Molson Coors Beverage Company

Good day and welcome to the Molson Calls Beverage Company fourth quarter and fiscal year 2023 earnings conference call. You can find related slides on the investor relations page of the Molson Calls website. With that, I'll hand it over to Tracey Mangini, Director, Investor Relations.

Thank you, Operator, and hello, everyone. Following prepared remarks today, we look forward to taking your questions. In an effort to address as many questions as possible, we ask that you limit yourself to one question. If you have technical questions on the quarter, please pick them up with the IR department in the days and weeks that follow. Now, 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. Gap reconciliations for any U.S. or non-U.S. gap measures are included in our news release. 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. Also, U.S. share data references are sourced from CERCANA unless otherwise indicated. 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.

Thank you, Tracy, and thank you, everybody, for joining us today. Before we get started, I want to mention that Tracy Joubert, our Chief Financial Officer, is unable to attend today. We moved our earnings date earlier this year, so it didn't conflict with CAGNI. And Tracy had a very long-standing family commitment at this time. So Greg Tierney, our Vice President of FP&A Commercial Finance and Investor Relations, will be filling in on her behalf for this earnings call. And you'll see Tracy next week at Cagney. You know, at the start of last year, no one, absolutely nobody, could have predicted what would happen in the beer industry. We had just grown the top and bottom line of this business. and we are committed to doing it again in 2023. Since then, we increased our expectations for the full year, not once, but twice. We've continued to raise the stakes, and I'm proud to say that once again, we have delivered what we said we would. In 2023, our global net revenue grew more than 9%, and we grew our bottom line by nearly 37%. These are our highest reported dollar results on record, ever. on top of the already impressive results in 2022. We've proven that Molson Coors is the kind of business that can turn itself around, deliver against its commitments, and continue to grow no matter the volatility of the external environment. Every year for the past three years, our industry has faced challenges. We've gotten good at managing them, even when they're massive enough to permanently alter the beer industry. And every year for the past three years, we have navigated successfully through the challenges. We have delivered against our vision, and we have grown. But growth is not a strong enough word to describe what we achieved in 2023. We've set a new baseline for our business, and you don't need to look any further than our bottom line. In fact, our 2023 underlying pre-tax income was higher than we thought it would be, and frankly higher than anyone I am aware of said it would be, in 2028. So Molson Co. has delivered six years of profit growth, six years of growth in just one year. That folks is a new baseline. We are ready for this moment. So let's get into why we are confident. In 2023, our top five brands around the world drove over 2 million more hectolitres than they did the prior year. This is like adding the entirety of Blue Moon's global volume to our portfolio. In the US, our core brands are growing distribution and space at retail, and as I will discuss in a minute, we expect to gain significantly more space in the spring. Last year, our brands in the US also grew more share of the on-premise than any other brewer. This includes our core brands, and it also includes growth for Blue Moon. And as of the latest 12-week CGA Nielsen read, we are going three times more share in the on-premise than Constellation. Three times more. To put this performance into perspective, Coors Light and Miller Light each grew more dollars in the on-premise than Constellation did as a total brewer. I'll let that sink in for a second. Because of this momentum, we added an incremental $1 billion in distributor revenue to our network in 2023. And our distributors are just as motivated to grow again this year. Perhaps most importantly, the consumers who've come to our portfolio over the past 12 months have stuck with us, and they are more loyal than we have historically seen. So we brought new consumers into our portfolio, we've retained our loyal base, and our plans for 2024 are designed specifically to bring in even more new consumers. And there's no better place to start than with our core brands. Let me start with the US. In the fourth quarter, Coors Light, Coors Banquet and Miller Lite all grew brand volume by double digits. Miller Lite leapt an especially strong end to 2022 and still grew a half point of industry dollar share in the fourth quarter. And Coors Light grew dollar share by nearly a full share point in the quarter. You've also heard us talk more about Coors Banquet, and for good reason. Brand volume grew by nearly 20% for the full year in 2023, and it has grown industry share for 11 straight quarters. We have a lot of runway on Banquet, especially with younger legal age consumers. We gained more distribution in 2023 and grew on-premise draft plans for Banquet by nearly 50% in the fourth quarter alone. So you can expect to see us putting a lot of focus behind Banquet this year, along with Coors Light and Miller Lite. Coors Light and Miller Lite have grown significantly at retail, gaining more dollar share of displays in 2023 than any other beer brand. And that trend has continued in 2024, with Coors Light, Coors Banquet and Miller Lite growing dollar share of displays by nearly 20% in the four weeks leading up to the Super Bowl. This is an incredibly important point, and the reason why is quite simple. Store shelves and coolers have a finite amount of space, so floor displays represent incremental space and high visibility. This added space also means more days of inventory at retail for our brands. And from a consumer perspective, it means our brands are placed in areas of the store where they're more likely to sell quickly. Now, we can't talk about our presence at retail without mentioning spring resets. You'll recall that Coors Light and Miller Lite gained about 6% to 7% more space during the summer and fall adjustments, which is a huge increase for brands this large. We're now starting to get a clearer picture of what we can expect to gain as