Molson Coors Beverage Company Q2 FY2025 earnings call

• Macro Environment: U.S. consumer sentiment was low, pressuring beer consumption, with lower income and Hispanic consumers affected. Midwest Premium pricing spiked due to tariffs, impacting costs.
• Strategic Execution: Continued to execute on strategic plans, with core power brands retaining market share. Premiumization efforts in the U.S. (e.g., Peroni, Blue Moon non-alc), EMEA (Madri), and Canada (Miller Lite, flavor portfolio) were ongoing.
• Share Repurchase: Share repurchase program was ahead of schedule, demonstrating belief in the stock's value.
• Fever-Tree Integration: Successful integration of Fever-Tree, contributing to positive brand mix in the Americas, with distributors excited about the opportunity to expand its presence.

In the U.S., core power brands like Coors Light, Miller Lite, and Coors Banquet retained shelf space gains, with Banquet having 16 consecutive quarters of share growth and gaining over 15% distribution in the first half of the year. Collectively, these brands commanded a 15.2% volume share of the U.S. industry for the first half. In Canada, the Molson family of brands had volume share gains, with Coors Light holding the #1 light beer position. In EMEA and APAC, the U.K. market was competitive, while Central and Eastern Europe was soft due to political and economic tensions. Brands like Carling in the U.K. and Ožujsko in Croatia were segment leaders. Premiumization efforts were underway, with Madri in the U.K. growing significantly, overtaking Peroni to become the #2 brand in the large segment and #4 beer overall in value across total trade in the U.K.

• Top Line: Net sales revenue expected to decline 3%-4% on constant currency basis, with U.S. industry volume projected to decline 4%-6% in the second half of the year.
• Bottom Line: Underlying pretax income expected to decline 12%-15% on constant currency basis; Midwest Premium costs to be $40M-$55M higher than prior year; underlying EPS expected to decline 7%-10%.
• Free Cash Flow: Reaffirmed underlying free cash flow guidance of $1.3 billion ±10% due to higher cash tax benefits and favorable working capital offsetting declines in pretax income.

• Macro Uncertainty: Geopolitical, trade, and immigration policies created uncertainty, impacting consumer sentiment and beer consumption.
• Midwest Premium Volatility: Difficult to hedge, leading to unexpected and substantial cost spikes.
• Industry Softness: Cyclical industry softness prolonged, affecting volume and margins beyond initial expectations.

Q: Good morning, and welcome to the Molson Coors Beverage Company Second Quarter Fiscal Year 2025 Earnings Conference Call. With that, I'll hand it over to Traci Mangini, Vice President, Investor Relations.

A: Thank you, operator, and hello, everyone. Our discussion today includes forward-looking statements within the meaning of U.S. federal securities laws. For more information, please refer to the forward-looking statements disclosure in our earnings release. In addition, the definitions of a reconciliations for any non-U.S. GAAP measures are included in our earnings release. Given our quarterly performance, including financial and operational metrics and drivers is detailed in our earnings release and earnings slides, which were made available earlier today on the IR section of our website. We will focus our prepared remarks on what we believe is top of mind for you, and that is the industry, how we're responding, capital allocation and our financial outlook. And please note that given the current environment, we are providing a more detailed than typical review of our 2025 guidance drivers. We will then take your questions. [Operator Instructions] With that, I'll pass it over to you, Gavin.

Q: Christopher Michael Carey: I wanted to follow up on a couple of areas there. One is just a clarification. Tracey, the impact from Midwest Premium increases that you're expecting for the year. Have you seen any of those increases in Q2? Or is that all in the back half of the year? I'd just say that in the context of the Americas inflation in the quarter was fairly paltry. So I just wanted to confirm that piece and how we think about the aluminum inflation perhaps more on a 12- to 18-month time frame. And then just following up on the overall category. I think there are certainly a number of reasons why we may view what's going on cyclically? A lot of categories and consumer are dealing with sluggish trends. The question I would have, though, is volumes in the beer category have been soft going back to 2022. Obviously, the category leader dealt with a pretty substantial headwind, but nevertheless, I wanted to just test that confidence level around this being cyclical versus perhaps changing in consumption and habits and how you reconcile or get comfortable with that concept and it's kind of a category that's been a bit softer over the past few years. So thanks on those. Appreciate it.

A: Gavin D. K. Hattersley: Thanks, Chris. Tracey, if you wouldn't mind taking the Midwest Premium one, I'll talk a little bit more about the category and our belief in it. Look, I think from a consumer confidence point of view and the impact that had on consumers in a number of different ways, Chris, took place towards the back half of January and early February, right? And I mean it's clear that consumer confidence took a hit at that time and frankly, hasn't recovered. So we continue to believe that over time, that will change. I mean, it could be sooner rather than later, or it could be in the same time period next year. The items that have been impacting the overall alcohol category, like I've often heard GLP-1s talked about. I mean we don't have a lot of data that suggests that that's having any meaningful impact on either the alcohol category or our category at this point. The other item that gets talked about is D9. And I think the impact of D9 does vary by market. And in some markets, it's not sold. In others, it carries strong restrictions. And so that's certainly an area that we continue to monitor the impact of that. I think consumer confidence has had a disproportionate impact, as I said, across some consumers differently to others. And again, we believe that, that is cyclical. Tracey, do you want to add anything on Midwest Premium? Tracey I. Joubert: Yes. So Chris, so look, I mean, no one expected the Midwest Premium to increase 180% from the beginning of the year. So for us, even though we are somewhat hedged because it is such a difficult -- it's not transparent. It's expensive to hedge. It is a commodity that we -- the least amount hedged. But as it equates to the balance of the year, I mean, we're expecting an incremental $20 million to $35 million of Midwest impact for the balance of the year. So that's around $0.60 to $0.75 a pound. Our full year impact is between $40 million and $55 million. And again, that's just the Midwest Premium. From a rest of a commodity point of view, our hedging program is very expensive, and we expect very little impact from tariffs. But these indirect impacts, specifically the Midwest Premium is just a problem because it is so difficult to hedge, and it just doesn't follow normal market dynamics.