Molson Coors Beverage Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 6, 2024

There are 13 speakers on the call.

Operator

Good morning, and welcome to the Molson Coors Beverage Company Second Quarter Earnings Conference Call. With that, I'll hand it over to Traci Mangini, Vice President, Investor Relations.

Speaker 1

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 reach out to our IR team. Also, I encourage you to review our earnings release and earnings slides, which are posted to the IR section of our website and provide detailed financial and operational metrics.

Speaker 1

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. Reconciliations for any non U.

Speaker 1

S. GAAP measures are included in our earnings release. Unless otherwise indicated, all financial results we discuss are versus the comparable prior year period and are in U. S. Dollars.

Speaker 1

With the exception of earnings per share, all financial metrics are in constant currency when referencing percentage changes from the prior year period. Also, share data references are sourced from Turkana in the U. S. And from beer Canada in Canada, unless otherwise indicated. Further, in our remarks today, we will reference underlying pre tax income, which equates to underlying income before income taxes and underlying earnings per share, which equates to underlying diluted earnings per share as defined in our earnings release.

Speaker 1

With that, over to you, Gavin.

Speaker 2

Thank you, Tracy. Good morning, everybody, and thank you for joining the call. We are pleased with our results this quarter, which played out largely as we had expected. We acknowledge that there are a few near term timing dynamics impacting our quarter to quarter performance this year. In today's call, we will unpack these as well as the drivers of the second half of the year to demonstrate why we are maintaining our guidance for the full year 2024.

Speaker 2

In the Q2, we essentially held our top line and grew our bottom line, while cycling a very difficult year over year comparison. If you recall, the Q2 of 2023 was our strongest 2nd quarter net sales revenue since the 2,005 Molson and Coors merger. Consolidated net sales revenue was down 0.1%, underlying pretax income grew 5.2% and underlying earnings per share grew 7.9%, while we continue to invest behind our brands globally heading into peak season. We also accelerated the pace of share repurchases for the quarter given compelling valuation as we see it, amid the strong performance of the business and our confidence in our long term algorithm. Contributing meaningfully to our results was our EMEA and APAC business due to favorable net pricing, premiumization and brand volume growth.

Speaker 2

For the first half of the year, we increased net sales revenue by 4.2%, underlying pretax income by 20.4% and underlying earnings per share by 23.8%. While this is a very strong performance year over year, there are a few timing factors that will impact us in the 3rd and 4th quarters, which is why we are maintaining our guidance for the full year. These timing factors will result in an unwind in the back half of the year and the resulting temporary trends are not reflective in any way of our confidence in our acceleration plan and growth initiatives. The most important timing factor to understand regarding our performance in the first and second half of the year is U. S.

Speaker 2

Shipment timing. We made the deliberate decision to increase our U. S. Inventories in anticipation of and during the strike at our Fort Worth Brewery, which ran 14 weeks during February through May. We did this to ensure we had healthy inventories during the peak summer season.

Speaker 2

As a result, excluding contract volumes, STWs exceeded STRs by about 750,000 hectoliters in the Q1 and by about 350,000 hectoliters in the Q2. And we continue to expect this will essentially fully unwind the 3rd 4th quarters with more weighting to the 3rd quarter. Another factor impacting our results is the continued exit of PABP's contract brewing volume as we approach the termination of the agreement at year end. This reduced 2nd quarter financial volume by 580,000 hex liters with declines accelerating from the Q1. It reduced our first half financial volume by over 900,000 hectoliters, which represents a decline in PAB's contract volume of over 50% from the first half of twenty twenty three.

Speaker 2

To put a finer point on it, PABs had a negative 3.2 percentage point impact on both our second quarter and first half Americas Financial volume on a year over year basis. And while PAPS is a near term headwind to total volume and net sales revenue, the mix benefits related to its exit along with favorable global net pricing and premiumization in NIVEA and APAC drove an increase in consolidated net sales revenue per hectoliter of 4.2% for both the quarter and for the first half. Turning to cash flow. We generated $505,000,000 in underlying free cash flow for the first half of the year, while investing meaningfully in our business. And we returned $564,000,000 in cash to shareholders through both our dividends and share repurchase program.

Speaker 2

Tracy will cover more on our capital allocation and outlook drivers. But to sum it up, given our strong performance for the first half of the year, we remain on track to deliver our 2024 guidance. This guidance calls for top and bottom line growth for the 3rd straight year, something that has not been done in over a decade. Now let me take you through our strategic priorities starting with our core power brands. In the U.

