Molson Coors Beverage Company (NYSE:TAP) Q4 2023 Earnings Call Transcript

Molson Coors Beverage Company (NYSE:TAP) Q4 2023 Earnings Call Transcript February 13, 2024

Molson Coors Beverage Company beats earnings expectations. Reported EPS is $1.19, expectations were $1.12. Molson Coors Beverage Company isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day, and welcome to the Molson Coors Beverage Company Fourth Quarter and Fiscal Year 2023 Earnings Conference Call. You can find related slides on the Investor Relations page of the Molson Coors website. With that, I’ll hand it over to Traci Mangini, Director, 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 pick them up with the IR department in the days and weeks that follow. Now today’s discussion includes forward-looking statements. Actual results or trends could differ materially from our forecast. For more information, please refer to the risk factors discussed in our most recent filings with the SEC. We assume no obligation to update forward-looking statements. GAAP reconciliations for any U.S. or non-U.S. GAAP measures are included in our news release.

Unless otherwise indicated, all financial results the company discusses are versus the comparable prior year period in U.S. dollars and in constant currency when discussing percentage changes from the prior year period. Also, U.S. share data references are sourced from Circana unless otherwise indicated. Further, in our remarks today, we will reference underlying pre-tax income which equates to underlying income before income taxes on the condensed consolidated statements of operations. With that, over to you, Gavin.

Gavin Hattersley: Thank you, Traci, and thank you, everybody, for joining us today. Before we get started, I want to mention that Tracey Joubert, our Chief Financial Officer, is unable to attend today. We moved our earnings date earlier this year, so I didn’t conflict with CAGNY and Tracey had a very long-standing family commitment at this time. So Greg Tierney, our Vice President of FP&A Commercial Finance and Investor Relations, will be filling in on her behalf for this earnings call, and you’ll see Tracey next week at CAGNY. At the start of last year, no one, absolutely, nobody could have predicted what would happen in the beer industry. We are just growing the top and bottom line of this business, and we are committed to doing it again in 2023.

Since then, we increased our expectations for the full year, not once but twice. We’ve continued to raise the stakes and I’m proud to say that once again, we have delivered what we said we would. In 2023, our global net revenue grew more than 9%, and we grew our bottom line by nearly 37%. These are our highest reported dollar results on record ever, on top of the already impressive results in 2022. We’ve proven that Molson Coors is the kind of business that can turn itself around, deliver against its commitments and continue to grow no matter the volatility of the external environment. Every year, for the past 3 years, our industry has faced challenges. We’ve gotten good at managing them, even when they’re massive enough to permanently alter the beer industry.

And every year for the past 3 years, we have navigated successfully through the challenges. We have delivered against our vision, and we have grown. But growth is not a strong enough word to describe what we achieved in 2023. We’ve set a new baseline for our business, and you don’t need to look any further than our bottom line. In fact, our 2023 underlying pre-tax income was higher than we thought it would be, and frankly, higher than anyone I am aware of said would be in 2028. So Molson Coors delivered 6 years of profit growth, 6 years of growth in just 1 year. That focus is a new baseline. We are ready for this moment. So let’s get into why we are confident. In 2023, our top 5 brands around the world drove over 2 million more hectoliters than they did the prior year.

This is like adding the entirety of Blue Moon’s global volume to our portfolio. In the U.S., our core brands are growing distribution and space at retail. And as I will discuss in a minute, we expect to gain significantly more space in the spring. Last year, our brands in the U.S. also grew more share of the on-premise than any other brewer. This includes our core brands, and it also includes growth for Blue Moon. And as of the latest 12-week CGA Nielsen reads, we are going 3x more share in the on-premise than constellation, 3x more. To put this performance into perspective, Coors Light and Miller Lite each grew more dollars in the on-premise than Constellation did as a total brewer. I’ll let that sink [ph] in for a second. Because of this momentum, we added an incremental $1 billion in distributor revenue to our network in 2023, and our distributors are just as motivated to grow again this year.

Perhaps most importantly, the consumers who have come to our portfolio over the past 12 months have stuck with us, and they are more loyal than we have historically seen. So we brought new consumers into our portfolio, we’ve retained our loyal base and our plans for 2024 are designed specifically to bring in even more new consumers and there’s no better place to start than with our core brands. Let me start with the U.S. In the fourth quarter, Coors Light, Coors Banquet and Miller Lite all grew brand volume by double digits. Miller Lite left in a [indiscernible] strong into 2022 and still grew 0.5 point of industry dollar share in the fourth quarter. And Coors Light grew dollar share by nearly a full share point in the quarter. You’ve also heard us talk more about Coors Banquet and for good reason.

