Q2 2022 Molson Coors Beverage Co Earnings Call
Okay.
[music].
Okay.
[music].
Thank you.
[music].
Okay.
Okay.
Yes.
Okay.
Thank you.
Great.
Sure.
Okay.
Good day and welcome to the Molson Coors beverage company second quarter fiscal year 2022 earnings Conference call you can find related slides on the investors.
Our speakers today are Gavin Hattersley, President and Chief Executive Officer.
Tracey Joubert, Chief financial officer, with that I'll hand that its a great Janney Vice President of F. P&I on Investor Day.
Relations to begin Greg. Please go ahead.
Thank you operator, and Hello, everyone.
Following prepared remarks today from Gavin and Tracey, we will take your questions in an effort to address as many questions as possible. We ask that you limit yourself to one question yes.
We have more than one question will answer your first question and then ask you to reenter the queue for any additional or follow up questions.
If you have technical questions on the quarter. Please take that today's discussion includes forward looking statements actual results or trends could differ materially from our forecast.
For more information please refer to the risk factors discussed in our most recent filings with the SEC.
Okay.
We assume no obligation to update forward looking statements.
GAAP reconciliations for any non U S. GAAP measures are included in our news release and also unless otherwise indicated.
With that over to you Gavin.
Thanks, Greg.
In the second quarter of 2020.
We continued to execute our revitalization plan, despite a soft industry.
Global inflationary pressures in the Quebec labor strike at our Montreal Brewery.
Globally, we have now reported five consecutive quarters of net sales revenue growth on a constant currency basis.
Molson Coors grew dollar share in the U S. In the 13 week quarter, both of which have not been achieved in over a decade.
What's more we want.
To achieve dollar share growth in the 13 week timeframe.
And Canada, Molson Coors grew volume and share when you factor out Quebec due to the Quebec labor strike in.
In the UK. Both includes grew share and achieved the highest on premise trailing 12 months average ship also in over a decade.
And we are currently the largest share gainer.
So in the aggregate across our three largest markets, we are outpacing the industry and continuing to grow the topline grow globally.
And these results are no accident by not occurred incidents reasonably rewards of our continued commitment to and execution of the revitalization plan.
So our plan is working and that effect gives us continued confidence that we are on track to deliver on our guidance for 2022.
You can see it in our core brands, so a stronger brand fundamentals and consistent investments since we launched the revitalization plan are paying off.
In the second quarter, Coors light and <unk> achieved the best quarterly industry share performance in the U S in nearly seven years.
While Miller Lite grew share of industry in the quarter.
As I mentioned last quarter. These results were driven by clear distinctive positioning.
For our two biggest brands and more effective marketing.
We are demonstrating the power of our biggest.
Brands, and we intend to keep investing behind them.
Coors banquet, our oldest brand in the U S is also one of our fastest growing beer brands with dollar sales up double digits and growing share of the total beer industry.
<unk>, new generation of drinkers and.
In Canada Molson Canadian is growing share of the total beer industry for the first time in eight years.
In the UK, calling the largest beer brand in the UK managed further solidified its number one position in the total market.
And our National champion brands in Central and Eastern Europe are growing share in the majority of the markets.
Around the World are co brands are not just stronger than they've been in many years. Our co brands are outpacing the rest of the beer industry has an incredible foundation for our business to build on.
We also continued to find success in premium rising our business even in challenging economic times.
Our above premium brands again hit a record high portion of our global portfolio of niche sales revenue on a trailing 12 month basis with positive progress made across the business.
The net sales revenue of our us above premium portfolio is now higher than the net sales revenue.
U S economy portfolio on a trailing 12 month basis.
That trend was driven by the rapid growth of our hog celsis with strong launch of simply spiked eliminated.
And Blue Moon, and Peroni is continue drive coming out of the pandemic.
Last quarter I shared the use hard Seltzer segment grew by 25% from just over 7% in the first quarter to over 9% in the second quarter and as HUD sales are currently growing share of the total beer industry.
That growth once again makes molson Coors, the fastest growing hard filter portfolio in the U S.
Not only has <unk> <unk> a share during this period, but type of Chico hard Seltzer has quickly become the fastest growing hard seltzer in the U S and was a top five industry growth brand in the quarter.
We said that simply spiked eliminated would redefine the full flavor alcohol beverage segment and today the results back that up in just a few weeks. We have sold over 60000 hectoliter achieved a three and a half share the F&B segment and the latest full regreet from IRR and it is already one of the top F&B in several.
Major grocery retailers.
In addition brand new volumes for Blue Moon were up high single digits, while peroni was up high teens on a year to date basis.
And our business globally continues to premium wise as well.
In our Latin American business, we most of our brands <unk> and above premium price points, we continue to grow volume in the second quarter.
This was driven by strong growth in the Colombia, Chile, and Honduras markets. Additionally, in Mexico, Coors light is back to healthy growth up double digits versus the prior year, while Miller high life and a record sales month in June .
In the U K closes gaining share of the total beer industry and <unk> growth is amazing.
But <unk> seen the most value growth of any brand in its first year in the UK on premise, making it the most successful launch in the entire 16 years that the on premise measurement service has been tracking the industry.
There has been two years after its launch the brand has sold over 200000 victory occurs in the first half of 2022 alone, making it one of the top 20 U K peers and it's only just launched in the off premise in March.
