Tracey Joubert
Chief Financial Officer at Molson Coors Beverage
Thank you, Gavin, and hello, everyone. As Gavin highlighted, while macro trends have been challenging, we had a strong first quarter, delivering double-digit top line and triple-digit underlying bottom line growth. We achieved our highest quarterly top line growth in over a decade, as we continue to premiumize our product portfolio through the execution of our revitalization plan.
While we, along with the rest of the world, are facing inflationary pressures, our efforts over the last two years have built a strong foundation for future growth and had given us confidence to reaffirm fiscal 2022 guidance for both top and bottom line growth.
Now I'll take you through our quarterly performance and our outlook. Consolidated net sales revenue increased 17.6%, with strong growth in both our EMEA and APAC and Americas business units. On-premise, net sales revenue has not yet returned to pre-pandemic levels in all markets. But as on-premise restrictions have eased, we have seen sequential improvement in the on-premise net sales revenue performance with variations by market.
Consolidated net sales revenue growth was driven by strong global net pricing, favorable sales mix from portfolio premiumization, positive channel mix as we cycled significant on-premise restrictions in the prior year period, and we also delivered higher financial volumes.
Consolidated financial volumes increased 5.1%, largely driven by strong brand volume growth in EMEA and APAC, higher contract and factored volumes and cycling of lower U.S. distributor inventory levels in the prior year. This was partially offset by a decline in Americas brand volumes, which was driven by lower U.S. economy brand volumes as a result of our economy SKUs deprioritization and rationalization program implemented in the second quarter of 2021.
Net sales per hectoliter on a brand volume basis increased 10.2% driven by global net pricing growth and positive brand and channel mix, with premiumization delivered across both business units. Net sales per hectoliter on a brand volume basis, which is an important metric from which to measure our progress against our revitalization plan, increased 12.2% compared to the first quarter of 2019.
Underlying COGS per hectoliter increased 8.6% driven by cost inflation, including higher input and transportation costs as well as the mix impact from premiumization and factor brands in Europe, partially offset by lower depreciation expense.
Underlying MG&A in the quarter increased 15.7%, largely due to our planned increases in marketing investment, which surpassed first quarter 2021 and 2019 levels to provide strong commercial support behind our core brands and new innovations. G&A was up due to higher people-related costs, including increased travel and entertainment.
As a result of these factors as well as lower interest and depreciation, underlying net income before income taxes increased 383.1%. Underlying free cash flow used was $359 million, an increase of cash used of $271 million in the same period last year. This increase in cash used was primarily due to higher capital project spending, partially offset by favorable timing and working capital.
Capital expenditures paid were $244 million and focused on expanding our production capacity and capabilities programs, such as our previously announced Golden Brewery modernization projects and expanding our hard seltzer capacity in Canada and the U.K.
Now let's look at our results for our business units. In Americas, the on-premise has not returned to pre-pandemic levels, but continues to improve on a sequential quarter basis. In the first quarter, the on-premise channel accounted for approximately 15% of our net sales revenue compared to approximately 18% in the same period in 2019.
In the U.S., on-premise net sales revenue was about 87% of 2019 levels. And in Canada, on-premise net sales revenue was about 55% of 2019 levels because, even though the on-premise restrictions continue to ease, they still impacted results.
Americas net sales revenue was up 8.5%, as net pricing growth across the business units and positive brand mix was partly offset by lower volumes. Americas financial volumes decreased 0.8%, largely due to 3.1% lower brand volume, partially offset by cycling lower U.S. distributor inventory levels due to the March 2021 cybersecurity incident and the February 2021 severe Texas storm.
In the U.S., net sales revenue grew 8.9%, with domestic shipments down 2%, outpacing brand volume declines of 4.3%. More than 100% of the U.S. brand volume declines were due to lower U.S. economy brand volume. In the U.S., our economy portfolio was down high teens, while our Above Premium portfolio was at the mid-teens for the quarter.
In Canada, net sales revenue increased 4.1%, as brand volume declines of 4.5% due to softer industry performance more than offset by positive pricing and mix premiumization. Latin America net sales revenue increased 29.7% on brand volume growth of 13.8%. Net sales per hectoliter on a brand volume basis increased 9.8%, with strong net pricing growth and favorable U.S. brand mix. U.S. net sales per hectoliter increased 11.1% driven by net pricing growth as we took pricing earlier than usual this year, and positive brand mix led by Above Premium innovation brands.
Net sales per hectoliter on a brand volume basis grew high single digits in Canada due to net pricing increases and positive sales mix, while Latin America increased low double digits due to favorable sales mix.
Americas COGS per hectoliter increased 6.7% due to inflation, including brewing and packaging materials and freight as well as mix impact from premiumization, partially offset by lower depreciation. Underlying MG&A increased 14.7%, as we increased marketing investments behind our core brands and innovations, including the national launch of Topo Chico Hard Seltzer as well as in local sponsorships and events, as pandemic-related restrictions eased versus the same period last year.
G&A was up as well due to increased people-related costs and legal and travel and entertainment expenses. Americas underlying net income before income taxes increased 9%.
Turning to EMEA and APAC. Net sales revenue grew 92.3% driven largely by Eastern Europe, but we also experienced growth in Central and Eastern Europe.
