Q2 2021 Molson Coors Beverage Co Earnings Call
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Net.
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Operator, we're ready to go.
Good day, and welcome to the Molson Coors beverage company and second quarter fiscal year 2000 and for anyone on each conference call.
You can find related slides on the Investor Relations page of the Molson Coors website.
Speakers today are getting harder to.
President and Chief Executive Officer, and Tracey Joubert, Chief Financial Officer, with that I'll hand, it over to Greg Tierney, Vice President of DNA and Investor Relations.
Thank you operator, and Hello, everyone.
Following.
Repaired remarks from Gavin and Tracey, we will take your questions. Please limit yourself to 1 question and if you have more than 1 question. Please ask the most pressing question first and then reenter the queue for follow up.
You have technical questions on the quarter pick them up with our IR team on the days and weeks that follow.
Today's discussion includes forward looking statements and <unk>.
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.
GAAP reconciliations for any non U S. GAAP measures are included in our news release.
And also unless otherwise indicated on.
Actual results the company discusses are versus the comparable prior year period and in U S dollars.
And with that over to you Kevin.
Thanks, Greg Good morning, and thank you everybody for joining us today.
Nearly 2 years ago, we laid out the Molson Coors revitalization plan on.
A multiyear strategy.
<unk> delivers a sustainable top line growth that has alluded our business for many years, while at the same time delivering sustainable bottom line growth.
Under the plan, we have streamlined the company on and reinvesting those savings to build on the strength of our clinic coal.
Cash as we grow our above premium portfolio expand beyond the Bureau in.
2 the <unk> capabilities and support our people and communities.
We had a few doses then and we had some had some unexpected charges since.
From a global pandemic to severe Texas winter storms to a cyber attack on our company.
But nearly 2 years later, we can say to those doses with confidence that most.
Of course is on a path to deliver sustainable top and bottom line growth.
Our performance this quarter speaks for itself.
I say that because for nearly 2 years, you've talked a lot about the outputs of our revitalization plan, new investments new partnerships, new product launches and new campaigns.
But today, we were able to start poking meaningfully.
<unk>.
Outcomes from the revitalization plan.
And Thats an important shift.
In the second quarter, despite ongoing pandemic restrictions, we delivered the most top line growth of any quarter in over a decade and we nearly achieved 2019 net sales revenue levels on a constant currency basis. Despite.
Pandemic restrictions during this quarter on <unk>.
Incredibly pleased with this progress, but it is a strong indicator of what is yet to come through our revitalization plan.
Our progress was primarily driven by 3 things.
First it was driven by the effectively delivered the best brand mix in the United States since the inception of the medical is.
<unk> entry in 2008.
This significant premium amortization of our portfolio was led by the strong growth of our U S. HUD Celsis, we doubled our share of the U S. Hard Seltzer segment in the second quarter, we took over as the global Brewer with the fastest growing U S sales to portfolio.
We recently passed another major brewing enough.
In total U S sorts of share as we continued to move towards our goal of a team of achieving a 10 share.
In the U S by year end.
Those are outcomes.
We're also continuing to see strong traction with our <unk> innovation.
<unk> fast tuning new lemonade variety pack helped the busy brand gained almost.
Joined full point of view a share in the second quarter.
And we just added another new package to that family with busy watermelon, which has been a hit with retailers thus far.
Type of Chico hard Seltzer continues to exceed our expectations in the 16 markets in which it is sold in the U S.
Demand has far outpaced our original.
<unk> plans for the brand and with supply improving we are now positioned to be more aggressive in marketing this brand.
That is an outcome.
Outside of the U S. A Canadian hard Seltzer portfolio continues to perform very well the combination of <unk> and Coors light Seltzer has earned more than a 50 share for hard seltzer category with the largest beer.
Most of cellular in the country.
Busy specifically is the number 1 spot in the on premise in key regions like Ontario, and we're looking forward to fuel this momentum with busy lemonade, which launched in Canada, just a few weeks ago, that's an outcome.
In Europe, 3 folds in the UK and why environment in central and Eastern Europe.
<unk> continued to build distribution on consumer awareness with a strong mix of brand advertising.
The category is still at an early stage, but we are well positioned to win share and develop our portfolio is popularity around hard seltzer continues to growth.
And while our fast growing hard seltzer portfolio is driving our premium amortization.
<unk> is not alone.
Mercury continues to exceed expectations in the UK on premise with unprecedented consumer demand.
And per half from the startup performance stable of brands is performing ahead of expectations in the central and eastern European markets.
Initial estimates by more than 50%.
Our Latin America business, where our global brands, primarily operated in the above premium price segment has exceeded expectations given the corona virus pandemic throughout the region.
Collectively for the first half of 2021, the region is exceeding brand volume levels for the comparable 2019 period. Despite continued government.
<unk> issued pandemic restrictions.
For example, our Puerto Rican operations, which had been in long term decline are currently growing those are outcomes.
In Canada, our 6 <unk> Cross division is growing absolute volume despite its reliance on the on premise.
In the U S. Preliminary last call was the number.
1 New Bureau item in 2020 and has grown double digits. This year building off its strong base, while non critical summer shandy brain volume is up 10% year to date.
Other outcomes.
And in just a few weeks the England joint venture will launch in the state of Texas, where distributor retailer and customer interest has been incredibly high.
On product shipments begin next week and are scheduled to hit retail by August 23.
The other effect that drove the best brand and more on a decade is a rationalization of the long long tail of our economy portfolio in the U S.