This is a brand new you also get to know because youre going to be hearing a lot about it in the years to come.
And relatively new it postponed from startup <unk> and strong results in central and Eastern Europe and successfully launched this year in Romania. This will be our second largest market to date and we believe this expansion has the potential to significantly increase product volumes.
Our Canadian business also continues to premium months.
In the second quarter.
Okay.
Our Canadian hard Seltzer portfolio continues to grow we grew share of segment in the second quarter Coors Seltzer is now the number seven hard sell certain Canada and busy as number five combined were over 12 share the Canadian hard Seltzer segment in the latest month and.
Thats before type of tissue hard seltzer launched nationally in Canada.
Now I can imagine that youre, hoping to the premium amortization is very nice, but how well are we prepared for a recessionary environment.
The first.
Our portfolio and in the industry.
From what I just shared.
Let me segment is strengthening in the U S and three of our four key economy brands grew segment share in the second quarter.
In fact, our economy portfolio has had its best quarterly performance versus <unk>.
And excluding the discontinued.
The brands from the SKU rationalization.
Program, our economy brands grew share of total industry in the quarter.
Using these terms.
The shape of our portfolio, even as we continued to premium as it ensures that we have strong offerings and strong brands with consumers across the range of price points.
That gives us the ability to adapt our plans should the need arise regardless of the economic climate.
Well Tracey will go into more detail I would be remiss, if I did not acknowledge.
Quarter, the 11 week predicted.
Davis strike adversely affected our Americas and global top line results.
The Quebec labor.
Please return to the brewery and distribution center just a few days later.
Pleased with the performance as we get the facility back up and running.
Out of an abundance of caution. We also conducted a voluntary withdrawal of <unk> due to a quality issue at one of our U S.
Breweries importantly, there were no health or safety risks to correct the problem and because of that.
It is stronger than it has been in years.
We were also able to divert production into this market from other breweries and quickly replenish supply.
So the good news in both instances if there is any is that both situations have been addressed.
And we still met the projections that we laid out for you earlier this year.
That is a testament to the health of our business I think it's reasonable to say that three years ago, either one of these issues would have been severely damaging to our business now theyre certainly not helpful and of course.
And we owe this improved health of the business made through our consistent execution of the revitalization plan.
Over the past few years.
Our plan is working.
But I'm also realistic about the challenging global macroeconomic environment in which we're operating.
It has created uncertainty for our consumers of business our competitors.
And really all businesses in the consumer goods space.
And I hit the progress we have made in improving the health of our brands and our business have us well positioned to navigate the current economic climate and to deliver on our full year guidance.
Today, we have a portfolio that is well positioned to successfully compete within the entire range of consumer demands whether that be taste.
Oil price.
We have a timing benefit in the second half of this year as we gradually diminish how much of the last year's U S inventory rebuild.
We will be lapping <unk>.
Additionally, by the fourth quarter, we will no longer be lapping the shipping headwind from the SKU rationalization program from last year.
In Canada in Europe , some of our biggest and most important BSA occasions, we have the prospects of a strong fourth quarter. Thanks to Wayne.
Further help offset inflation.
Under the strength of our brands gives us the continued confidence to reaffirm our guidance of top and bottom line growth.
But for the year.
And not to give you more detail on the financials and the outlook I'll hand, Tracy. Thank you guys.
And Hello, everyone.
<unk> on a constant currency basis.
And achieved income before income tax at the favorable end of our anticipated range.
<unk> continued to invest in our business.
Did you make date and return cash to shareholders.
We did this while navigating valuable insights and repression.
At this time.
<unk> second quarter in the prior year.
At the format and our organization agility payments space.
James Carryback validation.
And it's the Asics and <unk> and Opex and that provided the confidence to reaffirm that guidance, which called for by top and bottom line for the year.
I will take you through our quarterly performance and our outlook.
Consolidated net sales revenue increased two 2% driven by strong EMEA and APAC.
As restrictions at H B.
The improvement in the on premise performing with aviation amok.
So can you clarify it's driven by strong global net pricing.
<unk> sales mix and portfolio premium amortization and positive channel mix.
These factors were partially offset.
And so volume.
Consolidated financial volume decreased four 6% as we tackle distributed inventory recovery efforts in the second quarter of two one.
Impacts from the Quebec Davis back as well.
<unk> is now a unit economy brand volume driven.
It started in the second quarter.
2021.
These factors were partially offset by strong financial volume growth in EMEA, and APAC CTO Hyatt brand value that affected volume along with product and ideally above premium for saia.
Net sales per hectoliter on a brand volume basis.
Seven 1% driven by global net pricing and positive.
So brand and channel mix.
Premium amortization debit across both business units.
Underlying cogs per hectoliter increased 11.
500 days driven by compensation.
Including higher input and transportation cost mix impacts from premium amortization and affected brands in EMEA and APAC as well as deleverage.
This was partially offset by lower depreciation expense.
Underlying G&A in the quarter increased seven 515.
G&A was up due to higher people related costs, including increased travel and entertainment, while marketing investment increased as we continued to provide strong financial support behind our core brands and new innovation.
As a result of these factors underlying middle income before income taxes decreased 22, 8%, which was at the favorable end of our ASIC range of down 20% to 30%.
While we discuss our business performance.
On a constant currency basis on a reported basis, our second quarter results were negatively impacted by the strength of the U S. Dollar.
