Q3 2021 Molson Coors Beverage Co Earnings Call
Good day and welcome to the Molson Coors beverage company third quarter fiscal year 'twenty 'twenty. One earnings conference call you can find related slides on the Investor Relations page of the Molson Coors website.
Because today, our Gaba <unk>, President and Chief Executive Officer, and Tracy J <unk>, Chief Financial Officer with that I'll have to tell you. That's a Greg Tierney Vice President of S. T N E and Investor Relations.
Thank you, Charlie and Hello to everyone.
Following prepared remarks today from Gavin and Tracey, we will take your questions.
In an effort to address as many questions as possible, we will ask that you limit yourself to one question yes.
Do you have more than one question will answer that first question first.
And then we will ask you to reenter the queue for any additional follow ups.
You have technical questions on the quarter, please take them up with our IR team over the days and weeks that follow up.
Today's discussion includes forward looking statements.
Actual results or trends could differ materially from our forecast.
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 measure are included in our news release and also unless otherwise indicated.
All financial results. The company discusses are versus the comparable prior year period and in U S dollars.
With that over to you Gavin.
Thanks, Craig and thanks to everybody for joining us this morning.
I'm going to change things up a bit here from our normal structure and I'm going to shift seven key headlines from our third quarter.
Firstly Coors light is growing share of the total beer category in the United States.
This is our biggest brand in our biggest market.
A brand that many that it could get back onto this trajectory and its growing share in the industry for the first time in more than five years.
Two globally Molson Coors net sales revenue from its above premium portfolio has surpassed 25% of our brand volume net sales revenue on a trailing 12 month basis for the first time since the revitalization plan was announced.
Third Molson Coors as growing share of the U S above premium segment for two straight quarters for the first time in over five years.
Full as we expand beyond beer and with three months still left in the year Molson Coors or sold nearly 2 million cases of non alcohol beverages in the United States.
Five Molson Coors coastal market share trend in Canada has improved for eight straight months, leading to national share growth in the third quarter.
And the European business has bounced back essentially reaching 2019 revenue levels.
Six challenges in the global supply chain impacted our third quarter volumes.
We are already seeing improvements in brewery awkward in October.
We're back to shipping approximately 1 million barrels per week in the U S. During the fourth quarter and in aggregate distributed inventories are starting to improve.
And savings like with so many other transportation availability and transportation costs are worse than they had been in years.
So I wanted to start and then we'll work backwards.
As we've discussed for the second quarter and like other CPG companies inflation, but again the challenge in Q3, specifically with respect to transportation.
Fuel prices are up truckers are in short supply around the world and freight costs are up to.
As Tracy highlighted in our second quarter earnings we have long term contracts with carriers and our robust hedging program as well as meaningful cost savings programs to mitigate price fluctuations.
But driver shortages that are existing carriers are forcing us to use the spot market and to pay spot market rates, which are significantly higher than they have been in many years.
Right now up to one in every four shipments are at these higher spot rates.
That level of inflation cannot be completely absorbed or avoided and youre seeing the results in our Cogs for the quarter.
Beyond the hedging and cost savings, we are taking steps to reduce the impact treating shipping more beverages on Roe.
Also we expect gross margin benefits as we continue to premium Raj our portfolio under our revitalization plan and achieve improved efficiencies through our economy skewed the prioritization and rationalization plan.
But even with those steps inflation will continue to be a pressure point for us and for just about every other company.
Our shipment trends in the third quarter were not what we wanted them to be.
Some of that is related to the challenges of moving finished goods to distributors and also moving suppliers within our brewery network.
Some of that is related to our own suppliers, having difficulty getting us the materials, we needed since they are facing the same supply chain challenges as everyone else in the world.
But the good news is that this trend as I've said has already started turning.
While August and September with difficult production, but the steps we have taken in the third quarter to expand our base of materials suppliers and improve our availability for most packaging materials have allowed us to increase shipments so far in the fourth quarter.
We are once again shipping approximately 1 million barrels per week in the U S.
And that has helped us increase distributed inventories by approximately 20% over the past few weeks.
That is of course, a measurement of our total network.
And that is a trend we expect to build on.
I also want to quickly address volume some of you may look at our North American volume trends with concern, but I want to remind you that this is predominantly the result of an intentional and strategic decision, we made to de prioritize and eliminate a number of large a large number of lower margin slower moving skus in the U S.
That was mainly in the economy segment.
The intention was to simplify and premium larger portfolio and that is exactly what is happening.
So our volume is down but our net sales revenue per hectoliter is up and I can again tell you that we are on track to deliver on our full year key financial guidance for 2021.
Look at what is happening in Canada, we have improved our national share trading for eight straight months, leading to total share growth in the third quarter. This is the best shape trading performance, we have seen in at least six years.
There's the on premise reopens in Canada, our share is growing above 2019 levels, but big driver of our progress.
Chris is growing share of the segment in Canada as well with Miller Lite also growing approximately 30% in the quarter.
Olson Altra has seen strong year to date performance with volume growing mid single digits, along with strong share gains.
These are all very good signs for our business in Canada.
But to be done our European business is down spec strongly in the UK. Our entre net sales revenue has now reached 2019 levels and margin has the past 2019 levels as the business continues to premium bonds.
Which I'll touch on in more detail in a moment.
As we look to the fourth quarter, we plan to keep this momentum up by stepping up our European marketing investments.
Two years after shifting from a beer company to a beverage company, we have reached a significant milestone.
For the first nine months of the year, we have sold nearly 2 million cases of non alcohol beverages. As we continued to drive towards our $1 billion revenue ambition for our emerging growth business by 2023.
