Q2 2025 Molson Coors Beverage Co Earnings Call
Good morning and welcome to the Molson Coors Beverage Company Second Quarter Fiscal Year 2025 Earnings Conference Call.
With that. I'll hand it over to Tracy. Mangini, vice president investor relations. Thank you, operator. And hello everyone. Our discussion today includes forward-looking statements within the meaning of US Federal Securities laws for more information. Please refer to the forward-looking statements disclosure in our earnings release.
In addition the definitions of or reconciliations for any non us gaap measures are included in our earnings release.
Given our quarterly performance including financial and operational metrics and drivers is detailed in our earnings release and earnings slides, which were made available earlier today on the IR section of our website. We will focus our prepared remarks on what we believe is top of mind for you. And that is the industry. How we're responding Capital allocation, and our financial Outlook.
And please note that given the current environment, we are providing a more detailed than typical review of our 2025 guidance drivers.
We will then take your questions and as always, we ask that you limit yourself to 1 question and then if needed return to the queue with that, I'll pass it over to you. Gavin, thank you Tracy. Hello everybody. And thank you for joining the call.
During the second quarter, we continue to execute against our strategic plans to support our long-term growth objectives and to return cash to shareholders while navigating a challenging and volatile macro environment.
As a result of the uncertainty around the effects of geopolitical events and global trade and immigration policies consumer sentiment in the US has remained at relatively low historical levels.
This is continued to pressure consumption trends.
These macro impacts in the US have had a disproportionate effect on the lower income and Hispanic consumer. And within beer, these consumer segments, have driven the reduction in the number of buyers as well as spend with a shift to singles from the second quarter.
In addition while less impactful certain regions of the US experienced, some severe weather conditions during the quarter, which have a notable impact on the important Memorial Day weekend.
These factors have resulted in a much softer, us beer industry so far this year than we had previously expected.
Recall our guidance issued on May, the 8th had assumed the US industry would improve for the balance of the Year from down approximately 5% in the first quarter to levels closer to that of the last several years, which averaged down around 3%.
But in the second quarter, the industry continued to be down around 5%.
Further the Midwest premium pricing, which is a component of our aluminum cost has been indirectly impacted by recent us tariff announcements causing another substantial and unexpected spike in the second quarter.
Of our earnings date in July. The Midwest premium jumped to 68 cents per pound and increase of over 180% since January.
As a result of these macro drivers and, to a lesser degree lower than expected, share performance. We are reducing our top and bottom line. Guidance for 2025
We now expect net sales, revenue to decline, 3, to 4% on a constant currency basis as compared to a low single digit decline previously.
The range assumes us industry, volume will decline between 4 and 6% for the second half of the year.
We now expect underlying pre-tax income to the client 12 to 15% on a constant currency basis as compared to a low single digit decline previously.
The ranging includes for the second half of the Year incremental costs specifically to the Midwest premium of 20 to 35 million, which assumes a respective price per pound of 60 to 75 cents.
This is partly offset by lower expected incentive compensation, given the change in Outlook.
As a result, we now expect underlying earnings per share to the client's 7 to 10% as compared to low single digits growth.
However, we are reaffirming our underlying free cash flow. Guidance of 1.3 billion plus or minus 10%. As we expect higher cash tax benefits and favorable working capital to offset the guidance declined for underlying pre-tax income.
Now, Tracy will speak to our guidance in more detail in the moment.
But first, I want to stress that we continue to view the incremental softness in the industry performance this year as cyclical driven by the macroeconomic environment.
And this belief in our view is clearly demonstrated by the execution of our share repurchase program. Well, ahead of our original expectations.
While U.S. consumer basket sizes are smaller in the current environment, the percent of alcohol in those baskets has remained the same.
And legal drinking age consumers, continue to engage with VR at similar levels of across all generations, and compared to historical levels. It's the occasions that are left.
Recognizing this, our strategy was built to develop a portfolio that appeals to a wide range of preferences and captures more occasions.
So as we navigate, these macro pressures, We are continuing to execute this strategy and prudently invest behind our business.
To build on the strengths of our Core Power Brands to premiumize our business, in both beer and Beyond beer and to develop and leverage, our capabilities and Partnerships to support profitable growth.
In the US, our Core Power Brands careers, life Middle Light and who is banquet have retained the unprecedented shelf, space gains achieved in Spring of 2024.
Collectively, they commanded a 15.2 volume. Share of the industry for the first half of the year.
The call that 3 years ago, these Brands collectively commanded 13.4% of the US industry.
And what's clear in the scanner data and as shown on slide 20, is that these brands have held most of their share gains from the last 2 years through the second quarter?
Banquet, in particular, has been a strong performer with 16 consecutive quarters of share growth. It is a top 5 volume share growth brand in the quarter, and given that it's only available in about half the buying outlets as Coors Light, we believe there is significant distribution runway ahead.
In fact, Banquet gained over 15% distribution in the first half of this year, growing across every channel. This is on top of over 15% growth in the same period last year.
in Canada, despite the challenging industry backup, the Molson family of brands, with its deep Canadian Roots posted another quarter of volume share gains,
While Coos light, which is proudly locally produced held its number 1 Life beer position in the industry.
Any mayor in APAC, the industry in the UK has remained highly competitive and in the Central and Eastern Europe region, it continues to experience softness related to escalating Global and local political and economic tensions.
But our brands are calling in the UK and as jusco in Croatia remains segment leaders in their respective markets, which we intend to continue to support with targeted promotional plans.
Turning to premiumization as we have said for several quarters. Now in the US, there has been a shift to Value seeking behaviors.
Premium ads, albeit currently at a slower pace.
So we remain committed to our premiumization plans which are focused on both beer and Beyond beer.
Over the last few years, we have talked a lot about our premiumization successes outside the US.
In the mayor and AAC, it's been fueled by a hugely successful Innovation Madrid which we believe still has significant Runway both in its initial Market of the UK and through recent Geographic and branded extensions.
In fact, in the latest 12 weeks, as of June 14th, we had overtaken Peroni to become the number 2 brand in the world laga segment and number 4, beer, overall, in terms of value across total trade in the UK.
In Canada, premiumization has been led by the ongoing strength of Middle Light and our flavor portfolio.
But in the US, our largest market, we under index in the boat premium, which makes it a big opportunity.
