Q1 2022 Molson Coors Beverage Co Earnings Call
Okay.
[music].
Good day and welcome to the Molson Coors beverage company first quarter fiscal year 2022 earnings conference call.
You can find related slides on the Investor Relations page of the Molson Coors website.
Our speakers today are Gavin Hattersley, President and Chief Executive Officer.
Tracey Joubert, Chief financial officer, and with that I'll hand, it over to Greg Tierney, Vice President of F P&A and Investor Relations.
Okay. Thank you Brito and Hello, everyone.
Following our prepared remarks today from Gavin and Tracey, we will take your questions in an effort to address as many questions as possible. We ask that you limit yourself to one question you have more than one question. We will answer. Your first question. If I may ask you to re enter the queue for any additional follow ups you.
Do you have technical questions on the quarter, please pick them up with our IR team in the days and weeks that followed.
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 measures are included in our news release.
Also unless otherwise indicated all financial results. The company discusses are versus the comparable prior year period in U S dollars and in constant currency when discussing percentage changes from the prior year period.
With that over to you Kevin Thank you Greg.
In the first quarter of 2022, Molson Coors continued to generate positive trends, giving us continued confidence in our ability to meet our full year guidance.
We grew the top line by double digits on the bottom line on an underlying basis by triple digits.
Top line growth has historically been a challenge for this business, but through our strong execution of the revitalization plan. We have now grown the top line for four consecutive quarters.
The top line growth we generated in the last quarter was our largest quarterly top line growth in over a decade.
Our core brands continue to outperform their peers.
Our global above premium portfolio continued to grow again, achieving a record portion of our overall portfolio by volume and revenue.
To put a finer point on it in the U S. The economy segment accounted for more than 100% of our volume decline.
Following our decision to streamline and strengthen this part of our portfolio.
Our expansion beyond the Bureau continues meaningfully zeller generated its largest sales month ever this march.
And we continue to invest in our capabilities, most notably with a project that also increases the profitability of one of our fastest growing beverages type of Chico hugs.
Collectively these are the core tenants of the revitalization plan, we laid out for you over two years ago and it is very heartening to see our business generating consistent results each of these areas.
Our core brand globally had another very strong quarter in Canada Coors light grew share of the beer category.
And our National champion brands in EMEA, and APAC saw significant improvements with the reopening of the on premise channel.
You will recall at pubs in the UK with closed the entire first quarter of 2021.
But by the end of the first quarter of 2022 beer sales in pubs with up to 98% of pre coronavirus levels and this was particularly beneficial to our clothing brand the largest beer brand in the UK.
As a result in the first quarter, the EMEA and APAC business unit substantially improved its earnings nearly doubled in 2021 revenue.
In fact, we exceeded our EMEA and APAC first quarter 2019 revenues, which is a fantastic start and further evidence of the value of increasing marketing spend behind our brands there.
In the U S Coors light and Miller continued a strong performance made possible due to a multiyear approach that is clearly bearing fruit.
These two brands compete in the same segment several years seen virtually impossible to get them both moving in the right direction at the same time.
In the late summer and early fall of 2019 under Michelle St Jacques Chief Marketing Officer.
<unk> and <unk>.
<unk> decision to bifurcate, how we market these two brands.
Thats helpful.
Makes them unique in the marketplace and how you see that in the Coors light made to chill campaign and in Midland <unk>. Since then.
Coors light made to chill campaign generated an immediate improvements in brand.
And health in 2019 and that improvement has held since.
And.
Hello, Hi on the marketing campaigns for our premium light brands has significantly grown.
Combined our new approach better marketing and increased investment is on premise over the past few years.
<unk> went from being down mid single digits and net sales revenue in 'twenty.
The flat in 2021.
Very likely until now.
Half percent down mixed sales revenue in 2018 to growing 7% in 2012.
21, and the brands volume went from down two 1% to almost.
Nearly flat in 2021.
And in the first quarter of 2022, we again grew revenue for both brands generated the best combined industry share performance in five years.
And while our core brands have been building strength over the past two to three years, we are continuing weakness units.
We have not grown our share of net sales revenue in above premium for five straight quarters and above premium net sales revenue now represents over 26% of our global portfolio on a trailing 12 month basis.
Acquisition.
We again joined the largest growth news sources of any major brewer that's been fueled in large part by the successful National launch took a cheap we only see further upside for this brand.
And as we introduce the new Margarita.
Thanks.
And with respect to investments in our capabilities.
I would note that in the first quarter, we completed a capital project at our Fort Worth brewery.
This project allows us to begin to bring the U S type of Chico hard Seltzer production from house.
And improving our profitability with the brand.
I'll share the hard Seltzer marketing, Canada continues to be very strong with impressive performance by both busy and Coors Seltzer.
We expect to see those results only improved further when we introduce total Chico hard seltzer to the Canadian market next month.
But our premium amortization is also being driven by growth in AR.
Above premium bids around the world.
For a relatively newer pulsed Smith from startup chairman and strong results in central and Eastern Europe and has now launched in Romania. This will be a second largest market to date patients in the U K with distribution in over 6000 on premise accounts with strength in the on premise alone.
Missouri is part is one of the top 25 U K peers.
And in March we launched it in the off premise.
