Molson Coors Beverage Company (NYSE:TAP) Q3 2024 Earnings Call Transcript

Molson Coors Beverage Company (NYSE:TAP) Q3 2024 Earnings Call Transcript November 7, 2024

Operator: Good morning, and welcome to the Molson Coors Beverage Company Third Quarter Earnings Conference Call. With that, I’ll hand over to Traci Mangini, Vice President of Investor Relations.

Traci Mangini: 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 reach out to our IR team. Also, I encourage you to review our earnings release and earnings slides, which are posted to the IR section of our website and provide detailed financial and operational metrics. Today’s discussion includes forward-looking statements. Actual results or trends could differ materially from our forecast. For more information, please refer to our risk factors discussed in our most recent filings with the SEC. We assume no obligation to update forward-looking statements, except as required by applicable law.

Reconciliations for any non-U.S. GAAP measures are included in our earnings release. Unless otherwise indicated, all financial results we discuss are versus the comparable prior year period and are in U.S. dollars. With the exception of earnings per share, all financial metrics are in constant currency when referencing percentage changes from the prior year period. Also, share data references are sourced from Circana in the U.S. and from Beer Canada in Canada, unless otherwise indicated. Further, in our remarks today, we will reference underlying pre-tax income, which equates to underlying income before income taxes, and underlying earnings per share, which equates to underlying diluted earnings per share, as defined in our earnings release.

With that, over to you, Gavin.

Gavin Hattersley: Thank you, Traci. Hello, everybody, and thank you for joining the call. In the third quarter, consolidated net sales revenue was down 7.8%, underlying pre-tax income was down 8.7%, and underlying earnings per share was down 6.2%. At a high level, EMEA and APAC and Canada performed strongly, but the U.S. was challenged with the macroeconomic environment contributing to U.S. financial volume down 17.9% and brand volume down 6.2%. Given the key drivers in the third quarter, we don’t see these results as representative of the long-term growth potential for our business. We knew we had a headwind in the quarter from the exit of Pabst contract brewing volume, as well as from unfavorable shipment timing due to the unwind of our deliberate first half inventory bill, and these drivers have largely played out as we expected.

Our results were also meaningfully impacted by lower U.S. brand volumes, as the U.S. beer industry was softer than we had anticipated over the summer. As we have heard across many consumer products companies, macroeconomic pressures have been impacting the consumer, and beer has not been immune. We have seen value-seeking behavior in the form of channel and pack shifting, particularly in the peak summer season. Given the impact the macroeconomic environment has had on the U.S. beer industry, and as a consequence its impact on our U.S. brand volumes during this year’s peak selling season. We are adjusting our 2024 net sales revenue guidance to down approximately 1% from up low single digits previously. However, it is important to point out that excluding the impact of our contract brewing revenue declines, our annual top-line projected growth is expected to be positive.

With an improved cost outlook related to packaging materials, logistics, and G&A, we are reaffirming our underlying pre-tax guidance of mid-single digits growth for the year, which is in line with our long-term growth algorithm. We are also reaffirming our underlying earnings per share guidance of mid-single digits, but we are narrowing it to the higher end of the range. This is supported by our share repurchase program, which for the first four quarters has been executed at an accelerated pace, given our continued conviction in the long-term outlook for our business. As for more details on the quarterly drivers, as a reminder, our contract brewing agreement with Pabst terminates at the end of this year, although most of the brands have already left our brewery network.

This reduced financial volumes by about 570,000 hectoliters in the third quarter, and by about 1.5 million hectoliters in the first nine months. As a result, Pabst had a negative 2.6 percentage point impact on the third quarter, and a negative 3 percentage point impact on the first nine months of America’s financial volume on a year-over-year basis. But again, while this is a current volume headwind, the reduction of this contract brewing volume is expected to have a positive impact on our brewery network effectiveness, as well as mix and margin. As a reminder, we deliberately built inventory in the U.S. in the first half of the year as a result of the Fort Worth strike. And as expected, most of that unwound in the third quarter. Excluding contract volumes, STWs exceeded STRs by about 1.1 million hectoliters in the first half.

And in the third quarter, this flipped the other way, with STRs exceeding STWs by about 870,000 hectoliters. From a price mix perspective, we continued to benefit from global net price and growth. This, combined with mixed benefits from both the Pabst exit in the Americas and premiumization in EMEA and APAC, drove an increase in consolidated net sales revenue per hectoliter of 5.2% for the quarter. Turning to cash flow, we generated $856 million in underlying free cash flow for the first nine months of the year, while investing meaningfully in our business and returning $717 million in cash to shareholders through both dividends and our share repurchase program. In fact, we repurchased more of our shares in the third quarter. We continue to view our valuation as compelling amid our confidence in our business and in our long-term growth algorithm.

