Q3 2020 Molson Coors Beverage Co Earnings Call
[music].
Good day and welcome to the multiple cores beverage company third quarter 2020 earnings Conference call.
You can find the latest slides on the Investor Relations page of the multiple cores web site.
Our speakers today are Gavin Hattersley, President and Chief Executive Officer, and Tracy Shareware, Chief Financial Officer with that I'll hand, it over to Greg tyranny, Vice President of EPS, and eight and Investor Relations.
Thank you Daniel and Hello, everyone.
Following prepared remarks, Scott from Gavin and Tracy we will take your questions. Please limit yourself to one question.
You do 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 and 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 FCC.
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 U.S. dollars.
And with that over to you Kevin.
Thank you Greg and thank you all for joining us today.
Well what are your what's being so far.
If you're like most people they are probably a lot of words that come to mind when you think of 2020.
But for Molson Coors this year can be summarized in three words assistance perseverance and progress.
That is how 2020 is being defined by the Molson Coors beverage company as we drive for topline growth.
We're 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 grow above premium portfolio.
Spend beyond the bureau invested not capabilities and support our people and our communities. You have 2020 has 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 than 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 coal cans was four times what it was in 2019.
I'm pleased to report that well work remains inventories steadily improving from the U.S.
We are approaching historical levels of paperboard supply wheel 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 inventories through the balance of the year.
When 2020 as soon as challenges 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 top line growth.
Cause lots of money lot grew 6% to nine at a hospice introspectively in the U.S off premise. So far this year as of today. The combined segment share has grown for 24 consecutive quarters that is six straight years and.
Im now is to stabilize our biggest brand in the total beer category.
The above premium products are record high portion about U.S. portfolios and business formed in 2008, despite the on premise restrictions.
By the end of 2021, we plan to capture a double digit share the U.S. self serve 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 quick.
And we believe that our emerging girls division can become a 1 billion dollar business in revenue terms in three years' time.
We are expanding our production capacity for selfless by over 400% and full bloom and lot Scott 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 there not to increase representation of people of color at all levels of our company and redirected some social media spending.
Port 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 <unk>.
And we're investing in our capabilities and our people to make it all possible.
I want to drill down in each of these a little more.
As I mentioned earlier is a great sign of strength of our core brands Coors light and Miller Lite grew 6% and not in the 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 could lead to gain achieved a record high sigman shared in the U.S. since the business formed two.
2008 to put Nielsen.
And our market research shows quizzed lot has seen 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 there's some cost a large competitor to ensure of grocery and crick based on the recent four week data from Nielsen.
A national champion brands in Europe, So significant trend improvement, there's a large percentage of the on trade and already reopened at the beginning of the third quarter.
And Twentytwenty, we have increased our number of major sports alliances across all of North America, and Raleigh on spending money against the lot of them. This year during the pandemic. These partnerships 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.
And last guys highly incremental to the Bloomin brands.
Blue Moon, Belgian White, the largest cross brand in the United States has seen a third highest grossing the off premise among all cross brands and 2020 according to Nielsen.
Well the last <unk> number one the Bloomin family is easily achieved the highest off premise gross and 2020 month old crop franchisors According to Nielsen.
And this progress in above premium beer extends to Europe in Europe and outside of its high marks the start of prominent brand grew by 9% and volume in the quarter and.
<unk> exports and license team grew volumes by 3% in the quarter, thereby expanding the footprint and the size of our premium position brands across the wider European segment.
Turning to sell says that he has risen to number eight on the Nielson top 10, good friends chalking 2020, selling over two and a half million cases since its April launch and then just seeing the highest repeat purchase rate amongst all cells is made by the major disciplines.
And we are incredibly excited by the early results of liquids Seltzer, which has matched disease hot cells in its first month themselves.
In some key retired as the quiz Seltzer variety pack is outselling the Bud light Seltzer Parati pick.
