Molson Coors Beverage Company

Good day and welcome to the Molson Coors Beverage Company in second quarter fiscal year 2021 earnings conference call. You 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 Gilbert, Chief Financial Officer. With that, I'll hand it over to Greg Tierney, Vice President of FP&A and Investor Relations.

Thank you, Operator, 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 the most pressing question first and then re-enter the queue for follow-up. If you have technical questions on the quarter, please pick them up with our IR team in the days and weeks to follow. Today's discussion includes forward-looking statements, and 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. Gap reconciliations for any non-U.S. gap measures are included in our news release. And also, unless otherwise indicated, all financial results the company discusses are versus the comparable prior year period, and in U.S. dollars. And with that, over to you, Gavin.

Thanks, Greg. Good morning, and thank you, everybody, for joining us today. Nearly two years ago, we laid out the Molson Coors Revitalization Plan, a multiyear strategy to deliver the sustainable top-line growth that has eluded our business for many years, while at the same time delivering sustainable bottom-line growth. Under the plan, we have streamlined the company on reinvesting those savings to build on the strength of our iconic core, aggressively grow our above-premium portfolio, expand beyond the beer aisle, enhance our capabilities, and support our people and communities. We had a few doubters then, and we had some unexpected challenges since, from a global pandemic to severe Texas winter storms to a cyber attack on our company. But nearly two years later, we can say to those doubters with confidence that Molson Coors is on the path to deliver sustainable top- and bottom-line growth. Our performance this quarter speaks for itself. I say that because for nearly two years, we've talked a lot about the outputs of our revitalization plan, new investments, new partnerships, new product launches, and new campaigns. But today, we're able to start talking meaningfully about outcomes from the revitalization plan. And that's an important shift. In the second quarter, despite ongoing pandemic restrictions, we delivered the most top-line growth of any quarter in over a decade. And we nearly achieved 2019 net sales revenue levels on a constant currency basis, despite those pandemic restrictions during this quarter. I'm incredibly pleased with this progress, but it's a strong indicator of what is yet to come through our revitalization plan. Our progress was primarily driven by three things. First, it was driven by the fact that we delivered the best brand mix in the United States since the inception of the Miller Coors joint venture in 2008. This significant premiumization of our portfolio was led by the strong growth of our U.S. hard seltzers, where we doubled our share of the U.S. hard seltzer segment in the second quarter. We took over as the global brewer with the fastest growing U.S. seltzer portfolio, and we recently passed another major brewer and are now fourth in total U.S. seltzer shares. We continue to move towards our goal of achieving a 10 share in the U.S. by year end. Those are outcomes. We're also continuing to see strong traction with our Vizzy innovation. Vizzy's fast-turning new lemonade variety pack helped the Vizzy brand gain almost a full point of U.S. share in the second quarter. And we just added another new package to that family with Vizzy watermelon, which has been a hit with retailers thus far. Topo Chico hard salsa continues to exceed our expectations in the 16 markets in which it's sold in the U.S., The demand is far outpaced our original plans for the brand, and with supply improving, we are now positioned to be more aggressive in marketing this brand. That is an outcome. Outside of the U.S., our Canadian hard seltzer portfolio continues to perform very well. The combination of Vizzy and Coors Hard Seltzer has earned more than a 50 share of the hard seltzer category with the largest beer retailer in the country. Vizzy specifically has earned the number one spot in the on-premise in key regions like Ontario. and we're looking forward to fuel its momentum with Busy Lemonade, which launched in Canada just a few weeks ago. That's an outcome. In Europe, threefold in the UK, and Y moment in Central and Eastern Europe, continue to build distribution and consumer awareness with a strong mix of brand advertising. The category is still at an early stage, but we are well positioned to win, share, and develop our portfolio as popularity around hard seltzers continues to grow. And while our fast-growing hard sales portfolio is driving our premiumization, it's not alone. Madrid continues to exceed expectations in the UK on-premise with unprecedented consumer demand. And Praha, from the start-up prime and stable of brands, is performing ahead of expectations in the Central and Eastern European markets, beating initial estimates by more than 50%. Our Latin America business, where our global brands primarily operate in the above-premium price segment, has exceeded expectations given the coronavirus pandemic throughout the region. Collectively, for the first half of 2021, the region is exceeding brand volume levels for the comparable 2019 period despite continued government-issued pandemic restrictions. For example, our Puerto Rican operations, which had been in long-term decline, are currently growing. Those are outcomes. In Canada, our six pints craft division is growing absolute volume despite its reliance on the on-premise. In the U.S., Blue Moon Light Sky was the number one new beer item in 2020 and has grown double digits this year, building off its strong base, while Lionel Kruger's Summer Shandy brand volume is up 10% year-to-date. Those are outcomes. And in just a few weeks, the Yingling Joint Venture will launch in the state of Texas, where distributor, retailer, and customer interest has been incredibly high. Product shipments begin next week and are scheduled to hit retail by August the 23rd. The other factor that drove the best brand mix in more than a decade is a rationalization of the long, long tail of our economy portfolio in the US. As we have discussed, in recent months in the US, we paused production of a number of smaller, low-margin, slow-moving economy brands and SKUs. This allowed us to improve our brewing efficiency and stabilize inventories of our core brands. And it also premiumized our portfolio and