Q3 2022 Molson Coors Beverage Co Earnings Call
Year period in U S dollars and in constant currency when discussing percentage changes changes from the prior year period.
Further in our remarks today, we will reference underlying pre tax income, which equates to underlying income before income taxes on the condensed consolidated statements of operations.
With that over to you Kevin Thanks, Greg and thank you all for joining us this morning.
I am pleased to report that Molson Coors grew both the top and bottom line on both the constant currency and an underlying basis in the third quarter.
But I am, particularly pleased because nearly three years into a revitalization plan to turnaround this business Molson Coors as top and bottom line growth is not just the story of a quarter, it's becoming a trade.
And that is important for many many years you all new Molson Coors as a cash generative business that was willing to make hard cuts to meet the bottom line, but one that's struggled mightily to grow the top line.
When we launched our revitalization plan.
Goal is to change that trajectory and position Molson Coors for sustainable long term top and bottom line growth and we are making progress.
Going back to the beginning of last year, we have grown on a constant currency basis, the top and bottom line on an underlying basis in four out of seven quarters.
Six straight quarters of net sales revenue growth, we are growing net sales revenue in both business units and through the third quarter of the year. Our global net sales revenue is above 2019 levels on a constant currency basis.
Those results are also translating into strong industry share performance in our largest global markets.
Across the U S beer industry, we earned the second highest dollar share gains and the best dollar share trend improvements in the quarter relative to the last 52 weeks.
Moreover, our third quarter STR trend was the best quarterly performance, we've seen in over a decade.
We again gained share in the U K.
We gained share in Canada year to date, when factoring out, Quebec, which was recovering from the strike earlier this year.
So it's not surprising to us that three quarters of the way through 2022, we are able to reiterate with key financial metrics of our full year guidance.
Now I know that you are skeptical that we have several total wins that give us confidence.
We are benefiting from strong pricing in the U S, Canada, and EMEA and APAC in.
In the U S by far our largest market. Our recent actions mean pricing will be up close to 10% on average versus the fourth quarter of last year.
As opposed to our historical 1% to 2% annual price increase and we will see that pricing benefit for the entirety of the quarter.
Our UK and Canadian markets were heavily impacted by the omicron variance in the fourth quarter of last year, which we will be comping.
I know, it's hard to remember that the on premise in both markets was virtually closed for a portion of the quarter and 2021, and we do not foresee this happening again.
Additionally, as expected we plan to have less marketing in the fourth quarter of this year, which relates to phasing as we think about how and when to most heavily market our brands.
And we expect the World Cup to be a large benefit to our EMEA APAC business.
To major on premise beer occasion, particularly in Europe and it has never been this late in the year.
Tracy will get into our guidance in more details, but these are some of the factors that give us confidence to again reiterate our full year key financial guidance.
And I would point out that we can do so without contemplating some hockey stick trajectory for retail sales in the fourth quarter.
Sure.
Now, while we don't believe that will impede our ability to deliver on our full year guidance I do want to take a couple of minutes to discuss two challenges that impacted our third quarter results. Because there are some notable trends we're beginning to see.
Firstly and most obviously, while the rapid rising input costs is not new this quarter. What is noticeable is the difference in cogs inflation rates between the two sides of the Atlantic.
While it was high in all our markets underlying Cogs per hectoliter rose nearly 14% in EMEA and APAC compared to about 11% in the Americas.
While we have been aggressive in taking price compared to historical benchmarks and peer and we are deploying other levers to recover as much of these cost as possible.
Some markets it has been difficult to keep up with the rampant pace of inflation.
And in other markets like central Eastern Europe , some consumers simply cannot withstand higher levels of pricing.
And that is the second change, which is the diverging trend among our global markets.
Volumes have remained strong elsewhere, we are seeing weaken consumer demand across the beer industry in our central and eastern European markets.
Compared to the counterparts across the continent. These consumers tend to have less disposable income and are therefore more prone to inflationary pressure, which is put strain on this portion of our business.
And that's in contrast to what we're seeing elsewhere.
The U S consumer remains resilient to date the industry is continuing to trade up and we aren't seeing funds a significant channel shifting.
September end third quarter on premise mix of total volume has remained consistent with the year to date trend and above 2021 level.
And these trends are visible in the strong quarterly top line results for the Americas business unit.
Consumer trends are similar in Canada, where the broader industry is seeing trade up and our portfolio is premium margin.
Volumes are even holding up in the UK in the third quarter on premise volumes in this market with flat with pre pandemic levels.
Despite the very volatile and uncertain economic environment day, So again, no signs of significant channel shift in the UK.
Should consumer behavior in these other markets change we have the right portfolio to compete in a more challenging economic environment and thanks to the revitalization plan. We also have a business that is able to adjust the conditions more nimbly.
So we will continue to make the investments and decisions necessary to ensure this business delivered top and bottomline growth not just for one quarter or for one year, but year after year after year.
That consistent approach has been the determining factor in the progress we have made.
When we launched the revitalization plan nearly three years ago. We told you we are working towards a stronger call aggressive growth in above premium and scale beyond the Bureau, and we continued to deliver.
Our core brands have not only stabilized they are getting stronger.
In the U S. Our premium brands are holding industry shape and the combination of Coors light Miller and Coors banquet combined to grow over a full share point of the premium beer category.
Hello light and Coors banquet grew volume as well.
In the UK, calling continues growing share of the familiar trusted lager segment and again widen its lead as the country's number one bit.
And Canada Molson Canadian continues to grow net sales revenue and share of segment, while Miller Lite brand volumes are growing double digits with the brand achieving industry share growth.
And in Central Eastern Europe , we are growing segment share with a national power brands the majority of markets.
Our global portfolio continues to premium mass rapidly.
In the U K, but really remains on an incredible run it is already on number three brand in that market and has gained the most market share of any of our global brand innovations since the Molson Coors merging 20.