This impacted our reported net sales revenue by 280 basis points.
Underlying income before income.
150 basis points in the quarter.
Underlying free cash flow was $287 million for the first half of the year.
A decrease of $271 million from the same period last year.
Merely due to the timing of cash paid for capital expenditures.
Lower net income, partially offset by lower cash taxes.
Capital expenditures paid with $389 million for $97 million from the prior year period.
And focused on expanding our production capacity and capabilities program.
Now, let's take a look at our results by business unit.
In Americas. The on premise has not returned to pre pandemic levels continue to improve on a sequential quarterly basis.
In the second quarter, the Americas on premise channel accounted for approximately 15% of our net revenue compared to approximately 16% in the same period in 2019.
In the UAE on famous net savings increased to 93% of 2019 levels compared to 80, Stephen to think in the first quarter of 2020 key.
Any Canada unlimited sounds revenue was 77% of 2019 levels.
55% in the first quarter of 2020.
Americas net revenue.
Revenue was down one 7% as meat processing plants in the UAE and Canada.
And positive brand mix for all states.
Lower financial findings as declines were expected.
American financial volume decreased eight 1% largely due to stock being higher you may shipments due to the pilot period inventory recovery as.
As well as two 2% lower brand volume, including impacts related to the labor strike.
In the U S. Net sales revenue declined two 1% with domestic shipments down eight 2%.
Tasting brand volume declines of one 7%.
Brand volume declines were driven by economy brands, which were down high single digits by the time reflective of a tough industry.
Volume declines were offset by continued strength in the above premium portfolio, which was up nearly double digits for the quarter.
In Canada net sales revenue decreased.
3% brand volume declines of 8% driven by the Montreal Brewery fact were largely offset by positive pricing premium amortization and channel mix.
Latin America net sales revenue decreased slightly as higher brand volume of one 8% was offset by mix shift to our license business.
Net sales per hectoliter on a brand volume basis increased six 2% due to net pricing and favorable brand mix.
You may make sales per hectoliter increased six 7% driven by net pricing growth and positive brand.
Net sales per hectoliter on a brand volume basis grew 8% in Canada due to unique pricing increases and positive sales mix.
While Latin America decreased four 2% due to unfavorable sales mix.
Americas Cogs per hectoliter increased 10, 2% due to inflation, including higher cost.
Underlying G&A increased mid single digits on higher due to increased <unk> related costs travel and entertainment expenses and increased.
QEP marketing investments.
In the UAE, we increased marketing investments.
High single digits, putting strong support behind our core brands and innovation.
Leading telco Chico honey.
Hard Seltzer and the June national launch of simply partly M&A as well as in local sponsorship anyway.
As a result, and maybe because underlying net income before income taxes decreased 2015.
When you increased 25% driven by higher financial volume, Nick passing birth and favorable mix.
Okay compared to the second quarter.
We call that the on premise in the UK with closed the entire first quarter of 2020.
And with accurate predictions until July .
So in effect.
Second quarter on premise mix.
2019 second quarter.
EMEA and APAC net sales per hectoliter.
Steve Fossett bank driven by positive sales mix.
Capex premium brands as well as.
Nick talking growth.
Financial volumes growth of six 2%.
Excuse the Hyatt brand volumes in Western Europe , as well as in central and Eastern Europe , along with high effective brand volume.
The phase III preacher and increased.
We expect the brand sales.
And G&A increased 14, 2% as we thoughtfully.
Champion a premium brand.
Mccurry and star common.
And fueling on premise strength.
As a result of these higher costs for income tax declined 22, 7%.
Turning to capital allocation, our priorities our team based in our business to drive top line growth and efficiencies.
<unk> state dates and to return cash to shareholders.
We ended the quarter with net base of $6 4 billion, which included the repayment of a $500 million three filing may two 2022, using a combination of commercial paper borrowings and cash on hand.
During these volatile times.
Strength with a minimal amount.
Available rate data.
We ended the quarter with $250 million of commercial paper outstanding, leaving us with strong borrowing capacity with one $3 billion available on our one 5 billion U S revolving credit facility.
Our trailing 12 months underlying EBITDA ratio was three two times as of the end of it.
Second quarter down from 335 times at the end of the second quarter in 2021.
We remain on track to achieve our target net debt to underlying EBIT.
Total ratio of three times by the end of 2022 and remain committed to maintaining anytime upgrading our investment grade rating.
Also during the second quarter. In addition to paying a quarterly cash dividend of <unk> 58.
Vishay to holders of class, a and b common stockholders.
250000 shares under our share repurchase program.
Now, let's with guidance, which calls for both top and bottom line growth in 2022 performance, we had not seen in over a decade.
Before we go through the garden DC reminded that year over year growth rates.
On a constant currency basis.
However, it's important to note the continued strength in the U S. Dollar will result in a headwind to our reported.
For 2020.
We continue to expect you didn't have that mid single digit net sales revenue grow income taxes, both and underlying free cash flow of 1 billion.
We in fact.
So minus 10%.
We are confident to reaffirm the guidance as I announced three to five.
In some U S markets with Kevin mentioned.
<unk> to offset and industry and residuals.
<unk> results in June .
In terms of top line.
On phasing in the third quarter, we will still have some volume headwinds from the economy SKU rationalization program.
Which will not fully lap from a shipment perspective until the fourth.
Fourth quarter.
