Q4 2022 Molson Coors Beverage Co Earnings Call
Hello, everyone and welcome to the Molson Coors beverage company fourth quarter and fiscal year 2022 earnings Conference call. We will begin shortly.
Register your question ready for the Q&A session. Please press star followed by one on your telephone keypad. Thank you for your patience.
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Yeah.
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Good day and welcome to the Molson Coors beverage company fourth quarter and fiscal year 2022 earnings Conference call. You can find related slides on the Investor Relations page of the Molson Coors website.
Speakers today are Gavin Hattersley, President and Chief Executive Officer, and Tracey Joubert, Chief Financial Officer with that I'll hand, the IPC, Greg <unk>, Vice President of <unk> and Investor Relations. 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. If you have technical questions on the quarter. Please pick them up with our IR team in the days and weeks that follow.
Today's discussion includes forward looking statements actual results or trends could differ materially from our forecast for.
For more information please refer to the risk factors discussed in our most recent filings with the SEC.
No obligation to update forward looking statements.
GAAP reconciliations for any non U S. GAAP measures are included in our news release.
Otherwise indicated all financial results. The company discusses are versus the comparable prior year period in U S dollars and in constant currency when discussing percentage changes from the prior year period.
Also in order to better align with GAAP reported metrics in our filings and simplify our reporting references to net sales per hectoliter will now be in a financial volume basis, instead of on a brand volume basis.
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 Gavin Thanks, Greg and thank you all for joining us this morning.
I'm very pleased to tell you that three years after re launching after launching our revitalization plan to turnaround this business and three years after pleasing to deliver top and bottom line growth we have done exactly that.
We grew the top line by 7% we grew the bottom line by almost 8% we brought our leverage ratio under three times.
We stuck to our strategy and our plans and we delivered despite the fact that many people didn't think we could.
To be sure there's been a lot of ups and downs in the past three years, but through it all achieving consistent top and bottom line growth has been our north star and.
And we are well on the road to doing just that.
Now many questioned our ability to execute this plan. So I wanted to take a couple of months to break down how we arrived at this moment.
First we streamlined our business in 2019, and early 2020 to drive significant savings.
Second we booked on the strength of our core brands for the past three plus years.
<unk> Coors light and Miller revenues are both well above 2019 levels in the United States.
Collectively Coors light and Miller grew both U S volume and dollar share in the fourth quarter.
But even combined to outperform the combination of Michelob Ultra Bud light in U S volume share performance for the fourth quarter.
And then the fourth quarter Coors light and Miller lots combined volume exceeded Bud light in tracked channels.
And in Canada, We're also seeing strength as Molson Canadian grew revenue and industry share in 2022.
In the U K call and continues to be the number one brand in the market.
These trends didn't just suddenly appear the results of consistent brand messaging and more effective brand investment.
Thirdly, we have aggressively premium master portfolio today over 28% about global net sales revenue that comes from our above premium portfolio up from 23% in 2019.
Our use of both premium portfolio gained the second most dollar share of all major U S. Brewers in 2022.
And while our Seltzer portfolio of course was a contributor our progress is driven by more than just seltzer.
But as early as 2022 revenues were up double digits in the U S compared to 2019 levels.
Even though the brand skews heavily to the on premise.
Blue Moon is 2022 U S revenues were also higher compared to 2019 aided by the successful launch of Blue Moon Light Sky.
Simply specs, which we introduced last summer quickly became the fastest growing new innovation in the U S B category.
In Canada Okay.
<unk> Division group brand volume double digits in 2022, and we have the only hard seltzer portfolio gaining industry share in that market.
But the standout star of our global portfolio continues to be really exceptional in the U K.
I really want you to understand the tremendous growth of this brand and its size today.
In less than two years it has become one of our top five above premium brands globally.
Firstly, we expanded beyond beer, where we have laid solid foundations and energy drinks and full strength spurts, which are totally new spaces for us.
So it continued to grow very strongly brand volumes were up triple digits in both the fourth quarter and the full year with trained acceleration in the quarter.
Our first full strength spirit five trial is enjoying expanded distribution to most states in select international markets.
And building on the continued success of Towboat Chico hard Seltzer, we're expanding our partnership with the Coca Cola company to release type of Chico's spirit to this spring to compete in the fast growing ready to drink cocktails space.
And finally, we have invested in our future.
We've added brewery capabilities throughout our network completing the build of two new state of the art burdened breweries in Canada.
Adding hard seltzer and slim Ken production capabilities and building a new variety packing facility in Texas.
And we're in the midst of the large scale modernization of our Golden Colorado Brewery, which supports improved efficiencies and helps us deliver our sustainability goals.
This work shows our 2022 results aren't an aberration or a moment in time.
Bottom line growth is the product of three years of hard work under our revitalization plan.
We are proving this company can grow profitably and we intend to continue demonstrating that in the years ahead.
Of course, we expect various ups and downs over the next few years and just like many other consumer good companies that have reported this year, we see reasons for caution about the consumer landscape in the immediate to not just for a bit but for consumer goods more broadly.
<unk> has traditionally been very resilient during tough economic times year to it is true that U S. Industrywide beer volumes fell at a much higher rate in the fourth quarter than they had earlier in the year.
This has been attributed to most of the beer industry, taking a second price increase in the calendar year.
And yet there is a category has maintained its share of basket at retail to consumers are not reducing their purchasing in favor of other staples.
Additionally, we actually gained share of total alcohol beverage in the quarter. So consumers are not switching to other alcohol beverages.
