Q2 2025 Molson Coors Beverage Co Earnings Call

Operator: Good morning and welcome to the MOLSON COORS BEVERAGE COMPANY second quarter fiscal year 2025 earnings conference call. With that, I will hand it over to Traci Mangini, Vice President, Investor Relations.

Good morning and welcome to the molten core of Beverage Company. Second quarter fiscal year 2025 earnings conference call.

Traci Mangini: Thank you, Operator, and hello, everyone. Our discussion today includes forward-looking statements within the meaning of U.S. 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-U.S. GAAP measures are included in our earnings release. Given our quarterly performance, including financial and operational metrics and drivers, as 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. That is the industry, how we are responding, capital allocation, and our financial outlook. Please note that given the current environment, we are providing a more detailed than typical review of our 2025 guidance drivers.

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 a Reconciliation score. Any non-us Gap. 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 earning 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.

Traci Mangini: We will then take your questions, and as always, we ask that you limit yourself to one question and then, if needed, return to the queue. With that, I will pass it over to you, Gavin.

And please note that given the current environment, we are providing a more detailed than typical review of our 2025 guidance drivers.

Gavin Hattersley: Thank you, Traci. Hello everybody, and thank you for joining the call. Through the second quarter, we continued 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 U.S. has remained at relatively low historical levels. This has continued to pressure consumption trends. These macro impacts in the U.S. have had a disproportionate effect on the lower-income and Hispanic consumer. Within beer, these consumer segments have driven a reduction in the number of buyers as well as spend, with a shift to singles in the second quarter. In addition, while less impactful, certain regions of the U.S.

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 a reduction in the number of buyers as well as spend with a shift to singles in the second quarter.

Gavin Hattersley: experienced some severe weather conditions during the quarter, which had a notable impact on the important Memorial Day weekend. These factors have resulted in a much softer U.S. beer industry so far this year than we had previously expected. Recall our guidance issued on May 8 had assumed the U.S. industry would improve for the balance of year, from down approximately 5% in the first quarter to levels closer to that of the last several years, which averaged down around 3%. 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 U.S. tariff announcements, causing another substantial and unexpected spike in the second quarter.

In addition while less impactful certain regions of the US experienced, some severe weather conditions during the quarter, which had 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%.

Gavin Hattersley: For perspective, and as you can clearly see on slide 19 of our earnings deck, in July, the Midwest premium jumped to $0.68 per pound, an 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 U.S. industry volume will decline between 4% and 6% for the second half of the year. We now expect underlying pre-tax income to decline 12% to 15% on a constant currency basis as compared to a low single-digit decline previously.

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.

For perspective. And as you can clearly see on slide 19 of our earnings deck 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.

Gavin Hattersley: The range includes, for the second half of the year, incremental costs specific to the Midwest premium of $20 million to $35 million, which assumes a respective price per pound of $0.60 to $0.75. 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 decline 7% to 10% as compared to low single-digit 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 decline for underlying pre-tax income. Traci Mangini will speak to our guidance in more detail in a moment. 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.

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 specific 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.

And I expect, underlying earnings per share to the client 7 to 10% as compared to low single digit 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 a moment.

Gavin Hattersley: 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. Legal drinking age consumers continue to engage with beer at similar levels across all generations, and compared to historical levels, it's the occasions that are less. Recognizing this, our strategy was built to develop a portfolio that appeals to a wide range of preferences and captures more occasions. As we navigate these macro pressures, we are continuing to execute this strategy and prudently invest behind our business to build on the strength 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.

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 us 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 beer 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.

As we navigate these macro approaches, we are continuing to execute this strategy and prudently invest behind our business.

Gavin Hattersley: In the U.S., our core power brands, Coors Light, Miller Lite, and Coors 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. Recall that three years ago, these brands collectively commanded 13.4% of the U.S. industry. 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 two years through the second quarter. Banquet, in particular, has been a strong performer. After 16 consecutive quarters of share growth, it was a top five volume share growth brand in the quarter. Given it is in only about half the buying outlets of Coors Light, we believe there is significant distribution runway ahead.

To build on the strength 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 crew is life, Middle Light, and crew is banquet and retained, the unprecedented shelf, space game to Chief in Spring of 2024.

Collectively, they commanded a 15.2 volume. Share of the industry for the first half of the year.

Recall, the 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?

Gavin Hattersley: In fact, Banquet gained over 15% distribution in the first half of this year, growing across every channel and on top of over 15% growth in the same period last year. In Canada, despite a challenging industry backdrop, the Molson family of brands, with its deep Canadian roots, posted another quarter of volume share gains. Coors Light, which is proudly locally produced, held its number one light beer position in the industry. In the Main and APAC, the industry in the U.K. has remained highly competitive. In the Central and Eastern Europe region, it continues to experience softness related to escalating global and local political and economic tensions. Our brands like Carling in the U.K. and Ožujsko in Croatia remain segment leaders in their respective markets, which we intend to continue to support with targeted commercial plans.

Banquet in particular has been a strong performance of the 16th of quarters of share growth. There was a top 5 volume share growth brand in the quarter. And given its in only about half the buying Outlets, of course light. We believe that there is significant distribution. Runway ahead.

In fact, banquet gained over 15% distribution, in the first half of this year growing across every channel. And on top of over 15% growth in the same period last year.

In Canada, despite a challenging industry backdrop, 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.

In May and Apex 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.

Gavin Hattersley: Turning to premiumization, as we have said for several quarters now, in the U.S., there has been a shift to value-seeking behaviors. It has been focused on pack size rather than on brands. Despite the pressure on the consumer, the industry continues to premiumize, albeit currently at a slower pace. 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 U.S. In the Main and APAC, it has been fueled by a hugely successful innovation, Madrí Excepcional, which we believe still has significant runway, both in its initial market of the U.K. and through recent geographic and brand extensions.

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.

But it has been focused on pack size rather than on Brands and despite the pressure on the consumer, the industry continues to premium ones or be it currently in the 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.

Gavin Hattersley: In fact, in the latest 12 weeks, as of June 14, Madrí Excepcional had overtaken Peroni to become the number two brand in the world lager segment and number four beer overall in terms of value across total trade in the U.K. In Canada, premiumization has been led by the ongoing strength of Miller Lite and our flavor portfolio. In the U.S., our largest market, we under-index in above premium, which makes it a big opportunity. Our Peroni plans that began in Q2 are starting to show positive results, with the brand growing volume double digits in the last 13 weeks through July 27, supported by continued growth in chain and on-premise placements. While smaller for now, we are encouraged by our innovations.

In the Marin 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 brand extensions.

In fact, in the latest 12 weeks as of June 4th but the re had overtaken Peroni to become the number 2 brand in the world's largest segment and number 4 Bureau 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 above premium, which makes it a big opportunity.

Our Pani plans that began in the second quarter are starting to show positive results.

Supported by continued growth in chain. And on premise, placements.

Gavin Hattersley: Blue Moon continues its rapid growth, and we are seeing growing placements for our new higher ABV brands: Blue Moon Extra, Simply Spiked, 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. While these innovations are helpful to their respective brand families, we recognize the challenges of their big flagship brands and are 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 trend improvement during the second quarter. In the third quarter, we have been ramping up a new national advertising campaign with comedian Colin Jost. Then there is Madrí Excepcional.

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 and see stores, but are particularly timely given current value-seeking behavior. While these innovations are helpful to the respective brand families, we recognize the challenges of their big flagship brands and are focused on stabilizing this.

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.