Speaker 2

S, Coors Light, Miller Lite and Coors Banquet 2nd quarter combined volume share is down a half share point of industry versus a year ago when we saw our peak share gains. However, these brands remain up 2 full share points compared to the Q2 of 2022. This means that we retained approximately 80% of our peak share gains on our core power brands. Coors Banquet in particular is performing extremely well. We have deliberately built on this 150 year old brand over the last several years, building on its loyal consumer base and attracting new Gen Z and millennial legal drinking age consumers.

Speaker 2

And the results have been impressive. Coors Banquet grew brand volume nearly 13% in the first half of the year and gained dollar share at the fastest rate among the top 15 brands in the beer category. And we see great potential ahead as we continue to close distribution gaps and increase brand awareness. In Canada, Covert Light continues to be the number 2 brand in the country and the Molson's family of brands gained volume share in both the 3 months and year to date ended May. In fact, in Ontario, Coors Light and Molson Canadian continue to be the number 1 and number 2 brand respectively in both the 3 months and year to date ended May.

Speaker 2

In EMEA and APAC, strong results in Central and Eastern Europe have been supported by OZYSCO in Croatia, which has gained nearly 2 value share points of the core segment year to date end of June, as well as the extremely successful launch of a new core power brand Kariman in Romania reaching about 150,000 hectoliters since March. And Carling's brand equity continued to benefit from its partnership with the FA Cup. Turning to our premiumization priority for both beer and beyond beer, our above premium portfolio was over 26% of total net brand revenue for 12 months ended June 30. Our premiumization progress is at different stages across our markets and we have had success in EMEA and APAC, Canada and Latin America. In EMEA and APAC, our above premium share of net brand revenue continues to be over 50%, up nearly 10 percentage points from the full year 2019.

Speaker 2

This improvement is primarily due to the very successful launch of Metre, which continued to grow revenue double digits in the 2nd quarter. And it is the number 3 lager in the on premise in the U. K. In terms of value. In the Americas, our above premium share of net brand revenue was over 21% for the 12 months ended June 30, which is up nearly 2 percentage points from the full year 2019.

Speaker 2

This was supported by Canada, where our above premium share of net brand revenue has also grown, driven by the success of Miller Lite, Coors Seltzer and Vizzy. Also contributing to the mix is Latin America, where more than 3 quarters of our net brand revenue is above premium. In the U. S, our net brand revenue share from above premium has improved compared 2019, but our above premium trends have been more challenged recently and we have work to do here. Now this is largely due to the strong performance of our core power brands in 2023, but we believe we can build from here and we have focused plans around our key above premium brands and innovations to do just that.

Speaker 2

This starts with the Blue Moon family performance and we feel good about our new campaign and packaging, our repositioning of Blue Moon Light as well as our line extensions into non ALK. It's early, but we believe we are moving in the right direction. We are committed to continuing to innovate and scale in Beyond Beer, which for us is all about above premium. Flavor is a key focus area because it's big and it's growing. Given the flavor consumer evolves and shifts quickly, flavor innovation is key to keeping pace with their demands.

Speaker 2

We believe we have impactful brands with potential in the space. For example, we have built Simply Spiked into a $100,000,000 brand in just 2 years, illustrating the power of the Molson Coors platform as a launchpad for innovation and growing brands. While we have seen some softening on our original packs as we launched into new flavors, with the Simply brand in 1 out of every 2 households in the U. S, we believe the Simply Spike brand family has more runway. And we have exciting plans for Peroni.

Speaker 2

By onshoring production in the U. S, we believe we can better ensure consistency of supply and ultimately drive scale and margin for this high potential brand. Before I pass it to Tracy, I'll conclude by saying that we are confident we have the right strategy to achieve our long term growth objectives And we are very pleased with our progress against our strategy. We are a much different company today than we were 4 years ago, and we are most certainly stronger than we were just 16 months ago. With that, I will pass it to Tracy.

Speaker 3

Thank you, Gavin. We reported another strong quarter of financial performance and continue to expect we will achieve our goal of growing the top and bottom line for the 3rd year in a row. As Gavin mentioned, with our strong free cash flow generation, we continue to invest strategically in our business and also return cash to shareholders. Since October 2019, when we launched the initial phase of a new strategy, we have invested substantially in our capabilities from supply chain to marketing to technology and tools that advance our insights and analytics. These investments have driven substantial cost savings, which help to offset inflationary pressures and support long term sustainable profitable growth.