And in fact, notwithstanding the comments made by our large upstream supplier, we see the pricing taken in 2022 still sticking across our markets earlier this year.
So if pricing was the driving reason behind the softer industry trends, we would have expected it to adversely impact the beer industry relative to other consumer staples or other alcohol beverage categories, and we haven't seen it.
But what we have seen is a subset of value conscious U S consumers, who are actively trading down into smaller pack sizes.
We are also seeing the economy segment continued to strengthen.
The uncertainty these broad consumer trends that are all companies are facing in 2023 are a driving factor in a more modest guidance for this upcoming year. Despite a relatively more optimistic outlook for the medium term, we anticipate delivering higher top and bottomline growth rates than we expect in 2023.
At the same time, we expect to see margin improvement over the medium term.
This is supported by our goal for our above premium portfolio to reach approximately one third of our global net sales revenue over the medium term.
So even in this challenging and uncertain economic climate, we expect to deliver against the North star of our revitalization plan by achieving top and bottom line growth at Molson Coors with margin improvement on a consistent long term basis.
Our portfolio is strategically both with strength across the range of pricing tiers within the beer industry that gives us greater stability than some of our competitors in any economic climate.
But some of that is a reflection of the simple fact that molson Coors as revenue and profit trajectories are stronger than they have been in years and our business is healthier today.
We are a much leaner business than we were in 2019.
We have powerful co brands across our global markets that are seeing renewed strength.
We have premium rising our portfolio with strong innovations around the world, we are diversifying our offerings to consumers.
Building the capabilities today that will power this business tomorrow.
We're investing in our people and for the first time in a while we are delivering real results.
Thanks to the work of thousands of people around the world. That's the story of Molson Coors today and Thats, what you should all expect from us consistently over the long term as well.
Not to give you more detail on the financials and outlook I'll hand, it over to our Chief Financial Officer, Tracey Joubert Tracy.
Thank you, Kevin and Hello, everyone.
Thank you. Thank you Keith on a constant currency basis.
Net sales revenue 7%.
Got it.
Underlying pre tax income Kevin.
Delivering our guidance.
This performance resulted in record underlying pretax income levels for the fourth quarter, which many questions we could achieve.
You deliver with underlying pretax income up 51, 1%.
We did this despite the challenging global macroeconomic environment.
Endoscopy, all while continuing to invest in our business and enhancing our financial flexibility.
Any cash to shareholders.
Now before I take you through our results and outlook as a reminder.
We discussed that business performance on a constant currency basis.
Currency impact from the strong U S. Dollar did have a meaningful impact on our top line and resulted in a net saving your headwind to reported results of $89 million in the fourth quarter and $298 million per year.
Got it.
Got it up in fourth quarter performance.
Our ability to strong global names content and deliver positive sales mix across both business units.
11, 4% to hit.
On April volumes declined six 9% the biggest drivers were lower brand volumes in the Americas, given the industry softness.
As well as backing of significant prior year distributor inventory build in that area.
Current safety, EMEA and APAC financial volume increase.
Starting from the Fannie resilient consumer in the U K.
Starting on the comment about the great.
In the prior year period.
Turning to costs as expected inflationary pressures continue to be a headwind in the quarter driving underlying cogs per hectoliter 11 five.
As you can see from the slides that could cause thank you three areas.
Question.
Which increased compensation depreciation cost savings and other items.
And deleverage.
The question session backup drive approximately two thirds of the increase and was mostly due to higher materials energy and transportation costs.
Cost savings provided some offtake and we're pleased to report that we completed another successful cost savings program delivering over $600 million in targeted savings from 2000 22020 key.
Now we also have an extensive hedging program and it has helped to mitigate some of these cost pressures, let's remember certain costs like freight and raw materials Foundation.
Third party manufacturing contract cannot be with us and our January into phase III in basis like GTI.
And these costs can be material contributors to cost.
And of course, the history, the product mix and volume deleverage.
Mix was a factor.
The increase and it was largely due to premium our basin.
And while premium amortization is a negative for <unk>. It is a positive for gross margin to hit to leader.
Turning to marketing as planned it was down for the quarter that there'd be continued to put strong commercial pressure behind our core brands and innovation and the year over year comparison. Thank you.
Second the highest standard of prior period, when Invasiveness exceeded fourth quarter 2019 level.
Now before I move on to our business unit performance I'll ask you to call out two other items on our P&L in the quarter.
We had a $15 million discrete tax benefit which resulted in lower than anticipated underlying effective tax rate for the quarter and for the full yet.
We do not expected to repeat.
Also we recorded an 845 million noncash impairment charge in America due to macro economic factors like rising interest rates and increased cost inflations that reduced our future expected cash flows in the near to medium term.
This charge is a result of our annual goodwill impairment.
And is excluded from our underlying results.
Now, let's look at our quarterly results by business unit.
In the Americas net sales revenue was <unk>.
415, while underlying pre tax income grew 29, 8%.
And maybe it does net sales per hectoliter increased 12, 1% benefiting from strong net pricing and favorable brand mix.
Financial volumes declined 10, 5%. This was the result of lower brand volumes, which were down six 6%.
Also down due to stocking significant distributor inventory both in the U S. In the prior year period.
Discussed last quarter.
Taking a deeper look at brand volumes by region. The U S declined six 8% now.
Now we had some timing items that impacted this performance today.
There was one less trading day in the quarter.
So on a trading day adjusted basis U S brand volumes were down five 4%.
Additionally, as with any Pos increase we experienced volume load it will come the full cost increase that's shifted volume out of the fourth quarter.
