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Presentation

Operator: Good day, and welcome to the Molson Coors Beverage Company First Quarter Earnings Conference Call. You can find related slides on the Investor Relations page of the Molson Coors website. With that, I’ll hand over to Greg Tierney, Vice President of FP&A Commercial Finance and Investor Relations.

Greg Tierney: All right. 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 our IR department in the days and weeks that follow. Today’s discussion includes forward-looking statements. Actual results or trends could differ materially from our forecast. For more information, please refer to the risk factors discussed in our most recent filings with the SEC. We assume no obligation to update forward-looking statements, except as required by applicable law. GAAP reconciliations for any non-US GAAP measures are included in our earnings release.

Unless otherwise indicated, all financial results the company discusses are versus the comparable prior year period, in US dollars and in constant currency when discussing percentage changes from the prior year. Also, US share data references are sourced from Circana, unless otherwise indicated. Further, in our remarks today, we will reference underlying pre-tax income, which equates to underlying income before income taxes as defined in our earnings release. So with that, over to you, Gavin.

Gavin Hattersley: Thanks, Greg, and thank you all for joining us this morning. In the first quarter, Molson Coors once again delivered against our commitments, growing the top and bottom line while making strong progress on our acceleration plan. We grew net sales revenue by over 10%. We grew underlying pre-tax income by nearly 69%, and we drove significant margin improvement in the first quarter. This morning, we reaffirmed our full year guidance, which Tracy will discuss in more detail shortly. To sum it up, we remain confident in our ability to grow the top and bottom line for a third consecutive year, but cautious about current trends in the industry. The US beer category has been challenged so far this year. While we did see some improvement in March, there was also volatility in the industry and mismatched weeks such as Easter.

So we’re keeping a close eye on April’s trends and taking those into account for the balance of 2024. In spite of this volatility, we remain confident in our ability to achieve top and bottom line growth in 2024. We also remain confident in our ability to achieve our long-term growth algorithm. In the first quarter, we grew brand volume and net sales per hectoliter in both business units, and our share gains in the US were consistent with the gains we saw in the second half of 2023. Having said that, we aren’t the only ones who are confident in our business. Retailers are also confident, having allocated around 13% more space for Coors Light and Miller Lite in the US during spring resets, which supports our confidence that these share shifts are structural.

Our distributors are also confident, which is why we expect our core brands to grow distribution this year. And across the globe, we have strong commercial platforms that are designed to serve our brands in 2024 and the years to come. With that, let’s get into how our business performed in the first quarter. And I’ll start with the first priority of our acceleration plan, growing the revenue of our core brands. Collectively, our core brand started 2024 strong, including double-digit brand volume growth for Coors Light and Coors Banquet in the US, high-single-digit brand volume growth for Miller Lite in the US and double-digit brand volume growth for Ožujsko in Croatia. In the past four months, we’ve launched new long-term campaigns across our core brands, starting with Coors Light during Super Bowl.

Shortly thereafter, in the US, Coors Light became the top dollar share gainer year-to-date in the on-premise per Nielsen. Miller Lite is a close second and their combined success has fueled 12 consecutive four-week periods of industry-leading on-premise growth for Molson Coors, four times more growth than the next largest competitor. In Canada, Coors Light is seeing similar success and grew nearly a full share point of the industry year-to-date. As I hinted earlier, Coors Light momentum is anchored by our new campaign Choose To. This is an evolution of Coors Light made to Chill campaign, which helped turn the brand around. Choose Chill is more active for consumers and more connected to the refreshment and lifestyle Coors Light represents. You’ll continue to see Choose Chill as we launch a new music program this summer and expand Coors Light’s presence in soccer and football.

We believe work like this has driven Coors to become a trusted and desirable brand for consumers, which is true for Coors Banquet as well. Of the growing brand volume by nearly 20% in 2023 in the US Banquet grew volume by 23% in the first quarter and gained nearly 0.25 point of industry dollar share. I’ve already spoken about spring resets. But while we’re talking about Banquet, I want to share the significant distribution growth we’ve seen for this brand and expect to continue seeing moving forward. In 2024, Banquet is expected to grow distribution by nearly 20%, driven by surging demand in parts of the US where Banquet has historically under-indexed like the Southeast and Great Lakes. This is what happens when consumer demand fuels distributor and retailer confidence.

This year, we plan to keep driving banquet with more television media pressure, TV advertising for the first time in several years and several large programs with current and new partners across television, music and apparel. Turning to Miller Lite, which grew its US brand volume by high single-digits in the first quarter on top of strong comps from the prior year. In March, Miller Lite launched its new All Stars program, reinvigorating the debate about where the Miller Lite taste great is less filling or both. This campaign brought on a new roster of long-term celebrity partners like J.J. Watt, Reggie Miller, Big Puppy, Jorge Posada and Mia Hamm. The early response has been very strong, and we have more planned for the Olympics, Major League Baseball and Football.