As we have discussed in recent months in the U S. We paused production of a number.
Low margin slight moving economy brands and Skus.
This allowed us to improve operating efficiency and stabilize inventories of our co brands and it also premium on our portfolio and improved our margins and.
And we intend to maintain that high level of premium amortization service.
So after an extensive analysis of our.
Since we are meaningfully streamlining and premium on our U S portfolio discontinuing around 100, skus, including the elimination of 11 economy brands pulled together.
This will improve supply chain flexibility for a more profitable priority brands enhance our innovation efforts enable us to better focus resources.
And ensure dependable on on time shipments to our distributors.
Let's be clear while economy brands has typically not been a focus of the investment community distributors, we saw brands like Magnum and Nicky as us are going to feel it when they are discontinued.
So our local sales teams are partnering with distributors and retailers on a market by market basis.
So on exit plans and to identify swaps that makes sense.
So the headline is simple premium amortization is here to stay at Molson Coors.
We're going to invest behind our fast growing global Hawk sales per portfolio and were going to permanently treatment on a smaller portfolio of legacy brands.
We're excited about the progress.
We are making and we are not about to stop now.
Our topline growth was also driven by the strength of our co brands and the pace of the return to the on premise.
Coors light and Miller Lite again grew share of the us premium light segment.
With on premise accounts reopening in a big way across the U S. The brands were at 97.
<unk> totaled 2019, STR volume in the second quarter.
Coors light specifically achieved its best half years share trend in 4 years and its U S. STR rose by 1.7% in the second quarter.
At the same time, Nonetheless grew 3.2% in the units in the quarter.
In Canada Coors.
Per se on share with our largest retail customer for 4 straight quarters.
Our top line growth was also aided by the investments we have made and on beyond beer initiatives.
Standing here at the end of July Zeller has already far surpassed our expectations for the entire year and it's kind of on a Dwayne Johnson continues.
<unk> per fiber product across its massive social media presence as well as through a new TV campaign debuted during the Olympics this month.
The RTD coffee market is estimated at $4.3 billion in 2021 and lack of alignment is ranked number 1 in the above premium category.
We're excited about the progress.
To end banking and continued to have success with distribution to large national and regional retailers in both the drug and convenience store channels.
Trust, Canada, our joint venture with <unk> has grown to more than a 50 share of the Canadian cannabis beverage industry and not hold 7 of the top 10 skus in the country.
Yes, we are in the U S of starting in the Denver Metro area <unk> is expanded distribution to other distributors and independent retailers across the states a strong vote of confidence in the joint venture plan and its brands.
As I said earlier the results from the second quarter demonstrated the revitalization.
On plant is starting to pay off.
So we're going to continue investing in our business and our people and in our communities to continue driving the results we're starting to see.
You saw that on the last quarter as we announced 2 new projects to increase our global hard seltzer production capacity.
Canada, we announced plans to quadruple our in house.
Hard seltzer production capacity.
And in the UK, we announced plans to add a new hard Seltzer Canning line and a burden upon temporary while also upgrading our beer and cider packaging facilities to drive efficiencies.
Those 2 investments followed a similar effort last year to increase our hard seltzer production capacity fivefold in the U S.
These investments will have long lasting benefits as we bring more production in house ultimately improve our profit margin.
But the investments in our business on not stopping day.
Finally, after more than a year of pandemic related challenges, we're going to be able to more fully invest behind our brands.
Now what does that mean.
So sticky in the UK for a moment 3 fold hard seltzer is backed by the biggest brand investment Molson Coors has ever made into a new UK category.
And you can expect to see a boost in our marketing spending over the second half of the year as well.
But as markets are opening back up on local alliances are reactivated for the first time on every.
<unk>.
And our inventory will have recovered to a point that it makes sense to more fully invest behind the brand marketing.
As important as that is a successful failures accompany isn't entirely defined by our topline growth is also determined in part by how well we support our approximately 17000 employees and support.
Fourth our hometown communities all around the world.
That's why we directly engaged on North American employees, and what we call project Justice and effort. We started last summer and have continued in 2021.
Through this initiative, we are supporting 33 organizations across the U S and Canada that.
We are working to create a more just an inclusive world.
That's also why we are expanding our scholarship program for U S College students of color, who are pursuing careers and <unk> and brewing Sciences as we work to bring more diverse voices to our industry.
And that's why we're looking within our organization to improve the representation of women and people of color across the biggest part of our business.
We also just released on annual ESG report called out are in print with a refreshed strategy that focuses on 2 key pillars people and planet.
From eliminating plastic rings in the UK to saving over $100 million gallons of water entity through our Golden Brewery modernization project.
The significant work we are doing.
Moving to support our people.
We've made great progress against our goals and stay tuned as we continue our ESG journey.
We've had our share of challenges over the last several years, but that is changing.
And today the stands all say the same thing Molson Coors as future is bright and our revitalization plan is succeeding.
With deleveraging our business, we have reinstated the dividend, we're thinking more consciously about how we best support our people and the communities in which we operate we're investing behind our brands, we are reshaping our portfolio and we're expanding into new spaces.
Nearly 2 years into our revitalization plan our results are improving.
We're going to put our foot even more firmly on the gas pedal as we drive towards our sustainable top and bottom line growth.
For this business.
Tracy.
Thank you, Kevin and Hello, everyone.
Just had a strong second quarter, which exceeded expectation.
<unk>.
To make real progress executing our revitalization plan and.
