Q1 2025 Molson Coors Beverage Co Earnings Call
[inaudible]
Good morning and welcome to the Molson Coors beverage company's first quarter fiscal year 2025 earnings conference call. With that, I'll hand it over to Traci Mangini, Vice President Investor Relations.
Traci Mangini: Thank you operator and hello everyone. Following prepared remarks today, we look forward to taking your question. 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 on the corner, please reach out to the IR team. Also, I encourage you to review our earnings release and earnings slides which are posted on the IR section of our website and provide detailed financial and operational metrics.
Traci Mangini: Today's discussion includes forward-looking statements. Actual results or trends could differ materially from our forecast. For more information, please refer to our risk factors discussed in our most recent filings of the SEC.
Traci Mangini: We assume no obligation to update forward-looking statements except is required by a flexible law. The definitions of a reconciliation for any non-US GAAP measures included and aren't arranged for leave.
Traci Mangini: And let's otherwise indicate it all financial results we discuss are versus the comparable prior your period, Andrew U.S. Dollars.
Traci Mangini: 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 Serkana in the US and from beer Canada and Canada unless otherwise indicated.
Traci Mangini: Further in our remarks today, we will reference underlying pretext income, which equates to underlying income before income taxes, and underlying earnings per share, which equates to underlying deluded earnings per share as defined in our earnings early.
Now with that, over to you, Gavin.
Gavin: Thank you, Traci, everybody, and thank you for joining the call.
Gavin: Back for so many of our Pearson Staples, it certainly was a challenging first quarter.
Gavin: The global macroeconomic environment is volatile due to uncertainty around the effects of geopolitical events and global trade policy, including the impacts on economic growth, consumer confidence and expectations around inflation and currencies.
Gavin: These shifts have pressured consumption trends as the consumer faces a high level of uncertainty and the bear industry has not been immune to these macro changes.
Gavin: Fortunately, while we are a global business, our peers and beverages are generally made in the markets in which they are sold, meaning the vast majority of our brands sold in the US are made in the US with US ingredients.
The same is true of a Canadian business.
Gavin: So from that perspective, we believe that we are one of the better position businesses in our category.
Gavin: Adding to the dynamics in the quarter, we had several expected ship and headwinds, as well as one-time transition and integration fees related to fever treat.
Gavin: And given that this all occurred in the typically lowest revenue culture of the year, there was a more pronounced impact on our quarterly results.
Gavin: We recognize that these macro-driven uncertainties persist and it's unclear for how long.
Gavin: As we discuss the details around the performance in the quarter, I want to emphasize that there have been no changes in our belief in the continued strengthening of our core brands and in our long-term growth algorithm.
Gavin: The continued primimization of our portfolio, ability to maintain unprecedented U.S. short-space games, and our recent indecent in fever tree, give us increased confidence in our long-term growth journey.
Gavin: But we do recognize the macroenvironment is impacting our performance in the near term.
Gavin: So we are focusing on controlling what we can control. We are taking actions to best ensure that we can navigate and mitigate the short-term challenges while continuing to support the medium and long-term health and growth objectives of the company.
Gavin: This means executing our strategy to further strengthen our core power brands and premiumize our business.
Gavin: We have strong commercial plans globally as we head into the peak season, which is still ahead of us.
Gavin: It means taking a deeper look at near to non-business critical discretionary cost-saving opportunities to help protect profitability.
Gavin: And it means adjusting our 2025 capital expenditure plans to best ensure we are utilizing our strong annual free cash flow in the most prudent ways given the current environment.
Gavin: This entails refining capital investments to focus on our highest priority growth and productivity initiatives while continuing to return cash to shareholders.
Gavin: Now while these mitigation efforts are helpful, the magnitude of the impacts of the macroeconomic environment in the industry has been much greater so far this year than we had expected.
Gavin: For example, the University of Michigan Consumer Sentiment Index fell by nearly 20 percentage points since the beginning of the year and GDP turned negative for the first quarter.
Gavin: amid these pressures on the macro and consumer environment, we are updating our guidance for the full year and we now expect
Gavin: A low single-digit net sales revenue decline on a constant currency basis as compared to low single-digit growth previously
Gavin: A low single digit underlying pretext income decline on a constant currency basis as compared to mid-single digit growth previously and a low single digit underlying earnings per share growth as compared to high single digit growth previously.
Gavin: Either we are reaffirming our underlying fee cashler gardens of $1.3 billion plus or minus 10 percent.
Traci Mangini: Tracey will touch more on the guidance driver shortly, but now, let's take a moment to discuss the quarter.
Gavin: Consolidated net sales revenue was down 10.4%, underlying pretext income was down 49.5%, and underlying earnings per share was down 47.4%.
Gavin: The top line performance was meaningfully impacted by volume performance, particularly in the U.S.
Gavin: U.S. financial volume was down 15.7% and this leg U.S. brand volume which was down 8.8%
Gavin: As I mentioned, the unexpected macroeconomic pressures on consumer consumption behavior were a big driver of our results. However, they were several expected headwinds in the quarter that contributed to the volume performance. [inaudible]
Gavin: We were cycling significantly higher demand in the first quarter of last year, when STRs were up 5.8%
Gavin: There was also one less trading day in the first quarter this year, which adversely impacted the US brand body of trend by 140 basis points.
There were also shipment timing dynamics. [inaudible]
Gavin: In the first quarter of 2024, we deliberately built inventory as we prepared for the possible strike at our Fort Worth Brewery, which as you know became a reality. And as a result, STWs outpriced STRs by over 750,000 hecto leaders.
Gavin: In the first quarter of this year, STW's outpaced STIs are only 200,000 hecto litres [inaudible]
Gavin: This had a nearly 500 basis point negative impact on US financial volume in the quarter.