Speaker 3

In recent years, this has included adding flavor production and coke packing capabilities, expanding and diversifying our supplier base, building slim can capacity in our can farms and replacing several breweries with state of the art facilities in Canada. In the first half of this year, a big focus has been our multi year, multi $100,000,000 modernization of our Golden Colorado brewery, which is nearing completion. This project at our largest U. S. Brewery, which broke ground in the fall of 2020, is completely overhauling the brewery's infrastructure and is expected to result in more efficient fermenting, aging and filtration facilities as well as a state of the art upgrade to the cellars.

Speaker 3

When it is fully operational in a few weeks' time, we will have a more efficient brewery that produces less waste. We also commenced a new multiyear project in the UK to increase our brewing and packaging capacity, which is necessary in part due to the continued growth of mid-three. And it is these investments along with our extensive hedging program that helped us to offset inflation, particularly during the significant inflationary period we have experienced in recent years. And while inflation has moderated, as expected, it remains a headwind this year. In the Q2, our COGS per hectoliter increased 2.9%, which was driven by the Americas business, which was up 4.1%.

Speaker 3

This was largely due to ongoing inflationary pressure as well as volume deleverage in part due to the reduced tax contract brewing volume in the Americas business. Turning to marketing capabilities, we overhauled our marketing strategy several years ago, making us more nimble and efficient as we have continued to invest behind our brand. By improving our ability to analyze and evaluate the effectiveness of marketing investments, we are able to assess our campaigns in almost real time. And we built our own in house agency, enabling us to meaningfully shift our percentage of spend to more working versus non working marketing dollars. It's our deep marketing capabilities that have enabled us to meaningfully improve our return on marketing investment since 2019 and supports why our long term growth algorithm does not contemplate the changes in marketing spend.

Speaker 3

As for returning cash to shareholders, in the first half of this year, we paid $188,000,000 in cash dividends. And in February, we raised the dividend for the 3rd consecutive year, a cumulative 29.4% increase. As such, we are generating a dividend yield of 3.2% as of August 1. Also, we are actively executing against our up to 5 years $2,000,000,000 share repurchase program that we announced last October. We continue to view our stock as a compelling investment opportunity amid the strong performance of the business and our confidence in our long term growth algorithm.

Speaker 3

And utilizing a sustained and opportunistic approach, we repurchased 4,600,000 shares for a total cost of $260,700,000 in the quarter. Since the inception of the plan, we have already repurchased 8,800,000 shares or 4.4% of our Class B shares outstanding since September 30, 2023, for a total cost of $521,100,000 That means we have completed approximately 26% of the plan in just the 1st 3 quarters. And the reason we have been able to deploy our capital in these ways is because our balance sheet is strong and healthy, healthier than it has been since before the 2016 16 Milliquis acquisition. We ended the quarter with a leverage ratio of 2.13 times, which remained in line with our long term target range of less than 2.5 times. In May, we issued an 8 year EUR 800,000,000 note at the fixed rate of 3.8 percent and used the proceeds to pay down our EUR 800,000,000 note upon its maturity in July.

Speaker 3

And now I'd like to conclude with our financial outlook. We are reaffirming our 2024 guidance. As a reminder, the key metrics call for low single digit net sales revenue growth on a constant currency basis, mid single digit underlying pretax income growth on a constant currency basis, mid single digit underlying earnings per share growth and underlying free cash flow of $1,200,000,000 plus or minus 10%. While this guidance implies slower trend for the second half of the year, it's important to remember that this is driven by shipment timing this year, and it does not alter our confidence in our long term growth expectations. As Gavin discussed, in the U.

Speaker 3

S, excluding contract volumes, we deliberately shipped a head of demand by about 1,100,000 hectoliters in the first half of the year. This compares to the first half of twenty twenty three when our STWs were behind our STRs by about 400,000 hectoliters. And since we currently plan to shift to consumption for the year, we expect this to reverse in the second half, mostly in the third quarter. At the same time, our contract with PEP continues to wind down. Recall that we expected the impact for the year from the PEP contract termination to be approximately 2,000,000 hectoliters or about 3% of Americas financial volume.

