Q4 2023 Molson Coors Beverage Co Earnings Call
Most island, good day and welcome to the Molson Coors beverage company fourth quarter and fiscal year 2023 earnings Conference call. You can find related slides on the Investor Relations page of the Molson Coors website with that I'll hand, the types of Traci Mangini director Investor Relations.
Traci Mangini: Thank you operator, and Hello, everyone. Following prepared remarks today, we look forward to taking 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 the IR Department in the days and weeks that follow.
Traci Mangini: Today's discussion includes forward looking statements actual results or trends could differ materially from our forecast.
Traci Mangini: For more information please refer to the risk factors discussed in our most recent filings with the SEC, we assume no obligation to update forward looking statements GAAP reconciliations for any U S or non U S. GAAP measures are included in our news release.
Traci Mangini: Unless otherwise indicated all financial results. The company discusses are versus the comparable prior year period in U S dollars and in constant currency when discussing percentage changes from the prior year period.
Traci Mangini: Also U S share data references are sourced from sarcoma unless otherwise indicated.
Traci Mangini: Further in our remarks today, we will reference underlying pretax income, which equates to underlying income before income taxes on the condensed consolidated statements of operations.
Gavin: Over to you Gavin.
Gavin: Thank you Tracy and thank you everybody for joining us today.
Gavin: Before we get started I want to mention that Tracey Joubert, Chief Financial Officer is unable to attend today, we moved our earnings date earlier. This year. So it doesn't conflict with Cagny and Tracey had a very long standing firmly commitment at this time.
So Greg <unk>, Vice President of commercial finance and Investor Relations will be filling in on her behalf for this earnings call and Youll see Tracy next week at Cagny.
Gavin: You know it just started last year no burden.
Gavin: Absolutely nobody could have predicted what would happen in the beer industry.
Greg: We're just growing the top and bottom line of this business and we are committed to doing it again in 2023.
Greg: Since then we increased our expectations for the full year not once but twice.
Greg: We've continued to raise the stakes and I'm proud to say that once again, we have delivered what we said we would.
Greg: In 2023 global net revenue grew more than 9% and we grew our bottom line by nearly 37%.
Greg: These are our highest reported dollar results on record.
Greg: Uh huh.
Greg: On top of the already impressive results in 2022.
Greg: We've proven that Molson Coors is the kind of business that can turn itself around deliver against its commitments and continued to grow no matter the volatility of the external environment.
Greg: Every year for the past three years, our industry has faced challenges.
Greg: We've gotten good at managing them, even when a massive enough to permanently alter the beer industry.
Greg: And every year for the past three years, we have navigated successfully through the challenges we have delivered against our vision.
Platforms across the U S.
We've gotten great responses from retailers for both of these launches and we plan to support them with strong marketing and sampling Activations in every region of the country This spring and summer.
So we are very confident we can go off a tremendous results from 2023, and we are very confident in the momentum of our brands and our plans for 2024.
So you can be confident that we're going to deliver what we say we will deliver just as we have for the past few years.
We are confident because we've weathered every recent challenge imaginable chat.
Challenges in our industry and challenges in the macro environment.
And from that perspective, we continue to see signs of improvement.
Contrary to conventional wisdom U S beer industry volume trends improved during 2023, and particularly in the fourth quarter, which was consistent with strong improvements in consumer spending.
In fact, the overall beer category gained dollar share of total alcohol beverage in 2023.
Our brands led the industry volume improvement during 2023, and we are focused on our position as the leader of this industry.
So we plan to grow Molson Coors topline again in 2024.
But we are cautious about the year ahead of costs.
While inflation has come down there are still plenty of reasons to be wary about the macro environment.
But our strong results give us confidence in our ability to deliver in 2024.
Another a number of you remain skeptical of our ability to grow this year.
You were skeptical in 2022 and also in 2023 with.
But the numbers don't lie we delivered what we said we would.
So for 2024, yes, what I will say, we are committed to growth.
And for the long term, we have shared our growth algorithm and we intend to deliver on it just as we have delivered on what we have said we would over the past four years.
And with that I'll turn it over to Greg to share some details on our financials and our guidance.
Okay.
Thank you Kevin.
2023 was an incredible year for our company or.
Our net sales revenue grew an impressive nine 3% with strong growth from both business units.
Top line performance was driven by favorable global net pricing.
<unk> volume growth and positive sales mix.
Our above premium portfolio comprised 27% of total net brand revenue for the year and that was with a tremendous strength in our core power brands.
In fact, our above premium brands net rent in our above premium brands grew net brand revenue by 6% for the year.
Behind successful innovation like simply Spike and continued growth in Missouri.
Financial volume increased one 8% while brand volume grew two 2%.
Our supply chain team did an outstanding job in meeting the high consumer demand in the U S leading to financial volume growth of three 5% in brand volume growth of five 3% in the year.
Traci Mangini: And we delivered strong margin expansion as cost savings and volume leverage significantly offset inflationary pressures and higher and G&A spend.
As a result underlying pretax income grew 36, 9% also driven by both business units and exceeded our expectations.
Traci Mangini: Underlying free cash flow climbed to $1 4 billion.
Also exceeding our expectations.
Traci Mangini: This enabled us to continue to strategically invest in our business further strengthen our balance sheet raise our dividend, 8% and repurchased approximately 150 million shares under our new share repurchase program that we announced in October.
Traci Mangini: So as Gavin discussed we've entered 2024 with a strong foundation. This gives us confidence for continued growth in 2024, which aligns with our long term growth algorithm for net sales revenue and underlying pre tax income.
Traci Mangini: But before we get into our outlook, let's discuss the fourth quarter.
Traci Mangini: Both business units contributed solid top line growth of 5%.
