Q2 2024 Molson Coors Beverage Co Earnings Call
and Michael Caine. We'll see you next week. I'm Tracey Joubert. I'm Gavin Hattersley.
Good morning and welcome to the Molson Coors Beverage Company Second Quarter Earnings Conference Call. With that, I'll hand it over to Traci Mangini, Vice President, Investor Relations.
Unknown Executive: Learning Conference School. With that, I'll hand it over to Traci Mangini, Vice President, Investor Relations.
Traci Mangini: Thank you, Operator, and hello everyone. Following our 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.
Tracey 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.
Traci Mangini: If you have technical questions about the quarter, please reach out to our IR team. Also, I encourage you to review our earnings release and earnings slides, which are posted in the IR section of our website and provide detailed financial and operational metrics. Today's discussion includes forward-looking statements, and actual results or trends could differ materially from our forecast. For more information, please refer to the risk factors discussed in our most recent filings with the SEC.
Speaker Change: If you have technical questions on the quarter, please reach out to our IR team. Also, I encourage you to review our earnings release and earnings slides, which are posted to the IR section of our website, and provide detailed financial and operational metrics.
Speaker Change: Today's discussion includes forward-looking statements. Actual results or trends could differ materially from our forecast.
Speaker Change: 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 except as required by applicable law. Reconciliation for any non-U.S. GAAP measures are included in our earnings release.
Traci Mangini: We assume no obligation to update forward-looking statements except as required by applicable law. Reconciliation for any non-U.S. GAAP measures is included in our earnings release. Unless otherwise indicated, all financial results we discuss are compared to the comparable prior year period and are in U.S. dollars. With the exception of earnings per share, all financial metrics are in constant currency when referencing percentage changes from the prior year period. Also, share data references are sourced from Cercana in the U.S. and from Beer Canada in Canada, unless otherwise indicated.
Speaker Change: Unless otherwise indicated, all financial results we discuss are versus the comparable prior year period and are in U.S. dollars.
Speaker Change: With the exception of earnings per share, all financial metrics are in constant currency when referencing percentage changes from the prior year period. Also, share data references are sourced from Cercana in the U.S. and from Bear Canada in Canada, unless otherwise indicated.
Speaker Change: Further, in our remarks today, we will reference underlying pre-tax income, which equates to underlying income before income taxes, and underlying earnings per share, which equates to underlying diluted earnings per share, as defined in our earnings release. With that, over to you, Gavin.
Gavin Hattersley: Thank you Traci. Good morning everybody and thank you for joining the call.
Gavin Hattersley: We are pleased with our results this quarter, which played out largely as we had expected.
Gavin Hattersley: We acknowledge that there are a few near-term timing dynamics impacting our quarter-to-quarter performance this year.
Speaker Change: In today's call we will unpack these as well as the drivers of the second half of the year to demonstrate why we are maintaining our guidance for the full year 2024.
Speaker Change: In the second quarter, we essentially held our top line and grew our bottom line while cycling a very difficult year-over-year comparison.
Speaker Change: If you recall, the second quarter of 2023 was our strongest second quarter net sales revenue since the 2005 Molson and Coors merger.
Speaker Change: Consolidated net sales revenue was down 0.1%, underlying pre-tax income grew 5.2%, and underlying earnings per share grew 7.9%, while we continue to invest behind our brands globally heading into peak season.
Speaker Change: We also accelerated the pace of share repurchases for the quarter, given compelling valuation as we see it, amid the strong performance of the business and our confidence in our long-term algorithm.
Speaker Change: Contributing meaningfully to our results was our EMEA and APAC business due to favorable net pricing, premiumization, and brand volume growth.
Speaker Change: For the first half of the year, we increased net sales revenue by 4.2%, underlying pre-tax income by 20.4%, and underlying earnings per share by 23.8%.
Speaker Change: While this is a very strong performance year over year, there are a few timing factors that will impact us in the third and fourth quarters, which is why we are maintaining our guidance for the full year.
Speaker Change: These timing factors will result in an unwind in the back half of the year, and the resulting temporary trends are not reflective in any way of our confidence in our acceleration plan and growth initiatives.
Speaker Change: We made the deliberate decision to increase our U.S. inventories in anticipation of and during the strike at our Fort Worth brewery, which ran 14 weeks during February through May.
Speaker Change: And while perhaps in the near term, headwinds to total volume and net sales revenue.
Speaker Change: The mixed benefits related to its exit, along with favorable global net pricing and premiumization in the Mayo and APAC, drove an increase in consolidated net sales revenue per hectolitre of 4.2% for both the quarter and for the first half.
Speaker Change: Tracey will cover more on our capital allocation and outlook drivers, but to sum it up, given our strong performance for the first half of the year, we remain on track to deliver our 2024 guidance.
Unknown Executive: This guidance calls for top and bottom line growth for the third straight year, something that has not been done in over a decade.
Tracey: This garden calls for top and bottom line growth for the third straight year, something that has not been done in over a decade.
Speaker Change: Now let me take you through our strategic priorities, starting with our core power brand.
Speaker Change: In the US, Coors Light, Miller Light and Coors Bank with second quarter combined volume share is down a half share point of industry versus a year ago when we saw our peak share gains.
Speaker Change: However, these brands remain up two full share points compared to the second quarter of 2022.
Speaker Change: In fact, in Ontario, Coors Light and Molson Canadian continued to be the number one and number two brand respectively in both the three months and year to date ended May.
Speaker Change: and Collings Brand Equity continue to benefit from its partnership with the FA Cup.
Speaker Change: Turning to our premiumization priority for both beer and beyond beer, our above premium portfolio was over 26% of total net brand revenue for the 12 months ended June the 30th.
