Molson Coors Beverage Q2 2024 Earnings Call Transcript

Good morning, Bonnie, and yeah, thanks for the question. So, as we look at the volume deleverage for the back half of the year. So from a COGS point of view, we do expect higher COGS in 2024 versus 2023 and our second half to be higher than our first half. And really, this is all driven by the deleverage as well as mix. So we spoke about the deleverage impact from our shipment timing as well as the exit of tax. But also as we premiumize our portfolio, that does add COGS, although it is margin accretive. We have said that we expect to see continued inflation, although it is moderating. And some of the things that is driving the inflation is we do have material conversion costs, which generally are linked to inflation indices and they do tend to lag. In addition, we've spoken about our hedging program. Generally, our hedges are longer term, so anything up to two years and so we do have some hedges that we put in place in 2022 and 2023, which will roll off this year and next year. In terms of helping to moderate some of the COGS inflationary increases that we've seen, we have got cost savings. We've invested in our breweries to drive efficiencies and cost savings. So that is going to help us offset.

In terms of margin, with the contract brewing volume coming out, remember that is at a very low margin for us, so that you're going to help margins, even though it does have a volume leverage impact. It does take a lot of complexity out of our breweries, especially during the peak summer season where we need the capacity and taking out some of that volume will not only just impact efficiencies, but tend to lead to reduce waste. So that will drive our COGS down as well. In terms of the marketing, so we do expect our MG&A to be lower in the back half of the year versus the first half of the year. And if you recall, in the second half of 2023, we think an incremental $100 million in marketing really to drive the strong momentum in our brands. And this is evenly split between Q2 and Q3. Now typically, we spend more marketing dollars in the summer. So you can expect lower year-over-year spend, particularly in Q4. But just remember, we do expect 2024 marketing to be up meaningfully from 2022. So there's no pull back on marketing. We'll continue to invest behind our brands, and make sure that we've got the right view to drive the momentum.

Thanks, Drew. Thanks for the question. Look, they're obviously, as you rightly see, there was a fair amount of noise in the second quarter, if there was -- a bit of turbine whether in the first part. So certainly, April and May were tougher. And we did see some improvement in June. Collectively, when you look at the second quarter in totality, particularly if you adjust out for the timing of the -- from the July 4th holiday, it's just a continuation of what we've been seeing for a while, right? And from a consumer point of view, not trading down between or up between brands but more tax shifting within the brand portfolio to singles or to larger pack sizes. I think as we look going forward, and I think if Q2 taught us anything, it's that you can't make a prediction on the quarter based on a few weeks of data. So let's see how quarter 3 turns out. But certainly, Q2 is a continuation of what we've been seeing for a while. Tracey, the second part of the question?

Yeah. I mean, just in terms of contextualizing, so if we exclude our contracts doing volumes, we deliberately shifted ahead of demand in the first half of the year. So that was about 1.1 million hectoliters that we shipped ahead of demand. And if you compare that to the first half of 2023, we actually shipped behind demand by about 400,000 hectoliters. So that just gives you some context in terms of our domestic shipments. And then if we add the Pabst shipment in the -- so we had approximately two million hectoliters this year of Pabst coming out of our system. We have about one million hectoliters remaining for the back half of the year, most of that coming out of Q3.

Thanks, Bill. Good morning to you. Yeah, look, I mean, from our perspective the data that we see from internal estimates, the on-premise in the US, which I assume your question is directed at is performing slightly better than the off-premise in the quarter. And given how important is to building brands. It's an area we focus on meaningfully, whether it's our core brands of Miller Lite and Coors Light or whether it's Blue Moon, and keg is an important part of that strategy. Now where changes occur on-premise, sometimes it's between keg sizes. But kegs is and will remain an important part of our on-premise strategy and an important part of how we continue to build our brands.