Traci Mangini: Underlying pre tax income increased two 1% as we continued to invest strongly.
Traci Mangini: And our brand.
Traci Mangini: Which is particularly impactful to the bottom line in a typically lower profit quarter.
Traci Mangini: Now looking closer at the topline.
Traci Mangini: Favorable net pricing and sales mix drove net sales per hectoliter growth of four 2%.
Gavin: Favorable sales mix was due to lower contract brewing volume related to the wind down of the past agreement ahead of its termination at the end of 2024.
Gavin: <unk> financial volume increased <unk>, 8% as growth in Americas was offset by declines in EMEA and APAC.
Greg: America's shipments increased two 2% with U S domestic shipments up four 3% driven by the strength of our core premium brands.
Greg: However, as expected lower contract brewing volume related to the <unk> agreement with a headwind of approximately 2% to America shipment volume.
Gavin: And also recall that in the third quarter of 2023 due to our strong U S brewery performance, we shipped ahead of expectations.
So we entered the fourth quarter with healthy U S inventory levels.
Greg: This allowed us to give our employees some well deserved time off during the holidays and to conduct routine system maintenance, while positioning us to build inventory in the first quarter ahead of peak season.
EMEA and APAC financial volume declined 3% on lower brand volumes.
Greg: Consolidated brand volume growth was four 3% as expected growth accelerated versus the third quarter and underscores the continued strong momentum of our core brands.
Greg: Now looking by market America's brand volume increased six 7% and that was led by the U S where brand volumes were up eight 5%.
Greg: Coors Light Miller Lite, and Coors banquet performed strongly each up double digits.
Greg: And Canada brand volume increased <unk>, 7% benefiting from growth in our above premium portfolio.
Greg: While industry softness weighed on brand volume, we continued to grow share in Canada for the quarter, adding nearly two share points for the quarter.
That was a strongest growth of any major brewers brewer in the country.
And in Latin America, while mix improve brand volume was down 5% and this was largely due to challenging economic conditions in some of our key markets in the region.
Greg: And in EMEA and APAC volume brand volume declined two 2%. This was due to industry softness in the UK off premise, which partially offset the strength of our above premium portfolio.
Greg: And inflation continued to pressure central and eastern European performance.
Speaker Change: Now turning to costs.
Speaker Change: Your line cost of goods sold per hectoliter was up one 4% with notable differences by market.
Speaker Change: As expected inflation was a headwind in the quarter, partially offset by cost savings and a 30 basis point benefit from volume leverage.
Speaker Change: In the Americas underlying cost of goods sold per hectoliter decreased 0.7% as cost savings volume leverage lower logistics costs more than offset the impact of direct materials inflation.
Speaker Change: In EMEA APAC, we continue to see persistent inflationary pressure with underlying cost of goods sold per hectoliter up eight 8%.
These increases were driven by direct materials materials, and logistics costs as well as unfavorable mix from premium position.
Speaker Change: Underlying marketing general and administrative expenses increased 17, 4%, we invested strongly behind our brands, increasing marketing spend over $50 million in the quarter.
Speaker Change: Our focus was on retaining our existing drinkers and attracting new ones.
Speaker Change: Including using addressable channels or places, where we can use data to more precisely target them.
Speaker Change: And continuing our push behind live sports.
Speaker Change: General and administrative expenses were also higher as variable compensation expense reflected the strong operating performance for the year.
Underlying free cash flow was $1 4 billion up 66, 5% for the year.
Speaker Change: This exceeded our expectations in part due to the timing of working capital movements at the end of the year.
Speaker Change: And utilizing our strong free cash flow and given our greatly improved financial flexibility, we continue to deploy capital in ways that we believe will drive the greatest shareholder value.
Speaker Change: We continue to invest in the business putting to work approximately $690 million in capital projects like the Golden brewery modernization and investing in capabilities to drive efficiencies cost savings and sustainability.
Speaker Change: And we supported our strategic growth initiatives under our string of pearls approach with bolt on acquisitions like Blue run spirits and upping our investment in <unk>.
Speaker Change: We continued to Delever, our balance sheet with a cash repayment of $500 million and Canadian debt.
Speaker Change: Upon its maturity in July coupled with higher cash balances. We ended the year with net debt of $5 4 billion.
Speaker Change: Down over 600 million for the year.
Speaker Change: Given this and our strong underlying EBITDA net debt to underlying EBITDA was two two times at year end.
Speaker Change: Aligned with our long term goal of under two five times.
Underscoring our enhanced financial strength, we're pleased to have earned credit rating upgrades from our ratings agencies in the fourth quarter in.
Speaker Change: In October S&P global upgraded Molson Coors to Triple B and in November Moody's upgraded us to <unk>.
Speaker Change: We continued to return cash to shareholders.
Speaker Change: In 2023.
Speaker Change: We paid quarterly cash dividends totaling $1 64 per share and up 8% from 2022 and today as part of our intention to sustainably increase the dividend, we announced our quarterly dividend of <unk> 44 per share to be paid on March 15th 2024.
Speaker Change: And this represents an increase of 7%.
Speaker Change: Now lastly, as announced in our strategy day on October three our board authorized a new share repurchase program of up to $2 billion over the next five years.
Speaker Change: Under our sustained an opportunistic approach we were active in the market during a two month open window in the period repurchasing approximately two 5 million shares.
Speaker Change: For a total cost of approximately $150 million.
Speaker Change: This equates to a repurchase of over 1% of our outstanding shares in roughly two months.
Speaker Change: Now, let's turn to our outlook.
Speaker Change: For 2024, we are issuing guidance of low single digit net sales revenue growth on a constant currency basis.
Speaker Change: Mid single digit underlying pre tax income growth on a constant currency basis.
