Molson Coors Beverage Company

With that, I'll hand it over to Tracy Mangini, Vice President Investor Relations. Thank you, operator, and hello, everyone. Our discussion today includes forward-looking statements within the meaning of U.S. Federal Security's laws. For more information, please refer to the forward-looking statements disclosure in our earnings relief. In addition, the definitions of a reconciliation for any -U.S. GAAP measures are included in our earnings relief. Given our quarterly performance, including financial and operational metrics and drivers, is detailed in our earnings relief and earnings slides, which were made available earlier today on the IR section of our website, we will focus our prepared remarks on what we believe is top of mind for you, and that is the industry, how we're responding, capital allocation, and our financial outlook. And please note that given the current environment, we are providing a more detailed than typical review of our 2025 guidance drivers. We will then take your questions, and as always, we ask that you limit yourself to one question and then, if needed, return to the queue. With that, I'll pass it over to you, Gavin.

Thank you, Tracy. Hello, everybody, and thank you for joining the call. During the second quarter, we continue to execute against our strategic plans to support our long-term growth objectives and to return cash to shareholders while navigating a challenging and volatile macro environment. As a result of the uncertainty around the effects of geopolitical events and global trade and immigration policies, consumer sentiment in the U.S. has remained at relatively low historical levels. This has continued to pressure consumption trends. These macro impacts in the U.S. have had a disproportionate effect on the lower income and Hispanic consumer, and within beer, these consumer segments have driven a reduction in the number of buyers as well as spend with a shift to singles in the second quarter. In addition, while less impactful, certain regions of the U.S. experienced some severe weather conditions during the quarter, which had a notable impact on the important Memorial Day weekend. These factors have resulted in a much softer U.S. beer industry so far this year than we had previously expected. Recall our guidance issued on May the 8th that assumed the U.S. industry would improve for the balance of the year from down approximately 5% in the first quarter to levels closer to that of the last several years, which averaged down around 3%. But in the second quarter, the industry continued to be down around 5%. Further, the Midwest premium pricing, which is a component of our aluminum cost, has been indirectly impacted by recent U.S. tariff announcements, causing another substantial and unexpected spike in the second quarter. For perspective, and as you can clearly see on slide 19 of our earnings deck, in July, the Midwest premium jumped to 68 cents per pound, an increase of over 180% since January. As a result of these macro drivers, and to a lesser degree lower than expected share performance, we are reducing our top and bottom line guidance for 2025. We now expect net sales revenue to decline 3% to 4% on a constant currency basis as compared to a low single digit decline previously. The range assumes U.S. industry volume will decline between 4% and 6% for the second half of the year. We now expect underlying pre-tax income to decline 12% to 15% on a constant currency basis as compared to a low single digit decline previously. The range includes, for the second half of the year, incremental costs specific to the Midwest premium of $20-35 million, which assumes a respective price per pound of $0.75. This is partly offset by lower expected incentive compensation given the change in outlook. As a result, we now expect underlying earnings per share to decline 7% to 10% as compared to low single digit growth. However, we are reaffirming our underlying free cash flow guidance of $1.3 billion, plus or minus 10%, as we expect higher cash tax benefits and favorable working capital to offset the guidance decline for underlying pre-tax income. Tracy will speak to our guidance in more detail in a moment. But first, I want to stress that we continue to view the incremental softness in the industry performance this year as cyclical, driven by the macroeconomic environment. And this belief, in our view, is clearly demonstrated by the execution of our share repurchase program, well ahead of our original expectations. While US consumer basket sizes are smaller in the current environment, the percent of alcohol in those baskets has remained the same. And legal drinking age consumers continue to engage with beer at similar levels across all generations. And compared to historical levels, it's the occasions that are less. Recognizing this, our strategy was built to develop a portfolio that appeals to a wide range of preferences and captures more occasions. So as we navigate these macro pressures, we are continuing to execute this strategy and prudently invest behind our business. To build on the strength of our core power brands, to premiumize our business in both beer and beyond beer, and to develop and leverage our capabilities and partnerships to support profitable growth. In the US, our core power brands, Coors Light, Mellow Light, and Coors Banquet, have retained the unprecedented shelf space gains achieved