Also while the Quebec Naval strike was resolved in mid June it will take time to ramp up production and we don't anticipate returning to normal shipment levels from this brewery until the fourth quarter.
In the fourth quarter, we had multiple top line gross subscriber.
We have announced additional pricing in the 3% to 5% range in many markets in the U S.
That pricing will take effect in the fourth quarter.
Second recall that year over year top line comparisons will begin to ease in the fourth quarter given the renewed on premise restrictions in the fourth quarter of 2021, particularly in the UK and Canada.
And in November the World Cup will take place, which is a big beer drinking occasion in Europe , and notably the U K.
Third as I just mentioned, we will have fully lapped the shipment tapering from economy SKU rationalization by the fourth quarter.
On the cost side, we expect margins to continue to be impacted by inflationary pressures in areas, including input materials and transportation costs in the second half of the year.
At that stage, we have multiple levers to help offset inflationary pressures, which include pricing mix from premium amortization and our cost savings and hedging program.
When comparing year over year Cogs per hectoliter growth for the second half of the year to the second quarter. It's important to note a few things.
Yeah.
The second quarter was meaningfully impacted by volume deleverage, which we would not expect to continue in the second half of the year.
And due to the timing and ramp up of initiatives the realization of savings on our cost base in terms of marketing we continue to expect to invest more in 2022 than we did in 2021, but in the second half of the year overall marketing spend.
Is expected to be down compared to the prior year period.
We anticipate higher year over year investment in the third quarter. However, in the fourth quarter, we do not anticipate increases.
We are comfortable with our level of marketing investments in the second half of the year and would remind you that in the second half of 2021, we had ramped up marketing levels to those exceeding that of the respective period in 2019.
In terms of our other guidance metrics. We continue to expect net interest expense of $265 million depreciation and amortization guidance of $750 million plus or minus 5%.
And then Andrew.
Closing our strategy is working and we.
In our long term financial and operational.
Our performance.
<unk>.
But we had both our business to manage through challenges.
So this is a highly cash generative business.
With a dramatically improved balance sheet enhanced fixed.
Stability.
And its operating and cost structures and.
And a product.
Friday that addresses all segments of the market, while consistently evolving concentration to areas of growth.
We are proud of the progress we have made against the revitalization plan and the successes achieved under the plan give us confidence in our 2000.
<unk> to 'twenty, two guidance and in our long term goal of sustainable top and bottom line growth.
With that we look forward to answering your questions operator.
Thank you if you'd like to ask a question. Please press star followed by one on your telephone keypad, if you'd like to withdraw. Your question. Please press star followed by two parents you ask a question. Please ensure you're on mute locally as a reminder, that star followed by one on your telephone keypad now.
Our first question comes from Kevin Grundy of Jefferies. Kevin Your line is now open.
Great Good morning, everyone.
Pick up on your guidance, perhaps a question for both of you so reaffirmed.
Our reaffirmed for the year look.
The back half.
Phil.
Pretty sharp ramp and underlying it would appear that the market seems the harbor and concern on the cheap ability of that maybe just discuss your visibility on the mix.
Single digit underlying sales growth for the year some of the building blocks around that category growth brand growth et cetera.
And then also.
Just touch on the visibility from a cost or to deliver sharply higher GDP growth in the back half of the year. Thank you.
Thanks, Kevin look good rodchenko Unbreathed cash everything Tracy said in the opening remarks, but let me just start off by saying we did in the second quarter exactly what we stated we're going to do and frankly did it at the lower end or the better end of the guidance that we gave the market. After this after.
The second quarter.
The first quarter, sorry in the second quarter, So where do we stand right now Roger when we had a we had 11 week strike in.
In the second quarter, where we grew dollar share in the U S. On a 13 quarter week basis, and we're one of only two major peer companies to actually achieve dollar share growth in the 13 week timeframe. We've got the fastest growing hard seltzer portfolio Coors light to mobilize a really strong base quarterly industry share performance.
In the U S. Our above premium brands hit record highs our U S economy beer portfolio.
Had its best quarterly performance versus the industry.
In <unk>.
Yes.
Revenue is holding up.
As evidenced by the fact that our share is doing is doing really well. Despite the fact that we have.
Put a price increase in the in the earlier part of this year. It gives us comfort in back half of the year. So notwithstanding everything that has happened our brand portfolio is strong whether that's in the United States or whether it's in Canada or whether it's in.
In Europe , and we feel very good about building off of both of that and as I said look I'm not going to rehash everything Tracy citizens you should either with I mean, do you want to make a comment about the cost environment that Kevin with unit.
Our Cogs per hectoliter in Q2, so we reported an 11 and a half sustained underlying cogs per hectoliter increased.
Break that Don.
In fact.
And then the mix of premium amortization of that portfolio was 300 basis points. So we always look at that as a good thing.
Driving the premium amortization.
The 210 basis points driven.
Driven by as you said the inventory both lost during the UA spend and the.
And predict stock.
So those are the big drivers of our Cogs per hectoliter in the second quarter as we look out in to the to the balance of the yet.
I mean, we expect inflationary pressures to continue.
But what we do.
We expect to mitigate some of that through our hedging and our cost savings program.
In terms of the hedging coverage as we look at it.
We continue to make good progress against our cost savings program and we expect the realization of some of the.
And to the fourth quarter of it.
And I think it's very important to understand that.
