Q4 2021 Molson Coors Beverage Co Earnings Call
Take care.
Topline growth is one of the core goals of our revitalization plan and a result of our company is not being able to deliver in a long time.
He asked me slightly missed our guidance on EBITDA as a result of the impact of the omicron variance surge in the last six weeks of the quarter.
But at the site have been very disciplined with cash within the business improving our leverage ratio faster than we expected and we chose not to cut the marketing investments that will help ensure the long term health of our brands and our business.
Overall Molson Coors finished 2021 is a healthier business than we were at the end of 2019.
Now as you'll recall in our third quarter call, we said that uncertainty as it pertains to potential surges in the Corona virus and its variance to varying degrees by market could have an impact on our financial performance and unfortunately that is exactly what happened.
The on premise and much of EMEA experienced increased restrictions beginning in the middle of the fourth quarter as the omicron Varian surged in.
In the UK the Christmas holiday period, as one of the most important sales with us at the whole year and due to government restrictions for pubs and restaurants and.
A more cautious consumer behavior, we fell to below 80% of 2019 net sales revenue.
The UK is our third largest global market by net sales revenue in the on premise accounted for 65% of our business there in 2021.
<unk> was well established earlier in the pandemic when that channel is restricted or shut down it has a meaningful impact on our business and we felt that in the fourth quarter.
But we know from experience over the past two years of the pandemic if this as being temporary.
When the on premise channel has reopened and when consumers are comfortable reentering bars, and restaurants that came right back.
And I'm proud to announce that we are ranked number one in the UK advantage Group survey.
It is an independent industry wide survey on how the <unk>.
On premise national customers across the U K view brand owners.
And the results speak volumes about our hardware team.
Additionally, some of our U S suppliers have renewed challenges providing materials like bottle crowds at the tail end of the year, which had knock on effects on our production.
So this is certainly eased in the thompsons, we've taken matters into our enhanced by increasing the number of suppliers we work with.
To limit these kind of issues going forward.
One point I want to make clear that I said, while pandemic driven issues with freight availability in the global supply chain continued to challenge us in the fourth quarter, we made significant improvements with our distributor inventory in the U S.
We closed 2021 with about 700000 more barrels of distributor inventory than we did in 2020.
And that progress puts us in a far better inventory position heading into 2022.
And in fact, our out of stocks for core brands and packs so at the lowest levels since before the pandemic.
Today, our topline is growing fast for the first time in 10 years, our core brands are growing net sales revenue for the first time in years, our portfolio is premium rising to levels Naval before achieved we are moving to scale beyond beer.
And at this taking tangible progress towards achieving the goals of our revitalization plan.
We are set up for a strong 2022.
Now I wanted to dig in a little deeper starting with our core brands.
For the past few years, you've heard us talk about things like Sigma share in brand health as leading indicators that Coors light and Miller light remains strong foundations of our global business.
And today I'm very happy to tell you that each brand grew net sales revenue in the U S. In 2021, who has liked by four 4% and metal lag by seven 6%.
We also saw double digit growth in our on premise placements for Miller lite versus last year.
In Canada Coors Light also reported revenue growth in the fourth quarter, while Miller Lite revenue was up double digits for the full year with acceleration in the fourth quarter.
Our portfolio continues to premium on our above premium net sales revenue has grown over 15% in 2021.
The biggest driver of that premium amortization was our growth in U S hard seltzer.
Despite ending the year with any one nationally distributed hard seltzer brands, our portfolio grew triple digits over the course of 2021, and we generated the largest growth rates in this space among any of the major beverage suppliers.
Yes.
Today, we have two of the top five hard seltzer brands in the U S with type of Chico heartfelt and busy and we see more upside ahead.
But the hidden.
In hard Seltzer franchises busy is the only one that has existed for multiple years and is nevertheless, hard seltzer share in a quarter.
In 2022 that <unk> success is continuing with visit growing both industry and hard seltzer share.
And while it's still early we are very optimistic about the national launch type of Chico hard seltzer.
<unk> jumped to the.
Fastest turning hard seltzer.
Nationally and we believe it can become a top three hard seltzer in the U S.
Per IRI triplet Chico hard Seltzer is improved industry share each week since its national launch.
Even in markets, where the type of Chico mineral water is less known we are seeing strong results.
Alright temperature hard Seltzer alone has already reached a five share of hard seltzer in seven new markets since launch.
And we are bringing new packs for the brand with bottles Margarita hard seltzer and Ron shorter than it is already driving results.
Our 12 pack of type of Chico's ranch water is not only the fastest turning launch order in Texas, it's the fastest tuning in the United States.
Our heartfelt progress extends to Canada, where we achieved a non sharing heartfelt this in less than nine months that was driven by both busy and Chris Seltzer with both brands, finishing the year in the top 10 hard Seltzer brands in Canada.
Above premium beer continues to be a growth driver for us as well in the U S. Blue Moon Belgian White grew net sales revenue by high single digits in 2021, and so double digit growth in the fourth quarter.
Peroni earn double digit growth in 2021, and our U S Regional cross portfolio once again outpaced the category.
And we are gaining total share of the craft segment in Canada as well led by the strong performance of Brasilia to Montreal and food <unk>.
We also continued to premium bonds, our EMEA and APAC business <unk> now has continued to accelerate as the world beer category grows in the UK and in Ireland.
As of today, it's not delivering the fourth highest rate of sale of all draft world's largest per Cta and in 2021 private became the fastest growing premium 4% lager because CGI.
We are also bringing an exciting new innovation to market in the U S through an expanded agreement with the Coca Cola company simply.
Simply spiked M&A it will be a full flavored alcohol beverage expired by the number one overall juice brand.
Growing $1 billion brand and the second largest brand Coca portfolio simply.
