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.

Thank you, Gavin, and hello, everyone. We posted a strong second quarter, which exceeded expectations. We continue to make real progress executing our revitalization plan, and we are starting to see the results in our operating performance. As Gavin noted, we continue to premiumize our brands and strengthen our core business. and our improved financial flexibility has enabled us to invest in our business while continuing to deliver our balance sheet and to reinstate a dividend. Now let me take you through our quarterly results in more detail and provide an update on our outlook. Consolidated net sales revenue increased 13.7% in constant currency delivering 98% of second quarter 2019 levels, despite continuing to operate with varying degrees of on-premise restrictions. Consolidated financial volumes improved 5.5%, outpacing brand volume growth of 3.1%, driven by higher Europe volumes and favorable U.S. domestic shipments. Top-line performance benefited from on-premise re-openings in the quarter for most of our major markets, as well as strong global net pricing, positive channel mix, and historic favorable brand mix levels in the U.S. as we continue to premiumize our portfolio. Net sales per hectare on a brand volume basis increased 5% in constant currency, driven by pricing growth, coupled with positive brand and channel mix, partially offset by geographic mix given the strong growth in Europe and Latin America. This top line growth was somewhat offset by inflationary pressures, which impacted most consumer product companies, as well as increased marketing investments as we continue to execute our revitalization plan. Underlying costs per hectolitre increased 8% on a constant currency basis, driven by cost inflation, including higher freight and packaging costs. However, with robust hedging and cost savings programs, we have been able to significantly mitigate much of the inflationary pressure. MG&A in the quarter increased 25.3% on a constant currency basis, as recycled timing shifts and targeted reductions to marketing spend in the prior year period due to the coronavirus pandemic. As planned, we significantly increased marketing investments in the quarter, putting strong commercial pressure behind our key innovations and core brands. Underlying EBITDA decreased 1.3% on a constant currency basis, but increased compared to 2019 second quarter levels. Underlying free cash flow was $2.2 million for the first half of the year, a decrease of $238.2 million from the prior year period. This decrease was wholly driven by lacking roughly $500 million in benefits in the prior year related to tax deferrals due to governmental programs and was partly offset by favorable working capital and lower capital spend. Capital expenditures paid were $212 million for the first half of the year as we continued to invest behind capability programs such as our previously announced Golden Brewery modernization project and our new Montreal brewery. Capital expenditures were lower in the first half of the year compared to the prior year, primarily due to project timing. Now let's look at our results by business unit. In North America, the on-premise channel accounted for approximately 13% of our net sales revenue in the quarter, compared to approximately 16% in the same period in 2019. In North America, on-premise reopenings varied by market. In the U.S., our largest market, we continue to see progressive reopenings during the quarter and attained over 80% of 2019 levels as of quarter end. In Latin America, restrictions continue to ease, while in Canada, significant restrictions continue throughout the quarter with on-premise volumes about one quarter of pre-pandemic levels. North America net sales revenue was up 8.3% in constant currency, driven by strong net pricing growth, positive brand mix in the U.S., favorable U.S. shipment timing, and higher Latin America volume. Of note, U.S. net sales revenue exceeded the second quarter 2019 level. In the U.S., domestic shipment volumes increased 1.2%, outpacing brand volume declines of 4% as we focused on rebuilding inventory following the first quarter supply disruption. The brand volume declines were entirely due to economy, which was down double digits as we deprioritized certain non-core SKUs. Our above premium portfolio was up double digits, and our premium brands were up low single digits. In fact, our U.S. above premium brand volumes reached a record high portion of our portfolio compared to any prior quarter since the creation of the Millicour's joint venture in 2008. Canada brand volumes declined 5.1%, while Latin America brand volumes experienced triple-digit growth driven by strong core brand performance. Net sales per hectolitre on a brand volume basis increased 4.7% in constant currency, with pricing growth delivered across all geographies. The US increased 6.9%, driven by net pricing and historic levels of positive brand mix. While the intention decline in economy was a contributor, about half of this record mix performance was due to growth in above premiums led by innovation brands including Vizzy, Topo Chico Hot Salsa, and Zoa. These positive factors were partially offset by negative geographic mix, resulting from the restricted trading