Five.
Type of Chico hard Seltzer remains the fastest growing hard seltzer in the U S was up.
Five industry growth brand in the quarter.
Simply spiked eliminated is the fastest growing new <unk> in the U S. And was also a top industry growth brands, finishing in the top 10.
The Blue Moon family grew share of the craft segment in the U S. While priority volumes were up double digits.
In Canada, our heartfelt was grew double digits and continued to gain share the seltzer category with busy and Coors Seltzer and now the number four and number six seltzer brands respectively.
We're also meaningfully expanding beyond the Bureau.
And our beyond air space is about to get bigger as we recently announced our emerging growth team plans to launch type of Chico's spirited and RTD cocktail early next year.
The continued strength of our brands helped our business deliver on the top line globally, and while Cogs inflation globally, and consumer weakness in central and Eastern Europe hampered our bottom line results in the third quarter.
Today, we remain on track to grow our topline and bottom line. This year for the first time in over a decade.
We have made substantial progress across this business in under three years, we've done it in spite of serious challenges no one saw coming.
And we remain focused on setting up Molson Coors for long term sustainable top and bottom line growth.
Not to give you more details on the financials and outlook I'll hand, it over to our Chief Financial Officer, Tracy Jubail Tracy.
Thank you, Kevin and Hello, everyone.
For the third quarter, we delivered another quarter of net sales revenue and underlying pretax by.
We continue to invest in our business.
We reduced.
And we return cash to shareholders.
Despite the challenging global macro environment and ethanol industry suffered via consumers remained resilient in our three major markets in the third quarter.
While we saw softness in our central and eastern European background.
And as expected global inflation rate pressure continued to be a headwind for our bottom line performance.
Taking this all in tech Tom we are maintaining our 2022 key financial guidance that we do not expect underlying pretax income growth on a constant currency basis.
At the lower end of our high single digit range.
Okay.
While we discuss our business performance on a constant currency basis.
He is also relevant to consider the currency impact of the strong unique talent.
Which was a meaningful headwind to reported results in the quarter.
On a reported basis, our third quarter net revenue was negatively impacted by $109 million.
And our underlying pretax income was negatively impacted <unk> 1 million.
Before we discuss our quarterly performance I wanted to provide some context on our on payments or category.
Our third quarter <unk> has nearly fully recover to 2019 total revenue level.
However in looking at the map on slide eight we can see they are variations by market.
In the UAE and payments reached 94% of 2019 total revenue the highest since the pandemic.
While in Canada, the on premise restrictions in more severe.
The <unk> continue to improve on a sequential basis. It does not pertain to 2019 level.
However, in the U K similar to the second quarter. The on premise one exceeded 2019 total revenues.
Now I'll take you to our quarterly performance and our outlook.
Turning to slide nine consolidated net sales revenue increased seven 9% driven by strong global net pricing and favorable sales mix.
Consolidated financial volumes were essentially flat.
And maybe can shipments were down due to the continued impact of the Quebec labor strike, which was resolved in June while financial volumes were higher in EMEA and APAC on increased UK brand volume.
Net sales per hectoliter on a brand volume basis increased nine 2% driven by strong global net pricing and positive sales mix across both business units.
As expected inflation pressure continues to be a headwind in the quarter as you can see on slide 10 underlying cogs per hectoliter increased 12%.
The two biggest drivers with cost inflation and mix.
Cost inflation comprise more than <unk> of the increase.
And included high input materials.
Transportation and energy costs.
Our mix drove roughly 350 basis points of the increase and was due to premium amortization, which is a negative in terms of Cogs that are positive in terms of gross margin.
While inflation remains a significant headwind we continue to judiciously deploy multiple EBIT.
Including pricing premium amortization, and our hedging and cost savings program to help mitigate the impact.
As it pertains to our hedging program. It is worth reminding that our program is longer term in nature as we hedge commodities at one to three years.
And we operated and guardrails and take a more opportunistic rather than programmatic approach.
The purpose of the hedging program is to smooth out the impacts of big swings in commodity prices.
In a situation like the third quarter, we saw some sequential easing of taken commodities. It will take time to see that impact on the P&L.
Further we are exposed to other costs that cannot be hedged such as freight, but also material conversion costs and third party manufacturer contracts that extend over periods of time, which can be material contributors to our cogs.
In G&A increased three 5% as lower marketing spend was more than offset by higher G&A.
Operating <unk> decreased as we've tackled highest band in the prior year period, when investments exceeded third quarter 2019 levels.
We continue to provide strong commercial support behind our core brands and new innovation.
The U S launch of <unk>.
G&A increased due to increased people related costs, including travel and entertainment expenses and legal costs.
Well, it's back in the England Company equity income, which is included in G&A in the prior year period.
Now, let's take a look at our results by business units.
Turning to slide 11, the Americas net sales revenue increased seven 4% benefiting from net pricing growth and positive brand mix.
Lastly, offset by lower financial volume.
And maybe it'll financial volume decreased 1% driven by Canada, while U S domestic shipments increased one 4%.
America's brand volume decreased one 5% driven by Quebec.
<unk> brand volume declines of 9%, which approximated industry performance.
U S brand volume trends were driven by high single digit declines and economy brands largely due to the SKU rationalization program and to a lesser degree.
Low single digit declines in premium brands.
Conversely, the U S above premium portfolio continued to grow strongly up low double digits for the quarter.
Brand volumes in Latin America also increased.
Net sales per hectoliter on a brand volume basis increased seven 5% due to unique pricing growth and favorable brand mix.
And as you can see in the slide strong pricing and premium amortization in our two largest markets in the Americas, The U S and Canada drove that performance.
On the cost side America's underlying Cogs per hectoliter increased 11, 4% as with our consolidated results of the primary drivers of inflation, including higher material <unk>.
<unk> and transportation costs as well as mix impacts from premium amortization.
