Molson Coors Beverage : Q1 2024 Molson Coors Beverage Company Earnings Conference Call Transcript

Corrected Transcript

30-Apr-2024

Molson Coors Beverage Co. (TAP)

Q1 2024 Earnings Call

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Molson Coors Beverage Co. (TAP)	Corrected Transcript
Q1 2024 Earnings Call	30-Apr-2024

CORPORATE PARTICIPANTS

Greg Tierney	Tracey I. Joubert
Vice President of FP&A and Investor Relations, Molson Coors Beverage	Chief Financial Officer, Molson Coors Beverage Co.
Co.
Gavin D. K. Hattersley
President, Chief Executive Officer & Director, Molson Coors Beverage
Co.

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OTHER PARTICIPANTS

Bonnie Herzog	Lauren R. Lieberman
Analyst, Goldman Sachs & Co. LLC	Analyst, Barclays Capital, Inc.
Andrea Teixeira	Eric A. Serotta
Analyst, JPMorgan Securities LLC	Analyst, Morgan Stanley & Co. LLC
Bill Kirk	Robert Moskow
Analyst, ROTH MKM	Analyst, TD Cowen
Peter Grom	Nadine Sarwat
Analyst, UBS Securities LLC	Analyst, Bernstein Autonomous LLP
Steve Powers	Michael S. Lavery
Analyst, Deutsche Bank Securities, Inc.	Analyst, Piper Sandler & Co.
Bryan D. Spillane	Brett John Cooper
Analyst, BofA Securities, Inc.	Analyst, Consumer Edge Research LLC
Christopher Carey	Gerald Pascarelli
Analyst, Wells Fargo Securities LLC	Analyst, Wedbush Securities, Inc.

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Molson Coors Beverage Co. (TAP)	Corrected Transcript
Q1 2024 Earnings Call	30-Apr-2024

MANAGEMENT DISCUSSION SECTION

Operator: Good day, and welcome to the Molson Coors Beverage Company First Quarter Earnings Conference Call. You can find related slides on the Investor Relations page of the Molson Coors website.

With that, I'll hand over to Greg Tierney, Vice President of FP&A Commercial Finance and Investor Relations.

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Greg Tierney

Vice President of FP&A and Investor Relations, Molson Coors Beverage Co.

All right. Thank you, operator, and hello everyone. Following prepared remarks today, we look forward to taking your questions. In an effort to address as many questions as possible, we ask that you limit yourself to one question. If you have technical questions on the quarter, please pick them up with our IR team in the days and weeks that follow.

Today's discussion includes forward-looking statements. Actual results or trends could differ materially from our forecast. For more information, please refer to the risk factors discussed in our most recent filings with the SEC. We assume no obligation to update forward-looking statements, except as required by applicable law.

GAAP reconciliations for any non-US GAAP measures are included in our earnings release. Unless otherwise indicated, all financial results the company discusses are versus the comparable prior year period, in US dollars and in constant currency when discussing percentage changes from the prior year.

Also, US share data references are sourced from Circana, unless otherwise indicated. Further, in our remarks today, we will reference underlying pre-tax income, which equates to underlying income before income taxes as defined in our earnings release.

So with that, over to you, Gavin.

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Gavin D. K. Hattersley

President, Chief Executive Officer & Director, Molson Coors Beverage Co.

Thanks, Greg, and thank you all for joining us this morning. In the first quarter, Molson Coors once again delivered against our commitments, growing the top and bottom line while making strong progress on our Acceleration Plan. We grew net sales revenue by over 10%. We grew underlying pre-tax income by nearly 69%, and we drove significant margin improvement in the first quarter.

This morning, we reaffirmed our full year guidance, which Tracey will discuss in more detail shortly. To sum it up, we remain confident in our ability to grow the top and bottom line for a third consecutive year, but cautious about current trends in the industry.

The US beer category has been challenged so far this year. While we did see some improvement in March, there was also volatility in the industry and mismatched weeks such as Easter. So we're keeping a close eye on April's trends and taking those into account for the balance of 2024.