Simply can already be founded one out of every two American households, and the brand continues to grow.
So we're very excited about this opportunity to shake up the full flavored alcohol beverage space as more legalized consumers look for bold flavor.
In 2021, we put teeth behind acto could becoming a total beverage company.
<unk> products are performing very well and helping to fuel our emerging growth business, which contributed approximately $800 million to 2021 net sales revenue.
<unk> ahead of our $1 billion annual revenue target by 2023.
<unk> has already proven to be a success with a lot of opportunity still ahead as we continue to expand distribution.
And there's been 10 months it has gone from nonexistent to the fastest growing energy drink in the U S per IRR entities number two in health and drug sales in the C store channel.
Net can America caused our 2021 was stellar performance generating double digit growth across this part of the business and record sales in many of the markets in which we operate.
And we are backing it all up by investing in our capabilities.
Further physical investments, which are of course foundational new hard seltzer production capabilities will be coming online in the U S. We will soon turn on a new hard seltzer and spirits production line in Toronto.
Our new state of the Art brewery is online in Montreal, and we're adding new Canning and production capabilities in the UK.
And then there are the investments, we're making behind our brands with increased marketing behind our core brands and key innovations and we've become much more effective with those dollars as we accelerated our digital marketing capabilities.
First over the past two years, we have laid the foundation for sustainable long term top and bottom line growth with Molson Coors.
Today, our core power brands are growing dollar sales.
Today more of our portfolio is in the above premium space than ever before <unk>.
Today, where we are moving to scale beyond the bureau today, we have stronger capabilities to drive future growth.
And because of all of that so those are the foundation, we have laid over the past two years against great odds and and then historically challenging environment. We can give guidance that in 2022, Molson Coors expects to deliver highest top and bottomline growth in over a decade.
We will continue to invest in our business to drive towards sustainable long term top and bottom line correct.
Not to give you greater details on that I would like to hand, it over to our Chief Financial Officer Tracey Travis.
Thank you, Kevin and Hello, everyone.
And Kevin Tyler. Thank you. Thank you wind likely unit maintenance.
Thank you.
Despite the challenges that we and many other companies we achieved our guidance of mid single digit growth for the year.
The strong free cash back and editing efficacy with <unk> bank, yet and it can't hold it.
A continued key carrier backlight, thank you salvi.
<unk>, a strong foundation for future growth and the issued fiscal thank you. Thank you Keith.
On this call with that kind of thing.
Before I take you to ask Courtney ethylene performance assets I would like to update you on a couple of naming convention changes in our business units of 14.
This does not change our reported results for these segments and was done for the named atheistic.
<unk> said in the statement.
As of December 30, <unk> 2021 out of 14 statements.
Erica.
Core North America, and EMEA and APAC, formerly called <unk>.
Now, let's discuss the fourth quarter.
Delivered strong top line and EBITDA performing.
While we benefited from factoring significant on payments.
Prior yet we were still.
Still impacted by the rapid and maintenance of the Omnicom failures in mid November which resulted in overall unfinished basket on pay to the third quarter.
In December <unk>.
<unk> power saving us approximately 86% of the same as 2019 net revenue down from third quarter levels of approximately 88% Canada.
Canada was approximately 60% of the theme of 2019, eight <unk> down from third quarter levels of approximately 80% and the UK with below 80% after being.
18, 7%.
EMEA and APAC growth of 56, 515 and America.
Revenue growth was driven by higher financial volume.
I will make pricing and favorable brand and Ken will make future premium amortization and fewer on famous jurisdiction statements apply yet.
In fact consolidated net sales revenue increased four 3% compared to 2019.
Consolidated financial volume increased seven 4%.
Both domestic inventory and great brand volume, two 3% driven by EMEA, and APAC, Canada and Latin America.
This was partially offset by lower U S economy brand volume as a result of our economy.
Okay.
Thanks, Jim and rationalization program.
In the U S. We grew net sales revenue six 3% with domestic shipments at three 3%, reflecting our efforts to both distributor inventories.
The supply disruptions in 2021.
U S brand volumes declined three 8%, but this was driven entirely by the economy portfolio, which was down double digits.
While our premium portfolio grew low single digits.
<unk> premium portfolio was up double digits for the quarter.
And it sounds revenue increased nine 9% on strong brand volume growth of 6%.
Our Latin America, Kenneth Calibrating your increased 15, 9% on brand volume growth of 12, 4%.
EMEA and APAC net sales revenue grew 56, 5% driven largely by weakness in Europe , but also quality thankful in eastern Europe .
Strength in our core brands and new innovations like mcbee, basically double digit growth in above premium and premium volume, partially offset by double digit declines in economy.
Nick.
On a brand volume basis increased three 8% driven by global make processing foot and positive brand and channel mix with premium amortization delivered across both business units.
Underlying cogs per hectoliter increased five 2% driven by cost inflation, including higher inputs and transportation costs and mix impact from premium amortization.
So we benefited from volume leverage due to higher production volumes and continued progress on our cost savings program.
Underlying G&A in the quarter increased two 4% as we continue to invest behind our core brands and innovations across both business units, while G&A was flat.
Essakane, we increased marketing investments in the quarter to levels above the fourth quarter's impact 2020, and <unk> 19, providing strong commercial support behind our brands.
2022.
As a result of these factors underlying EBITDA increased 21, 9%.
And recapping our full year consolidated net sales revenue increased four 7% with Americas <unk> chief of things in EMEA and APAC at 19, 6%.
Topline growth was driven by global make coffee favorable, Brian and Ken I'll make from premium amortization and fewer on premise restriction.
And then Ian APAC volume growth.
This was partially offset by lower financial volume.
Rick.
Consolidated financial volumes declined <unk>, 5% of our brand volumes declined one 7%.