Looking at U S brand volume backpack statements iconic and premium portfolios were down high single digits on a non trading day adjusted basis.
Despite industry trend improvement in economy and industry share gains in premium.
<unk> premium brands grew in the quarter low single digits.
In Canada industry softness resulted in brand volume declines of 5% and in Latin America, They were down six 9%.
On the cost side America's underlying Cogs per hectoliter increased 11, 4% while in G&A decreased 12, 6%.
This is similar to those discussed for the consolidated results.
Turning to EMEA and APAC net sales revenue increased 23% and underlying pretax income increased 515% or over $23 million.
Positive net pricing favorable sales mix on record premium amortization fueled by the strength of Brian Klock quickly and positive channel mix plus net sales per hectoliter growth of <unk>.
114, 9%.
Financial volume decreased four 7% on the strength of Outback premium portfolio, including the benefits of stocking semicon related restrictions in the prior year period.
Brand volumes declined 1%.
While brand volumes grew in the U K and central and Eastern Europe that were more than offset by declines in our license and export business in markets impacted by the Russian <unk> in Ukraine.
On the Dod underlying Cogs per hectoliter increased 16, 5%. This is largely due to cost inflation, mainly high material transportation and energy costs.
Well as mixed from premium base.
Now, let's look at the full year.
Net sales per hectoliter were up nine 3% on strong local niche costing and positive sales mix across both business units.
Financial volume declined two 1%.
In line with brand volumes, which were down 2%.
Volume declines were due to the Americas, where brand volumes declined three 3%. After you made in Canada via industry.
And also the Quebec labor strike that impacted the second and third quarters of 2022.
Financial and brand volumes were asking the UK given the resilience of the UK consumer in the quarter and cycling prior year on premise restriction.
Turning to profitability underlying cost per hectoliter increased 11%.
Looking at our call back that the biggest driver was cost inflation, which was over 60% of the increase and due to similar drivers as in the fourth quarter and this was followed by mix, which contributed nearly 30% of the increase.
Now to be underlying cost per hectoliter to increase.
<unk> significantly five business unit.
With Americas, approximately 10% in EMEA and APAC.
Yes.
Yes.
And G&A increase.
7%. This is mainly due to higher people related G&A costs marketing spend declined for the year, but we continue to invest strongly behind our core brands at key innovation.
And in fact marketing business was up for the full year when excluding discontinued brands.
We delivered underlying free cash flow of $853 million for the year. This was down $230 million, primarily due to unfavorable timing of working capital and higher cash capital expenditures, partially offset by lower cash taxes.
Underlying free cash flow was below our guidance range largely due to unfavorable movements in working capital compared to our initial expectations and we do not expect these working capital movements impact us in 2023.
Turning to capital allocation, our priorities remain to invest in our business to drive top line growth and efficiencies.
And return cash to shareholders.
Capital expenditures paid with $661 million for the year at $169 million.
As we continue to expand our capability and Kevin Scott.
We continue to improve the health of our balance sheet by reducing net debt.
$562 million during the year.
We ended the year with Macy's of $6 billion, which is essentially all at fixed rate.
Our exposure to floating rate debt is limited.
Commercial paper and revolving credit facility.
Zero balance outstanding as of yearend.
We achieved a net debt underlying EBITDA ratio guidance of under three time coming in at two nine times at year end.
This is a dramatic improvement from the four eight times in 2016 at the time of the <unk> acquisition.
We remain committed to maintaining anytime improving our investment grade rating and strive towards a longer term leverage ratio target of approximately two five times.
And we continued our long history of returning cash to Ashley holders with a quarterly cash dividend of <unk> <unk> per share paid in the fourth quarter.
And on February the <unk> chip.
Our board declared a quarterly cash dividend of 41 per share an increase of 8%.
This is our second increase since we reinstated the dividend in 2021 and it aligns with our intention to sustainably increase the dividend.
Now, let's discuss our outlook and recall that this past year over year growth rate in constant currency.
Our 2023 guidance anticipates continued growth.
Softness in the beer industry and the impact of continued global inflationary cost pressures.
Expect low single digit growth for both net sales revenue and underlying pretax income and underlying free cash flow of $1 billion plus or minus 10%.
Now, let me walk through some of the underlying assumptions.
On the top line, we expect growth to be more right than volume driven as we continue to benefit from the strong global net cost in that we took in 2020 Q as well as premium amortization.
As a reminder, in 2022 in the U S. Our largest market. We took an average 5% increase in the first quarter and another 5% beginning in September and into the fourth quarter.
In terms of costs, we expect inflation to continue to be a headwind, but with our ongoing cost savings pricing and continued premium amortization, we expect to grow gross margin per hectoliter in both business units.
We also remain comfortable with our hedge commodities coverage in 2023, but again, the offsetting cost as I'll discuss that cannot be hedged and can be material contributors to call.
We also expect to continue to strongly support our core brands and key innovation and came to increase marketing dollar investments in 2023 basis supply yes.
<unk> taken regarding metrics, we expect capital expenditures include a $700 million plus or minus 5% Andrew.
Underlying depreciation and amortization of $690 million plus or minus 5%.
Net interest expense of $240 million plus or minus box.
And then underlying effective tax rate in the range of 21% to 23%.
In closing we are proud of our accomplishments in 2020, particularly amidst significant drug inflationary pressures.
We remained focused on continuing to navigate a dynamic macroeconomic environment and we are pleased to have a strong portfolio of brands that play across.