That confidence stems from our progress against our strategic priorities. I’ll start with our core power brands. Collectively, they remain healthy. In the U.S., Coors Lite, Miller Lite and Coors Banquet third quarter combined volume share was down about a half share point of industry versus a year ago when we saw strong share gains. Compared to last year, we continue to retain a substantial portion of our share gains on these core power brands. And compared to the third quarter of 2022, these brands were up 1.9 share points. So the step change gains we made last year have largely stuck. Coors Banquet would continue to perform very strongly with brand volume up 8% and growing industry share for the 13th consecutive quarter on top of significant prior year gains.

In fact, year-to-date, Banquet is the fastest growing top 15 beer brand in the U.S. in terms of volume percentage growth. We see much more opportunity ahead as we invest in building the brands awareness, its national scale and loyal consumer base, particularly among new Gen Z and millennial legal drinking age consumers. In Canada, Coors Lite continued to perform very well and again gained share of segment in the three months ended August. In fact, it’s the number one lite beer in the industry. The Molson family of brands also gained volume share for both the three months and year-to-date ended August. This performance has helped us to drive 19 consecutive months of share growth despite the challenging industry backdrop, and we plan to build on that.

In EMEA and Apex, strong results in Central and Eastern Europe was supported by Ožujsko in Croatia, which increased volume 6% in the quarter, as well as the extremely successful relaunch of a legacy brand in Romania called Caraiman. Caraiman has already reached over 250,000 hectoliters since March and has been incremental to the overall portfolio in the country. And while it’s certainly early days, its initial success highlights our ability to identify consumer needs and full white spaces while complementing our existing portfolio. And Carling is, of course, a top lager in the U.K., and we continue to invest to further enhance its brand equity amid a challenged mainstream segment in this market. Turning to our premiumization priorities for both beer and beyond beer, EMEA and APAC is an excellent example of our ability to premiumize.

We’ve shared that more than half of our EMEA and APAC Net Brand Revenue is in above premium, and we have continued to build on that. Much of this success comes from Madrid, which grew Net Sales Revenue over 15% in the quarter and is now the number two lager in the on-premise in the U.K. in terms of value. And as discussed in our earnings release this morning, we are pleased to have now taken full ownership of Cobra, an over 200,000 hectoliter above premium brand in the U.K. Canada also continues to premiumize, with its above premium Net Brand Revenue up nearly 15% in the quarter. This was driven by the success of Miller Lite, which is the fastest growing beer brand in this market, as well as by our flavor portfolio. We are growing more share of flavor than any other major brewer in Canada.

We are committed to building on these successes with premiumization in the U.S. We have taken necessary actions to allow even more focus on scalable above premium opportunities, including divesting underperforming craft breweries. We do have work to do here, but we have focused plans and see long-term opportunities within our expanding above premium portfolio of brands in both beer and beyond beer. I’ll highlight a few examples. Last quarter, we shared some of our new plans for Peroni, and they are starting to take shape. We have already onshore production of kegs and cans and bottles will follow soon. This will significantly improve consistency of supply, which has previously been a challenge when we have tried to scale the brand. And very importantly, it will also allow us to introduce different pack sizes that consumers are asking for.

In addition, we have strong commercial plans, which we intend to fund through the meaningful savings that will be driven through local production. Ultimately, we see no reason why Peroni can’t rival the size of other major European imports in the U.S. Of course, it will take some time, but we plan to hit the ground running in 2025 as we begin to drive meaningful scale and margin for this high-potential brand. In beyond beer, which is a big part of our premiumization plans, non-alcohol is an important area of focus for us. With our emphasis on addressing consumer needs, particularly those of the younger legal drinking-age Gen Z consumer, and on capturing more occasions, we are investing behind the growing areas in the space where we feel we have a right to win.

This is a long-term plan, but we are making progress. With this in mind, as part of our broader strategy within non-alcohol, we have increased our investments in Zoa, bringing our ownership interest to 51%. We believe Zoa is well positioned, particularly as it plays in the better-for-you segment that is outpacing energy category growth. With the support of its co-founder, Dwayne “The Rock” Johnson, we have built a strong foundation for Zoa over the past three years, and it’s time to pursue the next stage of growth and scale. Taking this increased stake allows us to lead the entirety of the brand’s marketing, retail, and direct-to-consumer sales development as we drive brand awareness and distribution, leveraging the strength of our network.

Supporting all these strategic priorities is our robust capabilities, and today I’d like to share a few examples of how they are creating value across the commercial organization. Taking a consumer-centric approach, we have developed deep consumer insights in the form how we support our brands and develop winning innovations. Whether it’s how we show up in new occasions with non-alcohol or attract Gen Z through flavor, or how we make authentic cultural connections with Latinos. Happy Thursday is a great example of how we identified a preference within Gen Z for bubble-free beverages, and we were a first mover in the market to address it. We are also advancing our shopper insights, like with our approach in C-stores, creating our first-ever C-store innovation pipeline to win in this critical channel where we have historically under-indexed.