America's brand volumes declined three 2% as a result of the economy skewed de prioritization, which began in the second quarter of 2021.
And rationalization program, which was announced last July .
And then APAC brand volumes were up 3%.
Net sales per hectoliter on a brand volume basis grew three 8% Q2 global make processing growth and favorable sales mix.
In the U S net sales per hectoliter on a brand volume basis was up four 4% for the year driven by net costing votes and Mr. Jason above premium products, including <unk> type of key cohorts cellphone with libre and family and for revenue.
Underlying cogs per hectoliter increased six 9% driven by cost inflation, including high inputs and transportation cost mixed impacts from premium amortization and volume deleverage.
However, with the benefit of Irobot, taking and cost savings program, we were able to mitigate some of the inflationary pressure.
Underlying G&A increased two 9% largely due to higher marketing investments into 2020.
In the second half of 2021, we began to persuasively increase marketing spend with a resumption of more sports and live events.
<unk> increases were also driven by lick letting opposite mitigation actions in 2020 due to the coronavirus pandemic and was partially offset by our cost savings program.
In 2021, we delivered approximately $220 million across in G&A and cost of goods sold in our three year $600 million cost savings program.
Other the swing between Q3 2021 period, we have delivered an aggregate $490 million.
<unk> is well on track to meet that $600 million target in total gross savings by the end of 2020.
As a result of these factors underlying EBITDA decreased three 5%.
Slightly below guidance of approximately flat and was driven by the on famous softness as a result.
Okay Omnicom variance.
However, underlying net income before income taxes was approximately flat for the year as a result of lower interest and depreciation.
Five 6% underlying EPS growth compared to the prior year.
Underlying free cash flow was $1 $1 billion for the year, a decrease of $183 million from the prior year.
This decline can be highly attributed to the repayments of approximately $100 million of taxes related to various government sponsored deferral programs related to the pandemic, which benefited the prior year free cash flow by 110.
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Creating a negative thing factor of about $250 million on our 2021 free cash flow.
Excluding these changes need working capital movements were favorable to the prior year.
Capital expenditures paid with $523 million.
Down from $575 million in 2020, and focus on expanding our production capacity and capability program.
Such as the previously announced Golden Brewery modernization project, a new Montreal brewery, which opened during the fourth quarter and expanding our hot spell for capacity in Canada and the UK.
We have continued to make great progress strengthening the balance sheet and improving our financial flexibility.
We reduced our net debt by nearly $1 billion in 2021, and our trailing 12 months Nic data underlying EBITDA ratio to 314 times greater than our guidance of approximately three to five times and down from three five times as of the end of the same between <unk> and Dan <unk>.
Essentially from four eight times in 2016 at the time of the <unk> acquisition.
We ended the year with strong borrowing capacity with no borrowings outstanding on our one 5 billion U S revolving credit facility.
That takes me to Axa.
Which calls for both top and bottom line growth in 2022 for the first time in over a decade.
Before we go to on constant currency basis.
We are adjusting the metric you provided to date, along with the bulk of our revitalization plan.
Also and consistent with our historical commentary uncertainty is it specifically by market.
If on premise search fictions, our increase and or reinstated an impact on our financial performance during that period.
For 2022, we expect to deliver given your growth.
Right.
Underlying income before income tax.
Excess growth and underlying free cash flow of $1 billion, plus or minus 10%.
This guidance implies that we will ship to consumption in the U S for the year.
In terms of phasing recall that we will start lapping the economies do de prioritization and rationalization in the second quarter of 2022.
In addition, we expect to face continued inflationary pressure, including transportation and material costs.
While we have levers to offset inflation, including pricing mix from premium amortization and our cost savings and hedging program.
These headwinds are expected to continue to pressure gross margin, but have been bolt in to our guidance.
We expect to Columbia place behind our core brands and key innovation, which entails increasing the level of marketing investment from the prior year.
Given the on premise restrictions in the first half of 2021, we expect greater year over year increases in marketing spend in the first half of 2022 .
Thanks, Jean Kinsey behind our capabilities with cash capital expenditures anticipated to return to more normal pre pandemic levels.
And the guidance metrics include underlying depreciation and amortization of approximately $750 million Taco minus 5%.
Reported.
Net interest expense of $265 million, plus or minus 5%.
And then the underlying effective tax rate in the range of 22% to 24%.
Turning to capital allocation priorities remain to invest in our business to drive top line growth and efficiencies.
Nick dates and to return cash to shareholders.
We are maintaining our target net debt to underlying EBITDA ratio of below three times by the end of 2020 as we have a strong desire to maintain anytime upgrade our investment grade rating.
And on February the 22nd 2022, the Baltic paid a dividend of 2000 eighteen's per sheet.
An increase of 12%.
Also on February 17th 2022, the board of Directors approved a share repurchase program authorizing the company to purchase up to an aggregate of $200 million of that.
Company's class B common stock.
March 31, 2020 with repurchases primarily intended to offtake annual employee equity award grants.
In closing 2021 was a volatile yet, but it does not deter us from executing our plan.
Progress we have made has laid a strong foundation to achieve our goal of sustainable long term.
Top and bottom line growth and our 2020 guidance demonstrates our confidence we are on the right path.
And with that we look forward to answering your questions.
Operator.
We will now begin the Q&A portion of the call.
I'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 Press Star followed by two in consideration of others and to allow more of you to participate in this call. We ask that you limit yourself to one question. If you have additional questions or follow ups. Please rejoin the queue.
We will now pause to compile the Q&A roster.
Yes.
Our first question goes to Kevin Grundy with Jefferies. Kevin. Your line is open go ahead.
Great. Thanks, Good morning, everyone and congratulations on the continued progress, particularly in the difficult environment.