Gavin Hattersley: Madrí Excepcional is now our highest NSR per hectare brand aside from full-strength spruce. While we began to consolidate Madrí Excepcional into our financials in February, we only completed the distribution network transition in June. The incoming distributors are very excited about the opportunity to significantly expand Madrí Excepcional's presence across both existing and new channels and buying outlets. It's early days, but the brand has already contributed meaningfully as the key driver of positive brand mix in the Americas. While Madrí Excepcional is already the world's leading supplier of premium carbonated mixes, with the number one tonic and the number one ginger beer by value in the U.S., we believe we can accelerate its growth in the U.S. over time by leveraging the scale and strength of our distribution network combined with our marketing capabilities.

In the on premise which is a big channel for Blue Moon. You 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, Joe.

And then there is none. Now, Fever Tree is now our highest NSR for hexley. The brand aside from full strength groups,

Well, 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, but the brand has already contributed meaningfully. As the key driver of positive brand, mix in the Americas,

And while fever is really the world's leading supply of Premium carbonated mixes with the number 1 ton and the number 1 Ginger Beer by value in the US.

Gavin Hattersley: Now, before I pass it to Traci, I'll sum it up to say it's been a difficult start to the year, but we view beer as resilient. Amid a 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 main and APAC and Canada, and successfully executing our plans in the U.S. Leveraging our deep capabilities across our organization to support premiumization and focused innovation, supply chain efficiencies, and commercial effectiveness. Utilizing our enhanced financial flexibility to prudently invest in our business and return cash to shareholders. I will pass it to Traci.

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 positive, 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 mayor and 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.

Tracey Joubert: Thank you, Gavin. We are very pleased with the health of our balance sheets and our strong cash generation. 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 execute a meaningful share repurchase program as we continue to believe our stock is a compelling investment. In fact, we have raised the quarterly dividend each year since 2021, and we have actively executed our current share repurchase plan since it was announced in October 2023. We have repurchased 9.4% of our past few shares outstanding. It's an up-to-five-year, $2 billion plan, and we have utilized almost 55% in under two years.

And with that, I will pass it to Tracy.

Thank You, Gavin.

We are very pleased with the health about balance sheets, and our strong cash generation, and this is particularly important during a challenge in macro environments.

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 repurchase plan since it was announced in October 2023.

We have repurchased 9.4% of our cost B shares outstanding.

Tracey Joubert: For perspective, if we had executed it on a straight-line basis, we would have only utilized 55% of the plan so far. With that, let's discuss our financial outlook. First, the impact of the global macro environment is multifaceted and difficult to predict. 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. We don't expect a 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.

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 environment of multifaceted and difficult to predict,

And while we have included in our Gardens, 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.

Tracey Joubert: 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, given it's a paced pricing and at times limited liquidity, hedging the Midwest premium can be difficult and expensive. For these reasons, the Midwest premium is one of the commodities for which we currently have the least amount of hedged coverage. With that, let's discuss the drivers of the guidance Gavin outlined. Our top-line guidance range now assumes the U.S. industry is down 4% to 6% for the second half of the year. Our price mix assumptions 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 sizing contract brewing from 2024, as well as from premiumization.

That said, tariffs do have indirect impacts like the recent spike in the midwest, premium pricing.

To the guard rails of our program. We are never fully hedged.

Further given its a cake pricing and 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.

At Topline guidance range. Now I assume the US industry is down 4 to 6% for the second half of the year.

Our price. Mix assumptions are unchanged. We expect an annual net price increase of 1 to 2% in North America in line with the average historical range.

Tracey Joubert: We expect to grow above-premium net brand revenue in the main and APAC and Canada, as well as make progress on our U.S. above-premium initiative. Five Trail and the consolidation of ZOA are incremental to the top line, but we are also citing the divestiture of the smaller regional craft breweries in the third quarter of 2024, and more significantly, 2024 Pepsi and Labatt contract brewing volume, as these contracts terminated at the end of last year. We expect the related Americas contract brewing headwind to be 1.9 million hectoliters in 2025. In the first half, we cycled over 1.1 million hectoliters, and we will cycle over 450,000 hectoliters in the third quarter. Also, last year, we had higher than typical first-half inventory build related to the fourth wave strike, which ended in mid-May.

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.

See the tree in 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 in the back contract Brewing volume as these contracts terminated at the end of last year.

We expect to relate to the 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, hexa leaders in the third quarter.

Tracey Joubert: As a result, FDWs outpaced FCIs by 1.1 million hectoliters in the first half of last year. This year, FDWs outpaced FCIs by 800,000 hectoliters in the first half. So, year on year, we had an approximate 300,000 hectoliters 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 FCIs in the second quarter, which had an approximate 150 basis point positive impact on U.S. financial volume in the quarter. We had previously not expected to build higher than last year, given the cycling of the fourth wave strike. After this, we were able to ship further ahead of FCIs than expected due to the softer than anticipated industry demand. For a detailed review of these U.S. shipment trends, please refer to slide 21.

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 sdw's, outpace Str by 1.1 million, hex leaders 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 hectares of 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 seos than expected due to the softer than anticipated industry. Demand.

For a detailed review of these us shipment Trends. Please refer to slide 21.

Tracey Joubert: Moving down the P&L, we expect mixed benefits from lower contract brewing and increased premiumization, as well as productivity improvements and cost savings, to now be more than offset by higher volume deleverage given the industry volume trend, as well as higher Midwest premium costs. For the full year, this would result in Midwest premium costs exceeding the prior year by $40 million to $55 million. We now expect MG&A to be down slightly for the year, as we now anticipate lower incentive compensation due to the adjusted outlook for this year. Also, and to a lesser degree, the Five Trail one-time transition and integration fees were less than expected, totaling approximately $30 million in the first half of the year. Again, these fees will be recovered through net sales over the next three years, beginning in June. As for marketing, our plans are unchanged.

Moving down the pnl. We expect mixed benefits from lower contract, brewing and increased premiumization, as well as productivity improvements and cost savings to. Now be more than offset by higher volume D leverage, given the industry volume Trends as well as higher Midwest Premium cost.

For the full year. This would result in Midwest premium costs exceeding the prior by 40 to 555 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 totalling, approximately $30 million in the first half of the year.

Again, these fees will be recovered through net sales over the next 3 years. Beginning in June,

Tracey Joubert: 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, Madrí Excepcional, and our non-alc portfolio. While marketing investment was down in the second quarter, cycling up spend in the prior year period, we expect it to be up in the 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. We now expect $225 million, plus or minus 5%, as compared to $215 million, plus or minus 5% previously. This was driven by lower cash balances, including the impact of higher share repurchases, as well as foreign currency impact.

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.

Well, 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 period levels.

We are also slightly adjusting our net, interest expense Outlook.

We now expect 225 million plus or minus 5% as compared to 250 million plus or minus 5% previously.

Tracey Joubert: Lastly, we are reaffirming our underlying free cash flow guidance of $1.3 billion, 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 question. Operator?

This is driven by lower cash balances, including the impact of higher share researches 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, a healthy balance sheet, 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.

Operator: 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 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 Grom with UBS. Please go ahead, Peter.

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 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 to withdraw yourself from the queue.

Our first question today comes from Peter, Graham with UBS

Peter Grom: Thanks, Operator, and good morning, everyone. I wanted to touch on the updated guidance. Could you maybe unpack the moving pieces a bit more? Clearly, the top line is a bit fresher here, which we can see in the data, but can you maybe unpack the profit headwinds and specifically aluminum and the Midwest premium? As we look out to the back half of the year, how does the updated guidance impact the second half performance? Related, still early, but are there any implications that we should consider today as we look out to fiscal 2026? Thanks.

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 is 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 half performance and I guess related, you know, still early,

But are there any implications that we should consider today as we look out? The Piston 26. Thanks.