And G&A decreased one 4% driven by lower marketing spend.
As I mentioned, we strongly support the national launch of simply spots, but overall marketing spend declined due to lower UA national marketing and sales control pain related to alliance and media phasing.
G&A increased as a result of the same five as discussed for the consolidated G&A I mentioned earlier.
As a result, americas' underlying pretax income increased 10, 5%.
Turning to EMEA and APAC on Slide 12, net sales revenue increased nine 6% driven by higher financial volume net pricing growth and favorable mix.
Financial volumes grew 2% due to higher brand volumes in Western Europe with a demand rate demand remained strong along with high effective brand volume.
This was partially offset by brand volume declines due to Russia, and Ukraine and weakened demand due to inflationary pressures in central and Eastern Europe .
EMEA and APAC net sales per hectoliter on a brand volume basis was up 14, 3% driven by positive net pricing as well as favorable sales mix driven by the strength in our above premium brands like Marie and positive geographic mix.
On the cost stock underlying Cogs per hectoliter increased 13, 8% similar.
Similar to the Americas, the drivers with cost inflation and mix from premium amortization.
And G&A increased 21, 7% as we accelerated marketing investments behind our national champion and above premium brands, especially in the UK supporting calling <unk> and star common and fueling payment stream.
G&A also increase as we cycled level relative spending in the prior year.
As a result of these higher costs EMEA and APAC underlying pretax income declined 38, 9%.
Turning to slide 18, our underlying free cash flow was $597 million for the first nine months of the year a decrease of $336 million from the same period last year.
This is primarily due to higher capital expenditures and lower underlying pretax income partially offset by the prior year net repayments of various tax payment deferral programs related to the pandemic.
And lower cash taxes.
Our capital allocation priorities remain to invest in our business to drive top line growth and efficiencies reduce net debt and to return cash to shareholders.
Capital expenditures paid with $531 million for the first nine months of the year, an increase of $167 million from the prior year period, and with focus on expanding our production capacity and capabilities program.
Which support improved efficiencies and help us deliver our sustainability goals.
Capital expenditure levels remain in line with our expectations of approximating pre pandemic annual level.
We ended the quarter with Nic data of $6 1 billion.
Don nearly $500 million since the <unk>.
The 31st 2021, and a trailing 12 month Nic data underlying EBITA ratio of 313 times.
Our target of below three times by the end of 2022.
We ended the quarter with $125 million of commercial paper outstanding.
In this rising interest rate environment. It is notable that substantially all our debt is at fixed rates.
In terms of returning cash to shareholders. During the third quarter, we paid a quarterly cash dividend of <unk> 38 cents per share to holders of class, a and b common stockholders and we paid approximately $12 6 million for 230000 sheets under our share repurchase program, which is essentially an anti dilution probe.
Graham for annual employee equity grants.
Now, let's discuss our outlook, which you can see on slide 14.
And while we thought year over year growth rates in constant currency. Please note that current exchange rates, which generate a headwind in our fourth quarter reported results at similar readership levels to what we experienced in the third quarter due to the strength of the U S dollar.
For 2022, we are reaffirming our guidance of mid single digit net sales revenue growth high single digit underlying pre tax income growth and underlying free cash flow of $1 billion plus or minus 10%.
However, given increased inflationary cost.
Cost pressures and weakening demand in central and Eastern Europe , we expect underlying pre tax income growth to be at the lower end of the range.
Based on our annual guidance this would imply for the fourth quarter on a constant currency basis underlying pre tax income growth in the range of approximately 45% to 60% and we expect.
To be at the lower end of the range.
Now, let me walk through some of the assumptions that will help you understand why we have reaffirmed that guidance.
Kevin has already discussed some of the topline drivers like a full costing in the UAE easing comparisons in the UK and Canada and the World Cup tournament.
Also in the fourth quarter, we have fully lapped the shipments headwind from our economy SKU rationalization. These.
These drivers are partially offset by weakened demand in central and eastern Europe .
From a cost point of view, we continue to expect margins to be impacted by inflationary pressures, particularly with acceleration in commodity cost in EMEA and APAC.
But also taking some of the inflation cost we continue to expect our cost savings program to be weighted to the fourth quarter.
And we now expect lower depreciation, which is due to the timing of capital projects and the impact of significant foreign exchange movements.
Turning to marketing, we continue to expect overall spend to be down in the fourth quarter compared to the prior year period.
So we're comfortable with our planned level of marketing investment, which is comparing against the prior year period, when marketing investment exceeded 2019 levels.
Looking out to 2023, while we're not prepared to provide any guidance, we remain committed to putting the rock commercial pressure behind our core brands and key innovations, including our first official Super Bowl add in more than 30 years.
In terms of our other guidance metrics, we continue to expect net interest expense of $265 million plus or minus 5%.
However, we are lowering our underlying effective tax rate to a range of 21% to 22% from our prior guidance range of 22% to 24%.
And we are lowering our underlying depreciation and amortization to $700 million plus or minus profiting from our previous guidance of $750 million plus or minus 5% for the reasons I just mentioned.
Since closing, we've put up another quarter of growth and did so in a challenging macro environment. While these remain dynamic and uncertain times under our revitalization plan, we have built our business to manage through challenges with.
With strong brands across all of our statements and greatly enhanced financial and operational flexibility, we remain confident in our ability to navigate near term macro challenges, while investing in the business and staying the course towards our goal of long term sustainable top and bottom line growth.
And with that we look forward to answering your questions operator.
Thank you if you would like to ask a question today. Please press star followed by the number one no telephone keypad. If you choose to withdraw your question. Please press star followed by Chase pay.
To ask a question. Please ensure your phone is on mute locally.
And our first question today guys you Kevin Grundy of Jefferies. Kevin. Please go ahead. Your line is open.
Great. Thanks, Good morning, everyone two questions if I could get in the first long term oriented the second more near term.
