Molson Coors Beverage Company (TAP) Earnings Call Transcript & Summary

Great. So I'm pleased to welcome Rahul Goyal for the first time in Boston. So thank you so much. It's your first time here since becoming Molson Coors CEO just about a year ago. And of course, CFO, Tracey Joubert, thank you so much for being a consistent supporter of the conference and for always giving us your time when you're here.

So I want to start big picture with the strategy. So when you introduced Horizon 2030, the message was that TAP needed to rewire the business for a more volatile consumer and category environment. You're now halfway through the first year of that strategy. Where do you have the most conviction that the operating model is working? And where do you think the process might need to be more iterative?

Yes. Thank you, Lauren. First, thanks for having me. Thanks for hosting this. So if you think in -- over the last 1 year and just our category as a whole, I think when we laid out Horizon 2030, there were 2 key priorities we set. First was making sure we transform our portfolio. And I feel we're making good progress on that, but we have to transform the portfolio into places where consumers are leaning into. That's for us is in the beyond beer space. And then two was making sure that we're getting sharper, focused on executing within beer. And that's where you talk about the operating model changes. So in the last year, we've been pretty busy on scaling our beyond beer agenda. We started with less than 2% a few years ago. We're approaching 10-ish percent. So that is something we got to keep driving with scale. And then in beyond beer, we got to make sure our brands show up differently. And so we made pretty clear choices on our portfolio, whether it was core, whether it was value. But then how we execute that portfolio in the market is what's going to be different, right? I was convinced a year ago, and I'm convinced even more now that this business, beer, is very local. And so while we have brands that are across the board, we have to execute local, and that gives me confidence, right? I mean you saw some of the changes we made in the value portfolio. We're seeing improvements there. We continue to lean into brands like Banquet, Peroni, Fever-Tree, Topo. And then to your point of some places we know it's a little more stuck that we need time. We talk about brands like Miller Lite, Blue Moon. I mean some of these things just require a little bit more time, but the playbook is the right one. We've got to make sure we're clear on what these brands stand for because once you're clear on that and then we can execute locally, I think we can get these brands back into being healthy first and then growth. So I feel good about the portfolio choices we made, the transformation we are on, the operating model, obviously, 6, 9 months into it with respect to execution. And then obviously know that there's a few more things we need to be turning around. The only other thing that I'd add probably is inflation has not been our friend. It wasn't our friend earlier this year. And so that's the one area that we got to keep a watching brief on. Obviously, we announced our cost management program, executing against it, but inflation, I would say, hasn't been our friend.

Yes. Okay. I'll come back to that. So you've emphasized making the business more local, like you just mentioned, and -- but also more accountable, which, I think, is interesting. So where is that having the biggest impact so far? And I'm just curious what you think like distributors or retailers would say or are saying to you that they're already different in how TAP is showing up today versus a year ago?

Yes. No, absolutely. I mean some of the changes we made earlier this year was driving accountability as close to the market. I mean that involves the full P&L, making sure we're looking at top and bottom line, making sure incentives are reoriented in terms of being local. So when I talk about local, this is not just about the brand and the portfolio, right? There's an element of that of how these brands show up or which parts of our portfolio shows up there, but it is also about holding people and making sure execution is local. Your piece around the perception with distributors, I would say and our distributor network would say we are moving faster. I mean this has been a volatile category year again. But in a way how we've reacted, whether it's on promotional activity, whether it's on pricing actions, whether it's on brand innovations, right? So if you think about some of the innovation launches we've done earlier this year, whether it was in our value portfolio with Keystone, whether it was High Life in particular states, whether it was, again, Coors 0.0 in the Northeast. I mean, all of that was a function of making sure we are closest to our customer, closest to our retailers. So I feel pretty good that if you ask our distributors, they will say that we are reacting faster. We are pivoting faster on where we see the consumer moving to. Again, Monaco was another, I would say, a good example. We knew we needed to get into the RTD space. It is a crowded space. It is a volatile space. So how do we enter in a space that makes sense from a consumer perspective, but more importantly, makes sense from a network perspective. And I would say most of our distributors -- all of our distributors say Monaco has been a good add for them.

Okay. That's great. You started the year seeing a healthier beer category in the U.S. than in 2025, but Q2 slowed pretty meaningfully. So what have you learned about the kind of consumer and category environment from that swing? And as you -- among indicators like fuel prices, consumer sentiment, channel impact behavior? Like what gives you the clearest read on whether the incremental pressure that you've seen from a category standpoint was temporary or something that's maybe more persistent?