Now in Canada, Miller Lite sales is an above premium price point. And year-to-date through February, it was the fastest growing above premium beer nationally, growing its brand volume by over 40%. Speaking of Canada, the Molson trademark also outperformed the industry and gained volume share. In March, we announced a multiyear partnership with the professional women’s Hockey League, which was very positively received by fans and retailers alike. Similar to other women’s sports, viewership for the PWHL has surged this year with broadcast and in-person attendance, both at record highs. We’re excited to continue this partnership and Molson will also have a strong presence at the Olympics this summer as the official beer sponsor of Team Canada.

Moving on to the UK Carling’s partnership with the FA Cup began coming to life across TV, digital and retail in the first quarter. And we believe this is the perfect sponsorship that Carling up for sustained success. According to our data, Carling is more associated with professional soccer than any other beer in the market. At a 35% association, it’s nearly double the next competitor. Rounding out our core is Ožujsko which has continued its strong momentum in Croatia and now has a 54% value share of the core segment. Ožujsko is much loved locally, but also by the many travelers who visit Croatia each year, and we’ve just launched a new equity campaign nationally to continue growing the brand. So, our core brands have collectively continued to perform strongly in 2024, and we believe we have the right commercial plans to keep them growing for years to come.

Now, turning to our high-end brands. It’s clear we have lots of runway in every part of our portfolio. In the first quarter, Madri Excepcional continued its substantial growth. In the U.K., the brand grew value sales of the on-trade by nearly 50% and value sales of the off-trade by over 40%. Madri is currently the number three world beer in the U.K. total trade, and we have been consistently closing the gap to number two. To keep the pressure on, we launched a new campaign in April that brings the soul of Madri to the U.K. and focuses on growing Madri’s awareness. While Madri continues to grow at a strong base in the U.K., you’ll recall we also brought the brand to Canada in late February. And while it’s still early days, Madri has already made it into about 6,000 accounts across the country, we believe the brand has performed very well so far.

Beyond Madri’s success, there are other parts of our high-end portfolio that we’re actively working to improve, specifically Blue Moon. Between February and March, we launched new Blue Moon packaging in the U.S. a new name for Blue Moon Light and a large-scale campaign called Made Brighter. So, our full-scale revamp has taken shape. And while it’s too early to know the full effect we are seeing early signs of positive traction. We’re also seeing great performance for Blue Moon non-alc, which is now the top-selling new non-alc beer of 2024. There have been about 30 non-alc beer launches in the U.S. this year as well as increasing competition. So, there is a truly strong sign as the brand continues to gain distribution and share. While we certainly have more to do on Blue Moon, we are committed to driving the turnaround, and we are happy with the progress thus far.

Speaking of progress, it was a fast start to the year for Simply Spiked, which grew U.S. brand volume by nearly 35% in the quarter. Simply Spiked Lemonade hit shelves in February and while we are still growing distribution, our variety pack already holds the number one new item spot for the flavored alternative segment since its launch. Simply Spiked had a major media presence during March Madness, along with Coors Light and Miller Lite, we’ll continue to focus on sports as a primary patient point for Simply Spiked consumers throughout the year. And while it’s still early days for our new brand, Happy Thursday, which just launched in April, we’ve seen a very positive response from consumers so far, and we look forward to building the brand as we approach the peak summer selling season.

So, as you can see, we are delivering on our long-term commitment to grow the revenue of our core power brands with strong overall performance across the world. We are delivering with the strength of high-end brands like Simply Spiked and Madri Excepcional and we are beginning to see positive traction on other key areas of our high-end portfolio, such as Blue Moon. And finally, we are delivering on our commitment to enhance our capabilities with a large investment in our Golden Brewery nearing completion and a $100 million investment plan for our U.K. operations over the next five years, which we believe will ensure world-class production of our brands today and in the future. We are committed to our overall long-term strategy. We have delivered against it over the last three years, and we plan to continue delivering against it year-over-year.

And with that, I’ll turn it over to Tracey to share some details on our financials and drivers of our guidance.

Tracey Joubert: Thank you, Gavin. We are proud to report another strong quarter. Net sales revenue grew an impressive 10.1% on strong Americas’ volume and favorable net pricing across both business units. This top line strength, coupled with volume leverage and ongoing cost savings drove meaningful margin expansion, while we continue to invest strongly behind our brands. As a result, underlying pre-tax income grew 68.8%. Now many of the details can be found in our earnings release and slides, so I’ll focus on our prepared remarks on some of the key metrics and drivers of our quarterly performance, and our outlook for the year. Our double-digit top line growth was driven by both volume and price mix. As planned, we executed global net pricing increases in the quarter.

We also had favorable mix, which was driven by lower PET contract brewing volumes. This led to a 4.2% increase in net sales per hectoliter driven by both business units. Financial volume grew 5.7%, driven by the Americas. In the US, financial volume increased 7.6% and despite an approximate 3% or nearly 350,000 hectoliter Americas headwind related to the exit of low-margin at contract brewing volume. Our US domestic shipments benefited not only from continued strong demand, but also shipment timing. We typically build inventories in the first quarter ahead of peak season. But this year, we built more than usual in the US. This was due to elevated consumer demand and measures taken under our contingency plan related to the Fort Worth brewery strike that commenced in mid-February.