Top line performance also benefited from fewer on-premise restrictions in the U.K. compared to the full closure in the first quarter of 2021. The U.K. on-premise channel net sales revenue exceeded pre-pandemic levels in the quarter. EMEA and APAC net sales per hectoliter on a brand volume basis was up 30.1% driven by positive sales mix with the on-premise reopenings and Above Premium brands reaching another record high portion of the portfolio as well as net pricing growth. EMEA and APAC financial volume increased 29.4%, and brand volumes increased 19.8%. The increase was primarily due to higher U.K. volumes, partially offset by declines in Central Europe and our export and license division.
Strength in our core brands, like Carling and new innovations like Madri, led to strong double-digit growth in Above Premium and premium volumes, partially offset by double-digit declines in the economy.
COGS per hectoliter increased 29.3% due to rising inflationary pressures and increased factored brand sales. MG&A increased 19.4% as we cycled mitigation efforts to lower cost in the prior year, with on-premise restrictions and higher marketing investments to support our brands and fuel on-premise strength. EMEA and APAC underlying net loss before income tax improved 62.1%.
We ended the quarter with net debt of $6.9 billion and a trailing 12-month net debt to underlying EBITDA ratio of 3.28 times compared to 3.14 times as of the end of 2021. With the first quarter typically being a cash use quarter, this leverage ratio was up from the fourth quarter, which is typical between fourth and first quarters. Still, our leverage ratio remains substantially below the end of the first quarter of 2021 when it was 3.74 times.
We ended the quarter with $160 million of commercial paper outstanding, leaving us with strong borrowing capacity, with $1.34 billion available on our $1.5 billion U.S. revolving credit facility.
Now let's discuss our outlook. We are reaffirming our fiscal 2022 guidance, which calls for both top and bottom line growth in 2022, performance we have not seen in over a decade. Before we go through the guidance, I wanted to note that year-over-year growth rates are on a constant currency basis. Also if on-premise restrictions are increased and/or reinstated in some of our larger markets, this could have a significant impact on our financial performance during that period.
Additional risk factors include the impact of rising global inflation beyond that currently anticipated and a prolonged strike at our brewery near Montreal.
For 2022, we continue to expect to deliver mid-single-digit net sales revenue growth, high single-digit underlying income before income taxes growth and underlying free cash flow of $1 billion, plus or minus 10%.
We expect to continue to be impacted by inflationary pressures in areas, including materials and transportation costs, and expect those pressures to increase for the balance of the year. However, we intend to judiciously pull our multiple levers to help mitigate the impact.
As discussed on our fourth quarter call, we announced a 3% to 5% price increase early in 2022, which in the U.S. we took earlier than typical. Also we have other levers to help offset inflation, including mix from premiumization and our cost savings and hedging programs.
In these unusually challenging times, we want to provide a bit more color on our quarterly outlook for the rest of the year. As Gavin mentioned, we have several headwinds and tailwinds that will impact our quarterly earnings phasing. As a result, we expect our second quarter underlying income before income taxes to be down between approximately 20% and 50% from the prior year period.
We expect stronger relative year-over-year performance in the second half of the year, enabling us to reach our full year guidance.
Now let me walk through those drivers. First, we are planning a double-digit increase in our year-over-year marketing spend in the second quarter, putting marketing investments to well above 2021 levels. Recall, in the second quarter of last year, we had lower relative spending when our Inventories were low due to the first quarter 2021 cybersecurity incident and severe Texas storm, and we were still experiencing on-premise restrictions across all of our major geographies. We did not begin our spending until the second half of last year, investing above 2019 levels.
Second, our inventory position in the U.S. heading into peak summer season is the best it's been since before the pandemic. And last year, at this time, it was the lowest it has been in years. While the fact that we won't be playing catch-up this year is taking a very positive development, it also means we don't expect our U.S. STWs to be as high as they were in the second quarter last year.
Third, our ongoing strike at the Longueuil brewery and distribution centers or Montreal will have an impact on our second quarter results. And fourth, year-over-year top line comparisons will begin to get more difficult in the second quarter relative to the first quarter comparisons, particularly in the U.K., where the on-premise began to reopen in April 2021 with pent-up demand. However, these comparisons should ease in the fourth quarter given the renewed on-premise restrictions in the fourth quarter of 2021, particularly in the U.K. and Canada.
In terms of our other guidance metrics, we continue to expect underlying depreciation and amortization of approximately $750 million, plus or minus 5% reported, net interest expense of $265 million, plus or minus 5% and an underlying effective tax rate in the range of 22% to 24%.
Turning to capital allocation. Our priorities remain to invest in our business to drive top line growth and efficiencies, reduce net debt and to return cash to shareholders. We are maintaining our target net debt to underlying EBITDA ratio of below 3 times by the end of 2022, as we had a strong desire to maintain and, in time, upgrade our investment grade rating.
We repaid our $500 million 3.5% U.S. D note upon its maturity on May 1, 2022, using a combination of commercial paper borrowings and cash on hand. Also during the first quarter, we paid approximately $14 million for 280,000 shares under our share repurchase program, which was approved by the Board of Directors on February 17, 2022.
As a reminder, this share repurchase program authorized the company to purchase up to an aggregate of $200 million of our Class B common stock through March 31, 2026, with repurchases primarily intended to offset annual employee equity award grants.
In closing, we remain confident in our strategy and pleased with our progress. These are dynamic and uncertain times, but what's clear is that we have built our business to manage through challenging times. Our demonstrated operational agility through the pandemic, our dramatic improvements to our financial flexibility, our successful cost savings program that has served to fuel targeted investments to support our core brands and key innovations have all further strengthened our business as we continue to drive toward our goal of sustainable long-term top and bottom line growth.
And with that, we look forward to answering your questions. Operator?