And Canada Molson Ultra has posted 47% volume growth from 2019 to 2021 and just last month, we launched a new candidate Kraft business six funds grew furniture comps the growth of the total cross segment in Canada in the first quarter.
In the U S. Both Blue Moon, and Peroni Sol double digit net sales revenue growth in the first quarter as they benefited from the on premise recovery as well as strong results off premise.
And there is more premium amortization coming most notably as we launched simply start to eliminate in the U S next month.
We are pleased to bring this highly anticipated product to the growing flavored alcohol beverage space.
Our next major initiative with Coca Cola.
We also continued to drive.
Drive to scale beyond that particularly with the brand continues its strong growth achieving a record sales month in March and the data behind those results suggests a very bright future for <unk>.
After a year in the market its retail sales and distribution numbers broke records for a new entrant in the healthy energy drink category.
There are of course other promising signs in our work to extend beyond beer.
<unk>, our first full strength bottled spruce has now expanded to two more states based on the strong results from its initial full market drink tea and coffee categories up 1% in dollar share per IRI in the first quarter <unk> is up 17%.
Collectively our emerging growth division remains well on track to achieving.
And around the World we continue to test.
And around our entire business.
Our improving results, which were not generating quarter after quarter give us continued confidence in our ability to meet our full year guidance.
But it is not necessary a straight path.
Tailwind for our business in the second half.
We believe keeps us on track to achieve our full year guidance.
He will go over those.
In more detail.
There are also a broader issues and truly.
Firstly.
We have multiple levers including price.
I think premium amortization are here.
Hedging program and our cost savings program to mitigate.
Inflationary pressure.
There have been huge assets, but inflation is a real.
Important to note that we are not seeing enrollment.
Material shortages globally, we continue to have access to the materials, we can ship our beverages.
As we head into the peak selling season, we are in are both used inventory position since before.
Continue to see out of stock levels on our core skus at or below pre pandemic levels.
Second consumer behavior.
Sample volumes are universally soft across the USDA industry to start the year.
In January as a result of the sale.
The omicron variant.
While there has been improvements in February and March it hasn't been at the pace, we would have expected.
Okay.
I would point out, though that Molson Coors industry share trends have continued to improve both in the quarter and into April .
In fact, the U S saw its best quarterly dollar shave trend.
And despite high inflation in our biggest global model.
Down.
This trend is consistent with consumer.
However in the recent economic downturns.
However, should that change chain trade dynamic actually occur our economy portfolio is well positioned.
Capitalized.
The SKU rationalization, we conducted in the U S in 2020.
91 didn't just make our economy portfolio is smaller we've made it stronger and more efficient.
Focusing on four key brands in four key verticals instead of managing a long tail of smaller brands, we are able to put more effort and energy behind our biggest brands in the economy space.
And finally, the Russian and Ukraine.
We quickly stopped all the exports to Russia and pulled the licensed production of our other brands in <unk>.
<unk>, however, the Russian Ukrainian and Belarusian markets accounted for a very small portion of our global business.
And we have no breweries there.
So it has had minimal direct impact on our global business.
While other our focus has been on arranging safe passage accommodations and financial support as it's needed for our <unk> based colleagues and for the Ukrainian friends and family of other colleagues in the business.
And while we will continue to monitor consumer health in Europe , along with the cost of and access to input materials, we have been able to manage these challenges to date for our business.
In summary, it was another positive quarter for Molson Coors another quarter of successful execution on our revitalization plan.
And another quarter of continually improving results for this business.
And then all of this was achieved in a very challenging macro environment.
We are continuing to monitor closely.
First we are delivering in ways. This business is not done for many years and our future is bright.
Now to give you more detail on that I'd like to hand, it over to our Chief Financial Officer, Tracey Joubert Tracy.
Thank you, Kevin and Hello, everyone.
Garen velocity, while macro trends have been challenging we had a strong first quarter delivering double digit top line and triple digits underlying bottom line growth.
We achieved our highest coal continued to premium mass our product portfolio.
The execution of our revitalization.
While we.
Along with the rates that they are all operating inflationary pressures.
The last two years, a strong foundation for future growth and have given us confidence to reaffirm our fiscal <unk> guidance, both top and bottom line growth.
Now I'll take you through our quarterly performance and our outlook.
Consolidated net sales revenue increased 17, 6% with strong.
Tom back in both EMEA, and APAC and Americas business units.
<unk> has not pertaining to pre pandemic levels in all markets.
As on premise fixed head.
We've seen sequential improvement in the on premise, Nick Pell revenue performance with variation by market.
On today's it makes illustrating you're correct. It was driven by strong global make pricing favorable sales mix from portfolio premium amortization.
Channel mix as we cycle significant on premise restrictions in the prior year period.
And we also delivered high financial volume.
Consolidated financial Finance increased five 1% largely driven by strong brand volume growth in EMEA and APAC higher contract infected bargain.
The stocking of distributor inventory levels in the Pi yes.
This was partially offset by decline in Americas brand volumes.
Driven by lower U S economy brand volumes as a result of that economy D prioritization and rationalization program implemented in the second quarter of 2021.
Net sales per hectoliter on a brand volume basis increased 10, 2% driven by global make proxy.
And positive brand and channel mix with premium amortization delivered across both business units.
Net sales per hectoliter on a brand volume basis, which is an important metric from which to measure our progress against our backlog basis.