In spite of this volatility, we remain confident in our ability to achieve top and bottom line growth in 2024. We also remain confident in our ability to achieve our long-term growth algorithm. In the first quarter, we grew brand

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Molson Coors Beverage Co. (TAP)	Corrected Transcript
Q1 2024 Earnings Call	30-Apr-2024

volume and net sales per hectoliter in both business units, and our share gains in the US were consistent with the gains we saw in the second half of 2023.

Having said that, we aren't the only ones who are confident in our business. Retailers are also confident, having allocated around 13% more space for Coors Light and Miller Lite in the US during spring resets, which supports our confidence that these share shifts are structural.

Our distributors are also confident, which is why we expect our core brands to grow distribution this year. And across the globe, we have strong commercial platforms that are designed to serve our brands in 2024 and the years to come.

With that, let's get into how our business performed in the first quarter. And I'll start with the first priority of our Acceleration Plan, growing the revenue of our core brands. Collectively, our core brands started 2024 strong, including double-digit brand volume growth for Coors Light and Coors Banquet in the US, high-single-digit brand volume growth for Miller Lite in the US, and double-digit brand volume growth for Ožujsko in Croatia.

In the past four months, we've launched new long-term campaigns across our core brands, starting with Coors Light during Super Bowl. Shortly thereafter, in the US, Coors Light became the top dollar share gainer year-to- date in the on-premise per Nielsen. Miller Lite is a close second and their combined success has fueled 12 consecutive four-week periods of industry-leadingon-premise growth for Molson Coors, four times more growth than the next largest competitor.

In Canada, Coors Light is seeing similar success and grew nearly a full share point of the industry year-to-date. As I hinted earlier, Coors Light momentum is anchored by our new campaign Choose Chill. This is an evolution of Coors Light's Made to Chill campaign, which helped turn the brand around. But Choose Chill is more active for consumers and more connected to the refreshment and lifestyle Coors Light represents. You'll continue to see Choose Chill as we launch a new music program this summer and expand Coors Light's presence in soccer and football.

We believe work like this has driven Coors to become a trusted and desirable brand for consumers, which is true for Coors Banquet as well. After growing brand volume by nearly 20% in 2023 in the US, Banquet grew volume by 23% in the first quarter and gained nearly 0.25 point of industry dollar share. I've already spoken about spring resets. But while we're talking about Banquet, I want to share the significant distribution growth we've seen for this brand and expect to continue seeing moving forward.

In 2024, Banquet is expected to grow distribution by nearly 20%, driven by surging demand in parts of the US, where Banquet has historically under-indexed like the Southeast and Great Lakes. This is what happens when consumer demand fuels distributor and retailer confidence. This year, we plan to keep driving Banquet with more television media pressure, TV advertising for the first time in several years, and several large programs with current and new partners across television, music and apparel.

Turning to Miller Lite, which grew its US brand volume by high-single digits in the first quarter on top of strong comps from the prior year. In March, Miller Lite launched its new All-Stars program, reinvigorating the debate about whether Miller Lite tastes great, is less filling, or both. This campaign brought on a new roster of long-term celebrity partners like J.J. Watt, Reggie Miller, Big Papi, Jorge Posada and Mia Hamm. The early response has been very strong, and we have more planned for the Olympics, Major League Baseball and Football.

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Molson Coors Beverage Co. (TAP)	Corrected Transcript
Q1 2024 Earnings Call	30-Apr-2024

Now in Canada, Miller Lite sales is an above premium price point. And year-to-date through February, this was the fastest-growing above premium beer nationally, growing its brand volume by over 40%.

Speaking of Canada, the Molson trademark also outperformed the industry and gained volume share. In March, we announced a multiyear partnership with the Professional Women's Hockey League, which was very positively received by fans and retailers alike. Similar to other women's sports, viewership for the PWHL has surged this year with broadcast and in-person attendance, both at record highs. We're excited to continue this partnership, and Molson will also have a strong presence at the Olympics this summer as the official beer sponsor of Team Canada.