First just regarding your outlook for the U S beer industry input recently drew some attention with his comments at Boston Beer's wholesaler meeting that traditional beer may never grow again in our lifetimes and the U S.
Abi leadership was recently asked to react to Jim's comment on their earnings call. So I'd like to get your reaction to Jim's comments as well.
And then the second more near term oriented what adjustments are you, making here if any to the playbook over the next 12 months, given the more challenging inflationary backdrop and weaker consumer environment, particularly in European business. So thanks for that.
Thanks, Kevin and good morning.
Yeah look to your first question.
First we thought that was quite a shelf savings statement from from from Germany, and I guess, what you would expect to hear.
From the leader of that business is only got about 10% of the portfolio.
Embed our software it was that they would make on the same color comments with truly was losing share to premium large which has obviously been so low.
Look I mean beer has been around for thousands of years, Kevin It's the most popular alcohol beverage in the world.
In fact outside of water and tea bears the third most popular beverage of any kind in the whole world.
So I don't think its going anyway.
Our results over the past few years would suggest as much. If you go back a few years people were speculating that bill was dead because of sources.
So you the headlines of all those comments and I don't think you hear a lot about that.
More today in fact, you hear across the opposite so.
Yes.
From our perspective, Coors light Metalogic, Greg and I saw a metallurgist grew volume in Q3 so.
Or are we going to find a way to leverage our competitive strengths and take advantage of growth opportunities beyond beer absolutely we are.
Make no mistake, Kevin <unk> always going to be the heartbeat of our business and I think <unk> always going to be.
A favorite of consumers is the moderate choices.
Alcohol compared with with hard liquor.
So yes, that's my comments on Jim's comments.
As far as the adjustments, we're making to our business look our revitalization plan, we launched three years ago, focusing on our core brands growing our above premium brands.
And building capabilities in our business and driving and driving beyond beer and I think we've made tremendous progress against those I think during that time, we have shown that we are nimble and we can make adjustments when we need to make.
0.2, the most high profile adjustment. We made was was back when the pandemic hit in our marketing department almost overnight change the campaigns of both both motor Lodge, and Coors light and shifted our media into into the digital space, where the consumer was.
No longer.
Sure.
On the traditional side and.
Make no mistake, we will.
We'll make adjustments, where we where we think we need to to make them in Europe , it's interesting right.
There is a bifurcation in Europe Western Europe is.
Just continuing as as they work consumer demand is holding up strongly.
We've also put in strong price increases in <unk> in Western Europe , particularly the UK and so far we're not seeing any.
Negative price elasticity because of it.
The challenge we've had is come in central and Eastern Europe , where the consumers got leased headwind.
Our hedge space from a disposable income point of view and energy cost certainty and inflation are impacting those markets.
A more meaningful way.
Notwithstanding that as you saw we grew our marketing spend in EMEA and APAC in the third quarter, putting money behind our R. R.
New innovation.
Three in some of our.
One of our brands in local markets.
In EMEA APAC, so I think.
We will continue to make the right decisions behind our brands that we need to keep the momentum that we've got right now.
Okay very good thanks, Kevin Good luck.
Thanks.
Thank you and our next question Ishi Argentine of Evercore. Please go ahead. Your line is open.
Great. Thank you very much.
Gavin.
I know you don't talk about kind of the upcoming quarter, but.
It's kind of out there that in the U S October was really really weak we're hearing from some distributors.
Down double digit.
Wondering if you can make any comments on that at all.
And then just kind of give us some sort of sense about.
How youre looking at pricing.
In the U S and in Europe , and why the kind of levels that youre looking to get which are historically high.
And clearly justified by the commodity increases, but whether those are levels that the consumer.
Is going to be able to absorb particularly with some tightening in the economy. Thank you.
Thanks, Rob look I mean this.
If you look at pricing, we obviously took a hit.
Fairly meaningful price increase in the spring of this year it was higher than that than a normal average.
So.
3% to 5% in the spring.
And then we put a pretty similar price increase through in the in the fall so its a little soon too.
In determining the impact of the second price increase which we put into the marketplace and in some instances we're actually.
Putting price some of it went to back end of September from October and we've got some going in in November so.
There isn't a data to show what their price increases.
<unk> has.
<unk> has done to the consumer or we'll do the.
The price increase that we took in the in the in the spring.
The price elasticities would notice.
Elastic as you.
They have been historically I think the consumer has been quite resilient through the price increases we've put into the market given that they are actually quite substantially lower than in many other fast moving goods.
The consumers who have been exposed to so.
Same effect that we've had in.
In Canada, the same effect that we've had in U K, it's only really EMEA APAC central Eastern Europe business, where I think.
The sort of hate space and disposable income Hasnt had.
As <unk> proven to be as strong as the rest of our businesses as.
As far as the turbines.
Okay.
Sorry, Robert.
I was just sorry, I was just going to didn't mean to interrupt you answer is the price increase range is the same in the UK and Europe or is it a little bit less.
We've actually taken different price increases by market Robert.
In some central Eastern European markets, we've taken double digits.
<unk>.
In the United Kingdom, not as much as the United Kingdom price increases are closer to what we've done in the in the U S.
Again, Bob brand bought back five five.
By country.
Okay great.
Okay.
Sure.
Okay.
Has it been two price increases already in Europe , So our spring one and a four one also.
We don't follow the same pricing calendar in the United Kingdom as we as we do.
In the U S.
If my memory serves me, we have taken more than one price increase though but it's not the same timing as the U S. Now you're up to for questions drove it so I'm going to answer your question quickly and then move on to someone else.
October .
Okay from an October point of view.
It's too soon to tell what the impact is right because there was loading from some of our price increases.
In late September and surely that is impacted in the first couple of weeks of October just as every price increase has has allowed in many of our markets.
Sell through has now taken place and we've and we've we've reverted back to <unk>.