Gavin Hattersley: Thanks, Peter, and good morning. I appreciate the question. Look, from an updated guidance point of view, I would put it on three things that we did not anticipate the last time we spoke. One is the industry did not get better as we were expecting it to. We had expected it to navigate back to where it has been for the last few years of around down 3%, and it didn't. Certainly, consumer confidence and the macro environment, whilst we continue to believe very strongly that it is cyclical, we are not seeing any signs of that changing in the balance of the year, and it certainly didn't in the second quarter. That was probably the biggest driver.

Thanks, Peter. Good morning. Um, I appreciate the question.

Look from again, from my an updated guidance point of view.

you know, I would I would put it

Gavin Hattersley: Obviously, we did not expect the dramatic increase in the Midwest premium of 180%, and we talked a lot about that, and Traci can get into more detail on the difficulty of paging and forecasting that. That obviously played a pretty significant negative role in our Q2 and balance of the year assumptions. Frankly, our share performance did not meet our expectations. The first two I would characterize as somewhat out of our control, and the third one is within our control. Our share performance wasn't what we had expected. It stayed relatively the same as it did in Q1, and we had expected an improvement. Our estimate of our share performance was a little better than what you might see in Sukhoi and so on because our on-premise performance is better.

On 3 things, right? That we did not anticipate the last time 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 macro environment while we 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 and 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 controls and the third 1 is within our control and our share performance. Um wasn't um

What we had expected. Um,

Gavin Hattersley: We estimate we lost about 50 bps of share in the second quarter, and we have made the same assumption for the balance of the year. Obviously, we are working very hard to change that, but from a guidance point of view, we have assumed a little change in our share performance. From a second half, and I think that covers the second half, but from a longer-term point of view, Peter, we still believe, as we said in our remarks, and I think the environment supports that, is that the current industry decline is cyclical. Consumer confidence will turn. I do not know when, but it will turn, and the Midwest premium will revert back to the mean from these extreme moves that we have seen, both of which have had a pretty negative impact on our business this year. We have got a very strong balance sheet.

you know, it 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 share in the, in the, in the second quarter and and we've made the same assumption 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've assumed a little change in our in our share performance.

Gavin Hattersley: We deliver really strong cash flow, as you would have heard from Traci, and our updated guidance did not change that. We continue to be very pleased with how we have retained the majority of our market share on our core brands. Of course, Coors Banquet is on fire. Our non-alc strategy is coming together with the acquisition of Five Trail whiskey, and all of that is incremental in the second half. We will still have incrementality, obviously, next year as well. It provides a nice halo effect to ZOA. Peroni, our plans kicked in in Q2, and brands doing very, very well. Canada is holding its own from a market share point of view, and Molson Canadian is doing well. Miller Lite is doing well. Coors Original is doing well as we head into next year.

From a, from a sort of second half and and, um, and I think that sort of covers the second half, 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 to design is, is cyclical. Consumer, confidence will turn like, I don't know when, but it it will turn and 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, a pretty negative impact on our business. This year, we've got a a very strong balance sheet. We we deliver really strong cash flow as you as you would as you heard from from Tracy and I upgrade data guidance, did not change that. Um, we continue to be very pleased with how we've retained the majority of our market share on that.

Call Brands quiz banquet is on fire.

Gavin Hattersley: When you look at the main and APAC, our premiumization strategy is doing very nicely, led by Madrí Excepcional and, frankly, others. If you look towards the balance of the year, this year, contract brewing headwinds become less and less as we head towards the end of the year. In Q4, I do not think we have got any real headwinds from a PEPS point of view to speak of. We obviously still have the FIFCA headwind. Next year, that all goes away, right? We will have no headwinds from contract brewing. Traci Mangini spoke about the shipments in the back half of the year, and whilst we did get some of that in Q2, which we were not anticipating given the performance of retail sales, we do get the rest of it primarily in Q3.

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 who has Originals doing well um as we as we head into next year.

um, and when you look at mayor and APC, 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

Gavin Hattersley: In main and APAC, we are expecting to perform better from a top-line point of view as we head into the back half of the year, given the environment. So, Traci Mangini, did I forget anything?

Operator: No, I think you covered it all for us.

Gavin Hattersley: Thanks, Peter.

Any real headwinds from a perhaps point of view to speak of. We obviously still have the the the fifth. Go ahead, head 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 APAC, we're expecting to perform, uh, 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

Operator: Thank you. Our next question comes from Christopher Carey with Wells Fargo. Chris, please go ahead.

Thank you. Our next question comes from Chris carry with Wells, Fargo, Chris, please go ahead.

Christopher Carey: Hi, good morning. I wanted to follow up on a couple of areas there. One is just a clarification. Traci, the impact from Midwest premium increases that you are 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, and the quarter was fairly paltry, so I just wanted to confirm that piece and how we think about the aluminum inflation, perhaps more in the 12 to 18-month timeframe. Then just following up on the overall category, I think, you know, there are certainly a number of reasons why we may view what is going on cyclically. A lot of categories in consumer are dealing with sluggish trends.

Good morning.

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,

Christopher Carey: 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. Nevertheless, I wanted to just test that confidence level around this being cyclical versus perhaps changing in consumption and habits and how you, you know, reconcile or get comfortable with that concept amidst kind of, you know, a category that has been a bit softer over the past few years. So thanks on those. Appreciate it.

Uh reasons why we we may view what's going on in cyclically. A lot of categories and 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.

Gavin Hattersley: Thanks, Chris. Traci, if you would not mind taking the Midwest premium one, I will talk a little bit more about the category and our belief in it. Look, I think from a consumer confidence point of view and the impact that had on consumers in a number of different ways, Chris, took place towards the back half of January and early February, right? It is clear that consumer confidence took a hit at that time and frankly has not recovered. We continue to believe that over time that will change. It could be sooner rather than later, or it could be in the same time period next year. The items that have been impacting the overall alcohol category, like I have often heard GLP-1s talked about.

Thanks Chris. Um, Trace. If you wouldn't mind taking the Midwest premium 1, I'll I'll talk a little bit more of a about the category and and and our belief in it. Um, look, I think I think from a consumer confidence point of view and the impact that had on on on consumers in a number of different ways, Chris um took place towards the back half of January and and and and early February, right? And I mean it's it's clear that that um, you know, consumer confidence took a hit at that at that time. And and, and frankly hasn't hasn't recovered. So, you know, we we continue to believe that over time that will change. And I mean,

Gavin Hattersley: We do not have a lot of data that suggests that that is having any meaningful impact on either the alcohol category or our category at this point. The other item that gets talked about is D9, and I think the impact of D9 does vary by market. In some markets, it is not sold, and in others, it carries strong restrictions. That is certainly an area that we continue to monitor the impact of that. I think consumer confidence has had a disproportionate impact, as I said, across some consumers differently to others. Again, we believe that that is cyclical. Traci, do you want to add on Midwest premium?

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 ones 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 market and, you know, in some Market, it's not sold.

In in others, it carries, um, strong, uh, 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,

Tracey Joubert: Yeah. So, hi, Chris. So, look, no one expected the Midwest premium to increase by 180% from the beginning of the year. So for us, even though we are somewhat hedged, because it is such a difficult, it is not transparent, it is expensive to hedge, it is a commodity that we, the least amount hedged. But as it equates to the balance of the year, we are expecting an incremental $20 million to $35 million of Midwest impact for the balance of the year. So, that is around $0.60 to $0.75 a pound. Our full-year impact is between $40 million and $55 million. Again, that is just the Midwest premium. From a rest of a commodity point of view, our hedging program is very expensive, and we expect very little impact from tariffs.

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 hedge. 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

Tracey Joubert: But these indirect impacts, specifically the Midwest premium, is just a problem because it is so difficult to hedge, and it just does not follow normal market dynamics.