Our Peroni plans that began in the second quarter are starting to show positive results.
But the brand growing volume double digits in the last 13 weeks, through July, the 27th supported by continued growth in chain and on premise placements.
And while smaller for. Now, we are encouraged by our Innovations.
Blooming, not our continues, its rapid growth and we are seeing growing placements for our new higher ABV Brands Blue Moon extra simply bold and Topo Chico Max margarita.
These higher ABV Brands, not only support our push to expand in Sea stores, but are particularly timely given current value seeking behaviors. And while these Innovations are helpful to the respective brand families, we recognize the challenges of their big Flagship Brands and our focused on stabilizing them.
For example, with blue moon, we have completed the pack size conversion to 12 from 15 packs. This was a near-term volume headwind, but it's very positive for margin.
In the on premise, which is a big channel for Blue Moon. We saw dollar share Trends Improvement during the second quarter. And in the third quarter, we have been ramping up a new National advertising campaign with comedian columns Joost.
And then there is none. Now, Fever Tree is now our highest NSR for heavy, the brand aside from full strength groups,
while we began to consolidate Fever Tree, into our financials in February, we are only completed the distribution Network transition in June,
And the incoming Distributors are very excited about the opportunity to significantly. Expand fever trees presence across both existing and new channels and buying Outlets.
It's early days with the brand, and it has already contributed meaningfully as the key driver of positive brand mix in the Americas.
And while Fever Tree is already the world's leading supplier of Premium carbonated mixers with the number 1. Tonic and the number 1, Ginger Beer by value in the US we believe we can accelerate its growth in the US over time by leveraging the scale and strength of our distribution Network combined with our marketing capabilities.
Now, before I proceed to Tracy, I'll sum it up to say it's been a difficult start to the year but we view beer as resilient.
And emitted challenging macro backdrop, we are focusing on what we can control to position our portfolio and our business for long-term success.
That means keeping our Core Power Brands healthy continuing to premiumize in the Mayan. APAC, in Canada and successfully. Executing our plans in the US
Leveraging, our deep capabilities, across our organization to support premiumization, and focused Innovation supply chain efficiencies and Commercial effectiveness.
And utilizing our enhanced Financial flexibility to prudently invest in our business and return cash to shareholders.
And with that, I will pass it to Tracy.
Thank You, Gavin.
We are very pleased with the health of our balance, sheets, and our strong cash generation, and this is particularly important during a challenging macro environment.
As it allows us to continue to invest behind Our Brands to help ensure their long-term health.
To continue to make Capital Investments that support our growth initiatives and cost savings plans.
And to not only pay what we view as a competitive dividend, but also executes a meaningful share repurchase program as we continue to believe our staff is a compelling investment.
In fact, we have raised the quarterly dividend each year since 2021.
And we have actively executed, our current share research plan since it was announced in October 2023.
It's an up to 5 year 2 billion dollar plan and we have utilized almost 55% in under 2 years.
For perspective. If we had executed it on a straight line basis, we would have only utilized 35% of the plan so far.
With that, let's discuss our financial Outlook.
first, the impact of the global macro environments or multifaceted and 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.
As it relates to tariffs, as we have previously said, while we are a global business, our products are generally made in the markets in which they are sold. And with locally sourced ingredients,
So we don't expect material direct impact from the known tariffs on our input costs.
That said, tariffs do have indirect impacts like the recent spike in the midwest, premium pricing.
While our extensive hedging program can help to mitigate some of the impacts due to the guardrails of our program, we are never fully hedged.
Further giving us a peak pricing at a time. Limited liquidity hedging, the Midwest premium can be difficult and expensive.
And for these reasons. The Midwest, premium is 1 of the commodities for which we currently have the least amount of hedge coverage.
With that, let's discuss the drivers of the gardens Gavin outlined.
A Topline guidance range and I assume the US industry is down 4 to 6% for the second half of the year.
Our price mixes are unchanged. We expect an annual net price increase of 1% to 2% in North America, in line with the average historical range.
We expect mixed benefits from cycling contract Brewing from 2024, as well, as from premiumization.
We expect to grow above premium. Net brand Revenue in a mere and Apex and Canada as well as make progress on our us above premium initiatives.
And the consolidation of zero are incremental to the Top Line, but we are also starting the diversity of the smaller. Regional craft breweries in the third quarter of 2024 and more significantly 2024, peps and the best contract Brewing volume as these contracts terminated at the end of last year.
we expect to relate to America's contract willing headwind to be 1.9 million, hectare leaders in 2025,
In the first half, recycled over, 1.1 million hectare, and we will cycle over 450,000, hectare leaders in the third quarter.
Also, last year we had higher than typical first half inventory, Bill related to the fourth West strike which ended in mid-may.
As a result, SDWs outpaced SDR by 1.1 million in the first half of last year.
This year sdw's Outkast SD by 800,000 hectare in the first half. So year on year, we had an approximate 300,000 hectare shipment timing headwind in the first half that we expect to reverse in the second half and mainly in the third quarter.
Note that we did have some shipment Trends catch up to Str in the second quarter, which had an approximate 150 basis points, positive impact on US, Financial volume in the quarter.
We had previously not expected to build higher than last year, given the cycling of the Fort Worth strike.
We were able to ship further ahead of SDRs than expected due to the softer-than-anticipated industry demand.
For a detailed review of these us shipment Trends. Please refer to slide 21.
Moving down the pnl. We expect, next benefits from lower contract, brewing and increased premiumization, as well as productivity improvements and cost savings can, now be more than offset by higher volume D leverage, given the industry volume Trends as well as higher Midwest. Premium costs
for the full year this would result in Midwest premium costs exceeding the prior by 40 to 55 million
When I expect mg&a to be down slightly for the year, as we now anticipate lower incentive, compensation due to the adjusted after for this year.
Also and to a lesser degree the Fever Tree 1-time transition and integration fees were less than expected totaling approximately 30 million dollars in the first half of the year.
beginning in June,
At for marketing, our plans are unchanged, we intend to continue to put the right commercial pressure behind our key Brands and Innovations, including our Core Power Brands Peroni. The Blue Moon, family Madrid, and our non-alcohol portfolio.
While marketing investment was down in the second quarter cycling up to spend in the prior year, period, we expected to be up in a third quarter, due to the timing of our commercial plans and lower spend in the same period last year.