Speaker Change: Premiumization progress is at different stages across our markets and we have had success in American APEC, Canada and Latin America.
Speaker Change: In America and APAC, our above preempt share of net brand revenue continues to be over 50%, up nearly 10 percentage points from the full year 2019.
Speaker Change: This improvement is primarily due to the very successful launch of METRI, which continued to grow revenue double digits in the second quarter.
Speaker Change: and it is the number three lager in the on-premise in the UK in terms of value.
Speaker Change: In the Americas, our above premium share of net brand revenue was over 21% for the 12 months ended June 30th, which is up nearly 2 percentage points from the full year 2019.
Speaker Change: This was supported by Canada where our above premium share of net brand revenue has also grown driven by the success of Miller Lite, Coors Seltzer and Vizzi.
Speaker Change: Also contributing to the mix is Latin America, where more than three quarters of our net brand revenue is above premium.
Speaker Change: Now, this is largely due to the strong performance of our core power brands in 2023, but we believe we can build from here, and we have focused plans around our key above-premium brands and innovations to do just that.
Speaker Change: We are committed to continue to innovate and scale in Beyond Beer, which for us is all about above premium.
Speaker Change: Given the flavor consumer evolves and shifts quickly, flavor innovation is key to keeping pace with their demands.
Speaker Change: We believe we have impactful brands with potential in the space.
Speaker Change: For example, we have built Synthespike into a $100 million brand in just two years, illustrating the power of the Molson Coors platform as a launchpad for innovation and growing brands.
Speaker Change: and we have exciting plans for Peroni.
Speaker Change: By onshoring production in the US, we believe we can better ensure consistency of supply and ultimately drive scale and margin for this high-potential brand.
Speaker Change: Thank you, Gavin. We reported another strong quarter of financial performance and continue to expect we will achieve our goal of growing the top and bottom line for the third year in a row.
Speaker Change: As Gavin mentioned, with our strong free cash flow generation, we continue to invest strategically in our business and also return cash to shareholders.
Speaker Change: Since October 2019, when we launched the initial phase of a new strategy, we have invested substantially in our capabilities.
Speaker Change: From supply chain, to marketing, to technology and tools that advance our insights and analytics.
Speaker Change: These investments have driven substantial cost savings which help to offset inflationary pressures and support long-term sustainable profitable growth.
Speaker Change: Building a slim can capacity in our can farm and replacing several breweries with state-of-the-art facilities in Canada.
Speaker Change: In the first half of this year, a big focus has been our multi-year, multi-hundred million dollar modernization of our Golden Colorado Brewery, which is nearing completion.
Speaker Change: This project at our largest Jewish brewery, which broke ground in the fall of 2020, is completely overhauling the brewery's infrastructure, and is expected to result in more efficient fermenting, aging and filtration facilities, as well as a state-of-the-art upgrade to the cellars.
Speaker Change: When it is fully operational in a few weeks time, we will have a more efficient brewery that produces less waste.
Speaker Change: We also commenced a new multi-year project in the UK to increase our brewing and packaging capacity, which is necessary in part due to the continued growth of Madrid.
Speaker Change: And it is these investments, along with our extensive hedging program, that have helped us to offset inflation, particularly during the significant inflationary period we have experienced in recent years.
Speaker Change: In the second quarter, our cost per hectolitre increased 2.9%, which was given by the American business, which was at 4.1%.
Speaker Change: Turning to marketing capabilities, we overhauled our marketing strategy several years ago, making us more nimble and efficient as we have continued to invest behind our brand.
Speaker Change: And we built our own in-house agency, enabling us to meaningfully shift our potential spend to more working versus non-working marketing dollars.
Speaker Change: As for returning cash to shareholders, in the first half of this year, we paid $188 million in cash dividends. And in February , we raised the dividends for the third consecutive year, a cumulative 29.4% increase.
Speaker Change: As such, we are generating a dividend yield of 3.2% as of August 1.
Speaker Change: Also, we are active in executing against our up-to-five-year, $2 billion share repurchase program that we announced last October .
Speaker Change: We continue to view our stock as a compelling investment opportunity amid the strong performance of the business and our confidence in our long-term growth algorithm.
Speaker Change: Utilizing a sustained and opportunistic approach, we repurchased 4.6 million shares for a total cost of $260.7 million in the quarter.
Speaker Change: Since inception of the plan, we have already repurchased 8.8 million shares, or 4.4% of our Class B shares outstanding, since September 30, 2023, for a total cost of $521.1 million.
Speaker Change: That means we have completed approximately 26% of the plan in just the first three quarters.
Speaker Change: And the reason we've been able to deploy our capital in these ways is because our balance sheet is strong and healthy, healthier than it has been since before the 2016 milliquids acquisition.
Speaker Change: We ended the quarter with a leverage ratio of 2.13 times, which remained in line with our long-term target range of less than 2.5 times.
Speaker Change: In May, we issued an 8-year, 800-million-euro note at the fixed rate of 3.8% and used the proceeds to pay down our 800-million-euro note upon its maturity in July .
Speaker Change: And now back to conclude with our financial outlook.
Speaker Change: We are reaffirming our 2024 garden.
Speaker Change: As a reminder, the key metrics for low single-digit net sales revenue growth on a constant currency basis
Speaker Change: Miss Single-Digit Underlying Pre-Tax Income Growth on a Constant Currency Basis Miss Single-Digit Underlying Earnings Per Share Growth and Underlying Pre-Cash Flow of $1.2 Billion plus or minus 10%
Speaker Change: While this guidance implies slower trends for the second half of the year, it's important to remember that this is driven by shipment timing this year, and it does not alter our confidence in our long-term growth expectations.