spring resets take shape. And based on the conversations we're having with top retailers, we expect to gain significantly more distribution and space for our brands in 2024 on top of the gains we made last year. In fact, one of our larger chain retailers has already confirmed added space that is well above the fall levels for our core brands this year. It's important to note, though, that this won't happen all at once. Unlike the unprecedented resets we saw last summer and fall, spring resets are phased between the spring and summer. The impact will likely show up over time, roughly between March and July of 2024. Eating up to those months and throughout, our core brands in the US will have large integrated campaigns running across TV, digital, retail, and live events. You've already started to see this with Coors Light and the Super Bowl, which got a great reaction from consumers and supported our success in the marketplace. In the four weeks leading up to the Super Bowl, we added an incremental 160,000 display units of Coors Light at retail. During the same time, Coors Light velocities grew by nearly 14%. So not only are we selling much more beer, it's also selling much faster. As far as what's next, Coors Light's Choose Chill campaign will run throughout the year, with strong media pressure and amplification from celebrity fans like Grammy award-winning country music star Laini Wilson. And in March, we plan to launch a campaign of comparable size for Miller Lite, I can't say much about that right now, but it's some of the best work I've seen on Miller Lite in a long time, and that's a very high bar, so we're excited about it. The growth of our core brands is not limited to the US. In our other global markets, we continue to see strong performance and have plans to continue the momentum in 2024. In Ontario, Coors Light and Molson Canadian are now the number one and number two beers in the total market, and both brands grew share of the industry in Canada for the full year. Miller Light, which sells at an above-premium price point in Canada, continues to grow at a rapid pace, with fourth quarter volumes accelerating, up nearly 60%. In Croatia, Ajusko achieved its highest share levels in recorded history and now holds more than a 50% share of segments. In the UK, Carling grew value share versus its competitive set in the fourth quarter. And we are very excited that Carling is now the first official beer partner of the Men's and Women's FA Cup, which will provide significant visibility and relevance for the brand in 2024. So our core brands have carried their 2023 momentum into this year, and the higher end of our portfolio has a lot of runway in 2024 as well. In the fourth quarter, Our EMEA and APAC business achieved a record high 52% of our net brand revenue at an above premium price point. In the UK, Madri Exceptional continued its growth streak. In the fourth quarter, Madri was the fastest growing major beer brand in the UK, both by volume and value sales. Madri's volumes grew by 80% for the full year, easily surpassing 1 million hectolitres. Growth like this does not come easy in the beer space. especially in less than three years for a new to the world brand that launched during a pandemic. We have something special with Nidri, so it should not be a surprise that we have ambitions to scale this brand and expand its global footprint. Last month, we announced that we're launching in Canada and product is rolling out onto shelves starting this week. We plan to grow this brand thoughtfully in markets where the opportunity and desire are clear. We're starting with Canada and select European markets this year. So that is our focus right now. And we'll consider future expansion when the time is right. In terms of our flavor portfolio, Simply Spiked continues to be a growth engine for our business and the industry. This brand more than doubled its volume in the US in 2023. And Simply Spiked Peach was the number one innovation by volume and dollar sales in the grocery channel. Simply Spiked is also gaining ground in Canada, where it launched nationally less than a year ago. Already, it has nearly a 4% share of the segment in a matter of months. And along with brands like Coors Seltzer and Vizzy, it has driven Molson Coors to become the only major brewer growing share of flavor in Canada. We plan to continue our growth in flavor this year, but our approach will be focused and deliberate. We're launching Simply Spiked Limeade in the U.S. this month. And in March, our new to the world innovation, Happy Thursday, will hit shelves and e-commerce platforms across the US. We've gotten great responses from retailers for both of these launches, and we plan to support them with strong marketing and sampling activations in every region of the country this spring and summer. So we are very confident we can go off our tremendous results from 2023. And we are very confident in the momentum of our brands and our plans for 2024. So you can be confident that we're going to deliver what we say we will deliver, just as we have for the past few years. We are confident because we've weathered every recent challenge imaginable, challenges in our industry and challenges in the macro environment. And from that perspective, we continue to see signs of improvement. Contrary to conventional wisdom, US beer industry volume trends improved during 2023, and particularly in the fourth quarter. which was consistent with strong improvements in consumer spending. In fact, the overall beer category gained dollar share of total alcohol beverage in 2023. Our brands led the industry volume improvement during 2023, and we are focused on our position as a leader of this industry. So we plan to grow Molson Coors top line again in 2024. Are we cautious about the year ahead? Of course. While inflation has come down, there are still plenty of reasons to be wary about the macro environment. But our strong results give us confidence in our ability to deliver in 2024. I know a number of you remain skeptical of our ability to grow this year. You were skeptical in 2022 and also in 2023. But the numbers don't lie. We delivered what we said we would. So for 2024, here's what I will say. We are committed to growth. And for the long term, we have shared our growth algorithm and we intend to deliver on it, just as we have delivered on what we have said we would over the past four years. And with that, I'll turn it over to Greg to share some details on our financials and our guidance. Greg?