As a result, we expect marketing investment in the peak summer months to be consistent with prior year period levels.
We are also slightly adjusting our net, interest expense Outlook.
When I expect 225 million plus or minus 5% as compared to 250 million dollars plus or minus 5% previously.
This is driven by lower cash balances, including the impact of higher share repurchases as well as foreign currency impacts.
And lastly, we are reaffirming our underlying free cash flow guidance of 1.3 billion dollars plus or minus 10%.
In closing with a strong, Global brand portfolio, healthy balance, sheets, and strong, cash, generation. We are confident in our ability to navigate these challenging times. While supporting the long-term health of our business and brands,
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 even more cash to shareholders.
With that, we will take your questions, operator.
Thank you. We will now begin the question and answer session.
If you would like to ask a question today, please do so by pressing star, followed by the number 1 on your telephone keypad.
If you change your mind or you feel like your question has already been answered. You can press Start followed by 2 to withdraw yourself from the queue.
Our first question today comes from Peter, Graham with UBS
Please go ahead. Peter.
Thanks operator and good morning everyone.
I I wanted to touch just on the updated guidance. Can you maybe just, you know, unpack the moving pieces a bit more. Clearly the top line is is, is is a bit pressured here, which we can see in the data but can can you maybe just unpack the prophet headwinds and specifically, you know, aluminum and kind of the Midwest premium? And I guess, as we look out to the back of the year, how does the kind of updated guidance impact the second performance? And I guess related, you know,
So early. But are there any implications that we should consider today as we look out at the Piston 26? Thanks.
Thanks Peter, good morning. Um, appreciate the question.
Look from from my an updated guidance point of view.
You know, I would I would put it
on 3 things, right? That we did not anticipate. Um, the last time uh we spoke what is the industry did not get better? As we were expecting it to? Um, you know, we we, we had expected it to navigate back to where it's been for the last few years of around, um, down down 3, and it didn't and, um, certainly consumer confidence and the, the, the the macro environment, where I'll speak continue to believe very strongly that that that it is a cyclical. Um we we're not seeing any signs of that um changing um in the in the in the balance of the year and it's it certainly didn't in the in the second quarter. So that was that was probably the biggest driver.
Um, obviously we we did not expect the, the dramatic increase in the midwest premium of of 180, uh, percent and we've we've talked a lot about that in. Tracy can get into more detail on, on the difficulty of of, of changing and and forecasting that. So that obviously played a a pretty significant negative role in our in our Q2 imbalance of the Year assumptions and frankly our share performance did not meet our expectations. So the first 2 I would characterize are somewhat out of our control in the third 1 is within our control and our share performance. Um wasn't um,
What we had expected. Um,
you know, it it stayed relatively the same as it did in q1. And we had expected a, an improvement and, you know, our our estimate of our of our shared performance was, was a little better than what you might see in in in essay and so on because our on premise performance is is better. Um, and so we we estimate, we lost about about 50 bits of of, of sharing the in the in the second quarter and and we've made the same as for the balance of the year. Now, obviously, we're working very hard to change that but from a from a guidance point of view, we'd assume a little change in our in our share performance.
That sort of covers the Sacred Heart. But, but from a longer term point of view, you know, you know, we still believe, um, as we said, in our in our remarks and I I I think the environment supports that is, is that the current industry declined is is cyclical. Consumer confidence will turn like, I don't know when, but it it will turn in the midwest. Premium will revert back to the mean from these
Um, you know, extreme moves that we've that we've seen both of which have had a pretty negative impact on our business. This year, we've got a a very strong balance sheet. We we deliver a really strong cash flow as you as you would have as you heard from from Tracy and I update data, guidance does not change that. Um, we continue to be very pleased with how we've retained the majority of our market share. And our core Brands quiz banquet is on fire.
Um, our non-alcoholic strategy, um, is coming together with the, with the acquisition of Fever Tree and all of that is incremental in the, in the second half and, and, and we'll still have incrementality. Obviously next year, as as well. It provides a nice Halo um effect to to zoa Peroni. I i i plans kicked in in the second quarter and um you know Brands doing doing very very well and Canada is holding its own um from a from a market share point of view and you know, Molson Canadian is doing well. But A lot's doing well because Originals doing well um as we as we head into next year.
um, and when you look at email and ape um,
You know, our premiumization strategies doing very nicely led by led by um, and and and frankly others.
Um, if you look towards the balance of the Year this year, um, contract Brewing, headwinds become less, and less as we head towards the end of the year and the fourth quarter. I don't think we've got any real headwinds from a pass point of view to speak of. We obviously still have the the the fifth go ahead head head headwind. And then next year that all goes away, right? Um, so we'll have no headwinds from from contract Brewing. Um, Tracy spoke about the shipments in the back half of the year and whilst we did get some, um, of that in the second quarter which which we weren't anticipating given the performance of, of, of, of retails sales. Uh, we do get the rest of it, primarily in the, in the third quarter. Um, and, um, in my own Outback, we're expecting to perform better from a, from a Topline point of view as we as as, as we head into the, into the back half of the Year, given the given the environment. So, Tracy, did I forget anything? No, I think you covered it at all. Okay.
Thanks Peter.
Thank you. Our next question comes from Chris Carey with Wells Fargo. Chris, please go ahead.
I wanted to um, follow up on a couple areas. There 1 is just a clarification.
Tracy, the impact from Midwest. Premium increases that you're expecting for the year.
Have you seen any of those increases in Q2 or is that all in the back half of the year? I just say that in the context of the Americas inflation in the quarter was fairly poultry. So I just wanted to confirm that piece.
And how we think about the aluminum inflation perhaps more on a 12 to 18 month, time frame.
And then just, um, following up on the overall category. I think, you know, there are certainly a number of um,
Uh reasons why we, we may view what's going on in cyclically. A lot of categories in consumer are dealing with sluggish trends,
The question I would have though is volumes in the beer category have been soft going back to 2022. Obviously the category leader dealt with a pretty substantial headwind. But nevertheless I wanted to just test that confidence level around this being cyclical versus perhaps changing in consumption and habits and and how you
You, you know, reconcile or get comfortable with that concept and it's kind of, you know, a category that's been a bit softer over the past few years. Um,
So, thanks on on those, appreciate it.
