Tracey Joubert
Chief Financial Officer at Molson Coors Beverage
Thank you, Gavin, and hello, everyone. As Gavin mentioned, we are again reaffirming our key financial annual guidance for 2021. We continue to make real progress executing our revitalization plan. We invested behind our business, driving premiumization of our portfolio of our brands and strengthening our core business while continuing to delever our balance sheet and to reinstate the dividend.
But like most consumer product companies, we face supply chain challenges and inflationary cost headwinds in the quarter, which had an impact on our quarterly results. Now let me take you through our quarterly results in more detail and provide an update on our outlook. Consolidated net sales revenue increased 1% in constant currency, delivering over 99% of third quarter 2019 level despite the on-premise continuing to operate below pre-pandemic levels.
Consolidated financial volumes declined 3.9%, primarily due to lower brand volumes, which were down 3.6%, largely due to the economy segment, including the economy SKU deprioritization program. Top line performance benefited from strong global net pricing, favorable brand mix levels in North America as we continue to premiumize our portfolio, double-digit revenue growth in Europe and positive channel mix. Net sales per hectoliter on a brand volume basis increased 3.6% in constant currency, driven by the strong pricing growth, coupled with positive brand and channel mix.
Underlying COGS per hectoliter increased 8.9% on a constant currency basis, driven by cost inflation, including higher transportation and input costs, mix impact from premiumization and volume deleverage. However, with our robust hedging and cost savings programs, we have been able to mitigate some of the inflationary pressure. Underlying MG&A in the quarter increased 3.5% on a constant currency basis due to higher marketing investment behind our core brands and innovation as well as parking targeted reductions to marketing spend in the prior year period due to the pandemic, which was largely offset by lower G&A expenses.
As planned, we increased marketing investments in the quarter to levels above second quarter 2021 and third quarter 2019 levels, ensuring strong commercial pressure behind our key innovations and core brands. As a result of these factors, underlying EBITDA decreased 10.9% on a constant currency basis. Our effective tax rate in the quarter was significantly impacted by a discrete tax item. You may recall in the second quarter of last year following the issuance of certain U.S. tax regulations, we recognized a material discrete tax expense of $135 million.
It was related to previously taken tax positions over several years. In the third quarter of this year, we reached a settlement with the tax authorities with regard to our tax positions impacted by those tax regulations. As a result of the settlement, we had a release of unrecognized tax benefit positions in the quarter that resulted in a P&L tax benefit of $68 million, including a $49 million discrete tax benefit in the third quarter. Underlying free cash flow was $933 million for the first nine months of the year, a decrease in cash received of $227 million, from the prior year period.
This decrease was primarily driven by the repayment of taxes related to various government-sponsored deferral programs related to the pandemic. As a reminder, in 2020, working capital was positively impacted by over $200 million for benefits related to these government tax deferral program. Capital expenditures paid was $363 million for the first nine months of the year as we continue to invest behind capability programs such as our previously announced Golden Brewery modernization project and our new Montreal brewery expected to open by year-end.
Capital expenditure levels were relatively consistent with the comparable period in the prior year. Now let's look at our results of our business units. In North America, the on-premise has not returned to pre-pandemic levels, but continued to improve on a sequential quarter basis. In the third quarter, the on-premise channel accounted for approximately 14% of our net sales revenue in the quarter, compared to approximately 12% in the second quarter of 2021 and 16% in the same period in 2019.
In the U.S., the on-premise accounted for about 88% of 2019 net sales revenue in the quarter. In Canada, restrictions continue to ease throughout the quarter with the on-premise net sales rising to 80% of 2019 levels in the third quarter, up from about 25% in the second quarter. North America net sales revenue was down 2.1% in constant currency as net pricing growth and positive brand mix were more than offset by lower volume. North America financial volumes decreased 4.8%, largely due to lower brand volumes of 3.8%, driven by the U.S.
In the U.S. domestic shipment volumes decreased 6.6%, trailing brand volume declines of 5.2%, driven by unfavorable shipment timing and declines in the deprioritized economy segment. Economy was down double digits as we deprioritize and announced the rationalization of approximately 100 non-core SKUs, which were primarily in the economy segment. Conversely, our U.S. above premium portfolio was up high single digits.
Canada brand volumes improved 0.5% in the quarter, and Latin America brand volumes continued their strong performance and experienced 9% growth, reflecting the easing of on-premise restrictions. Net sales per hectoliter on a brand volume basis increased 2.4% in constant currency with net pricing growth and favorable brand mix, partially offset by unfavorable geographic mix given the growing license volume in Latin America. U.S. net sales per hectoliter increased 3.2%, driven by net pricing growth and positive brand mix, led by best premium innovation brands, including Vizzy, Topo Chico Hard Seltzer and Zoa.
Net sales per hectoliter on a brand volume basis grew in Canada due to positive brand and channel mix as well as net pricing increases while Latin America also increased due to favorable sales mix. Underlying cost per hectoliter increased 7.3%, driven by inflation, including higher transportation and packaging materials and brewery costs, volume deleverage and mix impact from premiumization.
Underlying MG&A decreased 1% as higher marketing investments were offset by lower G&A due to lower incentive compensation expense and the recognition of the Yuengling Company joint venture equity income. We increased marketing investments behind our innovation brands and our iconic core brands, Coors Light and Miller Lite, including an increase in local tactical spend as on-premise restrictions eased throughout the quarter.