The deleverage that we saw in Q2, we don't expect to see similar deleverage impact in the in the second half of the year to what we saw.
And in Q2, so I would just consider those.
And our big five is as you look at the back half of the year. Okay very good. Thank you Bob.
Thanks, Kevin.
Thank you. Our next question comes from Eric <unk> of Morgan Stanley Eric Your line is now open.
Great. Thanks for the question I know you guys don't give us.
Italy.
<unk> is anymore, but gavin hoping to get some at least qualitative color for you from you as to what Youre seeing in terms of the beer market. The U S beer market.
As the summer has unfolded.
Kurt.
July 4th was generally solid for most of it.
The industry, but then if you heard some mixed things.
As July unfolded.
Hoping to get your perspective.
Yes, Thanks, Eric look you're right, Jamie we don't give monthly guidance, we still being that a while ago.
I think you can see our performance in the share data that comes out from a from a Nielsen or an IRR basis, which is publicly available data.
Can reiterate what I would what I would just state from a share point of view.
Our brands.
Sure not only in the United States from a dollar point of view, but also in Canada and also in the other big market, which is which is the UK. So we're continuing to build on the strengths, which we delivered in Q2, we've got some really positive innovations, which has just hit the market.
Talked about simply spots.
<unk>.
It is really just taken off.
We are already ramping up supply as quickly as we possibly can to meet demand, which is frankly surprised us.
We've accelerated the.
In house here until next year frankly, but.
<unk> is so strong that we brought it in house and we did that in record time I think it took us about six weeks to get it into the into the brewery.
And are we getting cost savings and ramping up supply into the into the market. So I would expect our share trends in the flavored malt beverage space too to accelerate as we as we going forward.
Wishing to rehash everything I said about about Miller and Coors large in our above premium space.
During the great share position Traci mentioned some of the.
Headwinds, which go away for us.
In the second half.
We essentially last Christmas.
In.
In the UK and Europe , and it's a really important time period for that business last year, and we're obviously not expecting to lose it again.
This year and.
We're coming out of the out of the Canadian Montreal, Quebec strike all of Canada's volume loss that took place in the second quarter came out of Quebec.
If it hadn't been for the strike, we would have what we did grow volumes outside of outside of Quebec, and as we ramp up supply into the into the third quarter and specifically the fourth quarter I would expect to see the improvements there. So.
I think we had a strong quarter and we had a strong quarter. Despite the soft industry. Despite the global inflationary pressures in the labor strike and we delivered what we said we're going to deliver and at the better end of it.
Thanks, Eric.
Our next question comes from Nadine Charlotte's over Alliance Bernstein. Your line is now open.
Hi, Thank you guys. So first question you mentioned, 3% to 5% pricing in certain markets in Q4 can I just confirm that this is incremental so in addition to pricing taken year to date, what is the pricing impact at a national level, so not just certain markets, but national.
And is this fully baked into your mid single digit top line guidance.
Then one very quick follow up I appreciate you already gave some.
Comments.
Touched on your hedging strategy should imply you do have good visibility into next year.
From input costs in 2023 can be smaller or greater than the headwinds you're expecting to see in full year 2002. Thank you.
Thanks, Nadine ill, let Trevor.
Tracey answer the Cogs question, but from a pricing point of view just let me just clarify some of those comments you made so the 3% to 5% is on a national average basis. So.
We.
We expect to take pricing in that range on a national basis on average.
In the.
It will hit primarily in the fourth quarter, although that will come towards the end of the third.
Means that in some markets, we will take above 5% in that in that in that range and then secondly, EASA is incremental to the pricing. We already took in the beginning of this year and yes. It is baked into our expectation.
Cogs deductible.
All across the company.
Good day, and say Hi, Nadine.
From a comps and.
The point of view.
The one thing I can tell you is I think ive spoken about it hitting three I mean, we're comfortable with our hedge position as SB.
Thank you today in terms of other drivers and all of our cost for next year.
No we haven't.
Given guidance on that.
But I mean, there's a couple of things obviously were looking at commodities all the time, we see freight rates and coming better cutting up a little bit of a mixed bag at the moment and costs going forward is.
It's a lot of uncertainty, but it's something that obviously.
Talk a little bit more about our outlook for 'twenty.
23.
Thanks, Jess Thanks, maybe got it thank you.
Thank you.
Our next question comes from Bryan Spillane of Bank of America, Brian . Your line is now open.
Alright, thanks, operator.
Just again, just thinking about the back half of the year I guess, if I'm just replaying, what we've heard on the call today, you've got some incremental pricing, which will flow through the fourth quarter.
There is a residual impact from the Canadian strike, which now you have to absorb and then the only other piece that's really changed is.
Kevin you talked about just.
I don't know some some expectation for the for the market to moderate so.
I have that right.
Not sure how big.
The Canadian residual is but it really just seems like if anything the pricing still gives you net a little bit more Cushing if you will.
And.
With regards to which way the market might move if it gets.
More.
It seems like <unk>, you landed right in the middle of the fairway. It always implied that a lot of the leverage in the back there's always going to be in the back half of the year. It seems like you're actually.
Than you did before even in the context of some of the maybe incremental headwinds.
O'brien to advanced Gulf and energy I think we landed in the middle of the fairway and maybe about 10 yards further.
And then we expect.
Yes.
Yes, yes, yes.