We we continue to believe that over time that will change. And, I mean, you know, it could be, it could be sooner rather than later or it could be in the, in the, at the same time period. Um, next year, um, you know, the, the items that have been impacting, um, the overall alcohol category, like, like, you know, I've often heard glp 1's talked about. I mean, we don't have a lot of data that suggests, that that's having any meaningful, um, impact on, on, on, either the alcohol category or our category at, at this point, um, you know, the other item that gets talked about is, is, is D9. And I think the, the impact of D9 does vary by, by, by, by market. And, you know, in some Market, it's not sold in, in, in others, it carries, um, strong restrictions and, and, and so that's certainly an area that, um, you know, we continue to monitor the the, the impact of of that. Um, you know, I think consumer confidence has had a disproportionate impact as I said across, um,
You know, some uh, consumers differently uh, to to others. And and again we we believe that that is that that is cyclical um
Tracy, do you want to add? Um, anything on Midwest premium. Yeah, so um, hi Chris so
Look, I mean, no 1 expected them at best, premium to increase the 180% from the beginning of the year.
Um, so for us, you know, even though we are um you know, somewhat hedged because it is such a difficult, um, it's not transparent, it's expensive to hedge. Its it is a commodity that that we, you know, the least amount hedged but um, as it as it equates to the balance of the year, I mean we we expecting an incremental, 20 to 55 million of Midwest impact for the balance of the year. So you know that's around 60 to 75 cents a pound. Um, our full year impact is um between 40 and 55 million. Um and again that's just the Midwest premium, you know, from a from a um
A a, you know, rest of a commodity, um, point of view, you know, I hitching program is very expensive and, and we, um, expect very little impact from tariffs. But but these indirect, um,
Impacts, you know, specifically the Midwest premium um, is is just you a problem, um, because it is so difficult to to um hedge and it just doesn't follow normal market dynamics.
And then just to tie a bow on the, on the um, the industry. Uh, Chris. I mean, our our acceleration playing strategy is designed to um address some of the areas where we believe that there is an opportunity, right? So I'll be on Bayou strategy from a, both a non-alcohol beer point of view. And also from a non-alcohol point of view is, is obviously, a a fair, fairly close tie in between Fever Tree from a, from a mixer point of view, and and alcohol. Um, and so that's an area that we, that we leaning into and feeling really good about the initial progress that we've, that we've made on, um, on on fever trees. So our our Innovation strategy, um, and our our brand portfolio strategy is designed to to address, um, consumers changed consumption habits um, and um, and, and and differing occasions.
Our next question comes from Andrea tezera with JP Morgan.
Please go ahead.
Thank you, operator. And good morning everyone, having. And I appreciate uh, your comments on the customer confidence potentially improving. Um, now I'm curious to see if you're seeing any green shoots because are we here from your peers and and retailers, is that obviously, we've been inflation, hitting harder in the second half of tariffs. We could see things getting worse before they can get better. Um, so can you comment on the
Exit 3 for consumption in North America and Europe. Um, I I know from your slides and I appreciate the details there. You're still running um, S2s against sdrs um at at a, at a higher level. So I was hoping to see if you can help us with the Cadence as we um, incorporate your new guide.
Uh, previously certainly, you know, buying more, um, um, singles and, and large packs and, and less of those, those, those mid packs. But that certainly has, um, has um, continued, I mean, we obviously serve a very broad set of of of, of consumer demographics, across many income levels with our, with our portfolio. And we we think we've got a portfolio that that meets everybody's, um, and so no, we we haven't seen much change. Um, the environment is impacting all consumers, um, in 1 way or another, we we do see the Hispanic consumer and is disproportionately impacted, um, by the overall macro environment. If you look north of the Border in Canada, I mean inflation has, um, eased over over time but consumers out there also remain, uh, cautious about spending and, and, and ongoing concerns around around housing and food costs. And, you know, um, while interest rates have have stable,
I think there is a, a more Global concern around, you know, trade tensions and, and, and Terror for related impacts. So, you know, whilst, um,
Canada, Beer, industry volume is 104. Trends have been somewhat similar to the US. Um they performed slightly slightly better.
In in the UK the uh consumer confidence index remains negative. Um, we did see a little bit of an improvement in May um,
I think, let's just put more broader, optimistic view of the of, of, of the overall economy in the UK. And but overall sentiment, I, I think I would, I would say remains, um, remains cautious, um, and then, in Central and Eastern Europe, certainly, um, that consumer is, is, is probably being impacted more than more than most given the, you know, significant, um, you know, political and socioeconomic issues that have that, that are impacting the, um decentral and, um, and Eastern European markets. So, that's sort of a run through of our markets and how we're seeing, uh, consumer confidence. Tracy the, um, the shipments. Yeah. So, um,
in terms of, of the first half of the year, uh, our ship,
Sales to retail by about 800,000 hectares in the first half. Um, 5 years is about 1.1 million hectare leaders. So there's about 300,000 hex leaders, um, to reverse in the second half of the year; most of that will be in Q3. Um, and as always, you know, we plan to ship to consumption, so we expect that to, you know, converge.
as I say, mainly in Q3
Thanks, thank you.
Our next question comes from Bonnie Herzog, with Goldman Sachs.
Please go ahead Bonnie.
Thank you. Good morning everyone. I just had a, a quick question on pricing and then the promotional environment I guess, given the pressures on the category and consumers, how are you thinking about pricing for the remainder of the year? You know, also you know what about the promotional environment are you seeing signs of you know, levels increasing recently and how do you expect that to to play out? Thank you.
Thanks Bonnie. Um, and good morning, look. I mean, it's it's quite common to see heightened um, you know, competition with with, with strong promotional activity during the summer. And and, and and and and and you see that easing up in the in the shoulder months. And we've seen that in Prior years. And, and we're seeing that again. And again, we just take a strategic approach to how we evaluate the, the competitive, um, environment from an overall pricing point of view. You know, the historical average as we've said before, ranges in that 1 to 2% range. And, you know, we expect that to, to fall within that range again, um, again this year. Um,
you know, whilst we have seen the the, um,
The impact of the economy consumer confidence, you know, having consumers searching, um, for Value any any trading seems to be coming in in Channel and, and pack shifting, um, not necessarily in in segments, trade down.