Gavin: Further, as we expected, we cycled a combined approximate 590,000 hecto litres of contract brewing volume for pets in the US and Lebat in Canada in the first quarter of 2024.
Gavin: This contract brewing volume was related to agreement that terminated that the end of 2024 had a negative four percentage point impact on America's financial volume for the quarter
Gavin: Again, while the Exodus contract brewing is a temporary volume headwind, we expect to have a positive impact in 2025 and beyond on mixed margin and brewery network effectiveness we expect to have a positive impact in 2025 and beyond on mixed margin and brewery network effectiveness
Gavin: In fact, Nettel's revenue per hect of eatery in the Americas was up 4.8% . .
Gavin: It also benefited from positive brand mix led by the addition of fever tree in the US, which is a really showing early positive signs in our investment thesis and its long-term impact on our business.
Gavin: In EMEA and APAC, our financial volume was down nine 7% due to soft industry demand across our regions and the heightened competitive landscape.
Gavin: However, this was partly offset by net sales revenue per hectoliter growth of five 4% driven by favorable sales mix, including high effective brand volume and continued premium amortization and increased pricing.
Gavin: From a consolidated earnings perspective, we continue to closely manage costs, while maintaining strong commercial support for our brands globally.
Gavin: However, lower volumes volume deleverage higher input costs, and onetime fever, III transition and integration fees of approximately $30 million negatively impacted bottom line results.
Gavin: Our underlying free cash flow was negative $265 million.
Gavin: The first quarter is typically a cash use quarter in our smallest quarter of the year in terms of revenue and profit.
Gavin: So we invested $88 million for eight 5% equity stake in fever, cheap drinks plc, and returned nearly $160 million to shareholders through a higher quarterly dividend as well as ongoing share repurchases.
Gavin: 0.9, shippoints since the first quarter of 2023, continuing to demonstrate that the step change improvement in volume share performance is sticky. Please refer to slide 18 in our earnings day, which highlights our strong and sustained share performance.
Gavin: We have retained the collective unprecedented U S shelf space games for our corporate folio, which we achieved last spring.
Gavin: All this reflects the ongoing strength and resilience of these brands, who is banquets momentum continued to accelerate with brand volume up double digits and growing industry share for the 15th consecutive quarter and this is no small brand bank.
Gavin: And we expect the branch strong momentum to continue based on the distribution gains that we are seeing with spring reset.
Gavin: And still banquet has any half of the outlets buying compared to Coors lot and it's awareness is significantly below those of other big beer brands. So we are investing to unlock the big opportunity that lies ahead and we see no reason banquet.
Gavin: Friend.
Gavin: In Canada Coorslight remains the number one lightbear in the industry, while the most and family of brands gain volume share again this quarter the gains accelerating in the quarter for this brand with deep Canadian roots. This performance is helped us to drive eight.
Gavin: And we have continued to take a value of a volume approach, which is weighed on volume performance.
Gavin: In central and eastern Europezka in Croatia maintained its position as the segment leader and continued to increase value segment share on a rolling 12 month basis, while Cutiman in Romania, which launched last year and has had strong trial.
Gavin: This has been despite industry softness in the region related to escalating global political and economic tensions.
Gavin: Turning to a premiumization priority for both beer and beyond beer in the Americas, Canada continue to Premiumize driven by the ongoing success of Middle light, which is the fastest growing major beer brand in this market on a percentage basis as well as.
Gavin: We are one of only two major brewers growing share of flavor in Canada in the U S. Many of our Premiumization plans for this year are just getting started as we head into peak season in beer, the Bloom and brand family health share of industry through February contact.
Gavin: So in the second half of last year in March Bluemen Dolgen wine was temporary negatively impacted as we converted from 15 packs to 12 Pax to align with broader consumer preferences and given the benefits related to margins supply chain efficiency.
Gavin: And the positive momentum behind our newer innovation Blue Moon non out has continued gaining over a point of dollar share in a non alber segment in the quarter.
Gavin: Turning not to peroni, the plans have been talking about for a while now are just starting to kick off as a reminder, with onshore production, we have unlocked meaningful cost savings, which we intend to deploy towards increased distribution and awareness to drive scale and.
Gavin: Spring through our strong commercial programs, along with improved continuity of supply and new Pac sizes, we are securing more unpremised placements in expanding our presence at retail replacements of nearly 50% in chain.
Gavin: And while it's early days ultimately, we expect peroni can rival a size of other major European imports in the U S over time in beyond beer, which is an important part of our Premiumization plans non alk is a key focus area.
Gavin: The total beverage portfolio for a wide range of consumer preferences across both traditional alcohol and non alcohol. It provides us with the opportunity to capture more occasions, particularly among younger legal drinking AGEN.
Gavin: And we are investing behind the growing areas in Nonov, where we believe we have a right to win.
Gavin: Last October we increased our equity stake in Zoe to a majority position by leading the entirety of the brands marketing retail and direct to consumer sales development and leveraging the strength of our network. We believe we can drive brand awareness and.
Gavin: In fact, we have a significant number of new chain retailers coming on board with expanded distribution in several key accounts. This spring.
Gavin: And we are continuing to build on our partnership with Duane Johnson with a new campaign that delivers an impactful functional message supported by a bigger media push and the early consumer sentiment reads from a campaign are promising.
Gavin: And then there is fever tree, the world's leading supplier of premium carbonated mixes with the number one tonic and the number one ginger beer in the U S. Since 2021 through this strategic partnership we have the exclusive commercialization rights to the fever tree brand in the us.
Gavin: Feeba three U S volume was approximately 500000 hickolites in 2024. So you can see it adds real scale to our non Alpha operations. This partnership has had an immediate impact as every single case, we set a fever tree is incremental.
Gavin: And when you consider that most inquisit.