And we are starting to see the results on our operating performance at.
As Kevin noted, we continued to premium on our brands and strengthen our core business and our improved financial flexibility has enabled us based on our business, while continuing to delever, our balance sheet and to reinstate.
A dividend.
Now let me take you through our quarterly results in more detail and provide an update on our outlook.
Consolidated net sales revenue increased 13, 7% in constant currency delivering 98% of second quarter 2019 labeled despite continued.
To operate that feeling degrees of on premise restrictions.
Consolidated financial volumes increased 5.5% outpacing brand volume growth of 3.1% driven by higher Europe volumes and favorable U S domestic shipments.
Top line performance benefits.
Turning from on premise, we are things in the quarter from most of our major markets as well as strong global net pricing positive channel mix and historic favorable brand mix levels in the UAE as we continued to premium on our portfolio.
Net sales per hectoliter on a brand volume basis increased 5%.
In constant currency, driven by crossing growth, coupled with positive brand and channel mix, partially offset by geographic mix given the strong growth in Europe and Latin America.
This topline growth was somewhat offset by inflationary pressures, which impacted net consumer product companies as well as increased.
Facilitating investments as we continue to execute our revitalization plan.
Underlying cogs per hectoliter increased 8% on a constant currency basis, driven by cost inflation, including higher freight and packaging costs.
However, with robust hedging and cost savings programs, we had.
<unk> been able to significantly mitigate much of the inflationary pressure.
In G&A in the quarter increased 25, 3% on a constant currency basis.
As we cycle timing shifts and targeted reductions to marketing spend in the prior year period due to the coronavirus pandemic.
As planned we significantly increased marketing investments in the quarter, putting strong commercial pressure behind our key innovations and co brand.
Underlying EBITDA decreased 1.3% on a constant currency basis, but increased compared to 2019 second quarter levels.
Underlying free cash flow.
$2 million for the first half of the year, a decrease of $238.2 million from the prior year period.
This decrease was heavily driven by less and roughly $500 million in benefits in the prior year related to tax deferrals due.
Governmental programs and was partially offset by favorable working capital and lower capital spend.
Capital expenditures paid with $212 million for the first half of the year as we continued to invest behind capability programs, such as our previously announced Golden Brewery modernization project.
And on New Montreal brewery.
Capital expenditures were lower in the first half of the year compared to the prior year, primarily due to project timing.
Yeah.
Now, let's look at our results by business unit.
In North America, the on premise channel accounted for approximately 13% of.
Sales revenue in the quarter compared to approximately 16% in the same period in 2019.
In North America on premise Rio's things vary by market.
In the U S. Our largest market, we continue to see progressive re openings during the quarter and attained over 80% of 2000.
1 is on teen levels as of quarter end.
In Latin America restrictions continue to ease while in Canada significant restrictions continued throughout the quarter with on premise volume about 1 quarter of pre pandemic levels.
North American net sales revenue was up 8.
On a 9.3% in constant currency driven by strong net pricing growth positive brand mix in the U S phase.
Favorable shipment timing and higher Latin America volume.
Of note U S. Net sales revenue exceeded the second quarter of 2019 levels.
In the UK domestic shipment volume increased 1.2% outpacing brand volume declines of 4% as we focused on rebuilding inventory following the first quarter supply disruption.
The brand volume declines were entirely due to economy, which was down double digits as we prioritize.
8 certain non core skus.
Our best premium portfolio was at double digits, and our premium brands were up low single digits.
In fact, our units above premium brand volumes reached a record high portion of our portfolio compete to any price quarter since the creation of.
The Miller Coors joint venture in 2008.
Tentative brand volume declined 5.1%, while Latin America brand volume experienced triple digit growth driven by strong co brand performance.
Net sales per hectoliter on a brand volume.
Basis increased 4.7% in constant currency with pricing growth delivered across all geographies.
The U S increased 6.9% driven by net pricing and historic levels of positive brand mix.
While the intention decline in economy was a contributor about half.
Its record mixed performance was due to growth in above premium based on innovation brands, including <unk>, <unk> salsa and seller.
These positive factors were partially offset by negative geographic mix, resulting from the restricted trading environment and a higher revenue Canadian business and strong.
Half of those in Latin America.
Underlying cogs per hectoliter increased 8.5% driven by inflation, including higher transportation and packaging materials costs.
And mix impacts from premium amortization.
Underlying G&A increased 24, 2%.
Sales due to higher marketing investments.
We increased marketing investment behind co innovation brands, and we increased media spending behind our chronic co brands Coors light and Miller Lite.
Our U S media stained approach 2019 levels, while local technical standard was somewhat constrained due.
Due to on premise restrictions, which eased throughout the quarter.
North America underlying EBITDA decreased 10, 7% in constant currency as higher gross profit was more than offset by higher planned in G&A.
Europe net sales revenue was up 50.
2.3% in constant currency, driven by volume increases and positive channel geographic and brand mix due to on premise progressive reopening most meaningfully in the UK given the reduced on premise restrictions compared to nearly full lockdown in the prior year quarter.
Above premium brand volumes reached a record high portion of our Europe portfolio.
Europe financial volume increased 17, 8% and brand volume increased 15, 4% driven by significant increase in UK on premise volume.
Net.
Net sales per hectoliter on a brand volume basis increased 16, 6% driven by favorable channel geographic and brand mix, particularly from our higher margin on premise focused UK business as well as positive pricing.
Underlying EBITDA increased 189%.
