Molson Coors Beverage Company

Good day and welcome to the Molson Coors Beverage Company third quarter fiscal year 2022 earnings conference call. You can find related slides with an updated format on the investor relations page of the Molson Coors website. Our speakers today are Gavin Hattersley, President and Chief Executive Officer and Tracy Juba, Chief Financial Officer. With that, I'll hand over to Greg Tierney, Vice President of FP&A and Investor Relations.

Thank you, Nadia. And hello, everyone. Following prepared remarks today from Gavin and Tracy, we will take your questions. In an effort to address as many questions as possible, we ask that you limit yourself to one question. If you have more than one question, we'll answer your first question and then ask you to re-answer the queue for any follow-up questions. If you have technical questions on the quarter, please pick them up with our IR team in the days and weeks that follow. Today's discussion includes forward-looking statements. 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. GAAP reconciliations for any non-U.S. GAAP measures are included in our news release. Also, unless otherwise indicated, all financial results the company discusses are versus the comparable prior year period in U.S. dollars and in constant currency when discussing percentage changes from the prior year period. Further, in our remarks today, we will reference underlying pre-tax income, which equates to underlying income before income taxes on the condensed, consolidated statements of operations. With that, over to you, Gavin.

Thanks, Greg, and thank you all for joining us this morning. I am pleased to report that Molson Coors grew both the top and bottom line on both the constant currency and an underlying basis in the third quarter. But I'm particularly pleased because nearly three years into our revitalization plan to turn around this business, Molson Coors' top and bottom line growth is not just the story of a quarter, it's becoming a trend. And that is important. For many, many years, you all knew Molson Coors is a cash generative business that was willing to make hard cuts to meet the bottom line, but one that struggled mightily to grow the top line. When we launched our revitalization plan, the goal was to change that trajectory and position Molson Coors for sustainable long-term top and bottom line growth, and we are making progress. Going back to the beginning of last year, we have grown on a constant currency basis the top and bottom line on an underlying basis in four out of seven quarters. We've logged six straight quarters of net sales revenue growth. We are growing net sales revenue in both business units. And through the third quarter of the year, our global net sales revenue is above 2019 levels on a constant currency basis. Those results are also translating into strong industry share performance in our largest global markets. Across the US beer industry, we earned the second highest dollar share gains and the best dollar share trend improvement in the quarter relative to the last 52 weeks. Moreover, our third quarter STR trend was the best quarterly performance we have seen in over a decade. We again gained share in the UK. We gained share in Canada year to date when factoring out Quebec, which was recovering from the strike earlier this year. So it's not surprising to us that three quarters of the way through 2022, we are able to reiterate the key financial metrics of our full year guidance. Now, I know that some of you are skeptical, but we have several tailwinds that give us confidence. We are benefiting from strong pricing in the US, Canada, and EMEA and APEC. In the US, by far our largest market, Our recent actions mean pricing will be up close to 10% on average versus the fourth quarter of last year, as opposed to our historical 1% to 2% annual price increase, and we will see that pricing benefit for the entirety of the quarter. Our UK and Canadian markets were heavily impacted by the Omicron variant in the fourth quarter of last year, which we will be comping. I know it's hard to remember, but the on-premise in both markets was virtually closed for a portion of the quarter in 2021, And we do not foresee this happening again. Additionally, as expected, we plan to have less marketing in the fourth quarter of this year, which relates to phasing as we think about how and when to most heavily market our brand. And we expect the World Cup to be a large benefit to our APAC business. It's a major on-premise beer occasion, particularly in Europe, and it has never been this late in the year. Tracy will get into our guidance in more details, but these are some of the factors that give us confidence to again reiterate our full-year key financial guidance. And I would point out that we can do so without contemplating some hockey stick trajectory for retail sales in the fourth quarter. Now, while we don't believe they will impede our ability to deliver on our full-year guidance, I do want to take a couple of minutes to discuss two challenges that impacted our third quarter results because there are some notable trends we are beginning to see. First and most obviously, while the rapid rise