A a, you know, rest of a commodity, um, point of view, you know, garaging program is very expensive and, and we, um, expect very little impact from tariffs. But but these indirect, um,

Gavin Hattersley: To tie a bow on the industry, Chris, our acceleration plan strategy is designed to address some of the areas where we believe that there is an opportunity. Our beyond beer strategy, from both a non-alc beer point of view and also from a non-alc point of view, is a fairly close tie-in between Five Trail whiskey from a mixer point of view and alcohol. That is an area that we are leaning into and feeling really good about the initial progress that we have made on Five Trail whiskey. Our innovation strategy and our brand portfolio strategy is designed to address consumers' changed consumption habits and differing occasions.

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 plan 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 Tree. 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.

Operator: Thank you. Our next question comes from Andrea Teixeira with J.P. Morgan. Please go ahead.

Thank you. Our next question comes from Andrea tezera with JP Morgan.

Andrea Teixeira: Thank you, Operator, and good morning, everyone. Kevin, I appreciate your comments on the consumer confidence potentially improving. I am curious to see if you are seeing any green shoots because all we hear from your peers and retailers is that, obviously, with inflation hitting harder in the second half of tariffs, we could see things getting worse before they can get better. Can you comment on the exit rate for consumption in North America and Europe? I know from your slides, and I appreciate the details there. You are still running STWs against STRs at a higher level. I was hoping to see if you can help us with the cadence as we incorporate your new guide.

Please go ahead.

Thank you, operator. And good morning, everyone. Having an 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 have inflation and heating 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.

Gavin Hattersley: Actually, do you want to talk about shipments perhaps? I will just talk about how we are seeing the consumer health by market. In the U.S., and very candidly, we have not seen an improvement in overall consumer confidence or behavior. We have not seen that yet. We are continuing to see value-conscious consumers engaging in some channel and pack shifting, as we have seen previously. Certainly, buying more singles and large packs and less of those mid-packs, but that certainly has continued. We obviously serve a very broad set of consumer demographics across many income levels with our portfolio, and we think we have got a portfolio that meets everybody's needs. We have not seen much change. The environment is impacting all consumers in one way or another. We do see the Hispanic consumer is disproportionately impacted by the overall macro environment.

Pretty much shipments. Um,

Perhaps some, I'll just talk about how we're seeing a consumer. Health bar bar bar Market, um,

In a, in the US, um, Andrea candidly, we we have not seen um, an an improvement in overall consumer, um, you know, conference or or behavior. Um, so we, we have not seen that that yet. And, you know, we are continuing to see if radio conscious consumers engaging in, in some Channel and Peck shifting. Um, um, as we've seen 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 without with our portfolio and we we think we've got a portfolio that that meets everybody's um, and the so you know, 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

Gavin Hattersley: If you look north of the border in Canada, inflation has eased over time, but consumers out there also remain cautious about spending and ongoing concerns around housing and food costs. While interest rates have stabilized, I think there is a more global concern around trade tensions and tariff-related impacts. While the Canada beer industry volumes or trends have been somewhat similar to the U.S., they have performed slightly, slightly better. In the U.K., the consumer confidence index remains negative. We did see a little bit of an improvement in May. I think it is just a more broader optimistic view of the overall economy in the U.K., but overall sentiment, I think I would say remains cautious. In Central and Eastern Europe, certainly, that consumer is probably being impacted more than most, given the significant political and socioeconomic issues that are impacting the Central and Eastern European markets.

The Hispanic consumer is disproportionately infected, 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 up there also, remain cautious about spending and, and, and ongoing concerns around around housing and food costs. And, you know, um, well, interest rates have have stabilized. I think, there is a, a more Global concern around, you know, trade tensions and, and, and Terror related impacts. So, you know, whilst, um,

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,

Gavin Hattersley: That is sort of a run-through of our markets and how we are seeing consumer confidence. Traci, the shipments?

Tracey Joubert: Yeah. So in terms of the first half of the year, our shipments did pace sales to retail by about 800,000 hectoliters in the first half. Prior years, it was about 1.1 million hectoliters. So there is about 300,000 hectoliters to revert in the second half of the year. Most of that will be in Q3. As always, you know, we plan to shift to consumption, so we expect that to, you know, converge, but as I say, mainly in Q3.

I think this just took 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 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 third half of the year, uh, our shipment did outpace our sales to retail by about 800,000 hectare meters in the first half. Um, 5 years is about 1.1 million, hectare leaders. So there's about a 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. But but as I say, man,

In Q3.

Gavin Hattersley: Thanks, Andrea.

Operator: Thank you. Our next question comes from Bonnie Herzog with Goldman Sachs. Please go ahead, Bonnie.

Thanks, thank you.

Bonnie Herzog: All right. Thank you. Good morning, everyone. I just had a quick question on pricing and the promotional environment. Given the pressures on the category and consumers, how are you thinking about pricing for the remainder of the year? Also, what about the promotional environment? Are you seeing signs of levels increasing recently, and how do you expect that to play out? Thank you.

Our next question comes from Bonnie Herzog, with Goldman Sachs.

Please go ahead Bonnie. All right.

Gavin Hattersley: Thanks, Bonnie, and good morning. Look, it is quite common to see heightened competition with strong promotional activity during the summer, and you see that easing up in the shoulder months. We have seen that in prior years, and we are seeing that again. We just take a strategic approach to how we evaluate the competitive environment. From an overall pricing point of view, the historical average, as we have said before, ranges in that 1% to 2% range. We expect that to fall within that range again this year. While we have seen the impact of the economy, consumer confidence, having consumers searching for value, any trading seems to be coming in channel and pack shifting, not necessarily in segment trade down. Thanks, 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 Patch shifting, um, not necessarily in in segments, trade down.

Thanks buddy.

Operator: Thank you. Our next question comes from Filippo Falorni with Citi. Please go ahead.

Thank you.

Felipo filoni with City.

Andrea Teixeira: Hi, good afternoon, everyone. I wanted to follow up on the margin question on the Midwest premium for the second half. If I take the, call it, 20, 35 million incremental Midwest premium cost, it would be a relatively small headwind to margin. So maybe, Traci, can you talk about the other drivers of the big margin contraction that is embedded in your guidance in terms of volume deleverage, SG&A for the back half of the year? Then just to follow up on top line, Gavin, you mentioned the on-premise is performing better than what we see in cross-channel data. So can you give us a perspective of how July played out relative to your expectation, including the on-premise business? We see still soft trends, especially around 4th of July in cross-channels, but I am curious the total company and total industry trends, including on-premise. Thank you.

Please go ahead.

Gavin Hattersley: Thanks, Filippo. Traci, you will handle the margin one. I will just quickly deal with July and the on-premise. Look, from a July point of view, as we say every time on these calls, we have only got a few weeks of the following quarter in the book. Let us see what happens for the balance of the quarter from an overall industry and our performance point of view. From an on-premise point of view, I know we have talked a lot about Blue Moon over the last couple of years, and we are starting to see improvement in the on-premise. Blue Moon Belgian White's STR trends improved 6 points in Q2 versus Q1, which is very encouraging given that brands are built and expand from the on-premise. So we are pleased with that.

Hi, good afternoon everyone. Um I wanted to follow up on the margin question in the midwest premium for the second half. Uh if I if I take the call in 20 20 35 million incremental Midwest, premium car, a relatively small headwind uh to margin so maybe Tracy, can you talk about like the other drivers of the big margin contraction that is embedded in your guidance. In terms of volume, the average sgna for the back half of the year and then um, just to follow up on Topline, Gavin you mentioned on the, on premise is performing better than what we see in truck 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? And we see still soft Trends especially around 4th of July in truck Channel. But I'm curious the the total company and total industry Trends including on premise. Thank you.