Folks we are building out all give me the deepest most diversified portfolio call itself is in the industry. We came into 2020 with an under to share. The segment. We are now four shape and by the end of next year, we plan to capture a double digit share of the U.S. so to market.
That is possible because of the depth and differentiation of our soap for portfolio.
We believe busy with its actually relatively hot antioxidants from vitamin C is the base position product on the market in a bit if we use space.
We believe course cells that can become a number one beer brand in the segment to 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 falling 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 Bodega Bay 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, we'll be bringing waste would enter a new joint venture. There are 25 states open for expansion under the JV, all with zero getting distribution today tens of millions of legal age drinkers.
A significant growth opportunity for our company and forgive me.
I imagine drugs division has been doing a great job planting the seeds for future growth opportunities beyond the Bureau.
Revenue in the year, we launched mobile office canned won and the trust joint venture launched very well CBD and THC drops in Canada.
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 where big.
We launched a new line of non alcohol products created from the beverage incubated elevations, we took a minority stake in xin water by noted beverage innovator launch columns, and we launched bond botanical how 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 the unfair.
That is why I'm confident that altogether, our emerging gross 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 are you is trust joint venture with Hicks says will launch its first CBD based products in Colorado, making this 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 extend a heartfelt the production capacity by over 400% by the end of this year.
Already 2021, we expect to complete a project to expand Blue Moon lots got production capacity by approximately 400% as well.
We just turned on a new sleek can production line at the Rocky Mountain metal company, a 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 krona boss, we have improved online sales in the U.S. by approximately 200% through the three tier structure, while also developing new ecommerce 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 to continue 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's started earlier this year when we redefined our company values, starting with putting people first we build from there 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 the people of color at all levels of our company and in the early months of shut a business that is growing more diverse.
We redirected social media spending to Ptwenty, five national or 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 fermentation 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've made a lot of news over the past two months from our continued investments behind our core brands expansion I sell to production capacity to our joint venture with yingling to unused line of non alcoholic beverages to the launch of course self service to the addition of type of Chico hard sell such as the distribution deal with luck Hello.
These are not a series of one offs that all represent parts of one single strategy.
How about business to topline growth.
Oh, we faced 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 previous <unk> brands.
Stand the viewpoint, but I believe our coal is our strength there.
And 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 as to whether these actions at too much complexity or distraction that we should stick to a cold.
But to suggest that we must focus only on a 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.
I'm 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 top line growth for this business and now posted revenue Tracy for the financial highlights price. Thanks.
Thank you Devin and Honey Bee line and I don't see how does it.
Consolidated <unk> regional basis, and they need to accelerate.
Thank you Pete Petit <unk> net sales revenue decreased three point [laughter] thinking kind of tight [laughter] preparing for an outstanding quarter performing.
Yeah. That's it for every single login peak time, principally in the on premise channel along with the card funding maybe this channel mix implications across all major markets.
Eat in Pexip hospital stay behind it I think if anything you eat and becoming channel mix challenges to do another positive thing.
Hi, just following up only 15 baby he may not Scott and Chris Telesat.
No one can make a shipment timing was positive in the state or does it remain impacted by the packaging the capital constraints.
Net sales to hit any time frame funding basis increased 2.1 to think in constant currency, reflecting positive net pricing in the <unk> and Canada moving off getting maybe this makes it takes place.
Sure the biggest market dynamics and consumer shift caused by the credit AI and baby.
Well the significant number of the ice cream is establishment.
After quarter that exactly I said, we're not operating at full capacity.
This had an EPS impact, albeit improving from second quarter levels I make slight.
As many of our higher end products a skew towards the ice cream is just the restrictions in this channel and I say will impact on our brand and channel Nick.
Well black brands volume decreased 5.2%, while financial volume decreased 515.
Underlying costa he can eat it increased 1.5 to take on a constant currency basis.
Sanctioning body can be leveraged cost fuel cost savings initiatives.
And design Mdna decreased 6.6 days on a constant currency basis.