in input costs is not new this quarter, what is noticeable is the difference in COGS inflation rates between the two sides of the Atlantic. While it was high in all our markets, underlying COGS per hectolitre rose nearly 14% in the May and APEC compared to about 11% in the Americas. While we have been aggressive in taking price compared to historical benchmarks in beer, and we are deploying other levers to recover as much of these costs as possible In some markets, it's been difficult to keep up with the rampant pace of inflation. And in other markets like Central and Eastern Europe, some consumers simply cannot withstand higher levels of pricing. And that is the second trend, which is a diverging trend among our global markets. While volumes have remained strong elsewhere, we are seeing weakened consumer demand across the beer industry in our Central and Eastern European markets. Compared to their counterparts across the continent, these consumers tend to have less disposable income and are therefore more prone to inflationary pressure, which has put strain on this portion of our business. And that's in contrast to what we're seeing elsewhere. The U.S. consumer remains resilient to date. The industry is continuing to trade up, and we aren't seeing signs of significant channel shifting. September and third quarter on-premise mix of total volume has remained consistent with the year-to-day trend and above 2021 level. And these trends are visible in the strong quarterly top line results for the America's business unit. Consumer trends are similar in Canada where the broader industry is seeing trade up and our portfolio is premiumizing. Volumes are even holding up in the UK. In the third quarter on-premise volumes in this market were flat with pre-pandemic levels despite the very volatile and uncertain economic environment there. So again, no signs of significant channel shifting in the UK. Should consumer behavior in these other markets change, we have the right portfolio to compete in a more challenging economic environment. And thanks to the revitalization plan, we also have a business that is able to adjust to conditions more nimbly. So we will continue to make the investments and decisions necessary to ensure this business delivers top and bottom line growth, not just for one quarter or for one year, but year after year after year. That consistent approach has been the determining factor in the progress we have made. When we launched the revitalization plan nearly three years ago, we told you we were working towards a stronger core, aggressive growth and above premium, and scale beyond the BRR, and we continued to deliver. Our core brands have not only stabilized, they are getting stronger. In the U.S., our premium brands are holding industry share, and the combination of Coors Light, Miller Light, and Coors Banquet combined to grow over a full share point of the premium beer category. Miller Light and Coors Banquet grew volume as well. In the U.K., Carling continues growing share of the familiar Trusted Lager segment, and again widened its lead as the country's number one beer. In Canada, Molson Canadian continues to grow net sales revenue and share of segment, while Millilite brand volumes are growing double digits with the brand achieving industry share growth. And in Central and Eastern Europe, we are growing segment share with our national power brands in the majority of markets. Our global portfolio continues to premiumize rapidly. In the UK, Madrid remains on an incredible rise. It is already our number three brand in that market and has gained the most market share of any of our global brand innovations since the Molson Coors merger in 2005. Topo Chico Hard Seltzer remains the fastest growing hard seltzer in the U.S. and was a top five industry growth brand in the quarter. Simply Spike Lemonade is the fastest growing new FAB in the U.S. and was also a top industry growth brand, finishing in the top 10. The Blue Moon family grew share of the craft segment in the U.S., while Peroni volumes were up double digits. In Canada, our hard seltzers grew double digits and continued to gain share of the seltzer category, with Vizzy and Coors Seltzer now the number four and number six seltzer brands, respectively. We're also meaningfully expanding beyond the beer aisle. And our beyond beer space is about to get bigger, as we recently announced our emerging growth team plans to launch Topo Chico Spirited, an RTD cocktail, early next year. The continued strength of our brands helped our business deliver on the top line globally. And while cognitive inflation globally and consumer weakness in Central and Eastern Europe hampered our bottom line results in the third quarter, today we remain on track to grow our top line and bottom line this year for the first time in over a decade. We have made substantial progress across this business in under three years. We've done it in spite of serious challenges no one saw coming. And we remain focused on setting up Molson Coors for long-term, sustainable top and bottom line growth. Now, to give you more details on the financials and outlook, I'll hand it over to our Chief Financial Officer, Tracy Joubert. Tracy?