Moving on to the UK, Carling's partnership with the FA Cup began coming to life across TV, digital and retail in the first quarter. And we believe this is the perfect sponsorship to set Carling up for sustained success. According to our data, Carling is more associated with professional soccer than any other beer in the market. At a 35% association, it's nearly double the next competitor.

Rounding out our core is Ožujsko, which has continued its strong momentum in Croatia and now has a 54% value share of the core segment. Ožujsko is much loved locally, but also by the many travelers who visit Croatia each year, and we've just launched a new equity campaign nationally to continue growing the brand. So, our core brands have collectively continued to perform strongly in 2024, and we believe we have the right commercial plans to keep them growing for years to come.

Now, turning to our high-end brands. It's clear we have lots of runway in every part of our portfolio. In the first quarter, Madri Excepcional continued its substantial growth. In the UK, the brand grew value sales of the on-trade by nearly 50% and value sales of the off-trade by over 40%.

Madri is currently the number three world beer in the UK total trade, and we have been consistently closing the gap to number two. To keep the pressure on, we launched a new campaign in April that brings The Soul of Madrid to the UK and focuses on growing Madri's awareness.

While Madri continues to grow off a strong base in the UK, you'll recall we also brought the brand to Canada in late February. And while it's still early days, Madri has already made it into about 6,000 accounts across the country, and we believe the brand is performing very well so far.

Beyond Madri's success, there are other parts of our high-end portfolio that we're actively working to improve, specifically Blue Moon. Between February and March, we launched new Blue Moon packaging in the US, a new name for Blue Moon Light and a large-scale campaign called Made Brighter. So, our full-scale revamp is taking shape. And while it's too early to know the full effect we are seeing early signs of positive traction.

We're also seeing great performance for Blue Moon non-alc, which is now the top-selling new non-alc beer of 2024. There have been about 30 non-alc beer launches in the US this year as well as increasing competition. So, there is a truly strong sign as the brand continues to gain distribution and share. While we certainly have more to do on Blue Moon, we are committed to driving the turnaround, and we are happy with the progress thus far.

Speaking of progress, it was a fast start to the year for Simply Spiked, which grew US brand volume by nearly 35% in the quarter. Simply Spiked Limeade hit shelves in February and while we are still growing distribution, our variety pack already holds the number one new item spot for the flavored alternative segment since its launch.

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Molson Coors Beverage Co. (TAP)	Corrected Transcript
Q1 2024 Earnings Call	30-Apr-2024

Simply Spiked had a major media presence during March Madness, along with Coors Light and Miller Lite, and we'll continue to focus on sports as a primary passion point for Simply Spiked consumers throughout the year. And while it's still early days for our new brand, Happy Thursday, which just launched in April, we've seen a very positive response from consumers so far, and we look forward to building the brand as we approach the peak summer selling season.

So, as you can see, we are delivering on our long-term commitment to grow the revenue of our core power brands with strong overall performance across the world. We are delivering with the strength of high-end brands like Simply Spiked and Madri Excepcional and we are beginning to see positive traction on other key areas of our high-end portfolio, such as Blue Moon.

And finally, we are delivering on our commitment to enhance our capabilities with a large investment in our Golden Brewery nearing completion and a $100 million investment planned for our UK operations over the next five years, which we believe will ensure world-class production of our brands today and in the future. We are committed to our overall long-term strategy. We have delivered against it over the last three years, and we plan to continue delivering against it year-over-year.

And with that, I'll turn it over to Tracey to share some details on our financials and drivers of our guidance.

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Tracey I. Joubert

Chief Financial Officer, Molson Coors Beverage Co.