Thank you, Gavin. 2023 was an incredible year for our company. Our net sales revenue grew an impressive 9.3%, with strong growth from both business units. Top-line performance was driven by favorable global net pricing, America's volume growth, and positive sales mix. Our above-premium portfolio comprised 27% of total net brand revenue for the year, and that was with a tremendous strength in our core power brands. In fact, our above-premium brands grew net brand revenue by 6% for the year, behind successful innovations like Simply Spiked and continued growth in Madrid. Financial volume increased 1.8%, while brand volume grew 2.2%. Our supply chain team did an outstanding job in meeting the high consumer demand in the U.S., leading to financial volume growth of 3.5% and brand volume growth of 5.3% in the year. And we delivered strong margin expansion, as cost savings and volume leverage significantly offset inflationary pressures and higher MG&A spend. As a result, underlying pre-tax income grew 36.9%, also driven by both business units, and exceeded our expectations. Underlying free cash flow climbed to $1.4 billion, also exceeding our expectations. This enabled us to continue to strategically invest in our business, further strengthen our balance sheet, raise our dividend 8%, and repurchase approximately 150 million shares under our new share repurchase program that we announced in October. So as Gavin discussed, we've entered 2024 with a strong foundation. This gives us confidence for continued growth in 2024, which aligns with our long-term growth algorithm for net sales revenue and underlying pre-tax income. But before we get into our outlook, let's discuss the fourth quarter. Both business units contributed a solid top-line growth of 5%. Underlying pre-tax income increased 2.1% as we continue to invest strongly behind our brands, which is particularly impactful to the bottom line in a typically lower profit quarter. Now looking closer at the top line, favorable net pricing and sales mix drove net sales per hectolitre growth of 4.2%. Favorable sales mix was due to lower contract brewing volume related to the wind down of the Pabst Agreement ahead of its termination at the end of 2024. Consolidated financial volume increased 0.8%, as growth in Americas was offset by declines in EMEA and APEC. America's shipments increased 2.2%, with U.S. domestic shipments up 4.3%, driven by the strength of our core premium brands. However, as expected, lower contract brewing volume related to the PAPS agreement was a headwind of approximately 2% to America's shipment volume. And also, recall that in the third quarter of 2023, Due to our strong U.S. brewery performance, we shipped ahead of expectations. So we entered the fourth quarter with healthy U.S. inventory levels. This allowed us to give our employees some well-deserved time off during the holidays and to conduct routine system maintenance, while positioning us to build inventory in the first quarter ahead of peak season. EMEA and APAC financial volume declined 3% on lower brand volumes. Consolidated brand volume growth was 4.3%. As expected, growth accelerated versus the third quarter and underscored the continued strong momentum of our core brands. Now, looking by market, America's brand volume increased 6.7%. That was led by the U.S., where brand volumes were up 8.5%. Coors Light, Millilite, and Coors Banquet performed strongly, each up double digits. In Canada, brand volume increased 0.7%, benefiting from growth in our above premium portfolio. While industry softness weighed on brand volume, we continued to grow share in Canada for the quarter, adding nearly two share points for the quarter. That was the strongest growth of any major brewer in the country. In Latin America, while mix improved, brand volume was down 5%. This was largely due to challenging economic conditions in some of our key markets in the region. And in EMEA and APAC, brand volume declined 2.2%. This was due to industry softness in the UK off-premise, which partially offset the strength of our above-premium portfolio, and inflation continued to pressure Central and Eastern European performance. Now turning to costs. Underlying cost of goods sold per hectolitre was up 1.4%, with notable differences by market. As expected, inflation was a headwind in the quarter, partially offset by cost savings and a 30 basis point benefit from volume leverage. In the Americas, underlying cost of goods sold per hectolitre decreased 0.7% as cost savings, volume leverage, lower logistics costs more than offset the impact of direct materials inflation. In EMEA and APAC, we continue to see persistent inflationary pressure with underlying cost of goods sold per hectolitre up 8.8%. These increases were driven by direct materials and logistics costs, as well as unfavorable mix from premiumization. Underlying marketing, general, and administrative expenses increased 17.4%. We invested strongly behind our brands, increasing marketing spend over $50 million in the quarter. Our focus was on retaining our existing drinkers and attracting new ones. including using addressable channels or places where we can use data to more precisely target them, and continuing our push behind live sports. General administrative expenses were also higher as variable compensation expense reflected the strong operating performance for the year. Underlying free cash flow was $1.4 billion, up 66.5% for the year. This exceeded our expectations in part due to the timing of working capital movements at the end of the year. In utilizing our strong free cash flow and given our greatly improved financial flexibility, we continue to deploy capital in ways that we believe will drive the greatest shareholder value. We continue to invest in the business, putting to work approximately $690 million in capital projects like the Golden Brewery modernization and investing in capabilities to drive efficiencies, cost savings, and sustainability. And we supported our strategic growth initiatives under our String of Pearls approach, with bolt-on acquisitions like Blue Run Spirits and upping our investment in ZOA. We continued to de-lever our balance sheet with the cash repayment of $500 million in Canadian debt. Upon its maturity in July, coupled with higher cash balances, we ended the year with net debt of $5.4 billion, down over $600 million for the year. Given this and our strong underlying EBITDA, net debt to underlying EBITDA was 2.2 times at year end, aligned with our long-term goal of under 2.5 times. Underscoring our enhanced financial strength, we're pleased to have earned credit rating upgrades from our ratings agencies in the fourth quarter. In October, S&P Global upgraded Molson Coors to BBB, and in November, Moody's upgraded us to BAA2. we continue to return cash to shareholders. In 2023, we paid quarterly cash dividends totaling $1.64 per share and up 8% from 2022. And today, as part of our intention to sustainably increase the dividend, we announced our quarterly dividend of 44 cents per share to be paid on March 15th, 2024. And this represents an increase of 7%. Now, lastly, as announced in our strategy day on October 3rd, our board authorized a new share repurchase program of up to $2 billion over the next five years. Under our sustained and opportunistic approach, we were active in the market during a two-month open window in the period, repurchasing approximately 2.5 million shares for a total cost of approximately $150 million. This equates to a repurchase of over 1% of our outstanding shares in roughly two months. Now let's turn to our outlook. For 2024, we are issuing guidance of low single-digit net sales revenue growth on a constant currency basis, mid-single-digit underlying pre-tax income growth on a constant currency basis, mid-single-digit underlying earnings per share growth, underlying free cash flow of $1.2 billion plus or minus 10%, underlying depreciation and amortization of $700 million plus or minus 5%, net interest expense of $210 million, plus or minus 5 percent, an underlying effective tax rate in the range of 23 to 25 percent, and capital expenditures incurred of $750 million, plus or minus 5 percent. Now, let me walk through some of the underlying assumptions. We expect annual net pricing to reverse historical levels. In the U.S. and Canada, that's been approximately 1 to 2 percent. While in Europe, is typically priced closer in line with inflation. We also expect mixed benefits from premiumization as we advance toward our medium-term goal of reaching approximately one-third of our total global net brand revenue from above premium portfolio. Financial volume is expected to be impacted by the PAPS contract brewing arrangement, which terminates at the end of this year. It's expected to be a headwind of approximately 3% or 2 million hexaliters to America's financial volume with the wind down continuing throughout the year. Additionally, we anticipate financial volume performance to be strongest in the first quarter as we build inventories coming into peak season in the U.S. Gross profit is expected to increase driven by mix and cost savings. While inflationary pressure is expected to moderate from 2023, we expect that underlying cost of goods sold per hectolitre will increase due to a combination of continued inflation, including material conversion costs, higher costs related to premiumization, and lower volume leverage as compared to 2023. Also, while spot prices are currently lower than they have been over the past two years, recall that we have a longer-term hedging program, and as a result, We expect to experience a headwind in 2024 from certain commodity hedges put in place in 2022 and 2023. We do not anticipate significant changes in total MG&A and plan to put the right commercial pressure behind our brands and key innovations. We'll do this through strong media plans at both the local and national level, through live sports, including another Super Bowl commercial, and through robust retail programming that drives consumer engagement. G&A is expected to face an easier comparison given the increase in incentive compensation in 2023 related to the significant outperformance versus our initial plan. Underlying earnings per share growth is the one metric that is below our long-term growth algorithm. This is largely due to a higher forecasted underlying effective tax rate. Underlying free cash flow guidance is impacted by working capital timing that benefited 2023, as well as slightly higher capital expenditures. So in summary, we're very proud of our performance in 2023. We entered 2024 with strong brands, an exciting innovation pipeline, compelling programming, strong and supportive distributor partners, more retailer shelf space and tap handles, and the financial flexibility to balance growth and reinvestment. This gives us confidence in our ability to deliver our long-term growth algorithm in 2024 and in the years to come. With that, we look forward to answering your questions. Operator.