It is not a good marketing spend partially offset by slightly higher DNA as we cycled one time benefits related to announce anything to compensation residuals in the quarter of 2019.
This is largely okay, Ami backlog based on cost savings and lower discretionary spending.
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 months ended September that the kids treated drinking.
$275 million favorable to the prior year period.
Then by favorable working capital.
The working capital benefit risk I decided to settle out and the $200 million in tax payment.
Various government sponsored payments if they don't programs related to the kind of guy and didn't make as much of which we currently anticipate approximately off to be paid in the fourth quarter upstream twinkie, while the remaining amount to be paid beyond this fiscal year.
In North America, and it sounds maybe you decreased 8.8% in constant currency driven by financial bind to kind of focusing the 15 other brain volume.
North American brand revenue decreased five point keeping at the ice cream is kind of just limited capacity I think during the quarter more they all fit that screen embedded beginning in Canada in the off site.
Also contributing to the decline with packaging high strike, which primarily impacted the economy and premium segments as we prioritize high margin scheme.
Anyway Bang volumes decreased 5.3, the same compete you Denise except me to kind of 3.9 being you know if it's to address the year to date I have to ship insufficient attributed to the aluminum cans the time constraint.
It sounds to he said he thought on a brand by name basis increased 3.6% in constant currency driven by net pricing increases in the <unk> and Canada and favorable brand and package mix in the Healy, partially offset by negative brand and channel mix in Canada attributed to the shift to find them funny I pretty much it.
All right.
In the United States out there he kinda brands Noninvasive increased 4.6, the thing driven by favorable sales mix and the pricing.
The U.S. delivered its eighth quarterly sales performance in the non BK and the base Bank makes this woman since the first quarter 2014.
In Canada.
Make it just makes more than offsets any pricing increases one in Latin America. It sounds to hate to any kind of brand buying basically largely consistent with the prior year.
Underlying EBITDA increased 2.5 to phase in constant currency and engine a reductions more than offset unfavorable gross profit from the other financial problems 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 investment behind brands, and Texas, which we experienced a time constraint.
Hey that need you and as a timing thing rents have sequentially, but in the quarter and increased compared to the prior year period edgy supported cool brands and key innovation.
Also contributing to the Mdna redaction other cost mitigating actions and the continued progress in realizing cost savings related to the revitalization thing.
Well, if this was partially offset by hopping lower incentive compensation in the prior year period, largely due to the onetime benefits from long term compensation with diesel in the same quarter of 2019 as mentioned area.
Well, Europe, which is more heavily skewed towards the insanely neat sales on a reported basis decreased 15.3% in constant currency due to nullifying and 11 itself the heated heated reflecting the impact from the color and if I.
He felt that he can he kind of brand volume basis declined 5.9% in constant currency driven by favorable channel brand and geographic mix, particularly in a high margin you type business.
You will see a slightly higher net pricing.
Financial volumes decreased 7.7% and rank 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.
Given the many moving up 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.
Yeah, that's underlying EBITDA decreased 8% on a constant currency basis. This is the pie yet driven by price margin impact of volume declines and favorable geographic and channel mix.
So you'll see a lot of M&A expenses as a result of cost mitigation actions to navigate the current by endemic.
Which takes me to our financial outlook on lots of the 27th we lifted out guidance GTT I see can keep driven by the pending.
With the rising and use our paces in both North America, and good government mandating you'd caution when fighting locked down to varying degrees and that's that I see you can see what name.
As a result, we had not reinstated gotten they are 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 get that visibility once conditions have stabilized or even gotten.
And we are very proud of our performance and agility navigating the creative I think anything executing against our revitalization plan.
The Greek an idea so he brings the heat.
The pandemic continues to impact our businesses Q2, I'm pretty much locked in it.
And Oh, geography and disproportionately into it.
Well said, we continue to face the fact constraint however.
However, we do expect to retain to food even field trials are industry standard cans I hearing and then making progress on remediation constrain well the quit lactose okay.