Thank you, Gavin. We are proud to report another strong quarter. Net sales revenue grew an impressive 10.1% on strong Americas' volume and favorable net pricing across both business units. This top line strength, coupled with volume leverage and ongoing cost savings drove meaningful margin expansion, while we continue to invest strongly behind our brands. As a result, underlying pre-tax income grew 68.8%. Now many of the details can be found in our earnings release and slides, so I'll focus on our prepared remarks on some of the key metrics and drivers of our quarterly performance, and our outlook for the year.

Our double-digit top line growth was driven by both volume and price mix. As planned, we executed global net pricing increases in the quarter. We also had favorable mix, which was driven by lower Pabst contract brewing volumes. This led to a 4.2% increase in net sales per hectoliter driven by both business units. Financial volume grew 5.7%, driven by the Americas.

In the US, financial volume increased 7.6%, despite an approximate 3% or nearly 350,000 hectoliter Americas headwind related to the exit of low-margin Pabst contract brewing volume. Our US domestic shipments benefited not only from continued strong demand, but also shipment timing. We typically build inventories in the first quarter ahead of peak season. But this year, we built more than usual in the US. This was due to elevated consumer demand and measures taken under our contingency plan related to the Fort Worth brewery strike that commenced in mid-February.

For context, this year, our first quarter shipments to distributors exceeded brand volume by over 750,000 hectoliters. While in the prior year, first quarter shipments exceeded brand volumes by roughly 100,000 hectoliters. This US shipment timing was a driver in the financial volume growth exceeding brand volume growth.

Consolidated brand volume growth was 4.4%, with growth in both business units. Americas growth was led by the US, which was up 5.8%. The growth was driven by continued strength of our core brands, with Coors Light and Banquet each up double digits and Miller Lite up high single digits. In addition, our key innovations, like Simply Spiked also grew.

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Molson Coors Beverage Co. (TAP)	Corrected Transcript
Q1 2024 Earnings Call	30-Apr-2024

Canada also contributed to brand volume growth. While the Canadian industry has improved since the fourth quarter, it remains challenged. Still, we continue to take meaningful volume share, increasing brand volume by 3.6%, driven by our above premium portfolio.

In EMEA and APAC, brand volume increased 1.9%, driven by growth in Central and Eastern Europe as inflation pressures ease, partially offset by challenges in the UK off-premise.

Turning to costs. Underlying cost of goods sold per hectoliter was up a modest 0.9%. Inflation while moderating, continued to be a headwind, but was largely offset by 110 basis point benefit from volume leverage. The volume leverage was driven by the Americas business. This, along with lower logistics costs more than offset the impacts of direct materials and manufacturing inflation, which resulted in Americas underlying cost of goods sold per hectoliter being essentially flat.

In EMEA and APAC, underlying cost of goods sold per hectoliter increased 3.3%, which was a significant improvement from last year. The increase was due to higher direct materials and logistics costs as well as premiumization of our portfolio.

We continue to invest strongly behind our brands globally, increasing marketing spend for our core power brands in particular. This included showing up in a big way in live sports at the Super Bowl, March Madness and the FA Cup as well as supporting the launch of the new Blue Moon campaign.

Turning to capital allocation. We deployed $144 million in capital projects, which support ongoing productivity and cost savings programs as well as our sustainability initiatives. Our golden brewery modernization project, which is nearing completion, is a great example of this.

And we continue to return cash to shareholders. We raised our quarterly dividend again by 7% and we're active in executing our $2 billion share repurchase program that was announced last October. Utilizing our sustained and opportunistic approach, we repurchased 1.8 million shares for a total cost of approximately $110 million in the quarter. Since the inception of the plan in the fourth quarter of 2023, we have already repurchased 4.3 million shares for a total cost of approximately $260 million.

Now let's discuss our outlook. We are reiterating our 2024 guidance given that we are early in the year and in particular, our caution around the US and Canada beer industries, which we have shown - which have shown accelerated softening in early April, we believe that this is a prudent approach to take.