Trends that existed before but in other markets. The sell through is still taking place. So I think we'll get a good a good assessment of it obviously in the next in the next few weeks just to remember also that in October of last year.
That was really where we recovered our inventory levels following the cyber security attack.
If you remember we spent the whole of the second and third quarters, playing playing catch up on just keeping our head above water from a from a shipments point of view and we really did recover shipments in the in the in the fourth quarter of last year, we exited the third quarter. This year with our inventories in a really good place.
So.
That will be.
Sort of negative headwind so to speak for the for the fourth quarter as we as we do plan to ship to two full year consumption.
Thanks Robert.
Thank you.
Thank you and the next question goes to Chris Terry of Wells Fargo Securities. Please go ahead. Your line is open.
Hi, good morning.
Yes.
Hi, Gavin connect can I just confirm what you just said and then.
Then I'll switch to my question, but did you just say that inventories are now clean and so that could be a bit of a headwind that youll ship to consumption in Q4, and I just like to confirm whether it's some of the recent headwinds associated with the.
The Quebec strike.
Tanami SKU reduction.
Things that have been lingering through the year now.
Are now in the rearview. So just wanted to confirm that that all last year.
Question here.
Yes, Chris.
My comment related to to the U S. So the.
U S inventory I would say with a few minor exceptions with some skus is where we want it to be.
It was.
We had got off to a really good place at the end of the third quarter and if you remember last year in the U S. We were still rebuilding our inventories following the cyber security stack all the way through the fourth quarter. So yes headwind from a shipments point of view in the U S.
Quebec.
We are still recovering from that rod.
It does take time for us to.
To get our inventories back to the level that we want to have them and we had a 12 week strike extension.
<unk>.
It's taking time to get back to where we needed to be so that would still be a relative tailwind in the fourth quarter from a from a from a Quebec point of view.
Okay.
Okay. Thanks, Gavin can you just give us an update on.
How you see this portfolio shaping up over the next year from a mix percentage, obviously, you've put out some targets for the percentage and broken merchant growth the percentage of the portfolio that will be premium I wonder if you could talk to the craft business effectively there are some strategies to evolve this portfolio over time and that timeline.
Over the next year is kind of how are you.
You guys have described that I wonder if you can just give us an update on how you see things today and.
How these things are evolving and then just Tracey if I could squeeze in just did you say that non commodity inflation should continue to pick up as your commodity inflation eases. So thats just again I just wanted to confirm that from Traci, but really Gavin the complexion of the portfolio over the next year would be helpful.
Yes, Thanks, Chris look.
I'll take them by each of our revitalization plan strategies right.
Co brands strengthening our core brands.
We're seeing that globally.
If you just look at the United States Coors Light Miller Lite, continuing to shape trend improvement Millilux holding share for the second consecutive quarter Coors light Miller lite, gaining more than 100 points of premium block space.
And they both growing dollar sales Chris.
<unk> is up mid single digits in ASR Miller Lite was up double digits.
So we.
We're obviously going to come.
We continue to push both of those brands in the U S. We.
They're in really good shape from a from a brand health point of view and reacting really well to the differentiated marketing campaigns that we've got behind them you are seeing the same impact in Canada.
We've got we've got Coors light that strengthening Miller lot, that's growing double digits and mostly Canadian even starting to show.
Performance trend improvements and in the UK colleagues doing well <unk> is doing well in it.
<unk>, so we feel that our co brand portfolios and is in good shape reacting really well to our marketing and our marketing investments and we're going to continue to.
To push that so far.
In above premium point of view I don't believe we had a target that we specifically put out there from a from a share of our portfolio point of view, but we had another record.
<unk> of our portfolio for four above premium and obviously, we want to continue to drive that we've had some extremely successful innovations.
In both our North America business unit with simply spiked.
And with the type of Chica and also in our EMEA APAC business units, where mudry is shaping up to be the best innovation that that market is has ever launched continuing to grow share of debt at <unk>.
At a rapid pace.
Pace from on top of that Blue Moon Blue Moon Light Sky Blue Moon is the number one craft brand Blue Moon light Sky as the number one lakh cross brand <unk> growing very strongly.
In the double digits and so we would expect our above premium portfolio to continue to grow from strength to strength and then from an economy point of view.
Not really.
A player in our EMEA APAC business unit more relevant in the U S and Dave.
I think it's safe to say that we are now through the SKU rationalization process in the fourth quarter certainly they were no more shipment.
Comparisons that were going up against and I am sure there were a few.
From a from a sales to retail point of view, but by and large we are through that.
Our focus on our four core economy brands.
Is.
Is proving beneficial rock both from a marketing point of view sales point of view and a distributor.
Point of view so.
As I said in our prepared remarks, Chris I think our brands and our portfolio is really well positioned to to to take advantage of whatever happens I mean right now we're not seeing.
Trade down in our in our U S market.
Albeit premium amortization has slowed down, but we're not seeing trade down if it happens we've got there.
The ideal portfolio for that we've always said that that all segments matter.
We've got brands that are strong and ready to take advantage of it.
Thanks Trey.
Tracy.
Christopher what I'd, just say from a cost point of view is weak.
He had a margin continued to be impacted by inflationary pressures, particularly in EMEA and APAC and then also we are at.
The other costs that cant behavior that again.
Comfortable with our hedge coverage stable for the balance of 2022 and into 2023, but they all cost that can be material contributors to our colleagues such as bright.
With content material conversion costs, I mentioned, and then update party co manufacturing costs.
Which which also cannot be hedged.
That's on the Coke side.
Okay.
Thanks, Chris.
Much appreciate it thank you.
Thank you and our next question guys you Vivian <unk> of Cowen Vivian. Please go ahead. Your line is open.
Thank you good morning, Gavin and Tracey.
I apologize I dropped off the call materially so I hope this hasn't been repeated but I did want to follow up on Robert's question around October so it seems like with the beer purchasers index being.