We have launched into categories, where we think we can create scale offerings like water energy and coffee.
First of course is our partnership with <unk>, which has been making some serious noise since its launch just over six months ago.
It's the number one new energy franchise in 2021, and it's already top 20 energy drink brand.
<unk> already has 31 buying outlets in over 115000 points of distribution with more coming online every day.
A lot of upside for this brand.
We have the distribution partnership for local loans incredible lineup of ready to drink coffees.
One of the fastest growing spaces in the beverage industry.
And thanks to our early success with distribution in large national retailers. We are also unlocked national distribution of luck alone in grocery and mass channel stores or early 2022.
Growing beyond the Bureau is no longer an exploration, we're doing it and we're driving scale.
Molson Coors has grown share of the U S above premium segment for two straight quarters for the first time in over five years.
Ed markets largely driven by the continued success of our U S hard seltzer portfolio and this is another space I wanted to take a little more time to discuss.
There's been a lot of noise over the past few months about hog Philips is in the U S. A lot.
Not all of it has been accurate and much of it has been unproductive.
Now I'll know itself is going to keep growing its 200% per year, but of course, not and we've been clear since last fall that we didn't expect them to do so.
But in spite of the royalty forecast some had a year ago and the bleak forecast being thrown about today there are some clear truths.
<unk> sales are here to stay.
There are over 10% of beer category sales and growing.
But the segment has matured and the easy growth is over moving.
Moving forward it is going to take distinctive differentiated brands in order to succeed and that's why we feel so confident about our portfolio.
So many of the mainstays are declining Molson Coors has the fastest growing hard seltzer portfolio in the United States.
Busy brand volumes grew 50% in the third quarter versus the prior year and past year another competitor to become the number four hard seltzer in the United States.
Despite any being launched in 16 different markets in the U S. Total Chico hard seltzer occupies the number three slack as a new item in the general malt beverages category.
The brand also go on to the two 4% share of the U S market. According to IRI and this success has led to the national expansion of the brand.
So that is not the extent of our premium amortization, our joint venture with England launched in Texas. This quarter and we are very pleased with the very early results.
By the end of August it was already available for purchase in 40000 locations across the state.
As the on premise continues to strengthen so have two of our biggest above premium brands.
For R&D is up double digits, gaining share in the category and outpacing all other European imports blue.
Blue Moon, Belgian White is up high single digits in this quarter, we announced plans to build upon the success of Blue Moon Light Sky, which our data shows is 96% incremental to the flagship Belgian one.
Clearly laskhar continues to see double digit growth year to date. After finishing 2020 is the number one you get in the United States.
In 2022 will add more muscle to the Blue Moon family as we launched <unk> tropical wheat.
As I've said in our second quarter earnings call premium amortization is here to stay its molson Coors.
OLED growth in the U S is contributing to a significant premium amortization of our entire global portfolio.
I just cited that as of the third quarter the percentage of Molson Coors portfolio that is above premium has to cost 25% of our brand volume net sales revenue on a trailing 12 month basis for the first time since the revitalization plan was announced.
And net progress is being seen throughout the company.
The early returns on our Canadian hard Seltzer portfolio have exceeded expectations with both busy and <unk> is generating strong market share.
We will extend that streak when we introduce type of Chico hard Seltzer in Canada in 2022, which we announced this month.
Six times, our Canadian Cross business is growing double digits, despite unprecedented frictions combined.
Combined with the growth of mineral auction Molson Ultra. This has continued to drive the premium amortization of our business in Canada.
In Western Europe, our new Mediterranean Lager Mudry is already doubled its distribution goal for the year now at approximately $5 5000 on premise outlets with more coming in the fourth quarter.
In central and Eastern Europe, New smooth personal lager APA has been performing above expectations across the markets with presence in more than 15000 outlets supported with strong media campaigns, reaching over 13 million consumers.
And in Latin America, Coors light is growing in Puerto Rico for the first time in 15 years, where it sells is in above premium price point.
And speaking of Coors light that brings me to the final point I want to make this morning.
In the face of many doubters Coors light is growing share of industry in the United States for the first time in more than five years.
The brand's strong performance in the third quarter was aided by the continued success of our made to chill campaign and through increased marketing investment.
First we are making progress on the things that are within our control and driving measurable results with continuous on the path to delivering on our goal of sustainable long term top and bottom line growth.
We are two years into our revitalization plan and I remain confident that we are on track to deliver our full year key financial guidance for 2021, while continuing to invest behind our brands.
I am very optimistic about the future for Molson Coors.
Tracy.
Thank you, Kevin and Hello, everyone.
As Kevin mentioned, we are again reaffirming our key financial annual guidance for 2021.
We continued to make real quickly executing our revitalization plan.
Basically behind that business.
Adding premium amortization of our portfolio at the bank and strengthening our core business, while continuing to de lever our balance sheet. Thank you reinstate the dividend.
Black Knight's consumer product companies, we think supply chain challenges and inflationary cost headwinds in the quarter, which had an impact on our quarterly results.
And let me take you through our quarterly results in more detail and provide an update on our outlook.
Consolidated <unk> increased 1% in constant currency.
Over 99% of third quarter 2019 level, despite the unclaimed continuing to operate.
And Danny table.
Consolidated financial volume declined three 9%, primarily due to narrower brand bonding, which was down three.
Largely due to the economy.
Including the economy Keene Eco activation program.
Top line performance benefited from strong glyphosate pricing.
Both Brian mixed stable in North America, as we continue to premium on our portfolio.
Double digit revenue flat in Europe, and positive channel mix.