Now while the detailed list of metrics is in our earnings release and slides, I'll highlight the primary ones. We continue to expect low single-digit net sales revenue growth on a constant currency basis, mid-single-digit underlying pre-tax income growth on a constant currency basis, mid-single-digit underlying earnings per share growth and underlying free cash flow of $1.2 billion, plus or minus 10%.

Now let's talk about our guidance assumptions. Our goal is typically to ship to consumption for the year, and this is true for 2024. So given the strong US domestic shipment volumes in the first quarter resulting in a significant gap between shipment and decisions as I quantified, we expect US brand volumes to exceed shipment volumes during the balance of the year.

The termination of the Pabst contract brewing agreement at the end of this year is expected to be a 1.6 million hectoliter headwind to America's financial volumes over the remaining three quarters of the year. We expect

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Molson Coors Beverage Co. (TAP)	Corrected Transcript
Q1 2024 Earnings Call	30-Apr-2024

positive price mix, and we continue to expect pricing in the US and Canada to be between 1% and 2%, in line with historical averages and for pricing in EMEA and APAC to trend in line with inflation.

We also expect premiumization supported by our expanding above premium portfolio. This includes brands like Madrid with its strong momentum in the UK, along with its recent expansion into Canada and Bulgaria as well as by anticipated improvements in the Blue Moon brand family.

It also includes flavor as we enter the summer with three winning flavors for Simply Spiked, as well as our new innovations, Happy Thursday. We believe these brands should keep us moving towards our medium-term goal of reaching approximately one-third of our global net brand revenue from our above premium portfolio.

On the cost side, we expect underlying cost of goods sold per hectoliter to increase due to continued, albeit moderating inflationary pressure, including material conversion costs, higher costs related to premiumization, and lower volume leverage impact as compared to 2023 and the first quarter of 2024.

We continue to expect MG&A for the year to be roughly in line with 2023. This entails strongly supporting our core power brands and key innovations globally. This is especially true around peak season as we lean into media at both local and national levels and with robust retail programming that drives consumer engagement.

In summary, our strong momentum in 2023 has continued into 2024. This shows that our strategy is working with strong brands, supportive distributor partners and the financial flexibility to balance growth and reinvestment with confidence in our ability to deliver our guidance in 2024 and on our long-term growth algorithm in the years to come.

And with that, we look forward to answering your questions. Operator?

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Molson Coors Beverage Co. (TAP)	Corrected Transcript
Q1 2024 Earnings Call	30-Apr-2024

QUESTION AND ANSWER SECTION

Operator: Thank you. We will now open up for Q&A. [Operator Instructions] Our first question today comes from Bonnie Herzog from Goldman Sachs. Your line is now open. Please proceed.

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Bonnie Herzog

Analyst, Goldman Sachs & Co. LLC

Q

All right. Thank you. Good morning everyone. I guess I have a question on your quarter and then guidance. I guess, first, were your Q1 results better than you expected or more in line with your expectations? And maybe I'm asking specifically on the shipments, given some of the items you called out.

And then you did reaffirm your guidance for the year out of prudence, given the softer industry data we're seeing in early April. So could you maybe just give us a little bit more color on what you're seeing, and if some of your concern is that the weakness could be more structural in nature? I guess, I'm just trying to understand how this impacts your positioning, especially given all the shelf space you've gained recently. Thank you.

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Gavin D. K. Hattersley

President, Chief Executive Officer & Director, Molson Coors Beverage Co.

A

Thanks, Bonnie, and good morning. Look, I would say for the first quarter, our shipments certainly were higher than what we were expecting. We were obviously planning to ship higher than our brand volumes. But our supply chain team did a tremendous job actually exceeding our expectations each and every week.

As you know, we have a strike down in Fort Worth, and we have a contingency plan and the contingency plan is working better than we had originally expected. So short answer is yes, Q1 was better. And we would expect, obviously, that over-shipment to come back over the next nine months because we always try and ship pretty much to consumption over the year. Given the strong - how strong summer always is for us from a shipment point of view, we would expect more of that to come back in the back half of the year than we would in the front half of the year.