This includes three new launches that fit the larger trends in singles and high ABV across both beer and flavor. Now, before I pass it to Traci, I’ll conclude by saying that we are confident we have the right strategy to achieve our long-term growth objectives. Collectively, our global core power brands are healthier than they have been in years. We are changing the shape of our global portfolio with premiumization successes in EMEA and APAC and Canada, and targeted plans for the U.S. We have strong and growing operations outside of the U.S. which are performing well and contributing meaningfully to our growth. We have built capabilities across our organization that support premiumization and focused innovation, supply chain efficiencies, and commercial effectiveness, all of which help drive sustained, long-term, profitable growth.

And we have substantially improved our financial flexibility, allowing us to continue to advance our strategy by investing in our business as well as returning cash to shareholders. So, we are pleased with our progress and our ability to capitalize on the opportunities ahead. And with that, I will pass it to Tracey. Tracey?

Tracey Joubert: Thank you, Gavin. We continue to focus on enhancing our profitability and financial flexibility. We are a highly cash-generative business, and as Gavin mentioned, we delivered $856 million in underlying free cash flow in the first nine months of this year. This was supported by underlying pre-tax income margin expansion of 100 basis points during this period. And we achieved this despite gross margin pressure, largely due to volume deleverage, particularly in the third quarter related to the U.S. shipment trends discussed. It was also achieved while we continue to support the health of our brands globally. Marketing investment was up for the nine-month period, but it was down for the quarter as we were cycling higher investments in the second half of last year related to the accelerated demand in the U.S. We also continue to prudently invest in our business to help support long-term, sustainable, profitable growth.

One example is our multi-year, multi-hundred million dollar Golden Brewery upgrade, which is now complete. And now we have more flexibility to continue to invest across our brewery network to support our ongoing cost savings initiatives while maintaining tight control of our annual capital expenditures within historic ranges. Importantly, our balance sheet is healthy. Our quarter-end leverage ratio was 2.1x while in alignment with our long-term target of under 2.5x. And we are so proud that our strong progress has been recognized by Moody’s, which upgraded us one notch last week to BAA1 stable, our highest investment grade rating in over a dozen years. Ultimately, our greatly improved financial flexibility provides us more optionality in the ways that we invest in the business, including both on M&A and to return even more cash to shareholders.

We remain committed to our String of Pearls approach as evidenced by our recent investment in Zoa and Cobra. As for returning cash to shareholders, in the first nine months of this year, we paid $279 million in cash dividends and paid $438 million to repurchase 7.5 million shares. Since the plan was announced in October 2023, we have repurchased 5% of our Class B shares outstanding. It’s an up to five-year $2 billion plan and we have utilized 29% in just the first four quarters. And now I’ll conclude with our financial outlook. As Gavin discussed, we are adjusting our net sales revenue guidance to down approximately 1% from low single-digit growth previously. This is a result of the softer than anticipated U.S. industry performance during the peak summer selling season.

However, we are reaffirming mid-single-digit growth for underlying pre-tax income driven by lower-than-expected costs largely due to packaging materials and logistics costs as well as G&A expenses. We also expect improved efficiencies and cost savings related to the further refinement of our U.S. regional cost operations as announced this week. These efforts serve to optimize our brewery network by closing our two remaining and underutilized U.S. regional craft breweries, Chippewa Falls and 10th Street in Wisconsin and shifting more production to our Milwaukee brewery. We are also reaffirming mid-single-digit growth for underlying earnings per share, but we are narrowing it to the higher end of the range supported by the execution of our share repurchase program.

Lastly, we continue to expect $1.2 billion plus or minus 10% in underlying free cash flow. Looking specifically at the fourth quarter, in the U.S., excluding contract volumes, we plan to shift to consumption for the year. Given we shipped ahead of demand by about 1.1 million hectoliters in the first half of the year and 870,000 hectoliters reversed in the third quarter, we expect STRs to outpace STWs by about 200,000 hectoliters in the fourth quarter. Also, we expect a remaining headwind of about 500,000 hectoliters to Americas financial volume related to the termination of the tax contract brewing agreement at year end. We continue to expect costs per hectoliter to be impacted by volume de-leverage related to the U.S. shipment drivers discussed.

This compares to a volume leverage benefit on a consolidated basis of about 30 basis points in the comparable period in 2023. And we continue to expect MG&A to be down compared to the prior year period as we stifle both higher marketing investment, which was up approximately $50 million in the fourth quarter last year to support the momentum in our brand, as well as higher incentive compensation. Looking ahead, we remain confident in our business goals, our strategy, and our growth algorithm. We recognize that 2024 guidance is not effective of our collective long-term growth algorithm. But notably, excluding the impact of Pabst, our guidance does imply positive top-line growth for 2024, despite the softer than anticipated industry this summer.