Speaker Change: As Gavin discussed, in the U.S., excluding contract volumes, we deliberately shipped a year of demand by about 1.1 million hectoliters in the first half of the year.
Gavin Hattersley: This compares to the first half of 2023 when our FTWs were behind our STRs by about 400,000 hectoliters.
Speaker Change: And since we currently plan to shift to consumption for the year, we expect us to reverse in the second half, mostly in the third quarter.
Speaker Change: At the same time, our contract with PEPS continued to wind down. Recall that we expected the impact for the year from the PEPS contract termination to be approximately 2 million hectolitres, or about 3% of America's financial volume.
Speaker Change: There is about 1 million ex-leaders remaining that will come out of that system in the second half of the year, with over half of that expected to exit in the third quarter.
Speaker Change: These U.S. shipment trains are expected to result in volume delivery in the second half of the year.
Speaker Change: And recall that we had a volume leverage benefit on a consolidated basis of about 60 basis points in a comparable period in 2023.
Speaker Change: For some perspectives, on a consolidated basis, we estimate that our fixed costs in 2024 will comprise approximately 20% of our total costs.
Speaker Change: However, the anticipated benefits of roll-forward pricing taken in the first quarter, premiumization of our portfolio, moderating innovation, and cost savings should partially offset the impact of Volume D leverage.
Speaker Change: And we expect MG&A for the second half to be down compared to the prior year period as we cycle the second half of 2023 when we had high marketing investment to support the momentum in our brand, as well as higher incentive compensation.
Speaker Change: As we look to the longer term, we remain confident in our growth algorithm as we have multiple leaders to achieve it.
Speaker Change: From a robust revenue management platform, to a premiumization and innovation plan, to a continued investment to drive efficiencies and cost savings, these levers help us to navigate various market circumstances.
Speaker Change: In closing, we had another strong financial quarter and remained committed to our short and long term financial and strategic goals.
Speaker Change: And with that, we'd like to open it up to your questions, operator.
Speaker Change: Thank you. If you would like to ask a question today, please do so now by pressing start followed by the number 1 on your telephone keypad. If you change your mind and would like to be removed from the queue, please press start followed by 2. When preparing to ask your question, please ensure that your device and your microphone are unmuted locally.
Speaker Change: Our first question comes from Bonnie Herzog with Goldman Sachs. Bonnie, please go ahead.
Bonnie Herzog: All right. Thank you. Good morning, everyone.
Bonnie Herzog: I guess I had a question on your guidance, which you did maintain, you know, in terms of full year and all metrics, which, you know, certainly implies a deceleration in the second half, as you highlighted.
Bonnie Herzog: Maybe you could unpack this a little bit more for us, for instance, you know, how should we think about the volume to leverage impact in the back half and
Speaker Change: Tracey Joubert, Traci Mangini, Gavin Hattersley
Bonnie Herzog: In terms of marketing spend levels, Tracey, I think you just mentioned that you expect, you know, spending levels to be lower in the second half versus the first half. So just
Speaker Change: Hoping for a little more color on your strategy with that and, you know, really how we should think about your setting levels moving forward, you know, as I think about, you know, your ability to continue to hold on to some of these share gains since, you know, 2022. Thank you.
Speaker Change: Good morning, Bonnie. Yeah, thanks for the question. So, you know, as we look at the volume de-leverage, you know, for the back half of the year,
Bonnie Herzog: So.
Bonnie Herzog: From a COGS point of view, we do expect higher COGS in 2024 versus 2023, and our second half to be higher than our first half. And really, this is all driven by the de-leverage.
Bonnie Herzog: As well as mix. So, you know, we spoke about the de-leverage impact from our shipment timing as well as the exit of PAPS. But also as we premiumize our portfolio, you know, that does add COGS, although it is margin accretive.
Bonnie Herzog: We have said that we expect to see continued inflation, although it is moderating. And, you know, some of the things that is driving the inflation is we do have material conversion costs, which generally are linked to inflation indices and they do tend to lag.
Bonnie Herzog: In addition, we've spoken about our hedging program. Generally, our hedges are longer term, so anything up to three years. And so we do have some hedges that we put in place in 22 and 23, which we'll roll off this year and next year.
Bonnie Herzog: In terms of, you know, helping to moderate, you know, some of the COGS inflationary increases that we've seen, we have got cost savings. We've invested in our breweries to drive efficiencies and cost savings, so that is going to help us offset.
Bonnie Herzog: In terms of margin, you know, with the contract brewing volume coming out, remember that is at a very low margin for us, so that's certainly going to help margins, even though it does have a volume leverage impact.
Bonnie Herzog: It does take a lot of complexity out of our breweries, especially during the peak summer seasons where we need the capacity.
Bonnie Herzog: And, you know, taking out some of that volume will not only just impact efficiencies, but, you know, can lead to reduced waste. So, you know, that'll drive our COGS down as well.
Bonnie Herzog: In terms of the marketing, so we do expect our MG&A to be lower in the back half of the year versus the first half of the year.
Unknown Executive: And if you're recording the second half of 2023, we think an incremental $100 million in marketing will really drive the strong momentum in our brands, and this is evenly split between Q2 and Q3.
Bonnie Herzog: And if you recall, in the second half of 2023, we spent an incremental $100 million in marketing, really to drive the strong momentum in our brands. And this is evenly split between Q2 and Q3.
Bonnie Herzog: Now, typically, we spend more marketing dollars in the summer, so you can expect lower year-over-year spend, particularly in Q4, but just remember, we do expect 2024 marketing to be up immediately from 2022.