Speaker 3

There is about 1,000,000 hectoliters remaining that will come out of our system in the second half of the year with over half of that expected to exit in the 3rd quarter. These U. S. Shipment trends are expected to result in volume deleverage in the second half of the year. And recall that we had a volume leverage benefit on a consolidated of about 60 basis points in the comparable period in 2023.

Speaker 3

For some perspective, on a consolidated basis, we estimate that our fixed costs in 2024 will comprise approximately 20% of our total costs. However, the anticipated benefits of rolled forward pricing taken in the Q1, premiumization of our portfolio, moderating inflation and cost savings should partially offset the impact of volume deleverage. And we expect MG and A for the second half to be down compared to the prior year period as we cycle the second half of twenty twenty three when we had high marketing investment to support the momentum in our brand as well as higher incentive compensation. As we look to the longer term, we remain confident in our growth algorithm as we have levers to achieve it, from our robust revenue management platform to our premiumization and innovation plans, to our continued investments to drive efficiencies and cost savings, these levers help us to navigate various market circumstances. In closing, we had another strong financial quarter and remain committed to our short and long term financial and strategic goals.

Speaker 3

And with that, we'd like to open it up to your questions. Operator?

Operator

Our first question comes from Bonnie Herzog with Goldman Sachs. Bonnie, please go ahead.

Speaker 4

All right. Thank you. Good morning, everyone.

Speaker 3

I guess I

Speaker 4

had a question on your guidance, which you did maintain in terms of full year and all metrics, which certainly implies a deceleration in the second half as you highlighted. So maybe you could unpack this a little bit more for us. For instance, how should we think about the volume deleverage impact in the back half and possibly provide a little more color on any offsets you have to mitigate the impact on margins? I think you've touched on this. And then in terms of marketing spend levels, Tracy, I think you just mentioned that you expect spending levels to be lower in your spending levels moving forward as I think about your ability to continue to hold on to some of these share gains since 2022?

Speaker 4

Thank you.

Speaker 3

Good morning, Bonnie. Yes, 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 and as well as mix.

Speaker 3

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 inflation is we do have material conversion costs, which generally are linked to inflation indices and they do seem to lag. In addition, we've spoken about our hedging program. Generally, our hedges are longer term.

Speaker 3

So anything up to 3 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 inflation increases that we've seen, we have got cost savings and 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.

Speaker 3

So that's certainly going to help margins. Even that does have a volume leverage impact, it does take a lot of complexity out of our breweries, especially during the peak summer seasons where we need the capacity. And taking out some of that volume will not only just impact efficiencies, but can lead to reduced waste. So that will drive our COGS down as well. In terms of the marketing, so we do expect our MG and A to be lower in the back half of the year versus the first half of the year.

Speaker 3

And if you recall in the second half of twenty twenty three, we think an incremental $100,000,000 in Now typically we spend 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 pullback on marketing. We'll continue to invest behind our brands and make sure that we've got the right fuel to drive the momentum.

Speaker 3

Thanks, Bonnie.

Operator

The next question comes from Andrea Teixeira with JPMorgan. Andrea, please go ahead.

Speaker 5

Hey, good morning. This is Drew Levine on for Andrea. Thank you for taking our questions. So Gavin, you talked previously about April May being relatively soft for the beer industry. Can you just talk maybe on the monthly progression on brand volumes in the U.

Speaker 5

S. Through the quarter? Did you see improvement in June? And perhaps how performance has been in July? It seems like it's been a little choppy, but the weather has been a bit better.

Speaker 5

And in that context, how you're thinking about the industry performance for the rest of the year? And then just secondly, maybe Tracy, on the brand volume performance for the U. S. Mid quarter, any way to contextualize the holiday load and timing impact? Thank you.

Speaker 2

Thanks, June. Good morning. Thanks for the question. Look, there obviously, as you rightly say, there was a fair amount of noise in the Q2. There was holiday timing, a bit of turbulent weather in the first part.

Speaker 2

So certainly April May were tougher and we did see some improvement in June. Collectively, when you look at the Q2 in totality, particularly if you adjust out for the timing of 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 pack 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.

Speaker 2

But certainly Q2 is continuation of what we've been seeing for a while. Tracy, the second part of the question?

Speaker 3

Yes. I mean, just in terms of contextualizing. So, if we exclude our contracts brewing volumes, we deliberately shipped ahead of demand in the first half of the year. So that was about 1,100,000 hectoliters that we ship to hit a demand. And if you compare that to the first half of twenty twenty three, we actually shift behind our demand by about 400,000 hectoliters.