Speaker Change: Mid single digit underlying earnings per share growth.
Speaker Change: Underlying free cash flow of $1 2 billion plus or minus 10%.
Speaker Change: Underlying depreciation and amortization of $700 million plus or minus 5%.
Speaker Change: Net interest expense of $210 million, plus or minus 5%.
Speaker Change: An underlying effective tax rate in the range of 23% to 25%.
Speaker Change: And capital expenditures incurred a $750 million plus.
Speaker Change: Plus or minus 5%.
Speaker Change: Now, let me walk through some of the underlying assumptions.
Speaker Change: We expect annual net pricing to revert to historical levels in the U S and Canada Thats been approximately 1% to 2%.
Speaker Change: And Europe.
Speaker Change: Is typically priced closer in line with inflation.
Speaker Change: We also expect mix benefits from premium position as we advance toward our medium term goal of reaching approximately one third of our total global net brand revenue from above premium portfolio.
Speaker Change: Financial volume is expected to be impacted by the <unk> contract brewing arrangement, which terminates at the end of this year.
Speaker Change: We expect it to be a headwind of approximately 3% or.
Speaker Change: Four 2 million hectoliter to Americas financial volume with the wind down continuing throughout the year.
Speaker Change: Additionally.
Speaker Change: We anticipate financial volume performance to be strongest in the first quarter as we build inventories coming into the peak season.
Speaker Change: In the U S.
Speaker Change: Gross profit is expected to increase driven by mix and cost savings.
Speaker Change: While inflationary pressure is expected to moderate from 2023, we expect that underlying cost of goods sold per hectoliter will increase due to a combination of continued inflation, including material conversion costs.
Speaker Change: Higher costs related to premium position.
Speaker Change: Lower volume leverage as compared to 2023.
Speaker Change: Also while spot prices are currently lower than they have been over the past two years recall that we have a longer term hedging program and as a result, we expect to experience a headwind in 2024 from certain commodity hedges put in place in 2022 and 2023.
Speaker Change: We do not anticipate significant changes in total M G&A.
Speaker Change: And plan to put the right commercial pressure behind our brands and key innovations.
Speaker Change: We'll do this through strong media plans at both the local and national level through live sports, including another Super Bowl commercial.
Speaker Change: And through robust retail programming that drives consumer engagement.
Speaker Change: G&A is expected to face an easier comparison, given the increase in incentive compensation in 2023 related to the significant outperformance versus our initial plan.
Speaker Change: Underlying earnings per share growth is the one metric that is below our long term growth algorithm.
Speaker Change: This is largely due to a higher forecasted underlying effective tax rate.
Speaker Change: Underlying.
Speaker Change: Free cash flow guidance is impacted by working capital timing that benefited 2023, as well as slightly higher capital expenditures.
Speaker Change: So in summary.
Speaker Change: We're very proud of our performance in 2023.
Speaker Change: We enter 2024 with strong brands and exciting innovation pipeline compelling programming.
Speaker Change: Strong and supportive distributor partners.
Speaker Change: More retailers shelf space and tap handles.
Speaker Change: And the financial flexibility to balance growth and reinvestment.
Speaker Change: This gives us confidence in our ability to deliver our long term growth algorithm in 2024 and in the years to come.
Speaker Change: With that we look forward to answering your questions.
Speaker Change: Operator.
Speaker Change: Thank you.
Speaker Change: I Wonder if you would like to ask a question today. Please press star followed by one on your telephone keypad announcements to queue for parents ask a question. Please ensure you're on mute locally.
Speaker Change: Our first question comes from Andrea Teixeira from Jpmorgan. Your line is now open. Please go ahead.
Andrea Teixeira: Good morning, and thanks, Scott and Greg just on.
Andrea Teixeira: The assumption is for you guys right. So are you expecting it seems from the phasing that useful.
Regarding first quarter, where the volumes are you looking at volumes being stronger.
Andrea Teixeira: Are you assuming market share continues to build from where you left off in the fourth quarter.
Andrea Teixeira: Some volume perspective of course, perhaps.
Andrea Teixeira: And I appreciate the color on the impact through the year, but on an underlying basis in the U S. How much are you expecting foreigners should behave in 2024. Thank you.
Speaker Change: Thanks Andrea.
Speaker Change: Couple of things I would say.
Speaker Change: <unk> CEO Christian Firstly, we believe that the changes in the U S beer industry are permanent.
Speaker Change: And we're off to a very fast start in Q1, the momentum that we saw in <unk>.
In Q4 has continued into into Q1 in the U S. Most.
Speaker Change: Molson Coors is leading all brewers and year to date dollar share growth, but growing one four points. We are ahead of conservation share growth.
Speaker Change: Abi continues to decline more than any other major brewery in the U S. Using about four five points year to date.
Speaker Change: From an industry point of view, we would expect the U S industry to fall back to the sort of flat to down one.
Speaker Change: Label, and we would expect to gain to gain share as we as we continue into this year.
Speaker Change: And as you rightly pointed out lots of drivers on multiple levels.
Speaker Change: Live is to support our.
Speaker Change: Our top line growth algorithm, and obviously that includes pricing, which we've said it'll be in the sort of historical 1% to 2% range.
Speaker Change: It is market by market, we would expect to get pricing in Canada, and EMEA APAC as well.
Speaker Change: It includes positive mix from our continued premium amortization of our portfolio and of course, you Rocky point to us the headwind of of past when you put all those factors together and that gets to all of them.
Speaker Change: Guidance for this year of low single digits.
Speaker Change: Thanks, Andrew.
Speaker Change: The next question comes from Bonnie Herzog from Goldman Sachs. Bonnie Your line is open. Please go ahead.
Bonnie Herzog: Alright, thank you the mining.