Thank you. As a reminder, if you would like to ask a question today, please press star followed by 1 on your telephone keypad now to enter the queue. When preparing to ask your question, please ensure you are unmuted locally. Our first question comes from Andrea Texera from JP Morgan. Your line is now open. Please go ahead.

Good morning, and thanks, Gavin, Greg. Just on the assumptions for your guide, right? So are you expecting, it seems from the phasing that you spoke, Greg, regarding first quarter where the volumes, so you're looking at volumes being stronger. Are you assuming market share continues to build from where you left off in the fourth quarter? And from a volume perspective, of course, PEPs is, and I appreciate the color on the impact through the year, but on an underlying basis in the U.S., how much are you expecting volumes to behave in 2024? Thank you.

Thanks, Andrea. A couple of things I would say in response to your question. Firstly, we believe the changes in the U.S. beer industry are permanent. And we're off to a very fast start in Q1. The momentum that we saw in Q4 has continued into Q1. In the U.S., Molson Coors is leading all brewers in year-to-date dollar share growth by growing 1.5 points. We're ahead of conservation share growth. ABI continues to decline more than any other major brewery in the U.S., losing about four and a half points year to date. From an industry point of view, we would expect the U.S. industry to fall back to the sort of flat to down one level, and we would expect to gain share as we continue into this year. And as you rightly point out, there are lots of drivers and multiple levers to support our top line growth algorithm, and obviously that includes pricing, which we've said will be in the sort of historical 1% to 2% range. It is market by market. We would expect to get pricing in Canada and EMEA APEC as well. It includes positive mix from our continued premiumization of our portfolio. And of course, you rightly point out the headwind of Pabst. When you put all those factors together, that gets to our guidance for this year of low single digits. Thanks, Andrea.

The next question comes from Bonnie Herzog from Goldman Sachs. Bonnie, your line is open. Please go ahead.

All right. Thank you. Good morning. I had a question on your underlying EPS growth guidance. First, curious why you're now introducing EPS guidance and then hoping you could bridge your mid-single-digit pre-tax income growth guidance with just the mid-single-digit EPS growth guidance. I guess I'm I'm wondering why there's no leverage on the bottom line. And then in the context of that, how should we think about share repurchases this year? Thanks.

Thanks, Bonnie. Look, we introduced the long-term growth algorithm with EPS at our investor day in the fourth quarter of last year. So we wanted to make sure that our guidance that we gave now for 2024 was covered those three elements of our guidance that we launched at the investor day, and EPS was obviously one of those. The reason, and of course, there was long-term guidance that we gave at investor day, and as Greg said, the reason why we're slightly less from an EPS point of view than our long-term algorithm is our tax rate, which goes up a couple of percentage points given the mix of where we make our profitability and tax rates around the world. So that's the main driver. Was there anything else? Did I miss anything else?