Wanted to start with the sales guidance for the year.
I'm curious if this is maybe for you maybe just spend a moment on how you expect that to breakdown between volume and net sales per hectoliter.
And then net sales per hectoliter, maybe just comment broadly on the contribution youre, hoping for between price and mix, particularly from pricing perspective, given the difficult input cost environment and then Kevin maybe just at a high level coming off of what's been a strong year for your key brands just offer some thoughts if you wouldn't mind.
On your outlook for Coors light and Miller Lite in the upcoming year, and then I'll pass it on thank you for that.
Thanks, Kevin and good morning.
Let me start and then Tracey can take you through some of the guidance around cost of goods sold and so on for 2022, but from a pricing point of view, obviously, we're experiencing inflationary pressures, we expect them to continue well into Q.
Through this year.
And while we have historically taken price increases in the spring of every every every year. This year, we actually announced price increases a little earlier than that and we went through the price increases of between three and 5%.
That took place mostly in January and the early part of February and obviously the amount and the timing of pricing increases does does vary by market.
We do have more leverage than just.
<unk> of course right.
We have the mix shift, which is fundamentally part of our revitalization plan is to shift our mix into the above premium and emerging growth in emerging growth is almost entirely above premium so spoke about that.
And my.
Opening remarks.
Wanted to talk about hedging the hedging program.
I'll circle back on that Brian .
Okay, Yes, I mean.
We've spoken before about Irobot taking program.
And it's how we cover all our key commodity.
And as we look into 2022 and 2023, we're really comfortable with that target physicians and no debt hedging program is going to play a part in.
Mitigating some of the insights and equity teams.
Thanks.
Kevin look I mean, our business at the end of 2021 is fundamentally most of and it was the beginning of the revitalization plan, particularly with our with our brands and you referenced Coors light.
We ended the year with.
With both of those of those brands are growing the top line, which we haven't done for four quarters.
Coors light made.
Made to Chill campaign continues to work.
For us both regionally and nationally.
<unk>.
At a local level.
It's resonating and attracting 21 to 29 year olds.
Tumors.
Nonetheless.
Despite some of the inventory challenges and some of the tough comps.
We had to overcome.
Initially improved over the over the year.
To continue to FERC based on our <unk>.
All sorts of different brand X is likely to be in amongst the more recently the explore exploration into the into the mid <unk>.
We feel like those two brands are really well placed hitting into 2022 and then.
Looking beyond that the above premium Blue Moon has bounced back very strongly our emerging growth division as I sit is ahead of our <unk>.
Plan to get to $1 billion, Canada's growing Coors light is growing share this.
As healthy as it's been for a while and.
Europe is bouncing back now that we are hitting through the.
Omicron variant and restrictions have been have been.
Lifted and we've got strong above premium innovation, which has a very strong on premise web bias.
I think hopefully that answers your Kevin.
Kevin.
Yes, that's very thorough thank you very much I have a number of questions I'll take offline with Greg and Tracey, but continued success. Thank you.
Thank you.
Thank you Kevin.
Our next question goes to Rob <unk> with Evercore, Rob. Your line is open you can go ahead.
Great. Thank you very much.
Kevin I was wondering if you could talk a little bit about.
How business starting off this year I mean, we all see the public information January was a very tough start for the whole industry.
How much of that do you think is the maybe sticker shock from price increases on the core on the weather.
Maybe people had a lot of a lot of beer in their pantries, given that a lot of holiday parties may have gotten canceled I'm just trying to get a little bit of a more of a sense of what the beer industry and your business looks like.
And maybe what Youre seeing in February to give you confidence to underscore your guidance. Thank you.
Thanks, Rob.
Im going to repeat what I said to Kevin as far as our overall brands are concerned, but if you look to the two two January yes.
The data that is publicly available we will say that.
All industry.
It wasn't the easiest of months I don't think pricing has got anything to do with it because the pricing increases.
In the months and even into February to impact January trends.
I think it's got nothing to do with it.
Frankly, the price increases as I, just said for us 3% to 5%.
Well lower than inflation.
Inflation rates, which are which are sticky in the consumers' minds odd point, a finger squarely at the second point you raised there which is army Corp Rod.
Tumors where resistance.
Going out into the on premise December and into January and as we've got further into January and into February we've seen the consumers come back to the on premise, particularly in our European businesses, where restrictions have been largely lifted but also in the United States and to a lesser degree in Canada.
I'm going to point, a finger created omicron Rob.
And so I guess tied to that would be your sense youre not expecting.
Much in the way of demand elasticity on the price increases maybe maybe lost the historical.
Well, we always we understand pricing elasticity in a normal world Raj and I think we're operating in somewhat unknown territory.
Sure.
I think it's a little too soon to tell exactly what the various price increases that have gone into the markets. We're in.
In fact that will have from a from a from a volume.
Rob.
I think.
As we head into spring and summer we shall see.
Terrific. Thank you very much.
Sure.
Thank you Rob our next question goes to Andreas to Sharon with J P. Morgan Andrea Your line is open go ahead.
Thank you and good morning.
So my question is the assumption of the G&A savings your earnings guidance Embeds faster growth, if I understood correctly on the bottom line and I understand from Tracy comments that gross margin will go will be pressured into euro.
In spite of.
The timing of the hedges, which I'm assuming are going to be better than the first half of the year and then give back some in the second half. So are you embedding.
Your EBITDA margin, we're expanding furniture nature to reach your profit guidance and then related to that I think the investors that I got that I spoke this morning or.
Im asking about what drove the EBITDA Miss in the quarter and also the year.
And also the reason to refrain from giving guidance on EBITDA basis for 2022 and use earnings before taxes.
For clarification there. Thank you.
Thank you Sandra.
