Molson Coors Beverage Company ($TAP)

All right. Hi, everyone, and thank you again for joining us. I'm very delighted to welcome Molson Coors CEO, Rahul Goyal, and CFO, Tracey Joubert. Molson Coors has had a strong start to the year as the company continues to make encouraging progress on its transformation journey. And as the beer category trends are slowly starting to improve. Molson Coors has moved to the next leg of its revitalization journey, which is to accelerate growth in its portfolio and deliver sustainable top and bottom line growth. So thank you so much for joining me, Rahul and Tracey, nice to see you both

Nice to see you.

So welcome, and I wanted to kick things off today with a question for you, Rahul.

You've been in your seat now for, I think, a little over 7 months. So I'd love to hear from your perspective, sort of what surprised you the most in this relatively new role and then maybe what you underestimated.

That's nice question. I did not expect that from a -- No. Thank you, Bonnie. Firstly, thanks for having us here. The way I think all of us in the company and I particularly think is we get the privilege of working with a company that's 240 years old. I'm the new guy on the fleet, but I have been in the company 25 years. So our job is to make this company bigger stronger, better for the future. And that's how we think about it. I think so new -- I would say, you understood the business, I understood the company, probably the thing that your question of surprise or change is the impact you have on a lot of lives, right? I mean you got 16,000 people. We got distributors. So the impact you have on them, in their families probably is a little bit more deeper than I -- you know it, but the way it carries. But as a business, I've had the privilege of understanding and knowing our business for a long time. So that part, I think, has not been any big surprise.

And then just in terms of like you mentioned the whole organization and the culture change that maybe you're trying to...

Yes. No. And that's why I would say it just -- that takes time, right? The change because I say this to our teams all the time. We're a good company. We have a strong brand. We have a good foundation, one great profit pools. We got to go find growth. And to go find growth, we've got to think differently. We got move with some urgency. We've got to move with a little bit speed, risk taking and that sense of ownership in this company. So it's a great business. It's a great platform. . As you know, our challenge is go finding growth, and we believe in the new plan, we can go get that. And the exciting part is we can get our teams excited about that right? And I think that's the part we look forward to.

Okay. Sounds good. And thinking about the category to and where you play. You touched on this in your earnings a couple of weeks ago, just in terms of the industry being down. I think I've always said 1 -- 1.6%. But more recently, we've seen some of the growth decelerate, I guess, and I'd love to hear your perspective on what [indiscernible] that's going on now within the broader beer category. How do you think about -- I mean, we're still not quite at summer, but optimistic that maybe weather and some events can accelerate this growth.

Yes, I think coming into this year, I know everybody in the category was a little cautious coming out of last year, right? Last year was normally -- you look at whatever time span. So I think coming in this year, we felt that this year is going to be better, right? I mean you have these -- all these events last year. So I think that's were coming in, we were like a little bit more confident about the category. I think Q1, as you rightly said, was much better than broadly as I would say we expected. And April has been a little bit of a zigzog. And so your question of -- if you think about the consumer first, I mean, the consumer health coming into this year, Q1, I mean consumer trips were higher, number of buyers higher, maybe basket size still, still cautious. But we're feeling good about the year. I think April, again, macro issues, if you think about the war that happened end of March. Gas prices started hitting, accelerated levels at the end of March, early April. So it is going to be a volatile year. It is going to be a volatile year. I think that broadly the theme. I know some of the questions in Q1 was, well, do you see this seeing forward? And I think our comments as well. We like what we saw, but let's be cautious. Now on the other hand, you rightly called out. I mean we got some big occasions in summer. And we've talked about -- and the categories talked about is our challenge is not people not drinking. I mean people are drinking -- they're drinking differently, but it is occasions. And the summer gives us a great platform for great occasions, right? You've got the World Cup, you got the Americas 250th, weather always helps. So I think we're pretty energized about going into summer. We'll see what April is, again, all of us need to learn, deal with ambiguity volatility, but we're excited about summer. I think we've got a lot ahead of us May, June, and then you start to build up into the summer. That's exciting.

I forget in the context of this with your top line guidance this year. Have you stated what that suggests for the category, have you put a figure on what you expect the category to do that.

