Molson Coors Beverage Company

includes forward-looking statements. Actual results or trends could differ materially from our forecast. For more information, please refer to our risk factors discussed in our most recent filings with the SEC. We assume no obligation to update forward-looking statements except as required by applicable law. The definitions of or reconciliations for any non-U.S. GAAP measures are included in our earnings relief. Unless otherwise indicated, all financial results we discuss are versus the comparable prior year period and are in U.S. dollars. With the exception of earnings per share, all financial metrics are in constant currency when referencing percentage changes from the prior year period. Also, share data references are sourced from Circana in the U.S. and from Beer Canada in Canada, unless otherwise indicated. Further in our remarks today, we will reference underlying pre-tax income, which equates to underlying income before income taxes, and underlying earnings per share, which equates to underlying diluted earnings per share as defined in our earnings release. Now with that, over to you, Gavin.

Thank you, Tracy. Hello, everybody, and thank you for joining the call. Like for so many of our peers in Staples, it certainly was a challenging first quarter. The global macroeconomic environment is volatile, due to uncertainty around the effects of geopolitical events and global trade policy, including the impacts on economic growth, consumer confidence, and expectations around inflation and currencies. These shifts have pressured consumption trends as the consumer faces a high level of uncertainty. And the beer industry has not been immune to these macro changes. Fortunately, while we are a global business, our beers and beverages are generally made in the markets in which they are sold. meaning the vast majority of our brands sold in the U.S. are made in the U.S. with U.S. ingredients. The same is true of our Canadian business. So from that perspective, we believe that we are one of the better positioned businesses in our category. Adding to the dynamics in the quarter, we had several expected shipment headwinds as well as one-time transition and integration fees related to fever tree. And given that this all occurred in our typically lowest revenue quarter of the year, there was a more pronounced impact on our quarterly results. Now, we recognize that these macro-driven uncertainties persist, and it's unclear for how long. As we discuss the details around the performance in the quarter, I want to emphasize that there have been no changes in our belief in the continued strengthening of our core brands and in our long-term growth algorithm. The continued premiumization of our portfolio, ability to maintain unprecedented US shelf space gains, And our recent investment in FeverTree give us increased confidence in our long-term growth journey. But we do recognize the macro environment is impacting our performance in the near term. So we are focusing on controlling what we can control. We are taking actions to best ensure that we can navigate and mitigate the short-term challenges while continuing to support the medium and long-term health and growth objectives of the company. This means executing our strategy to further strengthen our core power brands and premiumize our business. And we have stronger commercial plans globally as we head into the peak season, which is still ahead of us. It means taking a deeper look at near-term non-business critical discretionary cost-saving opportunities to help protect profitability. And it means adjusting our 2025 capital expenditure plans to best ensure we are utilizing our strong annual free cash flow in the most prudent ways, given the current environment. This entails refining capital investments to focus on our highest priority growth and productivity initiatives, while continuing to return cash to shareholders. Now, while these mitigation efforts are helpful, the magnitude of the impacts of the macroeconomic environment and industry has been much greater so far this year than we had expected. For example, the University of Michigan Consumer Sentiment Index fell by nearly 20 percentage points since the beginning of the year, and GDP turned negative for the first quarter. Amid these pressures on the macro and consumer environment, we are updating our guidance for the full year, and we now expect a low single-digit net sales revenue decline on a constant currency basis as compared to low single-digit growth previously, a low single-digit underlying pre-tax income decline on a constant currency basis as compared to mid single-digit growth previously, and a low single-digit underlying earnings per share growth as compared to high single-digit growth previously. However, we are reaffirming our underlying free cash flow guidance of $1.3 billion plus or minus 10%. Now Tracy will touch more on the guidance driver shortly, but now let's take a moment to discuss the quarter. Consolidated net sales revenue was down 10.4%, underlying pre-tax income was down 49.5%, and underlying earnings per share was down 47.4%. The top line performance was meaningfully impacted by volume performance, particularly in the U.S. U.S. financial volume was down 15.7%, and this lagged U.S. brand volume, which was down 8.8%. As I mentioned, the unexpected macroeconomic pressures on consumer consumption behavior were a big driver of our results. However, there were several expected headwinds in the quarter that contributed to the volume performance. We were cycling significantly high demand in the first quarter of last year when SDRs were up 5.8%. There was also one less trading day in the first quarter this year, which adversely impacted the US brand volume trend by 140 basis points. There were also shipment timing dynamics. In the first quarter of 2024, we deliberately built inventory as we