Fitments and the financial flexibility that enables us to continue to invest prudently in our business to support long term growth.
With that we look forward to answering your questions operator.
Thank you of course, if you'd like to ask a question. Please press star followed by one on your telephone keypad.
So Joe Your question. Please press star followed by two when preparing to 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 Bonnie Herzog of Goldman Sachs. Bonnie Your line is open. Please go ahead.
Hi, there this is <unk> on for Bonnie Thanks for the question.
Just had a couple of them on your EMEA APAC performance.
Your financial volumes across the broader region were much better than expected.
Would you break out for us how much of a tailwind the World Cup was and any other benefits that may be one off like the cycling of the on premise restrictions.
Pointed out.
In terms of contribution and then hoping to dig a little bit more on what youre seeing at the consumer level in central and Eastern Europe , specifically given the pressures on demand that we were talking about last year did you say that volumes actually recovered in this region and could you just give us an update on the consumer demand trends youre seeing there. Thank you.
Thanks, very much and good morning.
Far as EMEA and APAC is concerned yes, I mean, they drove top line growth in the quarter and yes, we did benefit from cycling Amit.
Related to on premise restrictions, which we had in 2021.
We benefited from strong pricing and mix as well in our above premium portfolio reached record levels and the strength of.
Big success brand like mid three <unk>.
The World Cup was a contributor but it wasn't frankly as much as we had expected for a couple of reasons. One is it was out of cycles. It's normally plug in this summer.
And secondly, they were there.
Were significant.
Rail strikes in the U K around that around that time, and so not only did that meet consumer demand due to the World Cup, but it also muted.
Expected demand that we were hoping for.
As the Christmas.
Holiday parties and spirit came through which didn't happen in 2021, both of those things with less than what we what we had expected.
Notwithstanding that.
Yeah.
Performance in APAC was was substantially better than 2021.
Nearly way we had hoped as far as EMEA APAC is concerned look the inflationary impacts that replacing all more notable in those markets.
Obviously, the specific conditions affecting Europe from Russia as well.
And there are challenges in the in the <unk>.
In the U K economy, there's no doubt about that.
Central Eastern Europe remains challenged market.
But in the UK to date market demand has been resilient, including demand for our premium brands.
Operator, the next question.
Of course, our next question comes from Peter Grom of UBS. Peter Your line is open. Please go ahead.
Hey, Good morning, guys. This is Brian Adams on for Peter Grom, Congrats on an awesome quarter.
Just thinking through the low single digit top line growth that you guys outlined this morning.
So you just talked through the rollover benefit from pricing in 'twenty, two along with a broader effort to continue to shift towards above premium I know youre targeting a third of the portfolio now.
And that should provide some positive mix, but just thinking through that low single digits for the year, how should we think about that broader breakdown between price mix and volume is still going to be mostly a price mix driven a fair in 'twenty three.
Thanks, Brian .
Yes.
You said in her remarks, it's going to be more right than it's going to be volume.
Obviously.
Near term.
Schumer behavior and consumer impacts as you can see in any consumer goods goods company is challenging and so we're cautious there from a from a volume perspective, so more rate than volume for sure and we've got the other thing going on in our top line.
Our contract Brewing Raj I mean, it's well known that we are exiting a large contract brewing arrangement, which.
Is coming to an end I think it's the end of next year than this year.
Is it transitioned yes, so a decent chunk of that volume comes out and Thats, obviously carries a fair amount of MSR with it now.
Now we are.
Confident that it will take a lot of complexity out of our business and reduce our overall.
Cost structure, and it's just going to make us a whole lot more efficient. So we're in a transition year from that as well so.
Hopefully that answers that.
Brian .
Next question operator.
Of course, our next question comes from Bill Kirk of.
And Ken Bill Your line is open. Please go ahead.
Good morning, Thank you everyone for taking the questions.
So my question is what is the right level of AD spend obviously <unk> had the year over year declines, but youre seeing some competitors increase and increase their spending on their core brands. So I guess the question is do you need to adjust your marketing strategies from 2022 levels. How should we think about maybe the response to <unk>.
Some of the extra marketing competitors are putting in the marketplace.
Thanks to the equation Bill look I mean.
We are very pleased with the strength of our marketing and the effectiveness of that marketing and we invested strongly behind.
Our core brands and key innovations and we plan to continue to do that.
I think it was in Tracy's prepared remarks not mine.
Excluded discontinued brands.
Marketing investments were actually up for the year marketing spend on our iconic core brands in aggregate was also up for the year.
Instant currency. So we think our marketing is working.
We have made some changes to our approach from a marketing investment point of view.
We've completely changed our approach to media to make sure that our dollars would really hard for us and we've now got more than 50% of our media spend in digital channels and we've been leading the way in places like streaming videos and we're into podcasting and sports predictions embedding as you saw from our latest Super Bowl program.
We've also completely overhauled our approach to performance based marketing.
To make sure that we get the absolute best.
Turn on AD spend and to maximize.
Our effectiveness.
So I guess, that's a long winded way of saying, we're making every single dollar work as hard for us as possible.
As it relates to some of our competitors.
I like where our brands are relative to our competitors I like where they all from a health point of view, where they are from a share point of view.
And.
Yes, I mean, if you increase 75 times over.
Relatively low base, it's still a relatively low number.
And as Tracy said, we're going to continue to invest heavily behind.
Brands that we are planning to increase our AD spend in 2023.
Thanks, Operator next question. Thank you.
Our next question comes from Andrea Teixeira of JP Morgan Andrea Your line is open. Please go ahead.