Speaker 3

So that just gives you some context in terms of our domestic shipments. And then if we add the PEPs shipments in the so we had approximately 2,000,000 hectoliters this year of PEPs coming out of our system. We have about 1,000,000 hectoliters remaining for the back half of the year, most of that coming out of Q3.

Speaker 2

Thanks, Drew.

Operator

Our next question comes from Bill Kirk with Roth Capital Partners. Bill, please go ahead.

Speaker 6

Hi. I wanted to ask about on premise strategy, in particular kegs and draft within that strategy. So how have the 2 channels differed for you in the U. S. On premise versus off premise?

Speaker 6

And what is your the role of kegs in on premise strategy? It seems like a lot of the vertical prefers cases over kegs when dealing with the on premise. So curious what your draft strategy is going forward?

Speaker 2

Thanks, Paul. Good morning to you. Look, I mean, from our perspective, the data that we see from internal estimates, the on premise in the U. S, which I assume your question is directed at, is performing slightly better than the off premise in the quarter. And given how important it is to building brands, it's an area we focus on meaningfully, right, whether it's our core brands of Miller Lite and Coors Light or whether it's Blue Moon, right.

Speaker 2

And KEGS is an important part of that strategy. Now where changes occur on premise, sometimes it's between KEGS 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, Bill.

Operator

The next question comes from Rob Ottenstein with Evercore. Rob, please go ahead.

Speaker 7

Hey, Gavin. You guys have done a really nice job, obviously, with Banquet and Coors Light and Miller Lite. But I think probably you're a bit disappointed with Blue Moon, Peroni and some of those above premium initiatives. Can you talk to us maybe a little bit about what's working, what's not working in terms of driving the high end of the business and maybe what you might do differently going forward to rebalance the portfolio for growth going forward? Thanks.

Speaker 2

Thanks, Robert, and good morning to you. And yes, I'll take the compliments 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 U. S.

Speaker 2

I would say that our premiumization progress outside of the U. S. 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 premiums as well.

Speaker 2

But you're right, we've got work to do in the U. S. 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.

Speaker 2

It's why we've got a new campaign. We've got new innovation there with Blue Moon Non Elk 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 ALK as well. So, completely committed to reinvigorating this brand and we think the changes that we've made in the 1st part of this year are really important step in that direction. As far as Peroni is concerned, I mean, we believe that Peroni could be a big brand. And we've obviously made some changes to that, which we've made very clear about, right, as we are shifting to domestic production of Peroni in the that does three things for us.

Speaker 2

The biggest challenge that we've had with Peroni has been consistent supply. And by 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 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 different pack formats that we have available in the U. S, which we haven't had with Peyronie and that's going to allow us to much better compete in the U.

Speaker 2

S. 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. Its awareness is still fairly low and its distribution is low.

Speaker 2

So I like our plan. We've started it. It's just kicked off and our expectations for Poroni are high. Thanks for that, Robert.

Operator

Our next question comes from Chris Carey with Wells Fargo. Please go ahead.

Speaker 6

Hi, good morning everyone. Gavin, you had spoken to trends, just kind of tracking your expectations at the overall category level or something of the sort. And I wonder as the world as Wall Street is a bit more concerned about the consumer, are you starting to see any sequential changes in the consumer appetite for your categories? Does that help or hurt your business on a relative basis? And I wonder if you could just comment on perhaps what you're seeing in July when it comes to overall consumer engagement with the category of your brands.

Speaker 6

So thanks for any perspective there.

Speaker 2

Thanks, Chris. Look, I mean, from an industry point of view, I won't rehash my remarks on the Q2 other than 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.

Speaker 2

The the reduction in CPI, it's putting less pressure on the consumers 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. 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.

Speaker 2

But the economy certainly is improving with inflation slowing down and wages continuing to rise. So we'll watch carefully how that translates into consumer demand. In Canada, the industry is performing fairly similarly to the U. S, right. Overall consumer spending was a little lower in the second quarter.

Speaker 2

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 U.

Speaker 2

S, 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. We've kind of noted that trend before. I think as to address your July question, I think as I said, if the Q2 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 and then we'll have a good idea whether it's a continuation of the trend we've been experiencing or not.