Bonnie Herzog: I had a question on your underlying EPS growth guidance.
Bonnie Herzog: Yeah sure why Youre now introducing EPS guidance and then hoping you could bridge your mid single digit pretax income growth guidance with just the mid single digit EPS growth guidance I guess.
Bonnie Herzog: I'm wondering why.
Speaker Change: There's no leverage on the bottom line and then in the context of that how should we think about share repurchases. This year.
Speaker Change: Thanks Bonnie.
Bonnie Herzog: We introduced the the long term growth algorithm with EPS at <unk>.
Bonnie Herzog: Investor day in the fourth quarter of last year. So we wanted to make sure that our guidance that we gave now for 2020 full.
Bonnie Herzog: Covered those three elements of our guidance that we launched at the at your Investor Day in EPS was obviously one of those.
Bonnie Herzog: There is of course that was long term guidance that we gave at Investor day, and as Greg said the reason why we are.
Bonnie Herzog: We're slightly less from an EPS point of view there.
Bonnie Herzog: Our long term algorithm is our is our tax rate, which which goes up a couple of percentage points.
Bonnie Herzog: Given the mix of where we make our profitability in <unk>.
Bonnie Herzog: Rates around the around the world. So that's the that's the main driver.
Speaker Change: Was there anything else did I Miss anything else.
Speaker Change: Share repurchases share repurchases, that's right look we've got an approach Barney.
Speaker Change: For our share purchase reprogram, which is both sustained and opportunistic.
Speaker Change: We've got a sustained.
Speaker Change: The.
Speaker Change: Ongoing repurchase and we've got an opportunity to repurchase the programs 2 billion.
Speaker Change: Sort of roughly equates to $400 million over.
Speaker Change: Each year over the over the.
Speaker Change: Five year period, and we will.
Speaker Change: Take our cash holdings into account our capital allocation policy.
Speaker Change: We will do things rod from a shareholder point of view as we as we execute that program.
Speaker Change: The next question comes from Peter Grom from UBS Pizza. Your line is open. Please go ahead.
Speaker Change: Yes. Good morning, guys. This is actually Bryan Adams on for Peter Thanks for taking the question. So just kind of rounding out the conversation on the topline I wanted to take a look at the EMEA and APAC business, specifically on the volumes I know you guys mentioned, a weak consumption in the U K as well as some some.
Stained pressure in central and Eastern Europe is the primary driver and obviously that's been a troubled area over the last.
Bryan Adams: Several quarters here, but just curious to hear your view as to where things stand in these markets versus kind of where they've been over the last 12 months has there been any sequential improvement.
Bryan Adams: Envision a return to volume growth in the near term or should we should we expect the premium amortization to be the primary driver in 'twenty four.
Speaker Change: Thanks, Brian look EMEA APAC last year had a tremendous year, we grew top and bottom line double digits and I don't think we have done that for 400, while in terms of the various markets in which we operate central and eastern Europe, we've been very clear about that over the last six or so quarters that the consumers more challenged in that market.
Speaker Change: We are seeing signs of lowering inflation.
Speaker Change: And a lower impact for that consumer and so.
Speaker Change: Our expectation is that that is going to continue to improve as we as we head into into 2024 in the UK. You are right. We've had two slower quarters from an overall industry point of view for Q3, and Q4 Q3 was largely weather driven Q.
Speaker Change: Q4 was largely off premise driven.
Speaker Change: The there was a fairly substantial excise increase in the off premise of around 10%.
Speaker Change: In the U K and of course that probably had somewhat of a negative effect in the fourth in the fourth quarter.
Speaker Change: But the UK consumer has remained remarkably resilient and.
Speaker Change: Our expectation is that will continue.
Speaker Change: You're pointing to a premium amortization, yes, when you have such a tremendous success with the launch of <unk> in the U K.
Speaker Change: Who would have thought you could launch a brand at the beginning of the pandemic in the on premise and three years later it would have the the share that it has in the on and off premise and be well north of 1 million hectoliter is already and what's even more surprising is actually the low awareness that exists so that brands. So there's a lot of runway for us to drive.
Speaker Change: <unk> not only in the in the UK, but we're also launching it in Bulgaria, and we're launching it in Canada.
Speaker Change: As we head into this year.
Speaker Change: Thanks, Brian The next question comes.
Speaker Change: The next question comes from Robert <unk> from ethical Costa. Your line is open. Please go ahead.
Robert: Great. Thank you very much.
Robert: Gavin.
Robert: Your team on the supply chain side, and the brewery side really did a fantastic job last year.
Robert: Given the.
Robert: Dropped and yielding change and the business dynamics.
Robert: And just did a great job under those circumstances, though and given the extent of the change.
Robert: Im assuming that you didn't or would have been very difficult to kind of optimize the system. Both in terms of the breweries in the logistics.
Robert: <unk> had a little bit more time now.
Think to do that so kind of looking in on 2024.
Robert: <unk>.
Robert: Have you been able to get unlocks there make the system more.
Robert: Efficient given the dramatic changes in the volumes obviously, the PBR is going to have an impact but this is going to be a higher margin product that youre going in there. So there is a chance to re optimize there and then in that context.
Robert: I'm, a little bit surprised that the.
Yes.
Robert: Per hectoliter are going to going to still go up.
Robert: Given what will still be very strong volumes and declining.
Robert: Aluminum costs. So maybe if you can kind of put that all together and give us some context. Thank you.
Speaker Change: Thanks, Rob look I'll start and Greg can add some color on Cogs as well, but first things first I think our supply chain team has done an amazing job over the last three years reacting to almost every imaginable.
Speaker Change: Crisis.
Speaker Change: And they've got battled hardened and did a tremendous job of reacting to this.