Net sales per hectoliter on a brand volume basis increased three 6% in constant currency.
Driven by the strong pricing, coupled with positive brand and channel mix.
Underlying cogs per hectoliter increased eight 9% on a constant currency basis.
Driven by cost inflation, including higher transportation and input costs.
Mix impacts from premium amortization and volume deleverage.
However, with a robust taking and cost savings program, we have been able to mitigate some of the inflationary pressure.
Underlying G&A in the quarter increased three 5% on a constant currency basis.
The higher marketing investment behind our core brands and innovation as well as talking targeted reductions to marketing spend in the prior year period due to the pandemic, which was largely offset by lower G&A expenses.
Tank, we increased marketing investments in the quarter enabled at that second quarter, 2021, and third quarter 2019 levels.
Ensuring strong commercial patients and our key innovations and coal grain.
As a result of these factors underlying EBITDA decreased 10, 9% on a constant currency basis.
I think the tax rate in the quarter were significantly impacted by discrete tax items.
You may recall in the second quarter of last year following the issuance of U S tax regulation.
The material discrete tax expense of 185 million got it.
<unk> previously taken tax position as CFO.
Yes.
In the third quarter of this year, we reached just implemented the tax authorities with regard to opex positions impacted by the secs regulation.
As a result of the settlement, we had a release of unrecognized.
And if a physician in the quarter that resulted in our P&L tax benefit of $68 million, including a $49 million discrete tax benefit in the third quarter.
Underlying free cash that was $933 million for the first nine months of the year at GE.
Kris and cash received a $227 million from the prior year period.
This decrease was primarily driven by the repayment of Texas related to various government sponsored a furlough program related to the pandemic.
As a reminder, in 2020 working capital was positively impacted by the $200 million for benefits relate that to the government tax deferral program.
Capital expenditures paid with $363 million for the first nine months at the year as we continue to invest behind capability program.
Obviously announced Golden brewery, Modernisation, Puckett, and our new Montreal brewery expected to open by year end.
Capital expenditure levels related to be consistent with the comparable period in the prior year.
Now, let's look at our results by business unit.
In North America. The on premise has not changed to pre pandemic levels that continued to improve on a sequential quarter basis.
In the third quarter the on premise channel accounted for approximately 14% of Anita sales revenue in the quarter compared to approximately 12% in the second quarter of 2021 and 16% in the same period in 2019.
You may see on payments accounted for about 88% of 2019 net sales rate in the quarter.
In Canada with fiction continue to eat throughout the quarter with the on premise, Nick <unk> to 80% of 2019 levels in the third quarter.
On the dock, Thank Keith Bachman bank in the second quarter.
North America net sales revenue was down two point blank to think your constant currency I think processing clients and positive brand mix, but more than offset by lower bonding.
North America financial funding decreased four 8% largely due to another bank volumes of three 8% driven by the helium.
In the U S domestic shipment volume decreased six 6% trading brain volume declines of five 2% driven by unfavorable shipment timing and declines in a depot ipass economy statements.
Economy was down double digits, Seb prototypes and announced the rationalization of approximately 100 noncore ski which was primarily an economy statements.
Candace, our youth effect premium portfolio was up high single digits.
Canada brand volume increased five to think in the quarter and Latin America brand volumes continued their strong performance and experienced non to think.
Reflecting the easing of on premise restriction.
Net sales figures pizza on a brand volume basis increased two 4% in constant currency with Nick parking closed and favorable brand mix, partially offset by unfavorable geographic mix given the planning Laughlin volume in Latin America.
You may sneak sales per hectoliter increased three 2% driven by MIT, Boston quiet and positive brand mix made buybacks premium innovation bank, including busy type of Chico heartfelt and zeller.
Net sales for his data on our brain funding basis grew in Canada due to positive brand and channel mix as well as net pricing increases while Latin America also increased due to favorable sales mix.
Underlying cogs per hectoliter increased seven 3% driven by inflation, including higher transportation and packaging materials, and Burley crop volume deleverage and mix impact from fee amortization.
Underlying SG&A decreased 1% as higher marketing investments were offset by lower G&A due to narrowing think of compensation expense and the recognition of the union income from joint venture equity income.
We increased marketing investments behind that innovation brand.
Core brands Coors light and Miller <unk>.
Including an increase in local technical Spain as on payments restrictions ease to our quarter.
As planned we increased marketing investment compared to not only the same period in 2020, but also data 2019.
North America underlying EBITDA decreased 14, 3% in constant currency.
Europe net sales revenue was up 14, 7% in constant currency with an 11% increase in net sales per hectoliter on a brand volume basis, driven by positive brand channel geographic and packaging mix and positive net pricing.
Topline performance also benefited from the on premise reopening in the U K on slide 19.
And of note in the third quarter of 2020, the on premise at fewer restrictions and in the second and fourth quarters of next year.
The UK on premise channel net sales revenue reached similar levels of pre pandemic levels in the quarter.
Europe financial volume decreased 2% in brand volume decreased 3% with.
The decline was primarily due to network thankfully eastern European volume.
And by increased on premise restrictions related to the coronavirus and the disposal of our India business in the first quarter of 2021.
This is partially offset by growth in the above premium brand volumes, which reached another record high portion of our Europe portfolio.
Underlying EBITDA increased two statements with banking constant currency revenue growth was partially offset by higher marketing investments.
Turning to the balance sheet as of September 30th 2021, we have lowered our net debt underlying EBITDA ratio to three three times and reduced our net debt to $6 6 billion.
<unk>, three and a half times and Steven <unk> 5 billion, respectively as of December 31st 2020.
