought a non ALC space, which is which is primarily at all I basins. We've got a you know the wine and spirits group, which which has got MOBA in it at the moment is to source rollout.
Original Crofton and export license and distribution businesses fall under under Pete.
But to be more specific maybe to get $2 billion. We will we will have to grow that division by about 50% over the next three years.
Hopefully that helps.
It does thank you.
The next question comes from Bonnie Herzog of Goldman Sachs. Please go ahead.
All right. Thank you good morning actually had a follow on question time, just a few of you know the earlier ones that you know maybe asked a little differently I guess I'm wondering you know how willing you guys are acute led margins come under pressure as you potentially ran spending overall you know behind.
Oh sure your different initiatives now tend to revitalize your business I guess I'm I'm wondering if you might be entering a period of lower margins and maybe slower earnings growth. Yeah again as you try to have that your business is is that a reasonable expectation maybe for the next year or two Intel.
Well you know your topline accelerates to some of the goals you did call out such as you know the double digit Sharon I felt sorry, yeah. The 1 billion you have some your emerging gross portfolio like Sandra and I guess I'm thinking about the context that it might not be a lot of scale you know from each of these different initiatives for some time.
Thanks.
Hi, Bonnie good morning look I mean from ASCO point of view I'd Guide you to the billion dollars I just spoke about them effective for that division by more than 50% to get there.
As we as we.
Well I'll put you back to the revitalization plan revitalization strategy, which we which we were executing against when you starting to see the benefits of that coming through on a big Salon I'm certainly very profitable is a brand mix improvements.
We have to learn we increased Ah a brand mix affordability by 260 basis points in in the third quarter I'm not sure we've seen as level that high in quite some time, our revitalization strategy was designed from a structural point of view to take cost out of our business. So that we could actually invest in marketing. So you know what's your.
Seeing now is a is a delivery of that exact strategy, which we which we put in place a change the structure eliminated some some office locations make the necessary changes in order to deliver the firepower that we needed to execute above premium and beyond beard and at the same time and and importantly, supporting our Cobra.
Yes, I'm sorry, so you know, it's it's coming through as as as we had planned.
All right.
Thank you.
It's a follow up question from Lauren Lieberman. Please go ahead.
Oh, great. Thank you I'm, sorry, [laughter] slate.
I just was in them and you've talked about a strategic review you know since late last year and I. Just was wondering what that specific language around a quote strategic review is there anything you can talk about in terms of what's been looked at where where that process stands and your maybe where a refresh might be needed income strategy or footprint. Thanks.
Well I talked about a strategic review Laurence I'm not necessarily sure what you're referring to all I've talked about as the revitalization strategy and what we're doing on the revitalization strategy, where our focus is where we're trying to build capabilities and where we're trying to take costs out of the business and you know we tried to lay it out in the earnings release very clearly all the actions we've taken under those.
Five pillars of our revitalization strategy and that's our focus and we're all very pleased with the progress we've made it right in the middle of a pandemic so feeling good about it.
Okay. Thanks, so much.
This concludes the question and answer session I would like to turn the conference back over to Mr. Terry for closing remarks.
All right. Thanks, Thanks, operator, I appreciate everybody's attendance at all all the questions. If you do have additional questions others that we weren't able to take or you weren't able to ask today I. Please follow up with our Investor Relations team and then Tracy and I will look forward to you are they taking you through with it.
As the year progresses with that thanks, very much and thanks for attending today.
The conference is now concluded. Thank you for attending today's presentation you may now disconnect.