Increased 12, 2%.
For the third quarter of 2019.
Underlying cogs per hectoliter increased eight 6% driven by cost inflation, including high input cost per patient cost.
As well as the mix impact from premium amortization infected brands in Europe , partially offset by lower depreciation expense.
Underlying G&A in the quarter increased 15, 7% largely due to our planned increases in marketing investments, which safe cost first quarter 2021, and 2019 levels to provide strong commercial support behind our core brands and new innovation.
G&A was up due to higher people related costs, including increased travel and entertainment.
As a result of these sectors as well as lower interest and depreciation underlying net income before income taxes increased 383, 1%.
Underlying free cash flow was $359 million.
And <unk> of $271 million in the same period last year.
This increase in cash used was primarily due to higher capital project spending partially offset by favorable working capital.
Capital expenditures paid.
With $244 million.
And focused on expanding our production capacities and capabilities protocols, such as our previously announced Golden Globe Modernisation project and.
Expanding our hard seltzer capacity in Canada, and the U K.
Now, let's look at our results by business unit.
In Americas, the on premise does not pertain to pre pandemic levels, but continues to improve on a sequential quarter basis.
In the first quarter the on premise channel accounted for approximately 15% of our net sales revenue complete approximately 18% in the same period in 2019.
In the U S. On premise net sales revenue was about 87% of 2019 levels and in Canada on premise made self serving you with about 55% of 2019 levels.
Because even though the on premise restrictions continue to ease based on impacted results.
Americas' net sales revenue was up eight 5% with Nick proxy first across the business units and positive mix, partially offset by lower volumes.
Americas financial volume decreased 8% largely due to three 1% lower brand bogging, partially offset by lower U S distributor inventory levels due to the March 2021, cyber security incident, and the February 2021 city. It takes its toll.
In the U S. Net sales revenue grew eight 9% with domestic shipments down 2%.
Pacing brand volume declines of four 3%.
More than 100% because the U S brand volume declined due to lower unit economy brand volume.
In the U S. Our economy portfolio was Don Hawk tier one.
On Opex.
Yes, it was at the mid teens for the quarter.
In Canada net sales revenue increased four 1% with brand volume declines of four five to think you disrupt the industry performance and more than offset by positive pricing and mix premium amortization.
Latin America, Nick Pell saving you increased 29, 7% on brand volume growth of 18, 8%.
Net sales per hectoliter on a brand volume basis increased nine 8% with strong net pricing growth and favorable you explained.
<unk> net sales per hectoliter increased 11, 1% driven by net pricing growth as we took pricing earlier than usual this year and positive brand mix they buy at that premium innovation brands.
Net sales per hectoliter on a brand volume basis grew high single digits in Canada due to Nick parking increases and positive sales mix, while Latin America increased low double digits due to favorable sales mix.
And maybe Chris Cogs per hectoliter increased six 7% due to inflation, including brewing and packaging materials and freight as when it's mixed impacts from premium amortization.
Partially offset by lower depreciation.
Underlying G&A increased 14, 7% as we increased marketing investments behind our core brands and innovations, including the national launch of <unk> cohorts sulfur as well as in local sponsorship anything's ethane pandemic related restrictions eased base at the same period last year.
G&A was up as well due to increased people related costs and legal and travel and entertainment expenses.
America's underlying net income before income taxes increased 9%.
Turning to EMEA and APAC net sales revenue grew 92, 3% driven largely by leaps in Europe , but we also experienced growth in central and Eastern Europe .
Topline performance also benefited from fewer on premise restrictions in the U K.
To the full coverage in the first quarter of 2021.
The U K on premise channel net sales revenue exceeded pre pandemic levels in the quarter.
And then in APAC net sales per hectoliter on a brand volume basis was up 31% driven by positive sales mix with the on premise re openings and above premium brands, reaching another record high portion of the portfolio as well as net pricing growth.
And then APAC financial volume increased 29, 4% and bought brand volume increased 19, 8%.
The increase is primarily due to a higher UK volumes, partially offset by the positive things will hit and our export and license division.
Strengthening our core brands black calling.
And new innovations like Macquarie led to strong double digit growth in above premium and premium volumes, partially offset by double digit declines in the economy.
Cogs per hectoliter increased 29, 3% due to rising inflationary pressures and increased effected brand sales.
In G&A increased 19, 4% as we cycled mitigation efforts to direct costs in the prior year with on premise restrictions and higher marketing investments to support our brands and fuel on premise strength.
And then APAC underlying net loss before income tax increased 62, 1%.
We ended the quarter with net debt of $6 9 billion and a trailing 12 month Nic data underlying EBITDA ratio of 328 times compared to $3 one for Tom.
As of the end of 2021.
For the first quarter typically being a cash use quarter. This leverage ratio was up from the fourth quarter, which is typical between fourth and first quarters.
Our leverage ratio remained substantially below the end of the first quarter of 2021 when it was.
Three seven and four times.
We ended the quarter with $160 million of commercial paper outstanding, leaving us with strong borrowing capacity with $134 billion available on our $1 5 billion U S revolving credit facility.
Now, let's discuss our outlook.
We are reaffirming asset chunk 2022 guidance, which calls for both top and bottom line growth in 2020 performance, we had not seen in over a decade.