Thanks buddy.
Thank you.
From philippo for lawn here, with City.
Please go ahead.
Drivers of the big margin contraction that is embedded in your guidance. In terms of volume, The Leverage sgna for the back half of the year and then um, just to follow up on Topline, Gavin you mentioned the, on premise is performing better than what we see in track Channel data. So can you give us a perspective of how July uh played out uh relative to your expectation, including the on premise business, you see still soft trance espec around 4th of July, in track Channel. But I'm curious that the total company and total industry Trends including on premise. Thank you.
Thanks Philip. Um, try to handle the margin 1. I'll quickly deal with um July and the on premise. I mean, look from a July point of view as our as we say every time on these calls, right. We've only got a few weeks of the, the following quarter in the, in, in the books. So, you know, let's, let's see what happens for the balance of the of the quarter from a from an overall um, industry in our performance point of view, from our on premise point of view. Um, you know, I know we've talked a lot about Blue Moon Over the over the last couple of years. And and, and we are starting to see Improvement in in the on premise, you know, Belgian White's. Str trend is improved, you know, 6 points in Q2 versus q1, which is very encouraging given that brands are are built and um, and and and, and expand from the on premise, um, out. So we we're pleased with that Peroni, is obviously playing a a role in that as we
As we implement the plans, we've talked about for a while now which kicked off in in Q2 so that that's been a positive Catalyst for us as well. And and then, of course, Banquet just, you know, just remains on fire as it gains distribution both in the in the, on premise and the off premise. So, you know, I would, I would say, um, that those are the 3 brands that are that are having the most positive impact for us in the, in the, on premise,
Tracy, do you want to get into a little bit more? So then can you take a look from a margin point of view? We don't specifically um, you know, give gross margins guidance. But um just you know to underline gross margin. Percentage has improved in each of the last 2 years.
um but a couple of things as we look at 2025, so we've spoken about the Top Line
Um, in terms of the COGS, uh, you know, we do have the de-lever headwind, driven, you know, by the contract brewing, which we've discussed.
And we also have higher premiumization which drives higher cocks, um, across our business units. Uh, we have spoken about the Midwest premium um and uh although we do have productivity improvements and you know, cost savings. Um these are more than offset by the The Leverage um and premiumization as well as the the Midwest premium
Thanks Tracy.
Thank you. Our next question. Comes from Rob uttan with evercore isi, Rob. Please go ahead.
Great, thank you very much. So Gavin a, um,
A pretty, um, pessimistic view on on second half volumes for the industry. Uh and I'm I'm assuming that that July was pretty bad and and this is you know, in the face of I I think easier comps
Um you know given how bad the weather was last year. So I I guess what I'd, I'd love you to help us think through. Um, you know, assuming that does play out the way the way your guiding to what what are the impacts on the industry and how can the industry address that? So uh are you starting to see pressure? For instance on shelf space not not for you specifically but for the beer industry as a whole uh you know as as retailers start to look at the fall and shelf set changes and in the next year and and how you maybe combating that uh any impact on not just yours but industry Brewery footprint. Um, you know, the potential for some sort of consolidation of volumes. Um and you know, maybe doing a
Reverse doing more contract Brewing uh instead of you know letting contracts go actually maybe bring more in to keep Brewery utilization going, given the high fixed costs of of breweries and Independence on volume. So just love to get you know, your thoughts on you know, industry action, your reaction to these unprecedented volume declines. Thank you.
I had easier comes, but the rest of the year did not, if you remember correctly. So yes, there was poor weather and and the industry was pretty pretty uh pretty tough in July of last year. So the comps are a little softer, um, in July going forward, they're not, they're actually, um, you know, the, the the industry improved quite nicely heading into the into the into the balance of the Year, from about August onwards. So the comps don't get easier from an industry. Point of view, they get they get tougher and, obviously we've built that into our into our thinking, as we as, as, as we put the guide out there, uh, from a shelf space point of view. Um, look from a from from our point of view. Um, you know, we obviously had a significant uptick um, in in 2024, um, in both the spring, um, and in the fall of 2023, uh, we held on to those games. Um, and so we finished 2024 significantly higher than we did in in 2023. Uh, and again, in the spring of this year,
We held on to those those shelf, um, games and, you know, banquet again. Um, was a particularly strong beneficiary of that, we gained strong double digits. And, and we're not expecting to see uh, significant activity for the fall of of, of 2025 based on on what we're, what we're seeing and what we're hearing and and and frankly we would know if it was different. Um, by by this time um we're retailers have made, um, shelf changes at at
That to accommodate um other um Brands. Um they've made in the in the in the flavor space and the Craft Space, um primarily I would say they haven't paid them in the in the traditional beer space.
You know, from a, from a brewery uh footprint uh point of view obviously Arch capacity, utilization, varies by season. So, in the summer we're we're fully utilized um and and in the shoulder periods are not necessarily. I would tell you that removing perhaps from our system is very very helpful. Um, it it, it has allowed us to remove a lot of complexity. It's it's the loudest of free up capacity in the in the summer. It it certainly helped our decision to onshore uh Perroni.
Um, which which we have now completed and it's it's, it's completely, um, onshore and, and obviously, we see a big opportunity for peyronie and we're starting to see that benefit coming through in the in the second quarter. I often said and um, look forward to seeing in the future that that that Peroni can, there's no reason why it can't be as big as as as as its other European competitors. And we, and we certainly gained, um, you know, meaningful, um, share versus our European competitors in the in the second quarter. Now, that our plans that kicked in, um, it has, uh, it it allowed us to tidy up our, our footprint, um, you know, by closing a couple of of, of of smaller group
So, we were able to tidy um, tidy that up. Um, and it's certainly allowed us to to bring Yuengling um, and our Yuengling relationship into into our business and, and produce in a, in a couple of breweries. And this will allow us to expand further with, um, with Yuengling when the, when the time is is right. Um, so, you know, as it relates to the brewery footprint, we, you know, we're pleased with our Brewery footprint. Um, and, um,
Yeah, I think that covers all forms of rocks points. Tracy, thanks, Rob.
Thank you. Our next question comes from Eric zorrata with Morgan Stanley.
Please go ahead, Eric.