For context, this year, our first quarter shipments to distributors exceeded brand volume by over 750,000 hectoliters. While in the prior year, first quarter shipments exceeded brand volumes by roughly 100,000 hectoliters. This US shipment timing was a driver in the financial volume growth exceeding brand volume growth. Consolidated brand volume growth was 4.4%, with growth in both business units. Americas growth was led by the US, which was up 5.8%. The growth was driven by continued strength of our core brands, the Coors Light and Banquet each up double-digits and Miller Lites up high single-digits. In addition, our key innovations, like Simply Spiked grew. Canada also contributed to brand volume growth. While the Canadian industry has improved since the fourth quarter, it remains challenged.

So we continue to take meaningful volume share, increasing brand volume by 3.6%, driven by our above premium portfolio. In EMEA and APAC, brand volume increased 1.9%, driven by growth in Central and Eastern Europe as inflation pressures ease, partially offset by challenges in the UK off-premise. Turning to costs. Underlying cost of goods sold per hectoliter was up a modest 0.9%. Inflation while moderating, continued to be a headwind, but was largely offset by 110 basis point benefit from volume leverage. The volume leverage was driven by the Americas business. This, along with lower logistics costs more than offset the impacts of direct materials and manufacturing inflation, which resulted in Americas underlying cost of goods sold per hectoliter being essentially flat.

In EMEA and APAC, underlying cost of goods sold per hectoliter increased 3.3%, which was a significant improvement from last year. The increase was due to higher direct materials and logistics costs as well as premiumization of our portfolio. We continue to invest strongly behind our brands globally, increasing marketing spend for our core power brands in particular. This included showing up in a big way in live sports at the Super Bowl, March Madness and the FA Cup as well as supporting the launch of the new Blue Moon campaign. Turning to capital allocation. We deployed $144 million in capital projects, which support ongoing productivity and cost savings programs as well as our sustainability initiatives. Our golden brewery modernization project, which is nearing completion, is a great example of this.

And we continue to return cash to shareholders. We raised our quarterly dividend again by 7% and we’re active in executing our $2 billion share repurchase program that was announced last October. Utilizing our sustained and opportunistic approach, we repurchased 1.8 million shares for a total cost of approximately $110 million in the quarter. Since the inception of the plan in the fourth quarter of 2023, we have already repurchased 4.3 million shares for a total cost of approximately $260 million. Now let’s discuss our outlook. We are reiterating our 2024 guidance given that we are early in the year and in particular, our portion around the US and Canada beer industries, which we have shown — which have shown accelerated softening in early April, we believe that this is a prudent approach to take.

Now while the detailed list of metrics is in our earnings release and slides, I’ll highlight the primary ones. We continue to expect 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 and underlying free cash flow of $1.2 billion, plus or minus 10%. Now let’s talk about our guidance assumptions. Our goal is typically to ship to consumption for the year, and this is true for 2024. So given the strong US domestic shipment volumes in the third quarter resulting in a significant gap between shipment and decisions as I quantified, we expect US brand volumes to exceed shipment volumes during the balance of the year.

The termination of the PAP contract brewing agreement at the end of this year is expected to be a 1.6 million hectoliter headwind to America’s financial volumes over the remaining three quarters of the year. We expect positive price mix, and we continue to expect pricing in the US and Canada to be between 1% and 2%, in line with historical averages and for pricing in EMEA and APAC to trend in line with inflation. We also expect premiumization supported by our expanding above premium portfolio. This includes brands like Madrid with its strong momentum in the UK, along with its recent expansion into Canada and Bulgaria as well as by anticipated improvements in the Blue Moon brand family. It also includes flavor as we enter the summer with three winning flavors for Simply Spike as well as our new innovations, Happy Thursday.

We believe these brands should keep us moving towards our medium-term goal of reaching approximately one-third of our global net brand revenue from our above premium portfolio. On the cost side, we expect underlying cost of goods sold per hectoliter to increase due to continued, albeit moderating inflationary pressure, including material conversion costs, higher costs related to premiumization, and lower volume leverage impact as compared to 2023 and the first quarter of 2024. We continue to expect MG&A for the year to be roughly in line with 2023. This entails strongly supporting our core power brands and key innovations globally. This is especially true around peak season as we lean into media at both local and national levels and with robust retail programming that drives consumer engagement.

In summary, our strong momentum in 2023 has continued into 2024. This shows that our strategy is working with strong brands, supportive distributor partners and the financial flexibility to balance growth and reinvestment with confidence in our ability to deliver our guidance in 2024 and on our long-term growth algorithm in the years to come. And with that, we look forward to answering your questions. Operator?

Operator: Thank you. We will now open up for Q&A. [Operator Instructions] Our first question today comes from Bonnie Herzog from Goldman Sachs. Your line is now open. Please proceed.

Bonnie Herzog: All right. Thank you, Good morning, everyone. I guess I have a question on your quarter and then guidance. I guess, first, were your Q1 results better than you expect or more in line with your expectations? And maybe I’m asking specifically on the shipments, given some of the items you called out? And then you did reaffirm your guidance for the year out of prudence given the softer industry data we’re seeing in early April. So could you maybe just give us a little bit more color on what you’re seeing, and if some of your concern that the weakness could be more structural in nature? I guess, I’m just trying to understand how this impacts your positioning, especially given all the shelf base you’ve gained recently. Thank you.

