Molson Coors Beverage Company

Good day, everyone, and welcome to the Molson & Kors Beverage Company second quarter 2020 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one on your touch-tone telephone. To draw your questions, you may press star and two. Participants can find related slides on the investor relations page of the Molson Coors website. Our speakers today are Gavin Hattersley, President and Chief Executive Officer, and Tracy Joubert, Chief Financial Officer. Please also note today's event is being recorded. With that, I'll turn today's call over to Greg Tierney, Vice President of FP&A and Investor Relations. Please go ahead.

Thank you, Jamie. And hello, everyone. Following prepared remarks from Gavin and Tracy, we will take your questions. Please limit yourself to one question. And if you have more than one question, please ask your most pressing question first, and then re-enter the queue to follow up. To the extent you have technical questions on the quarter, we ask that you pick them up with me in the days and weeks that follow. And today's discussion includes forward-looking statements within the meaning of applicable securities laws. Important factors that could cause actual results to differ materially from the expectations and projections contained in such statements are disclosed in the company's filings with the CDC. The company does not undertake to update forward-looking statements, whether as a result of new information, future events, or otherwise. Gap reconciliations for any non-US gap measures are included in our news release or otherwise available on the company's website at www.molsoncoors.com. And also, unless otherwise indicated, all financial results the company discusses are versus the comparable prior year period and in U.S. dollars. With that, over to you, Gavin.