Constant currency driven by gross margin impacts of higher volume and favorable channel and geographic and brand mix as a result of gradual on premise reopening partially offset by higher in G&A expense.
Turning to the balance sheet as of June 30 of 2021, we had.
<unk> lowered on mid day to underlying EBITDA ratio to 335 times and reduced on make day to $6.9 billion.
<unk> from 3 and a half times and 7.5 billion, respectively as of December 31, 2020.
We ended the second quarter with.
And in borrowing capacity with net outstanding balance on our 1.5 billion U S credit facility.
Turning to our financial outlook, we are again reaffirming our 2021 annual guidance originally provided on February 11.2021.
While we are certainly in a better place than we were.
A year ago at vs reminding that uncertainty as it pertains to the coronavirus and its variance remains to varying degrees by market.
Now I'll provide some underlying expectations to provide some additional context for the balance of the year.
We expect to deliver mid single digit net sales revenue growth for the full year.
On a constant currency basis.
Building off the strong shipment growth in the UK and the second quarter, we continue to look aggressively to build inventories to more optimal levels.
In the UK, we expect on premise trends to continue to improve as we lap restrictions in the prior year period.
In Canada.
Later, we are seeing gradual on premise reopening varying by province by Province.
Which should provide positive channel mix.
In Europe, the UK should benefit from this full on premise reopening July 19th However, the comparison is more difficult than it was for the second quarter given the on premise was largely open.
For the full third quarter of 2020.
Our guidance anticipates continued strength in our best premium portfolio, particularly hot sauces.
Also we expect continued solid progress against our previously discussed emerging growth 3 year revenue goal of $1 billion against which we are tracking.
We hit our plan.
We continue to anticipate underlying EBITDA to be roughly flat compared to 2020 as top line growth is expected to be offset by continued cost inflationary headwinds, but more significantly from increased investments to deliver against our revitalization plan.
We intend to increase marketing investments to bolt on the strength of our co brands and support successful innovation.
As a result, we expect significant year on year increases in marketing investments over the balance of the year and most notably in the third quarter.
We expect third quarter marketing investments to be higher than the second quarter of.
<unk> 2021, and also higher than the third quarter of 2019, as we continue to ramp up supply following the disruptions in the first quarter.
Obviously this will have an impact on our bottom line, particularly in the third quarter, but this will strengthen the future of our brands.
Also as a reminder.
<unk> in 2020 operating cash flow benefited from the deferral of approximately $130 million in tax payments from various government sponsored payment deferral programs related to the coronavirus pandemic.
We currently anticipate the majority to be paid this year as they become due.
Moving to capital allocation, we continue to prioritize investing in our business to drive top line growth and efficiencies, reducing day and returning cash to shareholders.
Fifth we plan to continue to prudently invest in brewery modernization and production capacity and capabilities to support new innovations.
<unk> and growth initiatives improved efficiencies and advance towards our sustainability goals.
Second we have a strong desire to maintain anytime upgrade on based on grade rating.
As such we expect to continue to pay down debt and reaffirm our target net debt underlying EBITDA ratio to be approximately 3.
From 2.5 times by the end of 2021 and below 3 times by the end of 2022.
Demonstrating our commitment to this goal on Nevada July 15, we announced that we had repaid in full the $1 billion to 100% senior notes maturing net day using a combination.
3 points commercial paper and cash on hand.
And food and also as announced on July 15th our board.
<unk> determined to reinstate a quarterly dividend on our class a and coffee condensate indicated dividend a quarterly dividend of <unk> 34 per share.
The board made the.
The nation on to reinstate the dividend at a level that I believe is sustainable and gives room for future increases as business performance improves.
We are proud of our operational performance in the quarter, which underscores successful execution against our revitalization plan.
We are excited about the future of Molson Coors as we dropped.
Toward our goal of long term sustainable revenue and underlying EBITDA growth.
And with that we look forward to taking your questions operator.
Sure.
Thank you.
We will now begin the question and answer session to ask a question you May press Star 1.
Telephone keypad, if youre using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press star 2.
At this time, we will pause momentarily to assemble on water.
Our first question comes from Rob.
Clinton Stein Evercore.
Great.
Okay, great and thank you very much.
Kevin I'm wondering if you could talk.
A little bit about what you've learned so far about the hard seltzer market co.
Clearly it seems that there is some issues with beer brand.
<unk> did trademarks.
But at the same time, we've got this proliferation of 700 brands or more than I understand there is competition from various ready to drinks. So love to get your thoughts on that and then also.
Love to understand why you're not using.
Using the davinci trademark more on Europe in the UK and that you feel that you need to have different sorts of trademarks. There. So a lot of questions just really love to get your thoughts on what you've learned about hard seltzer is and what's going on in that segment. Thank you.
Thanks, Robert and good morning.
Look I mean, we've always said that.
<unk>.
But the growth rates, we're going to continue at the elevated levels.
They were and that others might have might have seen.
Robert It's really no surprise to us.
Slowed because the category was starting last year's huge comps we've stayed on the path that filters, we're a beneficiary of.
The on premise shutdown because it had such distribution exposure in the off premise and says as the on premises reopened.
This latest distribution there.
This is not a surprise to us I think we've been saying this for almost a year. We've also been saying.
For a while.
Even if it's growing at 10%, 20% 40 per se there really isn't anything else in the in the peer space Thats growing that quickly. So it's good for the beer category and it's good for us.
In North America, and the U S. We've got too.
<unk>.
Very clear on differentiated windows from upfront.