Hey, Good morning. This is Julian on for Andrea. Thank you for taking my question I wanted to pick up.
On the discussion around the topline guidance for this year can you just clarify if you have additional pricing plan for 2023.
The consumer environment, and then Gavin obviously.
Kind of a tough end to the year from a.
Volume perspective on the industry.
Can you just talk about what you're seeing year to date and maybe how much conservatism.
It's baked into the guidance.
Going forward based off of the trends exiting 2022 or are you, saying something.
Marketplace currently I guess, that's giving you some pause.
Okay.
Going on the let me make sure.
I couldn't catch all of it let's just stand back and look at what we did from a pricing environment more pricing point of view in 2022, we took a.
Reasonably strong price increase in the spring of last year.
And we took another strong price increase in the full.
In fact, it was it was it was at the higher end of our of the guidance that we've put out there from a from a pricing point of view.
The price elasticities that we saw in the spring Gi.
Actually well below historical levels I mean, it was still elasticity, but they were less than what we'd expected.
Since our full price increases.
A couple of months of data.
That is just the hedge elevated a bit but it's still below historical.
Levels so.
It's only been a couple of months, we continued to keep a close eye on how consumers are reacting.
Sure.
Price promotion environment Hasnt elevated.
As I said in my in my remarks.
And from a pricing point of view this year well.
We put large price increases as you know most of the country in the fall, but there were some markets, where we didn't take price in the fall and so in the spring of this year Youll see a few.
Nice increases there.
It will be fairly localized.
Not a broad sway us and I think as we look out to the balance of the year I would expect our price increases in the fall to be closer to where they've been from a historical point of view so.
Two 1% to 2%.
Yes, I think your other question was around volume and how we're feeling about that will and obviously the fourth quarter volume was was was down from a consumer spend point of view just like every other consumer goods company. We did see changed behavior from a from a consumer point of view, so that impacted our fourth quarter.
Retail sales.
<unk> volumes.
This was also one less trading day in the fourth quarter, which we don't adjust for it.
In our reported results so that had a meaningful impact and there was a little bit of pull forward from Q3 into.
From Q4 into Q3 as I hit a big price increase.
Year to date this year I'm not going to give you a <unk>.
Absolute number because obviously, we are not that far into the year, but I would I would tell you that our trading performance has improved from a volume perspective as we've as we've gone through which is not terribly dissimilar behavior than we saw the spring price increase where we saw some muted volume after that and we saw muted volume after after the full increase in balance.
Going back so that's.
Is that kind of summarizes for you and I hope I captured all your all your questions.
Operator next question.
Of course, our next question comes from Kevin Grundy of Jefferies. Kevin. Your line is open. Please go ahead.
Great. Thanks, good afternoon, and congrats everyone on a good year.
Two from me if I could Kevin one just a comment you made at a longer term outlook I wanted to drill down on that and then Tracy just on return of capital. So first one Kevin for you.
I noted with interest your comment that you expect higher top and bottom line growth going forward relative to what the company expects in 2023.
I would argue that's not much this get on your share price I guess number one number two does that imply a mid single digit top line and <unk> growth longer term maybe just.
Sort of drill down Gavin if you wouldn't mind, a little bit on some of the optimism around the outlook.
Also just sort of reconcile that with the impairment charge, we all get that it is non cash we understand that there is a higher discount rate being used but maybe just sort of reconcile those two things and then I have a follow up for Tracy. Thank you.
Okay, Kevin Yes, so from a midterm guidance point of view, obviously, we look at the total basket.
Of our P&L and look at what we expect from a pricing point of view, what we expect from our brand performance point of view is the plans and the additional AD spend that we're putting in place in 2023 has it has an impact our innovation pipeline and what's happening with our brands in EMEA APAC.
Canada.
Rebounding.
As we increase investment in Canada.
As well as the efficiency projects comes through.
Yes.
A more normalized cost of goods sold environment and in the out years so that.
That gives us confidence to give medium term guidance that is at a higher level than what we what we currently have four for the near term, where I think things are a little bit more.
And there is little bit more caution.
Around that it was a second part to that.
How does the impairment when you can handle that Tracy obviously, the interest rate environment.
Okay.
Yes.
And Kevin I'm sorry.
The.
We are required to do an annual <unk> payments exercise.
And it's really a mathematical equation of future cash flows and the big driver as you mentioned.
Input.
In the interest cost and I think you've seen that every week and then the inflationary impact.
That we are seeing on our costs, but.
We remain optimistic about the growth outlook for our company is as Kevin mentioned.
<unk> performance beyond 2023 and <unk>.
Particularly.
Optimism around.
America business unit, and we committed to achieving the topline and bottomline growth.
So to tie a bow around my just given I mean, obviously when we started our revitalization plan. The goal was to get to top and bottom line growth. We did that in 2022, we're guiding to that in 2023, and we expect to deliver that on a consistent basis now getting going forward given the way we offer from a company point of view with our brands.
And our overall cost structure I think you said you had a second okay.
Yes, yes, I'll follow up yet.
That makes sense. So just the cross currents between better delivery over the past few years I would say and then Kevin your optimism going forward with the higher discount rate, but I can make and chat with the regulatory ratio by Tracy for you real quick.
Monopolise time, but I think its important you guys have made tremendous progress with that leverage.
An extremely volatile environment, so now down to two nine times debt leverage targets, two and a half can.
Can you comment on the board's interest in returning even greater cash to shareholders, which seem to be near and would be very accretive, particularly from an EPS perspective, given where your stock is trading.