Share repurchase.

Oh, share repurchases, that's right. Look, we've got an approach, Bonnie, for our share purchase reprogram, which is both sustained and opportunistic. So we've got a sustained approach ongoing repurchase, and we've got an opportunity to repurchase. The program's $2 billion. It sort of roughly equates to $400 million over each year, over the five-year period. And we will, you know, take our cash holdings into account, our capital allocation policy, and do what we think is right from a shareholder point of view as we execute that share program.

The next question comes from Peter Grom from UBS. Peter, your line is open. Please go ahead.

Yeah, good morning, guys. This is actually Brian Adams on for Peter. Thanks for taking the question. So just kind of rounding out the conversation on the top line, I wanted to take a look at the EMEA and APEC business, specifically on the volumes. I know you guys mentioned weak consumption in the U.K., as well as some sustained pressure in Central and Eastern Europe as the primary driver. And obviously, that's been a troubled area over the last several quarters here. But just curious to hear your view as to where things stand in these markets versus kind of where they've been over the last 12 months. Like, has there been any sequential improvement such that you'd envision a return to volume growth in the near term? Or should we expect the premiumization to be the primary driver in 24? Thanks.

Thanks, Brian. Look, EMEA APEC last year had a tremendous year. We grew top and bottom line double digits. And I don't think we've done that for a while. In terms of the various markets in which we operate, Central and Eastern Europe, we've been very clear about that over the last six or so quarters that the consumer is more challenged in that market. We are seeing signs of lowering inflation and a lower impact for that consumer. And so our expectation is that that is going to continue to improve as we head into 2024. In the UK, you are right. We've had two slower quarters from an overall industry point of view for Q3 and Q4. Q3 was largely weather driven. Q4 was largely off-premise driven. And there was a fairly substantial excise increase in the off-premise of around 10% in the UK. And of course, that probably had somewhat of a negative effect in the fourth quarter. But the UK consumers remained remarkably resilient. And, you know, our expectation is that will continue. And, you know, you point to our premiumization. Yes, I mean, we had such a tremendous success with the launch of Madrid in the UK. You know, who would have thought you could launch a brand at the beginning of a pandemic in the on-premise and three years later it would have the the share that it has in the on and off premise and be well north of a million hectolitres already. And what's even more surprising is actually the low awareness that exists with that brand. So there's a lot of runway for us to drive Madri, not only in the UK, but we're also launching it in Bulgaria and we're launching it in Canada as we head into this year. Thanks, Brian.

The next question comes from Rob Ottenstein from Evercool. Rob, your line is open. Please go ahead.

Great. Thank you very much. Gavin, your team on the supply chain side and the brewery side really did a fantastic job last year given the abrupt and unyielding change in the business dynamics and just did a great job Under those circumstances, though, and given the extent of the change, I'm assuming that you didn't or would have been very difficult to optimize the system, both in terms of the breweries and the logistics. You've had a little bit more time now, I would think, to do that. So kind of looking in on 2024, have you been able to get unlocks there, make the system more efficient given the dramatic changes in the volumes. Obviously, the PBR is going to have an impact, but this is going to be a higher margin product that you're going in there, so there's a chance to re-optimize there. And then in that context, I'm a little bit surprised that the COGS per hectolitre are going to still go up given what will still be very strong volumes and declining aluminum costs. So maybe if you can kind of put that all together and give us some context. Thank you.

Thanks, Rob. Look, I'll start. Greg can add some color on COGS as well. But first, thanks. Yes, I think our supply chain team has done an amazing job over the last three years reacting to almost every imaginable crisis. And they've got battle hardened and did a tremendous job of reacting to this this permanent industry shift that took place in April. Yes, we have had opportunities to optimize. We continue to optimize the sourcing of our beers between breweries, and we continue to do that and will continue to do that on an ongoing basis. In terms of Obviously, perhaps coming out, you rightly point to the fact that that will give us an opportunity to optimize even further. It reduces a lot of, or takes a lot of complexity out of our business, allows us to do longer runs of our own higher margin brands. As far as COGS is concerned, look, there's a lot of factors that go into COGS, not just operating leverage. One would obviously be, as we drive towards our above premium goal, you know, above premium products come at a higher cost to make. So those certainly negatively impact overall COGS. Greg, why don't you just give some color on COGS?

Yeah, Gavin, thank you. So I think, you know, you hit on that, a large headwind, right? As we talk about our premiumization and move toward that one-third goal, that's going to be a headwind to cost of goods. It's beneficial for our business, obviously, overall, but will be a headwind to cost of goods. We do see material cost inflation. Material conversion costs are going to be a headwind for us this year. And obviously, as I said in the prepared remarks, even though spot prices have come down, we still do have, with our longer-term hedging program, some hedges that are going to be headwinds for us that we're layered on in 2022 and 2023. So those are the big drivers.

Thanks, Craig. And Rob, that all just sort of wraps up into our guidance for underlying profit, which is you know, mid-single digits in line with our long-term algorithm. Thanks, Rob.

The next question comes from Filippo Filoni from Citi. Filippo, your line is open. Please go ahead.

Hey, good morning, everyone. So I wanted to go back to the guidance. I want to clarify, clearly you mentioned Q1 is going to have a very strong volume performance. But Gavin, are you assuming also, particularly in the U.S., volume growth in the balance of the year, particularly, you know, obviously you're going to cycle a much tougher comps in the balance of the year, and even assuming, you know, you're going to have permanent changes, that would imply further share gains. So just any color on the volume performance in the U.S. post Q1 will be helpful.