On July 15th we announced that we had repaid in full the billion dollar $2. One senior notes that are maturing that day.
Using a combination of commercial paper and cash on hand.
We ended the third quarter with strong borrowing capacity was approximately $1 $5 billion available capacity under our credit facility.
Turning to our financial outlook.
We are again reaffirming our 2021 key financial annual guidance originally provided on February 11 2021.
While we are taking in a beta phase can be lower EBITDA at these reminding that uncertainty as it pertains to the coronavirus and its variants remained to varying degrees by market.
If restrictions are reinstated in some of our larger market. This could have a significant impact on our financial performance over the next few months.
Now I will 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.
We continue to wait to both inventory with wholesalers, which has been at low level and as Kevin mentioned, we are making progress.
In the UAE, we expect on premise change to continue to increase as we left restrictions in the prior year period.
In Canada, we continue to see gradual on premise, we I think feeling by province, which should continue to provide positive channel mix.
In Europe, the U K top line strongly benefit from the prior year fourth quarter given the on premise was fully locked down for November and December of 2020.
Typically strong given the holidays.
Our guidance also anticipates continued strength in opex premium portfolio, particularly hard seltzer innovations and imports.
Also we expect continued solid progress against our previously discussed emerging clients, leaving you call of $1 billion in annual revenue by 2023.
Against which we continue to track ahead of plan driven by Zillow.
And Latin America.
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 largely transportation and packaging materials, including aluminum and the Midwest premium and increased marketing investments to deliver against our revitalization plan.
<unk>.
Under the revitalization plan 2021 has been a year of investment for the company and maintain to continue to increase marketing investments to build on the strength of our core brands.
Successful innovation.
As Devin mentioned, we expect fourth quarter marketing investment to be higher than the fourth quarter of 2019 as you continue to ramp up the stock and put commercial pressure to support a big Big brands in both North America and Europe.
We continue to anticipate underlying depreciation and amortization of $800 million.
Net interest expense of $270 million, plus or minus 5%.
However, due solely to the discrete tax benefit in the third quarter, we have adjusted our effective tax rate range for 2021 only two.
13% to 15% from 20% to 23% previously.
Also as a reminder, in 2020, our working capital benefited from the deferral of approximately $113 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.
And moving to Tesla indication, we continue to prioritize investing in our business to drive top line growth and efficiencies, reducing date and returning cash to shareholders.
Phase III tend to continue to prudently invest in brewery, modernisation and production capacity and capability to support new innovations and product initiatives improved efficiencies and advance towards our sustainability goals.
Second we have a strong desire to maintain any time upgraded our investment grade rating at factory.
To continue to improve our net debt position and we are seeing that target date to underlying EBITDA ratio to be approximately three to five times by the end of 2021.
And below three times by the end of 2022.
And third on July 15th our board of directors determined to reinstate a quarterly dividend on our class a and coffee commentary indicate a quarterly dividend of 2014 per share payable on September 17th.
The board made the decision to reinstate the dividend at a level that they believe is sustainable and provide room for future increases as business performance increase.
In closing to be sure we have faced challenges in the quarter and are proud of activity and the actions we have taken to manage key theme to.
So it all we have continued to successfully execute against our revitalization plan with clear premium operational therefore target.
And despite all the ups and downs throughout this year, we have reaffirmed our key financial annual guidance to mitigate.
Black Knight consumer product companies, we face near term challenges, but the fundamentals of our business remains strong and we're confident we're on the right path toward long term sustainable revenue and underlying EBITDA growth.
So with that we look forward to taking your questions operator.
We will now begin the Q&A portion of the call if you'd like to ask a question. During this time simply press star followed by one on your telephone keypad.
If you would like to withdraw your question. Please press star followed by the number two in consideration of others and to allow more of you to participate in the call. We ask that you limit yourself.
Additional questions or follow ups. Please rejoin the queue, we will now pause to compile the Q&A roster.
Our first question comes from Lauren Lieberman of Barclays. Your line is open. Please go ahead.
Great. Thanks, so much good morning.
I was hoping that sorry, Tracy you and Gavin both you very clearly reiterated the expectation on EBITDA for the year.
My only question is just it implies really significant growth in the fourth quarter.
And given the Cogs per hectoliter inflation. It was 9% if I recall this quarter I know that if your comp gets easier on cost in the fourth quarter year over year, and you've got some on premise tailwind with mix, but.
Just anything else, we should be aware of that kind of allows for the type of EBITDA growth you would need particularly in Q4 in order to get to the year to get it just given the cost environment I just thought it would be helpful to get to get more color on that thank you.
Thanks Lauren.
Yes look I mean, the first thing I'd say is that we wouldnt reiterate the guidance. If we didn't believe that we would we would hate it.
Maybe just a couple of contextual points to help you here.
The fourth quarter last year in Europe.
Ananda we're very difficult.
As a result of the almost total lockdown of the of the on premise and that's not our expectation this year and we haven't seen that in.
In October which is obviously do.
First months of the fourth quarter.
Our discover also in my opening remarks, the challenges that we had with.
With the sales to wholesale shipments in the in the in the third quarter.
And that has improved meaningfully in October due to the actions, which we took to improve that and as I said it.
Distributor inventory levels are approximately 20% higher.
Then they will come.
Coming out of the out of the third quarter, which which is obviously very helpful from that perspective as well our above premium performance continues to accelerate with IDEXX brands like Blue Moon, Belgian Watson, peroni and ourselves to portfolio as well as as well as our emerging growth portfolio.