Bonnie Herzog: So, you know, there's no pullback on marketing. We'll continue to invest behind our brand and, you know, make sure that we've got the right fuel to drive the momentum.
Bonnie Herzog: Everyone.
Bonnie Herzog: Thanks, Bonnie.
Speaker Change: The next question comes from Andrea Teixeira with J.P. Morgan. Andrea, please go ahead.
Drew Levine: Hey, good morning. This is Drew Levine. I'm for Andrea. Thank you for taking our questions. So Gavin, you've talked previously about April and May being relatively soft for the beer industry. Can you just talk maybe on the monthly progression on brand volumes?
Speaker Change: In the U.S. through the quarter, did you see improvement in June and perhaps how performance has been in July ? It seems like it's been a little choppy, but the weather's been a bit better. And in that context, how you're thinking about the industry performance for the rest of the year?
Tracey: And then just secondly, maybe Tracey, on the brand volume performance for the U.S. mid-quarter, any way to contextualize the holiday load and timing impact. Thank you.
Speaker Change: Thanks, June . Good morning. Thanks for the question.
Speaker Change: You know, there obviously, as you rightly say, there was a fair amount of noise in the second quarter. You know, there was holiday timing, a bit of turbulent weather in the first part, so you know, certainly April .
Speaker Change: April and May were tougher. And we did see some improvement in June . Collectively, when you look at the second quarter in totality, particularly if you adjust out for the timing of the
Tracey: of the July the 4th holiday, you know, it's just a continuation of what we've been...
Tracey: what we've been seeing for a while, right? And, you know, from a consumer point of view,
Tracey: not trading down between or up between brands, but more pack shifting within the brand portfolio to singles or to larger pack sizes.
Tracey: I think as we look going forward, and I think if Q2 taught us anything, it's that you can't make a prediction on a quarter based on a few weeks of data. So let's see how quarter three turns out. But certainly Q2 is a continuation of what we've been seeing for a while.
Tracey: Traci, the second part of the question? Yeah, I mean, just in terms of contextualizing, so...
Tracey: [inaudible]
Traci Mangini: If we exclude our contracts brewing volumes, we deliberately shift ahead of demand in the third half of the year. So that's about 1.1 million hectolitres.
Speaker Change: that we shipped ahead of demand. And if you compare that to...
Tracey: The first half of 2023, we actually shipped behind our demand by about 400,000 hectolitres, so that just gives you some context in terms of our domestic shipments. And then if we add the PEP,
Tracey: We had approximately 2 million hectoliters this year of PEPs coming out of our system. We have about a million hectoliters remaining for the back half of the year, most of that coming out of Q3.
Tracey: [inaudible]
Tracey: Our next question comes from Bill Kirk with Rock Capital Partners. Bill, please go ahead.
Bill Kirk: Hi. I wanted to ask about on-premise strategy, in particular kegs and drafts within that strategy. So how have the two channels differed for you in the U.S., on-premise versus off-premise?
Bill Kirk: And what is your the role of kegs in on-premise strategy? It seems like a lot of the vertical prefers cases over kegs when dealing with the on-premise. So curious what your draft strategy is going forward.
Speaker Change: Thanks, Paul. Good morning to you.
Speaker Change: From our perspective, the data that we see from internal estimates, the on-premise in the US, which I assume your question is directed at, is performing slightly better than the off-premise in the quarter. And given how important...
Unknown Executive: is to building brands. It's an area we focus on meaningfully, right? Whether it's our core brands of Merillite and CoorsLite or whether it's Blue Moon, right? And Kegs is an important part of that strategy. Now, where changes occur on the premises, sometimes it's between Keg sizes, but Kegs are and will remain an important part of our on-premise strategy and an important part of how we continue to build our brand.
Speaker Change: is to building brands. It's an area we focus on.
Tracey: meaningfully, right, whether it's our core brands of Merlite and Kurslite or whether it's Blue Moon, right?
Bill Kirk: And kegs is an important part of that strategy. Now, where changes occur on-premise, sometimes it's between keg sizes, but kegs is and will remain an important part of our on-premise strategy and an important part of how we continue to build our brands.
Operator: The next question comes from Rob Ottenstein with Evercore. Rob, please go ahead.
Speaker Change: Thanks, folks.
Tracey: The next question comes from Rob Ottenstein with Evercore. Rob, please go ahead.
Bob Ottenstein: Hey, Gavin.
Bob Ottenstein: You guys have done a really, you know, nice job, obviously, with Banquet and Coors Light and Miller Light.
Bob Ottenstein: But I, you know, I think I think probably you're a bit disappointed with Blue Moon, Peroni, and some of those above premium initiatives.
Speaker Change: Can you talk to us maybe a little bit about, you know, what's working, what's not working, in terms of driving the high end of the business?
Speaker Change: and and maybe what you might do differently going forward to rebalance the portfolio for growth going forward. Thanks.
Speaker Change: Thanks Robert and good morning to you and yes, I'll take the compliments on the core brands and we of course agree with you. I think our team has done a really nice job marketing and executing our core brands and we're seeing the benefits of that.
Speaker Change: You rightly point out that we've got work to do in the premiumization space in the U.S. I would say that our premiumization progress outside of the U.S. has been very strong. It's growing strongly in Canada. We're over half in our EMEA APAC business, and 75 percent of our volume in Latin America is in the above premiums as well.