Why don't you take what was okay and first of all I think you spoke of you asked about the margin expansion.
Okay.
Ed.
Mid single digit top line.
And high single digits and income before tax plan and Theres, a couple of things that need to be considered at the festival you Ross I mean, we are seeing an inflationary environment, we expect to see inflation continue on commodities and packaging materials and we will take the frac market remains hot so that will create a headwind.
And but to mitigate that we have a very robust.
Hedging program as you mentioned.
We typically hedge.
The fifth somewhere between one and three years, depending on the on the commodity and the liquidity of that commodity but in the phase III, our hedges are obviously higher than.
The outer years, which are typically lower so we have a robot taking program as we look now into 2022 and 2023, we are very comfortable with our hedge positions. In addition to that we've got the cost savings program.
Yes.
This is the part of the $600 million.
Program already and delivered $490 million Opex, we've got.
Ottens like the new state of the art more efficient breweries in Canada that we spoke about that have come on line for that taking going to help from a from a cost point of view, we've got the continued premium validation of our portfolio, which.
It's really all about what the revitalization plan is driving.
And obviously, you expect a little bit about.
And then this year, we have a full year contribution of our equity income from <unk> joint venture. So we've got a couple of those.
Often that will pay off in 2022.
But having said that we're going to continue to invest in our business and behind our brands as you saw in Q4 of 2021.
So in terms of EBITDA.
Q4, and so we think we affirm our guidance at the end of October based on the plans that we had in place.
And more importantly, what we were seeing in terms of very strong <unk> performance.
During Q3 and going into Q4.
We stated on the call at that time that if restrictions were reinstated in some of our larger markets would have a significant impact on our financial performance.
For the next few months and we saw that with the Army Con.
Re emergence.
In mid November and NBC will retain to both governments imposed restrictions as well as changes to consumer behavior and that impacted our on premise performance in all our markets, but particularly in the UK, we've spoken about what a big part of our business the on premise.
But having said that with some hits a mid single digit top line.
And we continue to invest in our brands. So that's what's important to US we did not pull back on investments, which makes it sort of helps us stay that 2022.
A strong foundation.
So that was really the Q4.
And then the the guidance.
Guidance and in terms of EBITDA from what we have done is.
We believe based along with our revitalization plan goals of driving both top and bottom line growth.
And we've added in addition to the mid <unk>.
Income before tax we've added.
Yes.
The.
Depreciation and amortization, which we normally give we have given the interest and we've given.
Then the effective tax rate as well as free cash flow leverage target ratio.
If you add those back we will get back to the EBITDA range. So we just believe that this is.
A bit of guidance attempts at all.
<unk> 10.
Thanks, guys.
Thank you.
Thank you Andrea.
Our next question goes to Bill Kirk with MK and partners Bill.
Your line is open you can go ahead.
Okay. Thank you and good morning, everybody Tracy.
With some <unk> phasing items.
Thank you have about 2 million hectoliter shifting back into the first quarter.
<unk> to the Texas freeze in the cyber security events.
But I guess what about prior year cost comparisons are they are the easier in some ways since the prior year had those disruptions and maybe made servicing the wholesalers more expensive.
Yes so.
If you don't specifically give quarter by quarter guidance, but maybe some of the things.
<unk>.
Is from a marketing point of view.
Marketing will Pacific will be higher.
In the first half of the year as we cycle some of the on premise shutdowns and things like that but we are expecting our full year marketing in 2022 to be higher than in 2021, but really.
More so in the first half.
Tens of other Cogs.
Obviously, we're still going to be impacted by inflation as upbeat, but some of the other things to consider is assuming that we don't see levels of on premise restrictions in the first half of 2020.
We'll expect to see some benefit from volume leverage, particularly in EMEA and APAC business.
We will also expect to see both channel and geographic mix benefits as we tackle the first half restrictions in EMEA and APAC, which.
Have a lower overall cost per hectoliter.
Cogs per hectoliter.
And and then again just do you want to mention Irobot, taking program, we recover all commodities and you're really comfortable with babysitting.
Obviously, we've also got a cost savings program, which will deliver as well so.
And I'd say those are some of the thing to consider for at least the first half of this year and the only other thing I would add to that bill is.
Other side of some of the positive, which you mentioned, which is it takes a storm in the cyber security protect is obviously our economy SKU reduction rationalization rod. So this will have the headwind there.
If you recall in the fourth quarter.
Actually all of us.
Volume loss in the fourth quarter in the U S was driven by our economy as premium lots grew.
Above above premium is.
As well and of course, we we came into the year with.
With robust inventory, so we're not expecting any.
Can be meaningful.
Stocks.
As I said in my opening remarks, we are.
We're actually operating at levels lower than pre pandemic at the Maryland, which obviously, we're very pleased about and I'm sure our distributors both too.
Thank you, Kevin and as a follow up there I think you mentioned Copa Chico was the hard Seltzer was the number two turning hard seltzer.
Retailers are finishing up their spring shelf resets right now did they did they respond the way you wanted to with telco Chico here with their resets given the given those velocity stuff.
Yes.
We've got our national rollout of <unk> has been very well received by.
Both big and small retailers.
Okay. Thank you.
Thank you.
Thank you Bill.
Our next question goes to Steve powers with Deutsche Bank, Steve. Your line is open go ahead.
Yes, hey, thank you very much a couple of follow ups on things I guess, mostly for Tracy we've covered before.
On the hedging program.
I guess are you able to be any more specific around where.
You think your Cogs per hectoliter.
I guess, what your outlook is for the coming year, but before any productivity offsets.
I think the spot market, which we didn't.
Okay.
Actually a double digit type inflation, it sounds like you're well below that I'm just trying to.
Get a sense for order of magnitude and how much inflation may be deferred into 'twenty. Three that's question number.