Brand volume grew by nearly 20% for the full year in 2023, and it has grown industry share for 11 straight quarters. We have a lot of runway on Banquet, especially with younger legal age consumers. We gained more distribution in 2023 and grew on-premise draft lines for Banquet by nearly 50% in the fourth quarter alone. So you can expect to see us putting a lot of focus behind Banquet this year, along with Coors Light and Miller Lite. Coors Light and Miller Lite have grown significantly at retail, gaining more dollar share of displays in 2023 than any other beer brand. And that trend has continued in 2024 and with Coors Light, Coors Banquet and Miller Lite growing dollar share of displays by nearly 20% in the 4 weeks leading up to the Super Bowl.

This is an incredibly important point. And the reason why it’s quite simple, store shelves and coolers have a finite amount of space. So floor displays represent incremental space and high visibility. This added space also means more days of inventory at retail for our brands. And from a consumer perspective, it means our brands are placed in areas of the store where they’re more likely to sell quickly. Now we can’t talk about our presence at retail without mentioning spring resets. You’ll recall that Coors Light and Miller Lite gained about 6% to 7% more space during the summer and fall adjustments, which is a huge increase for brand this large. We are now starting to get a clearer picture of what we can expect again as spring resets take shape.

And based on the conversations we’re having with top retailers, we expect to gain significantly more distribution and space for our brands in 2024 on top of the gains we made last year. In fact, one of our larger chain retailers has already confirmed at its space that is well above the four levels for our core brands this year. It’s important to note, though, that this won’t happen all at once. Unlike the unprecedented resets we saw last summer and fall, spring resets are phased between the spring and summer. The impact will likely show up over time, roughly between March and July of 2024. Eating up to those months and throughout our core brands in the U.S. will have large integrated campaigns running across TV, digital, retail and live events.

You’ve already started to see this with Coors Light and the Super Bowl which got a great reaction from consumers and supported our success in the marketplace. In the 4 weeks leading up to the Super Bowl, we added an incremental 160,000 display units of Coors Light at retail. During the same time, Coors Light velocities grew by nearly 14%. So not only are we selling much more beer, it’s also selling much faster. As far as what’s next, Coors Light’s choose Chill campaign will run throughout the year with strong media pressure and amplification from celebrity fans at Grammy award-winning country music star Lainey Wilson. And in March, we plan to launch a campaign of comparable size for Miller Lite. I can’t say much about that right now, but it’s some of the best work I’ve seen on Miller Lite in a long time, and that’s a very high bar.

So we are excited about it. The growth of our core brands is not limited to the U.S. In our other global markets, we continue to see strong performance and have plans to continue the momentum in 2024. In Ontario, Coors Light and Molson Canadian are now the #1 and #2 beers in the total market, and both brands grew share of the industry in Canada for the full year. Miller Lite, which sells at an above premium price point in Canada continues to grow at a rapid pace with fourth quarter volumes accelerating up nearly 60%. In Croatia, Ožujsko achieved its highest share levels in recorded history and now holds more than a 50% share of segment. In the U.K., Carling grew value share versus its competitive set in the fourth quarter, and we are very excited that Carling is now the first official beer partner of the Men’s and Women’s FA Cup, which will provide significant visibility and relevance for the brand in 2024.

So our core brands have carried their 2023 momentum into this year and the higher end of our portfolio has a lot of runway in 2024 as well. In the fourth quarter, our EMEA and APAC business achieved a record high 52% of our net brand revenue at an above premium price point. In the U.K., Madri Excepcional continued its growth streak. In the fourth quarter, Madri was the fastest growing major beer brand in the U.K., both by volume and value sales. Madri’s volumes grew by 80% for the full year, easily surpassing 1 million hectoliters. Growth like this does not come easy in the beer space, especially in less than 3 years for a new to the world brand that launched during a pandemic. We have some expansion with Madri, so it should not be a surprise that we have ambitions to scale this brand and expand its global footprint.