Remarkably low in the quarter that might be a function of the fact that your overhead.
Chris Hoy squared away, but just a follow up on that.
I'm just curious in your discussions with wholesalers and distributors, whether there's been any shift in your alignment around our perspective on price elasticity given the price increase thank you.
Thanks Vivian.
From a price increase point of view as I said, we don't have any data at this point in time to two suggesting this thing around.
Our price increase that we took in the fall.
We do on the price increase we took in the spring, which was pretty much double what we normally have taken in there.
In a year.
For a fairly long period of time, probably the last decade.
The price elasticities.
We're less than what we would historically.
Specced at sort of.
The price increase that we put in the market was seen.
Seem to been.
Well received by consumers.
Consumers simply the retailers understand the cost pressures that we're facing.
This will support us so.
I would say too soon to.
Do you have any.
Any perspective on the on the recent price price increase.
As I said, we are we're still actually putting some price increases into the market in some states.
In some states we put it in.
Early October some in mid October and Theres always a loading that takes place and there is always a bit of a pause.
Hey back after that when you couple that with the fact that we were still building inventories heavily in Q4 of last year and we don't have to do that this year because our inventories are in really good shape on a structure as low as they've been for for quite some time with with only some.
Very very few skus.
We have issues.
I think we're in good shape from that perspective, but again reiterating that that is a headwind in our U S market in the fourth quarter.
Thanks, Ravi and certainly.
Thank you.
Thank you and the next question goes to Steve powers of Deutsche Bank. Steve. Please go ahead. Your line is open.
Alright, thanks, so much.
I wanted to.
To clarify on the on the pricing you've called out the near 10%.
In the fourth quarter I'm just was wondering if we have a comparable number for where you were in the third quarter and if that near 10% contemplates mixed surface strict strictly right. So a clarification there would be great.
And then I also wanted to ask on the lower DNA.
In two respects one is EBIT running just north of $170 million kind of run rate all year.
I'm, assuming I guess base case, so that's a good place to start from the fourth quarter.
But wanted to understand if there is any reason why that would would deviate and then you mentioned FX was a partial driver of that which makes sense.
But also the timing of certain capital projects and I'm just.
Maybe you could talk a little bit about.
What types of capital projects may have been deferred and if we should think about those as.
Fiscal 'twenty three initiatives, if they're longer term, just a little bit more context on what how.
On the drivers behind that lower DNA and how it impacts the future. Thank you.
Okay. Thanks, Steve Good morning, Tracey if you can take two and three I'll take one from a from a comparable.
Point of view in the third quarter, Steve I would say around 5% was was in the third quarter. So.
Yes.
That lines up well with the sort of three to five.
To say that we that we put in.
Back into September and into October So that's a north American number the U S number is not terribly dissimilar from that.
Call. It 5% is the is the comparable number okay that helps thank you.
Yes.
And Tracy.
Steve.
And I'm going to go ahead I want to talk over you.
Okay, Yeah on the DNA.
That that run rate is reasonable again, depending on Forex.
Nothing that we have pulled back on its really a lot is the bad timing and as I said, we expect our capex to sort of be quite too specific pre pandemic levels and nothing has changed from that.
Okay.
Okay. Thank you very much.
Okay.
Thank you and our next question does your Andrea Teixeira of Jpmorgan. Andrea. Please go ahead. Your line is open.
Thank you. Good morning. So my question is more on the bridge Tracey you helped US just now the pricing the bridge for gross margin and then two what is implied in our math is correct. I think it is implying that profit before tax would be up more than 40%. So I was wondering if you can comment on how you are able to.
Two I understand the mix impact of the economy going away the lap.
But if you can the pricing you just discussed but if you think about the Cogs and how the hedges will roll over into 2000 trees. Thank you can help us reconcile on the 48 ish percent implied upside form that you embed in your guide.
Is that also related to mostly for the for the marketing spend that you mentioned that is now or even in the gross margin line you see an expansion in the fourth quarter. Thank you.
Thanks, Sanjay look I'll take that one.
Let me just go back again to the drivers of why would why.
Confident on our on our guidance for the for the.
For the fourth quarter, and obviously the full year.
And just to be clear yes.
Your math is correct right that does imply income before income <unk> growth of around 40% to 60%.
Where we're.
As we said on the call price during the call we expect to be at the lower end of that if you look at the top line number of positive tailwind for us in the fourth quarter. We've got the strong pricing in the U S, Canada and the United Kingdom.
I said Q4, when you combine that with with the pricing that we put in earlier in the year, we're looking at around the 10% price increase per hectoliter.
In Q4 were Comping omicron.
In the prior year of Q4, which if you remember had a really big impact in the UK and Canada, We lost the Christmas holidays.
In Canada, sorry in the U K, that's a big selling selling occasion for the UK market, we're not expecting that.
And frankly because of all the impacts that we had last year, we only made $5 million in the EMEA APAC business units last year. So it doesn't take much of a move to produce meaningful profit increased percentages in our EMEA APAC business. We're also looking at the World Cup as I said in November it's a really big beer drinking.
Occasions, particularly in the U K and it's never been this late before and as you rightly point out in Q4, we fully lap the.
The economy SKU rationalization.
Partially offsetting this as I said is the weakened demand that we're seeing in central and eastern Europe , and the shipment comp that we've got coming through.
In the U S business in the in the fourth quarter of last year and then.
Positive tailwind again as is our Quebec business as we as we rebuild our inventory levels.
<unk>.
In Quebec, Canada.
From a cost point of view that as a headwind for US. There is no question about that it's a headwind for everybody and we're not immune from that <unk> talked about that.
We do expect savings under our cost savings program to come through in the fourth quarter. If I remember correctly was actually weighted towards the fourth quarter of this year <unk> talked about the lower depreciation and yes, we are expecting marketing to be done year over year.