Gavin Hattersley: Thanks, Bonnie, good morning. Look, I would say for the first quarter, our shipments certainly were higher than what we were expecting. We were obviously planning to ship higher than our brand of volumes. But our supply chain team did a tremendous job actually exceeding our expectations each and every week. As you know, we have a strike down in Fort Worth, and we have a contingency plan and the contingency plan is working better than we had originally expected. So short answer is yes, Q1 was better. And we would expect, obviously, that over shipment to come back over the next nine months because we always try and ship pretty much to consumption over the year. Given the strong – how strong summer always is for us from a shipment point of view, we would expect more of that to come back in the back half of the year than we would in the front half of the year.

From an overall industry point of view, the year didn’t start off that well from an industry point of view that was mostly attributable, we believe, to broader weather conditions across the country. March did come back quite nicely, although it was still down, but it came back compared to January and February. And then April has been pretty choppy from an industry point of view. The first two weeks were not good. Obviously, there were some dislocations there like — and timing issues like Easter, which moved into Q1. But it’s been pretty noisy. The third week actually was a little better, actually quite a lot better than the first two weeks of April. So a lot of volatility at the moment, a lot of holiday mismatches and that drove us to be just a little bit more cautious about the outlook for the industry.

And as I’ve said in the past, the industry will largely land on how summer goes because it’s obviously a really big selling part of the year. And so we’ll have a much better idea of where the industry is going to land for the full year as we start to head into summer. So I just provide a little bit of context on.

Operator: Our next question comes from Andrea Teixeira from JPMorgan. Your line is now open. Please go ahead.

Andrea Teixeira: Thank you, operator. And good morning, everyone. So I was just hoping, Gavin, what you said now about April I mean, a couple of questions there. If you can help us with the STRs in April? And where do you think the softness coming from? Is that from the carry across all income levels on mostly low-income consumer? And on that, if you’re seeing anything to call out in the economy segment. And as we look at your point, a lot of softness in the category, as we look at the track channel data and as you lap what are you going to lap now the benefit from what happened to your competitor? How can we judge your shelf gains, which are substantial, of course, you called out in the last earnings call, and I’m assuming you can elaborate a little bit more on that?

So how can we judge your share gains and how sustainable you said in your prepared remarks that you feel a lot of that is sustainable. So if you can elaborate on that first on the category, STRs and then on your shelf space gains. Thank you.

Gavin Hattersley: Thanks, Andrea. Yes, a lot of questions in that question. So let me try and cover it off. And let me start with April, right? I mean, obviously, I understand the desire to monitor the industry on a week-by-week basis as we lap the Aguila, which we saw in 2023. We did highlight months ago that Q2 comps were going to have a lot of noise. And it was going to be hard to credibly measure what was happening on a weekly basis. And if we stand back and look and look at the big picture, right? I mean, the decline of Bud Light and the explosive growth that we saw in our brands was staggered over several weeks. It didn’t just happen overnight. So that was last year. And obviously, the industry took pricing this spring, which didn’t happen in the spring of 2023.

As I said in response to Bonnie’s question, there was an Easter mismatch since the holiday was in the second quarter of last year and in the first quarter of this year. And then as you say, the shelf resets, which are going to give our core brands substantially more space in stores across America, 13% for Miller Lite and Coors Light and almost 20% for Coors Banquet, which is not a small brand for us. And the vast majority of stores haven’t completed their shelf resets, their shelf adjustments yet. So we know for a fact that there’s a lot of upside to come from that. I don’t believe any of us have seen such a dramatic shift in shelf space before. So I don’t have a ready formula to offer you from a volume perspective. But what I do know and what I do believe is that more space equals more volume.

It’s not a bad thing to be getting all this extra space hard to see how 13% extra shelf space and 20% extra on Coors Banquet doesn’t translate into a positive outcome. From an overall industry point of view, I think the answer there is a little more challenging, right? We haven’t seen any data that suggests that GLP-1 is, for example, which I know is often cited as an issue, although that has quiet and down we don’t have data to suggest that that’s having a meaningful impact on the alcohol space. I do think that we’re living in very volatile times. I do think that inflation is proving to be a little more, sticky than folk expected, and interest rates are higher and staying for longer. So I do see cautious behavior from consumers. And when you lump all of these things together, that does, as Tracey said in her remarks lead to us being a little bit more cautious and prudent as to how we see the industry going forward.

But at the same time, we are confident in our ability to drive to our guidance this year for, I think, the third year in a row. And we’re confident in our long-term algorithm. So I hope that helps, Andrew. And I hope, I covered off on all your questions, in that one question.

Operator: Our next question comes from Bill Kirk from ROTH MKM. Your line is now open. Please proceed.

Bill Kirk: Hey thank you everyone. So after 1Q with the underlying income be, the guidance now seems to imply underlying income down low single-digits for the rest of the year. And I guess the question is why would that be if price/mix is ahead of COGS per hectoliter inflation, M&A is flat or MG&A is flat and you have the shelf space gains why would the next nine months be down year-over-year for underlying income?