No, we did not. So this year, I know last year, just given the volatility of the category, we give some ranges this year, we didn't -- I think what coming in, if you look at last year's category was in the minus 5-ish range, we expected this year to be better. Right now, whether it's -- yes, we'll see how the year plays out. I mean been pretty volatile start anyway.

It could be the year over stocks, right, considering everything the factors you just mentioned. And then -- but obviously, things always change, and you touched on the war and gas prices to the consumer. And very recently, maybe we're starting to see some signs, right, whether it's down trading, et cetera. So thinking about your portfolio and the value segment and how you're stabilizing that, are you starting to see any signs of maybe consumers trading down to some of those brands? And then if so, can you talk about any of the strategies maybe you're implementing to meet the consumer...

That's a great point. Again, if you think about the consumer, I know you've asked about the value on. So just briefly, the top end of the economic consumer, they're doing okay. very resilient, right? So for us being sure we have a portfolio for them, whether it's Peroni, Fevertree is important. So obviously, there, we're leaning in on some of our above premium pieces like things like Banquet. Trade down is a little bit, we don't see trade down in our category, right? So folks who love whose lives are going to come to[indiscernible] , they come to [indiscernible]. Maybe we got to think pack sizes. So that's where we've been on a little bit single small packs and large packs. So we see a little bit of that trading. Value is a big part of our business. It is a big part of where consumers are leaning in for trade down because they care about those brands. So we are seeing some progress. And this is -- I want to be cautious because I know there's more work to be done on this. It definitely will work. It's a long-term thing. But if you think about high life. High Life is holding on to share. We're on-premise. We're gaining share off-premise. We have worked through on Keystone. And then so we have some new plans coming in that I think we're getting excited about but this one is going to take a little time. I'm going to take this forum to make a small plug it at a 5-second cloud. If you guys have not seen the new Keystone Apple ad or video or TikTok or whatever that is. If you want a 2-minute fun, just smile, go take a look at it. And I use that as an example is we got to find just a way of connecting better with consumers with that portfolio which historically, we have not supported. And so now we just need to show a little bit of support and love and we've got 2 big ones, HighLife and Keystone. But then there's a lot of brands that we have, which are very local that requires different ideas, different execution on that.

[indiscernible] was leaning in on some of the strength, stabilizing those brands, especially given the broader consumer backdrop could actually work.

Yes. Absolutely, I think for us, like Keystone, I mean we're going to have Keystone ice coming in later in fall, which is a little bit of ABV side, higher ABV. So exactly you said, stabilize our life and Keystone and then local execution on the rest of the portfolio. .

Okay. And then thinking about guidance, your full year top line guidance of flat, plus or minus which you just recently reaffirmed. But you do expect, I guess, U.S. shipments to be down 6% to 9% in Q2 because of what occurred in Q1. Maybe walk through that for us, just kind of what's happening between Q1 and Q2? And then ultimately, what gives you the confidence that you'll see the recovery in the second half?

Tracey, do you want to take that one?

Yes. So what we did say on our Q1 call is we went into Q2 with higher levels of inventory. We feel very confident in the levels of inventory that we will have going into the summer. Last year, Q2, we had higher levels of inventory. We were a little bit impacted by glass supply. And I think you've heard some of the first talk about that. But that cycling some of the headwinds from last year, but we have built up inventory. We do feel good. There's always going to be somewhere where there's a package that maybe is out of stock, but that's normal. But we're working with our suppliers, our distributors. And so we feel confident going into the summer with the inventory levels that we've got. But just due to some headwinds in cycling from last year, Q2 is going to be lower. We do plan on shipping to consumption for the full year. So you'll see in Q2 -- Q3 and -- sorry, the second half of the year, our STWs will outpace SCRs as we ship to consumption.

And in the context of that, Monaco, which we're going to talk about, that is part of -- factored into the guidance to get to that, I guess, flat or minus.

Yes.

So good visibility, see the recovery just some noise, if you will, between Q1 and Q2, but a lot of the initiatives that are being information.

Yes. I mean if you look at Q1, we shipped ahead of consumption and we built inventory. It's a little bit of a phasing all the things Tracey talked about. And in the full year, we can still see the minus 1, minus 2 guidance that we laid out.

Okay.

Minus 1 plus 1.