Speaker Change: But you're right. We've got work to do in the U.S. We recognize that, and Blue Moon is our biggest above-premium brand. It's a big, important brand for us and for our distributors and our retailers, and we're committed to turning that brand around. That's why we've launched the new packaging. It's why we've got a new campaign. We've got new innovation there with Blue Moon Non-ALC, and we've repositioned Blue Moon Light this year, and it really stands on
Speaker Change: Blue Moon Lard are very promising, and we've seen very promising initial traction on Blue Moon non-alk as well.
Speaker Change: You know, completely committed to reinvigorating this brand, and we think the changes that we've made in the first part of this year are a really important step in that direction.
Speaker Change: As far as Peroni is concerned, I mean, we believe that Peroni could be a big brand. And we've obviously made some changes to that, which we've made very clear about, right, as we're shifting to domestic production of Peroni in the US.
Speaker Change: You know, that does three things for us. The biggest challenge that we've had with Peroni has been consistent supply.
Speaker Change: And by bringing it on shore and putting it into our supply chain network, which is operating really well and effectively at the moment, it's going to allow us to give us, you know, really consistent supply of fresh Peroni to our
Speaker Change: to our distributors and obviously our retailers. So we think that's really important. It also gives us the opportunity to increase the different pack formats that we have available in the U.S., which we haven't had with Peroni, and that's going to allow us to...
Speaker Change: compete in the U.S.
Speaker Change: of the supply chain. And that's going to allow us to reinvest behind the brand from a marketing and execution point of view.
Speaker Change: We think it's got a lot of runway, its awareness is still fairly low and its distribution is low.
Speaker Change: I like our plan. We've started it. It's just kicked off and our expectations for Peroni are high.
Speaker Change: Thanks for that, Robert.
Speaker Change: Our next question comes from Chris Carey with World Fargo. Chris, please go ahead.
Chris Carey: Hi, good morning, everyone.
Gavin Hattersley: parlors gap Gavin
Gavin Hattersley: Kevin, you had spoken to
Gavin Hattersley: [inaudible]
Speaker Change: kind of tracking your expectations, you know, at the at the overall category level or something of the sort. And, you know, I wonder, you know, as, as, you know, the world as Wall Street is a bit more concerned about,
Speaker Change: The consumer, are you starting to see any sequential changes in the consumer appetite for your categories?
Speaker Change: Does that help or hurt your business on a relevant basis? And I wonder if you could just comment on, you know, perhaps what you're seeing in July when it comes to overall consumer engagement, you know, with which category of brands. So thanks for any perspective there.
Speaker Change: Thanks, Chris. And look, I mean, from a from an industry point of view, I won't rehash my remarks on the on the second quarter, other than to say, you know, we we had noise, you know, to
Speaker Change: in different weeks performed differently, but collectively when you got to the end of the second quarter, not terribly dissimilar to what
Speaker Change: We've been experiencing over the last few years.
Speaker Change: From a consumer health point of view, you know, just run around our markets for a second and start in the smallest, right? See,
Speaker Change: Central and Eastern Europe market. We've been talking about how the consumer there has been challenged for some time, and we're starting to see that change. There's the reduction in CPI, it's putting less pressure on the consumer's disposable income level, and that started to translate to an increase in market demand in the first half. So we'll watch that carefully, but promising signs there. In the UK, the consumers remained resilient. I think the weather in June in the UK has been well.
Speaker Change: documented by all of our competitors, but the economy certainly is improving with inflation slowing down and wages continuing to rise. So we'll watch carefully how that translates into consumer demand.
Speaker Change: In Canada, the industry is performing fairly similarly to the U.S., right?
Speaker Change: Overall consumer spending was a little lower in the second quarter.
Speaker Change: Inflation continued its downward trajectory. Frankly, our performance in Canada is very, very pleasing, right? And it's all the work that we've done over the last few years to execute the revitalization strategy in Canada with our core brands.
Speaker Change: and we're seeing the benefit of that as we as we're gaining market share at a good clip.
Speaker Change: And in the US, as I said, we're not seeing anything terribly different from from what we've previously seen, you know, value
Speaker Change: Value Conscious Consumers are continuing to engage in channel and impact shifting, but not brand shifting from a value perspective. We've kind of noted that trend before.
Speaker Change: You know, I think as to address your July question, I think, as I said, you know, if the second quarter taught us anything, it's not to judge a quarter on a few weeks trends. And so we'll
Speaker Change: Let's see how Q3 plays out and then we'll have a good idea whether it's a continuation of the trend we've been experiencing or not.
Speaker Change: Our next question comes from Robert Moskow of TD Cohen. Please go ahead.
Speaker Change: Hi, good morning, this is Victor Ma on for Rob Moskow and thanks for the question.
Victor Ma: So 4.1% price mix in America seems kind of high, can you maybe help dimensionalize how much of that was from pricing, how much from organic positive mix, and how much from mixed benefits from PAPST? And can you also maybe comment on how prepared the company is for a scenario where you do have like a slight recession in the U.S. and just the resili-
Speaker Change: Resiliency of the Beer Category within Total Alcohol. Thanks.
Speaker Change: Thanks Victor, and good morning to you. Look, from a pricing point of view, I assume your question is directed at the US, you know, and that pricing increase comprised, you know, just a little over half of the increase with the balance coming from MEX, whether that was, you know, brand
Speaker Change: Green Pack Mix, or
Speaker Change: or perhaps cutting out. So, you know, sorry, my comment on net pricing was for the for the consolidated results and pretty much holds true for our Americas as well. Net price was
Speaker Change: was a little over half of the of the game with the regs coming from from mixed benefits either from a perhaps point of view
Speaker Change: or Grant Peck, point of view.
Speaker Change: Thanks, Victor.
Speaker Change: Our next question comes from Bryan Spillane with Bank of America. Please go ahead, Bryan.