Last month, we announced that we are launching in Canada, and product is rolling out on to shelves starting this week. We plan to grow this brand thoughtfully in markets where the opportunity and desire are clear. We are starting with Canada and select European markets this year. So that is our focus right now, and we will consider future expansion when the time is right. In terms of our flavor portfolio, Simply Spiked continues to be a growth engine for our business and the industry. This brand more than doubled its volume in the U.S. in 2023 and Simply Spiked Peach was the #1 innovation by volume and dollar sales in the grocery channel. Simply Spiked is also gaining ground in Canada, we had launched nationally less than a year ago. Already, it has nearly a 4% share of a statement in a matter of months.

And along with brands like Coors Seltzer and Vizzy, it has driven Molson Coors to become the only major brewer growing share of flavor in Canada. We plan to continue our growth in flavor this year, but our approach will be focused and deliberate. We are launching Simply Spiked Lemonade in the U.S. this month. And in March, our new-to-the-world innovation happy Thursday would hit shelves and eCommerce platforms across the U.S. We’ve gotten great responses from retailers for both of these launches, and we plan to support them with strong marketing and sampling activations in every region of the country this spring and summer. So we are very confident we can go off our tremendous results in 2023, and we are very confident in the momentum of our brands and our plans for 2024.

So you can be confident that we are going to deliver what we say we will deliver, just as we have for the past few years. We are confident because we’ve weathered every recent challenge imaginable challenges in our industry and challenges in the macro environment. And from that perspective, we continue to see signs of improvement. Country to conventional wisdom, U.S. beer industry volume trends improved during 2023 and particularly in the fourth quarter, which was consistent with strong improvements in consumer spending. In fact, the overall beer category gained dollar share of total alcohol beverage in 2023. Our brands led the industry volume improvement during 2023. And we are focused on our position as the leader of this industry. So we plan to grow Molson Coors top line again in 2024.

Are we cautious about the year ahead? Of course. While inflation has come down, there are still plenty of reasons to be wary about the macro environment, but our strong results give us confidence in our ability to deliver in 2024. I know a number of you remain skeptical of our ability to grow this year. We were skeptical in 2022 and also in 2023, but the numbers don’t lie. We delivered what we said we would. So for 2024, here’s what I will say, we are committed to growth. And for the long-term, we’ve shared our growth algorithm, and we intend to deliver on it, just as we have delivered on what we have said we would over the past 4 years. And with that, I’ll turn it over to Greg to share some details on our financials and our guidance. Greg?

Greg Tierney: Thank you, Gavin. 2023 was an incredible year for our company. Our net sales revenue grew an impressive 9.3% with strong growth from both business units. Top line performance was driven by favorable global net pricing, Americas volume growth and positive sales mix. Our above premium portfolio comprised 27% of total net brand revenue for the year, and that was with a tremendous strength in our core power brands. In fact, our above premium brand in our above premium brands grew net brand revenue by 6% for the year, behind successful innovations like Simply Spiked and continued growth in Madri Financial volume increased 1.8%, while brand volume grew 2.2%. Our supply chain team did an outstanding job in meeting the high consumer demand in the U.S., leading to financial volume growth of 3.5% and brand volume growth of 5.3% in the year.

And we delivered strong margin expansion as cost savings and volume leverage significantly offset inflationary pressures and higher MG&A spend. As a result, underlying pre-tax income grew 36.9%, also driven by both business units and exceeded our expectations. Underlying free cash flow climbed to $1.4 billion, also exceeding our expectations. This enabled us to continue to strategically invest in our business, further strengthen our balance sheet, raised dividend 8% and repurchased approximately 150 million shares under our new share repurchase program that we announced in October. So as Gavin discussed, we’ve entered 2024 with a strong foundation. This gives us confidence for continued growth in 2024, which aligns with our long-term growth algorithm for net sales revenue and underlying pre-tax income.

But before we get into our outlook, let’s discuss the fourth quarter. Both business units contributed a solid top line growth of 5%. Underlying pre-tax income increased 2.1% as we continue to invest strongly behind our brands, which is particularly impactful to the bottom line in a typically lower profit quarter. Now looking closer at the top line. Favorable net pricing and sales mix drove net sales per hectoliter growth of 4.2%. Favorable sales mix was due to lower contract brewing volume related to the wind down of the PEPs [ph] agreement ahead of its termination at the end of 2024. Consolidated financial volume increased 0.8% as growth in Americas was offset by declines in EMEA and APAC. Americas shipments increased 2.2% with U.S. domestic shipments up 4.3%, driven by the strength of our core premium brands.