As a result, we expect anything shipment trends in the U.S. City high end brands volume trends in the fourth quarter as we continue to build inventories.
Well, if you get a big marketing investment 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 like Lehman last guy Dizzy and could itself that in alignment with additional supply coming online.
We will continue to be nimble adapting to the environment to ensure that we are achieving the highest possible return on our marketing investment.
After posting strong brand equity.
Before end of the third quarter some of the anticipated fourth quarter thing well be dependent on expenses, including the occurrence of live sports anything.
And finally as discussed in our second quarter call in the fourth quarter, we will cycle lower incentive compensation and a nonrecurring benefit benefit which occurred in the fourth quarter of 2019 and totaled approximately $27 million.
In response to create enough I think Jamie and they make we have shifted our focus to ensure adequate liquidity for the near Tim while positioning the business for medium and long term success.
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 to date 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 I favorably, 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 dollar facility.
Fannie Mae Dividended made for the remainder of Twentytwenty.
Reducing 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 decision 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 needs based decision by just over $1.2 billion. Since we began the revitalization program.
And we have maintained strong borrowing capacity on that facility.
As of October 29th Street between T., we had $1.4 billion under I used facility and the full 300 million pounds and the UK the synergy and available capacity.
We invested in our business to support medium and long term growth objectives.
In addition to necessary safety and maintenance projects, we are making capital investments that deliver cost savings and high return growth initiatives.
She is not significant in basement behind hard spouses and innovations in our fourth within mobile capability.
Now for the next few years, we plan to prioritize capital investment to include hundreds of millions of dollars to add significant capacity for innovation, including spouses and some tank 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 crowd of ours pandemic further improving our liquidity and if anything and if it's Ted Fasano Tim go.
We are mindful of the challenges in continued uptake in 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're 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 pause momentarily to assemble the roster.
The first question comes from Selkirk 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 you reintroduce some of the economy brands impacts 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 at I told on industry can supply stabilizing and you know we've already seen that increase incrementally over the last four or five weeks and we expect that to continue incrementally increasing through the balance of the year.
We've got to constraints, particularly one would be the the toll Ken for coal for 12 ounce, which is what cause locked him and Keystone might go into into primarily and then the obviously the tool.
The 12 ounce tools from Ken that's being more driven by the success of visiting Bluebird lots gotten it hasn't necessarily been bar by shortages terms of prioritize Asian noticed because lot gets a first priority for us when it comes to the to the toll can and we've made some adjustments I'm on slide.
Moving products that are out there that are being packaged in the can and to make sure that we can fulfil coors.
Coors light the to your second question from a trend on point 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 their their daughter 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, guys.
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 how.
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 kind.
Some of the activity to you know to click into okay. This one's got you know about some lags that's really push it because they.
The activity has been tremendous and obviously looking at the price mix this quarter. It it's helping in 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, Lauren and good morning look.
It depends what lends you look at this through I'd say if.
There's other through three lenses from a from a retailer point of view, they well prepared for innovation, they're hungry for it and and I'm expecting that says Oh I see no issues. There from a distributor point of view, 80% of them already carried non alcohol products and 50 of them, 50% of them tell you want in spurts already so they're actually ahead of us I mean, 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 Marinas leaders.
It's a it's a small team of passionate and very dedicated specialists in the in the field and yeah. Lauren 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 coal brands and the innovation coming through in above premium.
Of course, we're going to continue to leverage capability through the CCOH, He and back office, but you had is this there's little additional complexity for ourselves 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 said 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 over that I've talked to probably two months period window. These things are all the timing of them is all different you know yingling will come in the back half of next year.
Lock alone will come in the front half of the first quarter type of Chico's itself that will be in a second.
Second the first quarter is early in the second quarter. So from a timing putting these things in auto lending at the same time. So you know I think there obviously there are questions about it but we are managing it now we are managing it effectively.