Great, good afternoon, good morning, everyone. Um, I wanted to first ask you Gavin, in terms of, uh, the recent market share Trend, um, or um, clearly the off premise Trend at least have weakened visibly your largest competitor. I know you called out better on creme, uh, Trends. But, um, are there any changes to your marketing or go to market strategies that your, uh, implementing or comp or contemplating in the light of what scenes like a resurgent competitor at least for 2 of their main Brands? Um, and then for Tracy,
what housekeeping items uh, could you help quantify how much the incentive comp reversal was was that all in the second quarter and then in terms of the uh, free cash flow, you know how much of
Is the the cash tax and working capital, um, and you know, all else equal with the working capital benefits reverse next year or these sustainable. I know there's a lot there, but thank you.
Thanks Eric. Um,
Yeah, a lot there. Let me see if I can if I can answer that. Um, look I think from an overall SharePoint view. I think I'd start by saying that a total Nelson Cruz share Trends in the US. Now, I'm talking specifically, the US has improved each quarter since the third quarter last year, right? So, you know, Q3 we were down about 100 basis points Q4 we were down about 70, q1 was down about 60 Q2 is about about the same, right? Um and if you peel back the envelope as to where we we we are losing that it's in flavors themselves. Is is the biggest part of that of of that Decline. And so, you know, we are seeing some improvements in Topo Chico, it's not enough to offset. Um, the the the the clients that we're seeing on on simply and and fizzy uh, from an economy portfolio, point of view, that that's a roughly about another third of the of of, of the decline. And obviously, our 2, Focus brands in their Milo, high life and Keystone Light are showing better Trends than than than than the the the number of total brands that
We that we still having that in that um, in that segment and then call, right? We we talked and I have talked a lot about, um, our core share attention because it's factually correct. We have retained 180 based points of the share that we that we gained in, in in 2022 and it is, it is Meaningful. Um, you know, banquet continues to be the star of the show there. Um, it's up another, you know, 20 basis points in in, in Q2. And it, it remains 1 of the fastest growing major beer brands in the US. In fact, it grew in all 50 states plus um Washington um, D.C in the, in the first half of the, of the year. So we we are very pleased with the quiz. Banquets performance, what are we doing about the rest? Well, you know as we head into into Q3, we're we're focused on driving our Miller Lite 50th. Um, anniversary campaign. We're going to execute strongly behind our NFL Alliance presence. Uh, we we have a, a great
relationship with a number of NFL teams so you'll see us in all channels. We'll see incremental, media pressure. Um particularly in, in our great um Lakes geography, we're going to be executing against our coolers light uh College programming. Um
The ESPN game day partnership and we're going to continue to put the, um, put the accelerator down on, on, on quiz. Banquets momentum with the start your your legacy program from an about premium point of view. I've talked a lot about Peroni and and, um, and, and Madrid from a, from a blue moon point of view. Um, you know, we
We are working very hard to change the trajectory of of, of that brand. And we are, as I said earlier, seeing, you know, Green shoots starting to show up in the, in the, in the, on on premise. And we've seen good performance behind, um, behind our Innovation, um, particularly Blue Moon non-alcohol. But, you know, from a higher, um, ABV point of view. Obviously, our strategy Behind Blue Moon, and simply interpret Chica and the con Convenience Stores, um, is, is something we're putting effort behind starting in the in the in the second quarter. So, you know, big important brand for us, it's a top priority for us in the both premium and and we remain very committed to turning it turning it around.
this all
with anything you want to tell you. Yeah, so um, Aries come and incentive compensation. Look, we're a crew for incentive comp throughout the year. Um, and then, you know, based on our adjusted Outlook, um, for our um, you know, our our Gardens, we have reversed, the large portion of what we had accrued in the first half of the year. Um, in terms of the
Free cash flow, look for cash tax benefits. That um we've got um as well as the working capital largely offset, the prophet shortfall. And um, and then if you recall, when we had our q1, um, we did touch our Capital spend by about a hundred million dollars. So, um, you know, that that gives us the, um, free cash flow of around 1.3 billion, um, plus or minus 10%, as we have guided to,
Thanks Tracy.
Thank you. Our next question comes from Peter, galbo, with Bank of America, please go ahead Peter
The volume de-lever piece. I, I think it was about a 300 basis, point impact in the first half. Um, and I know that you, you kind of gave some some high level commentary on on what it would be for the year. Um, but was just hoping to to unpack that a bit more uh as we think about the second half and the year specifically you know how we should think about the the volume D. Leverage impact. Thanks very much.
Yeah. So um
in terms of of, uh, Outlook um, for the year, what we had said is that, um, sdw's outpace the sdrs by about 800,000 hectare in the first half of the year and we always
Plan to ship to consumption. Um and so there was this going to be about um, 300,000 or so um that we will reverse in the second half of the Year, mainly in Q3 um because last year for the first half, we did um ship more um than the than than the retail by about 1.1 million hectare. So the difference between that is about 300,000 hectare leaders which we expect to reverse. Um,
and,
Then, um, yeah. Because we, we plan on shipping to consumption. Um, we expect most of that, to, to converge by the end of the year, but, mainly in Q3
Extra, I see.
Thank you. Our next question, comes from Bill, Kirk with Ross, Capital partners.
Please go ahead, Bill. Good morning everyone. Um so my question, you know, since preco since 2019 you have more market share than you, did your earnings per share are much better than they were. Uh but the stock price doesn't really reflect those improvements. So I guess the question is if you aren't getting credit for market share gains and profit growth. In your current categories, says something need to strategically change and and then when underlying cogs, per hectare leader, are are up to Mid single digit, or more, why only take a 1 to 2% price increase
Thanks Bo. Um, look from your, for the, the first part of your question. I mean, obviously, and we've saved this before, as well. And is, is we believe that our our business is very attractive, um, investment of these at these levels, and we continue to demonstrate our belief by buying back significantly ahead of, um, the authorized bored bored, uh, program from a from a, an overall category point of view. I'm very pleased with, um, our acquisition of the US, um, business of of Fever Tree and and the integration is, is going going well and, um, you know, our volumes are exceeding, our expectations um, from a from a business.
that case, point of view, I distributed are excited about it and, um, you know, it really does give us a nice, um,
You know, footprint from a, from a non-alcoholic point of view. And, and, and we believe a halo effect to our other non Al um, activities. Um, I was, I was second passing. Oh, pricing. Yeah. I mean, look, Bill. We, we, we obviously look at pricing from a
You know, every single market is different. Every state is different. Every brand is different. And, and, and, and we obviously take any number of factors into account, not only, um, input costs, but you know, also, um, consumers' behavior and receptivity to, um, to price increases and so on. So, you know, we've got a very robust revenue management, um, uh, program, and, and, and we will continue to do what we think is best for our brands and, and every single market.