Gavin: Appreciate that fever tree is direct sales to distributors will shift to the Molson Coors and affiliated non outbeverage distributors, the excitement and responses to the RFP from the distributors demonstrate their commitment to taking fever tree to the next level.
Gavin: So we intend to leverage the scale and strength of our distribution network combined with our marketing capabilities to accelerate fever trees growth over time, turning to an APAC Madriz net brand revenue was up high single digits in the quarter.
Gavin: In a business, which net brand revenues already more than half about premium. This 40 year old innovation is already a top 10 brand for us globally, and we see significant runway ahead.
Gavin: In addition to its strong performance in its initial market of the U K and a very successful launch in Bulgaria last year, we just added monthly to our portfolio in Romania in March a deliberate expansion of this brand is not just geographic in March.
Gavin: Zero point zero in the U K to capitalize on the rapidly growing non Albert segment in the market.
Gavin: Now before I process, the Tracy I'll conclude by saying that these are dynamic and uncertain times, but we are taking steps to protect our profitability and free cash flow, our continuing to execute our strategic initiatives, which support our long term growth objectives.
Gavin: We remain committed to supporting the health of our co power brands globally, we have strong plans to Premiumize, our global portfolio building on successes in Remair, and APEC, and Canada and executing targeted programs in the U S.
Gavin: We expect to build on and leverage our capabilities across our organization that support Premiumization and focused innovation supply chain efficiencies and commercial effectiveness and we intend to utilize our greatly enhanced financial flexibility.
Gavin: A visit business and return cash to shareholders.
Gavin: I'll company through its various iterations has navigated volatile ties for more than a century about being proactive and adaptive we have often emerged even stronger we remain focused on what we can control taking actions to help mitigate near.
Traci Mangini: Invest in our business and brands in order to achieve our growth algorithm over the long term and with that I will pause it to Tracy. Thank you Gavin I was over the last several years has greatly improved the efficiency of our business from.
Traci Mangini: I think mix input costs volume leverage and cost savings and the impact of those drivers vary by quarter.
Traci Mangini: In the first quarter underlying costs of good stole for hectoliter increased 6.1%. This is mainly due to volume deleverage given the U S shipment trends gaven discussed.
Traci Mangini: In the first quarter volume deleverage negatively impacted underlying cost of goods sold for hectoliter by 420 basis points, while in the prior year period volume leverage was 110 basis points benefit.
Traci Mangini: Mix also contributed driving 220 basis points of the increase in underlying cost of goods sold for Hectorita. This was due to lower contract ruining volume in North America, and Premiumization in each business unit, but importantly.
Traci Mangini: Mixed impacts increased cost of good solvexiliter they are favorable to margin.
Traci Mangini: S for inflation, while we did experience moderated increases in input costs. This was largely offset by a ongoing cost savings and extensive hedging programs.
Traci Mangini: M D N a was at modestly in the quarter as increases in GA, which included one time transition and integration fees of approximately $30 million related to the Feetry partnership with partly offset by slightly lower marketing.
Traci Mangini: Turning to the balance sheet at quarter end Netday to underlying EBITDA was 2.47 times. This was an increase from year end 2024, as we normally see a sequential uptick in the first quarter given lower cash balances.
Traci Mangini: This ratio is in alignment with our long term target of under two and a half times and underscores the health of our balance sheet.
Traci Mangini: This along with a highly cashed generative nature of our business provides us more optionality in the ways that we invest in the business be through capital investments that drive productivity improvements or through bolt on MA that support us strategic growth objectives.
Traci Mangini: In high growth non Alfred like fever tree or great. Examples.
Traci Mangini: It also provides us with the opportunity to return even more cash to shareholders, we paid $99 million in cash dividend and $60 million to repurchase 1 million shares in the quarter.
Traci Mangini: Since the pain was a knock in October 2023, we have repurchased 7.2% of our cars B shares outstanding it's an up to five year 2 billion dollar plan and it's Gaven mentioned, we have utilized over 40%.
Traci Mangini: Six quarters.
Traci Mangini: And as we previously announced in the first quarter, we raised a quarterly dividend to 47 cents.
Traci Mangini: This was an increase of 6.8% and represented a four consecutive year of increases clearly demonstrating our intention to sustainably the increase our dividends and given our share repurchases, we were able to raise the dividend with us.
Traci Mangini: Higher dividend cash payment and now conclude with our financial outlook.
Traci Mangini: First there's a great deal of policy in the global macro environment, resulting in uncertainty around the effects of geopolitical events and global trade policy, including the impacts on economic growth consumer trends and currency these impacts on multifaces.
Traci Mangini: Difficult to predict and while we have included in our guidance our best estimate of some of these factors external drivers may significantly impact our actual results either up or down.
Traci Mangini: Fortunately as Kevin mentioned earlier, while we are a global business our peers and beverages are generally made in the markets in which they are sold meaning the vast majority of our brands sold in the U S or maybe in the U S with U S ingredients and that is the same for our.
Traci Mangini: We have a limited number of brands that we import into the U S and the volumes are relatively small.
Traci Mangini: For example, we import Molson Canadian from Canada, and sold from Mexico again, both very small brands in the U S.
Traci Mangini: Also since a significant portion of our direct materials are sourced domestically or our U S. M. C. A compliance we don't expect a material direct impact from the known tariff on our input costs. Therefore, we believe we are one of the better position.
Traci Mangini: So we continue to evaluate options to mitigate exposure and risk for example, leveraging additional domestic supply where possible and whilst tariffs have had indirect impacts, causing fluctuations in commodity costs plus the Midwest premium.
Traci Mangini: You said hitching program can help to mitigate some of that exposure.
Traci Mangini: Lastly, C to remember that net south revenue and underlying pre tax income growth guidance metrics are on a constant currency basis and underlying earnings per share is not.