Operator

Our next question comes from Robert Moskow with TD Cowen. Please go ahead.

Speaker 8

Hi, good morning. This is Victor Ma on for Rob Moscone. Thanks for the question. So 4.1% price mix in Americas seems kind of high. Can you maybe help to mention how much of that was from pricing?

Speaker 8

How much from organic positive mix and how much from mix benefits from PAPS? And can you also maybe comment on how prepared the company is for us in an area where you do have like a slight recession in the U. S. And just the resiliency of the beer category within total alcohol? Thanks.

Speaker 2

Thanks, Victor, and good morning to you. Look, from a pricing point of view, assume your question is directed at the U. S. Our net pricing increased comprised little over half of the increase with the balance coming from mix, whether that was brand pack mix or perhaps coming out. So, sorry, my comment on net pricing was for the consolidated consolidated results.

Speaker 2

It pretty much holds true for our Americas as well. Net price was a little over half of the gain with the RECs coming from mixed benefits either from a PEPs point of view or a brand PEP point of view. Thanks, Victor.

Operator

Our next question comes from Brian Spillane with Bank of America. Please go ahead, Brian.

Speaker 7

Hi, thanks, operator. Good morning, Gavin. Good morning, Tracy. Hi, Brian. I have a question.

Speaker 7

My question is related to the U. S, Gavin. And I guess kind of 2 fold. One is, at the start of this year, there was a lot of anticipation around shelf sets and more shelf space gains. And so if you can kind of give us a little bit of insight in terms of how that's turned out?

Speaker 7

Has it helped, I guess, in terms of market share? And are you do you think that the space you've gained can be held? And then if I could just squeeze also into that, as you kind of look at the depletion in the U. S. For the first half, Is it more or less in line with your expectations?

Speaker 7

I guess I understand that the share market share for certain seems like it is, but just kind of curious if just in overall volume, if that's come in relative

Speaker 6

to what you were expecting at the start of the year?

Speaker 2

Thanks, Brian. 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 middle light, Coors Light imports. We're certainly the biggest winners as far as the space allocation point of view. And I guess craft and Seltzer continued I guess to feel the biggest pinch in space.

Speaker 2

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 high 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 when 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.

Speaker 2

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 gained against the frankly the toughest comps we're going to experience the whole year, Brian. I mean, as you remember, the Q2 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.

Speaker 2

And so again, our expectation from a shelf space point of view is retailers will go back to that tweaking and minor adjustments 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, it's how we plan shipments, right, as we were aware that we could have potential work stoppage at our Fort Worth Brewery. We wanted to make sure that we could meet the higher share levels which we'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.

Speaker 2

So that was planned this cycle, different to 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 of stock being very, very low and 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's obviously reflected in the fact that we ended up as the number one supplier on the Tamarind 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.

Speaker 2

So, yes, thanks, Brian.

Operator

The next question comes from Peter Grom with UBS. Please go ahead, Peter.

Speaker 9

Hey, good morning, everyone. This is actually Brian on for Peter Grom. Thanks for taking the question. Hey, can you guys hear me?

Speaker 2

Hi, Brian. Yes, we can hear you loud and clear. Thanks.

Speaker 9

Hey, guys. Sorry about that. Just two quick housekeeping questions for me. First one, I actually wanted to follow-up on Victor's question. Not trying to get too into the weeds on the price mix piece, but in the Americas that 4.1% being roughly split between rate pricing and mix, Is it fair to think that this contribution should be largely similar looking into 3Q and into the back half, particularly as it seems like you've got even more contract brewing volume coming out in 3Q?

Speaker 9

And then just quickly on volumes in the Americas, it sounds like the gap between financial volume and brand volume is wider in 3Q versus 4Q. Just wanted to make sure that I'm thinking about that right. Thanks guys.

Speaker 2

Thanks, Brian. Tracey, Nick wouldn't mind taking the second part of the question. The first part, look, I mean, from a pricing point of view, Brian, 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% increase 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.

Speaker 2

I mean, we do have a lot more perhaps volume to come out, which will be mix favorable. So I'm 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 PAPS point of view and from a frontline pricing point of view. Pryce, I think the other question was shipments?

Speaker 3

Yes, from a financial for your financial volume point of view, so as I said, we shipped ahead of demand at about 1,100,000 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 perhaps exit point of view, again, about another 1000000 hectoliters of PEPs volume remaining and we expect over half of that to reverse or exit in the Q3 of the back half.