Byron Spillane: Hi, thanks, operator. Good morning, Gavin. Good morning, Tracey.
Byron Spillane: I have a question. My question is related to the U.S., Gavin.
Byron Spillane: I guess kind of twofold. One is, you know, at the start of this year, there was a lot of, you know, anticipation around shelf sets and, you know, more shelf space gains. And so,
Byron Spillane: If you can kind of give a...
Speaker Change: a little bit of insight in terms of, you know, how that's turned out? Is it has it helped, I guess, in terms of market share?
Speaker Change: Do you think that the space you've gained can be held? And then if I could just squeeze also into that, you know, you kind of look at the depletion in the U.S. for the first half.
Speaker Change: Is it more or less in line with your expectation? I guess I understand that the market share for certain seems like it is, but just kind of curious if, you know, just an overall volume, if that's come in, you know, relative to what you were expecting at the start of the year.
Speaker Change: Thanks, Brian . Great question. Look, from a spring reset point of view, I think we said we expected about a 13% share of space increase for our core brands in
Speaker Change: in the large format stores and that's what we got, you know, premium and so premium being you know, middle light, coarse light, imports.
Speaker Change: We're certainly the biggest winners as far as the space allocation point of view, and I guess Kraft and Seltzer continued, I guess, to feel the biggest pinch in space.
Unknown Executive: You know, we were, as I said, the clear winner, based on what we've seen. And from a full force perspective, last year, we did see an unprecedented, unusually high percentage of retailers that executed some of their resets. This year, we don't expect that based on the data that we're seeing. There may be some minor tweaks up or down, but we certainly don't expect anything meaningful. And if you go to when most of the resets are normally done, which is spring, again, we saw an unprecedented shift in how the brands were showing up at retail.
Speaker Change: As it relates to going forward, you know, we were, as I said, a clear winner based on what we've seen. And from a full perspective,
Speaker Change: Last year we did see an unprecedented, unusually high percentage of retailers that executed some of their resets. This year we don't expect that based on the data that we're seeing. There may be some minor tweaks.
Speaker Change: Up or down, but we certainly don't expect anything meaningful.
Speaker Change: And if you go to when most of the resets are normally done, which is which is spring, again, we saw an unprecedented shift in in how the brands were showing up at retail and
Unknown Executive: And generally, for as long as I can remember, there were only really minor adjustments to shelf space, mostly focused on ads for new items or deletions of brands that needed to be discontinued or were simply just not performing from a velocity point of view. And again, based on the data we see and our success in holding the large majority of our core share gains that we gained against, frankly, the toughest comps we're going to experience the whole year, Brian. I mean, as you remember, the second quarter was really, really tough from a comp point of view because our share price spiked quite dramatically, and then it came down and settled.
Speaker Change: Generally, for as long as I can remember, there were only really minor adjustments to shelf space, mostly focused on
Speaker Change: you know, ads of new items or deletes of brands that needed to be discontinued or was simply just not performing from a velocity point of view.
Speaker Change: And again, based on the data we see, and our success in holding the large majority of our core share gains that we gained against, frankly, the toughest comps we're going to experience
Speaker Change: And the whole year, Brian , I mean, as you remember, the second quarter was really, really tough, from a comp point of view, because
Unknown Executive: So we've cycled our toughest comp, we've retained 80% of the share gains, and it only gets easier from here on out. And so again, our expectation from a shelf space point of view is retailers will go back to that tweaking and minor adjustments process that they've done over the years. And so again, we're not expecting a meaningful change there.
Brian: our share spiked quite dramatically and then it came down and settled.
Speaker Change: We've cycled our toughest comp, we've retained 80% of the share gains, and it only gets easier from here on out. And so again, our expectation from a shelf space point of view is...
Speaker Change: as retailers will go back to that tweaking and minor adjustments process which they've done over the over the years and so again we're not expecting.
Unknown Executive: From a depletions point of view, and shipments, it's how we plan shipments, right? We were aware that we could have a potential work stoppage at our Fort Worth brewery. We wanted to make sure that we could meet the higher share levels which we were experiencing and make sure we didn't have any out of stocks. And I think the supply chain team did a really good job of that. So that was planned, this cycle, different to previous years, right, where there was probably more of a balance between the first and second half.
Speaker Change: a meaningful change there. From a depletions point of view, it's how we plan shipments, right? As we were aware that we could have
Speaker Change: Potential work stoppage at our Fort Worth brewery. We wanted to make sure that we that we could meet
Speaker Change: the higher share levels that you're experiencing and make sure we didn't have any out of stocks. And I think the supply chain team did a really good job of that. So that was planned, this cycle, different to previous years, right, where there was probably more of a balance between first and second half. But no, that was...
Unknown Executive: But no, that was planned, and we've reaped the benefit of that, right, with out of stock being very, very low, and our supply and inventory levels and our distributor right where we need them to be. So, you know
Speaker Change: that was planned and we've reaped the benefit of that, right, with out-of-stock being very, very low and our supply and inventory levels in our distributor right where we need them to be.
Speaker Change: in a good place. And I mean, some of that's obviously reflected in the
Speaker Change: In the fact that we ended up as...
Operator: The next question comes from Peter Grom with Nubia. Please go ahead, Peter.
Speaker Change: The next question comes from Peter Grom with UBS.
Speaker Change: Please go ahead, Peter.
Speaker Change: Hey, good morning, everyone. This is actually Brian on for Peter Grom. Thanks for taking the question.
Brian: Hey, can you guys hear me?
Speaker Change: Yep, we can hear you loud and clear, thanks.