Yeah, thanks. Look, I mean, maybe just a comment around the overall industry, right? As I said, you know, despite the headlines you might read, the overall beer category grew dollar share of total alcohol beverage in 2023. I think that's important context when you consider consumer habits, which essentially underpins your question as well. We've got a lot of levers from a top line point of view. We've got pricing, we've got a positive mix from premiumization, and notwithstanding The comps which are coming in the second quarter, it is our expectation and goal that we will continue to take market share.

The next question comes from Nadine Tawa from Bernstein. Nadine, your line is now open. Please go ahead.

yeah hi Thank you everybody um two questions for me one just on the quarter what exactly surprised you to the upside in Q4 for constant currency underlying income before tax to come to that. 2% increase versus I believe the previous guidance was for decline and then my second question a little bit more long term you called out, I think that in your prepared remarks, the belief. that you have the chair shifts that we've been seeing in the US are permanent. Could you give us a bit more color as to your conviction on will you be maintaining all of that chair into 2024? I ask this especially in light of President Trump's favorable social media posts for Bud Light, which I know is probably on the mind of many people on this call. So any data points or surveys that you could point to would be very helpful. Thank you.

Thanks, Nadine. Look, on your On your first question, not much surprised us in the fourth quarter. If I had to point to one thing, maybe the industry performed a little better in our US market than we had originally expected it to. And so that drove up our underlying profit to slightly exceed our guidance. I mean, it wasn't a lot, right? I mean, we were just under 37%, which in the greatest scheme of things is not a lot of dollars. when you compare it to our overall underlying profits. So, you know, more or less things were as we expected. EMEA, APAC actually did a little better than we expected. Canada did a little tiny little bit worse than the U.S. did better. But overall, there's nothing really I can point out that was a big aha for us. In terms of your other questions as to what gives me confidence that we can sustain the share gains that we've got in the U.S., look, I mean, the gains we've seen in our core brands have been consistent for over nine months. We're growing in every region, every channel, and with every major customer in the United States. And at this point, we believe that the shifts in the US beer industry are permanent. We're off to a fast start in Q1, as I said. Momentum's continuing. We're leading all brewers in the year-to-date dollar share growth. Our data shows that the majority of consumers who switch to our brands post-April have stayed with us throughout 2023 and they're much more loyal to our brands than historically so. I would expect one of our competitors will almost certainly claim that anything better than minus 30% is a big win, but the reality is there's no reason to believe that these buyers are suddenly going to revert in April. We do expect strong continued growth in Q1. We expect it to continue to follow the patterns we saw last year. We saw signs of this with our momentum in Q4. For example, Coors Light's volume growth in Q4 was higher than it was in Q2. So we've got multiple sales tailwinds from a sales perspective. And let me just run a couple of those for you, Nadine, given the high interest in this particular area. We expect even more space at retail starting in Q2 when we'll start to see the the benefit from spring resets. The majority of major retailers do full resets in the spring, both nationally and from a regional point of view, and we expect to be the biggest beneficiary of these space gains. We've already seen, as I said in my opening remarks, several of our chain retailers that put space for our core brands well ahead of the 6% to 7% gains that we saw in summer and fall of 2023. And that's including some larger retailers. We expect to have much better and stronger display activity in the first half of this year. We're already seeing that with the Super Bowl. In the latest four weeks of our Super Bowl retail program, Molson Co. has gained more dollar and volume share of displays than any other U.S. brewer. And our brands here, I don't know, about a 25% lift in sales when they're on display. Last year, we were a clear winner on displays, and we expect that to be the case as we start cycling in April. And then the final point, because I've gone on a little here maybe, is in the on-premise. It's not letting up. We were by far the largest share gainer in the channel last year. We grew three times more shares as the next major brewer, which in this instance was Constellation. You know, just to put that into perspective, Coors Light and Miller Light each grew more in dollars in the on-premise than Constellation did as a total brewer. And that's as of the latest 12-week C.J. Nielsen reads. Now, let me stop there. I could go on into the marketing campaigns that we've got for Choose Chill and for Miller Light, but there are so many reasons to believe, Nadine, and we have strong confidence in the guidance in which we've given.

The next question comes from Bill Kirk at Roth MKM. Bill, your line is open. Please go ahead.

Thank you. I'm going to try the COGS per hectolitre guidance again, but maybe regionally. And I ask because I think America's COGS per hectolitre was down year over year in 4Q. So is it fair to expect that to continue regionally and in the Americas, but just in Europe the COGS per hectolitre is up enough year over year for the total company COGS per hectolitre to be up in 2024?

Well, look, you're right. I mean, we do have regional differences in our cost of goods sold, all driven by, you know, all the factors that go into cost of goods sold from cost savings programs to, you know, premiumization. Obviously, the U.S. is coming off a smaller base from a premiumization point of view than EMEA APAC is. So The US will be more impacted negatively by growth in the above premium than, for example, EMEA. And APEC would be inflation is slightly higher in Europe at a macro level. But as Greg rightly pointed out, our hedging program is designed specifically, it's been this way for more than 10 years, to eliminate the highs and lows of our input costs. You know, you're probably looking for more detail than we're willing to give you, but there are so many things that go into COGS build, and it all ladders up into our guidance of mid-single digits for underlying pretext.