Yes, exactly. Not changing guidance today No, exactly. Core brands I wanted to switch gears. You talked about regaining focus and then winning back share for the car brands, which is critical given the size. And probably the profitability of those brands. So what are the specific strategies that you are implementing behind Coors Light and Miller Lite. And then ultimately, how do you evaluate if those strategies are working. And I know we've talked about this for a number of years, but just thinking through the

Yes. No, absolutely. And that's a fair question, Bonnie. If you think about our big brands, right? I mean it goes like metal, that put will an Miller and extra life in that. So if you think about our coal portfolio, we've got to make sure they are strong and healthy. And I would say we've done a decent job on things like Banquet, things like Coors Light to some degree. The easiest measure is share obviously we think of volume, we think of NSR. For the external world the easiest measure share. And if you see our progress since '23 or even in recent times, we've held that part of the category share has been okay. Now we have some work to do on, for example, like Miller Life. this year, we knew coming in, it was going to be a competitive context. And in a couple of regions in the United States, Miller Light has been a little bit challenged. So we knew it's in a competitive context, but that's where we need to react. To your point of looking forward, if you think about the plans we have laid out over the summer, Towards Life, you got the World Cup, pretty excited about how we're going to show up in the World Cup. As they see there's 7 or 8 Super Bowl in Houston and 6 Super Bowls and Dallas and obviously regional, but a great way to activate and make sure our brands show up in a strong way. Miller Light we launched some of the campaigns early just a way to make sure we're being competitive. So -- and then the last piece I'll call out, which I know sometimes people don't get up a new plan that we laid out is the local execution, right? So we've changed our operating model. We are looking at our brands very locally. We're looking at how do we make sure these brands resonate in those particular geographies and then we can react to that. So whether it's promotions, whether it's pricing, whether it's activation, we can use the levers there. So core brand is super important. Obviously, volume and NSR is key share becomes an important way of measuring progress. But then in terms of making sure we have all the right plans leading into summer. I think we're feeling good about it going into the summer.

And you mentioned Miller Lite maybe needing some more work. Is there -- can you share with us maybe what's not resonating with the consumer with that brand? I mean, -- and as you think about kind of trying to improve share, is it innovation? Is it better price pack architecture? You mentioned some campaigns, so maybe different messaging. -- what are some of the key initiatives.

No, I wouldn't say -- I mean, yes, the campaign and the thinking and the focus we have on the line, I think, is the right one. That is resonating with consumers. I think if you've seen the message, the message around the liquid, all of those are resonating. It's just competitive. So I think a lot more things to focus on price back in those particular geographies, thinking through pricing and promotional activity in those particular geographies. So it's a little bit of execution and ensure we are reactive to what's happening. But in terms of what the brand stands for and how the brand is showing up, I think we're feeling pretty good about it. The other thing I didn't mention is Americas 250 celebration, right? So again, Miller Light is a big brand that talks a lot about Americana. And so I think that's the other thing we're pretty excited about coming into the summer. So yes, I wouldn't say this is a national we've got to rethink on the brand. It's more about local execution, given how competitive this context is going to be the summer.

So if we're sitting here again in a year and I hope we are would success to you be that these brands, Miller Light, Coors Light are essentially flat with share? Are you expecting to grow share? I'm just trying to think or...

No, absolutely. That's a great question. So I think success for me, obviously, growing share of total categories is easy one. But I think you've seen our numbers. We've got to change the trend. And if the core is healthy, our business becomes pretty stable in that context. So for me, in the year's time, we should be in the position of at least holding and the right trajectory for share volume.

Okay. Maybe I'll switch to cost in the lovely Midwest premium, that's very topical. You've been talking about this, obviously, maybe early or the I know that's but really kind of started talking about this being obviously, a major headwind to your business this year. And I think you called out it was $30 million cost increase. So you expect it to be inflationary every quarter for the remainder of the year with, I think, the largest increase in Q2. So you have pretty good visibility in terms of that, how do we think through?

Yes. So we feel very comfortable with our hedge position for this year. We did layer on more hedges in February. So we've got pretty good line of sight as to what it would cost us. And I would say we probably -- we've mitigated for the most part, any further increases, the impact that it would have on our business. Having said that, I'll just keep saying, I mean it's a difficult commodity to hedge. We -- I think I've spoken before, for every 1000 aluminum hedges, there's 3 Midwest premium hedges. So it's not transparent. It's not a great market to hedge, et cetera. So we'll continue to have a look at it. But for this year, we feel pretty comfortable with our hedge position and that we've mitigated most of any increases that may come forward.