Thanks Philip. Um, Tracy, you'll handle the margin 1. I'll just quickly deal with, um, July and the on premise, I mean, look from a July point of view as, as

Gavin Hattersley: Peroni is obviously playing a role in that as we implement the plans we have talked about for a while now, which kicked off in Q2. So that has been a positive catalyst for us as well. Of course, Coors Banquet just remains on fire as it gains distribution both in the on-premise and the off-premise. I would say that those are the three brands that are having the most positive impact for us in the on-premise. Traci, do you want to get into that a little bit more?

A dozen words, SDR, trains improved, you know, 6 points in Q2 versus q1 which is very encouraging given that brands are are built and um, and and, and expand from the on premise, um, out. So, we're pleased with that peroni's. Obviously, playing a a role in that, as we as we, um, 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 goes 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,

Tracey Joubert: So, then can you say, look, from a margin point of view, we do not specifically give gross margins guidance, but just to note that the underlying gross margin percentage has improved in each of the last two years. But a couple of things as we look at 2025. We have spoken about the top line. In terms of the COGS, we do have the deleverage headwind driven by the contract brewing, which we have discussed. We also have higher premiumization, which drives higher COGS across our business units. We have spoken about the Midwest premium. Although we do have productivity improvements and cost savings, these are more than offset by the deleverage and premiumization, as well as the Midwest premium.

Tracy, do you want to get into Parts a little bit more? So then can you say 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 growth 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

Um, in terms of the cogs, uh, you know, we do have the de-lever headwind. Um driven, you know, by the contract Brewing which we've discussed

Uh, we also have higher premiumization which drives higher cogs, 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 de-lever um and premiumization as well as the the Midwest premium

Operator: Thank you. Our next question comes from Rob Ottenstein with Evercore ISI. Rob, please go ahead.

Robert Ottenstein: Great. Thank you very much. Gavin, a pretty pessimistic view on second-half volumes for the industry, and I am assuming that July was pretty bad. This is, you know, in the face of, I think, easier comps, you know, given how bad the weather was last year. I guess what I would love you to help us think through, you know, assuming that does play out the way you are guiding to, what are the impacts on the industry and how can the industry address that? Are you starting to see pressure, for instance, on shelf space, not for you specifically, but for the beer industry as a whole, you know, as retailers start to look at the fall and shelf set changes and into next year and how you may be combating that?

Thank you. Our next question. Comes from Rob ohtonen 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 the July was pretty bad and and this is, you know, in the states of I I think easier comps

Um you know given how bad the weather was last year. So I I guess what 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

Robert Ottenstein: Any impact on not just yours, but industry brewery footprint, you know, the potential for some sort of consolidation of volumes? You know, maybe doing a reverse, doing more contract brewing instead of, you know, letting contracts go, actually maybe bring more in to keep brewery utilization going, given the high fixed costs of breweries and dependence on volume. Just love to get, you know, your thoughts on, you know, industry action, your reaction to these unprecedented volume declines. Thank you.

Gavin Hattersley: Thanks, Rob. A lot of questions in there, so let me try and take a little off. From a comps point of view, July had easier comps, but the rest of the year did not, if you remember correctly. Yes, there was poor weather, and the industry was pretty, pretty tough in July of last year. So the comps are a little softer in July. Going forward, they are not. They are actually, the industry improved quite vastly heading into the balance of the year from about August onwards. So the comps do not get easier from an industry point of view. They get tougher. Obviously, we built that into our thinking as we put the guide out there. From a shelf space point of view, from our point of view, we obviously had a significant uptick in 2024 in both the spring and in the fall of 2023.

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 and dependence 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.

Thanks Rob. Um,

A lot of questions in there, so let me try and take a look a little more. Um, so from a, from a comp point of view, um, know July had easier comps, 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

Gavin Hattersley: We held on to those gains. So we finished 2024 significantly higher than we did in 2023. Again, in the spring of this year, we held on to those shelf gains. Coors Banquet again was a particularly strong beneficiary of that. We gained strong double digits. We are not expecting to see significant activity for the fall of 2025 based on what we are seeing and what we are hearing. Frankly, we would know if it was different by this time. Where retailers have made shelf changes to accommodate other brands, they have made them in the flavor space and the craft space primarily, I would say. They have not made them in the traditional beer space. From a brewery footprint point of view, obviously, our capacity utilization varies by season. So in the summer, we are fully utilized, and in the shoulder periods, not necessarily.

We broke that into our into our thinking, as we as, as, as we uh, 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 gains. Um, and so we finished 2024 significantly higher than we did in in 2023. Um, and again, in the spring of this year, we held on to those those shelf um, games and you know, banquet again. Um,

Expecting to see a 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, where retailers have made, um, shelf changes at at at 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 in the in the traditional beer space.

Gavin Hattersley: I would tell you that removing PEPS from our system is very, very helpful. It has allowed us to remove a lot of complexity. It has allowed us to free up capacity in the summer. It certainly helped our decision to onshore Peroni, which we have now completed, and it is completely onshored. Obviously, we see a big opportunity for Peroni, and we are starting to see that benefit coming through in the second quarter. I have often said and look forward to seeing in the future that Peroni can, there is no reason why it cannot be as big as its other European competitors. We have certainly gained meaningful share versus our European competitors in the second quarter now that our plans have kicked in. It allowed us to tidy up our footprint by closing a couple of smaller breweries. We were able to tidy that up.

You know, from a, from a brewery, uh, footprint point of view obviously, art capacity utilization varies by season. So, in the summer, we're 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've 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

Gavin Hattersley: It certainly allowed us to bring Yingling and our Yingling relationship into our business and producing in a couple of breweries. It has allowed us to expand further with Yingling when the time is right. As it relates to the brewery footprint, we are pleased with our brewery footprint. I think that covers off on all Rob's points, Traci. Thanks, Rob.

Um, you know, meaningful, um, share versus our European competitors in the in the second quarter now that our plans have 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 breweries. So we were able to tidy, um, tidy that up. Um, and it certainly allowed us to to bring Yuengling um, and our Yuengling relationship into into our business and and producing in in a couple of breweries. And it'll 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,

Operator: Thank you. Our next question comes from Eric Serotta with Morgan Stanley. Please go ahead, Eric.

Yeah, I think that covers off on all the block points, Tracy. Thanks, Rob.

Thank you. Our next question comes from Eric sorata with Morgan Stanley.

Michael Lavery: Great. Good afternoon. Good morning, everyone. I wanted to first ask you, Gavin, in terms of the recent market share trends. Clearly, the off-premise trends at least have weakened vis-à-vis your largest competitor. I know you called out that on-prem trends, but are there any changes to your marketing or go-to-market strategies that you are implementing or contemplating in light of what seems like a resurgent competitor, at least for two of their main brands? For Traci, a couple of housekeeping items. Could you help quantify how much the incentive comp reversal was? Was that all in the second quarter? In terms of the free cash flow, how much of the bridge between the earnings reduction and their free cash flow reiteration is the cash tax and working capital? All else equal, would the working capital benefits reverse next year, or are these sustainable?

Please go ahead, Eric.

Great, good afternoon. Uh good morning everyone. Um, wanted to first ask you Gavin, in terms of uh the recent market share Trend. Um, um, clearly the off premise Trend at least have weakened visibility or largest competitor. I know you called out better on crime uh, Trends. But um are there any changes to your

Michael Lavery: I know there is a lot there, but thank you.

Gavin Hattersley: Thanks, Eric. I love that. Let me see if I can answer that. Look, I think from an overall share point of view, I would start by saying that our total Molson Coors Beverage Company share trends in the U.S., now I am talking specifically the U.S., has improved each quarter since the third quarter last year, right? Q3, we were down about 100 basis points. Q4, we were down about 70. Q1 was down about 60. Q2 was about the same, right? If you peel back the envelope as to where we are losing that, it is inflated and sells, is the biggest part of that decline. We are seeing some improvements in Topo Chico. It is not enough to offset the declines that we are seeing on Simply Spiked and Vizzy Hard Seltzer.