So I think those are the contextual points I would I would give you on the flip side I would tell you at the same time, we do intend to increase marketing spend on <unk>, there's been some conversation about the fact that.
It's either or for us it's not it's both end and we did that in the third quarter, we increased our marketing spend above 2019 levels above obviously 2020, which is an easier comp and we plan to spend more than 2019 levels in the fourth quarter as well behind them.
The success that we're seeing in many of our brands. So hopefully that's helpful for you.
It is.
Thank the the my recollection was that some of the innovation, though at least in the near term is margin dilutive or there is a higher cost to do some of the above premium and an emerging growth.
Pieces of it.
In the near term. So I guess is that incorrect or are we starting to cycle some of that already by the fourth quarter.
Because maybe I'm thinking that maybe the biggest thing is the distributor inventory right as the higher volume moving out the door and the leverage youre going to see on those shipments.
It may be the biggest piece of the equation.
Well certainly that is there is going to be positive for us in the fourth in the fourth quarter.
I would reiterate again that our European and Canadian comparable Q4 or.
Not terribly challenging given the on premise environment that we had last year.
And certainly as we start to gain scale in some of our innovations so.
That improves profitability I mean, we have increased our celso share by more than 50.
<unk>, 50% since the beginning of the year.
Our two brands in that space are growing faster than any other major company in the third quarter.
We plan to.
To accelerate that.
Sure on scope is during the last <unk> was close to 7.5%.
Even more than we saw at the end of Q3, so thats.
I think that kind of covers it offline.
Okay, alright, thanks, so much I appreciate it.
Sure.
Our next question is from Rob Goldstein of Evercore. Your line is open. Please go ahead.
Great. Thank you very much and Gavin.
Congratulations on being suppression and Youre in your views on the on the Seltzer category.
Along those lines.
To get your thoughts.
On how that category how are you.
Really see that category developing.
As well as <unk>.
How the whole overall RTD category is developing and kind of the.
The interaction between those two.
You see them pretty much the same thing or a little bit different.
And how your views on how those are going to develop.
Impact your long term strategy. Thank you.
Thanks, Robert Yeah look you're right, we have been saying for more than a year now.
<unk> could grow at the pace that they were growing but I would say that it's still up double digits year to date. The segment is significant and it's and it's here to stay.
But it's important I think in this new space in the Seltzer category is you need to drive strong brands with a clear point of difference.
And that's why our two sorts of brands grew more share than any other major brewer.
In the third quarter and why we feel so good about those about those two brands.
Far as the overall RTD space is concerned I mean, obviously, it's an emerging and fast growing segment RTD sales already outpaced spirits and that gap is I think going to widen in the in the future.
Competing in this space is a natural fit for us.
That we've got.
100 <unk> of experience.
In alcoholic beverages, and lots of experience in 12 ounce cans and bottles.
We will continue to compete in this category with brands like Super Bird.
<unk> innovation.
We're looking at.
Great. Thank you very much.
Thanks, Rob.
The next question comes from Nadine Stewart of Bernstein. Your line is open. Please go ahead.
Hi, Gavin and Tracey.
Two related questions. If I may so the first is industry presses reported that youll be significantly increasing your freight and fuel surcharge to distributors. So when does this increase become effective and does this help you offset the increase in transportation cost of so by how much given the pressure we've seen on margins and.
The second related question is could you elaborate both on the magnitude and cadence of your pricing increase over the next 12 months. Thank you.
Thanks, Bye Dean from affecting fueled point of view. This is a program that we put in place without distributors gosh.
10 years ago, Tracey back 10 years ago.
The objective was really there too.
Sure.
Sure the increase in freight and fuel into NPA eliminate volatility.
As with the freight and fuel surcharges gone down for example, the last the last two years and then.
And unfortunately, given the significant challenges that exist in the in the in the whole freight and fuel market.
It is going to go up meaningfully next year and yes. It is it is a cost sharing between ourselves and the and the distributors so about about.
You were at 50 50.
It's a cost sharing when do we finalized the number we finalize that at the end of the year.
And it will apply to the to the whole of.
And to the floor.
<unk> of next year.
As far as pricing is concerned maybe look <unk> is a tougher one for me Raj because obviously, we don't provide guidance on them on price going forward for obvious reasons, but.
We closely watch and evaluate our pricing we do it on a market by market basis, we do brand by brand to see how it fits with our brand strength.
And so and other key input cost player enrolling those decisions we.
We do have other levers, which can can help offset inflationary pressure as Tracy mentioned, one is then moving moving from.
Two two rail we've got our cost savings programs, we have a robust hedging program, our overall premium amortization I'm strategies driving strong.
Positive mix.
Software per.
Per hectoliter.
This quarter was the first quarter that we've that we've grown that notwithstanding the significant comfort that we had in this space from.
From Q3, and then we've got a variety of revenue management tools. We've spent we spent a long time.
The last six years.
In 2015 building revenue management tool capability and I think.
We are well placed in that space as we've as we've been in a long time.
Thanks Sterling.
Great. Thank you.
The next question is from Steve powers of Deutsche Bank. Your line is open. Please go ahead.
Yes, hi, Thank you I actually wanted to go back.
To Lauren's question on on the fourth quarter, if I could just to better understand because.
Well I think I get the easier comparison with a year ago in parts of the business.
The guidance implies essentially a return to us as I do the math about 95% of 2019 EBITDA in the quarter.
Which itself was was I think a multiyear high.
And that's in spite of the higher marketing Gavin you mentioned the supply chain inflation when we're talking about.
Electric cost of some of these economy brands so.
Just.