We've said that from the beginning of the year right that we were facing our marketing into the first half of the year and lesser in this in the.
In the second half of the year so.
That is that is also a positive and then we've got positive mix coming through.
Nice positive mix coming through from our from our above premium monetization strategy across the world not just in the in the United States. So.
Thats, what gives us confidence to two.
To keep our guidance.
The levels that we have.
That's super helpful and then the.
And then on the hedging as we think about next year like I understand that obviously, the hedges and just to make sure that it's just the lapping of the hedges or it's also obviously the carryover from.
A couple of other cost because I understand obviously cans are being.
Slightly cheaper now and tomorrow available just to think how we should.
Think about also the transportation Cogs and all of that embedded in your guide.
First can talk about the hedging I'll talk about it from a high level right. So we're not going to give guidance on this call. We always give it on our fourth quarter call, which is which is February once all our internal plans are signed off in front of our board, but step back to the revitalization plan and Dread. The objective of that plan was to drive both topline and bottom.
<unk> growth on a consistent basis grew top line in 2021, our guidance is to update that we're going to grow top and bottom line.
In 2022, and it's not meant to be a one off thing it's meant to be a consistent driver of topline and bottom line growth for our business.
Is the very essence of our revitalization plan.
But from a hedging point of view.
Any more color without giving guidance, yes, I think so.
I think one of the important things around our hedging program is really is.
They need to help us meet some of the volatility we see in.
And the commodity price fluctuations.
And.
We've said that we comfortable with the coverage levels for the balance of the yen and in 2023.
And that's the way the way that we hedge is it's not programmatic.
So it does allow us to be opportunistic.
And then typically we had the highest pages in year, one and then late in year, two and <unk>.
Again, it's a top program.
Operate within guardrails, but.
But it's really to me the commodity cost fluctuation.
Thanks, Charles Thank you both.
Thank you.
Thank you and the next question guys you Eric <unk> of Morgan Stanley Eric. Please go ahead. Your line is open.
Great. Thanks for taking the question wondering if you have any.
Any any color in terms of the phasing.
Or the cadence of your trends in Western Europe .
Summer was was obviously quite strong, particularly in the U K, but any signs of weakness coming out of the quarter or entering the fourth quarter fourth quarter.
Particularly in light of one of your competitors said recently.
Thanks, Eric look I mean, as I said, if you look at the UK market demand has been resilient.
Consumer is holding up.
We haven't seen any change in that post the post the end of the quarter.
Certainly we have started to see a tightening in the central Eastern Europe market as I said, the head hedge space from a disposable income point of view is a lot tighter in central and eastern Europe , and the impact of energy and inflation has been a lot stronger.
Central and eastern European markets. So, we certainly have seen a softening in demand from from.
Our central European business, but in the U K consumers has remained resilient.
Great. Thanks rest of my questions have been answered so I'll pass it on.
Thanks, Jeremy.
Thank you and the next question Goshen, Indiana.
That same team then please go ahead your line is open.
Hi, Thank you two quick questions from me. Please so first could you just walk us exactly through what changed between the last results and today such that Youre guiding the earnings growth guidance to the bottom end. So just working through what has.
And that was unexpected versus what you thought last quarter.
And then secondly can you give us any indication of how you plan to approach.
Pricing next year, especially given that.
Cost headwinds will still be there given the hedging programs Tracy flagged. Thank you.
Thanks, Nadine good morning look I would say two things drive from a what changed to drive us to the lower end would be would be consumer demand.
In our central.
Eastern European businesses.
Some slightly higher cost of goods sold in those markets.
Unhedged areas.
Yes.
Would apply probably across the board, but more meaningfully in central and eastern European business as far as pricing is concerned look there I think it's a little too soon to tell right. We've just put in historic price increases in 2022 years of almost 10% as I said.
We need to see we need to let it play out a little bit right. We don't have any data for our latest price increase showing what if any impact that's had on the consumer from a price elasticity point of view and say we've got several months two to make.
That decision on how much.
Or if at all we need to put a price increase into into the marketplace certainly the benefits of the 10%. We've just put in this year will flow through into into next year from a positive point of view not only in the U S. But also the price increases we put in Canada, U K and central and Eastern Europe .
Got it thank you.
Thanks Eddie.
Thank you and our next question go to <unk> <unk> of Credit Suisse. Please go ahead. Your line is open.
Hi, good morning.
Good afternoon, I suppose by now.
Can you maybe just I wanted to square some of the your answer to <unk> question on the pressure in eastern Europe , and what's driven guidance to the lower end of the range.
That would be more than offset by the $50 million change in depreciation expectations.
Remember our guidance continental is in constant currency rod.
So we eliminate the impact of foreign exchange.
Yeah.
Flow throughs.
So it's a it's a constant currency basis.
Yeah, but the question on depreciation if you.
If depreciation is being 50 million less than you thought.
Thinking about the amount of cushion that gives you a given the magnitude of that change.
It just feels like it should have been able to offset quite a.
Got it.
Change on the.
On the areas, where you were negatively impacted is that is that not the case.
Yes, so just to maybe the $50 million reduction for the full year. So it has been running lower.
For the for the first nine months of the year.
And then you can take like a $50 million in Q4.
Remember our guidance was $7 50, plus or minus right.
We have been running at the lower end of that.
For the nine months cables. So yes, there is not a 50 million benefit in the fourth quarter that is for sure alright got it.
Clarifying that thank you and then just quickly on the World Cup in marketing.
Maybe it's just timing but.
I might have expected that marketing would be higher.
During the World Cup period, and I think in the past before years. There's this little sort of bump in marketing just curious one is intended to be lower at this time.
Well look I mean, our approach to marketing Komal is constantly to optimize our media spend.
To reach drinkers with the right brands at the right moments with the right level of investments and we are agile and we and we do pivot to drive the best possible return that we can get in the marketplace.