environment in the higher-revenue Canadian business and strong growth in Latin America. Underlying costs per hectolitre increased 8.5% driven by inflation, including higher transportation and packaging materials costs, and mixed impacts from premiumization. Underlying MG&A increased 24.2% due to higher marketing investments. We increased marketing investment behind core innovation brands and we increased media spending behind our iconic core brands, Kurzlight and Miller Lite. Our U.S. media spend approached 2019 levels, while local tactical spend was somewhat constrained due to on-premise restrictions, which eased throughout the quarter. North America underlying EBITDA decreased 10.7% in constant currency, as higher gross profits were more than offset by higher planned MG&A. Europe net sales revenue was up 52.3% in constant currency driven by volume increases and positive channel geographic and brand mix due to on-premise progressive reopening, most meaningfully in the UK, given the reduced on-premise restrictions compared to nearly full lockdowns in the prior year quarter. About premium brand volumes reached a record high portion of our Europe portfolio. Eurofinancial volumes increased 17.8% and brand volumes increased 15.4%, driven by a significant increase in UK on-premise volumes. Net sales per hectolitre on a brand volume basis increased 16.6%, driven by favourable channels, geographic and brand mix, particularly from our higher margin, on-premise focused UK business, as well as positive pricing. Underlying EBITDA increased 189% in constant currency, driven by growth margin impacts of higher volumes and favorable channel geographic and brand mix as a result of gradual on-premise re-opening, partially offset by higher MG&A expense. Turning to the balance sheet, as of June 30, 2021, we had lowered our net debt to underlying EBITDA ratio to 3.35 times and reduced our net debt to $6.9 billion, down from 3.5 times and $7.5 billion respectively as of December 31, 2020. We ended the second quarter with strong borrowing capacity with no outstanding balance on our $1.5 billion U.S. credit facility. Turning to our financial outlook, we are again reaffirming our 2021 annual guidance originally provided on February 11, 2021. While we are certainly in a better place than we were a year ago, it bears reminding that uncertainty as it pertains to the coronavirus and its variants remains to varying degrees by market. 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. Building off the strong shipment growth in the U.S. in the second quarter, we continue to work aggressively to build inventories to more optimal levels. 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 are seeing gradual on-premise re-openings, varying by province, which should provide positive channel mix. In Europe, the UK should benefit from this full on-premise reopening July 19th. However, the comparison is more difficult than it was for the second quarter, given the on-premise was largely open for the full third quarter of 2020. Our guidance also anticipates continued strength in our both premium portfolios, particularly hard salsas. Also, we expect continued solid progress against our previously discussed emerging growth three-year revenue goal of $1 billion, against which we are tracking ahead of plan. We continue to anticipate underlying EBITDA to be roughly flat compared to 2020, as top-line growth is expected to be offset by continued COGS inflationary headwinds, but more significantly from increased investments to deliver against our revitalization plan. We intend to increase marketing investments to build on the strength of our core brands and support successful innovations. As a result, we expect significant year-on-year increases in marketing investments over the balance of the year, and most notably in the third quarter. We expect third quarter marketing investments to be higher than the second quarter of 2021 and also higher than the third quarter of 2019 as we continue to ramp up supply following the disruptions in the first quarter. Obviously, this will have an impact on our bottom line, particularly in the third quarter, but this will strengthen the future of our brand. 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 prioritise 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 modernisation 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 pay down debt 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. Demonstrating our commitment to this goal, on July the 15th, we announced that we had repaid in full the $1 billion 2.1% senior notes that were maturing that day using a combination of commercial paper and cash on hand. And third, and also as announced on July the 15th, 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 $0.54 per share. The board made the decision to reinstate the dividend at a level that they believe is sustainable and gives room for future increases as business performance improves. We are proud of our operational performance in the quarter, which underscores successful execution against our revitalization plan. We are excited about the future of Molson Quirks as we drive toward our goal of long-term sustainable revenue and underlying EBITDA growth. And with that, we look forward to taking your questions. Operator.