Let me address that once but if theres anything you can you can kind of elaborate on a little bit further just to give us just give us more confidence build upgrades about so much in 2019, but just sorry, 2020, but thinking back to it.
2019 days when things were more normal because it feels like a pretty big step up relative to the run rate run rate year to date.
And I guess.
Underneath that question is that 1 million barrels per week shipment philosophy that you you called out for October.
Implication and thus.
The emphasis on that to.
Let's say that you expect to be able to maintain that for the duration of the fourth quarter. Thank you.
Thanks, Steve you will see if I can try and help you without repeating everything I just said I mean.
I would again say, we wouldn't give you the guidance that we didn't believe we would we would hit it.
It's just not how we operate.
Im.
Shipments is obviously an important factor in this.
Getting back to 1 billion barrels of week was an important milestone for us.
Just to give you some dimension is kind of the level of shipments that we would have.
As we head into into summer.
We're doing a really nice job so far in October of rebuilding our distributor inventory levels in inventory days and already many of our.
All of our Skus are close to where we would we would like them to be.
It's not 1 billion barrels every single week because others.
After Thanksgiving, we would we would shut for Thanksgiving day, and Christmas day, and so on so it's not a.
Got it.
A one size fits all for every single week.
That's an important component.
From an on premise point of view.
In both in all of U S and Canada.
In Europe.
This is performing.
Better than <unk>.
Than it has in previous quarters.
From an <unk> point of view.
U S.
At approximately 85% of 2019 levels.
<unk>.
In Q3 and in Canada on premise restrictions have eased deco locked in volumes.
Back up to close to 80% of 2019 levels.
And as I said.
The U K and central Eastern Europe.
From an earnings point of view as close to a 100% of what it was in 2019.
In the fourth quarter last year was a very very tough comparison for both Canada and from.
And for them.
For Europe.
Our MSR per hectoliter when you compare it to 2019 is going to be meaningfully up because of the premium amortization efforts.
That we've had.
Yeah. Okay. Okay that is helpful. Thank you. Thank you for the color. Thanks, Steve.
The next question comes from Laurent <unk> of Guggenheim. Your line is open. Please go ahead.
Yes. Good morning, Thanks for the question so.
I'd like to come back to the center.
But for remit more focus on what Youre doing.
Be launching.
To put Chico.
Actually beginning of the year.
Expansion into Margherita.
And some more figure out ascension and <unk>. So.
You used to give.
The streets that can assure your objective in terms of market share.
Could you share with us.
What's your objective for next year on what you are <unk> to reach with dose.
And line extensions.
And then probably if I if I may on the <unk> you mentioned about the medium case, when you start to be meaningful so how should we think about the economy.
Are you guys.
All of those Brandon I'm thinking more about <unk>.
Thanks, Lawrence look on your sell through question.
Handbags, we continue to make great progress against.
Goals that we have full hard seltzer.
As I stated earlier, our category share over 50% since the beginning of the year and we continue to see positive trends as I've said in the latest IRI read we're almost at seven 5% and that's despite limited distributions with Tokyo, Tokyo Chica and despite the fact that we are cycling about a percentage point.
For Coors Seltzer now that we know that we're out of that.
Out of Coors Seltzer.
And our ambition was done stock.
At double digit share right, we've got the national rollout of total Chico coming as well as some really great innovation in both of ourselves and some of which we've announced and some of which we haven't.
In January we already are taking share in a number of states and a number of key retailers.
In Canada, we have almost hate to attain shared goal already with the busy and Coors Seltzer and we've got the same innovation and turbo Chico coming in the pipeline next year as well so.
As I said, we're working hard and we're making real progress against against.
Our goals and we loved our differentiated brands that we've got in that in that in that space.
And as far as beyond beer is concerned it was 2 million cases and that was just the non <unk> space Laurence So that we've got.
The Latin American business is growing very very very very well despite some of the corona virus challenges.
Got down there and that operates in the above premium.
Nice.
Within the non Alex space, we haven't disclosed the economics of our agreements with both of those companies, but you can rest assured we wouldn't do it if it was if it wasn't profitable and as the as the business expands so we start getting scale full full full brands like <unk> and for <unk>.
For like Cologne.
Okay. Thank you thats helpful. Thanks.
Thanks Darren.
The next question is from Bryan Spillane of Bank of America. Your line is open. Please go ahead.
Hi, Thanks, operator, good morning, Gavin and Tracey.
I just have I guess just.
Around marketing just just two points.
To cover if you can one is just with the step up in marketing investments. This year are we now at a place where this is this is a good level, meaning the reinvestment has been has been made and this is a good run rate or is there.
Is there a room or opportunity to increase that marketing investment more beyond 'twenty one.
And then just with Coors light specifically, Kevin can you talk about in the U S.
Given the investments Youre, making there just kind of where you stand in terms of.
<unk> share of voice relative to maybe some of its direct competitors because it appears that you are.
Youre, gaining more impressions or you have more impressions, but just wanted to see if that was that was accurate.
Thanks, Brian and good morning to you looked at it. We obviously continue to believe very deeply in the power of investing behind our brands to drive awareness.
Increased consideration tricky confusing to into our space.
And we have aggressively shifted our media spend over the past few years through two channels.
Consumers are so that would be the digital space and if you go back a few years.
And in that area I wouldn't say, we wouldn't use with minimal but it was it was not a not a lot.
We spend more than half of our.
Although our marketing spend in those in those channels.
At this point in time.
We will continue to invest what we believe is the right amount of marketing behind our brands and if you remember when we announced the revitalization plan. We said we wanted to spend more behind our core brands.
Miller Coors light Coors light in both.