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, a couple of 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, you know, sort of how much of the, uh, bridge between the, the, the earnings reduction and the their free cash flow. Reiteration is the the cash tax and working capital. Um, and you know all else SQL 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 of some is in the US. Now, I'm talking specifically to the US has improved each quarter since the third quarter of 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 peeled back the envelope as to, where we

Gavin Hattersley: From an economy portfolio point of view, that is roughly about another third of the decline. Obviously, our two focus brands in there, Miller High Life and Keystone Light, are showing better trends than the number of tail brands that we still have in that segment. Then core, right? We talk, and I have talked a lot about our core share retention because it is factually correct. We have retained 180 basis points of the share that we gained in 2022, and it is meaningful. Coors Banquet continues to be the star of the show there. It is up another 20 basis points in Q2, and it remains one of the fastest growing major beer brands in the U.S. In fact, it grew in all 50 states, plus Washington, D.C., in the first half of the year. We are very pleased with Coors Banquet’s performance.

Gavin Hattersley: What are we doing about the rest? As we head into Q3, we are focused on driving our Miller Lite 50th anniversary campaign. We are going to execute strongly behind our NFL Alliance presence. We have a relationship with a number of NFL teams, so you will see us in all channels. You will see incremental media pressure, particularly in our Great Lakes geography. We are going to be executing against our Coors Light college programming with our ESPN Game Day partnership. We are going to continue to put the accelerator down on Coors Banquet’s momentum as we start your legacy program. From a premium point of view, I have talked a lot about Peroni and Madrí Excepcional. From a Blue Moon Belgian White point of view, we are working very hard to change the trajectory of that brand.

Hotline for the Keystone, lots of showing better Trends than, than, than the the number of total brands that we, that we still have in 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 base 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, DC 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 ex

Execute strongly behind our NFL Alliance presence. Uh, we we have a, a 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

Gavin Hattersley: We are, as I said earlier, seeing green shoots starting to show up in the on-premise, and we are seeing good performance behind our innovation, particularly Blue Moon non-alc. But, you know, from a higher ABV point of view, obviously, our strategy behind Blue Moon and Simply and Topo Chico in the convenience stores is something you are putting effort behind starting in the second quarter. So, you know, a big important brand for us. It is a top priority for us in the boat premium, and we remain very committed to turning it around. I think that was all. Traci, was there anything you wanted to say?

The ESPN game day, uh, 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 Perroni and, and, um, and, 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 boat premium.

And and we remain very committed to turning it turning it around.

this all

Tracey Joubert: Yes. So, it was from an incentive compensation. Look, we accrued for incentive comp throughout the year. Based on our adjusted outlook, for our guidance, we have reversed a large portion of what we had accrued in the first half of the year. In terms of the free cash flow, the cash tax benefits that we have got, as well as the working capital, largely offset the profit shortfall. If you recall, when we had our Q1, we did cut our capital spend by about $100 million. That gives us the free cash flow of around $1.3 billion, plus or minus 10%, as we have guided to.

with anything you want to tell you. Yeah. So um I is common incentive compensation. Look, we have 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

Gavin Hattersley: Thanks, Traci.

Cash flow. Look the 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 cut out 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,

Operator: Thank you. Our next question comes from Peter Grom with Bank of America. Please go ahead, Peter.

Thanks Tracy.

Michael Lavery: Hey, good morning, Gavin and Tracey. Thanks for all the detail in the deck. Very helpful. Tracey, I just wanted to go back maybe to Filippo's question, particularly around the volume deleverage piece. I think it was about a 300 basis point impact in the first half. I know that you kind of gave some high-level commentary on what it would be for the year, but I was just hoping to unpack that a bit more. As we think about the second half and the year specifically, how we should think about the volume deleverage impact. Thanks very much.

Thank you. Our next question comes from Peter Galbo with Bank of America. Please go ahead, Peter.

Tracey Joubert: Yeah. So, in terms of our outlook, for the year, what we have said is that STWs outpaced the STRs by about 800,000 hectoliters in the first half of the year. We always plan to ship to consumption. There is going to be about 300,000 or so that we will reverse in the second half of the year, mainly in Q3, because last year, for the first half, we did ship more than the retail by about 1.1 million hectoliters. The difference between that is about 300,000 hectoliters, which we expect to reverse. Then, yeah, because we plan on shipping to consumption, we expect most of that to converge by the end of the year, but mainly in Q3.

Hey, good morning, Gavin and Tracy. Thanks. Um, for all the detail in the deck very helpful, um, Tracy, I just wanted to to go back maybe to Felipe's question, um, particularly around the, 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 our Outlook, um, for the year, what we had said is that, um, sdw's outpaced, the sdrs by about 800,000 hectare leaders in the first half of the year. Uh, 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 we than than retail by about 1.1 million and ha. So the difference between that is about 300,000 hectare leaders which we expect to reverse. Um,

and,

Gavin Hattersley: Thanks, Traci.

Yeah, because we plan on shipping to consumption. We spent most of that to converge by the end of the year, but mainly in Q3.

Operator: Thank you. Our next question comes from Bill Kirk with Roth Capital Partners. Please go ahead, Bill.

Thank you. Our next question, comes from Bill, Kirk with Ross, Capital partners.

Michael Lavery: Good morning, everyone. My question, since pre-COVID, since 2019, you have more market share than you did. Your earnings per share are much better than they were, but the stock price does not really reflect those improvements. I guess the question is, if you are not getting credit for market share gains and profit growth in your current categories, does something need to strategically change? When underlying COGS per hectoliter are up mid-single digit or more, why only take a 1% to 2% price increase?

Let's go ahead. Bill.

Gavin Hattersley: Thanks, Bill. Look, from your first part of your question, we have said this before as well, we believe that our business is a very attractive investment at these levels, and we continue to demonstrate our belief by buying back significantly ahead of the authorized board program. From an overall pedigree point of view, I am very pleased with our acquisition of the U.S. business of Five Trail whiskey, and the integration is going well. Our volumes are exceeding our expectations from a business case point of view. Our distributors are excited about it. It really does give us a nice footprint from a non-alc point of view, and we believe a halo effect to our other non-alc activities.

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 Paul. Um, look from your, from the, the the first part of your question. I mean, obviously, and we've said this before, as well, and as, as we believe that, our our business is a very attractive, um, investment at 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

It's going well, and, um, you know, our volumes are exceeding our expectations. Um, from a business case point of view, our distributors are excited about it and, um, you know, it really does give us a nice, um,

Michael Lavery: I was second pricing.

You know, footprint from a, from a non-alcoholic point of view. And and and we believe a halo effect to our other non ALK um, activities.

Gavin Hattersley: Oh, the pricing, yeah. I mean, look, Bill, we obviously look at pricing from a, you know, every single market is different. Every state is different. Every brand is different. We obviously take any number of factors into account, not only input costs, but, you know, also consumers' behavior and receptivity to price increases and so on. We've got a very robust revenue management program, and we will continue to do what we think is best for our brands in every single market.

Um, I was second pricing. Oh pricing. Yeah I mean look Bill we we we always 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 to price increases and so on. So, you know, we've got a very robust Revenue management um, uh, program and and and and we will and continue to do what we think is best for Our Brands, and in every single Market.

Operator: Thank you. Our next question comes from Robert Moskow with TD Cowen. Please go ahead, Robert.