prepared for the possible strike at our Fort Worth brewery, which, as you know, became a reality. And as a result, STWs outpaced STRs by over 750,000 hectolitres. In the first quarter of this year, STWs outpaced STRs by only 200,000 hectolitres. This had a nearly 500 basis point negative impact on U.S. financial volume in the quarter. Further, as we expected, we cycled a combined approximate 590,000 hectolitres of contract brewing volume for PAPs in the U.S. and Labatt in Canada in the first quarter of 2024. This contract brewing volume, which related to agreement that terminated at the end of 2024, had a negative four percentage point impact on America's financial volume for the quarter. Again, while the exit of this contract brewing is a temporary volume headwind, we expect to have a positive impact in 2025 and beyond on mixed margin and brewery network effectiveness. In fact, net sales revenue per hectolitre in the Americas was up 4.8%, In addition to favorable net pricing growth, it was driven by mixed benefits, which largely resulted from the exit of this contract brewing volume. It also benefited from positive brand mix, led by the addition of Fever Tree in the US, which is already showing early positive signs in our investment thesis and its long-term impact on our business. In EMEA and APAC, our financial volume was down 9.7% due to soft industry demand across our regions, and the heightened competitive landscape. However, this was partly offset by net sales revenue per hectare, the growth of 5.4% driven by favorable sales mix, including high effective brand volume and continued premiumization and increased pricing. From a consolidated earnings perspective, we continue to closely manage costs while maintaining strong commercial support for our brands globally. However, lower volumes volume D leverage, higher input costs, and one-time fever tree transition and integration fees of approximately $30 million negatively impacted bottom line results. Our underlying free cash flow was negative $265 million. The first quarter is typically a cash use quarter and our smallest quarter of the year in terms of revenue and profit. Still, we invested $88 million for an 8.5% equity stake in fever tree drinks PLC, and returned nearly $160 million to shareholders through a higher quarterly dividend as well as ongoing share repurchases. Despite a volatile quarter, we continue to view our valuation as compelling, given our belief in our business and in our long-term growth algorithm. In fact, for the first six quarters since the share repurchase program was announced, we had already executed over 40% of this up to five-year program, which if you straight line the number would have us at only 30%. And this belief comes from our commitment to our strategy and our ability to execute it. Through continued brand support and investments in our capabilities and partnerships, we are making progress in advancing our strategic priorities. I'll start with our core power brands. In the US, Coors Light, Miller Light, and Coors Banquet have combined 15.4 volume share as compared to 13.5 in the first quarter of 2023. Said differently, these brands combined were up 1.9 share points since the first quarter of 2023, continuing to demonstrate that the step change improvement in volume share performance is sticky. Please refer to slide 18 in our earnings deck, which highlights our strong and sustained share performance. And very importantly, we have retained the collective unprecedented US shelf space gains for our core portfolio, which we achieved last spring. All this reflects the ongoing strength and resilience of these brands. Coors Banquet's momentum continued to accelerate with brand volume up double digits and growing industry share for the 15th consecutive quarter. And this is no small brand. Banquet is our third largest revenue brand in the US. In fact, it remains the fastest growing top 15 brand in the US on a volume percentage growth basis. And retailers certainly recognize this as evidenced by the 20% distribution gains in the quarter with growing distribution across every channel. And we expect the brand's strong momentum to continue based on the distribution gains that we are seeing with spring resets. And still, Bankwood has only half of the outlets buying compared to Coors Light, and its awareness is significantly below those of other big beer brands. So we are investing to unlock the big opportunity that lies ahead, and we see no reason Banquet can't ultimately become a top 10 U.S. brand. In Canada, Coors Light remains the number one light beer in the industry, while the Molson family of brands gained volume share again this quarter, with gains accelerating in the quarter for this brand with deep Canadian roots. This performance has helped us to drive eight consecutive quarters of share growth despite the challenging industry backdrop. In EMEA and APEC, a number of our core power brands are leaders in their respective markets. Harling remains a top lager in the UK with strong brand equity among its core drinkers in the highly competitive UK beer market. And we have continued to take a value over volume approach, which is weighed on volume performance. In Central and Eastern Europe, OJUSCO in Croatia maintained its position as the segment leader and continued to increase value segment share on a rolling 12-month basis, while CARIMON in Romania, which launched last year and has had strong trials, continued to gain value share of segment in the quarter. This has been despite industry softness in the region related to escalating global political and economic tensions. Turning to our premiumization priority for both beer and beyond beer, in the Americas, Canada continued to premiumize, driven by the ongoing success of Miller Lite, which is the fastest growing major beer brand in this market on a percentage basis, as well as by our flavor portfolio. We