Traci Mangini: So fluctuations in the U S dollar will impact our reported results as well as underlying earnings per share growth and in the effective period using the current exchange rate with that said as Gavin discussed we have updated several of our guidance metrics due to softer industry.
Traci Mangini: Which we attribute to the macro shifts that we have discussed that have driven consumer uncertainty and pressured consumption trends as such we have updated certain key guidance metrics. We now expect.
Traci Mangini: Hello single digit net sales revenue decline on a constant currency basis as compared to low single digit growth previously a low single digit underlying pre tax income decline on a constant currency basis as compared to mid single digit growth previously.
Traci Mangini: Another single digit underlying earnings per share growth as compared to high single digit growth previously lower capital expenditures incurred of $650 million, plus or minus 5% at compared to $750 million plus or minus five.
Traci Mangini: All remaining metrics are unchanged, including underlying free cash flow of $1.3 billion customer minus 10%.
Traci Mangini: Turning to our guidance drivers our supply assumes an anticipated annual net price increase of 1% to 2% in North America in line with the average historical range and for other markets to trend in line with inflation. It also assumes mix.
Traci Mangini: Perfect Green from 2024, as well as from Premiumization in 2025 weeks six to continue to grow above premium net brand revenue in EMEA, and APAC and Canada as well as make progress in the U S where as.
Traci Mangini: Unlimited returning blue min around and are embarking on big plans for Coroni and non Alps, while fever tree and the consolidation of Zoe provide incremental benefits to the top line. We will also be cycling revenue from the smaller regional.
Traci Mangini: On a combined basis, we expect related 1.9 million hectoliter headwind to America's financial volume in 2025.
Traci Mangini: In the first quarter, we cycled about 590000 Hicks leaders of this contract ruining volume on a combined basis, we will cycle a similar amount in the second quarter.
Traci Mangini: Also recall that last year, we had higher than typical inventory bold in the U S related to the Fort worth strike, which ended in Midmay as a result S. Twake S. T r's by approximately 1.1 million Hectoliters in the first half with St W.
Traci Mangini: Moving down the PNL WEX benefits from lower contract brewing and increased premiumization moderating inflation on input costs and productivity improvements and cost savings to be offset by higher than previously expected volume de leverage given industry volume.
Traci Mangini: We continue to expect M GA to be up for the year. This is largely driven by higher G. N a related to our non alkale, which include infrastructure investments to support our total non ALC business as well as fever tree, one time, transvision and integration fee.
Traci Mangini: Due to the timing of the R. S process. In addition to the approximately $50 million recorded in the first quarter, we expect to record a remaining amount of under $10 million in the second quarter. However, we expect to recover these fees in the form.
Traci Mangini: 8000 revenue over the next three years. These G. N. A increases are expected to be partly offset by deliberate actions to manage our near term cost structure given the current macro environment.
Traci Mangini: For example, we are taking a deliberate and more restrictive approach to our recruitment efforts in the near term and we intend to reduce certain non business critical discretionary items like travel and entertainment S for marketing, we intend to put the right commercial.
Traci Mangini: Gabriel with strong invasements behind a whole power brain Corona Blue Moon family Madrid, and our Dot Alportfolio.
Traci Mangini: We are also refining in prioritizing our capital projects for 2025 as a result, we are reducing our guidance for Catholic expenditure by $100 million per nine projects that do not relate to significant cost savings or critical growth init.
Traci Mangini: We are committed to protecting and growing our underlying free cash flow, while making prudent capital allocation decisions that support our growth initiatives and allow us to return cash to shareholders to sum it up these are unsum.
Traci Mangini: Medium and louder.
Traci Mangini: Now before we open it up to your questions. Gavin has a few closing remarks Gavin Thanks, Tracy a few weeks ago. The company announced my intention to retire at the end of this year of nearly 45 years in the workforce in 28 years in this incredible industry.
Traci Mangini: I'm, so proud to be a part of molsonco as many accomplishments over the decades and honored to have led this great company for the last six years.
Speaker Change: Now while the board executes our succession process I want you to know that it is business as usual at Molson Coors, we remain hard at work executing our strategy and focused on achieving our revised financial objectives. This year.
Speaker Change: As a prepared to step aside I remain confident in the beer industry in the company's position its business plans and its future.
Speaker Change: So I look forward to continuing to engage with you all the investment community in the months ahead as we set up the next leader to build on the company's success and with that we will take your questions operator.
Speaker Change: Thank you we will now begin the question and answer session. If you would like to ask a question today. Please do so now by pressing start followed by the number one on your telephone keypad. If you change your mind or you feel like your question has already been answered you can press on.
Speaker Change: Joy yourself from the key the fast question today comes from Brian Spilain with Bank of America. Please go ahead, Brian Hey, Thanks, operator, good morning, everybody and Gavin you know congratulations on.
Brian Spilain: The announcement and I I guess I could say thank you for all the patience right I know, we've we've badgered a lot over the years and really appreciate that you you've you've maintained your patience with us over that time.
Speaker Change: You're welcome I I have two questions. One is just with regards to this year, maybe Gavin just at a high level or or Andor Tracy just I guess, if if I'm reading the press release in the prepared remarks with changed since the start of this year is really just.
Speaker Change: You know slower industry slower than than I guess, we all expected at the start and I guess, perhaps a little bit of the promotional elements in in in I guess, mostly in Europe. So just and I ask this just in the context of the.
Speaker Change: Improvement in organic sales of the back half of the year and aside from the stuff that we know in terms of the comps from last year I'm, just trying to isolate like what should be what we should be watching as we go through the balance of the year.
Speaker Change: Support right, what's implied as an improvement organic sales in the back half or in the back back three quarters.
Speaker Change: Oh, Thanks, Brian and thanks for the question.