We didn't really we didn't obviously you havent guidance B b.
Voluntary product withdrawal.
For you to Montreal.
Strike we've done this a couple of weeks longer than we than we were expecting it to despite as you say we landed in the middle of February well, what's changed right. I mean, we knew we were going to take a price increase in the fall, we're probably going to get a little more than we were expecting.
So it was our expectation that we're going to get it.
But.
Probably taken a little bit expected.
When you add all of these all of these things.
Okay.
That gives us the.
Our confidence to deliver.
Okay.
What we've said we're going to deliver Brian I don't know if thats helpful.
Yes, no that is helpful. But it is helpful and Kevin if I could just follow up the softness is that more on premise versus versus off premise.
Could you give us a little context of just where youre starting to see a little bit of that softening just as we're watching it from the outside maybe what we should be monitoring. Thank you.
But if you look at our three big markets, Brian in the UK from an on premise.
To that point of view.
It's it settled down very close to 2019 levels. So I think in the first part of the quarter. It was a it was a tad below and then.
In June it was it was a tad above call it call it 98% of 2019 pre pandemic levels in the.
In UK and Canada is a little bit more tricky for us right because prediction important on premise market and we were constrained in supply.
But even outside of.
Quebec market, Canada has lagged.
The rest of the world in terms of consumer's propensity to get back into the into the on premise and in the U S. Brian which is obviously our biggest market is settled that in the sort of 85 two.
But the top end sometimes 90%.
Level, and I think that's probably where you'd like New York, and Chicago and start visiting Boston restaurants on a more regular basis.
Commuting and office work habits have changed.
From our side than in the on premise side.
That that comment applies to.
Okay, great. Thanks, Kevin I appreciate the color.
Next question comes from Chris Carey of Wells Fargo, Chris Your line is now open.
Hi, Thank you for the question.
So I just had.
What.
A follow up on Ryan's question about pricing so just on the <unk>.
Around the economy SKU.
How do you.
Had you always expected those to go into the back half of the year My understanding was those.
Mostly be done by Q2, but perhaps it's just taking a little bit longer.
We have a follow up.
And then.
Maybe just.
Trying to maybe frame.
Before.
Yes.
Yes, specifically.
Pricing I guess, the category, which you expect to be a little bit softer in the back.
Okay from a volume perspective, right because the volumes are weaker and that was kind of what drove that.
Okay, some areas over five some areas.
Below five so.
Certainly sounds like Youre pricing in areas, where he has confidence that brands can withstand the higher rate.
Wallet accelerate Eli.
Follow up on <unk>.
Got it.
Commentary around pricing.
Okay. So on the SKU rationalization and the discontinued continuation of some of our economy brands. There's two sides to the strike from an FTW perspective.
David.
Brand volume perspective, because obviously.
From an STR perspective, both our distributor.
On on the hand of the brands that we discontinued and so they continue to sell those until they until they sort of ran out rod.
And that would take.
Take place frankly more towards the back end of the third quarter and into the into the fourth from a shipment point of view, obviously, when we had the cyber security attack we stopped shipping.
Some of them towards the end.
Q2, but predominantly.
So from a from a shipment point of view the benefits.
As sooner than.
Then from an STR point of view.
I've explained that.
Okay.
From a pricing point of view.
Look I mean, we feel we feel confident.
If you look at <unk> versus the National average CPR, even after putting these price increases into the market.
Could we will still be less than that and were substantially less than some of the other products, which consumers.
Whether it's.
But the eggs bread or multiple gas whatever I mean, we were substantially lower than those levels and lower than overall national average CPR. Our brands are also held up really well in.
In the last.
Four five months since we put the overall price increase in place.
I don't think its a co incidence as I said that we're growing share we're one of only two.
Major beer companies in the United States to deliver dollar share growth in the 13 week time period. So we feel very good about the strength of our brand in the fall.
Thanks, Chris Okay. Thanks, Kevin.
Our next question comes from <unk> <unk> of Credit Suisse. Your line is now open. Please go ahead.
Hi, Thanks for the question a question on the volume deleverage 210 basis points I guess.
Are you able to break out how much of that was one time.
Just.
Lower overall industry volume growth rate.
Well I guess, you are asking do break down the industry.
The shipment decline turmoil and I would say that overall in North America.
And can shipment decline was driven primarily by two things one was.
The strike in Canada, which was the entirety of the of the <unk>.
Second one was obviously the.
The last time around we pulled out every stop.
So to try and recover from a devastating.
Shipping beer all over the country, we were we were focused.
Folks who are working long hours overtime everything.
And make sure that we that we got as much beer active distributors.
Distributors and that was it.
Efficient and it cost us a bunch of money last year to do that obviously this year, we're in a much more normal environment, given given our inventory levels and we're not making sort of.
Wood.
Our service levels are where we need them to be so we're not having to ship.
At a higher cost in the second.
To meet that demand and because of that obviously our shipments are.
We are a long list.
That would be the biggest impact from a delivery point of view in the second biggest would be obviously.
See our Canadian volumes, our overall plan for the year is to is to is to ship to consumption less than retail.
We will get the deleverage.
Yes.
And going forward.
The <unk> deleverage will be a driver for us.
In Q2.
In other words a negative okay.
Yes, sorry, I noted in the second half where it won't be a negative driver for us in HP.
Thanks, Tracy you got it okay.