in spring of 2024. Collectively, they commanded a 15.2 volume share of the industry for the first half of the year. Recall that three years ago, these brands collectively commanded .4% of the US industry. And what's clear in the scanner data, and as shown on slide 20, is that these brands have held most of their share gains from the last two years through the second quarter. Banquet in particular has been a strong performer. After 16 consecutive quarters of share growth, it was a top five volume share growth brand in the quarter. And given it's in only about half the buying outlets of Coors Light, we believe there is significant distribution runway ahead. In fact, Banquet gained over 15% distribution in the first half of this year, growing across every channel and on top of over 15% growth in the same period last year. In Canada, despite a challenging industry backdrop, the Molson family of brands with its deep Canadian roots, posted another quarter of volume share gains. While Coors Light, which is proudly locally produced, held its number one life bear position in the industry. In Ameri and APEC, the industry in the UK has remained highly competitive. And in the central and eastern region, it continues to experience softness related to global, local, political and economic tensions. But our brands like Carling in the UK and Azusco in Croatia remain segment leaders in their respective markets, which we intend to continue to support with targeted commercial plans. Turning to premiumization, as we have said for several quarters now, in the US, there has been a shift to value seeking behaviors. But it has been focused on pack size rather than on brands. And despite the pressure on the consumer, the industry continues to premiumize, albeit currently at a slower pace. So we remain committed to our premiumization plans, which are focused on both beer and beyond beer. Over the last few years, we have talked a lot about our premiumization successes outside the US. In Ameri and APEC, it's been fueled by a hugely successful innovation in Madrid, which we believe still has significant runway, both in its initial market of the UK and through recent geographic and brand extensions. In fact, in the latest 12 weeks as of June 14, Madrid had overtaken Peroni to become the number two brand in the world lager segment and number four bear overall in terms of value across total trade in the UK. In Canada, premiumization has been led by the ongoing strength of Mille-Lite and our Flavour portfolio. But in the US, our largest market, we are under indexing the bulk premium, which makes it a big opportunity. Our Peroni plans that began in the second quarter are starting to show positive results with the brand growing volume double digits in the last 13 weeks through July 27, supported by continued growth in chain and on-premise placements. And while smaller for now, we are encouraged by our innovations. Blue Moon Non-Owl continues its rapid growth and we are seeing growing placements for our new higher ABV brands, Blue Moon Extra, Simply Bold and Topo Chico Max Margarito. These higher ABV brands not only support our push to expand in seastores, but are particularly timely given current value seeking behaviors. And while these innovations are helpful to their respective brand families, we recognize the challenges of their big flagship brands and are focused on stabilizing them. For example, with Blue Moon, we have completed the pack size conversion to 12 from 15 packs. This was a near-term volume headwind, but it's very positive for margin. In the on-premise, which is a big channel for Blue Moon, we saw dollar share trend improvement during the second quarter. And in the third quarter, we have been ramping up a new national advertising campaign with comedian Colin Jost. And then there is Non-Owl. Fever Tree is now our highest NSR for Hickley, the brand, aside from full strength spurs. While we began to consolidate Fever Tree into our financials in February, we only completed the distribution network transition in June. And the incoming distributors are very excited about the opportunity to significantly expand Fever Tree's presence across both existing and new channels and buying outlets. It's early days, but the brand has already contributed meaningfully as the key driver of positive brand mix in the Americas. And while Fever Tree is already the world's leading supplier of premium carbonated mixes with the number one tonic and the number one ginger beer by value in the US, we believe we can accelerate its growth in the US over time by leveraging the scale and strength of our distribution network combined with our marketing capabilities. Now, before I pass it to Tracy, I'll sum it up to say it's been a difficult start to the year, but we viewed beer as resilient. And amid a challenging macro backdrop, we are focusing on what we can control to position our portfolio and our business for long term success. That means keeping our core power brands healthy, continuing to premiumize in the mayor and AIPAC in Canada and successfully executing our plans in the US. Leveraging our deep capabilities across our organization to support premiumization and focused innovation, supply chain efficiencies and commercial effectiveness. And utilizing our enhanced financial flexibility to prudently invest in our business and return cash to shareholders. And with that, I will pass it to Tracy.