Okay, that's great and then with regard to the sticking with portfolio with you know some of the bigger brands. You know obviously the work on Blue Moon 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 'cause they 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 you say.
The new is way, but in a way better use of our resources and 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 cancer origin, the Corona, Vice President picker forced us into making decisions around slow moving brands and skews learn and we've done that to them 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.
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 have realized just ask might in 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, saying I'm grids for far stronger shrunk water.
My question review about the sense that category I mean, you mentioned you.
You, where you are plenty to achieving double digit market share in the sense that could figure in 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 beat the level of confidence for reform for investors.
I never saw them not we've seen that in the hi, how are you I'm not plenty to motivate so insensitive, it's your horse centers.
No spot I mean, Oh.
Oh already carrying that brands like truly your Weicheng. So my turn to Sun does speak more thank you very much.
Thanks, Lauren look I mean, we've got what we think is arguably the strongest portfolio.
Portfolio 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 a number one beer brand in this in this in the segment or the addition of Turbo 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 spruce Bates Seltzer. So you know we think we've got a highly differentiated very powerful and very attractive seltzer portfolio for consumers and our distributors are getting behind them you can see that in the performance of busy.
And you can see from the performance of course, Seltzer and I've not seen him I'm as excited him know, while I'm around telco chica, particularly in the markets with a type of chica 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 immunized, who are contract manufacturer for took what Chico something we should expect just for this coming year as you yeah bidding a pure your cap as Steve said search and we shoot you.
We should seek about you will regret treating these in house from Twentytwenty two thank you.
20, 2021, it will be primarily outsourced and and in 2022 and beyond it will be in sourced Lauren. 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 I've asked yards 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 also in European life has been meal block bounce and I would say if we step back broadly how do you feel inventory levels, if they've been talking levels normalized.
At the trade at this point.
Trace why don't you take the sort of shipments and STR was home for Q4, and then on to Europe.
So what do you need any stocked with she thinks the NC state the shipment outpaced brands are you changing in Q3 and as we stated.
When we look at September year to date on the U.S shipments and shipments were down 6.1 sustained uptrend volume was down 3.8 the thing.
And for Q4, we expect shipments to outpace brain volume trends as well as people inventories during the balance of the yes, I mean do you expect to see the reduction and in this gap.
As it relates to you, Nick and getting and East Trs Cool you know fourth quarter, we actually moved away from that if a couple of quarters ago.
And grants, so I'm not really going to comment on that Kevin.
Kevin you know Andrew from a from a.
Well the overall environment point of view you know the off premise in the <unk> 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% of what I'm.
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 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 there's much less tourist activity during that time period that takes place more in the in this in the second and third quarters.
In the UK for the third quarter, we had we had good weather there was supported by the government's program to eat dog at on premise outlets and so we saw.
Much better performance from on premise point of view in them.
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 into the balance of the year.
The shortage for something about exciting.
Innovations like busy and blew me lots guy, it's driven by the strong success of those two brands that 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.
Obviously, the shortage will be more pronounced for htwo.
For the.
12 ounce, a toll cans and where we are seeing that stabilizing and starting to improve.
Okay Super helpful. Thank you so much.
Sure.
The next question comes from Sean King of easy Yes. 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.
Chris you want to take a dozen Christian yeah.
Yes, I have shown on the left you know as you.
No we suspended our dividend in may for the remainder of 2020 and situation remains to it and you know we are having ongoing conversations with imports have you penetrated coming on at dividend policy beyond the 2020.
And what I can tell you, though is you know the companies that have very long history of paying dividends and we fully intend to reinstate the dividend as soon as appropriate.
Right now the the contract it 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 as you know we continue to introduce Tony.
Debt to EBITDA and ratios.
Quarter after quarter.
And that's about as much as I can tell you you know I'd tell 'em, 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 Ah. Thanks for taking the question David I guess, that's 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 a like amount of advertising is there are or will it will require spending too you know get product on the shelf you know it 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 our on our coal brands, but a lot of course lots 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 D required investment behind.