Maybe comment a bit on the on the timeline for for a return to a much greater share repurchase than we've seen recently, what the company's been deleveraging. Thank you I'll pass it on.
Yes, Thanks, Kevin look at capital allocation policies remain the same.
We want to invest in our business to drive sustainable top and bottom line growth.
As Kevin mentioned, we put money in the business, we re modernizing our breweries and we've got some some upgrades that are going in cap rates, which always helps in delivering cost savings and efficiencies.
The second bucket is reducing the dates.
We have a desire to maintain and over time improve our investment grade rating and.
I think we have made tremendous progress and have now given this sort of leverage target ratio of two and a half times, which.
We will give us much more flexibility from a capital allocation point of view and then the third bucket to your point is returning cash to shareholders. So we've raised our dividend twice since reinstating it in 2021, and our intention is to sustainably increase that dividend.
Now we do have a small buyback program that you're aware of.
Thank you and anti dilution program for employee equity grants.
But in terms of anything and because we run all our capital allocation decisions through our models.
Influencing.
We will provide the greatest return for our shareholders and we'll continue to have those conversations with our board.
Thank you. Our next question comes from Vivien <unk> of Cowen <unk>. Your line is open. Please go ahead.
Thank you good morning.
I was hoping you could expand on your medium term aspirations for continued positive mix shift.
Certainly youre beyond beer would seemingly be a key contributor to that but could you perhaps dimensionalize. The contributions that you would expect from alcoholic beyond Europe versus mono. Thank you.
Thanks Vivian.
Yes look I mean, we've made tremendous progress actually on our above premium and beyond.
Pillars of our revitalization plan.
It was a core tenant of our plan was to aggressively premium out of the portfolio.
And we have not taken that as I say to a record level of 28% and I think it was 23% when we started this process. So obviously.
<unk> efforts in this space continue.
We've got brands like type of Chico, and Blue Moon, and Peroni and simply sparked in emerging growth brands like <unk> in Europe as I said, we've got we've got mid threes.
Bulk premiums certainly is an area that I would expect us to continue to grow.
We put out a number there.
Most of third of of our MSR.
Medium term is going to come from above premium so that will certainly improve.
Improve.
Our overall mix on top of that.
Let a nice foundation in the spirits space both in the.
In the large bottle, but also we've got a really nice innovation coming with type of Chico's spirited.
In this in this current year, both of which four five trial and four type of Chico.
High expectations for so you can expect.
Above premium portfolio too.
Ever larger part of our enable larger part of our portfolio and that obviously has benefits all the way through the P&L.
Thank you.
Thank you. Our next question comes from Robert <unk> with Evercore ISI. Your line is open. Please proceed.
Hi, This is Greg on for Robert just a quick question and then maybe follow up after that but you just.
Went through it at $600 million and you delivered above that on your cost savings which is great.
Any color on kind of what the cost savings outlook is from from here any new targets. So just kind of how we should think through that and then just one quick follow up after that please thanks.
Yeah, I'll take that Christian Thanks, Craig.
So we.
And yes, we are very.
Very happy that we were able to over deliver on that $600 million savings.
Savings and now we have and implemented a new formal cost savings program that piece.
That would be communicating externally, but we obviously do have internal targets and we continue to expect cost savings. It's just a way of life at Molson Coors, we always seeking ways to improve our efficiencies.
Whether that be in terms of production or other areas that marketing that Gavin just spoke to.
So we'll continue to look for ways that we can continue to deliver cost savings, but no formal program at this stage.
Great that makes sense and then just a quick follow up is on your emerging growth portfolio. If you could maybe talk about you. Obviously went through some changes with la <unk> and some other things over the past few months, maybe just higher thinking about like a sales target for that if it.
Moved at all versus the $1 billion.
Previously and just kind of which of the core brands do you see driving the majority of the target or the growth going forward. Thanks, guys.
Thanks, Greg look at $1 billion Amazon target remains our ambition.
Could be a little challenge to achieve that Mark in 2023, because obviously, we are mindful of the challenging economic environment in which we're operating in our Latin American business, particularly both from a political and economic point of view that is fairly volatile.
There is industry softness in U S craft to be sure that's impacted our 10th and Blake business in your Rocky pointed out the discontinuation of <unk> and also our trust use CBD drinks business, but those are any slight headwinds to our MSR go.
Not all of our efforts are going to be successful in this in this space and we're absolutely not going to deliver NSO.
Targets or MSR, absolutely at any cost.
We try and balance.
Topline explorations with with an objective to improve.
Our overall margins in the emerging growth division as a whole so.
In terms of brands, where we see.
Strong performance I mentioned in my opening remarks, we've got type of Chico's spirited.
Which is coming.
This year, we've we've made some changes to how we are bringing to the market. We've learned a lot over the last three years.
We're moving to two scale and energy drinks and both full strength buddle spirits and also.
On the on the ready to drink side.
It's not a short term play for us Greg.
I think the progress we've made beyond beer.
It has been.
Is that a nice foundation for us.
Thank you. Our next question comes from Eric <unk> of Morgan Stanley Eric. Your line is open. Please go ahead.
Great. Thanks for the question.
First for Tracy.
Any color you can give us in terms of the phasing of revenue and profit delivery versus the guidance for the year.
In the last few years were clearly nothing but.
Nowhere close to normal so it's a little bit tough to.
Judge where you stand versus some of these back really unusual comparison and then for Gavin.
The past year, you had some really outsized great contribution from innovation, particularly turbo Chico and simply.