That's what I was going to clarify just to make sure on the spread between <unk>.
Shipments and takeaway, obviously, you've got the wild comp.
If youre happy with inventory.
And our plan for the full year is to ship to consumption. Kevin We've got work to do in Canada to catch up with them.
With what happened with the strike right.
This is not a positive for us in Italy.
So I guess the whole of Q3 and into Q4 two to recover from that so certainly from my.
<unk> would be.
Stripping higher than than we were then we was we were selling in the U S.
I think.
We shipped below.
<unk> in the first half and so.
You can expect that we will align that over the over the full year.
Thanks, Carlos Thank you.
Thank you. Our next question comes from Andrea Teixeira of Jay.
If he Morgan Andrea your line is now open.
Hey, Good morning. This is drew Levine on for Andrea Thank you for taking the question.
I, just really had two incremental pricing for the fourth quarter.
It sounded like the company is not really building in any sort of incremental volume decline.
Elasticity.
From a pricing increase relative.
Since two.
What was built into the guidance before and then the second one is just on the MD&A.
I think in the first quarter, we said it was slated to be up.
Double digit curious if there was anything you saw.
To pull back on or if it was just kind of.
Spending thank you.
Look I mean from a marketing.
We don't manage our marketing spend.
On a quarter by quarter basis, we manage a driver of the year and we manage it.
<unk>.
Right.
Long term and we frankly don't.
<unk> been marketing in the same quarter as we did in the previous year, depending on what on what happens specifically to your question, obviously, the Quebec strike range on a little longer than we expect.
Because it made no sense grocery marketing up in Canada.
We're not able to supply and so we did spend less in marketing, particularly in Canada.
We were originally intended because of the effect.
That increased our marketing spend across the board.
Sure.
And we had some modest soccer marketing spend.
Simply launches I'll say this has been off the charts good in <unk>.
We don't normally launch innovations in it.
Simply we normally do them.
I think it's been that's coming through in Q2.
Pricing point of view.
Obviously, we do watch brands.
That's going into the market.
Carefully.
How it performs and what the.
Elasticity is I think we said on Q1 call that.
<unk> wasn't as high as one would have expected.
And given the pricing that we've put into the marketplace in January and February of this year and we will do the same thing again with this price increase we will watch the elasticities and we'll watch how our brand.
Thank you our next question comes from.
Vivien <unk> from Cowen.
Your line is now open.
Scale.
Hey, Kevin.
On the interaction that youre seeing.
Some of the important subcategories that you participate in the U S.
We've heard from one of your key competitors and a heartfelt category that they believe that there is some heightened interaction between hard seltzer is any premium lights I'd love to get your perspective on that thank you.
Yes.
Coors light long predated this softness with some of our competitors sell throughs.
You can take from that what you wish for that.
I think John Miller Coors Light brand performance has been very strong for quite some time now and that's because they've got great differentiated marketing programs and are really nice and healthy.
<unk> quarterly industry share performance in the U S and nearly.
Outstanding performance.
It's a type of Chico hard seltzer is something which might be driving the softness of some of our competitors.
Our market share has grown 25% as I assume that's largely driven by type of Chico, which is actually doing really well in markets, where the type of Chico name is not necessarily that well known and we're getting we're getting strong growth in market shares in those markets.
I guess.
That's what I would say.
Yeah.
Okay. Thank you.
Thank you. Our next question comes from Lauren Lieberman of Barclays. Lauren. Your line is now open. Please go ahead.
Thanks, so much with patterns so much on the call. So I'll, let it go and look forward to catching up with you guys in person soon.
Thanks, Lauren Lauren.
I was uneasy.
Steve Your line is now open.
Okay. Thanks, I'll ask one just just to keep it going so I wanted to pick up on the marketing comments, Kevin you explain.
Your overall comfort with second half.
Marketing plans I guess what im.
Just left with us on a full year basis.
<unk> marketing intention.
<unk>, our plans undergone changes versus where we were.
Coming out of the first quarter weather, either an overall magnitude or focus given what you've seen in the marketplace. Some of the some of the pockets of softness you called out.
I mean thats really the main question I guess, the second part of that would be.
Things turned a little bit better than maybe your base case, <unk> got momentum like simply or type of Chico or what have you would be.
Is the is the bias that you would invest some of that upside against some of those those momentum or.
The marketing plan pretty pretty well fixed at this point.
Yes.
I think Steve one of the <unk>.
Any positives that come out of the pandemic one of them is with it's driven us to be way more flexible and agile than we were maybe three years ago and our marketing team is particularly at the certification of that.
They really are agile in terms of how they spend their money and where they spend their money.
<unk> behind things that are working shifting dollars to things that are really doing great maybe dialing back on on things, where they where theyre not doing that well.
So I would say to you that we are very flexible we very agile.
And we're very happy to lean into things that are working I think simply would be an example of that.
It's performing so much better than we expected I would expect that we will put a bit more fueled behind that.
That fire as we as we go forward. So we are very flexible.
We obviously do have a plan that we're coming into the year with.
Okay.
And when it makes more sense for us.
The work that they have done.
The teams know what works in.
What doesn't work.
Sure.
Pretty flexible in changing that on the fly.
Thanks P J, so I guess.
Okay. Thank you.
Our next question comes from Rob Austin Stein of Evercore.
Your line is now open. Please go ahead.
Great, Thanks, and maybe borrowing one from from Lauren.