Gavin Hattersley: Well, thanks, Bill, and good morning to you. Look, I think I would draw your attention to the comment I just made around shipments, right? If you look at what happened in Q1, we were about 750,000 hectare liters shipped higher than brand volume. If you look at what we did last year, it was 100,000 hectoliters higher than brand volume. So we have 650,000 hectoliters above consumption, which we would expect to come back in the next nine months, mostly, as I said, in the second half of the year. This was a little better than we had originally expected as I responded to Bonnie’s question because our supply chain is doing a tremendous job keeping up with supply and our contingency plan is we’re outperforming our contingency plan every single week.

We did very deliberately increase our shipments in Q1 so that we could meet the extra momentum that we expect and that we could meet the extra demand that the shelf resets will give us. But I would draw your attention to that as being the primary driver, Bill, as we head into the last nine months of the year.

Operator: Our next question comes from Peter Grom from UBS. Your line is now open. Please go ahead.

Peter Grom: Thanks operator. Good morning everyone. I don’t want to kind of beat a dead horse here, but Gavin, you and the team have been pretty confident in your ability to hold share as we lap these gains. And we can all look at the data, and I don’t want to overemphasize me, but we are starting to see both Coors Light and Miller Lite lose share. Now it doesn’t seem to be at the expense of your largest competitor, but just kind of maybe a follow-up on Andrea’s question. Are you kind of assuming that what we’re seeing in the last couple of weeks here is really noise and as these shelf resets happen, you’re going to see kind of an improvement in share sequentially? And then just a following up on that, I think you mentioned that a large percentage of the shelf resets are still to come. Is there any way you can help us understand what percentage of that is or how much has happened already? Thanks.

Gavin Hattersley: Thanks Peter. Yes. Look, I mean, obviously, from an April point of view in the choppiness, I’ll refer you to my response to maybe it was Andrea’s question or Bonnie, I’m not sure. But we’re confident we can lap the results that we had from last year. We believe that we’ve created a new foundation on which to grow. Our shares held for more than a year now. And our first quarter share gains are consistent with the gains that we experienced in the second half of 2023. Our core brands in the US now hold around 15.6% volume share of the industry. That’s up over 2 share points from the beginning of 2023. And as I said earlier, we expect to see choppiness in Q2 when the 2023 gains were at their highest. So I would be careful about drawing conclusions from week-to-week share data this month.

As I said, our share gains in Q1 are consistent with where we were in the second half of last year. And in April, despite starting to cycle some of the big gains we had last year, our rolling 52-week volume share, which is around 23.1%, I think — three weeks in is exactly the same as it was at the end of Q1. From a shelf resets point of view, we either draw or validate about 50,000 planograms in a year. And so we’ve got a really good understanding of what’s going to happen from a shelf reset point of view. And we feel confident in the numbers that we’ve given of 13% extra for Coors Light and Miller Lite, and almost 20% extra for Coors Banquet. As to timing, as I said, the vast majority of our retailers have not completed their, the shelf resets.

This takes place from April can go all the way through to July actually. So we’ll expect to see the benefits of that as we head through Q2, Peter.

Operator: Our next question comes from Steve Powers from Deutsche Bank. Your line is now open. Please go ahead.

Steve Powers: Hey. Good morning. Thanks. Hi, Gavin. I just wanted to — I mean, we talked about this a little bit, but just I want to contrast your comments today against comments at CAGNY, when you sounded just a lot more upbeat about underlying trends across the industry and the prospects of beer. The tone today seems just much more cautionary just a few months later, despite, I think, very reasonable guidance to us to not overly focus on a few weeks of choppy data. So is this just tactical prudence? Or are you seeing things that are making you kind of rethink some of the optimism at least I heard you express it at CAGNY. Thank you.

Gavin Hattersley: Thanks, Steve. Look, from an overall industry point of view, I mean, we are more cautious, right? I mean the first two weeks of April were pretty grim, from an industry point of view, and did bounce back a little bit in the third week, but we’re still down. So yes, I would say from an overall industry point of view, we are more cautious since CAGNY as more data has come in, and particularly the first couple of weeks of April. Now Steve, I think it’s important that we do put that cautious note out there, given what we’ve just seen over the last three weeks. But we won’t know exactly what’s going to happen with the US beer industry until I think we’re through summer, and we see what transpires in summer. From an overall guidance point of view, we are confident that we can deliver our guidance that we’ve issued this year. And that’s why we reiterate, despite the caution that we have in the overall industry trends that we’re seeing at the moment.

Operator: Our next question comes from Brian Spillane from Bank of America. Your line is now open. Please go ahead.

Brian Spillane: Excuse me. Thanks operator. Good morning, Gavin, Tracey. I’d like to get your perspective on two things, if I can, Gavin. One is just if you could give us a sense of on versus off-premise performance, both, I guess, in the Americas and in Europe, actually specifically UK. Just trying to understand if there’s any distinction in the softness we saw in the US, whether it’s more concentrated on or off trade. And then just the second is just simply as you’re looking at the Americas or at the US and the off-premise is there anything we can read into just how volumes are performing around, I guess, like merchandising events. I guess trying to understand, are consumers stocking up when there’s promotions? Is there less stock-up behavior? Just trying to understand if there’s anything we can glean in terms of the kind of consumption behavior.