From an overall industry point of view, the year didn't start off that well from an industry point of view that was mostly attributable, we believe, to broader weather conditions across the country. March did come back quite nicely, although it was still down, but it came back compared to January and February. And then April has been pretty choppy from an industry point of view.

The first two weeks were not good. Obviously, there were some dislocations there like - and timing issues like Easter, which moved into Q1. But it's been pretty noisy. The third week actually was a little better, actually quite a lot better than the first two weeks of April. So a lot of volatility at the moment, a lot of holiday mismatches and that drove us to be just a little bit more cautious about the outlook for the industry.

And as I've said in the past, the industry will largely land on how summer goes because it's obviously a really big selling part of the year. And so we'll have a much better idea of where the industry is going to land for the full year as we start to head into summer. So it just provides a little bit of context, Bonnie.

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Operator: Our next question comes from Andrea Teixeira from JPMorgan. Your line is now open. Please go ahead.

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Molson Coors Beverage Co. (TAP)	Corrected Transcript
Q1 2024 Earnings Call	30-Apr-2024
Andrea Teixeira	Q
Analyst, JPMorgan Securities LLC

Thank you, operator, and good morning everyone. So I was just hoping, Gavin, what you said now about April, I mean, a couple questions there. If you can help us with the STRs in April. And where do you think the softness is coming from? Is that from the carry across all income levels on mostly low-income consumer? And on that, if you're seeing anything to call out in the economy segment.

And as we look at your point, a lot of softness in the category, as we look at the track channel data and as you lap what you're going to lap now the benefit from what happened to your competitor, how can we judge your shelf gains, which are substantial, of course, you called out in the last earnings call? And I'm assuming you can elaborate a little bit more on that. So how can we judge your share gains and how sustainable you said in your prepared remarks that you feel a lot of that is sustainable. So if you can elaborate on that, first on the category STRs and then on your shelf space gains. Thank you.

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Gavin D. K. Hattersley

President, Chief Executive Officer & Director, Molson Coors Beverage Co.

A

Thanks, Andrea. Yeah, a lot of questions in that question. So let me try and cover it all. And let me start with April, right? I mean, obviously, I understand the desire to monitor the industry on a week-by-week basis as we lap the upheaval which we saw in 2023. But we did highlight months ago that Q2 comps were going to have a lot of noise. And it was going to be hard to credibly measure what was happening on a weekly basis.

And if we stand back and look at the big picture, right, I mean the decline of Bud Light and the explosive growth that we saw in our brands was staggered over several weeks. It didn't just happen overnight. So that was last year. And obviously, the industry took pricing this spring, which didn't happen in the spring of 2023. As I said in response to Bonnie's question, there was an Easter mismatch since the holiday was in the second quarter of last year and in the first quarter of this year.

And then as you say, the shelf resets, which are going to give our core brands substantially more space in stores across America, 13% for Miller Lite and Coors Light and almost 20% for Coors Banquet, which is not a small brand for us. And the vast majority of stores haven't completed their shelf resets, their shelf adjustments yet. So we know for a fact that there's a lot of upside to come from that. I don't believe any of us have seen such a dramatic shift in shelf space before.

So I don't have a ready formula to offer you from a volume perspective. But what I do know and what I do believe is that more space equals more volume. And it's not a bad thing to be getting all this extra space, and it's hard to see how 13% extra shelf space and 20% extra on Coors Banquet doesn't translate into a positive outcome.

From an overall industry point of view, I think that answer there is a little more challenging, right? We haven't seen any data that suggests that GLP-1 is, for example, which I know is often cited as an issue, although that has quietened down. We don't have data to suggest that that's having a meaningful impact on the alcohol space.

I do think that we're living in very volatile times. I do think that inflation is proving to be a little more, sticky than folk expected, and interest rates are higher and staying for longer. So I do see cautious behavior from consumers.

And when you lump all of these things together, that does, as Tracey said in her remarks lead to us being a little bit more cautious and prudent as to how we see the industry going forward.

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