Yes. I think this is -- I know this is a question everybody love to ask in the context of long term, short term. And if you think about it, coming into this year, there was a sense of confidence that last year's challenges are behind us from a category perspective and Q1 played out a little bit in that. And then all the factors you called out probably had an impact into Q2 and stuff. The pieces we think about and look at closely is consumer buying patterns. So let me just maybe specifically call out channel stuff. So we saw progress in the dollar channel and convenience, right? I mean, usually large-format channels, the Walmarts, et cetera, people do the math, right? People do the math of a $30 purchase or a $40 purchase, what is it per can. But still folks are choosing the dollar channel and convenience, right? That's where you saw consumers leaning in pack sizes, singles and small packs. That's where folks are leaning into. Large packs has historically been stable. And in Q2, we saw a little bit of a decline. So it was economically driven. It was consumer sentiment driven. And I think that's what we're going to -- that gives me clarity that if the consumer is stable and there's clarity, we may not be at the minus 1s and 2s that we had pre-COVID, right? We may be at a new normal. But this volatility, I think, puts a little bit more burden on the category than anybody wants.

Yes. Okay. So how has that maybe changed the way you're thinking about the second half of the year versus original expectations? I mean, any perspective closer in, what the balance of the summer looks like with the late Labor Day, but just perspective.

Yes. No, for us, I know we think about the category within our business, but we focus on the things we control, right? And for me, the fact that we have such a broad portfolio gives me confidence. That gives me the ability to play within above premium to value. So if you think about the consumer, I mean, there's a consumer that's happy to be in the Fever-Tree place, in the Peroni place, if you think about on-premise, I mean -- so we have a portfolio that we can meet the consumer there. We also have a portfolio that needs to meet the consumer in the value space, right, with Keystone, with High Life, where these brands mean something, but they can still engage. So for us in the second half of the year is we control what the controllables we have is we have a pretty broad portfolio. How do we make sure we're executing against that across the brands? And then the category will remain volatile. Where it settles is a little bit of macro issues, but there's so much we have to do, right? I mean we're making good progress on things like Banquet, even on Coors Light. We're making good progress on the value. But we know also recognize there's a few brands that are stuck that we got to find a way to unstuck there. I know that's not a word for policy. But we know we have work to do on a couple of those brands.

Okay. The other sticky thing has been inflation. So I'm going to -- so let's maybe talk about that. I mean the one through line we've had through the 1.5 days of this conference so far has been increased logistics and freight costs. So just wanted to get an update from you guys on that front.

Yes. So I'll just add. So we have seen the freight market tightening. I think everyone is talking about that. And certainly, fuel prices were looking okay until the conflict started in Iran, and we've seen those fuel prices go up. So look, we do have long-term contracts with various carriers. But we are seeing a lot more carriers not taking our lanes and moving to the spot market. So we have had to go a lot more into the spot market than what we typically do in a normal sort of year. So we're managing that. It is a headwind for us as we go into the second half of this year. But we're managing it through -- we do hedge fuel. So we're managing it through our hedge program. We're managing it through long-term relationships that we have with long-term carriers, making sure that we are doing what's right for them, but also, they're doing what's right for us. And then through our cost savings programs. So our cost savings program is across all of our P&L line items, but there's quite a large part that comes out of COGS. And so through our cost savings program, we're trying to mitigate some of these additional headwinds that we are seeing.

Okay. I'm going to switch back to longer term. So if beer, though, does remain weaker for longer, I mean you said perhaps it's a new normal, it's not down 1% to 2%, it's something more than that. How much of Horizon 2030 remains achievable? And like what levers do you pull to kind of get there? Or flip side like what would you need to do most to adapt the strategy for something that is a tougher category backdrop?

Yes. I mean I think the foundation of what we laid is the and, right? We have to transform our portfolio. I go back to approaching 10-ish percent. I mean that part of our business needs to be big. I mean today, it is growing, right? It is, I would say, a big part of our business, but it needs to be bigger and meaningful. So the category context of beer, we got to do the transformation part in a big way. So whether that's in RTDs, in flavors, in beyond beer, in non-alc, I mean, those are the things that are important. The other thing, and I know I'm speaking to folks in the finance world, but we got to do our job of bringing people back to beer. So I say that for a minute only because if we are not bringing people back into beer, then nobody else is. So we will continue to champion beer. But within that, we've got to play our portfolio right, right? So in the short and medium term is we have a portfolio that is pretty broad in the spectrum of above premium, core mainstream and value. So we can play the right things, right? I mean we think about a brand like Banquet, if you get the right positioning, what the brand stands for, you can get growth. And so for us, it is figuring those pieces out within the portfolio we have while we are working on the transformation. Beyond that, it is making sure we are focused and disciplined on our cost, right? I mean all of this is in the context of being disciplined on the cost side and then making sure for our shareholders that we are being disciplined in terms of capital allocation, returning cash to shareholders. So for me, it is transformation, taking care of beer and then being disciplined in how we run the business.

Okay. Let's talk about some more specific elements of the portfolio. And you've mentioned, you've teased a few bits, but to go deeper. So let's start with kind of core beer economic foundation of the company. I think a big influence on investor confidence in the story is on seeing more stable market shares overall. So that's what I wanted to start here. You've mentioned some regional pressure for Miller Lite. So I just wanted to get maybe your assessment of the situation. Is it a matter of media, execution, price pack? Is it something deeper in the brand proposition? And really how long should investors give Miller Lite like before -- how long should we give the plan before we start to worry?