As planned, we increased U.S. marketing investment compared to not only the same period in 2020, but also versus 2019. North America underlying EBITDA decreased 14.3% in constant currency. Europe net sales revenue was up 14.7% in constant currency, with an 11% increase in net sales per hectoliter on a brand volume basis driven by positive brand, channel, geographic and packaging mix and positive net pricing. Top line performance also benefited from the on-premise reopening in the U.K. on July 19.
And of note, in the third quarter of 2020, the on-premise have fewer restrictions than in the second and fourth quarters of that year. The U.K. on-premise channel net sales revenue reached similar levels of pre-pandemic levels in the quarter. Europe financial volumes decreased 2% and brand volumes decreased 3%. The decline was primarily due to lower Central and Eastern European volumes driven by increased on-premise restrictions related to the coronavirus and the disposal of our India business in the first quarter of 2021.
This was partially offset by growth in the above premium brand volumes, which reached another record high portion of our Europe portfolio. Underlying EBITDA increased 2.7% in constant currency as revenue growth was partially offset by higher marketing investments. Turning to the balance sheet. As of September 30, 2021, we had lowered our net debt to underlying EBITDA ratio to 3.3 times and reduced our net debt to $6.6 billion, down from 3.5 times and $7.5 billion, respectively, as of December 31, 2020.
On July 15, we announced that we had repaid in full the $1 billion, 2.1 senior notes that are maturing that day using a combination of commercial paper and cash on hand. We ended the third quarter with strong borrowing capacity with approximately $1.5 billion available capacity under our U.S. credit facility. Now turning to our financial outlook. We are again reaffirming our 2021 key financial annual guidance originally provided on February 11, 2021.
While we are sitting in a better place than we were a year ago, it bears reminding that uncertainty pertains to the coronavirus and its variants remains severely decreased by market. If restrictions are reinstated in some of our larger markets, this could have a significant impact on our financial performance over the next few months. Now I'll provide some underlying expectations to provide some additional context for the balance of the year.
We expect to deliver mid-single-digit net sales revenue growth for the full year on a constant currency basis. We continue to work to build inventories with wholesalers, which have been at low levels. And as Gavin mentioned, we are making progress. In the U.S., we expect on-premise trends to continue to improve as we lack restrictions in the prior year period. In Canada, we continue to see greater on-premise reopenings bearing by COVID, which should continue to provide positive channel mix.
In Europe, the U.K. top line should strongly benefit from the prior year fourth quarter, given the on-premise was fully locked down for November and December of 2020, which are typically strong months given the holidays. Our guidance also anticipates continued strength in our both premium portfolio, particularly hard seltzers, innovations and imports.
Also, we expect continued solid progress against our previously discussed emerging gross revenue goal of $1 billion in annual revenue by 2023, against which we continue to track ahead of plan driven by Zoa, La Colombe and Latin America. We continue to anticipate underlying EBITDA to be roughly flat compared to 2020 as top line growth is expected to be offset by continued cost inflationary headwinds largely transportation and packaging materials, including aluminum and the Midwest premium and increased marketing investments to deliver against our revitalization plan.
Under the revitalization plan, 2021 has been a year of investment for the company, and we intend to continue to increase marketing investments to build on the strength of our core brands and support successful innovation. As Gavin mentioned, we expect fourth quarter marketing investment to be higher than the fourth quarter of 2019, as we continue to ramp up supply and put commercial pressure to support our big bet brands in both North America and Europe.
We continue to anticipate underlying depreciation and amortization of $800 million, and net interest expense of $270 million, plus or minus 5%. However, due solely to the discrete tax benefit in the third quarter, we have adjusted our effective tax rate range for 2021 only to 13% to 15% from 20% to 23% previously. Also, as a reminder, in 2020, our working capital benefited from the deferral of approximately $130 million in tax payments from various government-sponsored payment deferral programs related to the coronavirus pandemic.
We currently anticipate the majority to be paid this year as they become due. Moving to capital allocation. We continue to prioritize investing in our business to drive top line growth and efficiencies, reducing debt and returning cash to shareholders. First, we plan to continue to prudently invest in brewery modernization and production capacity and capabilities to support new innovations and growth initiatives, improve efficiencies and advance towards our sustainability goals.
Second, we have a strong desire to maintain and, in time, upgrade our investment grade rating. As such, we expect to continue to improve our net debt position and reaffirm our target net debt to underlying EBITDA ratio to be approximately 3.25 times by the end of 2021, and below three times by the end of 2022. And third, on July 15, our Board of Directors determined to reinstate a quarterly dividend on our Class A and Class B common shares and declared a quarterly dividend of $0.34 per share payable on September 17.
The Board made the decision to reinstate the dividend at a level that they believe is sustainable and provides room for future increases as business performance improved. In closing, to be sure we have faced challenges in the quarter, but are proud of our agility and the actions we have taken to manage through them. Through it all, we have continued to successfully execute against our revitalization plan with clear premiumization of our portfolio.
And despite all the ups and downs throughout this year, we have reaffirmed our key financial annual guidance yet again. Like most consumer product companies, we face near-term challenges, but the fundamentals of our business remains strong, and we are confident we are on the right path toward long-term sustainable revenue and underlying EBITDA growth.
So with that, we look forward to taking your questions. Operator?