are one of only two major brewers growing share of flavor in Canada. In the U.S., many of our premiumization plans for this year are just getting started as we head into peak seasons. In beer, the Blumen brand family held share of industry through February, continuing the share stabilization trends we saw in the second half of last year. In March, Blumen Belgian White was temporarily negatively impacted as we converted from 15 packs to 12 packs to align with broader consumer preferences and given the benefits related to margin, supply chain efficiency, and packaging consistency. And the positive momentum behind our newer innovation Blue Moon non-alk has continued, gaining over a point of dollar share in the non-alk beer segment in the quarter. Turning now to Peroni, the plans we've been talking about for a while now are just starting to kick off. As a reminder, with onshore production, we have unlocked meaningful cost savings, which we intend to deploy towards increased distribution and awareness to drive scale and margin for this brand. Through our strong commercial programs, along with improved continuity of supply and new pack sizes, we are securing more on-premise placements and expanding our presence at retail with placements up nearly 50% in chain. And while it's early days, ultimately, we expect Peroni can rival the size of other major European imports in the U.S. over time. In Beyond Beer, which is an important part of our premiumization plans, non-alcohol is a key focus area. It's part of our strategic ambition to build a total beverage portfolio for a wide range of consumer preferences across both traditional alcohol and non-alcoholic occasions. It provides us with the opportunity to capture more occasions, particularly among younger legal drinking age Gen Z consumers. And we are investing behind the growing areas in non-alcoholic where we believe we have a right to win. Our approach in non-alcoholic is multi-pronged. Within Beyond Beer, it includes pure players like Zoa, alcohol-adjacent products like Fever Treat, and alcohol replacements like Naked Life. Last October, we increased our equity stake in Zoa to a majority position. By leading the entirety of the brand's marketing, retail, and direct-to-consumer sales developments, and leveraging the strength of our network, we believe we can drive brand awareness and distribution. In fact, we have a significant number of new chain retailers coming on board with expanded distribution in several key accounts this spring. And we are continuing to build on our partnership with Dwayne Johnson with a new campaign that delivers an impactful functional message supported by a bigger media push and the early consumer sentiment reads on the campaign are promising. And then there is Fever Tree, the world's leading supplier of premium carbonated mixes with the number one tonic and the number one ginger beer in the U.S. since 2021. Through this strategic partnership, we have the exclusive commercialization rights to the Fever Tree brand in the U.S., its largest market. Fever Tree U.S. volume was approximately 500,000 hectoliters in 2024. So you can see it adds real scale to our non-alk operations. This partnership has had an immediate impact as every single case we sell a fever tree is incremental to our business. And when you consider that Molson Coors has about 500,000 outlets buying as compared to Fever Tree, which has in the tens of thousands, we believe in the upside potential is substantial. And having just completed our distributor RFP process, we are pleased to share that Fever Tree's direct sales to distributors will shift to the Molson Coors and affiliated non-alcohol beverage distributors. The excitement and responses to the RFP from the distributors demonstrate their commitment to taking FeverTree to the next level. So we intend to leverage the scale and strength of our distribution network combined with our marketing capabilities to accelerate FeverTree's growth over time. Turning to EMA and APEC, Madri's net brand revenue was up high single digits in the quarter. continuing to support premiumization in a business for which net brand revenue is already more than half above premium. This four-year-old innovation is already a top 10 brand for us globally, and we see significant runway ahead. In addition to its strong performance in its initial market of the UK and a very successful launch in Bulgaria last year, we just added Madri to our portfolio in Romania in March. Our deliberate expansion of this brand is not just geographic. In March, we launched Madrid 0.0 in the UK to capitalize on the rapidly growing non-alvear segment in the market. Now, before I pass it to Tracy, I'll conclude by saying that these are dynamic and uncertain times. But we are taking steps to protect our profitability and free cash flow while continuing to execute our strategic initiatives, which support our long-term growth objectives. We remain committed to supporting the health of our core power brands globally. We have strong plans to premiumize our global portfolio, building on successes in RMA and APEC and Canada, and executing targeted programs in the US. We expect to build on and leverage our capabilities across our organization that support premiumization and focused innovation, supply chain efficiencies, and commercial effectiveness. And we intend to utilize our greatly enhanced financial flexibility to prudently invest in our business and return cash to shareholders. Our company, through its various iterations, has navigated volatile times for more than a century. And by being proactive and adaptive, we have often emerged even stronger. We remain focused on what we can control, taking actions to help mitigate near-term challenges, while continuing to invest in our business and brand in order to achieve our growth algorithm over the long term. And with that, I will pass it to Tracy.