Thanks, Robert, and good morning to you. And, yes, I'll take the complement on the core brands, and we, of course, agree with you. I think our team has done a really nice job marketing and executing our core brands, and we're seeing the benefits of that. You rightly point out that we've got work to do in the premiumization space. In the US, I would say that our premiumization progress outside of the US has been very strong. It's growing strongly in Canada. We're over half in our EMEA, APAC business; and 75% of our volume in Latin America is in the above premium as well. But you're right, we've got work to do in the US. We recognize that, and Blue Moon is our biggest above premium brand. It's a big, important brand for us and for our distributors and our retailers, and we're committed to turning that brand around. And that's why we've launched the new packaging. It's why we've got a new campaign. We've got new innovation there with Blue Moon non-alc and we've repositioned Blue Moon Light this year and the early signs on Blue Moon Light are very promising, and we've seen initial very promising initial traction on Blue Moon non-alc well. So completely committed to reinvigorating this brand, and we think the changes that we've made in the first part of this year are a really important step in that direction.

As far as Peroni is concerned, I mean, we believe the Peroni big brand. And we've obviously made some changes to that, which we've made very clear about, right, is we're shifting to domestic production of Peroni in the US. And that does three things for us. The biggest challenge that we've had with Peroni has been consistent supply and bringing it onshore and putting it into our supply chain network, which is operating really well and effectively at the moment. It's going to allow us to give us a really consistent supply of fresh Peroni to our distributors and obviously our retailers. So we think that's really important. It also gives us the opportunity to increase different pack formats that we have available in the US, which we haven't had with Peroni. That's going to allow us to much better compete in the US. And then, of course, it gives us more margin, right, because we're eliminating a very long part of the supply chain. And that's going to allow us to reinvest behind the brand from a marketing and execution point of view. So we think it's got a lot of runway. It's -- awareness is still fairly low and its distribution is low. So I like our plan. We've started it. It's just kicked off and our expectations for Peroni are high. Thanks for that, Robert.

Thanks, Chris. Look, I mean, from an industry point of view, I won't rehash my remarks on the second quarter other than to say we had noise different weeks performed differently. But collectively, when you got to the end of the second quarter, not terribly dissimilar to what we've been experiencing over the last few years. From a consumer health point of view, just run around our markets for a second and start in the smallest, right. See, our Central and Eastern Europe market. We've been talking about how the consumer there has been challenged for some time. And we're starting to see that change. There's the reduction in CPI. It's putting less pressure on the consumer's disposable income level. And that started to translate to an increase in market demand in the first half. So we'll watch that carefully but promising signs there. And in the UK, the consumers remained resilient. I think the weather in June in the UK has been well documented by all of our competitors. But the economy certainly is improving with inflation slowing down and wages are continuing to rise. So we'll watch carefully how that translates into consumer demand. In Canada, the industry is performing fairly similarly to the US, right? Overall, consumer spending was a little lower in the second quarter. Inflation continued its downward trajectory.

Frankly, our performance in Canada is very, very pleasing, right? And it's all the work that we've done over the last few years to execute the revitalization strategy in Canada with our core brands. And we're seeing the benefit of that as we're gaining market share at a good clip. And in the US, as I said, we're not seeing anything terribly different from what we've previously seen. Value-conscious consumers are continuing to engage in channel and pack shifting, but not brand shifting from a value perspective. But we've kind of noted that trend before. I think -- as address your July question, I think, as I said, if the second quarter taught us anything, it's not to judge a quarter on a few weeks' trends. And so we'll -- let's see how Q3 plays out. I mean we'll have a good idea whether it's a continuation of the trend we've been experiencing or not.

Thanks, Victor, and good morning to you. Look, from a pricing point of view, I see your question is directed at the US. Our net pricing increased comprised, it's a little over half of the increase with the balance coming from mix, whether that was brand pack mix or Pabst coming out. So sorry, my comment on net pricing was for the consolidated results. It pretty much holds true for our Americas as well. Net price was a little over half of the game with the rigs coming from mixed benefits from Pabst point of view or a brand pack point of view. Thanks, Victor.