U S and in Canada, and in Europe behind our brands like calling in as your scope and startup program <unk>.
And so on and so we intend to do that and we actually we are seeing the benefits of that.
A lot about how we feel about about <unk> about <unk> and we're seeing very strong performance out of that brand driven by the success of our of our May 222 programs. So yes based on the strong performance of confidence that we've got in the in the in the <unk>.
Pain in the brand we will continue to fuel.
The momentum with the with ongoing media media support.
I think that was.
Christians that occurred in 2015, yes, I would just just to be clear in terms of the marketing Blake the step up in marketing investment that's happened since you announced the revitalization plan.
Pretty close to that.
Desktop level, whether you want to invest more not may be a function of just where the business is going but the.
That initial sort of bump is now going to be in the base as we exit 'twenty one.
The hit to the year.
There will be a little lower this year right, because it's still a little bit noisy this year, Brian given that the first part of the year. Many of the things that we would sponsor we didnt because they wouldn't base.
Some of the.
Particularly on the local marketing side of locked with with phase and festivals and some of the sporting events in the beginning part of the year.
Wouldn't say, it's a totally totally clean year, but we but we have stepped up our marketing spend.
This year, we have stated that stepped it up in Q3, and we will stay put up in Q4 as well.
Okay. Thanks, Kevin.
Sure.
Our next question comes from Kevin Grundy of Jefferies. Your line is open. Please go ahead.
Great. Thanks, good morning, everyone.
Kevin a bit of a longer term question building on some of the themes that you've talked about but specifically how you're defining success in the U S. Over the next three to five years. So through the revitalization program you are clearly doing a lot of the right things.
Being tangible results, which is encouraging emphasizing PIV I think you said the above premium is now 25% of the portfolio and that grew nicely in the quarter, which is great. The cross current of course is the leverage to economy, which continues to have demand headwind slight continues to face demand headwinds, although to Brian's question, a moment ago, the market share trends width with Coors light.
Has been encouraging so years ago, I think the company put a stake in the ground and indicated it could get back to flat volumes in the U S.
The decision was made that kind of subsequently walked back that target, but as we sit here today.
<unk> measures would you like investors to anchor to in terms of how youre defining success in the U S. Over the next three to five years. So thank you.
Thanks, Kevin, Yes, you're bringing out a statement that I made I think in 2015 about being.
Flat in volume and growth and obviously, our revitalization plan our focus is on revenue not necessarily volume.
Sure.
The quality of our revenue in changing the shape of our portfolio is what is important to us now.
For me what success looks like over the over the short medium and long term is that we are driving sustainable topline revenue growth and at the same time driving.
Our profit so it's not an either or for us and so it's a it's a both end and.
We're going to do that as I've said, but by focusing in on our call. So that would be Miller and Coors light.
And we've talked a bit about the success of how are we doing with Coors light.
In particular in Canada and in the in the U S. But also our core brands and our European markets I mean, a real success story for me is what the team has done with those <unk> in.
Croatia.
Brand that was in long term decline in there to turn that around and has been growing as nicely behind our increased focus behind behind coal.
Changing the shape of our portfolio at the above premium levels.
It was our second priority.
And the third priority of beyond beer.
Coupled with above premium rock, because we're only going to above premium beyond.
Areas, so whether it's the success of our efforts in sell throughs or new brands document to be <unk>, Europe, all Blue Moon, Belgian White and Black Sky in the United States was better in glaucoma.
I would like to see the shape of our above premium portfolio to obviously be bigger than 25%, we've got and we've got an internal goal, yet, which we haven't we haven't.
<unk>.
Externally, but obviously, we would like to see that.
That grow to to a higher level so.
At its highest level topline bottomline and sustainable growth.
And and it changed portfolio shape define success for us.
Kevin given everything that we've experienced over the last two years.
Im very pleased with the progress the team has made overall against the revitalization plan that if you'd asked me if I would be happy we are where we are.
In the first months of the of the of the glue of the pandemic I would have taken it from the heartbeat and we're in a good place.
Okay. Good thanks for the comments guys I appreciate it good luck.
Thanks, Kevin.
The next question comes from Cornell Co Joanna <unk> of Credit Suisse. Your line is open. Please go ahead.
Hi, good afternoon, thanks for taking the question.
Kevin If I may ask you to maybe just simplify for myself and for investors to kind of open talking about the success of a lot of these innovations can you maybe aggregate them and talk about how much. They collectively contributed to your growth I think you said 2 million cases for soft drinks, but maybe add couple of Chico at England and some of these other.
Things in terms of how much they're contributing.
The thing you kind of mentioned at the very beginning was.
Much of the volume decline is linked to a.
<unk>.
Youre intentional decision to de prioritize and series of some premium products can you talk about how much of a drag that was if you were to add that all up and that can help us get an understanding of how the underlying business is doing.
Sure Carlo limit current answer that without actually giving you all about brand volumes, because we don't do that but let me start off by saying that.
I share loss per IRI in the third quarter was down 90 basis points to 80 basis points of equity economy, So 90% of our volume losses.
Reduction should I say is economy.
Most of that for large part of that is very deliberate decisions that we've made to simplify the portfolio. So it maybe that will help just the startup.
90% of the Volcker rule.
That was for sure right volume for volume share not for absolute numbers just to make sure I heard that right, 90% of the volume share.
It was linked to the economy.
Alright, and 80 basis points of the 90 basis points of share we lost would've been economy, and 90% of all of our U S. <unk> of our U S volume losses was economy. So I think it's safe to say you can say most of it right.
From a from an individual performance.
Point of view.