However, as expected, lower contract brewing volume related to the PEPs agreement with a headwind of approximately 2% to America’s shipment volume. And also recall that in the third quarter of 2023 due to our strong U.S. brewery performance, we shipped ahead of expectations. So we entered the fourth quarter with healthy U.S. inventory levels. This allowed us to give our employees some well-deserved time off during the holidays and to conduct routine system maintenance well positioning us to build inventory in the first quarter ahead of peak season. EMEA and APAC financial volume declined 3% on lower brand volumes. Consolidated brand volume growth was 4.3%. As expected, growth accelerated versus the third quarter and underscored the continued strong momentum of our core brands.

Now looking by market, Americas brand volume increased 6.7%. That was led by the U.S. where brand volumes were up 8.5%. Coors Light, Miller Lite and Coors Banquet performed strongly, each up double digits. In Canada, brand volume increased 0.7%, benefiting from growth in our above premium portfolio. While industry softness weighed on brand volume, we continue to grow share in Canada for the quarter adding nearly 2 share points for the quarter. That was the strongest growth of any major brewer in the country. And in Latin America, while mix improved, brand volume was down 5%. This was largely due to challenging economic conditions in some of our key markets in the region. In EMEA and APAC, brand volume declined 2.2%. This was due to industry softness in the U.K. off-premise which partially offset the strength of our above premium portfolio and inflation continued to pressure Central and Eastern European performance.

Now turning to costs. Underlying cost of goods sold per hectoliter was up 1.4% with notable differences by market. As expected, inflation was a headwind in the quarter, partially offset by cost savings and a 30 basis point benefit from volume leverage. In the Americas, underlying cost of goods sold per hectoliter decreased 0.7% as cost savings, volume leverage, lower logistics costs more than offset the impact of direct materials inflation. In EMEA and APAC, we continue to see persistent inflationary pressure with underlying cost of goods sold per hectoliter up 8.8%. These increases were driven by direct material — materials and logistics costs as well as unfavorable mix from premiumization. Underlying marketing, general and administrative expenses increased 17.4%.

We invested strongly behind our brands, increasing marketing spend over $50 million in the quarter. Our focus was on retaining our existing drinkers and attracting new ones including using addressable channels or places where we can use data to more precisely target them and continuing our push behind live sports. General and administrative expenses were also higher as variable compensation expense reflected the strong operating performance for the year. Underlying free cash flow was $1.4 billion, up 66.5% for the year. This exceeded our expectations, in part due to the timing of working capital movements at the end of the year. Utilizing our strong free cash flow and given our greatly improved financial flexibility, we continue to deploy capital in ways that we believe will drive the greatest shareholder value.

We continue to invest in the business, putting to work approximately $690 million in capital projects like the Golden Brewery modernization and investing in capabilities to drive efficiencies, cost savings and sustainability. And we supported our strategic growth initiatives under our string-of-pearls approach with bolt-on acquisitions like Blue Run Spirits and upping our investment in ZOA. We continue to delever our balance sheet with a cash repayment of $500 million in Canadian debt upon its maturity in July, coupled with higher cash balances, we ended the year with net debt of $5.4 billion, down over $600 million for the year. Given this and our strong underlying EBITDA, net debt to underlying EBITDA was 2.2x at year-end, aligned with our long-term goal of under 2.5x.

Underscoring our enhanced financial strength, we are pleased to have earned credit rating upgrades from our ratings agencies in the fourth quarter. In October, S&P Global upgraded Molson Coors to BBB and in November, Moody’s upgraded us to BAA2. We continue to return cash to shareholders. In 2023, we paid quarterly cash dividends totaling $1.64 per share and up 8% from 2022. And today, as part of our intention to sustainably increase the dividend, we announced our quarterly dividend of $0.44 per share to be paid on March 15, 2024, and this represents an increase of 7%. Now lastly, as announced in our Strategy Day on October 3, our Board authorized a new share repurchase program of up to $2 billion over the next 5 years. Under our sustained and opportunistic approach, we were active in the market during a 2-month open window in the period, repurchasing approximately 2.5 million shares for a total cost of approximately $150 million.