The next question is from Chris Carey at Wells Fargo. Chris, your line is open. Please go ahead.

Hi. Thank you for the question. Gavin, can you just comment on the portfolio outside of Miller Coors and how you feel about shelf for this year? And then separately, just from a cash perspective, obviously there's a lot of debates about growth specifically on the top line. Can you just maybe let us know how you would be thinking about deploying the balance sheet? Should the fundamental picture become a little bit less as you expect as the year progresses? Is there another way? If volumes come in a little bit short, would you lean in on some of your buyback initiatives, front load those a bit more than you might have otherwise done on the multi-year plan? So any perspective on cash use would also be helpful in addition to those, you know, just how the businesses are setting up for this year from a shell perspective on the non-Miller, non-course business. Thanks so much.

Yeah, from an overall portfolio outside of the U.S., Chris, Canada, you know, we do continue to see softness in the beer industry. But while the industry is down in, frankly, all regions, we've had strong share growth in Canada. And it's being driven by the strength of our core brands and the expansion that we've made into flavor. So, you know, since last March, Coors Light's been the number one light beer brand in the industry. Molson brand, a family's growing share of industry. And our flavor portfolio is looking great. looking really positive when you compare it against the rest of our competitors. You know, we're growing the business. We're the only major brewer growing share in flavor in Canada. So, you know, whilst a little bit more cautious about the overall macro environment in Canada, our portfolio is strong and getting stronger, frankly, as we go forward. Our Latam business, 2023 was a tough year, right? There were large macroeconomic challenges in some of our bigger markets in which we operate. We are seeing signs of improvement from their perspective. Malagala is performing really well in Mexico. Brazil remains a big opportunity for us. And overall, we do see some level of improvement from a macroeconomic environment in Latin America. And then finally, I covered off on Central Eastern Europe, where we are seeing some signs of slowing down inflation and consumer benefiting from that. And the UK, we remain cautious as we watch the impact of some of the excise tax impacts in the fourth quarter. But overall, our portfolio in in the UK is strong, from a Carling point of view, from a Coors family point of view, and from a Madrid, and some of our brands which we talk less about. Croatia, Ozusko has reached its highest market share since we kept records. Madrid's expanding outside of the UK. So overall, from a portfolio point of view, we're feeling really good about it. Cash, capital allocation, Greg, do you want to take that one?

Yeah, sure, Gavin. So, you know, Chris, I think Gavin answered the question a little bit earlier around buyback, right? But our capital allocation priorities have not changed, right? They remain always to invest first in our business. We've done a fantastic job on leverage. That continues to be a focus. We talked about bringing our leverage ratio down to 2.2 times. down from below or within our longer term goal of under two and a half. And then the third capital allocation prioritization that we've spoken a lot about is returning cash to shareholders. We've raised our dividend again, another 7% this year after raising it the prior year and the year before. And obviously, we've made very good progress on our share buyback, the $2 billion five-year share buyback program. that Gavin spoke about earlier. So the capital allocation priorities remain the same.

Thanks, Greg.

The next question is from Steve Powers at Deutsche Bank. Steve, your line is open. Please go ahead.

Hey, thanks. On the buyback, I'm sorry if I missed it, but I don't know if there was a specific level of repurchases that were envisioned in the 24 guidance. That would be helpful to know. I'm also just curious on the drivers of the higher interest expense relative to the run rate we saw exiting 23, just anything that you're contemplating in that in terms of refinancing or the like. And then my real question is just maybe you could talk a little bit. I didn't hear anything about Blue Moon, and I know that there are plans around that brand for non-alcoholic and updated marketing commercialization plans. Just Any update on those endeavors relative to what we heard at Investor Day?

Thank you. Yeah, sure, Steve. Thanks for the questions. I'll take your first one. From a Chair Barbeck point of view, look, the way we're running this program is on a sustained and an opportunistic basis. So, you know, we obviously do have you know, forecasts of what we will do for 2024 in our guidance assumptions. We're not going to get into that level of detail. I don't think legally I'm allowed to do that. But you can assume that, you know, we've got a $2 billion share buyback program and, you know, that implies roughly $400 million in a year. And we will execute that, you know, on a sustained and opportunistic basis as we go forward. As far as Blue Moon is concerned, yes. I mean, we had a challenging year with Blue Moon in 2023. It hasn't been immune from the challenges that exist in the craft beer market as a whole. On the positive side, we are seeing some signs of improvement in the on-premise, where Blue Moon is actually growing share now based on the last four-week Nielsen CGA data. And obviously, we're not satisfied with the brand's performance. We've got big plans to turn it around in 2024, Steve. We've got redesigned packaging that hits shelves in March, and it's going to unite the whole Blue Moon family, which was not the case before, where each of the Blue Moon brands almost felt like a different brand in and of itself. And that's going to be, is rectified the right word, in the new packaging, which we're launching in March. And we've got a new campaign, which is also going to launch in March. We've got strong media pressure with TV and digital and retail. And then to round it out from a Blue Moon point of view, we've got two innovations, which we believe are going to bring more drinkers to the brand in 2024, provide a halo effect to Blue Moon itself. And one is the repositioned Blue Moon Light, which is already the number one light craft beer. It previously went under the name Blue Moon Light Sky. And the other is Blue Moon Non-Alk. It's obviously very early days for Blue Moon Non-Alk, but it's already jumped to the number three craft in a franchise by volume in the last four weeks, which is how long it's been in the market. You know, the feedback from both retailers and consumers has been overwhelmingly positive. So overall, we have high hopes for our overall Blue Moon family of brands in 2024. Greg, I might have missed a part of Steve's question there.