Busy and.
And.
Good point Im talking about Chico's Seltzer next year that they need in order to be successful in in the third quarter, we actually spent a week.
We doubled our media spend from Q2 behind Coors light mid to late summer and up to big bets, a busy and lot Scott and in the in the fourth quarter you can expect to see a ramp up of support for both of those sell throughs 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 abroad, and we'll put the necessary money behind it to make sure they're successful.
Early signs are good they are very differentiated they like that clearly resonating.
With consumers and yeah lots.
Lots of excitement from the distributors as well.
Kevin This is there any sign that 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 you.
You know it is flooding or just you know any it is it getting expensive to get get product on the shelf.
Yeah, Brian 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. So.
Certainly from a from a median national spend point of view and the strength of a chain teams in our selling teams. That's how you get shelf space in the in the U.S. and we're confident we're going to get it for our core brands.
Thanks, Kevin.
Our next question comes from Steve Powers of Deutsche Bank. Please go ahead.
Yes, hey, thanks to I'm not sure. If this is disclosed somewhere that maybe I overlooked today, but 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 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 contributed 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 that what we pointed it grew very meaningfully and 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%.
Double digit market share of the of the self serve category. We think that that is a is a big category and it's you know just bought some of what you might have read recently, we don't see it slowing down meaningfully I mean, you know, 50%, 75% hundred per se.
Great. It's been 2021 are there isn't another part of the beer category that all 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 take 50 75, 100% anytime from a from an overall segment point of view and we believe that our differentiated portfolio can get doubled.
Did you ship that will have which would have a meaningful impact on our above premium share about portfolio and then of course, there's the beyondbio space and the emerging gross division, which you know all of it really is in the above premium space from a from a price point of view from a revenue point of view, we can see that getting to a billion dollars in the next.
The in the next three years.
Yes, 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 Evercore. 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 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 there, let me I'm trying to parse that out let's start with the with Coors light I mean, we feel really confident in the brand's direction, we're seeing strong brand health improvements.
Peculiar amongst the 21 to 34 year old consumers, which is really good.
Cause 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 testing that we've seen we found that consumers find that the new design is much more refreshing is memorable its unique particularly when you compare it to two quick lots of competition.
You know 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'll be fully and really to through.
Probably a really do if it's if it.
Otherwise, we'll be there in the next week or so.
From the made to Chill campaign, we've had U.S. its that we've that we've put out.
Yes, 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 drive significant share growth in premium lots and it continued to gain share of the segment in in Q3.
C N will build on that as we as we head into into Q4.
My mother lot a point of view, it's also et cetera, right as opposed to them from a segment point of view and an industry point of view.
Sure. It was we were very proud of the 24 consecutive.
Quotas of share growth that we've had is a six years of growth 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 lots proposition can can strongly challenge that competitor.
And we also have.
Big plans to to to continue to build but 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 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 buses those brands have.
I have gained from a distributor mantia important if you're 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 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 a it's the it's the sort of foundation that many of their 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 guess one question for you on the England joint venture. So a three of them. If I may one is 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 that 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 England is 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 structures. So 50 50, 50% of the benefit will come our way and 50% of the benefit will go to two yingling from a speed point of view you know Weve I think we'll we'll expect to have.
Moving onto that's first market in the in the second half of next year, we'll we'll be in a position to advise which market that is going to be soon and.
We will roll out in a deliberate pace or 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 does not primarily come from a 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 or 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 accretive to our profit and out.
Earnings.
Okay very helpful. Thanks look out.
Sure.
The next question comes from Camilo Kashmola from Credit Suisse. Please go ahead.
Hi, good afternoon everybody.
You gave a lot of puts and takes on M. DNA and I just want to make sure I understand I believe you're looking for the engineered for the fall in the second half to be up.
However, obviously it was down in this particular quarter I'm just curious if that's 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, I'm just curious.
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 you expect it to go for Fourq you. Thank you. Thanks, Carol look I mean, weve 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.