Thank you. Our next question comes from Robert Moscow, with KD Cohen

Michael Lavery: Hi, thanks for the question. In the past couple of years, the productivity gains at Molson Coors have been substantial and helped offset a lot of the negative impact from volume deleverage. Now it looks like the volume deleverage is accelerating, and you have had to call down your guidance. Traci and Gavin, at what point do you have to take another look at your asset footprint, both in terms of manufacturing and distribution? With volume declining at this pace, will you have to take another look at that and maybe make more reductions? Thanks.

Please go ahead. Robert.

Gavin Hattersley: Thanks, Robert. Look, from a capacity point of view, we are pleased with our brewery footprint. We have obviously really strong utilization from a capacity point of view in the summer months. We have removed contract brewing from our system completely, which is why we have that headwind and have had the headwind all year that obviously starts to tail off as we head into the back half of this year. Not much more I can say than what I said earlier, Robert. Removing PEPS from our system has proven to be very helpful. It has allowed us to take a lot of complexity out of our system. It has allowed us to change things from a shift configuration point of view, from a line point of view, from a temporary labor point of view. It has overall, from a brewery footprint point of view, been very positive for us.

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 deleverage, 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 and tracing Gavin at at what point do you have to take another look at your acid 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.

Thanks Robert. I mean, look, I mean, from a, from a capacity point of view, we, we're pleased with our, with our Brewery, um, footprint. Um, you know, we we we have obviously, um, really strong utilization from a capacity 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 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,

No, not much more, I can say that. What I said earlier, Robert, is that removing the pasteurized system 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...

Gavin Hattersley: It has allowed us to bring Peroni in, which, as I said, is growing very nicely, and we hope to have that brand as a big brand in the future. It has allowed us to support our Yuengling partnership where we have had a very successful launch in Illinois this year. We are pleased with our brewery footprint, I guess, is the summary. Thanks, Robert.

We, we're pleased with our Brewery. For the protagonist is the summary.

Operator: Thank you. Our next question comes from Michael Lavery with Piper Sandler. Please go ahead, Michael.

Thanks, Robert.

Michael Lavery: Good morning. Thank you. I just wanted to come back to the guidance update and the EPS bridge. The Midwest premium has gotten a lot of attention, but as you know, you have called out the math, it is maybe 1 to 2 points of the 10 or 13-point cut to EPS growth outlook. You have got some stepped-up buybacks as well. What are the missing pieces, I guess? If you have said what is new is Midwest premium, the category trends, and then your share expectations. Is it just all of that and the operating deleverage that we have covered a bit, or is there other inflation we should have our eye on as well? You mentioned the interest expense change. That is also quite modest.

Thank you. Our next question comes from Michael Lavery with Piper Sandler. Please go ahead, Michael.

Good morning. Thank you.

Uh,

The 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 in. You've got some stepped up BuyBacks as well.

Michael Lavery: I mean, it helped us maybe figure out if there is any other moving parts here or if just the top line flow-through is that significant.

What are the missing pieces I guess? And you know if you've said what's new is is Midwest premium the category Trends and and and your share expectations is is it just you know all of that and and the operating de 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 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 if just the top line flow through is that significant.

Tracey Joubert: Hi, Michael. Yeah, so look, there is some marketing timing. We do expect to spend similar levels of marketing in our peak summer selling season as last year. So that's one thing. The other thing is, remember, our EPS is not in constant currency. We do have foreign exchange impacts to it. As the dollar weakens, that'll certainly be a tailwind. The other thing that goes into it is tax. We have kept our effective tax rate guidance at the same levels as what we had previously. But those could be two items that do impact our EPS. Yeah, just probably to call out that although marketing was down in Q2, we do expect it to be up in Q3 because of some of the timing of our commercial plans and also cycling lower spend in prior years.

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 weakens, 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, 2 artists that do impact um,

Gavin Hattersley: Thanks, Traci.

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.

Thanks Tracy.

Operator: Thank you. Our next question comes from Lauren Lieberman with Barclays. Please go ahead.

Thank you. Our next question comes from Lauren. Lieberman with Barclays.

Bonnie Herzog: Great. Thanks. Good morning. I know you talked about the softer U.S. share performance in the release, and I was just curious to talk a little bit more about that, given the competitive premium light space these days. Are there any specific regions in the U.S. where you are seeing underperformance? I know you said the guidance for the second half assumes these share trends are consistent. You just commented on marketing, but I was curious about plans to defend share in the second half and beyond. Is there a point where you would consider addressing pricing? Is it a matter of more marketing, or is the view more like, don't overspend into a soft market backdrop? Thanks.

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.

Gavin Hattersley: Yeah, thanks, Lauren. Look, we are obviously very thoughtful about how we spend our marketing, and we turn it over quite carefully. But certainly, we are seeing really pleasing momentum in a number of our brands. Without wishing to repeat myself too much, we are seeing strong momentum behind Coors Banquet, Peroni. We have got our non-alc portfolio coming in. Five Trail whiskey, we are spending more money behind it. Madrí Excepcional in our other markets has performed very well. So, notwithstanding the current overall macro environment, which we, as I said, believe is cyclical, we are going to continue to invest behind our brands so that when the tide turns, they are in the best position that they can be.

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

Question to repeat myself too much, right? I mean, we're seeing strong momentum behind, uh, banquet uh, Peroni. Um, and uh, you know, we've we've we've got our non-alcohol portfolio coming in. Um, you know, it's 33, we're spending more more money behind it. Um, but 3 in in, um, our other markets has has has performed very well. So, you know, notwithstanding the current, um, over

Gavin Hattersley: I talked a little earlier on about some of the areas that we are focusing in on our core brands, not only Coors Banquet, but also Miller Lite and Coors Light. We are going to continue to support those. You can be assured that we turn over every marketing and sales dollar carefully for effectiveness before we spend it.

Macro environment, um, which we, as I've 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 motor lights and, um, and and and quiz light, and we're going to continue to, uh, to, 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

Operator: Thank you. Our next question comes from Carlos Laboy with HSBC. Please go ahead.

Thank you. Our next question comes from Carlos. Laboy with HSBC.

Andrea Teixeira: Yes, good morning, everyone. Can you come back, please?

Please go ahead.

Yes. Uh,

Operator: cash offset that you mentioned earlier. You mentioned tax benefits. There was another one. If you could expand on both of those, please, it would be helpful.

Morning, everyone. Um, can you come back, please, to the assets that you mentioned earlier? You mentioned tax benefits. There was another one. If you could expand on both of those, please, it would be helpful.

Traci Mangini: Yeah. For our free cash flow, we have received some cash tax benefits this year, as well as some working capital improvements. That has enabled us to keep our free cash flow guidance at the $1.3 billion, plus or minus 10%. Those are the two items that we mentioned in particular.

Yeah. So um

Gavin Hattersley: The biggest driver there, obviously, is the benefit coming out of capital, right? Capital deductibility from one big, beautiful ballpoint of view.

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 is the benefit coming out of out of capital, right? Capital deductibility

Traci Mangini: Yeah.

From 1, big beautiful ball point of view? Yeah.

Tracey Joubert: Thank you. Our next question comes from Bonnie Herzog with Evercore. Please go ahead.

Thank you. Our next question.

Slid Bernstein. Please go ahead.

Peter Grom: Yes. Hi, everybody. Thank you for taking my question. I know we have talked a lot about the U.S. So I would actually like to turn attention to EMEA and APAC. Your financial volumes were down close to 8%. I know you called out weakness in a number of the markets, but could you provide perhaps some additional color by region? How would the U.K. business doing versus your other markets? How do you view this segment performing over the remainder of this year specifically? Thank you.

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 posted in 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?