Thanks, Craig. Good morning, and thank you, everybody, for joining us today. We had a strong second quarter, as is evidenced by the results we released this morning, executing well against our two main objectives as the world continues to adjust to the ongoing coronavirus pandemic. But before we talk about our second quarter performance, I would like to address the challenge of systemic racism. Racism is not a new issue, and I'm not naive enough to believe that our business alone can solve a problem that has plagued the United States and many parts of the world for so long. But I do believe we have the opportunity and the responsibility to try and be part of the solution. And that is why we've been unequivocal that we believe Black Lives Matter. And that's why we are backing up our words with action. We developed a new action plan designed to build a more inclusive culture and increase diversity within Molson Queers. Our intent is to conduct a cultural assessment of our practices and policies to guide further future improvement across all of our business units. increase the representation of people of color in our U.S. operation by 25% by the end of 2023, cross the country among salaried employees and also in leadership positions, improve our hiring practices and leadership development programs to bring in highly skilled diverse talent and develop our future leaders, and much more. We've already committed to donate $1.5 million to 23 local and national organizations dedicated to equality, empowerment, justice, and community building, engaging our own employee resource groups in the process of selecting which groups to support. This is only a start. It cannot be a moment in time that passes by soon to be forgotten. We are committed to meaningful long-term change inside and outside our business. Our efforts to leave a positive imprint don't end there. Two weeks ago we released our annual sustainability report in which we announced progress against our 2025 sustainability goals. Highlights from the report include further reductions in emissions, the fact that more than 99% of our packaging is now considered reusable, recyclable, or compostable, and an increase in the number of our zero-waste landfill facilities. Addressing racism and protecting the environment are not societal issues to be addressed by someone else. It's on us to help build a better future. and doing so is good for our business and the communities in which we operate. The data is very clear. Fostering a more diverse and inclusive environment and exhibiting social responsibility increases employee engagement, which leads to more discretionary effort and stronger performance, which leads to better business outcomes. The actions we are taking will help our business compete and win in the future and build on the progress we are making today. as is evidenced by our strong second quarter results. Last quarter we told you that our overarching focus as the whole world deals with the coronavirus pandemic was centered on two objectives, navigating the short-term to protect our employees and to mitigate the short-term business challenges of the coronavirus, and secondly, positioning our business for long-term success. And that's just what we've done. Through sound management and incredible work by our teams, we had a strong second quarter executing well against these two objectives and beating expectations for both top and bottom line performance in Q2. We did it while delivering an improved cash position and preserving the biggest firepower in our marketing budgets so they can be ramped up in the back half of the year when we expect they will be most effective. We have also benefited from the fact that our business is not as exposed to challenging markets as many of our competitors. such as the continued problems facing suppliers with much more sizable operations in places like South Africa and Mexico. At the end of Q2, the benefits of our work to navigate the short-term impacts of the coronavirus are clear. Coors Light achieved its highest segment share ever in the United States. Let me repeat that. Coors Light achieved its highest segment share ever in the U.S. Blue Moon Light Sky became the top-selling new beer of 2020 per Nielsen and it now ranks amongst the top three growth brands in the entire craft segment, also per Nielsen, behind Blue Moon Belgian White. Fizzy has already made a name for itself in the increasingly crowded U.S. hard seltzer market. Despite not launching nationally until April, it is already the number three seltzer in a number of markets and is beating Bud Light Seltzer in repeat purchase rates. Our Trust Canada joint venture shipped its first products, and we are very encouraged by the consumer reception. And in the U.S., our new joint venture, Trust USA, is already piloting opportunities for non-alcohol hemp-derived CBD beverages in Colorado. We have driven progress in Canada through growth in craft in the off-premise, leveraging the North American innovation Belgian Moon Light Sky, as well as growth in local craft brands in Canada, such as Cremor and BDM. Our Canadian innovation portfolio is also off to a strong start with Aquarelle, a line of vodka-based canned drinks, Arizona hard green tea, and Vine, a non-alcoholic hop water. We became an early entrance in the European hard seltzer space by signing an exclusive agreement with British hard seltzer maker Bodega Bay, and we're extending beyond our beer portfolio after signing with Miami Cocktail Company to distribute their growing brands in the United Kingdom and Ireland. And last but certainly not least, we strengthened our financial position. We renegotiated our bank covenants to help ease potential short-term liquidity constraints. And we suspended our dividend payable for the balance of the 2020 fiscal year, a decision that we believe will put us in a stronger cash and leverage position during the pandemic. In light of these steps, we were pleased that Moody's affirmed our credit rating and kept our outlook stable. Don't get me wrong, it wasn't easy, but we were able to deliver this strong quarter despite the challenges facing our world and our industry today. Tourism in Europe has dropped dramatically, and pubs in the UK were closed through the end of Q2 as a result of the pandemic. Some of our Latin American markets were shut down completely or partially for much of the quarter, and while a number of establishments were allowed to reopen, typically in phases, some of these were quickly closed down again in the United States. Consumer demand has shifted in ways no one could have foreseen six months ago. When bars and restaurants were shuttered in the early parts of Q2, demand for kegs in the U.S. went to zero, and conversely, demand for cans went through the roof. Every company that makes anything in a 12-ounce can has been challenged to some degree by the global can shortage. For example, Coke and Pepsi have acknowledged challenges, and Borg Corporation announced new plans to increase production capacity on cans. At Molson Coors, we have been producing and shipping canned beer at significantly higher rates than in recent years, though it hasn't been enough to meet the historically high orders we're seeing. To put a finer point in the level of demand we're seeing, we eclipsed July 4th week shipment days in the United States four times already this year. That's unheard of. You'll remember on our Q1 call, I said constraints on cans and paperboard would be a challenge this summer in North America. All along, we've been working with our distributors in North America to try to manage it. We've been getting as many cans as possible from our suppliers who have been tremendous partners for us, and we've worked to source more cans from countries around the world. At this point, we remain tight on the Coors Light tall can, but are seeing the situation begin to improve with respect to 12-ounce industry standard cans. We are also making progress in securing more paperboard as our suppliers recently added to their production capacity but they are still catching up on some SKUs. Despite all of these obstacles, we continue to navigate the coronavirus effectively today while simultaneously working to position our business to succeed in the long term. There is no better example than our new investment, which is intended to quintuple our U.S. seltzer production capacity. Building on the strength of Visi's launch and the upcoming launch of Coors Seltzer, we announced a multi-million dollar project with our Fort Worth, Texas brewery includes the installation of a new canning line completed earlier this year and a state-of-the-art filtration system expected to be finished later this fall. As I mentioned before, our brands will have additional marketing support in the months ahead. We preserved our marketing firepower for a time when we expected it would have the most impact. Bars and restaurants are starting to come back, admittedly in fits and starts, and we expect to increase investment. We completed our acquisition of Atwater Brewing, a craft brewer that gives us a foothold in the eastern parts of the Midwest and one that produces craft seltzers and beverages that extend beyond the beer aisle. We're excited about our new partner and their offerings. And speaking of partnerships, we recently announced we will be an official partner of the new Las Vegas Raiders football team with the official domestic beer, the official craft beer, and the official hard seltzer. one way that we continue to invest behind our brands even in some challenging times. And for those of you that are excited that baseball season is underway, I'd remind you that with our new and extended partnerships, we entered the 2020 with partnerships with 50% of all MLB teams. We are pleased with how we have managed the short term and are confident in our plans to position the business for the long term. Even in the midst of such uncertainty brought on by the coronavirus pandemic, based on what we have seen and what we have done, we intend to maintain the strength of our iconic brands, grow our above premium business and expand beyond the bureau. And now I'll pass it over to Tracey for the financial highlights.