Are those permanent industry shift that took place in April yes, we added opportunities to optimize we continue to optimize the sourcing of oil.
Speaker Change: All of our peers between breweries and we've continued to do that and we'll continue to do that.
Speaker Change: On a on an ongoing basis.
Speaker Change: In terms of.
Speaker Change: Obviously, perhaps coming out directly point to the fact that that will give us an opportunity to optimize even further it reduces a lot of it takes a lot of complexity out of our business allows us to do longer runs of our own higher margin brands as far as Cogs is concerned look theres a lot of factors that go into Cogs.
Speaker Change: Not just operating leverage.
Speaker Change: One would obviously be.
Speaker Change: You know as we as we.
Drive towards our above premium goal.
Speaker Change: Premium products come at a higher cost to make so those those certainly negatively impact overall Cogs, Greg why don't you just give some color on on Cogs, Kevin. Thank you. So I think you hit on that.
Greg: Large headwind right as we as we talk about our premium position and move towards that one third goal that's going to be a headwind to cost of goods is beneficial for our business, obviously overall, but will be a headwind to cost of goods. We do see material cost inflation material conversion costs are going to be a headwind for us this year.
And obviously as I said in the prepared remarks, even though spot prices have come down we feel we still do have with our longer term hedging program. Some hedges that are going to be headwinds for us.
Greg: And that were layered on in 2022 and 2023. So those are the big drivers, thanks, Greg and Rob that'll just sort of reps up into our guidance of a full four underlying profit, which is which as you know.
Greg: Mid single digits in line with our long term algorithm.
Speaker Change: Thanks, Rob.
Speaker Change: The next question comes from Philippe <unk> from Citi. Your line is open. Please go ahead.
Philippe: Hey, good morning, everyone.
So I wanted to go back to the guidance I want to clarify clearly you mentioned Q1 is going to have a very strong volume performance, but Gavin are you assuming all saw particularly in the U S volume growth in the balance of the year.
Philippe: Obviously, youre going to cycle, a much tougher comps in the balance of the and even assuming.
Philippe: Youre going to have permanent changes that would imply further share gains. So just any color on the volume performance in the U S. Post Q1 will be it will be helpful.
Philippe: Yes.
Speaker Change: Yeah. Thanks look I mean, maybe just a comment around the overall industry Rod as I said.
Despite the headlines <unk> read the overall beer category grew dollar share of total alcohol beverage in 2023.
Speaker Change: I think thats important context, when you consider consumer habits.
Speaker Change: Which essentially underpins your Christian as well.
Speaker Change: We've got a lot of levers from a top line.
Point of view, we've got pricing.
Speaker Change: Positive mix from premium amortization.
Speaker Change: And notwithstanding.
The comps which are coming in.
Speaker Change: In the second quarter. It is our expectation and goal that we will continue to take.
Speaker Change: To take market share.
Speaker Change: Okay.
Speaker Change: The next question comes from.
Bernstein: From Bernstein.
Bernstein: Your line is now open. Please go ahead.
Bernstein: Yes, hi, Thank you everybody two questions for me one just on the quarter, what exactly surprise to the upside in Q4 for constant currency underlying income before tax to come to that 2% increase versus I believe the previous guidance was for a decline and then my second question a little bit more long term.
Bernstein: Called out I think in your prepared remarks, the belief that you have the share shifts that we've been seeing in the U S. Our permanent could you give us a bit more color as to your conviction on will you be maintaining all of that share into 2024, I ask this especially in light of President Trump's favorable social media posts for Bud light, which I know is probably on the minds.
Speaker Change: Any people on this call so any data points or surveys that you could point to would be very helpful. Thank you.
Thanks Nadine.
Speaker Change: Look on your on your first question not much surprised us in the fourth quarter.
Speaker Change: If I had to point to one thing maybe the industry performed a little better than our U S market.
Speaker Change: Than we had originally expected it to and so that drove up our underlying profit to slightly exceed our guidance I mean, it wasn't a lot right I mean, it was we would.
Speaker Change: We were just under 37%, which.
Speaker Change: In the greater scheme of things is not a lot of dollars.
Speaker Change: When you compare it to our overall underlying profit so yes.
Speaker Change: More or less things were as we expected EMEA APAC actually did a little.
Speaker Change: Little better than we expected, Canada is a little tiny little bit worse in the U S.
Speaker Change: Did better but overall there is nothing really I can point out that was a was a big half for us.
Speaker Change: In terms of your other question as to what what gives me confidence that we can sustain.
Speaker Change: Share gains that we've got in the U S look I mean, the gains we've seen in our core brands have been consistent for over nine months with growing in every region every channel and with every major customer in the United States and this.
Speaker Change: At this point, we believe that the shifts in the U S. Beer industry are permanent we're off to a fast start in Q1 as I said momentum is continuing.
Speaker Change: We're leading all Brewers and year to date dollar shave.
Speaker Change: Gross our data shows that the majority of consumers who switched to our brands post April have stayed with us through 2023, and then much more loyal to our brands and historically so.
Speaker Change: Yes, I mean, I would expect one of our competitors will almost certainly claim that anything better than minus 30% is a big win but the reality is there's no reason to believe that these buyers are suddenly going to revert.
Speaker Change: April.
Speaker Change: We do expect strong continued growth in Q1, we expect it to continue to follow the pattern we saw last year.
Speaker Change: Signs of this with dominant mentum in Q4.
Speaker Change: For example, large volume growth in Q4 was higher than it was in Q2.
Speaker Change: So we've got multiple sales.
Speaker Change: Tailwind from from it from a sales perspective, and maybe just run a couple of those for you now and given.
Speaker Change: The high interest in this in this particular area.
We expect even more space at retail starting in Q2, when we will start to see the the.