At a higher level, there is how we think about some of the building blocks of the long-term growth algorithm. To get to top-line growth of those single digits, the drivers are pricing, mix, and volume. On average, we expect annual net price increases in North America to be in the average historical range of 1% to 2%, and other markets to trend in line with inflation. We expect mix to be a meaningful growth driver as we advance toward our medium-term goal of reaching about one-third of our global net brand revenue from above premium. We are focused on stabilizing some of our larger above-premium brands in the U.S. and we seek great opportunities for brands like Peroni, Madri, Blue Moon Light, as well as our broader non-alc initiatives. When we put this all together, we remain optimistic we can achieve our global premiumization goal.

Given the growth potential through price and mix, there is room for some variations in volume in a given year. Also, we are not just a U.S. business. It is certainly our largest market, but our markets outside the U.S. are important contributors to our growth outlook. For perspective, within our Americas business is the high NSR rate market of Canada, which grew its top line 5.7% for the first nine months of 2024. And EMEA and APAC is also performing well, with its top line also at 5.7% for the same period. EMEA and APAC is home to one of our most successful innovations in our history, Madri, and it also provides us with exposure to the higher relative growth markets in Central and Eastern Europe, where we have been executing strong commercial plans.

And to get to mid-single-digit underlying pre-tax income growth, our algorithm assumes margin expansion. This is not only a function of disciplined revenue management and mixed benefits from both premiumization and significantly lower contract brewing, but also from the return on our investment in supply chain and commercial capabilities that support our growth initiatives, efficiencies, and cost savings. And then layering on our commitment of returning cash to shareholders through our share repurchase program supports high single-digit underlying earnings per share growth. In closing, we believe we have the right strategy and we have made meaningful progress. With compelling cash generation and a healthy balance sheet, we are committed to continue to invest in our business to achieve long-term financial growth and our strategic goals, while also returning cash to shareholders through a growing dividend and our share repurchase program.

With that, we would like to open it up to your questions. Operator?

Q&A Session

Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions]. The first question today comes from Bonnie Herzog with Goldman Sachs. Bonnie, please go ahead.

Bonnie Herzog: I guess I have a question on your financial volumes in America. Could you help us unpack the impact from shipment timing in the quarter that you called out versus maybe the impact on your business from macro pressures? And I recognize that you also had, I think it was a 260 bps headwind due to the [Pabst] [ph] on wine. So just trying to think through those factors. And then your updated sales for the year while lower doesn’t try an acceleration in Q4. So I guess I’m really just trying to understand what is factored into that. I mean, can you talk about trends in October? Did your shipments accelerate in October, for instance? And that kind of gives you some expectation that Q4 will be better. And I guess that’s it. Thank you.

Gavin Hattersley: Thanks, Bonnie. And good morning to you. Let me start and maybe, Tracey, you can add to it. I didn’t catch entirely everything on your question there, but I think I got the gist of it. The guidance, obviously, from an NSR point of view and taking it from where it was to down around 1% was largely driven by what we experienced in July and August. Those were tough months for the industry. And, of course, we were impacted the same. We certainly did see some improvement in September. And over the last sort of four or five weeks, as we’ve got into Q4, the overall industry has performed a lot better than it did in July and August. Of course, July and August are important months for us, right? Because it’s the middle of summer.

From a shipments point of view, you know, it played out pretty much as we expected in the third quarter, as we unwound the sort of stocked inventory building that we had coming into Q2 because of the Fort Worth situation. And so, we’ve largely unwound that, but there is a little bit more to go. Depending on where brand volumes, sales to retails fall out, it’ll probably be a couple of hundred, a thousand barrels. And then, perhaps certainly almost all of Pabst is out of our system now. I think there’s one brand family left, which will come out in the fourth quarter, but that’s relatively small volumes. And so if you put all of that together, that’s how we landed at the guidance shift that we made. Tracey, did you want to add to that?

Tracey Joubert: Yes. I mean, just maybe to put some numbers to it. Bonnie, so in the U.S., our shipments were down 17.9%. The brand volume was down 6.2%, and Pabst had a 2.6% impact as well. And then the rest was just really timing, trading days, et cetera.

Operator: The next question comes from Andrea Teixeira with JPMorgan. Please go ahead.

Drew Levine: This is Drew Levine on for Andrea. Thank you for taking our question. So Gavin, I wanted to double quick on, the industry backdrop. You mentioned over the summer, there was a lot more value-seeking behavior and that there’s been improvement in September and October. So curious, what you’re seeing from a consumer perspective, anything specific that you see as driving the improvement in the industry backdrop? Is it specific channels, consumer cohorts? And then maybe as it relates to next year, how kind of the improved performance into the fourth quarter will factor into your planning? Thank you.

Gavin Hattersley: Thanks, Drew, for the question. Look, I mean, from an overall industry point of view, there’s obviously throughout this year, right, there’s been a lot of noise with trading days and holiday timings and sometimes turbulent weather. But if you look at the overall industry in total, it’s essentially a continuation of what we’ve seen for a while, with slightly more patch shifting into signals as well as larger effects as consumers, they continue to look for value. And not to be repetitive of what I said to Bonnie, but the category has been up and down. July and August certainly showed the pressures from economic impacts with some of that channel and pack shift accelerating. Though, as I said, that eased up a bit in September and certainly in October and, the first part of November data that we’ve seen suggests that, much better performance from an industry point of view than we saw in July and August.