Speaker Change: Hey, guys, sorry about that. Just two quick housekeeping questions for me. First one, I actually wanted to follow up on Victor's question, not trying to get too into the weeds on the price mix piece, but
Speaker Change: In the Americas, that 4.1% being roughly split between rate pricing and mix.
Speaker Change: Is it fair to think that this contribution should be largely similar, looking into 3Q and into the back half, particularly as it seems like you've got even more contract brewing volume coming out in 3Q? And then just quickly on volumes in the Americas. It sounds like the gap...
Speaker Change: between financial volume and brand volume is wider in 3Q versus 4Q. Just wanted to make sure that I'm thinking about that right. Thanks, guys.
Speaker Change: Thanks, Brian . Tracey, you wouldn't mind taking the second part of the question. The first part, look, I mean, from a pricing point of view, Brian , we've
Nick: I think we've been saying for quite some time now that we believe pricing is going to sort of land in that historical 1% to 2% increase level, and that's where it's holding at the moment. And so that will translate into the full year. And from a mixed point of view, you're right. I mean, we do have a lot more, perhaps, volume to come out, which will be mixed favorable.
Speaker Change: You know, I'm not intending to give any guidance from that perspective, but those are just the inputs which go into it. The trends are not going to change dramatically from a PAPS point of view, from a frontline pricing point of view.
Unknown Executive: Price, I think the other question was from a financial point of view of financial volume. So, as I said, we shipped ahead of demand at about 1.1 million hectoliters in the first half of the year. And we do expect that to reverse in the second half of the year, most of that coming out of Q3. And then from a PAPS exit point of view, again, about another million hectoliters of PAPS volume remaining, and we expect over half of that to reverse or exit in the third quarter of the back half. So to summarize, Brian, yes, most of it will take place in Q3.
Trace: From a financial volume point of view, as I said, we shipped ahead of demand
Speaker Change: about 1.1 million hectolitres in the first half of the year, and we do expect that to reverse in the second half of the year, most of that coming out of Q3,
Speaker Change: And then from a PEPs exit point of view, again, about another million hectolitres of PEPs volume remaining, and we expect over half of that to reverse or exit in the third quarter.
Speaker Change: of the Backhoff.
Speaker Change: So to summarize, Brian , yes, most of it will take place in Q3.
Operator: Our next question comes from Michael Lavery on Pythagoras. Please go ahead.
Speaker Change: Our next question comes from Michael Lavery with Pythagoras. Please go ahead.
Michael Lavery: Thank you. Good morning.
Michael Lavery: There are two quick ones. Just to follow up on the shelf reset question, I know some of the consumer pack shifts that we've seen is
Michael Lavery: A little bit more recent and perhaps difficult to look and planning for. But in the resets, were you able to tweak the sets at all to adjust for how consumers are going to more to
Unknown Executive: single cans or bigger packs? And is it potentially a better set given that you had some chance to reshuffle them a little bit? And then, secondly, on the Romanian, the new brand launch there, maybe what was some of the thinking behind a brand new brand? Obviously, you saw that.
Speaker Change: single cans or bigger packs? And is it potentially a better set given that you had some chance to reshuffle there a little bit? And then just second on the Romanian, the new brand launch there, maybe what was some of the thinking of a brand new brand? Obviously you saw
Speaker Change: Madrid go really well when you know that's new to the world as well it was that some of the I guess inspiration or was it just that there wasn't something else in the portfolio that said what you were trying to do just how do you think about that launch there
Speaker Change: Thanks Michael. Look, from a shelf reset point of view, we've certainly got a lot more SKUs packed formats into both C-stores and into
Michael Lavery: Grocery and Large Format. So I'm not going to say that we got
Unknown Executive: All of the current consumer trends are in, but we certainly made a dent in that. And certainly given the extra space that we've got, our ability to hold from a large pack point of view and a small pack point of view is much stronger than it was before. To put it another way,
Michael Lavery: All of the...
Michael Lavery: the current consumer trends in, but we certainly made a dent on that. And certainly given the extra space that we've got.
Michael Lavery: ability to hold from a large-peck point of view and a small-peck point of view is much stronger than it was before.
Michael Lavery: We have much less out-of-stocks because of that, because of the holding power that we've gained in store.
Speaker Change: I think you were referencing Kariman there in Romania and you know that's a brand we've had around for a while and without
Speaker Change: pealing back the onion as to how innovation works. When I've heard it's been around for a while, we'd used it a while before, so the Innovation team found a gap in the marketplace. We launched it, and it's proving to be not very...
Michael Lavery: cannibalistic to our existing portfolio, and adding really nice incrementality to the overall core portfolio.
Speaker Change: A Mark they had in the past and we brought back to life, so far very successful, just a few months, but 150,000 hectometers in just a few months is a meaningful volume in a market that size.
Operator: Our next question comes from Lauren Lieberman with Barclays. Lauren, please go ahead.
Speaker Change: Our next question comes from Lauren Lieberman with Barclays. Lauren, please go ahead.
Lauren Lieberman: But the data that we all receive shows this, and this is like Nielsen slashing Sarkana, right, shows industry volume down about 3% year to date. So I know that's not inclusive. That's not the full market. So it's curious, maybe what your read is on industry volume in the US year to date and how you're thinking about that for the full year. So it's kind of part one. And the second is great to get also your read on your full set of data in terms of market share.
Lauren Lieberman: Being down 50 basis points, I just wanted to confirm what the kind of expectation would still be to ground to sort of a second half of 23 type level for share and what you're able to retain if that's still a good way of thinking about it. Thanks.
Unknown Executive: Thanks for the question, Lauren. And I'll take the second part first.