Speaker Change: The benefit from from spring resets.
Speaker Change: The majority of major retailers do full resets in the screen, both nationally and from a regional point of view and we expect to be the biggest beneficiary of these of these starts guidance we've already seen as I've said in my opening remarks.
Speaker Change: Several of our chain retailers.
Speaker Change: That put space for our core brands well ahead of the 6% to 7% guidance that we saw in summer.
Speaker Change: In fall of 2023, and that's including some larger retailers, we expect to have much better and stronger display activity in the first half of this year, we are already seeing that with the Super Bowl and the Lady.
Speaker Change: Full weeks of a.
Speaker Change: Super Bowl retail program, Molson Coors getting more dollar and volume share of displays than any other U S Brewer and.
Speaker Change: And our Brinci.
Speaker Change: I don't know about a 25% lift in sales when they're when they're on display so.
Speaker Change: Last year, we were a clear winner on displays and we we expect that to be the cases as we start cycling in in April and then.
Speaker Change: The final point, because I've gone on a little here maybe is in the on premise, it's not letting up.
Speaker Change: We're by far the largest share gainer in the channel last year. We grew three three times more shares as the next major brewer.
Speaker Change: <unk> was constellation.
Speaker Change: Just to put that into perspective, Chris not admitted at each grew more in dollars than the on premise and constellation is as a total brewer.
Speaker Change: As of the latest 12 week <unk>.
Speaker Change: C J Nielsen.
Speaker Change: <unk>.
Speaker Change: Now, let me stop there I could go on into their marketing campaigns that we've got for two solar and familiar a lot, but there are so many reasons to believe Nadine and we have <unk>.
Strong confidence in the guidance in which we have given.
Speaker Change: Yeah.
Speaker Change: The next question comes from Bill Cook. It Roxanne can fill your line is open. Please go ahead.
Bill Cook: Thank you I'm going to try the Cogs per hectoliter guidance again, maybe regionally and I ask because.
Bill Cook: I think Americas Cogs per hectoliter was down year over year in <unk>.
Bill Cook: Is it fair to expect that to continue regionally and in the Americas, but Jeff in Europe. The Cogs per hectoliter is up enough year over year for the total company Cogs per hectoliter to be up in 2024.
Jeff: Well look you are right I mean, we do have regional differences in our cost of goods sold all driven by.
Jeff: All the factors that go into cost of goods sold from cost savings programs too.
Jeff: Premium amortization, obviously the U S is coming off a smaller base from our premium amortization point of view than EMEA APAC is.
Jeff: The U S will be more impacted negatively by.
Jeff: Our growth in the in the above premium and for example, EMEA and APAC would be inflation is slightly higher than.
Jeff: In Europe at a macro level.
Jeff: But as Greg Rodney pointed out our hedging program is designed specifically it's been this way for.
Jeff: More than 10 years to eliminate.
Jeff: The highs and lows of of our input input costs.
Speaker Change: You're probably looking for more detail than we're willing to.
Speaker Change: To give you.
Speaker Change: There are so many things that go into into Cogs and that all led us up into our guidance.
Speaker Change: Of mid single digits for four underlying pre tax.
Speaker Change: The next question is from Chris Carey of Wells Fargo. Your line is open. Please go ahead.
Chris Carey: Hi, Thank you for the question.
Kevin can you can you just comment on the.
The portfolio outside of Millercoors, and how you feel about shelf.
Chris Carey: For this year.
Chris Carey: And then separately just from a cash perspective, obviously, there's a lot of debates about.
Chris Carey: Growth specifically on the top line can you just maybe let US know how you would be thinking about deploying the balance sheet should.
Chris Carey: Sure.
Chris Carey: The fundamental picture become a little bit less as you expect as the year progresses said another way if volumes come in a little bit short would you lean in on.
Chris Carey: Some of your buyback initiatives frontload those a bit more than you might have otherwise done on the multiyear plan. So any perspective on cash use would also be helpful. In addition to those.
Chris Carey: Just how.
Chris Carey: How the businesses are setting up for this year from a shell perspective on the non Miller noncore business. Thanks, so much.
Speaker Change: Yes from a from a.
Speaker Change: From an overall portfolio outside of the U S.
Speaker Change: Chris Canada.
Speaker Change: We do continue to see softness in the in the.
Speaker Change: In the beer industry.
Speaker Change: But while the industry is down and frankly, all regions, we've had strong growth share growth.
Speaker Change: In Canada, and it's being driven by the strength of our core brands and the expansion that we've made into into flavors. So.
Speaker Change: Since last March <unk> lots being the number one light beer brand in the industry Molson brand family is growing share of industry and our flavor portfolio is looking looking really positive when compared against the against the rest of our of our competitors.
Speaker Change: We're growing the business with the only major brewer growing share in flavor and in Canada.
Speaker Change: Whilst a little bit more cautious about the overall macro environment in Canada, our portfolio is strong and getting and getting stronger frankly as we go forward.
Speaker Change: Our Latam business.
2023, it was a tough year right there were large macroeconomic challenges in some of our bigger markets.
Speaker Change: In which we operate and we are seeing signs of improvement from from their perspective.
Speaker Change: Miller High life is performing really well in in Mexico, Brazil remains a big opportunity for us.
Speaker Change: Overall, we do see some level of.
Speaker Change: Of of improvement from a macroeconomic environment in Latin America, and then finally I covered off on central Eastern Europe, where we are seeing some signs of slowing inflation.
Speaker Change: And consumer benefiting from that in the UK, we remain cautious as we as we watched the impact of some of the excess tax impacts.
Speaker Change: In the fourth quarter, but overall our portfolio.
In the UK is strong.
Speaker Change: Calling point of view from a cause.
Speaker Change: <unk> point of view and from a from the three.