improved our margins. And we intend to maintain that higher level of premiumization and service. So after an extensive analysis of our business, we are meaningfully streamlining and premiumizing our US portfolio, discontinuing around 100 SKUs, including the elimination of 11 economy brands altogether. This will improve supply chain flexibility for our more profitable priority brands, enhance our innovation efforts, enable us to better focus resources, and ensure dependable and on-time shipments to our distributors. Let's be clear. While economy brands have typically not been a focus of the investment community, distributors who sell brands like Magnum and Mickey's Ice are going to feel it when they're discontinued. So our local sales teams are partnering with distributors and retailers on a market-by-market basis on exit plans and to identify swaps that make sense. So the headline is simple. Premiumization is here to stay at Molson Coors. We're going to invest bigger behind our fast-growing global hot sales portfolio, and we're going to permanently streamline our smaller portfolio of legacy brands. We're excited about the progress we're making, and we're not about to stop now. Our top-line growth is also driven by the strength of our core brands and the pace of the return to the on-premise. Coors Light and Miller Light again grew share of the U.S. premium light segments. With on-premise accounts reopening in a big way across the US, the brands were at 97% of their total 2019 STR volume in the second quarter. Coors Light specifically achieved its best half-year share trend in four years, and its US STRs rose by 1.7% in the second quarter. At the same time, Miller Lite grew 3.2% in the US in the quarter. In Canada, Coors Light has grown share with our largest retail customer for four straight quarters. Our top-line growth was also aided by the investments we have made in our Beyond Beer initiatives. Standing here at the end of July, Zoho has already far surpassed our expectations for the entire year, and its co-owner, Dwayne Johnson, continues to amplify the product across his massive social media presence, as well as through a new TV campaign that debuted during the Olympics this month. The RTD coffee market is estimated at $4.3 billion in 2021, and La Cologne is ranked number one in the above premium category. We're excited about the progress we are making and continue to have success with distribution to large national and regional retailers in both the drug and convenience store channels. Trust Canada, our joint venture with HEXA, has grown to more than a 50 share of the Canadian cannabis beverage industry and now holds seven of the top 10 SKUs in the country. And in the U.S., after starting in the Denver metro area, TrustUS has expanded distribution to other distributors and independent retailers across the state, a strong vote of confidence in the joint ventures plan and in its brands. As I said earlier, the results from the second quarter demonstrate that the revitalization plan is starting to pay off. So we're going to continue investing in our business, in our people, and in our communities to continue driving the results we're starting to see. We saw that in the last quarter as we announced two new projects to increase our global hard seltzer production capacity. In Canada, we announced plans to quadruple our in-house hard seltzer production capacity. And in the UK, we announced plans to add a new hard seltzer canning line in our Burton-upon-Trent brewery, while also upgrading our beer and cider packaging facilities to drive efficiencies. Those two investments follow a similar effort last year to increase our hard seltzer production capacity five-fold in the U.S., These investments will have long-lasting benefits as we bring more production in-house and ultimately improve our profit margin. But the investments in our business are not stopping there. Finally, after more than a year of pandemic-related challenges, we're going to be able to more fully invest behind our brands. Now, what does that mean? Well, sticking in the UK for a moment, Seafold Hard Seltzer is backed by the biggest brand investment Molson Coors has ever made into a new UK category. And you can expect to see a boost in our marketing spending over the second half of the year as well. That's because markets are opening back up. Our local alliances are reactivating for the first time in over a year. And our inventory will have recovered to a point that it makes sense to more fully invest behind the brand marketing. As important as that is, our success or failure as a company isn't entirely defined by our top line growth. It's also determined in part by how well we support our approximately 17,000 employees and support our hometown communities all around the world. That's why we directly engaged our North American employees in what we call Project Justice, an effort we started last summer and have continued in 2021. Through this initiative, we are supporting 33 organizations across the US and Canada that are working to create a more just and inclusive world. That's also why we're expanding our scholarship program for US college students of color who are pursuing careers in fermentation and brewing sciences as we work to bring more diverse voices to our industry. And that's why we're looking within our organization to improve the representation of women and people of color across the biggest part of our business. We also just released our annual ESG report called Our Imprint with a refreshed strategy that focuses on two key pillars, people and planet. From eliminating plastic rings in the UK to saving over 100 million gallons of water annually through our golden brewery modernization project, to the significant work we are doing to support our people, we've made great progress against our goals. And stay tuned as we continue our ESG journey. We've had our share of challenges over the last several years, but that is changing. And today, the signs all say the same thing. Molson Coors' future is bright, and the revitalization plan is succeeding. We're deleveraging our business. We've reinstated a dividend. We're thinking more consciously about how we best support our people in the communities in which we operate. We're investing behind our brands. We're reshaping our portfolio, and we're expanding into new spaces. Nearly two years into our revitalization plan, our results are improving. We're going to put our foot even more firmly on the gas pedal as we drive towards our sustainable top and bottom line growth initiative for this business.