Unknown Executive: You know, in terms of share our core power brands, which are Coors Light, Middle Light, Coors Banquet, we grew two and a half points of case share in the second quarter of last year. It was our highest share gain that we had experienced in the last year, and we've retained 80% of that. And so, you know, compared to the second quarter of 2022, our total portfolio is up over 1.7 points in volume share.
Speaker Change: And as I said, it only gets, it only gets, in inverted commas, easier from here, because the share came down and, and settled. And, you know, we've done that through the shelf resets, which I just spoke about. So increased distribution, we've got increased display, we've got increased feature, we've got really
Unknown Executive: And now, obviously, we're very pleased with that. And, in particular, given that we're going up against peak share growth. And as I said, it only gets, in inverted commas, easier from here because the share came down and settled. And, you know, we've done that through the shelf resets, which I just spoke about. So increased distribution, we've got increased display, we've got increased features, we've got really relevant marketing campaigns, like our Middle Light All Stars campaign that we've got our Coors Light Leagues Cup, which is attracting new Hispanic drinkers into our portfolio.
Speaker Change: planning to execute and retain as much of that share as we possibly can, given that we are now out of the toughest share comps.
Unknown Executive: And so, you know, we were obviously planning to, you know, execute and retain as much of that share as we possibly can, given that we're now out of the toughest share comps. From an industry point of view, look, I think my comments that I made earlier are what we believe, right, that there was a lot of noise in Q2 for some weeks, but overall, it sort of bounced out of where we were expecting, where it's been for the last couple of years.
Unknown Executive: And, you know, from a shipment point of view, that was a very deliberate strategy we did; we didn't overship, we shipped what we wanted to ship in the first half so that we didn't have any inventory challenges going forward.
Operator: Our next question comes from Eric Sourcilla with Morgan Stanley. Eric, please go ahead.
Speaker Change: Our next question comes from Eric Sourcilla with Morgan Stanley . Eric, please go ahead.
Eric Serotta: Morning, thanks for the question. First, maybe you could come back to Sheriff's Roat. Spirits have obviously been struggling in the US for, you know, over a year at this point. As you look forward and in light of the macro environment, how are you thinking about Sheriff's Roat and spirits versus beer? Do you think beer could continue to sort of outperform spirits, at least in the short term?
Eric Sewer: Morning, thanks for the question. Um, first, maybe you could come back to Sheriff's Road. Spirit has obviously been struggling in the U.S. for
Unknown Executive: And then maybe come back and talk a little bit about the performance of your recent innovation from the past few years. It looks like it has simply, you know, slowed quite a bit. Some of the earlier packages seem to be struggling a bit. That was a very nice contributor over the past few years. So how are you thinking about innovation?
Speaker Change: Thanks for those questions, Eric. You know, taking your first one, look, I think beer in the classic sense of beer,
Speaker Change: It remains down, but it has sequentially improved dollar share of total alcohol, so definitely seeing an improvement in plastic beer.
Speaker Change: you know, the RTD spirits into that, which beer suppliers put in, then yes, you know, total overall beer is gaining share against spirits. So definitely tracking in the right direction from a...
Speaker Change: from an overall and total alcohol point of view.
Speaker Change: If you look at our innovations, you know, let's start with simply, right? You know, I think it's, let's just stand back for a second.
Speaker Change: We're pleased with the fact that we've built a brand that is over $100 million from nothing in just two years. We're pleased with that performance.
Speaker Change: Consumers, though, as we've learned in this space, and that's why we focus on the flavor category in totality,
Speaker Change: They do have a little bit of a treasure hunt mentality. So, you know, keeping innovation, flavor innovation in particular, is really important to keep pace with this flavor consumer.
Speaker Change: You know, given that Simpli is in one out of every two households in the United States, our focus right now is continuing to drive trial, because when consumers try this brand, they love it.
Speaker Change: And so trial is important, strong marketing and sales programming is important for us.
Speaker Change: And, you know, I'd point out that the brand is performing really, really well in Canada. You know, we've achieved over a 10 share of the flavor RTD category up there, and that's in large part driven by.
Speaker Change: by Simply Spiked. If you look at the other innovation I talked briefly about, about Kariman, you know, it's performing well early days.
Speaker Change: by the results that we're seeing in those two markets. And it continues to grow in double digits despite the competition that's come in the United Kingdom. So feeling good about that.
Unknown Executive: Again, I think that one's we've had around for, for, about three years. And obviously, this is a completely new space that we that we've got into. So lots of learning for us in the beginning.
Unknown Executive: But, you know, we now think we've got a fantastic liquid, we've got a great brand, we've got packaging that works really well, and we've got a, you know, very powerful in more ways than one spokesperson, who's driving this, this, this brand forward. It's a top 10 brand on Amazon.
Speaker Change: for about three years. And obviously, this is a completely new space that we've got into. So lots of learnings for us in the beginning, but
Speaker Change: We now think we've got a fantastic liquid, we've got a great brand, we've got packaging that works really well, and we've got a...
Unknown Executive: It's attracting new drinkers into the energy category, and we think it's got a right to win in certain distribution channels. And that's what we're going after. So, you know, collectively, I'm pleased with the progress that we're making on innovation. And we've built some, some real powerhouse brands in a very short space of time. And now our job is to accelerate that performance. So thanks for that question, Eric.
Unknown Executive: Thank you. We have no further questions, and so this concludes our call. Thank you everyone for joining us today. You may now disconnect your lines.
Speaker Change: That performance. So thanks for that question, Eric.
Speaker Change: Thank you. We have no further questions until this concludes our call. Thank you everyone for joining us today. You may now disconnect your lines.