Obviously, the World Cup is less of a of a things so to speak in the in our North American business, but having said that it's a big deal with the China consumer and that's why we're going to have a very significant presence in the World Cup with the type of Chico hard Seltzer, we are going to be advertising on on 50 games on <unk>.
Spanish language television.
We're actually really excited about that opportunity given that.
That type of Chico's has got less and less than half of the awareness of of white claw.
But over indexes with Latina consumers are under indexed in the Seltzer space. So this is a this is a perfect opportunity for us to bring type of chico's to last through the through the World Cup and we will be on the big games.
Mexico U S.
And so on that really resonate with our Latina consumers in the UK and in some of the other markets we serve.
Soccer is a big deal, we will certainly be putting more money behind.
Our brands are calling.
As a final example, calling will play very well during the during the World Cup given this market share of the on premise and ha.
World Cup soccer is traditionally driven people into the into the on premise outlets. So we will be supporting.
Our brands, and particularly where soccer makes a big difference, which is which is in APAC.
The business.
Okay.
Got it thank you.
Thanks Carlo.
Thank you and the next question guys, Hey, Joe with Pascarelli of Wedbush Securities. Gerald. Please go ahead. Your line is open.
Alright, Thank you very much for the question.
In flavored malt beverages, you've been a consistent market share gainer over the course of the year largely on the strength in chocolate Chico is simply spike bulk of which are benefiting from incremental distribution gains, which we need to be cycle next year.
So my question is how are you thinking about sustaining momentum in flavored malt beverages.
And are you seeing anything in terms of consumer repeat rates on these two brands that keep your confidence confidence in being able to successfully cycle what would be a year of tough compares in 2023.
Thanks, Joe look we see these two brands is operating quite different places right type of Chico is way more in the <unk> space and simply is in the in the flavored malt beverage space drive to full Flavoured area.
So it lets just take those those two separately.
<unk> has been an incredible success so far it's the number one new Ottoman totaled since launch we only launched halfway through the year. So we've got a full six months next year of no competition at all and then we've got a full six months frankly, where we are.
For six months, it's the biggest selling season for simply where we were severely constrained from a supply point of view because of this brand just blew our socks off.
From a from a from a from a volume point of view so.
In terms of campus, we've got we've got a lot of tailwind behind simply spots.
Next year, we've got the production to handle it we in source it into Fort worth much quicker than we were originally thinking we were going to do and we're certainly going to innovate with simply spiked as well I mean simply the non Alpha version is the number one chilled juice brand in the United States. It's founded one out of every two American households.
We look to the future we can tap into the simply non out portfolio for ideas and how are we going to take.
Innovation forward with with with simply so.
Yes strong strong potential for this brand next year and we have to production.
And the distribution guidance to do that and you're right. It was the number one flavored malt beverage this summer across media box of our trucks.
Trailers.
The <unk> are slightly different.
But just as impressive performance from from our perspective, I mean from a.
The type of Chico in its first year of National distribution is growing more dollar share and any other sorts of brand in the last 52 weeks.
Molson Coors as a whole with <unk> chica and <unk> got the fastest growing hard seltzer portfolio of any brand in our competitive set obviously type of Chico drives a large part of it but we've just scratched the surface with type of Chico heartfelt. So as I said, it's only got half the awareness of workflow, it's got strong momentum and performance across the country.
Not only in its expansion markets like Michigan, Wisconsin, and North Carolina, but also in its original markets of Texas, and California, it's bringing new drinkers into the category.
We over index significantly with the Tina consumer who is typically under indexed from <unk> point.
Point of view and we've got lots of innovation planned around tepid Chico.
We launched launch order in January we hit <unk> Chica Margarita that we launched in April and we've got type of Chico's spirited that's coming.
Next year. So overall in two very different spaces. We think we've got some really exciting innovation Thats got a lot of run rate a lot of tailwind behind them.
Thanks Gerald.
Got it.
Thank you and our final question today, I guess you Brett Cooper of consumer Research Brett. Please go ahead. Your line is open.
Thank you.
Kevin as we continue to see Miller Lite advertiser position itself against Ultra has to assume that you are finding success in recruiting are winning consumers relative to a competing brand, but was hoping that you could speak to the interaction between brands and your success.
And then I guess this is this is a backward looking questions of where we are today, but also cognizant are thinking about the competition, that's coming into light beer from large brands in 2023.
Yes.
Thanks, Brett look I mean, you're right, we've got fantastic momentum behind Miller Lite rock knots.
It grew ASR in 2021, it's growing and it's all year to date 2000 and.
<unk> 2022, and we continue to believe that <unk> brand positioning is appears Bureau, the Bureau for people, who just love the taste of a great beer is resonating really really well.
It's come to life across all of <unk> marketing from <unk>.
Do localization.
Spots that.
Resonate around around footfall, we've got the competitive sports.
Sharon Miller Lite superior taste com.
<unk> to other light beers, and one of which you which you've mentioned in your in your and your questions.
Our marketing effectiveness for this brand has meaningfully increased over the over the summer period June to June to August .
We've got strong feature and display growth through the football season.
And that's paying off with our.
Our largest chain retailers with one of our largest change metallurgy now the number number of full brand for four total beer sales and the number one most displayed brands so.
We've increased its media investment and it's become the major sponsor of ESPN fantasy and it's taking share from many of its many of its competitors, including Nic Ultra and Bud light.
Two.
Thanks, Brett.
Thank you.
Thank you we have no further questions I'll hand back to Greg for any closing remarks.
Very good thanks Nadia.
So I appreciate everyone's time today I know there may be some questions, we weren't able to get to but please follow up with our investor relations team in the days and weeks that follow and we will look forward to talking with you as the year progresses. Thanks, everybody for joining us on today's call.
Thank you. This now concludes today's call. Thank you for joining you may now disconnect your lines.
Okay.