Speaker Change: And some of our brands, which we talk less about.
Speaker Change: <unk> <unk> reached its highest market share.
Speaker Change: Since since we kept records.
Speaker Change: <unk> is expanding outside of the UK. So overall from a portfolio point of view when you're feeling.
Speaker Change: Really good about it.
Speaker Change: Cash capital allocation, Greg do you want do you want to take that one yes sure Kevin.
Greg Rodney: Chris I think Gavin answered the question a little bit earlier on around buyback rate, but our capital allocation priorities have not changed right. They remain always to invest first in our business.
Chris Carey: We've done a fantastic job on leverage that continues to be a focus we talked about bringing our leverage ratio down to two two times.
Chris Carey: Down from below or within our longer term goal of under two and a half.
Chris Carey: And then the third capital allocation prioritization.
Chris Carey: That we've spoken a lot about is returning cash to shareholders.
Chris Carey: We've raised our dividend again, another 7% this year after raising the year prior year and the year before.
Chris Carey: And obviously, we've got we've made very good progress on our share buyback thats the key.
Chris Carey: $1 billion five year share buyback program that.
Chris Carey: But gavin spoke about earlier, so the capital allocation priorities remain the same.
Gavin: Thanks, Greg.
Gavin: The next question is from Steve powers with Deutsche Bank, Steve. Your line is open. Please go ahead.
Stephen Powers: Hey, thanks.
Stephen Powers: On the buyback I'm, sorry, if I missed it but I don't know if there was a specific level of repurchases that were envisioned.
Stephen Powers: Envisioned in the 'twenty four guidance that would that would be helpful to know.
Stephen Powers: Also just curious on the drivers of the higher interest expense relative to the run rate. We saw exiting 'twenty three just anything that you are.
Stephen Powers: Contemplating.
That's in terms of refinancing or the like and then my real question is.
Stephen Powers: Maybe you could talk a little bit I didn't hear anything about bloom.
Stephen Powers: Blue Moon, and I know that there are plans around that brand.
Stephen Powers: Foray into non alcoholic and updated marketing commercialization plans.
Any update on.
Stephen Powers: Those endeavors relative to what we heard it at Investor day. Thank you.
Speaker Change: Yeah sure Steve Thanks for the questions I'll take your.
Speaker Change: First one.
Speaker Change: From a share buyback point of view looking at why are we running this program is on a on a sustained on an opportunistic basis.
Speaker Change: We obviously do have.
Speaker Change: Forecast of what we will do for 2024.
Speaker Change: Our guidance assumptions, we're not going to get into into that level of detail. It legally allowed to do that but you can assume that we've got a 2 billion share buyback program.
Speaker Change: That implies roughly $400 million in a in a year and we will execute that.
Speaker Change: And our sustained an opportunistic basis as we as we.
Speaker Change: As we go forward as far as Blue Moon is concerned.
Yes, I mean, we had a challenging year with with Blue Moon and 2023, if it hasnt been immune from the challenges that exist in the in the craft beer market as a whole on the positive side, we are seeing some signs of improvement in the in the on premise. We have blue Moon is actually growing share and are based on the on the last full week Nielsen.
Speaker Change: CGI data.
Speaker Change: And obviously, we're not satisfied with the brand's performance, we've got big plans to turn it around in 2020 for Steve We've got redesign packaging that hit shelves in March.
Speaker Change: And it's going to you're not the whole Blue Moon family, which was not the case before where each of the Blue Moon brands almost felt like a different brand and of itself and that's going to be.
Is rectified the right word.
Speaker Change: In the new packaging, which we're launching in March and.
Speaker Change: We've got a new campaign, which is also going to launch in March we've got strong media pressure with.
Speaker Change: With TV and digital and retail and then to round it out.
From a from a blue Moon point of view, we've got two innovations, which we believe we're going to bring more.
Speaker Change: More drink as to the brand in 2024 provide a halo effect to Blue Moon itself and one is the repositioned Blue Moon light, which is already the number one lot craft beer. It's previously was went under the name <unk> and the other is Blue Moon <unk>. It's obviously very early days for <unk>, but it's already jump.
Speaker Change: The number three crops in a franchise by volume in the last four weeks, which is how long it's been in the market. So the feedback from both retailers and consumers has been overwhelmingly positive. So overall, we have high hopes for overall Blue Moon family of brands in 2020 full Greg I might have missed a part of Steve's question.
Speaker Change: I think it was the interest expense interest expense and that can happen you can handle that okay. Very good this is Steve.
Stephen Powers: Interest expense are our guide for 2024 is very in line with what what total interest expense was in 2023 I think if you think about just where we are where our cash positions have been this year certainly we had much heavier cash positions. We earned a fair amount of interest income on those cash positions throughout 'twenty.
Stephen Powers: 23, right, but as we look at overall year to year. The expectation is that is very consistent from 'twenty three 'twenty four.
Speaker Change: Thanks, Greg.
Speaker Change: The next question comes from Eric Alright, So from Morgan Stanley Eric Your line is open. Please go ahead.
Eric: Thanks Gal.
Eric: Kevin just hoping you could expand upon your comment earlier that you saw the overall beer category in the U S.
Eric: Reverting back to kind of flat to down one.
Eric: In terms of volume standpoint.
Eric: What do you think the drivers of that will be since 2023 was quite a bit below that.
Eric: And.
Eric: Were you referring to that's what's embedded in your 2024 guidance or is that more of a midterm expectation.
Speaker Change: Thanks, Eric.
Speaker Change: I'll say again, despite the headlines <unk> read the overall big category grew dollar share of total alcohol beverage in 2023, that's unlike one in full swing spirits, which declined.