One and then two.
With only have one but if you can.
On the second one on.
EBITDA just to remove away from explicit EBITDA guidance I think although all the piece parts that you gave us do allow us to back into EBITDA, but I don't think it results in a wider range than you might typically.
Land answer is that intentional shall we.
We'd be thinking kind of the midpoint of all of those things low single digit type EBITDA increase.
Or are you do you.
Are you intentionally leaving a little bit of water. So thank you for both of us.
Thank you both for your test kits or any any products.
Steve look we didn't give and Cogs base visa guidance, but it is both into our bottom line guidance.
The high single digits.
Net income or income before tax guidance that is built in the some of the things and maybe that can just help put a bit of color around our cogs outlook.
<unk>.
<unk>.
As I said previously we will continue to be impacted by inflation on commodities and packaging materials in particular, and we do expect the <unk> market to remain tight in Q4, we actually saw some noticeable impact from inflation on EMEA and APAC business and we expect to see that continue into 2022.
Just one component of our Cogs charges, and maybe a couple of additional items to consider to add some color.
Again, assuming we don't see the similar levels of on premise restrictions as we saw in the first.
Half of 2021 .
We do expect to see some benefit.
Particularly.
In EMEA and APAC business around volume leverage.
I also mentioned earlier that we expect to see channel and geographic mix benefit again and in EMEA.
EMEA, APAC, which has a lower overall cogs per hectoliter cost.
And I had mentioned that hedging program, we don't get into specific details around that other than <unk>.
Saying that we typically have anywhere between one and three years.
Hitting on commodity depending on liquidity, depending on our outlook.
Of the commodities and again at this point, we are comfortable with our hedge positions as we look forward over the next couple of years.
Maybe just one more often to consider on Cogs is we also are expecting some depreciation benefits as we are cycling out of a five year period of the exit fee value exercise, which related to the Millercoors acquisition. So youll see some data thats coming out of that.
We've got a number of actions across our supply chain.
And other levers that we can pull to deliver top and bottom line, but the cost outlook is both into our bottoms guidance and then just in terms of EBITDA I mean really the intention is to.
More closely align the matrix sovereigns matrix with a revitalization kangols, but that's all of that driving both top and bottom line growth.
Yes.
No.
Intention specific numbers, but.
Thanks, Josh.
Thanks, Steve.
Great. Thank you.
Steve Our next question goes to Nadeem <unk> with Bernstein your.
Your line is open you can go ahead.
Hi, guys. Thanks for taking my question I wanted to push a little bit more on gross margins I know you mentioned and provided some helpful color on all of the moving parts in your prepared remarks, you did say that gross margins were going to continue to be.
Pressured.
But pushing it a little bit more on that can you give more precise expectations as to gross margins for this year, what I'm trying to understand is do you expect to be able to take enough price plus that positive mix that should we be expecting gross margin compression on a year on year basis.
Hey, Deane.
Sure given all the components.
So, but I mean, if you look at if you look.
Look at our P&L obviously.
We have a strong pushing our revitalization.
So you can plan to change the shape of our portfolio and I think we've been pretty successful at that last year.
As I said our brands are healthy.
Mix is really strong.
Yeah.
Coors light Millilux core brands.
<unk> very nicely. So you've got you've got a couple of things going on in the top line, you've got the pricing, which I referenced I.
I gave you the U S pricing, but obviously this pricing in Europe , and Canada coming through as well, we've got strong positive mixed phosphate economy portfolio.
In the first sort of.
First and second quarter will drive positivity.
From a from a rural margins.
Point of view.
Yes.
We do have.
The emerging growth, which is all operating in the above in the above above premium and we're going to continue to invest in our business. We're going to continue to put money into marketing. We made the choice. We made the point we will reach our split in December once we realize that omnicom was going to impact us we very choice for you chose not to pull the marketing lever because we are getting in.
We wanted to set ourselves up for a strong 2022, and so that was our choice. But then we are going to increase margin.
Okay.
All of our all of them.
I'm not going to repeat everything Tracy.
What about the cost of goods sold line on all the levers.
That go in there.
We've got some positive momentum.
In the top line.
Thanks, David.
Thank you.
Thank you Nadeem.
Our next question goes to Chris Carey.
<unk> Fargo, Chris Your line is open.
Ed.
Okay.
Hey, everyone. Thanks for the question.
<unk>.
So David I'm trying to.
Just understand a little bit on.
Yes.
Just a question on <unk>.
Is it just how youre thinking about channel mix in 2022.
And you did say that.
The EBITDA would have been kind of like in line if on a cry.
Hi.
Created the volatility at the end of the quarter, but sales came in line, which I suppose implied margin impact.
And specifically channel mix with the on premise and if I just run that math on the difference between the full year guide.
And.
What kind of came through maybe it's like $70 million difference or a few hundred basis points of margin is that it.
Is that how we should be thinking about.
Just the.
The potential benefit of channel mix going into next year.
Potential offset new business.
You did mention that in our Cogs per hectoliter. It is it is a tailwind to the business just because of different packaging mix.
And youre going to get some volume leverage so.
I mean, clearly we're all trying to figure out.
The cost per hectoliter versus and G&A dynamics.
Plays out.
And if you could just maybe offer some perspective on what you think the channel mix at the EBITDA in the quarter.
I think thats really how we should be thinking about.
Tailwind of the business.
Profit and margin impact going into next year.
Chris Yes, getting onto the accretion let me see if I can help.
Look I mean, it's safe to say that in the fourth quarter, we were expecting our revenues to be higher than what we actually ended up with soda we met the guidance of mid C. Because it is our expectation.
October was there was going to be higher.
And obviously it wasn't because of the of the omnicare.