This equates to a repurchase of over 1% of our outstanding shares in roughly 2 months. Now let’s turn to our outlook. For 2024, we are issuing guidance of low single-digit net sales revenue growth on a constant currency basis, mid-single-digit underlying pre-tax income growth on a constant currency basis. Mid-single-digit underlying earnings per share growth, underlying free cash flow of $1.2 billion, plus or minus 10%, underlying depreciation and amortization of $700 million, plus or minus 5%. Net interest expense of $210 million, plus or minus 5%, an underlying effective tax rate in the range of 23% to 25% and capital expenditures incurred of $750 million plus or minus 5%. Now let me walk through some of the underlying assumptions. We expect annual net pricing to revert to historical levels.

In the U.S. and Canada, that’s been approximately 1% to 2%, while in Europe its typically priced closer in line with inflation. We also expect mix benefits from premiumization as we advance toward our medium-term goal of reaching approximately one-third of our total global net brand revenue from above premium portfolio. Financial volume is expected to be impacted by the PEPs contract brewing arrangement, which terminates at the end of this year. Expected to be a headwind of approximately 3% or 2 million hectoliters to America’s financial volume with the wind down continuing throughout the year. Additionally, we anticipate financial volume performance to be strongest in the first quarter as we build inventories coming into peak season in the U.S. Gross profit is expected to increase driven by mix and cost savings.

While inflationary pressure is expected to moderate from 2023, we expect that underlying cost of goods sold per hectoliter will increase due to a combination of continued inflation, including material conversion costs, higher costs related to premiumization and lower volume leverage as compared to 2023. Also, while spot prices are currently lower than they have been over the past 2 years, recall that we have a longer term hedging program, and as a result, we expect to experience a headwind in 2024 from certain commodity hedges put in place in 2022 and 2023. We do not anticipate significant changes in total MG&A and plan to put the right commercial pressure behind our brands and key innovations. We’ll do this through strong media plans at both the local and national level through live sports, including another Super Bowl commercial and through robust retail programming that drives consumer engagement.

G&A is expected to face an easier comparison given the increase in incentive compensation in 2023 related to the significant outperformance versus our initial plan. Underlying earnings per share growth is the one metric that is below our long-term growth algorithm. This is largely due to a higher forecasted underlying effective tax rate. Underlying free cash flow guidance is impacted by working capital timing that benefited 2023 as well as slightly higher capital expenditures. So in summary, we are very proud of our performance in 2023. We enter 2024 with strong brands, an exciting innovation pipeline, compelling programming, strong and supportive distributor partners, more retailer shelf space and tap handles and the financial flexibility to balance growth and reinvestment.

This gives us confidence in our ability to deliver our long-term growth algorithm in 2024 and in the years to come. With that, we look forward to answering your questions. Operator?

Operator: [Operator Instructions] Our first question comes from Andrea Teixeira from JPMorgan. Your line is now open. Please go ahead.

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Q&A Session

Andrea Teixeira: Good morning, and thanks, Gavin and Greg. Just on the assumptions for your guide, right? So are you expecting — it seems from the phasing that you spoke, Greg, regarding first quarter where the volumes or you’re looking at volumes being stronger. Are you assuming market share continues to build from where you left off in the fourth quarter? And from a volume perspective, of course, perhaps is — and I appreciate the color on the impact through for the year. But on an underlying basis, in the U.S, how much are you expecting volumes to behave in 2024? Thank you.

Gavin Hattersley: Thanks, Andrea. A couple of things I would say in response to your question. Firstly, we believe the changes in the U.S. beer industry are permanent. And we are off to a very fast start in Q1. The momentum that we saw in Q4 has continued into Q1. In the U.S. Molson Coors is leading all brewers in year-to-date dollar share growth by growing 1.5 points. We are ahead of conservation share growth. ADI continues to decline more than any other major brewer in the U.S., using about 4.5 points year-to-date. From an industry point of view, we would expect the U.S. industry to fall back to the sort of flat to down one level, and we would expect to gain share as we continue into this year. And as you rightly point out, there are lots of drivers and multiple levers to support our top line growth algorithm.

And obviously, that includes pricing, which we’ve said will be in the sort of historical 1% to 2% range. It is market-by-market. We would expect to get pricing in Canada and EMEA APAC as well. It includes positive mix from our continued premiumization of our portfolio. And of course, you rightly point out the headwind of PEPs. When you put all those factors together, that gets to our guidance for this year of low single digits. Thanks, Andrea.

Operator: The next question comes from Bonnie Herzog from Goldman Sachs. Bonnie, your line is open. Please go ahead.