Gavin Hattersley: Thanks, Brian. Let’s look at the UK. I think that was the thrust of your earlier first part of your question. In the UK, the consumer, as we’ve been saying for quite some time now has been quite resilient, particularly in the face of the severe inflation that we saw there. From an on-premise point of view, continues to perform well, right? And from our perspective, we continue to hold volume share. Where we are seeing a decline from our perspective and more broadly, right, is there was obviously a fairly large excise tax increase in the off-premise specifically to try and close the gap between the off-premise and the on-premise in the UK from a tax point of view. But we are also seeing significantly more competitive promotional activities in the off-premise in the UK, which we have not followed.

And so that’s impacting our share in the off-premise in the UK negatively. On the flip side in Central Eastern Europe, we were pretty cautious about that market last year given the impacts of inflation and the overall economy energy prices and so on, on consumers’ disposable income. And thankfully, we’re starting to see that trend reverse in this year, as consumers’ confidence has improved. The disposable income gap has improved because inflation has come down, energy prices are a little lower. And we’re starting to see that flow through in our volumes in Central and Eastern Europe. So positive from that perspective. As we’ve seen for some time now, the on-premise in the US still continues to outperform the off-premise in our US markets. And then from a consumer behavior point of view, we’re not seeing trade down to between price segments.

We are seeing — I think I made this point last time around Brian. We are seeing some consumer behavior changing at the two extremes of our pack sizes. So more focused on singles and small packs and on the other end of that spectrum, more focus on large pack consumption with a little bit of a squeeze taking place on that sort of mid-tier pack size of 12 packs and 24 packs. I don’t have any data that would suggest that consumers’ consumption and purchasing behavior has changed more meaningfully than that brand. We’re not seeing that. Thanks.

Operator: Our next question comes from Chris Carey from Wells Fargo Securities. Your line is now open. Please proceed.

Chris Carey: Hi, good morning. Just one follow-up and then a question on cash flow. Just from a regional consideration in the US, have you seen any different trends by region that might lead you to believe that what you’re seeing in April is perhaps maybe just weather-related versus anything else? And then regarding cash, do you have, I guess, a plan if — obviously, the stock is under pressure to use a bit more cash through the year with the buyback program that you have and being active in the market in Q1. So just perhaps give us any context on how you would be looking at leveraging your cash flow profile this year? Thanks.

Tracey Joubert: Thanks, Chris. Maybe I’ll start with the, I guess, capital allocation question. So look, as with all capital allocation decisions, we’ve got models that we run our capital allocation decisions through to make sure that we are providing the most value. So in terms of the share repurchase program, I mean, we’ve got a sustained and opportunistic approach, and it is over 5 years. So again, that’s just one part of our capital allocation strategy, and we’ll use the models to make the right allocation decisions during a given period.

Gavin Hattersley: Thanks, Tracey. And the other part of your question, Chris, firstly, I wouldn’t attribute the first few weeks of April’s overall industry performance to weather. I don’t think that we’re seeing that at all. I mean, weather has not really been much of an issue. So I wouldn’t pin it on that. It’s more around consumer behavior and our belief that around consumer confidence, as I alluded to a little earlier. In terms of regional splits, no, I don’t think we’ve got any data that would suggest there’s anything dramatic happening in any particular region from an industry point of view.

Operator: Our next question comes from Lauren Lieberman from Barclays. Your line is now open. Please go ahead.

Lauren Lieberman: Thanks so much. Good morning. Two quick questions. The first was just — I know you’ve spoken about shipments being ahead and just the contingency plan coming through stronger than you thought was sort of feasible, but were shipments ahead of expectations in Q1? That was the first question. And the second was just — for all the shelf space gains that are coming and you said we’ll kind of manifest in the market, April through July, I think you said. How should we think about that, if at all, impacting shipment timing? Or is that just kind of part of this — the STW dynamic being ahead of depletions, and we don’t really need to think about it from a modeling standpoint. Thanks.

Gavin Hattersley: Thanks, Lauren. Yes, our shipments were better than we expected in the first quarter. We very deliberately took our shipments up in the first quarter for two reasons, one, which was obviously preplanned and one we put into action in early February. So obviously, we wanted to make sure that we — our distributors had sufficient inventory to meet the demands, which we knew are going to come from a shaft reset point of view and to continue fueling the momentum behind our — our brands. And so that was planned. And then we did obviously increase inventory because of the strike, which we’re experiencing in Fort Worth. The part we weren’t expecting is that our supply chain team on a consistent week-over-week basis, I think we’re in week nine or 10 of the strike have over delivered our expectations from a supply point of view.

So that was not expected. And so where it’s left us is that we have — our inventory is in a very healthy place for us to meet the demands of the shelf resets, which are taking place as we speak to meet the demands of a base of volume, which is substantially higher today than it was more than a year ago behind the momentum of our brands and then also to continue to meet the demands of our distributors and our retailers as we move through the strike in Fort Worth. So hopefully, that answers your question, Lauren. Thanks.