How are you looking at incremental innovation contribution this year, particularly as you cycle the template Chico national launch.
Of course, the hard Seltzer category has been soft.
So how are you thinking about incremental innovation this year.
Thanks, Eric I'll take the second question first and then Chris you can take the.
The other one look I mean I.
I think there's still lots of upside with the innovations that we launched last year, we launched simply spiked in the middle of the year and the reception for that was was amazingly positive and we werent able to meet demand as I think we've been very public about that we've got.
Process in place, where we will be able to meet demand. This year, so lots of upside and simply spiked and we've got great innovation coming with that brand as well right.
With the Peach coming.
The way, we're looking at our innovations.
We're looking at flavor more broadly so it includes <unk>, but it also includes F&B and RTD and when you look at those segments together, we grew more share than any other supplier in the last 52 weeks, we've got the number four and five cells with type of Chico and busy.
We've got the second fastest.
<unk> hard seltzer interpret chica.
In Canada, we do any large brewer growing share of hard seltzer. So we still got lots of upside with with our existing innovations that we just launched and as I said, we launching type of chico's spirited in the in.
In this year, we've got a nice line extension with Peach on on on simply spiked and the awareness for type of Chico restore a lot less than its largest competitor so.
We think we've got a lot of opportunity to drive more awareness for type a cheaper and improved in the maintenance base.
While improving momentum maintained the momentum that's already growing triple digits close do you want to cover off on the <unk>.
In terms of phasing look.
Please go to have quarter to quarter swings in our shipments in inventory levels, but we don't think and expect to have the same magnitude of shipments things as we have seen over the past several years.
That's a little bit about the top line.
Tim's off of the cost.
We're still in an inflationary period, and we do expect inflationary pressure to continue and be a cost headwind for the year, but we expect the impact of the cost inflation in our Cogs to slightly moderate in the back half of the year.
Yes.
We don't give sort of quarter by quarter guidance, but hopefully that helps you.
Thank you. Our next question comes from Nadine solid of Bernstein Nadine. Your line is open. Please proceed.
Hi, Thanks, two questions from me. Please the first on your 2023 underlying profit guidance are you anticipating that the 2023 pricing.
You spoke about earlier will be able to fully offset the input cost headwinds this year.
And then my second question in your prepared remarks, you called out consumers actively down trading to smaller pack sizes could you provide a little bit more color on this type of consumer behavior are you seeing consumers also down trade from one brand to another or at the moment does it just on the pack sizes, what assumptions about the health of the consumer and down trading.
Have you baked into your full year guidance. Thank you.
Thanks Nadeem.
Chris do you want to take the guidance question, yes.
And.
Look.
As Kevin said we.
We do expect.
<unk> top line to be rate, driven and benefiting from the 2022 costing and mix. We obviously also mindful of the <unk>.
<unk> impacts both the consumer and costs.
And input costs, and we've taken that into consideration, but as I said, we do expect to grow our gross margin per hectoliter in both business units.
So margin expansion on the gross margin line.
And.
And I think Thats right, yes.
So to your question Deane was around consumers and consumer behavior.
I think overarching the I'd say, we're not seeing anything terribly different than any other fast moving consumer good.
No.
The beer industry is no different we're not observing significant trade done which.
Which was the other part of your question across our portfolio all frankly in the industry of course, if that comes we think we've got the ideal portfolio to deal with it but we haven't actually seen it at this point in time.
And as I said in my prepared remarks, we are seeing consumers trading down maybe from us.
A <unk> 24, or 24% to 12 or $12 six.
Honestly that debt is negative from a volume perspective that contraction, but it's actually positive from a from a mix point of view.
For our organization, so hopefully that answers your question.
Thank you. Our next question comes from Chris Carey of Wells Fargo. Chris. Your line is open. Please go ahead.
Hi, everyone.
Hi, Chris.
I just wanted to follow up just quickly there and then and then asking the question, but Tracy you made a comment about your inflation the Cogs per hectoliter inflation.
<unk>.
I guess at this level into the front half and then and then fading can you maybe.
Yes, a bit more.
Specific about what you meant there or did you mean the rate of the Cogs per hectoliter inflation sustaining this kind of level and then trail down in the back half of the year.
We're looking for mid to high single digit underlying or just any any perspective, there and just what you think's going to be driving that between commodities.
Some of these non commodity costs like conversion and trade. So I just wanted to clarify that.
Yes, Thanks, Chris.
We don't give cogs per hectoliter guidance.
Just want to clarify.
Stay at this level.
And that's what I did say is that we do expect inflation to moderate in the back half of the year. So we still in an inflationary period.
We do so.
And headwinds for the year.
But again moderating in the back half and a lot of that driven on what we see in the forward curves for commodities.
Okay and then when you said gross margin expansion you, Matt total enterprise for the year next year I'm talking to.
Margin per hectoliter expansion growth in both of that business unit is what I said okay.
And that would lead to total company gross margin expansion.
Yes.
Okay great.
Alright, great. Okay. Thanks, so much and then just so thanks for clarifying that.
Then just on if I look at your 10-K.
Marketing obviously.
And it implies a G&A run rate up about high single I think you were very clear that the marketing was down because of.
The discontinued skus and you'd be investing in marketing would be up next year.
Clear.
But that underlying G&A rate would you expect that to ease next year or or are we talking about another year, where it was.
Inflation there is.
Okay.
M&A cost a bit more now.
So can you just talk about your ability to manage that line item.
Just exactly how you see G&A, excluding marketing for.
For next year. So thanks, so much.
Yes.