Speaker Change: I think a lot of what happened in the first quarter was expected by us and I think we communicated that in on the fourth quarter earnings call right. So the shipment timing issue given the Fort worth strike was was expected the fever tree one time cost were expected.
Speaker Change: Was they Reconsumed company that has that has released results over the last last few weeks has reported challenges with consumer conference and consumer demand. So you know, we certainly didn't have an industry forecast of down around 5% in our in our.
Speaker Change: And if you if you if you look at to the balance of the year and you compare it with what happened last year. You know if you remember in the summer of last year, we saw economic pressure and that caused some deadly seeking behavior by the consumers and.
Speaker Change: On category performance and so you know whilst whilst they were certainly the case and the largest selling season last year by the time, we got to the end of the year. It. It had it had recovered. So you know our forecast is that.
Speaker Change: It doesn't include an ongoing consistent down five around 5% industry for the rest of the year. It does antisupport that the industry will will improve from its from its current trend lines. So you know hopefully that's helpful and is maybe just add to that.
Speaker Change: O the the pricing environment, and we we expected to fall into that 1% to 2% historical range that we that we.
Speaker Change: Have you talked about last time as well I think the other important point to note is that a lot of our activity a lot of our lot of our plans hit in the second quarter and so whilst we've whilst we've already seen a really nice improvement in the trends of Peroni for example.
Speaker Change: And and obviously, we've only had fever tree for for a couple of months in the first quarter and and our integration and plans for that of our US are still ahead of us and and forget that every every case of fever tree, we sell is incremental to our to our business. So.
Speaker Change: Spran. Thanks.
Speaker Change: Thank you. Our next question comes from Bonny Herzog with Goldman Sachs. Please go ahead.
Bonny Herzog: Alright. Thank you good morning, everyone and yes, congratulations from me too Gavin I wanted to ask I guess, a follow up you're welcome I wanted to ask a follow up question on guidance you know given I guess the week. Two one result, I'd like to hear is you know.
Bonny Herzog: Have accelerated in April and then into May I guess I'm, you know really trying to gauge the the current run rate of your business and the context of the you know the slower than expected Q1. Thank you.
Bonny Herzog: [noise]. Thanks funny look from a retention on of our coal power brands in the U S. Yeah that that meaningful step out that took place in in 2023, we've retained almost all of that you know I think when you when you look at where our brands were.
Bonny Herzog: Before you know P. One of of or two two of 2023, they were at around 13, and a half share and and and they almost immediately jumped up over the over the three month time period in the following quarter to about 15 six and.
Bonny Herzog: We're at 15, four so we've retained almost every.
Bonny Herzog: And actually retiring.
Bonny Herzog: Which is our expectation the spring resets all the data that we've got.
Bonny Herzog: That's the first point.
Bonny Herzog: Is that we we have returned a substantial amount of the share that we gained from a from a from a core point of view as far as our total share trends are concerned they have sequentially improved quarter over quarter since.
Bonny Herzog: You know the third quarter of of last year and you know in Q3, I think we we lost about one percentage in Q4 that improved through 0.0 and and in the first quarter of this year that improved to 2.6 our.
Bonny Herzog: Q1 trains were relatively stable through about the middle of the of of of the month. We did in mid March have a little bit of accelerated share loss that was two reasons. One is we we made a pack quite a meaningful packship change with our brand.
Bonny Herzog: 15 to 12 and met and that caused quite a lot of disruption from a blue Moon point of view and the simply simply brands shared decline also accelerated because we left the Lima innovation, which we had in Q1 of of last year in innovation on so.
Bonny Herzog: Two of offices, a little bit of a of a timing difference there from a from a overall industry point of view there has been some improvement in the industry in the in the last four of of of of April and.
Bonny Herzog: And obviously as I said to in response to Brian's question, we are not anticipating that the industry will continue to decline at that sort of around 5% range. As we go forward. So hopefully that's helpful Bunny.
Speaker Change: Thank you. Our next question comes from Felipe felony with Citi. Please go ahead.
Felipe: Hi, good morning, everyone and Gavin Congrats on announcement, maybe I Wanna start with the question on the beer category generally look we've been a pretty soft Q1, we've seen the trends to really not really accident.
Felipe: April I dropped it for the third timing I'm, just curious where you're expectations for the balance of the year, you think like a decline more in the 3% to 4% is possible for category.
Felipe: Oh.
Felipe: Three five sorry, I caught the first part of your question, but I don't catch the second part at all so if you wouldn't mind just repeating the second part I I, we didn't catch that at all it was a lot of disruption.
Speaker Change: Yeah, absolutely. So the second part on tariff I was just curious if you can put some numbers and techno the magnitude of the impact on a gross basis and just a litigation action of as well. Thank you.
Speaker Change: Tell them, what we've seen it to start the year, which was down around that 5% in Q1, and you know we do expect over the balance of the year that we'll see the you know similar trend lines that we've that we've seen over the last over the last few years.
Speaker Change: Obviously, one quarter doesn't doesn't a year make and there were there were some.
Traci Mangini: We've talked about the consumer confidence challenges in the macroeconomic environments and obviously, we can't predict when that will end, but they are certainly cyclical and and they will end the timing of that is obviously uncertain Tracy you want to talk about terrace.
Traci Mangini: We do important majority of fever tree from Europe, but you know, we we have the ability to onshore this brand through co manufacturing et cetera. In our network. You know what is the bigger impacts would have been peroni, but of course now the majority of that is.
Traci Mangini: So you know that that is isolated us from terrace. The majority as we say the majority of our direct materials are sourced domestically and we use N C. A compliance so you know.
Traci Mangini: Input cost point of view you know the the one thing that they have spoken about is our extensive hedging program and so you know we've been able to to hinge commodities you know, even though we source lowly for local production, but we have also.