And it's just hedged through this year, right? I mean .

We do have some hedges on for next year, but typically we have more hedges in the first year. But again, it's very difficult to hedge, especially our longer term. .

And then how do we think about that in context because I'm pretty sure you're staying disciplined with the 1 to 2 points of pricing. Is that correct? So this is why we're just ultimately going to see some of the margin headwinds. Any other factors that you can, I don't know, implement to help mitigate some of this, whether it's marketing spend, cost optimization, et cetera.

I mean, we obviously got the $450 million cost savings program that we announced. And if we look at some of the actions that we took at the end of last year for the Americas G&A, we'll start seeing that flow through. We took up 400 roles. So we started to see the impact of that on our G&A. And then we've also taken some actions in our EMEA, APAC region where we've closed a brewery, and we're looking at using technology and capabilities to drive food cost savings. And I would say we're on plan. We're on track with that, with our cost savings. Now the $450 million is over 3 years. But you'll start seeing that come through this year. So that's one of the things that we are doing, and we started last year to mitigate the inflationary pressures that we are seeing.

So Tracey on [indiscernible] because I know I talked to a number of staples companies and they have identified already planned cost optimization, productivity savings, have you been able to accelerate any of that or pull it forward? I mean you mentioned it's on plan, but is there a way to accelerate or move some of the projects earlier, given the[indiscernible] cost headwinds.

Yes. And I mean, we are looking at that. The capabilities that we're building is certainly helping us and then implementing some of the new systems and technology is helping as well. So yes, we're trying to pull forward as much as we possibly can. .

I think you said this well, on mean in terms of us disciplined about our business, I think we started that journey in Q4 last year, right? So we knew some of these headwinds ahead of us. Some of the hard decisions around our team, structure, people, hard decisions around supply chain. We put it in place in Q4. We obviously are going to see those benefits as it translates, Tracey and the team in terms of hedging and trying to mitigate risk, I think we've tried to do that. I think the brand one and we obviously want to make sure we get the right return out of our investment, but we also want to make sure we're being competitive in the marketplace. So that's why that's what we took into consideration when we gave guidance this year, and that's what we want to try to make sure we deliver against as a business.

And to be clear on that point, if I'm hearing you correctly, so the spend levels are not decreasing in terms of behind the brands to reaccelerate maximize share, et cetera, you're going to get

Yes, I think, again, we said it in our earnings, right? I mean if you think about our broad MG&A spend the next 3 quarters, it's going to look higher than last year. Now some of it has onetime issues from last year of incentive and sell. But we want to make sure we have competitive pressure in the market, right? So tough context in terms of aluminum and input cost, right cost savings program to optimize, manage the risk, but making sure that we can have the right commercial pressure in the market.

One thing I would say about our marketing investment. I mean, we are -- if we look at our core brands and what's important for us, whether it's the [indiscernible]HighLife Keystone as Rahul mentioned, even [indiscernible], we've got a campaign, a new commercial for, which we haven't had before. But we are putting more dollars behind that core, but against fewer bigger things. So like the World Cup, like Americas 250. So there's more dollars going towards that, but we're making sure that it's in the big bets that are going to provide a return.

Yes. I mean just last comment there. I mean if you think about our visibility in live sports. We probably have the highest investment in live sports this year than we've had in the long, long term, right? So again, try to meeting consumers where they are as relevant for our brands. So basis point, appropriate level of investment, but being sure we can win with our consumer.