Before we go through the guidance I wanted to note that year over year growth rates are on a constant currency basis.
Also if on premise restrictions all increased and all reinstated in some of our larger markets. This could have a significant impact on our financial performance during that period.
Additional risk factors include the impact of rising global inflation beyond that currently anticipated and a prolonged strike at our brewery near Montreal.
For 2022, we continue to expect to deliver mid single digit net sales revenue growth high single digit underlying income before income taxes growth and underlying free cash flow of 1 billion plus or minus 10%.
We expect to continue to be impacted by inflationary pressures in areas, including materials and transportation costs and expect those patients to increase for the balance of the year.
However, we intend to judiciously pull our multiple levers to help mitigate the impact.
As discussed on our fourth quarter call, we announced a 3% to 5% price increase early in 2018, reaching a UAS we took earlier than typical.
Also we have other needed to help offset inflation, including mix from premium amortization and our cost savings and hedging program.
And these unusually challenging times, we wanted to provide a bit more color on our quarterly outlook for the rest of the year.
As Kevin mentioned, we had several headwinds in tailwind that will impact our quarterly earnings phasing.
As a result, we expect our second quarter underlying income before income taxes.
To be down between approximately 20 and 30% from the prior year period.
We expect stronger relative year over year performance in the second half of the year, enabling us to reach our full year guidance now let me walk.
Got it.
Fifth we are planning a double digit increase in a year over year marketing spend in the second quarter, putting marketing investments well above 2021 levels.
Recall in the second quarter of last year, we had lower rate of sustaining with where our inventories were low due to the first quarter 2021, cyber security incident and severe it takes the storm.
<unk> experienced an on premise restrictions across all of our major geographies.
We did not begin outstanding until the second half of last year in <unk> above 2019 levels.
Second our inventory position and us hitting into peak summer season is the best it's been since before the pandemic and locked at this time it was the lowest it has meaning years.
While the first equity royalty playing catch up this year is taking a very positive development. It also means we don't expect our UAS ftw's to be as high as they were in the second quarter last year.
Third our ongoing stock it belonged Albury and distribution centers near Montreal will have an impact on our second quarter results.
And fourth year over year top line comparisons will begin to get more difficult in the second quarter relative to the first quarter comparisons, particularly in the U K, where the on premise began to reopen in April 2021, with pent up demand.
However, these comparisons should ease in the fourth quarter given the renewed on premise restrictions in the fourth quarter of 2021, particularly in the UK and Canada.
In terms of our other guidance metrics, we continue to expect underlying depreciation and amortization of approximately $750 million plus or minus 5% reported net.
Net interest expense of $265 million tussle minus 5%.
And an underlying effective tax rate in the range of 22% to 24%.
Turning to capital allocation our policy our policy remains in place in our business to drive top line growth and efficiencies.
<unk> net debt and to return cash to shareholders.
We are maintaining our target date to underlying EBITA ratio optimize three times by the end of 2022, as we had a strong desire to maintain anytime upgrade to an investment grade rating.
We repaid a 500 million.
Three 5% Qubit D notes upon its maturity on May the phase 2022, using a combination of commercial paper borrowings and cash on hand.
Also during the first quarter, we paid approximately $14 million for 280000 shares under our share repurchase program, which was approved by the board of directors on February 17th.
2022.
As a reminder, this share repurchase program authorized the company to purchase up to an aggregate of $200 million.
Of our coffee common stock through March 31, 2026 with repurchases, primarily intended to offset annual employee equity award grants.
In closing, we remain confident in our strategy and pleased with our progress.
These are dynamic and uncertain times, but what is clear is that we have both have business to manage through challenging times at.
Our demonstrated operational agility through the pandemic achromatic improvements to our financial flexibility at <unk>.
Successful cost savings program that is served to fuel targeted investments to support our core brands of key innovations have all further strengthened our business as we continue to drive toward our goal of sustainable long term top and bottom line growth.
And with that we look forward to answering your questions operator.
Thank you we will now begin the question answer session.
To ask a question you May press Star then one on your telephone keypad.
If you were using a speakerphone please pick up your handset before pressing the keys.
If any time your question has been addressed and you would like to withdraw your question. Please press Star then two.
We will limit to one question and then if you could please rejoin the queue.
At this time, we will pause momentarily to assemble a lunchtime.
The first question from the phone lines today.
Comes from Kevin Grundy with Jefferies. Your line is open.
Great. Thanks, Good morning, everyone and congratulations on the strong results.
<unk> progress.
Why don't we start with.
Your guidance.
Just the composition now, particularly between volume Thats changed at all given the strong start to the year sort of offset.
And then within that now Kevin maybe you could just comment on how you see the progress.
That's particularly Coors light Miller.
Including so Paulo, which are which are off to a region.
So a strong start so thanks for that.
Thanks, Kevin and good morning.
Could you put a lot in that question first why don't you take the guidance question I'll just cover off on Coors Light Miller light crude.
<unk> continues to perform very strongly throughout all of the Americas grew high single digits in the U S.
Canada, we grew industry share, we had strong double digit growth in <unk>.
Kim.
So what's driving that I mean, it's got a clearly differentiated positioning within.
Within this segment driven by the made to Chill campaign we.
We saw an immediate improvement in the in the brand health of do we launched.
Made to chill with the campaigns are impactful.