Traci Mangini: That's one of the the commodities that you know is difficult because of the lack of transparency to that the pricing of that of that commodity is as well as you know the.
Chris Kerry: Thank you. The next question comes from Chris Kerry with Wells Fargo. Please go ahead.
Chris Kerry: Hi, Hi, everyone.
Chris Kerry: I actually wanted to follow up on this again I wanted to follow up around cost inflation and gross margin. Then then a quick follow up for for cabin.
Chris Kerry: So this was the first quarter I believe of you know small net favorability in cost inflation within your Cogs for Hectolater disclosures of the past few years is there.
Chris Kerry: You know a reason that that would you know change, notably in the coming quarters. I know you don't guide you know on on these types of topics, but you know just evolution of hedges Midwest premium tariff inflation I'm I'm just nanim.
Chris Kerry: Slight favorability in the context of recent history.
Chris Kerry: And you sound comfortable around overall inflation and I just I just wonder if you could contextualize you know that in the context of maybe like medium term evolution of of that you know a specific bucket then just the follow up would be.
Chris Kerry: Regarding timing of you know leadership transition the types of leaders you know you and the board will will be assessing love any leby context on that and Hardy congratulations as well.
Speaker Change: Thanks, very much Chris I'll take your second question first then choice can take the the cost of goods sold one look the prices is underway the board's looking at internal candidates and external candidates.
Speaker Change: You know receive the the top priorities to navigate the price is very thoughtfully you know in terms of capabilities I I expect the board's paying a lot of attention to both you know relevant and business and leadership experience along with that with a cultural foot.
Speaker Change: Important to say that the board believes in our current long term strategy. So obviously, a new CEO will put their own stamp on the on the on the company, but the board is support of of our long term strategy.
Speaker Change: And as I said in my I think my closing remarks, Chris you know business as usual I'm going to run through the tape to the to the end of the year trace customer. Yes. So you know in terms of.
Speaker Change: 420, 25, you know as we said in our Q4, when we were issuing guidance, we do expect underlying Cogs per his leader to increase for 2025 duty inflation, but you're right a lot of the investments that we've made in our business.
Speaker Change: R. A Q1 numbers because a large part of that was offset by a cost savings you know the other part of our Cogs was the the deleverage that we've spoken about you know the biggest driver was around deleverage as we got out of.
Speaker Change: But also you know some of the S. P. R's, you know driving our financial volume and then you know the other thing just to note is.
Speaker Change: That's we do have the extensive aging program, but as I said you know to the previous question. The Midwest premium is the one you know that that is a little bit more difficult to product predict just because of the.
Speaker Change: Terms of hedging you know, we we use our extensive hedging program to try and mitigate a lot of the volatility and I think you're seeing that come through in our results for the quarter and you know with our guidance for the balance.
Peter Grom: Address. Thank you. Our next question comes from Peter Grom with UBS. Please go ahead. Thanks, operator, yeah. Thanks for operator, good morning, everyone. Gavin Congrats from from my end as well.
Peter Grom: I wanted to follow up just on on category growth and you know clearly, it's a more challenging backdrop, but just given where how do you discept you know what cyclical given the macro versus what maybe happening structurally and then you know a follow up to Felipe's question you know.
Speaker Change: Thanks, Peter look I think it's it's certainly clear to us that the incremental softness that we've seen in the industry is macro driven and you know obviously, we're we're taking actions and.
Speaker Change: Triple team, but continue to support our brands through that the timing of of these macro driven trends those obviously not something that we can forecast and.
Speaker Change: What we do know those and it's cyclical and our expectation is over the over the balance of the year that we'll see a move back to industry trends, which we've experienced over the last the last few few years. So.
Speaker Change: O for on our own forecast internally is to as to where we see the industry landing for the for the for the full year.
Speaker Change: [noise]. Thank you. The next question comes from Robert Ottenstein with Echo I S. I. Please go ahead Robert Yeah.
Speaker Change: Yeah, Hi, this is Greg on for Robert in the press release, you guys talked about you know the hydn competitive landscape in EMEA and APAC, maybe you could just dive into a bit more about what you're seeing you know broadly in in you know each of those two regions. Thank you.
Peter Grom: Thanks, very much Peter a Greek sorry.
Speaker Change: Look I mean, obviously in the UK I think we said it the industry did have a soft start to the to the year that did continue the trend that we seen in consumer demand in the in the U K last year with the market.
Speaker Change: On a volume basis, I think as we've said consistently now for a few quarters and this hasn't changed as the market has been increasingly competitive for there has been a higher promotional intensity across both channels beyond and.
Speaker Change: Premise, our largest brand in the in the U K Carling, we've taken a value of a volume strategy, we're focusing on the on the strength of the brand versus the competitors and and we are trying hard to leverage the strongest length that we have which is.
Speaker Change: Lot of our activity in the first quarter has been focused on on the FA Cup Madrid, you know our best innovation in a long time continues to drive both volume and data growth across both channels beyond on premise and the.
Speaker Change: It's cost more runway for this branded the U K and we've just launched it in new markets in Bulgaria, and and Romania. If you go across into central and Eastern Europe. The industry remains sluggish again, it's driven by the CL.
Speaker Change: Negative of of you know global political and economic tensions, which which have escalated since since last year. So you know we are seeing promotional higher promotional pressures across most of the markets. We're operating it in central and eastern Europe, but we remain optimistic about potential.
Speaker Change: Of our business and we're executing against our plans you know that includes lots of investment behind our national power brands. We're supporting the recent launches that we did in the above premium space with Madrid in Vulcaria and now Romania as well this year we support.
Speaker Change: You know seeing some of the same macroeconomic issues, but we're we're confident in our plans.