Thank you. We will now begin the question and answer session. To ask a question, you may press star 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the key. To withdraw your question, please press star 2. At this time, we'll pause momentarily to assemble our roaster. Our first question comes from Rob Ottenstein Evercore.

Great, and thank you very much. Gavin, I'm wondering if you could talk a little bit about what you've learned so far about the hard seltzer market. Clearly, it seems that there's some issues with beer-branded trademarks. But, you know, at the same time, you've got this proliferation of 700 brands or more that I understand. There's competition from various ready to drinks. So love to get your thoughts on that. And then and then also, you know. Love to understand why you're not using the Visi trademark more in Europe and the U.K. and that you feel that you need to have different sorts of trademarks there. So a lot of questions. Just really love to get your thoughts on what you've learned about hard seltzers and what's going on in that segment. Thank you.

Thanks, Robert, and good morning. Look, I mean, we've always said that the growth rates, weren't going to continue at the elevated levels that they were and that others might have seen. So, you know, Robert, it's really no surprise to us that this rate of growth slowed because, you know, the category we're citing last year is huge comps. And we've said in the past that Seltzers were a beneficiary of the on-premise shutdown because it had such distribution exposure in the off-premise. And so as the on-premises reopened, there's less distribution there. And so You know, this is not a surprise to us. I think we've been saying this for almost a year. We've also been saying, you know, for a while, you know, even if it's growing at 10%, 20%, 40%, there really isn't anything else in the beer space that's growing that quickly. So, you know, it's good for the beer category and it's good for us. In North America, in the U.S., we've got two beers. very clear and differentiated winners from our point of view, and we plan to continue our focus on Vizzy and Topo Chico Hard Seltzer. Now, you referred to Coors Seltzer, Rob, and I would say to you that Coors Seltzer up in Canada is actually doing really, really well. It's already achieved double-digit share in some retailers, and it's between Vizzy and Coors Selves is probably the most successful product launches that we've had for our company in five years up in Canada. We do believe that there'll be a shakeout in the near future as many brands struggle to succeed in the crowded space. while busy in Topo Chico hot seltzer continued to accelerate, Coors Hot Seltzer wasn't. And so that's why we made the decision in the U.S. to discontinue Coors Seltzer and commit our energy, our resources, the material supply we've got in our shelf space to busy in Topo Chico. Of course, it's going to stay in Canada because it's doing, as I said, really well. The market dynamics are different and the brand has performed well. In Europe, It's exhibiting in the U.K. and Central and Eastern Europe some of the same trends in the early days as the U.S. did. We've obviously tested all of our options from a brand point of view, and the early read was that threefold was the right brand to go with, and it's landed very well. We're building capacity there, and I think we're well positioned in the U.K. to be a strong player if it takes off like it did in the U.S., And the same applies to Central and Eastern Europe. Why Moment was the best brand, resonated really well with the consumers there. The Central and Eastern European team do a fantastic job from an execution point of view. So the execution is really good. And we actually have first mover advantage in Central and Eastern Europe. So we feel very good about our leading position in Central and Eastern Europe with that brand as well. I think I hit all your questions, Rob, but if I didn't, I'm happy to take a follow-up from you.

Thank you for that detail. The only other one was, how do you look at the interaction between hard seltzers and ready-to-drinks? You know, there's some observers say that there's really not much interaction. It's the same occasion. I'm not sure I believe that 100%. But, you know, love to get your thoughts on the various ready-to-drink concoctions that are coming up and how you intend to play in that space going forward as well. I know you're doing a few things there. Thank you.

Sure, Rob. I mean, you know, ITV beverages are emerging and emerging in fast-growing segments. In fact, ITV sales already outplace spirits, and that gap's only going to likely widen in the future. And, you know, competing in this space is a natural fit for companies like ourselves. We've got experienced packaging beverages in 12-ounce cans and and bottles and working with our distributor partners to get those products out there. So, you know, we look forward to competing in this category with Proofpoint. We've got Superbird as well, which is the top end of that, which we launched earlier this year. And, you know, we have other offerings that we believe will appeal to consumers in our innovation pipeline.

And how much interaction do you see in that? And these are ready-to-drink products with hard seltzers, or is it too early to say?

I think it's too early to say, Rob. I mean, obviously there is some interaction. You know, it's interesting. We've been asked this question as it relates to the beer category, and, you know, there's more of Seltzer's volume and growth is coming from outside of the beer category than it's coming from inside the beer category. Our data would suggest that. I've seen our competitors say the same thing, and certainly it's been very positive from an overall beer category, beer segment point of view.

Terrific. Thank you very much.

Our first question comes from Bill Kirk with MKM Partners.

Hey, thank you for taking the question. So you talked a bit about the rationale to streamline economy brands, but it also looks like there's some discontinuing of some SKUs for pack sizes on brands like Coors Light and Miller Light. So can you talk about the decision, I guess, to streamline pack sizes as it relates to to your efficiency efforts.