So from a consumer point of view, not seeing anything meaningfully different from previous trends, value conscious consumers continuing to engage in some channel and pack shifting. But, we’ve noted that trend on this call before and somewhat counterintuitive to that, we continue to see premiumization taking place. And that certainly applies in the U.S. and in Canada, pretty similar situation. I don’t have a crystal ball on where this is all going to play out into the future. We’re obviously encouraged by recent trends and we keep a close eye on consumer confidence, which has ticked up in the recent numbers that were released. So, put all of that together and we’re not seeing a whole lot different to what we’ve seen previously.

Operator: Our next question comes from Filippo Falorni with Citi. Please go ahead.

Filippo Falorni: I wanted to ask about early thoughts on the fall reset. Obviously last year, you had significant shelf space gains as one of your competitors were going through some issue. What are your thoughts for this year in terms of retaining the shelf space that you gained last year and potentially gaining more? Any thoughts on your key brand will be helpful. Thank you.

Gavin Hattersley: Yes, thanks, Filippo. And good morning. Look, from a shelf reset point of view, if you remember correctly, we had a significant dislocation last fall. Retailers don’t normally make any meaningful changes to shelf sets in the fall. And we had an unprecedented change in the fall and then we had it again in the spring. So collectively, a big jump in shelf space for ourselves. As we’ve said previously, we didn’t expect those meaningful dislocations to take place again. And we thought that the retailers would revert back to the small tweaks, either up or down, that they’ve done in the past. And obviously, our goal was to retain the shelf space that we gained and to increase it. And we achieved both of those goals in the fall of this year.

We held the share of space that we gained in the fall and the spring, and we actually gained a little bit. So very positive outcome from us given the significant increase in shelf space that we experienced in the fall and spring. Going forward, we would expect, in spring for the same process to manifest retailers making tweaks and adjustments based on innovations that are coming out and moving, slow moving items. I think a key takeaway from our perspective is we retained the significant shelf space we got and we actually gained a little bit more. So we’re very pleased with the outcome.

Operator: The next question comes from Bryan Spillane with Bank of America. Bryan, please go ahead.

Bryan Spillane: Maybe Tracey, can you just level set for us now where we stand in terms of sort of marketing levels? If I recall last year, given the upside that you were running, there was quite a bit of incremental spend built into the back half of last year and I guess I’m thinking about this more in terms of as we exit ’24 and into ’25, are we into or are we at a level now in terms of total marketing expense that is enough, right, to drive the algorithm or do we think that there’s going to be a potential to step up more?

Tracey Joubert: Thanks, Bryan. Yes. So if you recall, we did say that we don’t expect to spend the same level of marketing dollars in the back half of this year as we did in the back half of last year because we were investing, fairly significantly behind our core brands which had the momentum that we were seeing. And as I said in my prepared remarks, for the fourth quarter of this year, we don’t expect the marketing investment to be up, last year it was up about $50 million in the fourth quarter. But if we look at the full year ’24, we still expect our marketing investment to be up versus 2022. And we will continue to put the right level of investment behind our brands. We will make sure that we fuel our core brands in particular but also the innovations and above premium plans that we have against Blue Moon, against Madri.

We’ve spoken about Peroni and how we’re going to increase investment behind that brand as we bring production into the U.S. just makes it, much easier for us. So we will put the right level of investment behind our brands, but we don’t expect significant deficit. But again, we’ll make those decisions as we see, what we need to invest behind and where we need to invest and which brand.

Operator: The next question comes from Chris Carey with Wells Fargo Securities. Chris, please go ahead.

Chris Carey: I wanted to just, I guess, reflecting on 2024, clearly the top line has been a challenge. But this is really a category dynamic. It’s been a challenge across the entire category. When you reflect on how this year has gone and start thinking about, next year, how much of the volume we’ve missed this year feels like an anomaly with maybe some green shoots that you feel like are getting better or not. And how much of the price that you’ve seen this year feels durable? Obviously, there’s a mixed premiumization element but pricing element as well. And what I’m really getting at here, and you answered it how you will regarding 2025, but it’s this dynamic where, you’re lapping this really significant event from last year.

And on top of that, the category was quite weak. And so it’s really hard to understand where your top line is going to shake out, in, say, a more normal environment with more normal comparison. And I just don’t know if you have any kind of broader comments on that as you canvass the next one or two years. I mean, clearly you’ve been doing well from a profit standpoint or returning cash, but it’s that top line, which is the recurring debate. So I would just love any added perspective there. Thanks.