We've seen a clear improvement in in <unk>. So that's.
<unk> from.
From that perspective, we've seen bright spots, so far with high single digit MSR growth.
Mr Larson and its share continues to improve.
Canada, <unk> growing strong double digits versus last year and in Latam its growing single digits.
It's continuing to push it.
Taste point of view.
Sure.
On top of this week.
Continued to lead the brand into into whats culturally relevant at the moment.
Jay Baldwin partnership and also being the first bar.
Brand to launch in a bar in the middle of this.
Sarah it's driving a clear point of difference around great taste, and we're going to continue to capitalize this.
I think you mentioned beyond beer as well as other overseas.
The star of the show for Us.
And.
As I said in my prepared remarks, we had a base.
Yes.
Monitoring in the months of March I think.
It was our biggest sales month.
Obviously learning as we're going along we.
We recently pivoted the whole lineup too.
Zero sugar.
Skus, which is what the consumer really wants.
<unk> gained share of the energy.
Category sequentially in each quarter since we launched it and it's now the <unk> largest energy drink after <unk>.
Additional studies of.
2021.
Bright spots very happy with how are we doing this.
<unk> you want to give a little bit of color there yes.
And I'll talk a little bit to the guidance and then touch on the volume basis rating accretion that.
As you know our 2020 guidance calls for mid single digit top line growth and high single digit underlying net income before income tax growth.
Now what we are seeing that even though the on premise has not returned to pre pandemic cables across all of our markets.
We do feel confident in our guidance in the UK markets will be more exposed to the on premise we've already seen restrictions lifted and our on premise volumes return to about 98% of pre pandemic levels.
In other markets such as Central Europe , we.
There were still some uncertainty.
The on the Con way it takes a little bit later.
In Canada and in the U S.
Our on premise revenues typically risks.
Present around 16% of revenues.
We continue to see sequential improvements each month.
Even though trading does remain below the pre pandemic levels.
So just from from.
The bottom line guidance as we look at a rising inflationary costs I mean, we've seen that on certain commodities and packaging materials for sharing and the credit markets still remains quite tight.
We've got multiple levers to help mitigate that.
Premium auditing our portfolio.
And you see that coming through now.
And then we've got our hedging and cost savings program, which.
<unk> will help mitigate some of that inflation.
As we look at the balance of the year.
We do expect to see channel and geographic mix benefits as we cycle. Some of the second quarter restrictions that we saw in EMEA and APAC and these have been at this will have an overall lower cogs per hectoliter.
And then.
One other optimistic.
We've seen some benefit from our depreciation expense as we cycle out of the five year period of SFA veggie exercise on the Millercoors acquisition. So.
As I've put a lot into that but hopefully it gives you.
On.
Color on how we're looking at volume and how we're looking at revenue in Stickney guidance.
Reaffirming the guidance for the full year.
Okay, that's very helpful.
Thank you.
Next question from.
We have opened your line now.
Hi, Thank you.
Two questions for me so first of all your U S brand volumes down four 3%.
Many brands had already started to be prioritized in Q1 understand what your U S.
Brand volume growth would have been.
Without that component of deep prioritization rationalization that you call out in your release.
And then just a second question on your Quebec strike I correct in understanding that the strike is still ongoing.
Of running through all your inventory.
Free from pre strike. Thank you.
Thanks Nadine.
I'll take those two trades on I'll.
I'll start with good group Bickford.
Big first year's district.
Truck is.
Still ongoing.
We're obviously doing what we can to produce and ship bids.
Within the confines of the law.
Hope is that the union come back to the negotiating table. So that we can reach a reasonable.
Agreement for all parties.
At this point in time, obviously, there are some out of stocks.
But we are continuing to to produce and ship.
Don with our contingency plans.
<unk> brand volumes are concerned look I mean.
We were very clear about the fact that we rationalized our economy portfolio last year and that we would be facing those headwinds for a full 12 months and if you look at the first quarter.
Obviously, the first month was tough because we had the corona virus.
Impact on recon.
And which pretty much shut down the improvements again, and we saw sequential improvements beyond that.
But just remind you that we are going against the economy, SKU rationalization and brand elimination.
We will start to cycle out of that in the in the second half of the second quarter and then obviously fully into the into the second half.
In fact more than 100% was driven by the economy portfolio.
Our premium luxury premium and above premium portfolio is collected.
Okay.
No on the line of Bob.
Okay.
Great Thanks, and good morning.
<unk>.
Okay. Good so.
Just continuing on the question of America's volume performance.
So you'd commented on.
On industry dynamics throughout the year, starting kind of soft in January related to Covid.
The.
Trends for February and March were a little bit softer than what <unk> seen in prior phases post the pandemic surge.
So I was curious if one you could just talk about what you think is underlying that if you have any insights how youre thinking about overall consumer demand.
In the category as we move into the key selling season, and then I was intrigued by the fact that you said the premium and above premium volumes were still up in the quarter, even with your comments on February and March being a little bit softer from an industry standpoint.
Do you think that debt.
These that your brands can actually grow volume.
In a non COVID-19 up and down comps dynamic environment look are we to a point where <unk>.
Miller Lite Coors light could be in positive volume territory over time.
Yes lots of news well alone.
Alright.
Good morning.
Okay.