Thank you, Gavin. Our work over the last several years has greatly improved the efficiency of our business, from supply chain to commercial operations. These efforts have helped to drive an increase in margins over the last two years and support the further expansion opportunity that underpins our long-term growth algorithms. There are multiple drivers that impact our margins. They include pricing, mix, input costs, volume leverage, and cost savings. And the impact of those drivers vary by quarter. In the first quarter, underlying costs of goods sold per hectolitre increased 6.1%. This was mainly due to volume deleverage given the US shipment trends Gavin discussed. In the first quarter, Volume D leverage negatively impacted underlying cost of goods sold per hectolitre by 420 basis points, while in the prior year period, Volume D leverage was 110 basis points benefit. MIX also contributed, driving 220 basis points of the increase in underlying cost of goods sold per hectolitre. This was due to lower contract brewing volume in North America and premiumization in each business unit. But importantly, while these mixed impacts increase cost of goods sold per hectolitre, they are favorable to margin. As for inflation, while we did experience moderated increases in input costs, this was largely offset by our ongoing cost savings and extensive hedging programs. MG&A was up modestly in the quarter as increases in G&A, which included one-time transition and integration fees of approximately $30 million, related to the fever tree partnership, were partly offset by slightly lower marketing. Turning to the balance sheet, at quarter end, net debt to underlying EBITDA was 2.47 times. This was an increase from year-end 2024 as we normally see a sequential uptick in the first quarter given lower cash balances. This ratio is in alignment with our long-term target of under two and a half times and underscores the health of our balance sheet. This, along with the highly cash generative nature of our business, provides us more optionality in the ways that we invest in the business. be it through capital investments that drive productivity improvements or through bolt-on M&A that support our strategic growth objectives. Our recent investments in high-growth non-ALF brands like FeverTree are great examples. It also provides us with the opportunity to return even more cash to shareholders. We paid $99 million in cash dividends and $60 million to repurchase 1 million shares in the quarter. Since the plan was announced in October 2023, we have repurchased 7.2% of our Class B shares outstanding. It's an up to five year, $2 billion plan. And as Gavin mentioned, we have utilized over 40% in just the first six quarters. And as we previously announced, in the first quarter we raised our quarterly dividend to 47 cents. This was an increase of 6.8% and represented our fourth consecutive year of increases, clearly demonstrating our intention to sustainably increase our dividends. And given our share repurchases, we were able to raise the dividends without incurring aggregate higher dividend cash payments. And now I'll conclude with our financial outlook. First, there's a great deal of volatility in the global macro environment. resulting in uncertainty around the effects of geopolitical events and global trade policy, including the impacts on economic growth, consumer trends, and currencies. These impacts are multifaceted and difficult to predict. And while we have included in our guidance our best estimate of some of these factors, external drivers may significantly impact our actual results, either up or down. Fortunately, as Gavin mentioned earlier, While we are a global business, our beers and beverages are generally made in the markets in which they are sold, meaning the vast majority of our brands sold in the U.S. are made in the U.S. with U.S. ingredients. And that is the same for our Canadian business. We have a limited number of brands that we import into the U.S. and their volumes are relatively small. For example, we import Molson Canadian from Canada and Sol from Mexico. again, both very small brands in the US. Also, since a significant portion of our direct materials are sourced domestically or are USMCA compliant, we don't expect a material direct impact from the known tariffs on our input costs. Therefore, we believe we are one of the better positioned businesses in our category. Still, we continue to evaluate options to mitigate exposure and risk. For example, leveraging additional domestic supply where possible. And while tariffs have had indirect impacts, causing fluctuations in commodity costs like the Midwest premium, our extensive hedging program can help to mitigate some of that exposure. Lastly, please remember that net sales revenue and underlying pre-tax income growth guidance metrics are on a constant currency basis, and underlying earnings per share is not. Therefore, fluctuations in the U.S. dollar will impact our reported results as well as underlying earnings per share