Gavin Hattersley: Yes. Thanks, Chris. Look, I mean, I’d like to unpack what you just asked, right? But maybe I can just summarize it into, what gives you confidence that you can meet your long-term growth algorithm as it relates to NSR? So I’m going to answer it that way, right? I mean, if you look at 2024, lots of noise in 2024, both from an industry point of view, from, Pabst coming out of our top line, revenue and cycling, significant growth in the previous years. So I’ve made the point, I think, in my remarks about, if you strip Pabst out of our top line, we actually are in positive territory. So let’s start there. And, of course, we do have some, while Pabst are out of our system largely by the end of Q3 and will be out completely by Q4.

We’ll continue to cycle that for the next nine months at least and a little bit in the fourth quarter of the following year. But if you look at the share retention that we’ve experienced with our core power brands, right? I mean, we gained and have gained and retained about 190 basis points of share growth over the first nine months of the year when you compare it with 2022. So that’s very pleasing, and in the latest four-week read, we’re retaining about 80% of the share that we gained last year. So I’m very, very pleased with that outcome. We’ve retained most of it and that seems to be settling down at this level. Coors Banquet in particular has been very positive for us. Year-to-date, that brand is growing double digits. It’s the fastest growing brand from a percentage point of view, as I said, in this space, and it’s just doing very, very well.

We’re more than just a U.S. business, of course. Tracey made that point. We’ve got Canada that’s growing revenue really strongly. We’re gaining share at a meaningful clip in Canada year-over-year on top of share growth from last year, our EMEA and APAC business is also driving top-line growth. So from a pricing point of view in the U.S., we’ve said previously we expected pricing to sort of settle down into that 1% to 2% range. So far this year, it’s at the top end of that range at around 2%. The price increases that we got in fall, last year, same players and spaces have increased price in the fall of this year. Our premiumization efforts, which obviously draft strong mix, doing really, really well in Canada and across the ocean. We know we’ve got work to do in the U.S. We’ve got clear plans from that.

We obviously made some moves in the quarter, taking our stake above 50%. So, overall, when I look at it and some of our innovation and premiumization plans, whether it’s Peroni in the U.S. or expanding Madri into Canada and Bulgaria and potentially some other markets in Europe in the new year. And I feel confident in our long-term growth algorithm, Chris. Hopefully that answered your question.

Operator: Our next question comes from Rob Ottenstein with Evercore. Please go ahead.

Rob Ottenstein: I’d like to just maybe drill down a little bit into some of the prior questions and ask what does the pricing environment look like, the promo environment? We understand that there was some selective pricing in October on singles in the import space. I don’t know if you played in that with Peroni, for instance, and how that played out. But just love to understand what the competitive environment looks like. So let me stop there. Thank you.

Gavin Hattersley: Thanks, Robert. Well, let me answer the Peroni question now. No, we didn’t do anything, to my knowledge, on promotion on Peroni. Our plans around Peroni are much different, right? I mean, as we’ve said, we’re bringing that brand onshore, and that’s going to give us, three really big advantages for us, right? It’s going to be a more consistent supply, increased pack formats, which the consumers’ been wanting, but we haven’t been able to provide, given where we were sourcing the product from, and then, a ton more margin to reinvest back in the brand to drive marketing. So that’s our strategy around Peroni. It’s not a promotional pricing play for us at all. This is a really good above-premium brand for us, and we want to keep it that way.

From an overall pricing point of view, as I said, we’re looking to pricing being in that sort of historical range, top end of it at this point in time. The full GI is pretty consistent with last year. What do I mean by that? We only had a select group of markets that we took price last year from a GI point of view, and it’s pretty much those same markets that we’re doing again this year. Haven’t seen much of a shift in product elasticities, although the sort of macroeconomic environment, particularly in that sort of July and August timeframe, did push some consumers to reach for value by channel or pack, not by brand. From a promotional point of view, as I’ve said before, we always see some level of promotional activity in the summer months, and this summer was no different.

I do think one of the things that was a little different from a brand point of view or maybe a segment point of view was there was some deeper discounting in the above premium tier, which obviously we didn’t react to and therefore did have some impact on our core brands in our pockets, but we felt it was important from a brand point of view to stick to our strategy, which we did, and I would perhaps call out as the only different thing that took place this summer that we haven’t necessarily experienced in the past.

Operator: Our next question comes from Robert Moskow with TD Cowen. Robert, please go ahead.

Victor Ma: This is Victor Ma on for Rob Moskow, and thanks for the question. So it’s clear in tracking data that growth simply spiked to slowing, and it seems like, blurring the lines by taking a preexisting brand, it just doesn’t work long term. So what are your thoughts there? And I know it’s small, but can you speak about Happy Thursday and how it’s performed versus your internal expectations? Thanks.

Gavin Hattersley: Yes, sure. Look, I mean, talking about something spiked, I don’t think it’s a small brand. I mean, that brand’s $100 million in revenue. That’s a big brand for us. As it relates to flavor more broadly, consumers do tend to have a treasure hunt mentality. And so you’ve got to make sure that your flavor innovation is keeping pace with what the consumer’s looking for as they evolve their demands. And yes, we have seen some softening on some of the original packs that we launched. But, simply as we’ve said before, the non-alc brand is about founding one out of every two households in America. We continue to believe that there’s potential to drive growth into distribution and household penetration going forward.