Speaker 2

So to summarize, Brian, yes, most of that will take place in Q3.

Operator

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

Speaker 10

Thank you. Good morning. Two quick ones. Just a follow-up on the shelf reset question. I know some of the consumer pack shifts that we've seen is a little bit more recent and perhaps difficult to have been planning for.

Speaker 10

But in the resets, were you able to tweak the sets at all to adjust for how consumers are going to more single cans or bigger packs? And is it potentially a better set given that you had some chance to reshuffle there a little bit? And then just second on the Romanian, the new brand launch there, maybe what was some of the thinking of a brand new brand? Obviously, you saw Madrid go really well when that's new to the world as well. Was that some of the, I guess, inspiration?

Speaker 10

Or was it just that there wasn't something else in the portfolio that fit what you were trying to do? Just how do you think about that launch there?

Speaker 2

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 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 in store.

Speaker 2

I think you're referencing Kariman 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 it 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.

Speaker 2

So a 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 meaningful volume in a market that size.

Operator

Our next question comes from Lauren Lieberman with Barclays. Lauren, please go ahead.

Speaker 11

Great. Thanks. Good morning. It's hard to maybe try to get it this a different way in terms of the industry backdrop in the U. S.

Speaker 11

Because I understand you said it pretty clearly all year, intentional over ship and make sure you weren't in an out of supply situation and so on. But the data that we all receive shows and this is like NielsenSarcana, right, shows industry volume down about 3% year to date. So I know that's not inclusive. That's not the full market. So I was curious maybe what your read is on industry volume in the U.

Speaker 11

S. Year to date and how you're thinking about that for the full year? So it's kind of part 1. And the second is great to get also your read on that your full set of data in terms of the market share being down 50 basis points. I just wanted to confirm kind of expectation would still be to ground to sort of a second half of twenty twenty three type level for share and what you're able to retain, if that's still a good way of thinking about it?

Speaker 11

Thanks.

Speaker 2

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 cash share in the Q2 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 Q2 of 2022, our total portfolio is up over 1.7 points of volume share.

Speaker 2

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 inverted commerce easier from yogurt. The share came down and settled. And we've done that through the shelf resets, which I just spoke about.

Speaker 2

So increased distribution, we've got increased display, we've got increased feature, we've got really relevant marketing campaigns like our Miller Lite All Stars campaign that we've got our Coors Light League's Cup, 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 are what we believe, right, is that 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.

Speaker 2

We shipped what we wanted to ship in the first half so we didn't have any inventory challenges going forward.

Operator

Our next question comes from Eric Swartzbaugh with Morgan Stanley. Eric, please go ahead.

Speaker 12

Morning. Thanks for the question. First, maybe you could come back to Sheriff's throat. Spirits has obviously been struggling in the U. S.

Speaker 12

For over a year at this point. As you look forward and in light of the macro environment, how are you thinking about share of Do you think beer could continue to outperform spirits at least in the short term? And then maybe come back and talk a little bit about performance of your recent innovation from the past few years. It looks like simply slowed quite a bit from the earlier packages seem to be struggling a bit. That was a very nice contributor over the past few years.

Speaker 12

So how are you thinking about innovation contribution?

Speaker 2

Thanks for those questions, Eric. Taking your first one, look, I think beer in the classic sense of beer, it 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 suppliers put in. Then yes, total overall beer is gaining share against spirits.

Speaker 2

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 $100,000,000 from nothing in just 2 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, they do have a little bit of a treasure hunt mentality.

Speaker 2

So keeping innovation, flavor innovation in in particular, is really important to keep pace with this flavor consumer. And given that simply is in one out of every 2 households in the United States, our focus right now is continuing to drive trial because when consumers try this brand, they love it. And so trial is important, 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.

Speaker 2

If you look at the other innovation, I talked briefly about Kariman, 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.

Speaker 2

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 the 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, encouraged by the start. And then another brand that we've grown from nothing is ZOWA. Again, I think that ones we've had around for about 3 years.

Speaker 2

And obviously, this is a completely new space that we've got 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 channels and that's what we're going after.

Speaker 2

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. So thanks for that question, Eric.

Operator

Thank you. We have no further questions. And so this concludes our call. Thank you everyone for joining us today. You may now disconnect your lines.

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Earnings Conference Call
Molson Coors Beverage Q2 2024
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