Thanks, Bryan. Great question. Look, from a spring reset point of view, I think we said, we expected about a 13% share of space increase for our core brands in the large format stores. And that's what we got premium and so premium being -- Coors Light imports. We're certainly the biggest winner as far as the space allocation point of view. And I guess, craft and Sulzer continued, I guess, to fill the biggest pinch in space. As it relates to going forward, we were, as I said, the clear winner based on what we've seen. And from a full perspective, last year, we did see an unprecedented unusually higher percentage of retailers that executed some of their resets. This year, we don't expect that based on the data that we're seeing. There may be some minor tweaks up or down, but we certainly don't expect anything meaningful. And if you go to -- most of the resets are normally done, which is spring. Again, we saw an unprecedented shift in how the brands were showing up at retail. And generally, for as long as I can remember, there were only really minor adjustments to shelf space, mostly focused on adds of new items or deletes of brands that needed to be discontinued or it was simply just not performing from a velocity point of view.

And again, based on the data we see and our success in holding the large majority of our core share gains that we got in against, frankly, the toughest comps we're going to experience the whole year, Bryan. I mean, as you remember the second quarter was really, really tough from a comp point of view because our shares spiked quite dramatically and then it came down and settled. So, we've cycled our toughest comp. We've retained 80% of the share gains, and it only gets easier from here on out. And so again, our expectation from a shelf space point of view is retailers will go back to that tweaking and minor adjustment process, which they've done over the years. And so again, we're not expecting a meaningful change there. From a depletions point of view and shipments now, it's how we plan shipments, right, as we were aware that we could have potential work stoppage in our Fort Worth brewery. We wanted to make sure that we could meet the highest share levels that you're experiencing and make sure we didn't have any out of stocks. And I think the supply chain team did a really good job of that. So that was planned this cycle different to different previous years, right, where there was probably more of a balance between first and second half. But no, that was planned, and we've reaped the benefit of that, right, with out stock being very, very low and our supply and inventory levels in our distributor right where we need them to be so in a good place. And I mean some of that is obviously reflected in the fact that we ended up as the 1 supplier on the Tamarron Survey. All of these things play into that, how we came to life on the shelf resets, how we've done the supply and how they're feeling about our brands and execution. So yeah, thanks, Bryan.

Thanks, Bryan. Tracey wouldn't mind taking the second part of the question. The first part, look, I mean, from a pricing point of view, Bryan, we've -- I think we've been saying for quite some time now that we believe pricing is going to sort of land in that historical 1% to 2% increased level. And that's where it's holding at the moment. And so that will translate into the full year. And from a mix point of view, you're right. I mean we do have a lot more perhaps volume to come out, which will be a mix favorable. So not intending to give any guidance from that perspective, but those are just the inputs which go into it. The trends are not going to change dramatically from a Pabst point of view and from a front-line pricing point of view. Trace, I think the other question was from shipments?

From the financials, net to volume point of view. So as I said, we shipped ahead of demand about 1.1 million hectoliters in the first half of the year. And we do expect that to reverse in the second half of the year, most of that coming out of Q3. And then from a Pabst exit point of view, again, about another 1 million hectoliters of Pabst volume remaining and expect over half of that to reverse or exit in the third quarter of the back half.

So to summarize, Bryan, yes, most of it will take place in Q3.

Thanks Michael. Look, from a shelf reset point of view, we certainly got a lot more SKUs pack formats into both C-stores and into grocery and in large format. So, I'm not going to say that we got all of the current consumer trends in, but we certainly made a dent on that. And certainly given the extra space that we've got our ability to hold from a large pack point of view and a small pack point of view is much stronger than it was before. To put another way, we have much less out of stocks because of that -- because of the holding power that we've gained install. I think you're referencing Kaliman [Phonetic] there in Romania. And that's a brand we've had around for a while. And without peeling back the onion as to how innovation works, right? When I said I've been around for a while, we've used it a while before. And so the innovation team found a gap in the marketplace, and we launched it. And it's proving to be not very cannibalistic to our existing portfolio and adding really nice incrementality to the overall core portfolio. So mark they had in the past, and we brought back to life so far, very successfully. But just a few months, but 150,000 hectoliters in just a few months is a meaningful volume in the market that size.