No problem I mean look I mean, obviously it is our ambition and our goal to drive.
Both of those brands positively in.
So 100% to more than 100% of our loss in the first quarter was driven by the reduction in the in the in.
In the economy portfolio.
<unk> segment share in both premium and above premium in the first quarter, we had accelerating trends compared to the fourth quarter and growth in share in premium was driven by Coors Miller and Coors banquet frankly in growth in the above premium is driven mostly by ourself.
Celsis type of chica in and busy and although I am calling out that economy was obviously a negative we have started to see positive trends on the economy for our portfolio between the fourth quarter of 2021 in the first quarter of two.
<unk> 2022, and the hope is that as we start cycling our focus on the former <unk> brands that we'll see that get.
Get more positive.
From a consumer health point of view.
Draw a line there to trade done and honestly, we just not seeing that in fact, we're still seeing the opposite.
Obviously, we'll continue to monitor it closely.
If we do if we do have trade Jon I think.
Portfolio is uniquely positioned to benefit from that given the strength of our economy brands that we've got in the current strength of both Miller Lite and Coors light.
Okay, great. Thanks, so much.
Sure.
Thank you Lauren the next question comes from Noah <unk>.
<unk> <unk> with Guggenheim. Please go ahead, when you're ready.
Hey, good morning, everyone.
Did you have some quickly a follow up from previous question.
About your premium portfolio. So what what are you expecting for CP spike that is about to be launched.
We simply be produce in <unk>.
Contract manufacturing and what incremental margins should we expect from in house manufacturing photo for Chico's.
Give us some direction there.
If I can ask another one on the price tag to leisure.
Youll 10, 2% outperformance in the quarter, what is due to net pricing.
February both product mix favorable China, Shannon mix as you see in <unk>.
I'll give more color there would be helpful. Thanks.
Sure Laurent on simply spud.
We're on track to launch that in June of this of this year.
Lots of excitement from our system with our retailers.
<unk>.
Consumers are spending on social media ahead of this launch is anything to go by.
To be a very successful launch, which I guess is not entirely surprising right up to the powerful brand Coca Cola is the second largest brand in the U S only behind build a Coca Cola trademark brands.
We're excited about launching a 12 pack 20.
24 ounce can and at the beginning it will be it will be produced.
Outside of our production facilities.
Further Chico is as you say.
We now produce it in house, and we actually outsource as well what it works best for US we haven't been.
Specific and detailed about the margin improvement learn particularly assume that it's meaningful margin improvement for us when we when we do bring it.
In house.
Your next question was on was on revenue.
The 10, 2% in half.
Half of it was due to net pricing regardless of the global numbers.
Part of that 10, 2% was.
The pricing and the risk.
Was.
Favorable mix and.
A few other odds and ends.
Thanks, Laura.
Thank you very much.
Thank you Matt.
Hi, Brian .
Bryan Spillane of Bank of America. Please go ahead your line Brian .
Alright, Thanks, operator, and good morning, everyone, Hey, Kevin I wanted to.
Just ask a bit more about the economy segment in the U S. And then I guess I don't know if you can disaggregate this or not but.
If you were to take a look at the big four so what you are focusing on how are those brands performing.
And I guess as we begin to.
Cycled past.
The SKU rationalization.
Will it begin to kind of contribute to the growth.
In the U S. So just trying to get understand when we look underneath the hood.
My sense is the economy segments actually performing better than what we see because of the SKU rationalization, but just trying to get a sense of how thats performing.
Yes, sure Brian Thanks.
Without wishing to complicate things overly ragweed, maybe two elements to the economy portfolio one was.
The prioritization as we came out of the out of the cyber security <unk> and the Texas storms.
They were brands that we were not going to do.
<unk>, but we were constraining the productions that we could focus in on metal that concludes.
And then of course, there's the <unk>.
SKU rationalization and the elimination of some of the brands.
So they were those those two elements, we came out of the sort of.
How do I put it posed skewed.
Earlier than that then the rationalization of Skus.
We should start seeing improvements in brands like Keystone Miller High life Steel reserve and hands and already are even in the in the.
The first quarter.
Brian and that will accelerate as we.
As we start cycling.
Yes.
Some much easier comps.
Sure.
Probably as much detail as I want to get into Brian without really decomposing between the brands but.
Your thesis at a high level is correct.
Alright, Thanks, Kevin.
Sure.
Thank you Kyle.
We now have.
Eric <unk> with Morgan Stanley You May proceed with your question Eric.
Great, It's Eric on behalf of Darren <unk>.
Just a quick housekeeping question and then another question first from the.
The housekeeping perspective, how much did the.
Higher freight and fuel surcharge this year add to the U S MSR per hectoliter and then.
My main question is.
Just what youre seeing in terms of telco Chico as you're cycling last year's launch how are those launch markets comparing how are those how is this.
This year's performance in the launch markets comparing to where we were last year.
And related to the.
What are you seeing in terms of rate of sale velocity trial.
In new markets as you've expanded that rationally out of those new markets compared to the external markets from last year.
Got it thanks, Eric on your housekeeping question.
The $10 to which I referred to earlier was a global.
Number on the U S number is actually a little higher than that.
St higher than that.
Roughly the same split roughly half, our net pricing and mix and other and I'd say, the freight and fuel around 100 basis points.
More or less give or take of the 11.