Yeah, thanks, Paul, and good morning to you as well. Look, we did a thorough review of all of our SKUs and brands. I would say the majority of the SKU and brand, or certainly all the brand reductions and the majority of the SKU reductions are in our economy space. We did identifying a few skews which were slow moving and which could be substituted with other more profitable skews that would make us more effective. And so there would have been just a few outside of the economy space that we rationalized. The vast majority of it, Bill, is in the economy space.

Got it. And Tracy, as a follow-up, I think you said that U.S. brand volume declines were entirely economy, does that mean excluding the discontinued economy brands, that U.S. brand volume's positive, or do the remaining economy brands still drag that number into the negative?

No, so, you know, the four skews are just recent, and so I would say that it's really, you know, the entire sort of economy portfolio that is driving that down.

And, Bill, Miller Lite and Coors Lite in the second quarter, as I said, I think in my prepared remarks, grew. I don't think I've been able to say that that often over the last sort of 15 years or so. And, you know, our above premium portfolio did very well as well with the Blue Moon franchise coming back strongly, our craft brands coming back, and, you know, we're very pleased with ourselves for performance.

Thank you. Appreciate it, guys. Thanks, Bill.

Thanks, Bill.

Our first question comes from Lauren Lieberman, Barclays.

Great, thanks. Good morning. I'd love to talk a little bit more about on-premise. And number one, just thinking about brand strategy and portfolio. So first, I was curious about hard seltzer, the degree to which you're trying to expand presence of your brands in on-premise. And I think that you had mentioned Vizi as an on-premise play in Canada. If I got that wrong, I apologize. But I was curious if that was in the thought process for the U.S. And then also just the, I think, industry-wide discussion of big brands gaining more presence, share of tap handles and so on, as on-premise reopens. And I was curious the degree to which you're starting to see that or have been positioning for that to be the case as reopening continues. Thanks.

Yeah, thanks, Lauren. Look, I mean, yes, during the pandemic, we did see, you know, increased demand for large trusted brands. And this is particularly true in the on-premise. Many on-premise owners are sticking to faster moving brands. And, you know, this obviously benefits brands like Miller Lite and Coors Lite in particular for us. And we are seeing that trend stick as we settle into the sort of new normal. You know, as I said earlier, with Miller Lite and Coors Lite, we've We did grow segment share for the 27th quarter. We're also seeing growth in our above premium portfolio. For example, Blue Moon in the U.S. is up nearly 15% in the quarter. Parodi is up nearly 35%. And it has provided us an outstanding opportunity to sample our newer offerings, like Blue Moon Night Sky and Busy and Topo Chico itself, which we actually missed that opportunity last year. Certainly, I wouldn't say it's just Visi that's going on-premise. I would say it's both Visi and Topo Chico hard sales. Topo Chico, as well as it's doing, it's still in a fairly limited number of markets, less than half of the states in the U.S. And in those states, the desire for it to be on-premise has been very, very good. Canada, obviously, a little too early to say because the restrictions there have dragged on a little longer than they did in the United States. So too soon to tell how the Canadian on-premise is going to open up. In Europe, it's been very pleasing. We, as you know, significantly over-indexed to the on-premise. So the on-premise recovery that's taking place in Europe has been has been very positive for us. And in fact, in July, we've seen the on-premise business in the UK start to approach 2019 levels and hold there. So that has been very encouraging for us.

And just to follow up to just clarify, I think it's within on-premise that's opened. Do you believe that you're gaining share within those outlets? because of any degree of greater distribution or relative presence within the channel?

In the U.S., the answer is yes. In the U.K., the data lags a little bit, so I'm not ready to call that yes. We have a hypothesis that we are, but I don't have data yet to support that. In Canada, obviously, the reopening is not in a place where we can determine that yet. But in our biggest market, the answer to that is yes, Lauren.

Okay, great. And then the plan is to bring Vizzy and Topo Chico hard seltzer on-premise in the U.S., and you have the capacity to do that in your plans for this year, or is that more of a looking into 2022?

Certainly we have the capacity with Vizzy. We've been able to meet all the demand that our distributors have had for Vizzy products, really since the beginning of the year. Topo Chico, obviously, is more challenging from a supply point of view. It continues to perform extremely well. It's only got one skew. It's got distribution in only 16 markets. And supply continues to be a little tight, but our production is improving. And that is going to allow us to push distribution, which would include the on-premise. And it also allows us to start turning our marketing campaign on behind Topo Chico as well, Lauren. I guess that's a convoluted way of saying yes.