Point of view and we plan to continue our focus on on busy in terms of our Chico hard Seltzer now you referred to of course Coors Seltzer.
Robin I would say day that cross sell through up in Canada is actually doing really really well it's already achieved.
Digits share in some some retailers.
Between busy and Coors Seltzer is probably the most successful product launches that we've had for a company in 5 years I've been up in Canada.
We do believe that there'll be a shakeout in the near future as many brands struggled too to succeed in a crowded space.
Wow.
Type of Chico hard Seltzer continued to accelerate.
Coors hard seltzer wasn't and so that's why we made the decision in the U S to discontinue.
Coors Seltzer and commit to our energy our resources.
The material supply, we've got on our shelf space too busy and type of Chico.
Of course, it's going to stay in Canada, because it's doing.
And it really well the market dynamics are different and the brand has performed well.
In Europe.
Exhibiting in the UK.
And central Eastern Europe, some of the same trends in the early days as the as the U S.
We've obviously tested all of our all of our.
Options from a from a brand point.
As I said in the early read was that 3 fold was the rock brand to go with on its landed very well we are building capacity, there and I think we're well positioned in the UK to be a strong player. If it takes off like it did in the U S.
On the same applies to central and Eastern Europe, why moment was that was the best brand.
Resonated really well with the consumers there.
On the essentially eastern European team do a fantastic job from an from an execution point of view. So the execution is really good and we actually have first mover advantage in central and eastern Europe. So we feel very good about.
Our leading position in central and Eastern Europe.
Europe with with that brand is.
<unk> as well.
<unk>.
I think I hit all your questions Robert if I Didnt happy to take a follow up from you.
And thank you for that detail the only other 1.
Was how do you look at the interaction between hard Seltzer and.
Ready to drink.
There is some observers say that theres really not much action. It's the same occasion I'm not sure I believe that 100%.
But love to get your thoughts on the various ready to drink.
Cautions that are coming up and how you how you intend to play.
On that space.
Going forward as well I know you're doing a few things there. Thank you sure.
RTD beverages are emerging.
Emerging and fast growing segments in fact, RCV sales already archive spirits net GAAP.
Likely widen in.
In the future and competing.
Price is a natural fit for companies like ourselves, we've got experienced packaging beverages and 12 ounce cans.
And Barclays and working with our distributor partners to get those products out there. So we look forward to competing in this category with with proof point.
Got Super boat as well, which is the top end of that which we launched earlier this year and we have other.
Other offerings that we believe will appeal appeal to consumers in our innovation pipeline.
And how much interaction do you see in that these are ready to drink products with hard seltzer or is it too early to say.
I think it's too early to say, Rob I mean, obviously there is some some interaction it's interesting.
And this we've been asked this question as it relates to the beer category and.
There's more.
More more of Celsis volume on growth is coming from outside of the beer category that is coming from inside of the beer category. The our data would suggest that I've seen on our competitors say the same thing and certainly its been very positive from an overall.
We've just segment point of view.
Terrific. Thank you very much.
Yeah.
Our first question comes from Bill.
Correct.
And partners.
Hey, Thank you for taking the question.
So you talked.
A bit about the rationale to streamline economy brands.
And then also it looks like there is there is some discontinuing us on Skus for pack sizes on brands like Coors light and Miller Lite.
So can you can you talk about the decision I guess to streamline pack sizes.
As it relates to the euro.
CNC efforts.
Yes, Thanks Paul.
Good morning to you as well look.
We did a thorough review of all of our all of our Skus and brands I would say the majority of the skewed and brand or certainly all the brand.
<unk> the majority of the SKU reductions R&R R&R economy space.
We did.
Identified a few skus, which which were slow moving and which could be substituted with with.
On a more profitable skus that would make us more effective and so there would have been.
Just a few.
Outside of the economy space that we rationalized.
Fast majority, but book is in the is in the economy.
Got it and Tracy as a follow up I think you said that U S brand volume declines were entirely economy does that mean, excluding the discontinued economy brands that U S brand volumes positive or.
So the remaining economy brands still still drag that number into the negative.
Okay.
4 skus.
And I would say that it's really.
So the economy portfolio.
That is driving that down.
I told low light and Coors light in the second quarter as I said.
Or do my prepared remarks grew I havent done thing of being able to say that often.
Over the last.
Sort of 15 years or so.
And our above premium portfolio.
Good very well as well.
Blue Moon franchise coming back strongly across brands coming back and I was very pleased.
With our sales for performance.
Thank you I appreciate it guys.
Thanks, Bob.
Our first question comes from Lauren Lieberman Barclays.
Great. Thanks, good morning.
And I'd love to talk a little bit more about on premise.
And.
And number 1 just thinking about brand strategy and portfolio. So first I was curious about hard seltzer debate on what you're trying to expand presence of your brands and on premise I think that you had mentioned vs.
E as an on premise play in Canada, if I got that wrong I apologize.
But I was curious if that was in the thought process for the U S.
And then also just.
I think industry wide discussion of big brands, gaining more presence share of tap handles and so on as on premise reopens and I was curious the degree to which you are starting to see that or been positioning for that to be the case Israel.
And then continued.
Yeah.
Yeah. Thanks, Lauren look I mean, yes during the pandemic, we did see increased demand for large trusted brands and this is particularly true in the on premise. Many on premise zone and we're sticking to foster moving moving brands in this obviously benefits brands like Miller Lite and Coors light.
<unk> in particular for us and we are seeing that trend stick as we settle into the sort of new normal.