Percent.
Activity critically to incur.
Increase.
As far as type of Chico is concerned.
We only launched that brand nationally towards the backend, but it's already the number four brand in this segment.
It's the first tier velocity equation is actually the third fastest turning in the in this segment, it's got the highest.
Right.
Of any brand that we've launched over the last few years.
It's got over a five share nationally already.
In major markets like Texas, it's already into the into the mid teens from a share point of views.
Your question about launch markets.
And.
And the new markets that is holding strong in Texas, which is where we launched first of all memory brought some exciting new stuff that we've just put into the market for the Chico with <unk>.
Margarita you launched that.
That last month so.
Are we ready for our first I mean, we didn't have it nationally in the summer of last year, and we are well positioned for our first national summer type of Chico.
Thanks, Barry Thanks, I'll pass it on.
Thank you Eric we now have Robby <unk> from Evercore. Please go ahead.
Great. Thank you very much I'd like to follow up on top of Chico, which is which you guys have done a fantastic job with.
Can you talk a little bit.
What your team is telling you.
Tougher Chico withdrawing from so.
Any sense of what percentage is coming from other brands or is drawing new consumers into hard seltzer is new demographics.
Any any data around that.
Second.
Based on the momentum of the brand do you think that a 10% market shares realistic in the next one to two years and then finally, we continue to get a lot of questions.
On exactly how the brand hits the income statement. So if you could review that again thank you.
Thanks, Robert look from a from an overall and social point of view.
We've more than doubled ourselves.
Sure type of Chico's is.
Big part of that as I said is the fourth largest seltzer in the countries disease.
Just.
We've just launched the Margarita.
Variety of the 10% market share for us.
As our initial goal.
Certainly our ambitions don't just.
And then just stop there.
That's just in the U S frankly in Canada, we've already.
<unk> double digit sell to share in some markets in Quebec, it's already mid teens.
At a mid teens level and Thats before we've even launch type of Chico hub filter, which we launched in the summer of this year and of course, we got first mover advantage in Europe with the CFO .
With the right moment.
So I went off to a strong start in fact the chico's.
We feel very good about it.
As far as the B.
Detailed financial metrics, I mean, thats, obviously something between ourselves and Coca Cola.
We've not been a break that.
But obviously, it's positive for us so that we wouldn't be doing it.
But to be clear it comes through the P&L. So I mean, it's in our it's in.
Volume, it's in our revenue and it's in it's in our margin up in our bottom line.
And any color on where it's sourcing from.
Alright, sorry, I forgot about that one yes look it is sourcing in many respects in the same way that that overall sales as our rock, which is which is more than half of it is coming from outside of the beer category, but it does play.
Drawing more strongly with.
Hispanic consumers, so I would say, we're probably taking it.
A higher share of the spend.
Spanish consumer than than the general Celsis would be would be taken.
Great. Thank you very much.
Sure.
Thank you Robert.
We now have Chris Kelly with Wells Fargo Securities. Please go ahead Chris.
Hi, everyone. Thanks for the question.
So.
Yes, just on.
The expected decline in Q2.
Profit I, just wonder conceptually how much of that is related to the investment you noted the step up in marketing spending versus like the higher Cogs per hectoliter.
<unk> also noted that inflation is stepping up and then just conceptually as we head into the back half with the imply appreciate spending the timing is likely a factor Cogs per hectoliter may now be higher than your initial expectations can you confirm that and maybe just conceptually is there anything.
That gives you confidence from launch timing specific plans you have around product categories into the back half momentum.
And brands that gives you that confidence on the topline clearly price mix.
It's a very good story and I suspect it will.
We will remain so.
On the volume side as well so it's really just kind of drivers of Q2, but then conceptually why phase ramp from here and fundamentally sort of that.
Brands and product categories that might be getting you there. So thanks for that.
Thanks, very much Chris Chris why don't you get into the details of it yes, hi, Christine basis prior year.
The main driver of that is.
Our marketing investments, so we're expecting a double digit increase in marketing and sustained.
Inventories were last year.
Time due to the cyber incident undertake the storm.
And we still had on premise restricted.
Shannon Cross.
Part of it.
<unk> in the prior year.
And we also another driver of it.
Yes.
And then we had last year, which is actually a really low inventory position.
So we don't expect.
If they were in the second quarter of last year.
The other thing impacting our Q2 is Devin mentioned that stock changes near Montreal that that will have an impact.
And then.
Yes.
For the year at top line comparison.
Two basis, Q1, and particularly in the UK with the on premise began to open in April of 2021.
As it relates to the balance of the year and giving us confidence that a couple of things to think about the.
We expect continued top line growth from both products and premium amortization on our portfolio.
In the second half.
We will also soccer out of the headwinds from the economy, SKU rationalization and prioritization.
So as well.
<unk>.
Paul will be stocking up period of lower sales in 2021, especially in the EMEA APAC region.
Impacted by Army comment that at the back half of last in the UK and on premise Palo again.
And then finally, we will be starting and higher marketing and sales spend in Q3 and Q4 of the prior year.
<unk>, which increased last year much higher than the year before that 2019.
And if you recall.
We didn't spend as much in Q1 and Q2 of last year.
And so youll be seeing an increase in Q1 15, and a planned increase in Q2 of this year basis the back half of the.