Thank you. Our next question comes from Robert Moscow, with KD Cohen
Please go ahead. Robert.
Hi. Uh, thanks for the question. Um, you know, in the past couple of years, the productivity, gains at at Molson, Coors have been substantial and um, uh, helped offset. A lot of the, the negative impact from, from volume to leverage, but but now it looks like the volume to Leverage is is is accelerating and, you know, you've had to call down your guidance. Um,
Tracy and Gavin. At what point do you have to take another? Look at your asset footprint both in terms of of manufacturing and distribution and you know is it with volume declining at this pace? Well you have to take another look at that and and maybe make more reductions, thanks.
Point of view in the in the, in the summer months. Um, you know, we've we've removed, um, contract Brewing from our system um completely which is why we're, you know, we have that headwind um and have had the headwind all all year that that obviously starts to tail off. Um, as we as we head into into the back half of of of, of this year. But you know,
there's not much more. I can say that. What I said earlier, Robert, I mean, removing pasteurized system is has proven to be very helpful. It's allowed us to take a lot of complexity out of our system. It's allowed us to
You know, you know, change things from a from a shift configuration point of view from our line point of view from a temporary labor point of view. It's it's over overall, from a, from a pretty footprint, point of view, been been very positive for us and it's allowed us to bring, um, Peroni in, which is I said, is, is, is growing very nicely and we hope to have that brand as a as a Big Brand in the in the future and it's, it's allowed us to support, um, our, our Yuengling partnership where we've got a very successful, um, launch in in, um, in Illinois, uh, this year. So, you know, we
We're pleased with our period. For the protagonist is the summary.
Thanks, Robert.
Thank you. Our next question comes from Michael Lavery, with Piper Sandler. Please go ahead. Michael.
Good morning, thank you. Uh, I just wanted to come back to the, to the guidance update and the the Epps Bridge. Um, Midwest premium has gotten a lot of attention, but
as you know, you've called out the math. It's it's maybe 1 to 2 points of, of the 10 or 13, cut, you know, cut the EPS growth Outlook and you've got some stuff to buy backs as well.
What are the missing pieces I guess? And you know if you've said what's new is, is Midwest premium like the category Trends and and then your share expectations is is it just you know all of that and and the operating leverage that that we've covered a bit or or is there other inflation we should have our our eye on as well? Or you know, I thought you mentioned the interest expense to change that's also quite modest. So I mean you know help us maybe figure out if there's any other moving Parts here or or if just the top line flow through is that significant.
Um, hi Michael. Yeah, so look, I mean, the, the Eastern marketing timing. Um, you know, we we do expect, um, to spend, you know, similar levels of of marketing in our Peak summer selling season, as, as last year. Um, you know, so that's 1 thing. But the other thing is remember, our EPS is not on in constant currency. So you we do have, um, foreign exchange impacts to it and, um, you know, as the as the dollar weakened, um, you know, that will certainly be a tailwind. And then the other thing that goes into, it is, um, tax. Um, now we have kept our effective tax rate guidance, you know, at the same levels um, as as what we had previously, but those could be, you know, 2. Um, to to artists that do impact um,
Our EPS but but yeah, just probably to call out that um, you know, although marketing was done in in Q2. Um, we do expect it to be up in Q3 because of some of the timing of our commercial plans and and also cycling lower spending in Prior year.
Great Tracy.
Thank you. Our next question comes from Lauren. Lieberman with Barclays.
Please go ahead.
Great, thanks for the morning. Um,
So, I know you talked about the, um, software us share performance in the release, and I was just curious to kind of talk a little bit more about that given the competitive premium Lite space these days. And like, are there any specific regions in the US or you're seeing underperformance? And I know you said the guidance of the second half as soon as you share Trends kind of are consistent, you just comment on our marketing but I was curious about plants that defend share in the second half and Beyond like, you know, is there a point where you'd consider addressing pricing is it a matter of you know, more marketing? Or is it view more like don't overspend into a soft Market backdrop? Thanks.
Yeah, thanks Lauren. Look, I mean, we're we're obviously very thoughtful about how we spend our marketing and and and and, and we turn it over, um, you know, quite carefully. But certainly, we're seeing, um, you know, really pleasing momentum in a number of Our Brands. Um, you know, without
You know, we've we've we've got our non-alcohol portfolio coming in. Um, you know, Fever Tree, we're spending more more money behind it. Uh, MRI in in, um, our other markets has has performed very well. So, you know, notwithstanding the current, um, overall macro environment. Um, which we, as I said believe, is is cyclical. We're going to continue to invest behind our our, Our Brands. Um, so that, you know, when, When the tide turns they're in the best position, um, that they, that they can be, um, you know, I talked a little earlier on about, you know, some of the areas that we're focusing in, on our, on our, on our core core Brands, um, you know, not only banquet but also Motorola and, um, and and and quiz light, and we're going to continue to, uh, to support those. But, you know, you can be assured that we that we turn over every marketing and sales dollar carefully for for Effectiveness before we spend it
Thank you.
Please go ahead.
Yes. Uh, good morning everyone. Um, Can can you come back? Please to the ashes that you mentioned earlier. You mentioned tax benefit. There was another 1. If you could expand on both of those, please, it would be helpful.
Yeah. So um
We for our free cash flow. Um, you know, we've received some um, cash tax benefits this year um as well as some working Capital Improvements, so that is enabled us to keep our free cash flow guidance at the 1.3 billion plus or minus 10%. Those are the 2 items that we mentioned in particular.
The biggest driver there, obviously, is the benefit coming out of capital, right? Capital deductibility.
From 1, big beautiful ball point of view? Yeah.
Thank you. Our next question, comes from Nadine, SATs with Bernstein, please go ahead.
Yes. Hi everybody. Thank you for taking my question. I know we've talked a lot about the US so I'd actually like to turn attention to Emma and APAC, your financial volumes were down close to 8%, and I know you called out weakness in a number of the markets but could you provide perhaps some additional color by region? So, you know, how is the UK do business doing versus your other markets?