And as I said earlier with Miller Lite Coors light.
We did growth segment share for the 2007 quarter. We're also seeing good.
And our above premium portfolio.
With for example, blue.
Moving in the U S is up nearly 15% in the quarter priorities up nearly 35% and it has provided us an outstanding opportunity to sample on newer offerings remain low.
That's gone on busy interpret Chico hard seltzer, which we actually missed that opportunity last year. So.
I wouldn't say, it's just busy thats going on on premise I would say.
Busy and type of Chico HUD cell type of Chico's.
As good as well as doing it.
And fairly limited number of markets based on half of the states in the U S and in those states on.
The desire for it to be on premise has been has been very very good.
Canada, obviously, a little too early to say because the restrictions that have dragged on a little longer than.
Then they did in the in the.
In the United States, So too soon to tell how the Canadian on premise is going to open up in Europe, it's been very pleasing.
Yes.
But the non significantly over index to the to the on premise or the on premise recovery. That's taking place in Europe has been has been very positive for us and in fact in July we have seen the on premise business in the.
UK start to approach 2019 levels.
Hold there so that's been.
That has been very encouraging for us.
And just a follow up to just clarify it.
Moving on premise.
Do you believe that you're gaining share within those outlets.
Because if any degree of greater distribution.
On a relative.
Price mix within the channel.
In the U S. The answer is yes.
The UK data lags, a little bit so im not ready to call that yes, we have a hypothesis that we are but I don't have data yet to support that in Canada, obviously the reopening.
It is not in a place where we can where we can determine.
<unk>.
Our biggest market the answer to that is yes, low okay. Great and then the plan is to get to bring Dizzy and topo Chico heartfelt their on premise in the U S and you have the capacity to do that on your plans for <unk>.
This year or is that more of a looking into 'twenty 2.
Secondly, we have.
<unk> with with busy we've been able to meet all the demand that our distributors have had with with.
For busy.
Really since the beginning of the year type of Chico obviously.
As more challenging from a supply point of view it continues to perform extremely well so only got 1 SKU at script distribution.
<unk> <unk> thousand 16 markets.
Supply continues to be.
A little talk but our production is improving.
And that is going to allow us to push distribution, which would include the on premise, but also allows us to start turning our marketing campaign on behind type of chicken as well are on site.
I guess that's it.
Convoluted way of saying, yes, okay, great. Thank you so much.
Next question, Steve Powell with Deutsche Bank.
Thank you very much.
A couple of question questions centered on brand volume dynamics.
In Europe.
If my numbers are correct. It looks like you are at about 91% of 2019 in the quarter, which is up from the mid Seventy's last quarter, which is which is great and I guess just as you think about the back half do you think you can kind of hold steady at that mid nineties index level or do you think.
On your plans vision improvement number 1.
And as we pivot to the North America Youre also at 91% index to 19 in the quarter.
But that was down from 94%.
In the first quarter, presumably as the economy brands, where we're on de prioritize book.
As we think about the back half similar question do you think you recover that.
But.
To 19 in the back half number 1 and number 2.
You mentioned that.
Premium and above premium were at the highest percentage of the of the overall mix that you've ever seen I guess I'm curious as to whether in absolute terms those those price tiers.
How they compare to where you were in 2019 in a similar timeframe. Thank you.
Thanks, Steve.
Let me see if I can get all these for you.
Looking in Europe, as I said actually.
And particularly in the UK as you know we on.
On premise is really important to us and we've actually seen the on premise.
The approach to 2019 levels.
For the last.
Well most of July actually.
It actually spiked a bit high on that but that was distorted by the Europe finals, we were actually.
In.
In the UK where actually.
For a few weeks quite substantially above 2019.
Our levels.
Sable back down now as I said, we're approaching 2019 levels central Eastern Europe is a little bit being a little bit more.
Impacted by tourism.
So.
Probably not quite at the UK levels in central and Eastern Europe.
In the U S. We've seen.
As I think I've said on our last call more outlets opened from an on premise point of view than we were initially expecting and certainly volume has.
Increased and settle down into a fairly stable.
Stable level, we will have in the back half of the year a lot more.
Phase festivals.
Alliance opportunities, which we didn't have in the second half of last year.
Referred.
<unk>, 2 football, primarily which is which the big drinking occasions for us so with.
Wishing to put particular goals out there we are encouraged by what we're seeing.
From a from an on premise.
And in venue volume point of point of view I wasn't totally sure Ive got your price question Steve.
Let me give it a shot.
As I said have the strongest.
Share of our of our portfolio being above premium.
In the second quarter based on an MSR point of view. It was it was up into the up into the high teens level, which we haven't seen levels mark that some.
The joint venture started.
So working particularly.
Typically well and in Q2 versus our MSR was actually above.
<unk>.
2019, so encouraging signs for sure.
Okay.
Helpful.
If I just play it back to you it sounds like you do in North America expect that.
The total portfolio not just the on premise, but the total total brand volume portfolio.
<unk> can.
Better approach 2019 levels on the back half versus what we saw on the second quarter is that is that fair fair fair playback.
No not really Steve because of our decisions around the economy portfolio right. So the economy portfolio.
As I said in my prepared remarks on as we.
Announcement on distributors too.
Today, we are taking a meaningful.
Touching on our economy portfolio.
<unk> net so that would be a negative for us on it.
Look at our share performance I'll share Ics share performance quoted awesome.
70% of that of that decline in share as the economy portfolio.