Okay, great. Thank you so much.

Next question, Steve Powers, Deutsche Bank.

Thank you very much. A couple of questions centered on brand volume dynamics. In Europe, if my numbers are correct, it looks like you're at about 91% of 2019 in the quarter, which is up from the mid-70s last quarter, which is great. And I guess just as you think about the back half, do you think you kind of hold steady at that mid-90s index level, or do you think your plans envision improvement, number one? And as we pivot to North America, you're also at 91% indexed to 19 in the quarter, but that was down from 94% in the first quarter, presumably as the economy brands were deprioritized. But As we think about the back half, similar question. Do you think you recover that index to 19 in the back half, number one? And number two, you mentioned that premium and above premium were at the highest percentage of the overall mix that you've ever seen. I guess curious as to whether in absolute terms, those price tiers are, how they compare to where you were in 19 in a similar time frame. Thank you.

Thanks, Steve. Okay, let me see if I can get all these for you. Look, in Europe, as I said, actually, and particularly in the U.K., as you know, on-premise is really important to us, and we've actually seen the on-premise approach to 2019 levels for the last – well, most of July, actually. It actually spiked a bit higher than that, but that was distorted by the Euro finals. We were actually, you know, in the U.K., we were actually for a few weeks quite substantially above 2019 levels. That's settled back down now, and as I said, we're approaching 2019 levels. Central Eastern Europe is being a little bit more impacted by tourism. And so we're probably not quite at the UK levels in Central and Eastern Europe. And, you know, in the US we've seen, as I think I said on the last call, more outlets open from an on-premise point of view than we were initially expecting. And certainly volume has increased and settled down into a fairly stable level. We will have in the back half of the year a lot more fairs, festivals, alliance opportunities, which we didn't have in the second half of last year. And I'm referring to football primarily, which is a big drinking occasion for us. So without wishing to put particular goals out there, we are encouraged by what we're seeing from an on-premise and venue volume point of view. I wasn't totally sure I got your price tiers question, Steve, so let me give it a shot. I mean, we did, as I said, have the strongest share of our portfolio being above premium in the second quarter. Based on an NSR point of view, it was up into the high teens level, which we haven't seen levels like that since, I don't know, the joint venture started. So working particularly – particularly well. And in Q2, our NSR was actually above 2019. So, you know, encouraging signs for sure. Okay. No, that's helpful.

If I just play it back to you, it sounds like you do in North America expect that the total portfolio, not just the on-premise, but the total brand volume portfolio, you know, can better approach 2019 levels in the back half versus what we saw in the second quarter. Is that a fair playback?

No, not really, Steve, because of our decisions around the economy portfolio, right? So the economy portfolio, as I said in my prepared remarks and as we announced with our distributors today, we are taking a meaningful cut on our economy portfolio to rationalize that. So that would be a negative for us. And You know, if you look at our share performance, I see our share performance quoted often, you know, 70% of that decline in shares is the economy portfolio for us. And, you know, we paused a lot of SKUs and brands, and some of them, as we announced today, won't come back. So, you know, certainly from a premium lights and above premium point of view, which includes selfs, we're feeling really good about our position and our momentum. Okay, that helps. Thank you very much. Appreciate it.

Our next question comes from Kevin Grundy. Jeffrey.

Hey, good morning, everyone. I wanted to kind of pull together some of the topics we've discussed so far on the call, kind of bring it back to the revenue and EBITDA guidance. Kind of, Gavin, as you're assessing the first six months of the year, looking to the balance of the year and specifically around the major puts and takes, When you spoke with the investment community in June, you said the company was running ahead of plan. On-premise recovery certainly seems to be running ahead of plan. And certainly where folks thought perhaps six months ago, the performance of your sales portfolio, similarly, also running ahead of plan. Commodity environment worse. And then it seems like the SKU rationalization probably has greater pace than you anticipated at the start of the year. So when you kind of pull all this together, I was hoping you could comment on anything perhaps we're missing. Just put a finer point on the puts and takes as you look back over the past six months, how this has progressed, your level of confidence for the company as you look to the balance of the year, and then perhaps just confirm, given the setup here and the strategy, it sounds like the inclination will be to reinvest any top line upside. If you could just confirm that.