And I’ll give you another recent example for us in the Simply Spiked space. We launched a new LTO with Cranberry. Obviously, seasonally, this is a great time to do that. Trying to drive some engagement with our brand outside of the typical summer months. And we’ve seen, really strong execution with display and feature increasing week-over-week with that LTO. So, as we looked at 2025, we’ve got strong plans to play in this space. And certainly from an overall flavor point of view, we see potential going forward for not just Simply Spiked, but our whole flavor portfolio. If you look at Happy Thursday in particular, obviously it’s still early for us, but we’re hearing lots of positive feedback from many different markets. We think that brand really hits the intersection of what legal age Gen Z consumers are after.

It’s a great bubble-free beverage. It’s flavorful. It stands out on shelf. And, it’s too early for us to predict how big this brand could actually become, but we’re certainly encouraged by the early results. And we are certainly very happy that we’ve got first mover advantage here. And we’re going to continue to support this brand. Thanks, Victor.

Operator: Our next question comes from Eric Serotta with Morgan Stanley. Eric, please go ahead.

Eric Serotta: So in terms of above premium, can you talk a little bit about plans to revitalize Blue Moon? I think you were talking about that a bit last year and, it seems relatively mixed so far. So some more work to do. Also, can you address opportunities for Coors Banquet from here? Does the Golden expansion or new brewery in Golden unlock additional capacity and are there plans to push that harder? And then lastly for Tracey, any initial thoughts in terms of COGS per hectoliter for next year? You won’t have some of the headwinds from the deleveraging with the contract brewing going away. Should we think that there’s some tailwinds from sort of the delayed impact of commodities coming down given your hedging program? Yeah, we’d love to get your thoughts on those areas. Thank you.

Gavin Hattersley: Okay, thanks, Eric. I’ll take the first two, Tracey. You obviously take the third one. I’ll start with Blue Moon. Eric, as we’ve said in the past, it’s a big, important brand for us. It’s a top priority for us in the above premium space and we’re very committed to turning the trajectory of this brand around. That’s why we’ve launched the new packaging, the whole new visual identity for the brand family. We’ve got the new campaign, and we’ve repositioned Blue Moon large and we’re seeing signs of stability. The Blue Moon family of brands has experienced sequential improvement in total industry dollar share, right? Not craft dollar share, which is, craft is falling off quite a lot, but in total industry dollar share, we’re seeing sequential improvement for the Blue Moon family and the last 52 and flat in the last 13 weeks.

So we’re encouraged by that a lot, actually. We continue to see positive momentum behind some of our new innovations, whether that’s the repositioning of Blue Moon Lite and whether it’s the launch of Blue Moon non-alc, which is now the number two craft non-alc brand. So, we’ve got a lot of activity behind Blue Moon. We’re starting to see the impact from a share of total industry point of view and we’re going to continue to drive that. As far as Coors Banquet’s concerned, no, the expansion on the [dwarf] [ph] side of the brewery has not created extra capacity for us for Coors Banquet. We only make Coors Banquet in Golden and as we drive that volume up in Golden, so we can move brands that are produced in Golden to some of our other breweries and we do that.

So I have no worries about capacity. for Coors Banquet. And I know that the operators can support whatever growth our sales team bring us and that growth is strong at the moment, right? I mean, we’ve gained industry share in the last 13 consecutive quarters. Year-to-date that brand is growing double digits. I think I said as maybe my opening remarks to an earlier question, it’s the fastest growing top 15 big brand in the category year-to-date and in Q3, growing faster than that big Mexican import. We’ve worked really hard to build the brand and to grow the distribution at the same time. And we’re seeing consumers from all legal drinking age generations really take to Coors Banquet because of the quality that it brings and the lifestyle that it represents.

And that comes through and comes to life through partnerships like Yellowstone. You’re going to see us around the final season of Yellowstone and quite meaningfully as it launches. So yes, but probably more than you asked, Chris, but you got it anyway. Eric, but you got it anyway. You want to do the COGS?

Tracey Joubert: Yes. So Eric, we haven’t given COGS guidance for next year. We’ll certainly talk more about our guidance for 2025 when we have our Q4 call. But maybe just a little bit of context in terms of, how are we looking at COGS and our costs going forward. So, we’ve put a lot of investment in our breweries. And you specifically mentioned our Golden Brewery. And most of the capital investments that we make is to support long-term sustainable growth to drive efficiencies, help mitigate inflation, et cetera. And certainly removing Pabst mix will benefit our efficiency in our breweries as a positive impact. We eliminate hundreds of short-run brands. That really means that we can improve efficiencies with fewer changeovers.