Gavin Hattersley: Thanks, Nadine. Look, the markets in the U.K. continue to decline. It declines in both channels. We have seen a little bit of a category improvement Q2 to date. Starting to see some trend improvement in our shared trajectory. You know, that has been aided by the benefit of the Easter shift, which moved out of Q1 and into Q2. I know you live in the U.K., so you will know that the weather has been particularly good in the U.K. We are expecting those figures to show a somewhat greater decline once we have got June data in because I think we are lapping a big football tournament from last year. So there is that going on. Competition in the marketplace remains intense, frankly.

And then how do you view this segment performing over the remainder of this year? Specifically, thank you.

Thanks naiden. Um,

look, I'm in the Box.

Gavin Hattersley: Despite the increase that we have seen in promotional frequency in the off-premise with our largest brand, it does remain challenged given the actions of some of our competitors, which we have chosen not to follow. We are seeing some of our competitors in that space price consistently 20% lower than Carling in shops. So that is certainly challenged us from a main brand point of view. Our Madrí Excepcional volume growth continues. It is up again with single digits in Q2. We are going to continue to put the right level of commercial support behind those brands. If you look across the water into our Central and Eastern European business, there is no doubt that the overall beer industry remains sluggish in this market. It is driven by another decline in consumer confidence that began at the end of 2024 after we had seen some improvement.

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,

Gavin Hattersley: Those factors that are driving that are well understood and well known from a global political point of view and local social and economic tensions that exist there. We have seen a higher promotional activity across most of the markets. We have had some challenging customer negotiations as well, which are now resolved. All of those factors impacted our volume performance in the first half of the year. We continue to remain optimistic about the growth potential for our Central and Eastern European businesses. We are putting investments behind our national power brands. We are supporting the recent launches that we have in the above premium space. We launched Madrí Excepcional in Bulgaria last year, and we launched it in Romania this year, and both of those doing very nicely. We launched Ožujsko in Hungary, which is doing well.

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 we're going to continue to put the right level of commercial support behind, um, behind those Brands. If, if you look at price, um, the order into our central eastern European business, but there's no doubt that the that 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 some some improve

Improvement. And, you know, those those factors that are driving that are well understood and well known from a global political point of view, and yeah, 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

On 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.

Gavin Hattersley: Our innovation in the beyond beer space, with, for example, Staropramen in Serbia and Bulgaria and Montenegro and Croatia, is also doing well, although early days. So, a real success story for us is our premiumization in our EMEA and APAC business. You can actually see that in the mixed benefits, which we got in EMEA and APAC in Q2. I think that generated almost 490 basis points of positive mix for us. So, Nadine, that's kind of a quick high-level run through our European business.

You know, we we continue to remain optimistic about the growth potential for our um, central eastern European businesses. Um, you know, we're bringing 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 Kors in in Hungary, which is, which is doing well, and, you know, our innovation in the Beyond beer space, um,

Is also doing is also doing um well although although early days so you know real success story for us is our premiumization in our in our in apa business and you can actually see that in the mixed benefits which we which we got in 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.

Tracey Joubert: Thank you. Our next question comes from Gerald Pascarelli with Needham and Company. Please go ahead.

Thank you. Our next question comes from Gerald pascarelli with nem.

Christopher Carey: Great. Thank you. I have a question on capital allocation. Given these volume declines, if industry volumes and then your own volumes remain 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 expedite your portfolio towards more attractive subsectors and beverages, whether it be more non-alcoholic exposure or exposure to above premium brands, etc.? Just looking for any color or thoughts around how M&A or evolving M&A fits into your capital allocation strategy. Thank you.

Please go ahead.

Great. Thank you. Um, I have a question on capital allocation. Given these volume declines, in industry volumes, and then your own volumes remain lower for longer, as you think about this business long term, do you believe larger scale M&A or...

More aggressive bolts on m&a may be necessary to just expedite your portfolio towards more attractive sub-sectors and beverages whether it be more non-alcoholic exposure or exposure to above premium Brands Etc. Uh just looking for any color of thoughts around, how m&a or evolving m&a uh just fits into your Capital allocation strategy. Thank you.

Gavin Hattersley: Thanks, Gerald. Look, from an M&A point of view, I think we've been very clear about how the string of pearls approach has worked for us. You know, in the early days when we still had somewhat of a challenged balance sheet with a higher leverage ratio, those pearls were relatively small. As we've put ourselves in a really strong position from a balance sheet point of view, I'm very proud of the work that the team has done to get the balance sheet where it is after the last four or five years. That has allowed us to look at slightly bigger pearls. Certainly, the one we did this year with BEVERTREE is very strongly supportive of our overall strategy and is a much bigger pearl than we perhaps would have considered five years ago.

Gavin Hattersley: When you add everything up from a working capital point of view and a distribution point of view and our investment in BEVERTREE, that number was well north of $100 million. We remain committed to our string of pearls approach. Obviously, beyond that, I'm not going to comment on any M&A, but very pleased with the progress that we've made with BEVERTREE so far.

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 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 4 or 5 years that has an artist to to, to look at, um, you know, slightly bigger pills and and and certainly the, the 1 we did this year with fever trees is is is is a very strongly supportive of our overall strategy and, and is a much bigger pool 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 a 100 million dollars. So you know,

We've remained 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.

Tracey Joubert: Thank you. Our next question comes from Kevin Grundy with BNP Paribas. Please go ahead, Kevin.

Thank you. Our next question comes from Kevin Grundy with BMP Paribas.

Christopher Carey: Great. Thanks. Good morning, everyone. I was hoping to get an update on the CEO search process, given Gavin plans to retire by year-end. Gavin, of course, you will be missed. Any update there just in terms of where that process stands, any comments on internal versus external candidates, attributes that the board's looking for, and perhaps maybe how that's evolved a bit given the demands of the current environment? Any comments that you can offer to folks, I think, would be appreciated. Thank you very much.

Please go ahead. Kevin

Gavin Hattersley: Thanks, Kevin. Appreciate the kind words. Look, the process is well underway. The board has made significant progress. Obviously, it is navigating the process very thoughtfully, given my planned retirement by the end of the year. In terms of capabilities, the board is paying a lot of attention to both relevant business leadership experience along with a cultural fit. Obviously, I am very proud of the culture we have built here at Molson Coors. It is very special. As we have said previously, it is very common for companies of our size to look at both the internal and external candidates for a CEO position. That is what our board is doing at the moment. They remain supportive of our current long-term strategy. Though, obviously, I would expect any new CEO to put their own stamp on the company. That is the update, 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 at your end. Gavin 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 that the board's looking for and 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. Um, appreciate the kind words look. I mean, the process is well underway. Um, the board's made significant progress. Um, obviously it's navigating the process very thoughtfully. Um, given my, my plan retirement at the End, by by the end of the year, in, in terms of capabilities, you know, the board is, is playing a lot of attention to both relevant business. Um, leadership experience along with a cultural fit, obviously, I'm very proud of the culture. We've built here at most and Crews at 3. It's very, um, special. Um, as we've said previously, you know, it's fairly common for companies of ours to look at both internal and external cadets 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 obviously, I would expect any UCO to put their own and stamp on the, on the company. So,

You know, that's the update. Kevin.

Tracey Joubert: Thank you. Those are all the questions we have today. So I will hand the call back over to Gavin for closing remarks.

Gavin Hattersley: Thank you, operator. Appreciate that. Appreciate all the questions. I would like to close by thanking our Molson Coors team and our partners for their continued support behind our business and our brands. I continue to be very proud of the dedication and commitment of our over 16,000 employees, our incredible partners, and our best-in-class distributor network. I am confident that together we can navigate this challenging environment and certainly emerge stronger with this team behind us. Thanks for your time today.

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 Co team and and our partners for their continued, support behind our business and and our brands

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.

Tracey Joubert: Thank you, everyone, for joining us today. This concludes our call, and you may now disconnect your lines.

Thank you everyone for joining us today. This concludes our call and you may now disconnect your lines.