Omicron impact because it is a range there a lot of I think mid single digit guidance is $3 $60 74, roughly so we were expecting that number to be higher from it from a channel mix point of view.
Obviously, particularly in Europe , it's very positive for us within the on premise is open.
We're extremely efficient with that and the margins are good.
In the U S. The margins are also good in the on premise for us, mostly because we skew higher on the above premium portfolio than we do on <unk>.
Economy for example, I mean brands like Blue Moon Peroni.
Peroni Pilsner carrier in the U S are all higher margin higher revenue.
Our brands within the on premises opened we benefit from the atom.
Coors light also disproportionately over index versus some of the lower margin brands in the in the on premise. When you have the same impact in Canada, and then you have the same impact.
And in Europe , so when the when the on premise runs into some challenges.
Obviously that is.
Its mix negative for us.
But particularly in.
In Europe .
As we head into this.
Yes.
2022, obviously, we've got some some some some tail winds behind us I mean, the first quarter, we had the well publicized challenges of the Texas storms and the and the.
In the cyber security attack.
In Europe we.
As I recall in the first quarter last year, we were pretty much shutdown in the on premise.
Before I think the whole first quarter.
Which obviously we don't have.
What we did in a little bit in January but certainly.
I think as of.
Although this Monday last Monday.
That pretty much opened up the UK completely which will be which will obviously be positive for us.
So as the.
We've got some positive tail winds behind us from that perspective, and that happened to be positive tailwind from a channel point of view because.
We make more margin there and then of course, you've got the negative.
Headwind of cycling the economy portfolio change, which we've got out of our 45 months left of.
Starting in the first of January but from a margin point of view, that's actually very positive for us, but hopefully that's that's helpful. Chris.
Yes, thanks, Kevin.
Thank you Chris.
Our next question goes to Lauren Grande.
From Guggenheim Lauren Your line is open you can go ahead.
Yeah.
Thanks for squeezing me in.
Two question actually on the on the top line is a significant part of your assumption So I would like to understand why.
Are you expecting in terms of.
Category growth for this year.
So your operating to achieve.
Two.
<unk>.
And how how should.
We expect first for simply I know, it's not a hopkins enterprise.
Antoine.
Finally he.
Help me try to figure out how much <unk> contributes to the growth.
Your your.
Gross division thank you.
Thanks Laurent.
Simply look I mean, obviously, we haven't even launched it into the market did so all I can tell you is how are the retailers distributors and consumers are reacting to it.
They reacted extraordinarily positive return two thirds of our Chico's, which is doing amazingly well for us the reaction to simply has been even stronger than that.
The number of households that have simply in them. One in two households in America is a very well known brands.
If we just go by reaction.
That we've had for retailers distributors and from consumers.
We're going to get more than our fair share of shelf space.
And the sort of above.
More flavorful area, which is probably where we've lagged a little bit.
This year, we are tapping into a into a new segment of flavor for us.
And so.
We haven't done anything yet, but the reaction has been has been particularly strong if you look at emerging growth.
Three big components.
This solid base business right, we've got our distribution business our cross.
Across the business and 10th and Blake and then our Latin American business in Latin America contributed as I said in our opening remarks really strongly but non elk, which comprises zola and luck alone.
To all intents and purposes, we're coming off a zero base of revenue coming into into 2021.
And a good chunk of the growth that we have.
Vince.
In emerging growth has come from run out, which is which is the other end and Luckily Laurence I'm not going to breakout by.
By brand what that is but you can assume that.
Big contributors to that growth were Latin America and on non <unk>.
Businesses I think those are the two the.
The two biggest draw.
Drivers of us being ahead of plan.
Thanks, Lawrence and Youre getting.
And regarding the house after necessary for you Ken.
Get us basically what's your assumption to muffler category growth.
And what's your framework coming from a hard seltzer for my heartfelt risk point of view learn.
It was growing very strongly at the table for lock, but it still grew low teens in 2021, we've got the two four.
Fastest growing sales.
In.
Any major beverage company that differentiated we've got a lot of momentum behind them and we think we can do really big things.
With those two brands.
Getting into it.
Into 2022, I mean, if we got two of the top five.
<unk> brands. So we think we're well positioned to.
Take share and grow it is a big segment, Lauren I'm not going to put a number as to what we have.
So that's going to grow but in a frac.
It doesn't.
We can gain a lot of share in the space, whether the seltzer category goes or doesn't grow because of the two brands.
Offerings that we have.
Thanks Lauren.
I appreciate it thanks.
Yeah.
Thank you Laurent.
Our next question goes to Lauren Lieberman with Barclays. Lauren Your line is open.
Great. Thanks, so much good morning.
I wanted to just make it a little bit on unexpected volume performance for 'twenty two.
<unk>.
Just knowing I guess the a the comments on rates you saw on elasticity and really just sort of knowing.
But if I back into kind of the comments you've made on pricing mix still being positive I would assume given the above premium.
Premium growth it sounds like you're planning for volume to be flattish.
And specifically it appears that STR and thinking about the category backdrop.
Great.
At flattish volume thought processes right that implies continued market share gains across the portfolio or if that's more of a kind of in line performance. As you are thinking about how things may well play out next year. Thanks.
Look I'm not going to give volume guidance, but what I can say to us in the fourth quarter, obviously, the entirety of our loss was driven by the rationalization of our economy portfolio above premium grew and our premium our premium <unk> grew in the Sun.
Premium light.
The brands, but.
Driving to above premium is reaping benefits.
Honestly, we came within a whisker of being positive.
If we hadn't had there.
<unk>.
The curtailment in there.
In the in the on premise.
I don't want to repeat ourselves from.
From earlier comments and learn but we.
It's a very deliberate decision we think it's the right decision at the large focus for us that is to focusing on forward economy.