For us we.
Posed a lot of Skus and brands and some of them as we announced the day 1 when it come back so.
Certainly from a from a premium lights and above premium point of view, which includes Celsis, we're feeling really good about positioning and on.
Momentum.
Okay that helps.
Thank you very.
Very much appreciate it.
Our next question comes from Kevin Grundy Jefferies.
Hey, good morning, everyone.
I wanted to kind of pull together some of the topics. We've discussed so far on the call kind of bring it back to the revenue and EBITDA guidance.
Earlier from kind of Gavin as you're assessing the first 6 months of the year looking to the balance of the year and specifically around the major puts and takes when you spoke with the investment community in June The company was running ahead of plan on.
On premise recovery certainly seems to be running ahead of plan and certainly where folks thought perhaps 6 months ago the performance of yourself through portfolio.
<unk> Sim.
Similarly also running ahead of plan commodity environment worse, and then it seems like the SKU rationalization, probably has greater pace than you anticipated at the start of the year. So you kind of pull all this together I was hoping you could.
Comment on anything perhaps we're missing just put a finer point on the puts and takes as you look.
Past 6 months.
As progress day level of confidence that the company as you look to the balance of the year and then perhaps just confirm given the set up here on the strategy. It sounds like the inclination will be to reinvest any top line upside if you could just confirm that.
Yes, thanks, Kevin there's a lot going on there.
I guess the 2.
Backup, which I would say when we talk to the investment community are to Q1, which which didn't transpire as we were expecting.
Canada.
The reopening of the on premise.
A continuation of the Lockdown on went on for longer than we were expecting in Canada and the UK we were expecting.
Cycled freedom day to be to be back in June and as you know that was delayed into into July I would say those are the 2 things that we that we didn't know at that time from our revitalization plan point of view, yes, I mean, we are the whole rash.
Rationale for the revitalization plan is to drive both topline and bottom line growth in the.
I think there was always going to be a reinvestment year, which was supposed to be last year, but we've been through all the reasons why.
That didn't make sense and we're certainly reinvesting behind our brands. This year, we increased our marketing spend meaningfully in.
In the second quarter. They were couple of things that didn't make sense for us to do like investing meaningful marketing in Canada, while it was closed.
<unk> and delaying the UK after months, so that was probably marketing spend that we would have spent in Q2, which will now move into <unk> into the back half of the year on Australia, you said, primarily in in Q3, and our supply situation has improved meaningfully.
Since since.
First of all the security attack.
Fast moving brands and Skus.
With the exception of 1 or 2.
Skus or sub segments.
Our on inventory levels that are higher than they were at the same time last year, which allows us now to really put emphasis behind our brands.
As I say type of Chico is supply we've looked.
Really well with our partners to increase our supply in the third quarter and beyond and so that will be coming through which will allow our marketing teams to really put emphasis behind that so.
I think I have answered your question Kevin.
Since the <unk>.
Me if I haven't.
And then Dan Thats extremely helpful. If I could just squeezing 1.1 quick follow up just Tracy on the cadence of the margin profile for this company. So there is a lot of discussion on the ability for the company to reach pre pandemic levels as you sort of look at and understand there's a lot of volatility is still on the environment.
How should investors think about that balancing the need to reinvest in and get investment levels back to pre pandemic levels, but is there any reason to think that over the next couple of years that at the total company level margin should not reach where they were in 2019, and then I'll pass it on.
Yes.
We had not given.
Scott.
Yes.
Kevin any thoughts on that.
That is a back.
Premium amortization.
Which obviously comes at higher margin is that the cost savings initiatives.
Atlanta from from.
From a G&A point of view.
So that should help but you know beyond that.
We haven't given guidance, but I would I would just consider those awesome you know specifically related to revitalization.
Very good I'll leave it there. Thank you good luck. Thanks.
Thanks, Kevin.
Our next question comes from <unk>.
On <unk> with Bernstein.
Yes. Good morning, everybody. Thank you for taking my question. So I wanted to zoom in a little bit more on Europe. So.
So how much of the volume growth that you saw in Europe came from restocking at distributor levels our retailers.
Especially on trade as you said.
You Shouldnt day was meant to be in June to July and then any update on the state of the inventories now on power that can help us think of the state in Q3. Thank you.
Thanks Nadine.
As inventory levels is that a question for Europe or for the U S.
Maybe we kick off with Europe.
Free and then that was actually my follow up on on the U S.
Cash.
We're looking in Europe.
Sales progressive increase.
As hospitality reopened as you noted it reopened for auto consumption on April 12.
I moved indoors on May 17th.
Then obviously earnings.
Europe fully into the interest.
Freedom on July 19th.
We saw on previous volumes in Q2 average of around 70% of pre pandemic levels and as I said in July we've seen on premise really start to approach the 2019.
Yes.
There wasn't.
1 week or 2 week, though.
<unk> of inventory.
In the on premise.
Say.
That that would be more progressive I mean, Frank can be done hold big inventories in the UK at all so it's not it's not going to be.
Our.
Cereal impact 1 way or another from a from an inventory level point of view.
And then as far as inventories in the U S are concerned.
Look we said we wanted to be in a better place by Memorial day, and we've and we were going to be in a good place by July.
July the force without big brands on our fast moving Skus.
<unk> uncertainty cans was was always the big challenge and we will.
We delivered what we said we were going to do with with the cans and on our big brands and large fixed and the inventory levels for those skus are actually.
We have been.
<unk> to be above the same levels as they were.