I think it was the interest expense.

Interest expense, yeah.

Yeah, and I can help. You can handle that. Okay, very good. So Steve, on interest expense, you know, our guide for 2024 is very in line with what total interest expense was in 2023. I think if you think about just where our cash positions have been this year, certainly we had much heavier cash positions. We earned a fair amount of interest income on those cash positions throughout 2023, right? But as we look overall year to year, the expectation is very consistent from 23 to 24. Thanks, Greg.

The next question comes from Eric Sirota from Morgan Stanley. Eric, your line is open. Please go ahead.

Thanks. Gavin, just hoping you could expand upon your comment earlier that you saw the overall beer category in the US reverting back to kind of flat to down one in terms of volume standpoint. What do you think the drivers of that will be since 2023 was quite a bit below that? And were you referring to that's what's embedded in your 2024 guidance, or is that more of a midterm expectation?

Thanks, Eric. Look, I mean, I'll say again, you know, despite the headlines you might read, the overall beer category grew dollar share of total alcohol beverage in 2023. And, you know, that's unlike wine and full-spring spirits, which declined. If you go back and look at what happened in 2023 though, in the first quarter, that was a tough quarter for the industry and it was largely driven by really, really bad weather on the West Coast primarily. After that, the US beer industry volume trends improved during 2023 as we moved through the year and particularly in Q4. Our expectation, as you said, is the category is going to return to its more historical levels of flat to slightly up on a value basis. And it'll probably fall slightly on a volume basis. And our expectation is that we will continue to grow share in that environment. And that's what's embedded in our guidance for 2024.

The next question comes from Kamil Gajrawala from Jefferies. Kamil, your line is open. Please go ahead.

If I could maybe just follow up on Eric's question on the category, you know, I think shipments were down 11 million barrels, which puts it to, you know, 1990-something levels. And while the pricing is there, I guess one of the debates about beer is the relative pricing that's been taken over a period of time versus spirits. And so I'm curious how you feel about, you know, the categories, sort of pricing position versus the other beverage alcohol categories. Thanks.

Yeah, thanks Komal. Look, I mean obviously from an overall industry point of view, beer has taken higher pricing over the years than our other competitors in the alcohol space, wine and actually not as much in wine but more in spirits. Our view is that pricing for this year will fall into that 1% to 2% range. I think we've been fairly consistent about our expectation from that perspective for quite some time. The U.S. beer industry did sequentially improve, as I said, in 2023. And sometimes there is a difference between timing of shipments and brand sales to to retailers, which can impact that sometimes.

The next question is from Robert Moscow from TD Cowen. Robert, your line is open. Please go ahead.

Thank you. I'm sure you've been asked about cannabis many times in many different ways, but there is a potential catalyst here with the next presidential election and the possibility of broader legalization. So I was wondering, how do you evaluate the risk to that, especially since younger consumers seem to shift more and more towards cannabis as a preference rather than beer? And then secondly, have you ever looked at difference in growth rates by state and whether, like Colorado as an example, whether the growth of cannabis has cannibalized beer more so in those states than in the non-legal ones?

Thanks, Robert. You know, from a cannabis point of view, I think it's fair to say that the cannabis beverage market hasn't grown anywhere like what the industry's initial expectations were. And, you know, that led to us getting out of our... I really meant more smoking, not beverage.

I meant smoking cannabis.

Yeah, well, we operate in the beverage market and it certainly hasn't... it hasn't performed as one would expect from cannabis beverages to operate. As far as your question as to whether it's impacted, we have not seen in the more developed cannabis markets like Canada much of an impact on beverage alcohol. We have done work on a state-by-state basis. I would say to you that Colorado is one of our best performing states over the over the last few years. And that, I think, was one of the early leaders from a cannabis point of view. So, you know, I think overarching, we have not seen cannabis negatively impact our alcohol beverage consumption in any meaningful way.

Final question today comes from Brett Cooper from Consumer Edge Research. Brett, your line is open. Please go ahead.

Thank you. In the U.S., I think third-party data has shown weakness in industry draft volumes. So understanding that you were able to capitalize on the disruption in 23 and into 24 to benefit your performance, but thinking long-term, how do you address industry draft weakness in the U.S.? And are there learnings that you can pull from the U.K. to the U.S.? And I guess just from your perspective, how important is it for draft to get back to at least industry performance or better for the health of the industry? Thanks.

Yeah, thanks, Brett. Look, I think the biggest driver of negative draft performance is actually craft and the number of craft brands which might be being discontinued in the on-premise. We are back to very close to pre-COVID levels from an on-premise point of view in most of our major markets. Some slightly ahead, some slightly behind, but we're kind of back to where we were. As I said, we're by far the biggest share gainer in the channel last year. We grew three times faster than the next major brewer. It's not just premium lights that are growing share. It's brands like Blue Moon and Coors Banquet and Miller High Life are growing share as well. You know, our portfolio is strong and healthy in the on-premise, and I think some of the weakness you're seeing is coming from the proliferation of craft brands.

This concludes the Q&A session, so I'll hand the call back to Tracy for any closing remarks.

Thanks, Adam. If you have any additional questions, please follow up with the investor relations team. And we look forward to seeing many of you at Cagney next week, as well as taking questions your calls as the year progresses. With that, thanks everyone for participating on today's call.