And let's switch gears a little bit to the somewhat recent acquisition, Monaco Cocktails. You just closed, I believe, and it does help close the gap in your RTD, the portfolio gap that you might have. So I'd love to hear more about your strategy to scale that brand, increase distribution, et cetera. And then I think you've talked about that acquisition contributing a point of growth to the top line, but importantly, accretive on the bottom line. So maybe walk through that for us and how you're strategy is evolving as it relates to M&A and kind of like you mentioned earlier, maybe a little bit more risk taking

Yes. I mean I can do the brand and portfolio, Tracey, number. If you think about the brand, right, we knew we had a gap in our portfolio. I mean, the whole flavor category has been so volatile from a consumer perspective. But we knew we had a gap on the RTV sub. So I think if you think about Monaco it's been a business that's been around 10, 12 years. So this is not a new brand. The business was built in a very disciplined way on the back of singles, in convenience stores, in a very controlled geography, right? I think the top 5 states probably make up 60%, 70% of the volume. And if you think about a big part of it is a signal. So it is a very disciplined business which we can then take and scale, right? So I mean, as an organization, we're pretty good at taking things that have got scale have got proven but then really making sure we can really make it bigger. So I think that's why it gets us and our team is excited. Your point is about distribution. It is about capabilities, right, convenience. If you look at our strengths, we have good strength in convenience, but our big strength is in the big channels. And so therefore, then we can play that and build some capabilities with the people that have come on board. So that's where it's a great fit from a portfolio perspective. It's the right thing for us from a premiumization also, right? So compared to our normal NSR per hectoliter. This is a premium product. And so it does the right thing for us on premiumization. It is top line and bottom line accretive and gives us a good platform to really scale from there. So it's that it fit for us. It fits the model and then it does fit within the metrics we laid out earlier as well. Tracey.

Yes. I mean we've said M&A going forward is going to must contribute between 1% and 2% of NSR and on a trailing 12 months. And then importantly, also the bottom line, it must be profitable from day 1 and this brand is for us. .

And so as I think about this acquisition that did just close, is it the priority to kind of focus on integrating this? And then will you continue to look at other potential M&A. How do you think about prioritizing those 2?

So in terms of execution, we got to make sure we -- the way we talk about it internally is don't drop a case, right? So we obviously had Fevertree last year. We executed that, integrating that, being sure we transition into our network with our distributors, get everything working. And we're continuing the growth momentum we have in Fevertree last year and continuing to this year. So that is an important aspect, right? And then we think about Monaco, right? And then how do we really make sure we integrate this business, keep the commercial momentum that the brand has accelerated the momentum and then look at all the other things that come along with that. So I think that's probably a focus volume. And if you think of it, we don't need 10 more brands. We have a pretty strong portfolio. There's a few gaps we need to fill. And so -- and I'm sure Tracey will talk about capital allocation discipline, et cetera. But for us, it is about fill a gap in the portfolio, what makes sense for consumers, distributors and us, and then integrate and accelerate, right? So -- and then everything else you want to add on the capital allocation discipline.

Yes. Just before I get to the sort of capabilities, I mean what we do now going forward is we make sure that we can continue the business. And hence, we took over about 80 folks from Monaco business into our business. So they can continue to run the business and sell the brand and get the distribution. And then we have another team doing the integration so that we don't lose focus. But in terms of capital allocation, I mean, I've spoken about what a great job the company has done with their balance sheet. And so it does give us optionality that we can do more from an M&A point of view. And at the same time, return cash to shareholders as we have been doing with our share buybacks and paying dividends. And then just keeping our balance sheet healthy. So we do have significant free cash flow, which is great. And therefore, we could do all of it.

Which has certainly changed. I know when we've talked in the last few years. So you're in a much better place today. And as you mentioned, Rahul, you see still some gaps in your portfolio. Do you care to expand where those gaps are. I'm curious.

Yes. I mean if you think about it, I mean the RTD space or the flavor space, I wouldn't call out, if you think about the flavor, it's a big category now. And we want to make sure, I mean, we love the fact that we've done with Topo Chico. We obviously have new ideas with simply in the market that we want to make sure we get that brand healthy. And so there's work to be done there. I mean those are great brands to keep building on. And then I think Monaco adds a good complement to that in terms of channel, consumer. So for us, the priorities is beyond beer. So if you think about capital deployment, it is going to be probably in the beyond beer. We will always look at beer. But beyond were probably where scale on. So again, right now, integrate Fevertree, integrate Monaco, as Tracey said, we -- our balance sheet gives us optionality, but we'll be disciplined about it, disciplined that we have the right brand and disciplined, more importantly, that we integrate top, bottom line accretive and we can scale that becomes important.