Operator: Our next question comes from Eric Serotta from Morgan Stanley. Your line is now open. Please proceed.

Eric Serotta: Yes. Good morning. Thanks for taking my call. So I want to talk a bit about reinvestment. I know you gave — you made the comments, I think, since late last year that — the plan was to — you were happy with your overall level of marketing and other spend and you expect to keep that relatively flat. I’m just wondering kind of philosophically or hypothetically and in an environment where the industry is getting softer, at least has become — where you’re getting more cautious on industry volumes. Are you more inclined on the margin, again, hypothetically to spend back a little bit more for the balance of the year to kind of cement the share gains from last year? Or are you more inclined to pull back and sort of keep spending similar on a per case basis or is it just really no change at all?

Gavin Hattersley: Thanks for that question, Eric. I mean I’d point to a couple of things. One is we are very confident in our plans that we have behind not only our big core brands, but also our new innovations and our Above Premium portfolio, not only in the US, but also in Canada and also across the pond. So we’re executing against the plan that we had, and we’re spending the money behind our brands to maintain the structural shift that we’ve seen, and we like our plans. We think they’re working. We think our Coors plan to still and middle lights, all stars programs have been very well received by the consumers. Madrid in the UK and our recent launch up into Canada has been extremely well-received by the consumers and retailers and distributors alike.

And so our intent is to fuel the fire that we have, and that’s our plan. I would also remind you, though, that we do have lots of tools which didn’t exist 10 years ago in which we used to consistently monitor what’s working and what’s not working. It does help that more than half of our marketing media spend is now in digital, which allows our marketing team to identify what’s working and what’s not, what’s driving value and what’s not. And we are almost like a switch able to change that if we believe that is necessary. So I guess the short answer is, we believe in our acceleration plan. We believe in the health of our brands and we are fueling those brands. Thanks, Eric.

Operator: Our next question comes from Robert Moskow from TD Cowen. Your line is now open. Please go ahead.

Robert Moskow: Hi. Thanks for the question. Gavin, I wanted to know if you could update your outlook for US beer category volume. On the last call, I think you said flat to down 1% and I guess you’re probably closer to the negative 1% right now? And then secondly, you said that the retailers are very excited about your marketing plans and you’ve gotten more shelf space — do you have any color on how excited they are about the beer category? Are you giving this category more merchandising space this year? Or is that relatively unchanged? And I also saw a wholesaler index saying that April purchasing intent was actually pretty strong. So have you seen that data point is that accurate or not?

Gavin Hattersley: Thanks, Robert. I think that the answer to that is that the retailers are confident and excited about our plans, and they’re confident and excited about our velocities and have accordingly allocated us unprecedented amounts of extra space. That’s the first point. I don’t believe when all is said and done that we will see a large expansion in the space that is that has been allocated to beer as a category. I think you’ll see changes within that. Certainly, craft and flavor, more specifically, seltzers will get less space. And then there’s obviously the big structural shift in the premium light space moving from our biggest competitor to ourselves. But overarchingly, I don’t see much change one way or another from an overall beer category point of view.

In terms of updating our outlook on the industry, I think we’re just more cautious, and we need more data than just a few weeks in April before we reach conclusion. And as I said, earlier. It is easier to do that once we through the biggest selling season, which will have the biggest impact on where the industry lands for the full year. So hopefully, that helps. Thanks, Robert.

Operator: Our next question comes from Nadine Sarwat from Bernstein. Your line is now open. Please proceed.

Nadine Sarwat: Yes. Hi. Two questions for me. The first is fully understand your point on it takes more than a couple of weeks in April to determine that sort of medium-term volume outlook for the beer industry. So it sort of sounds like you believe on the whole a lot of these weaknesses are transitory, would that be a correct interpretation? Or do you think that there are more structural headwinds at play? I know you called out not seeing anything from GLP-1, but I think investors are calling out a lot of potential concern as this is on potential. So is there anything else that you’re keeping an eye on? And then the second question, Blue Moon I know you spoke about all the initiatives that you guys are rolling out and still have in store. Could you elaborate on what your long-term ambition is for the brand, whether that be in terms of size or key target consumers or brand occasions? Thank you.

Gavin Hattersley: Thanks, Nadine. Look, I think from an overall industry point of view and drawing conclusions in the first three weeks of April, is not something that we’re going to do, right? There’s a lot of choppiness that’s taking place in April. I think I covered that off on an earlier question around the timing of Easter, the massive dislocation, which we saw take place over several weeks in April from the Bud Light situation, the Eastern mismatch pricing and — and so on. So I think it’s too soon to say whether these structural or the industry caution that we’ve expressed is transitory or not. From a Blue Moon point of view, yes, Blue Moon Belgian White is the number one in craft. And it’s and Blue Moon Light is actually the number one in light craft beer and as we all know, the Craft segment has had fairly significant challenges over the last couple of years.