Bonnie Herzog: All right. Thank you. Good morning. I had a question on your underlying EPS growth guidance. First, curious why you’re now introducing EPS guidance? And then hoping you could bridge your mid-single-digit pre-tax income growth guidance with just the mid-single-digit EPS growth guidance. I guess I’m wondering why there’s no leverage on the bottom line. And then in the context of that, how should we think about share repurchases this year? Thanks.

Gavin Hattersley: Thanks, Bonnie. Look, we introduced the long-term growth algorithm with EPS at our Investor Day in the fourth quarter of last year. So we wanted to make sure that our guidance that we gave now for 2024 covered those three elements of our guidance that we launched at the Investor Day and EPS was obviously one of those. The reason — and of course, that was long-term guidance that we gave at Investor Day. And as Greg said, the reason why we are slightly less from an EPS point of view than our long-term algorithm is our tax rate, which goes up a couple of percentage points given the mix of where we make our profitability and tax rates around the world. So that’s the main driver. Was there anything else that I missed anything else lately?

Greg Tierney: Share repurchases.

Gavin Hattersley: Share repurchases, that’s right. Look, we’ve got an approach, Bonnie, that for our share purchase reprogram which is both sustained and opportunistic. So we’ve got a sustained ongoing repurchase and we’ve got an opportunity to repurchase. The program is $2 billion, that sort of roughly equates to $400 million over each year over the 5-year period. And we will take our cash holdings into account our capital allocation policy and do what we think is right from a shareholder point of view as we execute that share program.

Operator: The next question comes from Peter Grom from UBS. Peter, your line is open. Please go ahead.

Bryan Adams: Yes, good morning, guys. This is actually Bryan Adams on for Peter. Thanks for taking the question. So just kind of rounding out the conversation on the top line, I wanted to take a look at the EMEA and APAC business specifically on the volumes. I know you guys mentioned weak consumption in the U.K. as well as some sustained pressure in Central and Eastern Europe as the primary driver. And obviously, that’s been a trouble there over the last several quarters here. But just curious to hear your view as to where things stand in these markets versus kind of where they’ve been over the last 12 months? Like has there been any sequential improvement such that you’d envision a return to volume growth in the near-term? Or should we expect the premiumization to be the primary driver in ’24? Thanks.

Gavin Hattersley: Thanks, Bryan. Look, EMEA, APAC last year had a tremendous year. We grew top and bottom line double digits and I don’t think we’ve done that for a while. In terms of the various markets in which we operate, Central and Eastern Europe, we’ve been very clear about that over the last six or so quarters that the consumer is more challenged in that market. We are seeing signs of lowering inflation and a lower impact for that consumer. And so our expectation is that, that is going to continue to improve as we head into 2024. In the U.K., you are right. We’ve had two slower quarters from an overall industry point of view for Q3 and Q4. Q3 was largely weather-driven. Q4 was largely off-premise driven. And — there was a fairly substantial excise increase in the off-premise of around 10% in the U.K. And of course, that probably had somewhat of a negative effect in the fourth quarter.

But the U.K. consumers remained remarkably resilient. And our expectation is that will continue. You point to our premiumization, yes. I mean, you had such a tremendous success with the launch of Madri in the U.K. Who would have thought you could launch a brand at the beginning of a pandemic in the on-premise and 3 years later, it would have the share that it has in the on and off premise and be well north of 1 million hectoliters already. And that what’s even more surprising is actually the low awareness that exists through that brand. So there’s a lot of runway for us to drive Madri, not only in the U.K., but we are also launching it in Bulgaria, and we are launching it in Canada as we head into this year. Thanks, Bryan.

Operator: The next question comes from Rob Ottenstein from Evercore. Rob, your line is open. Please go ahead.

Robert Ottenstein: Great. Thank you very much. Gavin, your team on the supply chain side and the brewery side, really did a fantastic job last year given the abrupt and unyielding change in the business dynamics and just did a great job. Under those circumstances, though, and given the extent of the change I’m assuming that you didn’t or it would have been very difficult to kind of optimize the system, both in terms of the breweries and the logistics. You’ve had a little bit more time now I would think, to do that. So kind of looking in on 2024, have you been able to get unlocks there, make the system more efficient given the dramatic changes in the volumes. Obviously, the PBR is going to have an impact, but that’s — this is going to be a higher margin product that you’re going in there, so there’s a chance to reoptimize there.