And yes, beyond beer being enterprise. So what percentage is beyond beer of your portfolio maybe today roughly? And then in the next 3 to 5 years, what would be the ambition to

Yes. So I mean if you think about it, we are approaching about 10-ish percent, right? I mean we started with 0, maybe not 0, less than 1, right? I mean in Beyond Beer, we're approaching 10-ish percent of our total company NSR. And we need to make sure we get to be meaningful because we are -- I think we said this in our Q1 results, our Beyond Beer portfolio is growing faster than the rest of the company. It is growing at a much higher rate. And we -- unless we have that to scale, it doesn't do stuff to move the company forward. And we don't want to have a beer portfolio that's 50 brands, right? We're going to be disciplined about the categories we work in, disciplined about the brands we have, but we want to get this scale. We haven't shared ambition externally volume. But I mean you can think about the math. And unless it's not big enough, it doesn't do much for $11.3 billion company, right? So we're pretty excited on that journey, early, we have more tools to work with, whether that's people, whether that's investment or the balance sheet, right? I think the point Tracey made about getting capability in people is equally important in that space because it's a different muscle.

No, true. And as I think about your business and your portfolio, I mean, the complexity have increased. But if you feel good about your ability to execute on all these different initiatives because any change capabilities that you think you have where you feel like you can execute on all of these different growth initiatives.

So I think that's a great question about complexity, right? I mean we've been disciplined to remove complexity from our business also, right? So if you think about the structure, if you think about the coming off some of our co-manufacturing arrangements. It was about removing complexity. Now we are leading into areas that make our business stronger for the long term right. And by the way, this is not just us. If you look at our network, our distribution network, right? They're leaning into similar capabilities. So for us, this is more of making sure we have the right capabilities, not just for today's business but also the long term. So -- and we're doing it in a disciplined right, whether it's G&A with the right brands, making sure we are building out teams with capabilities that are important. So again, I think we've shared this previously. We -- our non-op team used to be 6, 7 people. I think now we're about less than 20 right? So to your point yes, that comes with some complexity, but you're building capability along with that city. So we feel good about making sure we have an ambitious goal for beyond beer and then how are we best leading into that.

And I know we've touched on this or you mentioned it, whether it's Fevertree, Peroni, -- what has you the most excited or Monaco, as you think about the next year? I mean is there anything that you think right now maybe is broadly underestimated?

Yes I would -- I mean, obviously, those are the big growth brands that we have, right? So they are exciting. So [ Peronivatre, ] Banquet Monaco I think those will be the -- I think -- again, I know you don't talk a lot about Molson, the trademark in Canada, right? I mean that brand is doing well, gaining share in the continues to be no in Canada. So we've got a lot of good highlights. But the things that I would love to be your point of a year from now, the excitement around Keystone highlight how do we make sure we can get some energy behind that. That's the thing that I'm looking forward to, right, what as a team, we can really do to get that healthy, not just for consumers and higher distributors, but for even us because we are big brands. Right.

And then that brings me maybe to my final question because it's your long-term algo which I know you've -- you mentioned you expect to return to your long-term algo of low single-digit top line growth and mid-single-digit underlying pretax income starting next year, right? So in the context of what you just mentioned, what will be the key drivers that will allow you to get those?

So I know we've said that that's the goal. I don't think we gave '27 guidance just to be

Maybe it was me being in

If you step back on our business, right, I mean, obviously, we again feel at a pretty good foundational business. We've been very disciplined about returning cash to shareholders, dividend and through buybacks. If you look at it since 2025, I think our TSR, I think we reported in our 10-K earlier this year was 22-odd percent. So -- but we recognize for the next chapter creating value for shareholders. We have to get this business to that algorithm, right, into low single and mid-signal. And obviously, volatile times right now. But between the tight, making sure our core of the portfolio is strong and stable and transforming our portfolio with the shape for the future. We think that's the right place to be. Right now, when we get through the year, we'll talk about '27 and what that looks like. But we still believe that, that is the right outer where we think we create the most value for our shareholders, right? We will stay disciplined on the balance sheet. We'll return cash, but we recognize we got to get top and bottom line growing.

And optionality, as you mentioned, given the core and then everything you've been executing on. So -- all right. Well, all of that sounds good. And thank you so much for the conversation. Appreciate your time.

Thanks Bonnie.

Thank you. .