And then how do you view this segment performing over the remainder of this year? Specifically, thank you.
Thanks Nadine. Um,
Look, I'm in the market, in, in, in the UK continues to climb. Um, the clients in both in both channels, we have seen a little bit of a category Improvement, uh, cue to date. Um, starting to see some Trend improvement in our share, trajectory, you know, that has been aided by by the benefit of of, of the Easter shift, right, which moved out of q1 and into in into Q2 and I know you live in the UK, so that you will know that the weather has been particularly, uh, good in the, in the, in the UK. Um, we are expecting those figures to show, you know, a, a somewhat greater decline. Um, once we've got June data in because I think we're lapping a big um, football tournament from from last year. Um, so there, is that going on? Um, competition in the marketplace. It it remains um, intense frankly. And, and and and and and you know, despite the increase that we've seen in in promotional frequency
Um, in the off premise, with our largest brand, it it it does, um, remain challenged given the actions of, of some, of our competitors, um, which, which we have chosen, um, not to, um, not to not to follow. I mean, we're seeing some of our competitors in that space price consistently 20%, um, lower than than, um, than calling on, on shelves. So, that's certainly, um, challenged us from a, from a main brand point of view, um, our Madrid, um, volume growth. It it continues. Um, it's up again, with single digits, in, in Q2 and, and, and, and, and we're going to continue to put the right level of commercial support behind, um, behind those Brands. If, if you look at Cross, um, the order into our Central and Eastern European business, but there's no doubt that the the overall beer industry remains sluggish. In this in this market, it's driven by, you know, another decline in consumer confidence that that began at the end of of 2024 after we'd seen
Those factors that are driving that are well understood and well known from a global political point of view. And, you know, local social and and and economic um tensions that that exists. There we we have seen a higher promotional um activity across most of the markets. Um we have had some challenging uh customer negotiations and as as well which on our
On our resolve. And so that all of those factors, um, impacted our, our volume performance in the, in the first half of of, of the, of the year.
You know, we we continue to remain optimistic about the growth potential for our um, central eastern European businesses. Um, you know, we're putting Investments behind our national power Brands and we supporting the recent launches that we have in the above premium space with, um, you know, we launched Madrid in Bulgaria last year and we launched it in Romania. This, um, this year and both both of those being very nicely. We launched quiz in in Hungary, which is, which is doing well and, you know, our innovation in the Beyond beer space. Um,
With, for example, aspalls pip and wild cider, um, in Serbia, and Bulgaria and Montenegro and Croatia is, is, is also doing is sourcing, um, well, although although early days, so, you know, the real success story for us is our premiumization, in our, in our mayor and epic business. And you can actually see that in the next benefits, which we, which we got in at back in the, in the second quarter. I think that generated almost 490.
Basis points of of positive mix for us so Nadine. That's that. That's kind of a quick high level run through our our European business.
Thank you. Our next question comes from Gerald pascarelli with nem.
Please go ahead.
Great. Thank you. Um, I had a question on capital allocation. Given these volume declines in industry volumes, and then your own volumes remaining lower for longer, as you think about this business long term, do you believe larger scale M&A or...
More aggressive bolt-on m&a, may be necessary to just expedite your portfolio towards more attractive, subsectors and beverages, whether it be more not alcoholic, exposure or exposure to above premium Brands, Etc. Uh just looking for any color or thoughts around. How m&a or evolving m&a uh just fits into your Capital allocation strategy. Thank you.
Thanks Gerald. Um, look from an m&a point of view. I think we've been very clear about how the String of Pearls approaches has worked for us and and, you know, in the early days when we still had a somewhat of a, a challenge balance sheet for the higher leverage ratio. Those, those pearls were relatively small, um, you know, as we've put ourselves in a, really strong position, from a balance sheet, uh, point of view, um, you know, very proud of the work that the team has done to get
The balance sheet where it is after the last, you know, 4 or 5 405 years, that has an artist to to, to look at, um, you know, slightly bigger pearls. And and and certainly the, the 1 we did this year with fever trees is is, is is a very strongly support of our of our overall strategy. And, and there's a much bigger Pearl that we perhaps would have considered, um, 5 years ago, you know, when you add everything up from a, you know, from a working capital point of view and a and a distribution. Um,
Uh point of view and and and and our investment in Fever Tree that that number was well north of of 100 million dollars. So you know,
We we remain committed to our String of Pearls approach um obviously beyond that, I'm not going to comment on on on any m&a but very pleased with the progress that we've made with the fever tree so far.
Thank you. Our next question comes from Kevin Grundy with BMP Paribas.
Please go ahead. Kevin
Great. Uh thank you. Good morning everyone. Um I was hoping maybe get an update on the CEO search process. Um given Gavin's plan to retire by year end and of course you will be missed. Um but any update there um just in terms of where that process stands any comments on internal versus external candidates attributes. At the board's looking for and and perhaps maybe have that evolved a bit given the demands of the current environment.
So any comments that you can offer uh to folks I think would be appreciated. Thank you very much.
Thanks. Kevin.
Kind words, look. I mean, the process is that
Of attention to both relevant business. Um, leadership experience along with a cultural fit. Obviously I'm very proud of the culture we built here at Ms and Crews. It's very, it's very, um, special. Um, as we've said previously, you know, it's very common for companies of ours to look at both internal and external CA that's for a CEO position. And, and, and that's what our board is is doing doing at the moment. They remain, um, you know, supportive of our current long-term, um, strategy. But I would expect any new Co to put their own and stamp on the, on the company. So
You know, that's the update, Kevin.
Thank you. Those are all the questions we have today and so I'll hand the call back over to Gavin for closing remarks.
Thank you. Operator, appreciate that. Appreciate all the questions. Um, like to close by thanking our Molson cool, his team and, and our partners for their continued, support behind our business. And, and our brands
You know, I continue to be very proud of the dedication and commitment of our over 16,000. Employees are are incredible partners and our best-in-class uh, distributor Network. You know. I'm I'm confident that together we can navigate this, this challenging environment and and and certainly emerge stronger with this team behind us. So thanks for your time today.
Thank you everyone for joining us today. This concludes our call and you may now disconnect your lines.