And because we’re the biggest brand in that space, we’re not immune to that. Having said that, we do know that we’ve got more work to do around Blue Moon and to that end, we’ve launched a new campaign. We’ve changed the packaging of all of the Blue Moon family so that now appears in retail as a family as opposed to different brands. We’ve repositioned Blue Moon Light. And we’ve made a really interesting for into non-alc space with Blue Moon non-alc, which it’s early days yet, but is certainly performing quite well and providing a nice halo for the overall Blue Moon family. So Nat, we are committed to reinvigorating this brand, notwithstanding the challenges in the overall craft space. It’s been around for a long time. It’s a great brand. It’s got a wonderful iconography.

And we think we can change the momentum of this brand and that’s our plan. And whilst it’s obviously early days because that plan has only been in place for a month or so, the early signs are positive.

Operator: Our next question comes from Michael Lavery from Piper Sandler. Your line is now open. Please go ahead.

Michael Lavery: Thank you. Good morning.

Gavin Hattersley: Good morning.

Michael Lavery: I just wanted to come back to the strike impact. You called out the pull forward in the volume and touched on some of the operating leverage lift. Are there other puts and takes we should keep in mind just modeling going forward? And would it be correct or fair enough maybe to say that some of the — any disruption costs seem to be roughly offset by just not having the workers on the payroll that are striking or how do we just think about what the impact is in the rest of the year? Well, obviously, as long as this keeps going, but near term, say, second quarter?

Gavin Hattersley: Thanks, Mike. Look, Tracey can take the cost side of that particular question. From an overall inventory levels, our inventory levels are very healthy. We’re, as I said, maintaining supply to our distributors. Our plan is ahead of where we would expect it to be on a week-to-week basis. So from that point of view, I don’t expect any impact, Tracey, from a cost point of view?

Tracey Joubert: Yes. Michael, as of now, the costs related to the contingency plan has not been material. And we don’t expect it to be material. So we do not expect it to be material for the balance of the year based on our current projections.

Michael Lavery: Thanks Traci.

Operator: Our next question comes from Brett Cooper from Consumer Edge Research. Your line is now open. Please go ahead.

Brett Cooper: Thanks. Good morning. Gavin, there’s been a lot talked about with respect to the soft beer industry. But one thing I would like to get your perspective on is, if you step back and not asking about first quarter or April, but over the last 12 months or whatever, there’s been a narrowing in the gap of performance between spirits and beer in the US. And I would love to hear your perspective on if the beer industry is not a right with respect to some of the most flavors to be more competitive for share through in the overall alcohol space or if you think that this is somewhat transitory? Thanks.

Gavin Hattersley: Thanks, Brett. Look, I think the work that we’ve done as a category is having more of a positive impact than a transitory one. So I would suggest that the work that we’ve done around flavors, non-alcohol beers, the moderate impact of the — all of these things are positive for the overall beer industry, and I don’t believe that those are transitory. I will move into flavors more broadly as opposed to Seltzer specifically, it’s been very positive for us as we’ve driven into the consumer trend of wanting flavor and moving around within flavor more actively than perhaps has happened in the past, whether that’s moving from brands in the Seltzer space to brands in the flavor space, which has really benefited simply.

And then obviously, our foray into Happy Thursday opens up a very new and exciting opportunity for us. And I think you see this more broadly across the beer industry. So I don’t see those as transitory. I see that as more permanent. Thanks, Brett.

Operator: Our next question comes from Gerald Pascarelli from Wedbush Securities. Your line is now open. Please go ahead.

Gerald Pascarelli: Great. Thanks very much. Gavin, I had a follow-up on your above premium strategy and specifically within spirits. You acquired Blue Run last year, obviously, a very premium, but very small brand. So, given your goal of driving an increased contribution to above premium and understanding that a big part of that will, in fact, come from beyond beer, would just love to get your thoughts on whether you feel incremental M&A would be necessary to hit your targets and if increasing your exposure to Spirit for American Whiskey fits into that strategy? Thank you.

Gavin Hattersley: Yes. Thanks, Gerald. Look, I think our — move into beyond beer is much broader than spirits, right? And actually, I would say the bigger move that we’ve made is into both flavor with brands like Simply and Happy Thursday, coupled with our move into the Non-Alc space and specifically with ZOA, so the sort of Non-Alc non-beer space, which is our – I certainly believe that we need to have more than just ZOA in the non-alc space, and certainly, that can come from internal development as opposed to buy. I think from a spirits point of view, we did launch our own spirits, our own spirits brands. And we did, as you say, by a stake in Blue Run. We’ve been at this is for a couple of years, and our competitors have been at this for hundreds of years. So I’m pleased with our progress, and we’ve got more work to do to understand this space and be more effective and more effective in it.

Operator: That concludes the Q&A portion of today’s call. I will now hand back over to Greg Tierney for any closing remarks.

Gavin Hattersley: Thank you, operator. Greg?

Greg Tierney: All right. Thank you, operator. If you do really appreciate you joining us today. If you do have any additional questions, please follow up with me and Tracey and the IR team. And with that, we thank everybody for participating in today’s call. Have a great day.

Operator: That concludes today’s call. You may now disconnect your lines.