This year as well.
Just a couple of points of color hopefully that'll help thanks, Tracy I mean, Chris just to tie a bow on the marketing right. I mean, we've always said, we're going to invest behind our brands and we've got brands with Miller Coors Light's Omega brands in the above premium space that are really doing well and we're going to invest behind that.
That momentum.
And then we've got the simply launch which takes place.
In Q2 so.
Well I think we've said from the beginning of the revitalization plan, we're going to invest behind the momentum we've got and we're seeing that.
Thanks, so much for the perspective.
Thanks, Craig.
Thank you Chris.
We now have Steve powers with Deutsche Bank. Please go ahead, when you're ready Steve.
Yes, great. Thank you very much.
Just a quick follow up for me on the economy portfolio rationalization.
Innovation maybe.
Maybe could you just remind us what happened to the shelf and cooler space.
You may have surrendered was part of the portfolio streamlining I guess, what I'm curious about is whether or not.
Any of that space may have.
Great.
Benefit of your premium and above premium portfolio is to keep that in mind as we as we potentially also cycle that.
Thank you.
Thanks, Steve look we had a very clear and detailed plan with our distributors by brand that was discontinued by SKU that was discontinued to try and make sure that we filled with the brands that we wanted the sum of it.
Well have landed up into premium block space and some of them would have extended.
The brands that we kept in the economy space I mean, it'd also be naive to suggest that we didn't lose some shelf space to our competitors I am sure we did.
Our sales and dozen distributors had a very clear plan to execute against it and they did that.
Okay. Thank you very much.
Sure.
We now have brought Keith Tapper Cucina research sites.
Nathan.
Thank you I was hoping you can give us some insight into how you look at attacking and prioritizing categories or parts of the industry, which have a small presence today. So clearly there was is a big priority. We've had success with if you look at the beverage industry. There is numerous opportunities. So if you could touch on sort of thoughts or plans, there or just how you prioritize things like low.
Carb reflects success in Canada.
And I guess, obviously you had the unfortunate timing of the Saint Archer gold or Smbs, we have a relatively low share just how you think about that and prioritize that as a company. Thanks.
Yes.
Well I think you can see that in what we are actually prioritizing.
So obviously <unk> is a priority for us it remains a priority.
We're pleased with the progress that we have that.
<unk>.
That we're making there.
In terms of other prioritization simply is.
<unk> is another example of that.
Going into the into their sort of F&B of flavored.
Space.
We're being much more choice for them, you, perhaps where in previous years.
We are making bets putting focus on what we think are big ideas and turbo chica and busy and simply are exactly that.
I think in Canada, we have placed focus behind Molson ultra.
And in our beyond air space with pricing.
Significant focus behind.
<unk> Zara.
We understand that.
Distributor partners, one focus and we believe we're giving it to them and that certainly helps our own internal system.
As well so.
We're not going to be all things to all people in every single space possible, we're going to we're going to what we think is a good ideas in the big base for us.
Great. Thank you thanks, Brett.
Thank you Beth a final question on the line comes from Andrew <unk> of Jpmorgan.
Please go ahead ma'am go ahead.
Thank you good morning, and thank you for a while and good afternoon all.
Thank you Morris letting me in.
Can you please help us with the trends.
Quarter to date in Q2, and Tracy you mentioned elevated levels of inventory at wholesalers in the summer.
And ahead of the summer and as such are you embedding.
Kind of a more of a mid single digit decline in shipments for the Americas and also contributing to the decline in EPS included the 20% to 30%.
The tax and related to that are you assuming.
What are you assuming there in terms of volumes for the second half for the for the Americas because of that and because of the hockey stick.
Improvement.
And Tracy went through that in Hollywood a detail.
Sure.
When we talk about elevated inventories.
The point I'm, just trying to make was we had very low inventories at the end of the first quarter last year because of the cyber security and this year we've done so.
As I said, our inventory levels are where we want them to be going into into some wood.
With very hard of that our out of stocks, particularly in our skew our core skus are lower than they were pre pandemic. So we're well positioned.
There just isn't an out of stock program in our organization.
Maybe it would be helpful. Then.
Today its April numbers I'm sorry.
Maybe the April today, you Tony Yes.
And look we're not going to give.
I think we discontinue that practice some time ago I do think in my opening script or at some point in this conversation I will say that April has.
Sequentially improved January was tough.
Of economy.
February March and April are all sequentially improved.
<unk> for us.
There are different things going on in the back half of the year.
The UK wings into went into lockdown pretty much again in the fourth quarter of last year. So that will be an easier comp Canada had some challenges in the fourth quarter from a from a prior year point of view.
As well, but getting into shipment detailed by by quarter is not something we plan to do I think the important thing is that we've reaffirmed our guidance.
And we're comfortable with it.
Thank you.
Thank you Andrea as we have no questions I would like to hand, it back to Kevin for some closing remarks.
Alright. Thank you operator this is Greg not Gavin.
If there are any additional questions that all of you were not able to answer.
Please do not hesitate to pick them up with me or Tracy manage any in the days and weeks that follow.
And with that look forward to chatting with you all soon.
Everyone have a great day. Thank you.
Thank you that does conclude today's call. Thank you again for joining and you may now disconnect your lines.
Right.
Yes.
Okay.
Yes.
Yes.
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