Thanks, Kevin. Yeah, a lot going on there. So I guess the two things which I would say when we talk to the investment community after Q1, which didn't transpire as we were expecting, was Canada. The reopening of the on-premise and the continuation of the lockdown went on for longer than we were expecting in Canada. And in the UK, we were expecting the so-called Freedom Day to be back in June. And as you know, that was delayed into July. I would say those are the two things that we didn't know at that time. From a revitalization plan point of view, yes. I mean, the whole... rationale for the revitalization plan is to drive both top line and bottom line growth. And the first year was always going to be a reinvestment year, which was supposed to be last year, but we've been through all the reasons why that didn't make sense. And we're certainly reinvesting behind our brands this year. We increased our marketing spend meaningfully in the second quarter. There were a couple of things that didn't make sense for us to do, like investing meaningful marketing in Canada while it was closed and delaying the UK out a month. So that was probably marketing spend that we would have spent in Q2, which will now move into the back half of the year, and as Tracy said, primarily in Q3. Our supply situation has improved meaningfully since the cyber security attack, and our fast-moving brands and SKUs, with the exception of one or two SKUs or subsegments, are at inventory levels that are higher than they were at the same time last year, which allows us now to really put emphasis behind our brands. As I said, Topo Chico is supply. We've worked really well with our partners to increase our supply in the third quarter and beyond, and so that will be coming through, which will allow our marketing teams to really put emphasis behind that. I think I've answered your question, Kevin, but help me if I haven't.

No, no, no. Gavin, that's extremely helpful. If I could just squeeze in one quick follow-up. Just, Tracy, on the cadence of the margin profile for this company, there's a lot of discussion on the ability for the company to reach pre-pandemic levels. As you sort of look at it, I understand there's a lot of volatility still in the environment. How should investors think about that, balancing the need to reinvest and get investment levels back to pre-pandemic levels? But is there any reason to think that over the next couple of years that at the total company level, margins should not reach where they were in 2019? And then I'll pass it on.

Yeah, look, we have not given guidance beyond this year. But, you know, as Gavin spoke to the revitalization plan, that is about, you know, premiumization which obviously comes with higher margins. It is about the cost savings initiatives in our breweries as well as, you know, from a G&A point of view. You know, so that should help. But, you know, beyond that, we haven't given guidance. But I would just consider those items, you know, specifically related to revitalization.

Very good. I'll leave it there. Thank you. Good luck. Thanks, Kevin. Thank you.

Our next question comes from Nadine Sarwat with Bernstein.

Yeah, morning, everybody. Thank you for taking my question. So I wanted to zoom in a little bit more on Europe. So how much of the volume growth that you saw in Europe came from restocking at distributor levels or retailers, especially on trade? As you said, Freedom Day was meant to be in June, then it was moved to July. And then any update on the state of the inventories now and how that can help us think of the state in Q3? Thank you.

Thanks, Nadine. As far as inventory levels, is that a question for Europe or for the U.S.?

Maybe we kick off with Europe, and then that was actually going to be my follow-up on the U.S.

Okay. Well, look, in Europe, we experienced progressive increase as hospitality reopened. As you know, it reopened for outdoor consumption on April 12th, and then moved indoors on May the 17th, and then obviously only fully out into freedom on July the 19th. We saw on-premise volumes in Q2 average around 70% of pre-pandemic levels. And as I said, in July, we've seen on-premise really start to approach the 2019 levels. There wasn't a one-week or two-week buildup of inventory in the on-premise. And so I would say... that would be more progressive. I mean, frankly, we don't hold big inventories in the UK at all, so it's not going to be a material impact one way or another from an inventory level point of view. And then for as far as inventories in the US are concerned, look, we said we wanted to be in a better place by Memorial Day, and we were going to be in a good place by by July the 4th with our big brands and our fast-moving SKUs. And certainly Cairns was always the big challenge. And we delivered what we said we were going to do with Cairns and our big brands and large packs. And the inventory levels for those SKUs actually have been and continue to be above the same levels as they were in 2020. So we're making good progress there.

Great. That's very helpful. And then if I could just squeeze in one more follow up. A lot of questions so far on Topo Chico. Can you give us any indication as to data you're getting from the consumers? How much of that performance is coming with respect to new trials or repeat buys? Any additional color would be helpful.