We're not going to break out every single volume element of our above premium portfolio, but we've got real pockets of strength and growth in our Latin American business, which is which is above above premium sometimes that can be.
It depends whether it's export or license 60 exports.
<unk> is performing particularly well for us.
Saar is.
Monarch spaces offer veritably low base.
A large chunk of that 2 million cases is all incremental.
Which.
Still relatively small but growing.
Particularly strongly.
No.
From a from a.
From a <unk> point of view from a third quarter point of view. It was really just the market for a month right.
We don't obviously take all of that volume into into our business. Because we are in a joint venture with the England family, but you.
It's above premium was up single digits.
In Q3, and so the strategy is coming together <unk> failure.
Okay.
Okay, great. Thank you.
No.
Our next question comes from Chris Carey of Wells Fargo Securities. Your line is open. Please go ahead.
Hi, Gavin Tracey how are you.
Thanks for the question.
Yes.
Following.
Following our recent line of questioning just round.
The economy Skus.
Hiseq and mix of the portfolio.
Evolving over time and focus on.
Hi.
Value over volume and <unk>.
And how that can play out in the near term I guess, if you look at your portfolio. Today, you think about your aspirations for the go forward on getting to a volume growth basis.
Do you still see aspects of your portfolio, which you potentially need to prune I suppose there always are these opportunities, but maybe more strategically.
And then.
If that is the case do you see the.
The premium location strategy over time.
To offset some of these.
The decision to then its ulcerative connected to the volume dynamic, but the share gains are are well taken and some of your most important brands, but I guess given the size of that is just yes.
The categories have been under pressure tough comps and together other aspects that are that are in play there.
Do you have any view on where you kind of see category growth going forward I know, it's not something that you can necessarily control but.
But that is an important dynamic here. So if I put all that together this dynamic around.
The portfolio today.
It could be enough to offset future decisions.
Maybe your latest thoughts on the category the categories, which you play it would be helpful. Thanks, So much.
Thanks, a lot Chris.
Look I think from our perspective, we think we've made the right move in the in the in the economy space to reduce complexity and really focusing on four key economy brands.
We've long said that we that we believe all segments.
Added to our consumers and the decisions we've made around our economy portfolio.
Not meant to change that view, so we still have.
Four key brands in that four key for key economy brands in that space that we're focusing on like Keystone light.
Miller High life steel steel reserve alloy and the sticky series and nice House and we will continue to focus on those on those brands and having reduced so much complexity.
Out of the economy portfolio, it's allowing that both ourselves and our distributors to really hone in.
And focused on performing very well with.
With those four key brands in the economy space.
From an overall segment point of view.
We believe that self says are here to stay we believe that there is there is growth to be had in sales as we believe that there is strong growth for us in the beyond beer space.
<unk>.
Yes.
We recognize the need to.
To offer products beyond that beyond traditional beer and that's why we're putting so much so much focus on that we believe that innovation and great innovation around around <unk> and around Celsis.
We will add value to both the category and ourselves over the over the next few years and that's why we're putting so much emphasis on a really tight and focused.
In a voice innovation.
Portfolio.
Remember, Chris that our focus is.
Not so much volume side, it's really about driving revenue and value index Thats, what we are doing so.
I wouldn't expect our volumes to be to be positive necessarily because of the actions that we've taken and the economy portfolio.
But we think the rock.
And then I think to address your other questions. We don't have any plans to do any more big moves in our economy space.
We weren't as deep as we believe as is necessary and now we're going to focusing on the on the <unk>.
So thanks, Chris.
Okay, great. Thanks for all that.
Sure I think we have tough one more question I'm getting the signal.
The final question, we have times will come from Brett Cooper <unk> Edge Research. Your line is open. Please go ahead.
Thanks for taking my question.
Gavin would love to get your perspective on the sustainability of the durability of your efforts into into the flavor side of the world whether it be seltzer F&B ready to drink spirits, giving I think historically the lack of success at the industry has had and I know you won't get into talk about other people's brands, but maybe what you're seeing either qualitatively or quantitatively with <unk>.
<unk> Blake, a visa or a chunk of Chico relative to some of the F&B products that you've had historically that haven't been able to retain their volume and sales that they initially launched.
Okay.
Yes look I mean, I think I think making sure that we've got differentiated brands that the consumer actually wants.
<unk> is a big big factor for US right, because we do continue to see strong performance.
From from diseases lots of distribution runway available for it its holding firm as the number four brand in the space.
<unk> continues to deliver its currently in just 16 markets.
<unk> remains the fastest turning brand in Texas, the third fastest turning driven nationally.
We believe there is a very strong opportunity for Celsius to bring Latino drink is into the space because they are relatively under shared and we think that.
That.
That type of Chico plays really really well into that space.
Given the data that we that we have so I think the key for US is differentiation between preaching it for a while now.
We wouldn't have been as successful as we as we have been in the Seltzer space.
If our brands will differentiate it if they were just a me too with what was there and so.
They are the brands that we brought our differentiated that are fast moving and we have real differentiated innovation coming behind both of those brands.
And then in the new year. So we think there is lots of upside for our portfolio.
In this in this space and as I've said, we also believe that this is a big segment that is going to be here to stay.
And we intend to be a meaningful player in it.
Thanks, Brett.
Thank you.
Well, thanks, everybody for joining the call to begin.
Okay.
Thanks, everybody for your interest and if there any follow up questions. Our investor relations team would be we'd be happy to take that.
Thank you Mikael.
This concludes today's call. Thank you for joining you may now disconnect your lines.
Okay.
Okay.
Yes.
Sure.
Okay.