Thanks for the question, Lauren. I'll take the second part first. In terms of share, our core power brands, which is Coors Light, Miller Lite, Coors Banquet, we grew 2.5 points of case share in the second quarter of last year. It was our highest share gain that we had that we experienced in the last year, and we've retained 80% of that. And so compared to the second quarter of 2022, our total portfolio is up over 1.7 points of volume share and obviously, we're very pleased with that. And in particular, given that we're going up against the peak share growth. And as I said, it only gets, in early comments, easier from here, but share came down and settled. And we've done that through the shelf resets, which I just spoke about, increased distribution. We've got increased display. We've got increased feature. We've got really relevant marketing campaigns, like our Miller Lite and All-Stars campaign that we've got our Coors Light [Indecipherable] cut, which is attracting new Hispanic drinkers into our portfolio. And so we're obviously planning to execute and retain as much of that share as we possibly can, given that we're now out of the toughest share comps. From an industry point of view, look, I think my comments that I made earlier or what we believe, right, is a lot of noise in Q2 in some weeks. But overall, it's sort of balanced out of where we were expecting where it's been for the last couple of years. And from a shipment point of view, that was a very deliberate strategy. We didn't over ship. We shipped what we wanted to ship in the first half so that we didn't have any inventory challenges going forward.

Thanks for those questions, Eric. Taking your first one. Look, I think beer in the classic sense of the beer remains down, but it has sequentially improved dollar share of total alcohol. So definitely seeing an improvement in classic beer. If you add the RTD spirits into that, which beer supply is put in, and then just total overall beer is gaining share against spirits. So definitely tracking in the right direction from an overall total alcohol point of view. If you look at our innovations, let's start with simply, right? I think let's just stand back for a second. And we're pleased with the fact that we've built a brand that is over $100 million from nothing in just two years, right? And so we're pleased with that performance. Consumers, though, as we've learned in this space, and that's why we focus on the flavor category in totality, I do have a little bit of treasure hunt mentality. So, keeping innovation, flavor innovation, in particular, is really important to keep pace with this consumer. And given that Simply is in one out of every two households in the United States, our focus right now is continue to drive trial because when consumers try this brand, they love it. And so trial is important. A strong marketing and sales programming is important for us. And I'd point out that the brand is performing really, really well in Canada. We've achieved over a 10 share of the flavor RTD category up there and that's in large part driven by Simply Spiked. If you look at the other innovation, I talked briefly about cardamom [Phonetic] it's performing well, early days. Madri is the superstar of our innovation. It's a top 10 brand. We've recently launched it in Canada and Bulgaria. It's early days, obviously, but we're very encouraged by the results that we're seeing in those two markets, and it continues to grow in double-digits despite the competition that's come in the United Kingdom. So, feeling good about that.

We've launched from an innovation point of view, Happy Thursday, which is tapping into a new consumer. We think we're first to market there and again, early days, but from a flavor point of view and what the consumer is looking for from a bubble free perspective, I'm encouraged by the start. And then another brand that we've grown from nothing is ZOA. Again, I think that one's we've had around for about three years. And obviously, this is a completely new space that we've gone into. So, lots of learnings for us in the beginning. But we now think we've got a fantastic liquid. We've got a great brand. We've got packaging that works really well, and we've got a very powerful in more ways than one spokesperson who's driving this brand forward. It's a top 10 brand in Amazon. It's attracting new drinkers into the energy category space. And we think it's got a right to win in certain distribution channels, and that's what we're going after. So, collectively, I'm pleased with the progress that we're making on innovation, and we've built some real powerhouse brands in a very short space of time. And now our job is to accelerate that performance. Thanks for that question, Eric.