No, absolutely, that's a fair question. So if you think about our core brands and most of our geographies, but if you think about the U.S., we obviously have Coors and Miller Lite, Coors Light. And I think the Coors trademark within Banquet, even the Coors Light itself, I think we've done a good job of making sure it's very clear. But we have to keep doing more on that. So you're going to keep seeing us show up in ways where we are talking and connecting with current consumers, but then also making sure we're recruiting new consumers into our trademark. You're rightly so, Miller Lite has been stuck. And we understand the issue pretty clearly of where Miller Lite is stuck, where -- what we need to do. So we don't think it's a complete rehaul of the brand, right? Miller Lite has historically always stood for sociability around legendary moments, around Miller Time, and it's talked about taste, right? And if you think about we leaned into this year, it's predominantly around sociability. So you'll see us continue to lean into Miller Lite in different ways from a campaign perspective, building on sociability, but also taste. But it is about local execution, right? I mean if you think about share losses and you guys look at Circana and Nielsen data, Miller Lite has a historical stronghold in the Midwest. And that's where we're getting competitively the most pressure. So I think it does go back to my point of while we have these big national brands, this business is very local. So we've got to be winning every city, every state in different ways. And that's where we have multiple levers to play, right, whether it is local price promotion, whether it is campaigns from a local activation perspective. And then obviously, national campaigns help in terms of that. So we don't think Miller Lite, there's nothing fundamentally wrong in terms of a complete reboot. We got to build on what the brand stands for, but then this is about local execution.

Okay. Just flipping to the U.K. because Carling seems to be in a similar situation, maybe to Miller Lite, more -- contending with more competition. But it seems like the pressure is only building in that market, Madri now being impacted by higher promotions in the second quarter after having been such a continuous and regular success story. So how are you thinking about the U.K. landscape and kind of the path forward?

Yes. So if you think about the U.K., and we flagged this in our Q2 earnings out of EMEA and APAC, U.K. is where the main competitive pressure is. It's a consumer dynamics and category, but also competitive. We've had a great run with Madri. Madri has been a strong brand for us, above premium. And the success breeds competition. So we got a few things that are coming at us from a competitive perspective. And we get -- we understand that, and we have the right plans to attack that from a Madri perspective, whether it's campaigns over the summer, innovation, also a total portfolio approach for above premium, right, Staropramen, et cetera. Core brands, which is what you called out Carling is that market has changed. The market has changed. The way competition is using ABV, which is again in the public domain, has changed. And so we needed to make sure that we are competitive in that context. So we launched a new higher ABV Carling brand, Carling Black Label. We have now transitioned Carling to make sure we are competitive with our peers. And it's going to be a competitive context. I go back to Carling, the core brands segment has been under compression for a number of years. But we were able to protect that and execute that well while we were premiumizing in the U.K. And just given the category pressures means competition is high, and I think we've got the right actions now to react to that. We also implemented our cost savings program in EMEA, APAC earlier this year. We just closed that out. It takes a little longer to put all of that in motion. So we feel pretty good about the actions we've taken now to be competitive, both in the mainstream and in the above premium.

Okay. On the flip side, you've got Banquet, I'll come back to U.S., right? So it seems to be, I'd almost frame it like teaching the organization and maybe the industry that like a big established brand can find new relevance. What parts of the playbook from Banquet success do you think are transferable more broadly to your other brands? And like what are parts that maybe are a bit unique to Banquet?

Yes. I mean if you think about Banquet, I'd break it up into a couple of things, some of the learnings that we are taking from Banquet in terms of how do we make sure we're true and defined to what Banquet means and stands for, right, the essence of the brand. And I think that's what you're going to see us lean into as we think about that in the context of our bigger brands, right? We just had the conversation on Miller Lite. Are we very clear on what Miller Lite stands for? Are we communicating that clearly to consumers and making sure it resonates with consumers? So there's definitely learnings from Banquet into that. Then there's a question of execution, right? I mean we talk about distribution and distribution gains we're making on Banquet quarter-over-quarter, but we're still under-indexed to Coors Light. So there is so much more runway on that. And you want to be careful on that distribution because sometimes it's easy to get after distribution. But if you don't have the velocity, there's usually a backpedaling down the road. And so that's some of the learnings we're taking with some of our other brands to say, okay, how do we make sure we expand brands with the right level of focus on velocity along with distribution. And then I think the last part was what's differentiated for Banquet. In a way, Banquet is special, right? I mean Banquet is the -- in a way, the code of the West. It is a special meaning. I think the teams have done a great job of honing that with what's happening in culture, connecting that. So I'd love to take that same story for my bigger brands, but sometimes this is only -- that's Banquet's story to keep.

Yes. Okay. Do you think it could become a double-digit percentage of the U.S. business?

Absolutely. Yes. I mean, again, for some of you, Banquet used to be that, right? If you go back to the '70s and et cetera, Banquet used to be bigger than -- and I say this because, again, I go back to these brands, they need to be clear on what they stand for. We've got to execute against that. So I absolutely think Banquet has a lot of potential runway.