And as complexity from from a supply chain, which has really helped us to rebuild our inventory levels to levels that we haven't seen for a while and really improve the service to two.
Distributors on the brands that really matter, which is Miller lite Coors light and our above premium.
Portfolios.
No.
Absent another variant.
In 2022, we think we will place from a from an overall portfolio point of view.
Okay. Thanks, Thanks, so much.
Thank you Lauren our next question goes to Bryan Spillane with Bank of America. Brian . Your line is open you can go ahead.
Alright, Thanks, Eric Good morning, Gavin Good morning Tracy.
Just just one question and Tracey you touched on this a little bit I think in the prepared remarks, just can you give us an update on where we stand now in terms of the progress on the investments that you've made in the <unk>.
Brewing when Youre brewing facilities.
I think you've referenced Montreal, there's an upgrade going on in Golden Theres. The filter capacity, just kind of where we stand on those projects.
And maybe the contribution that we're getting from cost savings related to that and then.
If you could just give us a perspective on what it implies for capital spending for 2022, and then maybe just are we in the right range.
No in this mid five hundreds as an ongoing capex.
I think that was for you Tracy yes, okay. So let me start and Kevin you just jump in here.
Okay.
If we just start with at Canadian <unk>, a new Montreal brewery.
The state of the awkward.
<unk> just outside of Montreal that actually came on line at the end of last year, and we still have some key projects around bringing the Canadian business on <unk>.
Our U S ERP systems.
We're going to continue.
At least into this year, maybe a little bit more in key into the early part of next year.
And then we've got the transformation and modernization of our Golden brewery that multiyear project.
So.
Ongoing.
The investment in hard Seltzer capability.
Putting in capabilities and in Canada, and the U K.
So that will be this year or next year.
Big project and a wholesale upgrade.
Okay.
Yes.
Related to sustainability of our packaging et cetera.
Ongoing.
Those are the three big projects now we haven't given specific capex guidance.
But we do expect is our capex.
<unk> returned to more historical levels. Thank you have a look at around 2019 Todd.
Things you can expect that.
For this year.
Okay. Thanks, that's really helpful and just Tracy if you could just just.
I guess, if you could just give us a sense of just how much incremental.
Savings or productivity efficiencies, just just like how much more we could expect incremental from here.
Yes, I mean, I'll just refer you to our cost savings program.
Right at the beginning of revitalization.
We spoke about.
$415 million of cost savings primarily related to the Cogs answer the equity include.
Montreal brewery.
Some of those types of efficiencies that we put in play and then the $150 million of the revitalization program was primarily around the G&A areas.
So.
At $419 million of the 600 so.
<unk>.
The balance will be delivered this year.
And again, the majority of that would be related to the Cogs line.
The more efficient breweries and the lower cost per <unk>, but.
I'm not sure that we can.
To say much more than that other than is included in that cost savings number clearly I don't think.
Got it.
The only other thing I'd add to that Brian is obviously, we have been pretty clear open about the fact that as we bring <unk> into our own facility. So the the the margin impact is very positive for a strike and we started bringing busy in last year into Fort worth will bring PREPA Chico.
In 2022 and in Canada.
We'll bring those in house and we will do the same in the U K and it's very positive from a from a margin point of view.
And then obviously Tracey mentioned Montreal brewery, there was couple of hundred years old.
We have a state of the art brewery and it has it is meaningful.
Cost benefits for us.
Alright, Thanks, Brian that's really helpful. Yes. Thank you thanks both.
Okay.
Thank you Brian Our next question goes to Dara <unk> with Morgan Stanley . Your line is open you can go ahead.
Hi, This is actually Eric <unk> in for Dan.
Good morning.
First our main question.
I wanted to circle back on with shelf space seemingly potentially a lot of shelf space up for grabs.
<unk>.
Expected trimming and hard seltzer marginal hard seltzer Skus happens.
Just thinking about that in terms of opportunities for Molson Coors.
What you are looking at in terms of.
In a broader context.
Next of Spirit's, having one of its best years last year.
In memory.
RTD is being <unk>.
Particularly hot what kind of risk do you see for.
Some of the core brands in terms of shelf space and.
Retailers that are able to hold carrier spirits and Archie case.
Thanks, Eric Yes, you are right I mean spring is with most of the of the comprehensive change from a reset.
Point of view it takes place and Thats when.
Most of the large innovations are actually launched in.
Our team.
Our selling our purpose drives purchase category management strategy, we believe that all decisions start with with occasion. So therefore, all segments meta and getting the KOL rock for retailers in those segments is really important and obviously innovation is incredibly important to that is to do that as well so.
Our team is focusing.
Driving productivity on our core brands Coors light Coors banquet, Miller Lite Blue Moon, Belgian White, and lawn and kudos, particularly summer shandy and at the same time they are selling.
What I think is one of the most.
Our focus and exciting innovation pipelines that we've had in years with type of Chico hard seltzer, and <unk> and separate chicken Margarita and simply sponsored Blue Moon light Sky tropical wheat.
It's really focused.
And exciting.
With that strong performance in our core, which we're experiencing as well as the innovation, we bring and we are expecting to see expanded shelf space for our business.
In the spring and Thats what were striving towards.
Thanks, Eric.
Great. Thank you.
That concludes our question and answer session I will turn the conference back over to the management team for any closing remarks.
Thank you Greg.
So thank you very much everyone for joining us today, thanks, Kevin and Tracy.
And.
I appreciate that all of those who you who were able to ask questions.
Tracey Van <unk> and I are very happy to follow up on any any additional questions that you may have over the next couple of days so with that thanks, everybody and have a great day.
That concludes today's call. Thank you for your participation you may now disconnect your lines.
Okay.
[music].
Sure.