Firstly can you give us a lot of moving.
I understand the U S business.
Given the.
The rationalization of the economy Skus.
<unk>.
I'm just wondering if you could give us a sense of what.
Kind of core core traditional beer business did on a on an apples to apples basis.
In terms of volumes does that is that something you could ballpark for us.
Well look from a from.
An overall perspective, I think Miller Coors light, which is two thirds of our U S business Robert both of those brands grew grew the top line.
In the in the quarter grew share in the in.
In the in the in the quarter and they are doing.
They are very well positioned and doing well in terms of individual brand volumes.
Robert we don't.
We don't have plans to disclose that at this point.
No I understood.
And then just just in aggregate is just in terms of a volume number in aggregate the core.
Adjusted for the impact of the economy brands and.
All the all the sensors.
Yes, Robert I'm, not going to give you individual brand volume.
Brand volume performance.
We don't do that.
Okay.
Well youre gaining share.
One of the main drivers goals with the buyback.
Yes.
<unk>.
So kind of stepping back at this point and looking at that.
Are you.
Pretty much done or is it just kind of continue.
Can you ration of the measures that you've put in place or are there particular finish.
Finishing elements of the revitalization plan that still need to be done.
And over the last number of years, you've taken out a lot of costs.
Is that part of the program pretty much done now so just just trying to kind of get a sense of where we are with the revitalization plan given that you've turned around as you said core slide.
I can tell you that our brand volumes.
Driven by the economy brands.
In total grew.
Okay.
Yes.
Thanks as far as the revitalization plan is concerned Robert from a cost basis cost point of view.
Pretty much done there is a little bit more commercialization plan, but it's not it's not meeting.
Useful.
From a cost point of view, though we are always looking at taking.
Yeah.
A variety of ways to achieve that.
The simply in housing.
For example, as a fine example of that product, where we can take our cost down without it.
The process so.
And ongoing we have always been.
For efficient and that won't change.
From a revitalization.
Our goal ultimately with the REIT.
<unk> plan was to drive topline and Bottomline growth.
At the same time.
Tom and on a consistent basis and that obviously.
Remains our goal and this year, we've got guidance out there that says that we will do it and that's obviously not intended to be a one off goal for us it's supposed to be.
But one can never say that is done.
We need to stay strong and vigilant behind.
Is there and we still got lots of work that we want to do.
<unk> premium and the beyond beer space, Robert we are doing well.
Above premium is exceeding our.
Although our portfolio, but our ambitions.
To drive our above premium volumes and revenue.
It doesn't stop.
Stop there so we will continue to.
To invest behind that space to invest behind the innovations and to drive our emerging growth division with some of the.
Greg one of the lead ones.
Terrific congratulations on the progress.
Chris.
Thanks Robert.
Thank you. Our final question today comes from Peter Grom of UBS. Peter Your line is now open.
Hey, good morning, Tracey I know last quarter was a bit of a homily in terms of <unk>.
Providing a quarterly.
Yes look, but I guess a lot of the commentary from the call today seems to suggest a much stronger fourth quarter versus <unk>.
Any way to kind of frame, how we should be thinking about the weighting of growth sure.
Yes.
Let me just say, let me reiterate our guidance for the full year.
Let me current add some color for you for the third and fourth quarters.
From a phasing point of view.
Just remember that we still going to be.
Destocking to some degree the economy SKU rationalization.
And again as Kevin means.
Ken the correct labor strike, even that ended in Q.
It will take time to ramp that buoy back and with normal shipments not presuming until Q4 so.
So thats in Q3.
Look at Q4, the several positive drivers as I've mentioned and Thats going to help offset the headwinds in Q3.
We spoke to that incremental product.
Comparisons really beginning to ease in the fourth quarter with the enclave.
Yes.
And I mentioned the world.
Tap, which is taking place in November .
That's the big beer drinking.
James.
And then just from an investment point of view.
Sure.
I think Kevin mentioned that we expect to.
To be down.
But.
The relative year over year investments in the third quarter and then in the fourth quarter, we anticipate.
Increases and then just the final thing to mention is the deleverage impact in the second half of the year I mean, we don't expect to see that.
Hmm.
Yes, that's about as much color I think that I can give kit.
Thanks, and then just that's helpful.
Yes no.
And then just a follow up on the <unk>.
Okay, and then just what is embedded in terms of the on premise or a related COVID-19 related restrictions are you assuming a return.
A return to normal pre pandemic like environment or is it just is that comment simply just an expectation for stronger performance versus a year ago.
I think what we're trying to say there is that if you think back to what it was.
Happening in Q4 of 2021.
And they were omicron was fairly rampant.
And we pretty much lost the Christmas season in the UK.
Which is a big season for us, but we're not assuming that the same thing to happen. We would not also assuming unrealistic expectations in terms of.
So out of Canada and <unk>.
Okay.
When you come.
Compared with last year, yes.
Got it thanks, Tom Thanks, Peter.
Alright, very good thank you.
To everyone for joining us today I know, we did run a little bit over and there may not there may be additional questions, we weren't able to answer today.
If you do have further questions. Please follow up with with me in the Investor Relations team and we will look forward.
To talking with many of you as the rest of the year progresses.
Thanks, everybody and have a great day.
Thank you all for joining today's call you may now disconnect your lines.
Okay.
Okay.
Okay.
Yeah.