In 2020 so.
We're making good progress day.
Great. That's very helpful. And then if I could just squeeze in 1 more follow up a lot of questions. So far on top of Chico.
Can you give us any indication as to data you're getting from the consumers how much of that performed.
<unk> is coming with respect to new trials or repeat buys any additional color would be helpful.
Yeah on idea, maybe the demand for temperature.
It is incredibly strong.
It's really on a good 1 SKU and we've only got distribution in 60 markets.
It's already the number 3 new item in the in the segment.
It has quickly become a fast trading seltzer brand in Texas. The number 3 foster is tuning seltzer overall rock behind Graco and truly.
Supply continues to be to be tight, but our production has improved so that is going to allow us to push distribution and features.
Our distributors our retail partners.
It got strong belief in this in this brand and we're seeing that from a from a.
A consumer point of view as well, it's actually a top 10 growth brand in the country.
Sales less than half of the of the states.
From a where is the volume coming from it.
Mark This is coming from from a from a from.
Across all of the.
On the demographic groups is no 1 particular demographic group.
Dominates in.
I'm sure, it's taking share from some of our competitors, yes for sure.
Okay. Thank you I'll turn it over.
Thanks Neely.
Our next question is from low handgun day.
Hi.
Thank you on good afternoon, everyone. So.
Set of questions on the first 1 is really I'm not trying to exhausting the questions on sales there.
You mentioned that cost scissors.
So, but you Richard your your growth to reach 10% of this is that category by year and so if you. If you can re provide some color on how to win.
Would you do sheets will bridge the gap from where you are right now too.
10%.
And really on these non.
Yeah.
The loss of share of course Cytosorb.
Do you do.
Are you pushing for vs in the short term to gain more shelf space.
On how comfortable you are that you would get that and also we score citizen go on I mean, you probably got some more.
I always say manufacturing capacity.
<unk> 222 launch faster to particular issue where through a per trade eating house sooner. So wanted to know is here.
This top of bidding on.
<unk> has been impacting the timeline from the book should go to.
With that could eat in housing to be relaunched Schumacher in most states.
Thanks Laurent.
As far as our 10%.
Share goal is concerned we as I said I think we've got to clear and differentiated witness with Dizzy.
And the type of Chico.
Lindsey.
Yeah.
We're seeing strong traction with the with the innovation that we brought particularly in a variety pack 2 and virtually eliminated.
We're seeing with retailers, where we've got all 3 busy skus on shelf that we see.
Almost 2 thirds increase in each of those skus velocities and so we're going to continue to fuel <unk> momentum.
<unk> got more innovation coming.
We have had an innovation LTI is like a June <unk> and we've just recently launched a watermelon a variety packs. So it's carved out a unique point of difference in the category and so so much so that we're well on our way to becoming the number of force spot from the segment. Despite.
We've entrants in 2021.
No I'm not going to show our hand in terms of which brands are going to take Coors hard seltzer space, but you can assume that.
We do have innovation coming on on.
On busy and we will utilize Coors hard seltzer space too.
To put that innovation from busy.
Into that space.
And so we feel good about busy busy.
Certainly would be a big part of getting to.
<unk> share goal as well type of Chico's I said.
<unk> not going to repeat all of that but it does remain incredibly strong suppliers improved.
Improving we have worked with our third party.
Suppliers to ramp up the supply and we will go national when we believe we can supply.
On the markets that we're in at this point in time.
How high is high is not quite clear yet on top of Chico, because we haven't been able to.
By all of the demand in Texas forever retain share on others.
States, we're doing equally.
As well so.
In terms of when are we going to bring it in house. We've always said, we're going to bring it in house in 2022 that that plan is on is on track when we do it will improve.
Margins and.
It's a slightly different.
Process than.
<unk> disease.
Coors Seltzer, so it's not a it's not a direct substitution from a from a from a liquid point of view, but certainly from a cash availability point of view.
We've got that capacity and it's ready.
Happy to take 1.
So <unk> I think operator.
Our next question comes from Sean King with UBS.
Alright, Thanks for getting me on here.
1 question I have is.
What was the cadence of Depletions.
From a I guess, we heard in the U S. Like a positive mid single digits back and step back in April to the -4% for the quarter.
And any insights maybe you could provide.
On on what Youre seeing in July for patients.
Thanks, Sean look I mean.
Got it.
From a from a from a second quarter point of view most of.
On a decline would have been in the economy and the economy space I mean, if you look at our share I think I've said almost approaching 70% of our share losses economy. It's a very choice from decision that we've that we've made.
That doesn't mean that we don't think all segments net because.
We do we do believe all segments net that we've chosen to ensure that we meet the demands of the largest segment of our consumers at this point in time.
Most of that of that decline would it be driven by the choice we made around the economy as far as.
Volume.
Into the second.
Sean.
Don't do that as a.
As a matter of principle.
Any more on I know, we used to do it in years past.
We're not going to give that now.
All right.
Worth a shot but I appreciate the color. Thank you.
Thanks, Sean.
This concludes our question and answer session I would like to turn the conference back to the speakers for any closing remarks.
Thanks, very much operator, and look I understand that there were more questions that we weren't able to get to today given the time constraints. So please if you could follow up with our Investor Relations.
Secondly win and we look forward to talking talking with many of USD as the year progresses. So thank you everybody for participating in today's call.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
<unk>.
Yes.
Yes.
On the.
We will see.
Sure.
Overall revenue.
Thank you.
Thank you.