And then in that context, I’m a little bit surprised that the COGS per hectoliter are going to still go up given what used still be very strong volumes and declining aluminum costs. So maybe if you can kind of put that all together and give us some context. Thank you.

Gavin Hattersley: Thanks, Rob. Look, I’ll start. Greg can add some color on COGS as well. But first thing, yes, I think our supply chain team has done an amazing job over the last 3 years, reacting to, obviously, every imaginable crisis, and they’ve got battle hardened and did a tremendous job of reacting to this permanent industry shift that took place in April. Yes, we have had opportunities to optimize. We continue to optimize the sourcing of our beers between breweries, and we continue to do that and we’ll continue to do that on an ongoing basis. In terms of, obviously, PEPs coming out, you rightly point to the fact that, that will give us an opportunity to optimize even further. It reduces a lot of or it takes a lot of complexity out of our business, allows us to do longer runs of our own higher margin brands.

As far as COGS is concerned, look, there’s a lot of factors that go into COGS, not just operating leverage. One would obviously be as we drive towards our above premium goal, above premium products come at a higher cost to make. So those certainly negatively impact overall COGS. Greg, why don’t you just give some color on COGS?

Greg Tierney: Yes. Gavin, thank you. So I think you hit on that — a large headwind, right? As we talk about premiumization and move towards that one-third goal, that’s going to be a headwind to cost of goods. It’s beneficial for our business, obviously, overall, but will be a headwind to cost of goods. We do see material cost inflation, material conversion costs are going to be a headwind for us this year. And obviously, as I said in the prepared remarks, even though spot prices have come down, we still do have, with our longer-term hedging program, some hedges that are going to be headwinds for us that were layered on in 2022 and 2023. So those are the big drivers.

Gavin Hattersley: Thanks, Greg. And Rob, that all just sort of wraps up into our guidance for underlying profit, which is mid single digits, in line with our long-term algorithm. Thanks, Rob.

Operator: The next question comes from Filippo Falorni from Citi. Filippo, your line is open. Please go ahead.

Filippo Falorni: Hey, good morning, everyone. So I wanted to go back to the guidance. I want to clarify, clearly, you mentioned Q1 is going to have a very strong volume performance. But Gavin, are you assuming also, particularly in the U.S. volume growth in the balance of the year, particularly — obviously, you’re going to cycle a much tougher comps in the balance of the year. And even assuming you’re going to have permanent changes, that would imply further share gains. So just any color on the volume performance in the U.S. post Q1 would be helpful.

Gavin Hattersley: Yes, thanks. Look, I mean, maybe just a comment around the overall industry, right? As I said, despite the headlines you might read, the overall beer category grew dollar share of total alcohol beverage in 2023. I think that’s important context when you consider consumer habits, which essentially underpins your question as well. We’ve got a lot of levers from a top line point of view. We’ve got pricing. We’ve got a positive mix from premiumization. And notwithstanding the comps which are coming in the second quarter, it is our expectation and goal that we will continue to take market share. Thanks, Filippo

Operator: The next question comes from Nadine Sarwat from Bernstein. Nadine, your line is open. Please go ahead.

Nadine Sarwat: Yes, hi. Thank you everybody. Two questions for me. One, just on the quarter. What exactly surprised you to the upside in Q4 for constant currency underlying income before tax to come to that 2% increase versus I believe the previous guidance was for a decline. And then my second question, a little bit more long-term. You called out, I think, in your prepared remarks the belief that you have the share shifts that we’ve been seeing in the U.S. are permanent. Could you give us a bit more color as to your conviction on will you be maintaining all of that share into 2024? I asked this especially in light of President Trump’s favorable social media post for Bud Light, which I know is probably on the mind of many people on this call. So any data points or surveys that you could point to would be very helpful. Thank you.

Gavin Hattersley: Thanks, Nadine. Look, on your first question, not much surprised us in the fourth quarter. If I had to point to one thing, maybe the industry performed a little better in our U.S. market than we had originally expected it to. And so that drove our underlying profit to slightly exceed our guidance. I mean it wasn’t a lot, right? I mean it was — we were just under 37%, which in the greater scheme of things, it’s not a lot of dollars when you compare it to our overall underlying profit. So more or less, things were as we expected. EMEA, APAC actually did a little better-than-we-expected. Canada did a little, tiny a little bit worse than the U.S. did better. But overall, there’s nothing really I can point out that was a big oha [ph] for us.