growth and in the effective period using the current exchange rate. With that said, as Gavin discussed, we have updated several of our guidance metrics due to softer industry trends than we believe most expected, which we attribute to the macro shifts that we have discussed that have driven consumer uncertainty and pressured consumption trends. As such, we have updated certain key guidance metrics. We now expect a low single digit net sales revenue decline on a constant currency basis as compared to low single digit growth previously. A low single digit underlying pre-tax income decline on a constant currency basis as compared to mid single digit growth previously. A low single digit underlying earnings per share growth as compared to high single digit growth previously. Lower capital expenditures incurred of $650 million, plus or minus 5%, as compared to $750 million, plus or minus 5% previously. All remaining metrics are unchanged, including underlying free cash flow of $1.3 billion, plus or minus 10%. Turning to our guidance drivers, our stop line assumes an anticipated annual net price increase of 1% to 2% in North America, in line with the average historical range and for other markets to trend in line with inflation. It also assumes mixed benefits from cycling contract brewing from 2024, as well as from premiumization. In 2025, we expect to continue to grow above premium net brand revenue in EMEA and APAC and Canada, as well as make progress in the US, where, as Gavin shared, we remain committed to turning Blue Moon around and are embarking on big plans for Peroni and non-Alps. While Fever Tree and the consolidation of Zoa provide incremental benefits to the top line, we will also be cycling revenue from the smaller regional crop breweries we divested in the first quarter of 2024. And more significantly, 2024 passed in the back contract brewing volume, as again, these contracts terminated at the end of last year. On a combined basis, we expect a related 1.9 million hectolitre headwind to America's financial volume in 2025. In the first quarter, we cycled about 590,000 hectolitres of this contract brewing volume on a combined basis. We will cycle a similar amount in the second quarter. Also, recall that last year we had higher than typical inventory build in the US related to the Fort Worth strike, which ended in mid-May. As a result, STWs outpaced STRs by approximately 1.1 million hectolitres in the first half, with STWs exceeding STRs by about 350,000 hectolitres in the second quarter of 2024. So given that hurdle in the second quarter, we anticipate that this year's shipment trend catch-up to STRs will occur primarily in the third quarter. Moving down the P&L, we expect fixed benefits from lower contract brewing and increased premiumization, moderating inflation on input costs and productivity improvements and cost savings, to be offset by higher than previously expected volume deleverage given industry volume trends. We continue to expect MG&A to be up for the year. This is largely driven by higher G&A related to our non-alkalicitists, which include infrastructure investments to support our total non-health business, as well as fever tree one-time transition and integration fees. Due to the timing of the RFP process, in addition to the approximately $30 million recorded in the first quarter, we expect to record a remaining amount of under $10 million in the second quarter. However, we expect to recover these fees in the form of a credit to net sales revenue over the next three years. These G&A increases are expected to be partly offset by deliberate actions to manage our near-term cost structure given the current macro environment. For example, we are taking a deliberate and more restrictive approach to our recruitment efforts in the near term, and we intend to reduce certain non-business critical discretionary items like travel and entertainment. As for marketing, we intend to put the right commercial pressure behind our brands. with strong investments behind our core power brands, Peroni, the Blue Moon Family, Madrid, and our Don Alts portfolio. We are also refining and prioritizing our capital projects for 2025. As a result, we are reducing our guidance for capital expenditures by $100 million, postponing certain projects that do not relate to significant cost savings or critical growth initiatives. We are committed to protecting and growing our underlying free cash flow while making prudent capital allocation decisions that support our growth initiative and allow us to return cash to shareholders. To sum it up, these are uncertain times, but we believe we have the right strategy and a healthy balance sheet and strong cash generation to continue to execute it while continuing to return cash to shareholders. we believe we are taking the necessary steps to help protect profitability in the near term while supporting the health of our business and brands in the medium and long term. Now, before we open it up to your questions, Gavin has a few closing remarks. Gavin?