Good quarter, we actually spent more in a U.S. national local media than you previously and as I said earlier, we've doubled though our media spend from the second quarter.
On Coors light mother lots and a a big bets Vizio and Alaska, 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 events and.
And festivals.
You know we have delay.
The lack of sports events, and the lack of self or perhaps effective sports events in some cases, it's allowed us to renegotiate payment requirements and and that's we've taken you know.
<unk> expenses in the third quarter and based on those on those very successful.
Read negotiations 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 from a large and Coors light and we all going to ramp up spend on a blue Moon 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 and we will 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 for quarter, three and we would probably flat versus the prior year and on the DNA.
Hi, There you know we spoken about I read my foundation savings and be delivering well against that target and as many of you know be targeting other sort of discretionary costs being you did you change the environment forget it seems that the operating in when we look at Q4 I do want to remind you again that they have got some unfavorability basis pod.
Yeah that that's the movie yeah, they'll be talking of some one off optum, which related to onetime a onetime thing to benefits and then it will send diving into the accruals in the prior year and as you know given that number that's it's roughly about $27 million in the quarter that simply going to be talking about Hep C that how.
It's a little bit on the <unk> side.
Okay got it. Thank you and second first of all congratulations you 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 or is there any insight you could give us on how much of an incremental contributor.
Thats all of these.
All of these new initiatives Jvs product launches how much they could contribute about tonight at the group level.
Let me answer that question this way Como.
As I said in my prepared remarks that we expect the emerging division under Pete's leadership, two to two to get $2 billion in revenue.
In three years, three as Tom and served under Pete's leadership, we've got the cannabis joint ventures in Canada, We've got the new kind of as a joint venture in Colorado, Weve got 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 mobile units at the moment it was sold out.
Regional 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 too led margins come under pressure as you potentially ran spending overall you know behind.
All of your your different initiatives net tend to revitalize your business I guess I'm I'm wondering if you might be entering a period of lower margins and maybe sell or earnings growth. Yeah again as you try to pivot. Your business is is that a reasonable expectation maybe for the next year or two until.
Well you know your topline accelerates to some of the goals you did call out such as you know the double digit sharing her shelters yeah. The 1 billion you have some your emerging gross portfolio like Sandra and I guess I'm thinking about in the context that there might not be a lot of scale you know from each of these different initiatives for some time.
Thanks.
Hey, Bonnie good morning look I mean from a sales point of view I'd Guide you to the billion dollars I just spoke about them effective for that division by more than 50% or to get the.
As we as we.
Well I'll put you back to the revitalization plan revitalization strategy, which was which we were executing against when you starting to see the benefits of that coming through on a mix long I'm certainly very profitable is a brand mix improvements yeah U.S. alone, we increased Ah a brand mix afraid of revenue by 260, but.
Basis points in in the third quarter I'm not sure we've seen level that hard in quite some time. Our revitalization strategy was designed from a structure point of view to take cost out of our business. So that we could actually invest in marketing. So you know what you're 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 be on beer and at the same time and importantly, supporting our core brands I'm sorry, It's all you know, it's it's coming through as as as we had.
Clint.
All right. Thank you.
It's a follow up question from Lauren Lieberman. Please go ahead.
Oh, great. Thank you.
Sorry, [laughter] like I, just was getting 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 quite 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 I refresh might be needed in terms of strategy or something.
Thanks.
Well, we talked about a strategic review learned so I'm not necessarily sure what you're referring to all I've talked about is the revitalization strategy in 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 cost 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 thus far.
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.
Great. Okay. Thanks, so much.
This concludes the question and answer session I like to turn the conference back over to Mr. journey for closing remarks.
All right. Thanks, Thanks, operator, and I appreciate everybodys attendance at all all the questions. If you do have additional questions others that we werent able that tick or you weren't able to ask today.
Just follow up with our Investor Relations team and then Tracy and I will look forward to you.
In taking you through 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.