Speaker Change: [noise]. Thank you. Our next question comes from Andrew Texara with J P. Morgan. Please go ahead.
Andrew Texara: Thank you good morning, and and congrats to you Kevin and Hope you you don't forget us and come to Cagny for toast next year. So in your response before you said you assuming the industry will not gonna be industry.
Andrew Texara: The mid single decline mid single digits decline in the U S. I was hoping if you can I think you articulated.
Andrew Texara: A few questions before how do you feel about.
Andrew Texara: The pace of your market share and and all of that but I was hoping to see if you can comment on your price like tax sure you talked about bank like doing very well, but I'm thinking of course light and some of your you know core kind of like.
Andrew Texara: I should say, it's still U S. It's still domestic premium, but you know inter level point, how you're trying to meet the consumer where they are and if you're seeing that shift and then related to that you spoke about blue Moon pack.
Andrew Texara: Just see when we should be seeing that normalize and how you're seeing general and into a question. If you Boni ask that question about April that you know it seems like things are better, but I was hoping to see if you can also add that on.
Speaker Change: Thanks, Andrea I'm, let's let's see that question. So I mean from a share point of view you know the the core share retention has been across all three of our our core brands Millerlight Coors light and Coors Bank Quest.
Speaker Change: Accelerated actually well beyond the the levels of share that we gained.
Speaker Change: Two two of of 23 and cruise light and Millerizes held the large portion of the share that we that we gained there as well. So you know just just to give you a dimension of that you know middlet was what was that sort of 6162 level.
Speaker Change: Two one of 23, and and you know that jumped up to about six nine and and it's operating in about six eight. So it's it's held you know I don't not gonna do the mental arithmetic, but that's more than 90% of what we of what we gain so again I'm very pleased.
Speaker Change: U S.
Speaker Change: Please be cool Col brands, our brands have come a long way since 2022, and we're continuing to to support them as far as as Buddy Moon is concerned look it's it reminds a big important brand for us it's a top priority for us in about Prem.
Speaker Change: Sending that brand around you know in the third and the fourth quarter. The blooming family of brands do see it an improvement in share of of of industry total industry, we actually gain share in in the craft space and that brand.
Speaker Change: Into January and February of this year, but as I said I think earlier March was challenged for us and that that brought our Q1 family of brands performance down in the first in the first quarter and that's because we implemented a package adjustment we knew we would have a.
Speaker Change: Impact, but it it certainly aligns with with consumer preferences and it provides us a very meaningful benefit from a from a supply chain efficiency point of view and and a cost of good sold point of view. So you know temporary bump with significant benefits coming from view.
Speaker Change: Beyond the call Blue Moon brand, we we have seen some positive momentum behind our our new innovations, which are continuing to bring you drinkers into the brand as an example, blue Moon in the first Blue Moon non alk in the first quarter.
Speaker Change: Almost 90% and we expect again you know a lot of new distribution for this brand in the spring resets and we're also launching a new 8% higher a b D product.
Speaker Change: December I think it's it's setting up well, but we've got lots of workstore to do on the on the Blue Moon family.
Speaker Change: [noise]. Thank you. Our next question comes from Camille Gajuala with Jefferies. Please go ahead.
Camille Gajuala: Everybody. Good morning, Gavin congratulations been it's been a fun and long road through many different versions of of what the company looks like today, if we could talk a little bit about pricing a lot of what you're talking about.
Camille Gajuala: Perspective, where also hearing from for many others and we're maybe getting the earliest signs of maybe increased promotional activity or increased focus on on value in some way and so just curious how you're thinking about the absolutely price points of.
Camille Gajuala: Darius brands versus where the sort of macro environment might be heading.
Speaker Change: Thanks, Trevo and look for my from another consumer point of view look we have continue to see some value driving behavior, which we which we've talked about and by channel or bar pack, but from a from an overall promotional point of view based on what.
Speaker Change: We don't expect you anything unusual from a from a promotion point of view. It is it is very common to see heightened competition, you know with with additional activity as you head into into summer and that eases up as you as you get into the months.
Speaker Change: 2024, and and again I'm sure, we'll see it in 2025, but as I as I said nothing nothing terribly unusual from from from our point of view.
Speaker Change: Thank you. The next question comes from Lauren Liemann with Barclays. Please go ahead.
Lauren Liemann: Great. Thanks, Good morning, I know, we've covered a lot of ground I just wanted to just check in on the Capex adjustment just anything you can share with us on what you won't be doing this year that you had originally planned thanks.
Speaker Change: Thanks, Daun I try see one second thanks, Lawrence So look we post on certain projects that don't relate to significant cost savings or or don't relate to growth initiatives. So you know we'll continue to invest.
Speaker Change: Health and safety, which is always a number one and continue to put our spend behind those projects and we've got we've got a whole host of projects that you know do drive savings and growth initiatives. So we prioritizing those.
Speaker Change: The ones that we are postponing are ones that you know don't have a significant impact on our performance.
Speaker Change: Thank you. Our next question comes from Michael Lavery with Piper Sandler. Please go ahead Michael.
Michael Lavery: Thank you good morning, and Gavin Congrats as well [noise].
Michael Lavery: Just just wanted to look at America's price mix and understand that a little bit better. It obviously has the mix benefit from the less contract brewing, but it was a little bit below the lift in the last few quarters and and a little bit.
Michael Lavery: Can you just give us a sense I guess, maybe one mechanically did the fever treat costs come through the top line somehow is that a bit of a drag or or any other ways to understand maybe what to expect coming forward should should it pick up a little bit is that about the right run rate for the year.
Thanks, Michael to answer your favorite three question directly the the incremental costs because of the distributor transition go through MGA line. So they don't come through the through the top line from a cost point of view and the.
Michael Lavery: Push through in the second quarter as we finalize that we'll also go through the Mgni line.