We manage our G&A I think really well and we'll continue to manage the costs related to.
<unk> G&A and we don't specifically give <unk>.
G&A gotten specs.
As I stated and Gavin figure will continue to invest behind the business, we will continue to invest behind our brands, particularly our core brands and innovations.
So much more than that Chris.
Chris.
Thanks.
Without giving the guidance.
Okay.
Thank you. Our next question comes from Philippe <unk> of Citi. Filippo. Your line is open. Please proceed.
Hey, good morning, guys.
First question on the U S beer industry, you mentioned soft industry performance in Q4, and it sounded like volume improved in January . So can you talk about your expectations for the balance of the year and then the second question on market share you've done a lot of progress improving the market share performance.
Both Coors light Miller Lite.
Are you assuming share gains for those two brands in 2023. Thank you.
Thanks, Felipe Yes, we have seen a rebound in.
In volume performance in the first part of this year compared to.
What we experienced in the fourth quarter of.
Last year, I think as far as the full year is concerned I would point you to chase's comments around the fact that our topline guidance is more rate driven than volume driven.
God gave us a little bit of clarification around that.
From a con.
Contract Brewing point of view and yes, you rightly pointed out that mineralized.
Coors light.
Our healthier than they've been in years grew combined <unk> in the U S. In the second half.
And that continues to be strong upward trajectory that we saw in 2021, we grew <unk> for both Coors light and Miller Lite.
In Canada, and they posted their strongest dollar shaped performance in over a decade.
So I think we've done an excellent job of ensuring Coors light in the middle of October very clear differentiated.
Brand positioning Coors light, obviously owns refreshment mineralized zones be a taste.
We bolt on those foundations with very strong consistent marketing programs made to chill for Coors light.
<unk> be a point of view.
And then on top of that we've got strong sales execution across China.
And grocery and we've we've actually outpaced Bud light in both feature and display for seven of our largest chain.
Retailers, so all of that translates into into a good share gains versus a.
Our competitors.
I think we've got really strong programs for 2023, starting with the Super Bowl, which wasn't just appointing Tom. It was it was a buildup for several months before that and we will continue to leverage that post.
Post the Super Bowl so.
We don't shy away from being the challenger.
And the challenge of position versus our.
Our competitors and we're going to make the dollars that we've got we're pretty hard for it for us how that translates into share gains.
Let's wait and see.
Thank you. Our next question comes from Camilo casual Wala of Credit Suisse. Your line is open. Please go ahead.
Everybody.
Folks.
Your focus off.
Can you talk a bit looking forward can you talk a bit about capacity.
And how youre thinking about cap utilization, given what we're observing with volumes.
Carlo I missed the first part of it but it sounded like you were giving US complement the last part of your first part of your statement. So I think I'm going to take that and we will run with it.
Far as capacity is concerned.
Yes.
I heard that part of it perfectly.
Look from a capacity point of view we.
Expanding capacity, where we need it right.
In terms of our senses.
Our flavored malt beverages.
And.
And a variety of taking capabilities that we're expanding there.
We don't provide specifics on utilization, but we feel good about our current capacity and its and its utilization we close two breweries in the U S over the last.
A few years and that improved our capacity utilization.
A lot we just booked two new state of the art breweries in Canada, and we're doing a.
Our multiyear modernization project.
At our Golden.
Breweries, so we're happy with our with our brewery footprint and of course within that we will always look at how we can be more efficient from alon point of view.
And look for ways to optimize that.
Thank you.
Final question of today comes from Christian <unk> of Bank of America Christian Your line is open. Please go ahead.
Hello, everyone you have Christian on for Bryan Spillane, Hey, It would be helpful. If you could share your outlook for the hard seltzer in ready to drink cocktails category for 2023, thanks for taking our question.
Thanks Christian.
Yes look I mean, we've shied away from giving specific guidance on hard seltzer is because it's a little challenging in new categories, but what we haven't shied away from us saying that.
We think hard seltzer here to stay.
And they know a foundational part of the overall.
Yes.
Segment, having said that as I said in answer to an earlier question. You know we are realistic about the about the trends that we're seeing there which is why our premium amortization on our strategy looks at flavor.
Flavors more broadly so it's not only celsis, but <unk> and <unk> and <unk> and so you can expect us as I said earlier to continue focusing on type of Chico.
Temperature goes number four in the country visitors number five.
In Canada, we would.
Drilling share nicely behind <unk> that we just launched that telco chica as well.
Simply spot has been a massive success for us since it launched in the summer of 2022, and we've got a strong hot tea proposition with Arnold Palmer spiked and as I said earlier, we're also launching type of Chico spirited in the first quarter of this year. So we're confident in the in the diversified approach to two flavor. It is.
How's us to benefit from the shifting consumer.
Preferences, and I think we've got the portfolio to win both nationally and.
Regionally, we saw that momentum in 2022, and we we intend to accelerated even further in 2023.
Thank you.
Thanks.
Yes.
Thank you at this time, we currently have no further questions. So I'll hand back over to Gavin Hattersley for any closing remarks.
And I will hand, it over to Greg.
Alright, Thanks, Kevin Thanks, Operator, I appreciate you all spending time with US. If you did have additional questions that we were not able to app or that you were not able to ask today. Please follow up with our Investor relations team over the over the next days and weeks to come.
Look forward to talking with many of you as the year progresses and with that thanks, everybody for participating in today's call have a great day.
Ladies and gentlemen, thank you for joining today's call you may now disconnect your lines.
Yeah.
[music].
Yes.