That leads to less waste. It also gives us more headroom. As we go into the summer, running it at full capacity, certainly helps from a leverage point of view as well. As we look forward again, cost savings is just a way of life at Molson Coors. And most of our cost savings initiatives are concentrated on the COGS line. So really focusing on improving efficiencies, production efficiencies, reducing waste, also helps in supporting our sustainability goals. So more to come on our Q4 call. But, obviously this is a big focus area for us and constantly looking at opportunities to take costs out.

Operator: Our next question comes from Peter Grom with UBS. Please go ahead, Peter.

Peter Grom: I guess I just wanted to follow up quickly on just the category questions, but just more what’s really embedded in the outlook. Obviously, it’s nice to see some sustained improvement here in September and October, but we’ve seen the category move around quite quickly over the last year. So I guess I’d just be curious, when you think about the 4Q guidance, are you kind of assuming, this current improvement holds? Are you embedding some flex, if the category were to weaken from here? Can you just help us understand what’s kind of really embedded in the outlook from a category perspective?

Gavin Hattersley: Yes. Thanks, Peter. Look, I mean, as you know, there are a lot of drivers for our top line, right? And certainly from a 4Q point of view, we’ve got a good feel for those, right? We know what we’re going to ship pretty much. We know what has come out from a perhaps contract brewing point of view and what’s left. And so we’ve got a good handle around that. We’ve just put our pricing, the full price increases in, and we’ve obviously got the price increases from spring that roll forward. So we’ve got a good handle on our drivers, given where we are in the year, and how it’s going to play out in the fourth quarter. And as far as the long-term is concerned, I think in answer to, I think it might have been Chris’s question, I think I covered off on all of the reasons to believe in our long-term algorithm as it relates to, in terms of your question, the top line.

Operator: The next question comes from Lauren Lieberman with Barclays. Lauren, please go ahead.

Lauren Lieberman: I was a bit surprised to see EMEA and APAC go back into volumes being down. And I know you flagged the increasingly competitive environment in the U.K. But I was hoping to just maybe dissect a little further the drivers that volume weakness and just kind of perspective on more recent trends. Thanks. A – Gavin Hattersley Thanks, Lauren. Look, I mean, consumer demand in the U.K. has been a little bit soft compared to the previous year in Q3. We did see some uplift from the Euro tournament. But, as I think everybody who operates in that market has spoken about that was offset by some poor weather. On the other side, the market has become increasingly competitive with some high promotional intensity in that space.

We continue to support our brands for Carling. We’re certainly driving a value over volume strategy, so we haven’t participated in that high promotional environment. On the positive side, Madri continues to drive both volume and value growth for us across both the on and the off premise. From an overall consumer point of view, when you compare the U.K. with all the other countries in the world, they’ve probably been a little bit more resilient. And with inflation coming off and interest rates coming down, it’s hard to see that that won’t have a positive impact on consumer behavior. Obviously, we’ll have to see how it plays out, but that’s an overall summary of what’s going on there. Operator Our final question today comes from Michael Lavery with Piper Sandler.

Michael, please go ahead.

Michael Lavery: I just wanted to touch on Zoa a little bit more, and I guess maybe in the scanner data, it certainly is a very small brand and hasn’t done a whole lot. Maybe more than anything, two questions. Is there anything we might be missing? Does it have a big unmeasured component we should make sure to be aware of? And then just looking ahead with a consolidating stake, how different might execution be? You know, what should we expect and maybe over what time horizon? Is there a much bigger push that might come near term? Is it a bit more of a long-term trajectory? How should we think about all that?

Gavin Hattersley: Thanks, Michael. From a Zoa point of view, we think we’ve got lots of potential for success with Zoa. It’s a better-for-you energy drink. That’s the space it plays in. If you unpack the drivers of growth or the lack thereof in the energy drink space, certainly better-for-you energy is driving all of the growth in the energy drink space where there is that. And Zoa plays right into that sub-segment of energy. We think we’ve got a fantastic liquid. We’ve said that in the past. We think we’ve got a great brand. We think we’ve got great packaging. And we’ve got a powerful spokesperson who’s not just a social media influencer, but actually somebody who has a decent stake in the business with us. As far as [our mission] [ph] is concerned, Zoa is already a top-ten brand on Amazon year-to-date, which is incredible, given how long its competitors, the big players, have been in this space.

So we’re very encouraged by that. We’re very encouraged by the fact that Zoa is attracting new drinkers into the energy category, and we’re starting to build stronger new distribution and getting chain mandates, which we didn’t have before. Now that we’ve got a majority stake in the business, we’re going to have ownership of marketing. We’re going to have ownership of other areas that we haven’t had before, and that’s going to be a big, big plus for us. It’s highly incremental to our overall revenues, very supportive of our String of Pearls approaches, as Tracey mentioned. So we feel really good about this brand, and that’s what gives us confidence to take our minority stake up to a majority stake. So thanks for the question, Michael.

Operator: Thank you. We have no further questions, and so this concludes today’s call. Thank you for your participation. You may now disconnect your lines.