Yeah, Nadine, I mean, the demand for Topo Chico is incredibly strong. You know, it's really only got one skew, and we've only got distribution in 60 markets. It's already the number three new item in the segment. It's quickly become the fastest-turning seltzer brand in Texas, the number three fastest-turning seltzer overall, right behind White Claw and Truly. And, you know, our supply continues to be tight, but our production's improved. So that is going to allow us to push distribution and and features. Our distributors, our retail partners have got strong belief in this brand, and we're seeing that from a consumer point of view as well. It's actually a top 10 growth brand in the country, and as I said, less than half of the states. From a where is the volume coming from, it's coming from across all of the demographic groups. one particular demographic group that dominates, and I'm sure it's taking share from some of our competitors, yes, for sure.

Okay, thank you. I'll turn it over.

Thanks, Nadine.

Our next question is from Lohan Grande, Guggenheim.

Thank you, and good afternoon, everyone. Two sets of questions. The first one is really trying to exhaust the questions on SELSER. You mentioned that course SELSER is tough, but you reiterated your goal to reach 10% of the SELSER category by year-end. So if you can really provide some color on how you think you will bridge the gap from where you are right now And really on this, with the loss of core sales, will you be pushing for VZ in the short term to gain more shelf space? And how comfortable you are you will get that? And also, with Celsior gone, you probably got some more, I would say, manufacturing capacity potentially to launch faster Topo Chico if you were to repatriate it in-house sooner. So I wanted to know if the stock has been impacting the timeline for Topo Chico to be repatriated in-house and to be relaunched in more states.

Thanks, Lauren. As far as our 10% share goal is concerned, you know, we, as I said, I think we've got two clear and differentiated winners with Visi and Topo Chico. With Visi, you know, we're seeing strong traction with the innovation that we've brought, particularly the Variety Pack 2 and Visi Lemonade. We're seeing with retailers where we've got all three Visi SKUs on shelf that we see a You know, almost a two-thirds increase in each of those SKUs velocities. And so we're going to continue to fuel Visi's momentum. We've got more innovation coming. We have had innovation LTOs like our June Pride Pack, and we've just recently launched Watermelon Variety Pack. So, you know, it's carved out a unique point of difference in the category, and so much so that we're, you know, well on our way to becoming, you know, the number four spot in the segment, despite all the new entrants in 2021. I'm not going to show our hand in terms of which brands are going to take Coors Hard Salsa's space, but you can assume that, you know, we do have innovation coming on Visi, and we'll utilize Coors Hard Salsa's space to put that innovation from Visi into that space. And so we feel good about it. Busy will certainly be a big part of getting to our 10-share goal, as will Topo Chico. As I said to Nadine, I'm not going to repeat all of that, but it does remain incredibly strong. Supply is improving. We have worked with our third-party suppliers to ramp up supply, and we'll go national when we believe we can supply the markets that we're in at this point in time. I mean, we've How high is high is not quite clear yet on Topo Chico because we haven't been able to supply all the demand in Texas. We're over a 10 share, I see. Other states, we're doing equally as well. So, you know, in terms of when are we going to bring it in-house, we've always said we're going to bring it in-house in 2022. That plan is on track. When we do, it'll improve our margins. And, you know, it's a slightly different process than perhaps Visi or Coors Seltzer. So it's not a direct substitution from a liquid point of view, but certainly from a canned availability point of view, we've got that capacity and it's ready. Happy to take one more question, I think, operator.

I will listen. Question comes from Sean King with UBS.

Thanks for getting me in here. One question I have is what was the cadence of depletions? I guess we heard in the U.S. like a positive mid-single digits back in April to the minus 4% for the quarter. And any insights maybe you could provide on what you're seeing in July for depletions?

Thanks, Sean. Look, I mean, from a second corner point of view, most of our decline would have been in the economy space. I mean, if you look at our share, I think I said, you know, almost approaching 70% of our share loss is economy. It's a very choiceful decision that we've made. you know, that doesn't mean that we don't think all segments matter because we do. We do believe all segments matter, but we've chosen to ensure that we meet the demands of the largest segment of our consumers at this point in time. So, you know, most of that decline would have been driven by the choice we made around economy. As far as, you know, volume guidance into the second half, Sean, we don't do that as a as a matter of principle anymore. I know we used to do it in years past, but we're not going to give that now.

All right. Worth a shot, but I appreciate the color. Thank you. Thanks, Sean.

This concludes our question and answer session. I would like to turn the conference back to the speakers for any closing remarks.

Thanks very much, Operator. Look, I understand that there were more questions that we weren't able to get to today given the time constraints. So please, if you could follow up with our investor relations team, and we look forward to talking with many of you as the year progresses. So thank you, everybody, for participating in today's call.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.