Michael Lavery: Do it works going forward, though is that the credit will actually come through in net sales revenue, which is which is the way technical accounting works. So the the debit is going through MGA and the credit which will we will get back over the next next three years will go through the.
Michael Lavery: From an it is our Hector basis, you know from a from a North America point of view that was up from a on a on a percent basis about 4.4, 0.8% pricing sort of full in that range that we save about two but.
Michael Lavery: The majority of of that game was was in mix and you know, partly that's driven by other contract brewing volumes, particularly up in up in Canada, where we saw a very significant mix improvement and and then positive BRE mix.
Michael Lavery: Thanks, Michael. Thank you. Our next question comes from Kevin Grandee with BMP Parava. Please go ahead.
Michael Lavery: Great. Thanks, Good morning, everyone Gavin wanted to extend my congratulations as well.
Speaker Change: I'll ask a question on capital deployment, we've covered a lot of ground on the quarter you guys have done a tremendous job getting your debt leverage down through COVID-19 et cetera. So congrats on that the flip side is you pivoted towards buyback the stock is underperformed, it's under quite a bit of pressure today.
Speaker Change: The market is missing what do you think the market Underappreciates about the Molson course story number one and then number two do you foresee a set of scenarios, where you revisit the string of pearls approach to MA, where perhaps there's something bigger.
Speaker Change: You can diversify the portfolio way from mainstream beer, which is gonna perpetual decline. So I appreciate that thank you.
Speaker Change: Thanks, very much Kevin and and look you've hit on one I'm I'm proud of a lot of things over the last six years right, but the one I'm probably most proud of is how we've got our balance sheet into a really really good place. Our debt ratio is you rightly call out is low and cash generation is very very strong.
Speaker Change: I think we've demonstrated that over the last over the last six years. It remains one of I think the strongest benefits of our company and what of the most underappreciated and it certainly gives US you know flexibility to to return cash to shareholders.
Speaker Change: I think.
Speaker Change: Potentially investors Miss the strength of our core brands and and what a tremendous job our sales and marketing teams have done to retain the share that we gained a couple of a couple of years ago. I think if you recall and go back and read.
Speaker Change: Area four four folk outside there we we we think that our stream of pearls approach works really well and I think we've also been now that our debt ratio is is where it is.
Speaker Change: We bought the the hall of the the field of three U S business I'm very excited about this this this partnership relationship that we have with with fever tree, it's very complimentary to our portfolio. The distributors are very excited about it.
Speaker Change: It doesn't a train Mike, but very pleased with the way that that brand has started in line with our actually slightly ahead of our of our business case, so feeding feeding really good about that but I think the most under appreciated thing about us Kevin has the strong genera.
Speaker Change: Of an ongoing generation of cash and how strong our balance sheet actually is.
Speaker Change: Thank you. Our next question comes from Eric Sarotta with Morgan Stanley. Please go ahead Eric.
Speaker Change: Great and congratulations again, Gavin it's been pleasure working with you and looking forward to the next six seven months.
Speaker Change: Most questions have been answered, but Gavin would love to circle back and get your perspective on midterm category growth through the lens of the various segments Mexican imports, which have obviously been powering the beer category over the.
Speaker Change: Have slowed lately clearly some macro and demographic factors there, but just wondering if you could provide some perspective on how your thinking of category growth over a three to five year timeframe. If you know with a much larger base.
Speaker Change: Imports today, maybe I'll grow a little bit slower you know at the same time domestic super premiums are a lot larger and then obviously your perspective on screaming and premium like thank you.
Speaker Change: Thanks, Eric look as it relates to to our portfolio again as I as I said I I'm very pleased with where we are from a core brand's point of view and I I. We've acknowledged that we've got work to do in our both premium space and you know given the plans that we've got.
Speaker Change: Which I feel very good about.
Speaker Change: As much I can add to what I've already I've already said, Eric I mean, it was obviously a tough first quarter, which I don't think anybody predicted and and we do expect that to to normalize back to where it's sort of historically been over the last over the last few years.
Speaker Change: Sauce timing if that is obviously difficult to predict as I said earlier April has shown some signs of improvement from an industry point of view, but it's it's you know it's just one four week read and we need to be cautious about that until we see it manifests itself.
Speaker Change: Train going forward.
Speaker Change: [noise]. Thank you. The next question comes from Robert Moscow with T. D. Cohen. Please go ahead Robert.
Robert Moscow: Hi, I just wanted to see Tracy if you could put a finer point on on how your forecast for North America has changed for the next few quarters.
Speaker Change: To what extent have you have you lowered your sales expectations for second third and fourth.
Speaker Change: [noise] yeah. Thanks, Robert So look we don't give quarterly guidance.
Speaker Change: You know what what we can say is the the first quarter was much softer from an industry point of view than than I think what's everyone had anticipated and you know Gavin spoke about C. P. G companies in general you know talking similar around macroeconomic impact.
Speaker Change: In terms of going forward you know some of the drivers of our guidance around topline is.
Speaker Change: You know the the net price increases back to the sort of 1% to 2%.
Speaker Change: Range that we've seen historically in North America, you know in terms of other other markets more in line with inflation from a from a shipment point of view, we expect the recovery, so sort of Str's and St.
Speaker Change: And mostly in Q3, so so not in Q2, where you know we expect similar performance from the exit of our contract brewing arrangement as we saw in in Q1, and then you know top line also driven by our Premiumization Inn.
Speaker Change: Of the partnerships you know that we've spoken about for example, fever tree, which you know has a positive impact on our our top line as well going forward. Although there is a sort of there is some cycling of our our smaller regional cross.
Speaker Change: Thank you and with that we have no further questions. So this concludes today's call. Thank you everyone for joining US today you may now disconnect your lines.