Thank you, Gavin. We are very pleased with the health of our balance sheets and our strong cash generation. And this is particularly important during a challenging macro environment as it allows us to continue to invest behind our brand to help ensure their long term health, to continue to make capital investments that support our growth initiatives and cost savings plans. And to not only pay what we view as a competitive dividend, but also execute a meaningful share researches program as we continue to believe our stock is a compelling investment. In fact, we have raised the quarterly dividend each year since 2021. And we have actively executed our current share researches plan since it was announced in October 2023. We have repurchased .4% of our Class B shares outstanding. It's an up to five year, two billion dollar plan. And we have utilized almost 55% in under two years. For perspective, if we had executed it on a straight line basis, we would have only utilized 35% of the plan so far. With that, let's discuss our financial outlook. First, the impact of the global macro environment are multifaceted and difficult to predict. And while we have included in our guidance our best estimate of some of these external drivers may significantly impact our actual results, either up or down. As it relates to tariffs, as we have previously said, while we are a global business, our products are generally made in the markets in which they are sold and with locally sourced ingredients. So we don't expect a material direct impact from the known tariffs on our input costs. That said, tariffs do have indirect impacts, like the recent spike in the Midwest premium pricing. While our extensive hedging program can help to mitigate some of the impacts due to the guardrails of our program, we are never fully hedged. Further, given its opaque pricing and at times limited liquidity, hedging the Midwest premium can be difficult and expensive. And for these reasons, the Midwest premium is one of the commodities for which we currently have the least amount of hedged coverage. With that, let's discuss the drivers of the guidance Gavin outlined. Our top-line guidance range now assumes the US industry is down 4 to 6 percent for the second half of the year. Our price mix assumptions are unchanged. We expect an annual net price increase of 1 to 2 percent in North America in line with the average historical range. We expect mixed benefits from cycling contract brewing from 2024, as well as from premiumization. We expect to grow above premium net brand revenue in EMEA and APAC and Canada, as well as make progress on our US above premium initiative. Fever tree and the consolidation of ZOA are incremental to the top line, but we are also the divestiture of the smaller regional craft breweries in the third quarter of 2024 and more significantly 2024 PAPS and the BAT contract brewing volume as these contracts terminated at the end of last year. We expect the related America's contract brewing headwind to be 1.9 million hectoliters in 2025. In the first half, we cycled over 1.1 million hectoliters and we will cycle over 450,000 hectoliters in the third quarter. Also, last year we had higher than typical first half inventory build related to the fourth wave strike, which ended in mid-May. As a result, STWs uppaced STRs by 1.1 million hectoliters in the first half of last year. This year, STWs uppaced STRs by 800,000 hectoliters in the first half. So year on year, we had an approximate 300,000 hectoliters shipment timing headwind in the first half that we expect to reverse in the second half and mainly in the third quarter. Note that we did have some shipment trend catch up to STRs in the second quarter, which had an approximate 150 basis point positive impact on US financial volume in the quarter. We had previously not expected to build higher than last year, given the cycling of the fourth wave strike. However, we were able to ship further ahead of STRs than expected due to the softer than anticipated industry demand. For a detailed review of these US shipment trends, please refer to slide 21. Moving down the P&L, we expect mixed benefits from lower contract brewing and increased premiumization as well as productivity improvements and cost savings to now be more than offset by higher volume deleverage given the industry volume trend as well as higher Midwest premium costs. For the full year, this would result in Midwest premium costs exceeding the prior year by $40 to $55 million. We now expect MG&A to be down slightly for the year as we now anticipate lower incentive compensation due to the adjusted outlook for this year. Also, and to a lesser degree, the fever tree one-time transition and integration fees were less than expected, totaling approximately $30 million in the first half of the year. Again, these fees will be recovered through net sales over the next three years, beginning in June. As for marketing, our plans are unchanged. We intend to continue to put the right commercial pressure behind our key brands and innovations, including our core power brands, Peroni, the Blue Moon family, Madrid and our non-alch portfolio. While marketing investment was down in the second quarter cycling up spend in the prior year period, we expected to be up in the third quarter due to the timing of our commercial plans and lower spend in the same period last year. As a result, we expect marketing investment in the peak summer months to be consistent with prior year period levels. We are also likely adjusting our net interest expense outlook. We now expect $225 million plus or minus 5% as compared to $215 million plus or minus 5% previously. This is driven by lower cash balances, including the impact of higher share of free purchases as well as foreign currency impact. And lastly, we are reaffirming our underlying free cash flow guidance of $1.3 billion plus or minus 10%. In closing, with a strong global brand portfolio, healthy balance sheet and strong cash generation, we are confident in our ability to navigate these challenging times while supporting the long term health of our business and brands. We are committed to protecting and growing our underlying free cash flow while making prudent capital allocation decisions that support our growth initiatives and allow us to return even more cash to shareholders. With that, we will take your question. Operator.