Speaker Change: They didn't look what happened in 2023 in the first quarter. It was it was a tough quarter for the industry and it was largely driven by.
Speaker Change: Really really bad weather on the on the west.
Speaker Change: The West Coast, primarily.
Speaker Change: After that the U S beer industry volume trends improved during 2023 is as we move through the year.
Speaker Change: Particularly in Q4 so.
Speaker Change: Our expectation as you said as the category is going to return to more historical levels of flat to slightly up on a revenue basis.
Speaker Change: And it will probably fall slightly.
Speaker Change: On a volume basis, and our expectation is that we will continue to grow share in that environment and thats whats embedded in.
Speaker Change: Our guidance for 2024.
Speaker Change: Yeah.
Speaker Change: The next question comes from Kevin <unk> from Jefferies.
Kevin: Your line is open. Please go ahead.
Kevin: Yeah.
Kevin: If I could maybe just follow up on Erik's question on the category I think shipping.
Kevin: Shipments were down 11 million barrels which constitute.
Kevin: 1990, something levels and while the pricing is there I guess one of the debates about beer as the relative pricing thats been taken over a period of time versus spirits and so I'm curious how you feel about the categories.
Kevin: Sorry pricing position versus the other beverage alcohol categories.
Speaker Change: Yes, Thanks, Kevin look I mean, obviously from a from an overall industry point of view has taken higher pricing over over the years then.
Speaker Change: There are other competitors in the in the alcohol space one.
Speaker Change: We're actually not as much in one, but more and more and in spirits.
Speaker Change: Our view is that.
Speaker Change: Pricing for this year will will fall into that 1% to 2% range I think we've been fairly consistent about our expectation from that perspective.
Speaker Change: For for quite some quite some time.
Speaker Change: U S beer industry did sequentially improve as I said.
Speaker Change: In 2023.
Speaker Change: And.
Speaker Change: Sometimes there is a difference between timing of shipments.
Speaker Change: And brand sales sales.
Speaker Change: <unk>.
Speaker Change: Two retailers, which which can impact that.
Speaker Change: That's sometimes.
Speaker Change: The next question is from Robert Moskow from TD Cowen. Your line is open. Please go ahead.
Robert Moskow: Hi, Thank you.
Robert Moskow: Sure you've been asked about candidates many times in many different ways.
But there is a potential catalyst here with the next presidential election, and the possibility of broader legalization.
Robert Moskow: I was wondering how do you evaluate the risk to that especially since younger consumers.
Robert Moskow: To shift more and more towards cannabis as a preference rather than beer and then secondly have you ever looked at.
Robert Moskow: The difference in growth rates by state and whether like Colorado as an example, whether.
Robert Moskow: The growth of cannabis has cannibalized beer more so in those states and in the non legal ones.
Speaker Change: Thanks Robert.
Speaker Change: From a Canada point of view I think it's fair to say that the cannabis beverage market hasnt grown anyway like with the industry's initial expectations were.
Speaker Change: That led to us.
Speaker Change: Getting out of a really more smoking.
Not not beverage I meant <unk>.
Speaker Change: <unk> candidates.
Speaker Change: Yes, well, we operate in the beverage market and it certainly hasnt.
Speaker Change: It Hasnt performed as one would one would expect.
Speaker Change: Cannabis beverages to operate as far as your question as to whether it's impacted we have not seen in the more developed cannabis markets like Canada much of an impact on.
Speaker Change: On beverage alcohol.
Speaker Change: We have done work on a state by state basis, I would say to you that Colorado is one of our best performing states either over the last.
Speaker Change: A few years.
Speaker Change: I think it was one of the early leaders from a from a kind of his point of view so.
Speaker Change: I think overarching we have not seen it.
Speaker Change: Kind of as negatively impact our <unk>.
Speaker Change: Alcohol beverage construct consumption in any meaningful way.
Speaker Change: Okay.
Speaker Change: Final question today comes from Brett Cooper from consumer Edge Research. Your line is open. Please go ahead.
Brett Cooper: Thank you.
Brett Cooper: I think third party data showed weakness in industry Val draft volume. So understanding that you were able to capitalize on the disruption in 'twenty three and into 'twenty four to benefit your performance.
Brett Cooper: The thinking long term, how do you dress industry graph weakness in U S and are there learnings that you can pull in the UK to the U S and I guess just from your perspective, how important is it for drop to get back to at least initial performance or better.
Speaker Change: The industry. Thanks.
Speaker Change: Yeah. Thanks, Brett look I think the biggest driver of negative.
Speaker Change: <unk> performance is actually Kraft.
Speaker Change: And the number of craft brands, which might be being discontinued in the in the in the in the on premise.
Speaker Change: We are back to.
Speaker Change: Very close to pre COVID-19 levels from a from an on premise point of view and most of our most of our major markets.
Speaker Change: Some slightly ahead, some slightly behind but we're kind of back to where we were we were in.
Speaker Change: As I said.
Speaker Change: We were by far the biggest share gainer in the in the in the channel last year, we grew three times faster than the next major major brewer.
Speaker Change: It's not just premium lots of the growing share it's brands like Blue Moon, and <unk> banquet Miller high life are growing share as well so.
Speaker Change: Our portfolio is strong and healthy in the on premise and I think some of the weakness youre seeing is coming from the proliferation of craft brands.
Speaker Change: This concludes our Q&A session. So how cool back to Tracy for any closing remarks.
Tracy: Thanks, Adam if you have any additional questions. Please follow up with Investor Relations team.
Tracy: We look forward to seeing many of you at Cagny next week and as well as taking.
Tracy: Your calls as the year progresses with that thanks, everyone for participating on today's call.
Speaker Change: This concludes today's call. Thank you very much for your attendance you may now disconnect your lines.
Speaker Change: [music].