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 reach out to our IR team. Also I encourage you to review our earnings release, the earning slides which are posted to IR section of our website and provide detail financial and operational metric. 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, except as required by applicable law. Reconciliations for any non-US 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 pretax 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.

Tracey Joubert:

Thank you, Gavin. We reported another strong quarter of financial performance and continue to expect we will achieve our goal of growing the top and bottom line for the third year in a row. As Gavin mentioned, with our strong free cash flow generation, we continue to invest strategically in our business and also return cash to shareholders. Since October 2019, when we launched the initial phase of a new strategy, we have invested substantially in our capabilities from supply chain to marketing, to technology and tools that advance our insights and analytics. These investments have driven substantial cost savings, which helped to offset inflationary pressures and support long-term sustainable profitable growth. In recent years, this has included adding flavor production and coat [ph] packing capabilities, expanding and diversifying our supplier base, building a slim can capacity in our can plants and replacing several breweries with state-of-the-art facilities in Canada. In the first half of this year, a big focus has been our multiyear, multi hundred million dollar modernization of our Golden, Colorado brewery, which is nearing completion. This project at our largest U.S. brewery, which broke ground in the fall of 2020, is completely overhauling the brewery's infrastructure and is expected to result in more efficient fermenting, aging and filtration facilities, as well as a state-of-the-art upgrade to the sellers. When it is fully operational in a few weeks' time, we will have a more efficient brewery that produces less waste. We also commenced a new multiyear project in the U.K. to increase our brewing and packaging capacity, which is necessary in part due to the continued growth of Madri and it is these investments, along with our extensive hedging program, that have helped us to offset inflation, particularly during the significant inflationary period we have experienced in recent years. And while inflation has moderated, as expected, it remains a headwind this year. In the second quarter, our cost per hectoliter increased 2.9%, which was driven by the Americas business, which was up 4.1%. This is largely due to ongoing inflationary pressure as well as volume deleverage in part due to the reduced past [ph] contract volumes in the Americas business. Turning to marketing capabilities. We overhauled our marketing strategy several years ago, making us more nimble and efficient as we have continued to invest behind our brands. By improving our ability to analyze and evaluate the effectiveness of marketing investments, we are able to assess our campaigns in almost real time and we built our own in house agency, enabling us to meaningfully shift our percentage of spend to more working versus non working marketing dollars. It's our deep marketing capabilities that have enabled us to meaningfully improve our return on marketing investment since 2019 and supports where our long term growth algorithm does not contemplate step changes in marketing spend. As for returning cash to shareholders. In the first half of this year we paid $188 million in cash dividends and in February we raised the dividend for the third consecutive year, a cumulative 29.4% increase. As such, we are generating a dividend yield of 3.2% as of August 1. Also, we are active in executing against our up to 5-year $2 billion share repurchase program that we announced last October. We continue to view our stock as a compelling investment opportunity amid the strong performance of the business and our confidence in our long term growth algorithm and utilizing a sustained and opportunistic approach, we repurchased 4.6 million shares for a total cost of $260.7 million in the quarter. Since the inception of the plan, we have already repurchased 8.8 million shares or 4.4% of our Class B shares outstanding since September 30, 2023, for a total cost of $521.1 million. That means we have completed approximately 26% of the plan in just the first three quarters. And the reason we've been able to deploy our capital in these ways is because our balance sheet is strong and healthy, healthier than it has been since before the 2016 MillerCoors acquisition. We ended the quarter with a leverage ratio of 2.13 times, which remained in line with our long-term target range of less than 2.5 times. In May, we issued an 8 year €800 million [ph] note at a fixed rate of 3.8% and used the proceeds to pay down our €800 million note upon its maturity in July. And now I'd like to conclude with our financial outlook. We are reaffirming our 2024 guidance. As a reminder, the key metrics call for low single-digit net sales revenue growth on a constant currency basis, mid-single-digit underlying pretax income growth on a constant currency basis, mid-single-digit underlying earnings per share growth and underlying free cash flow of $1.2 billion, plus or minus 10%. While this guidance implies slower trends for the second half of the year, it's important to remember that this is driven by shipment timing this year, and it does not alter our confidence in our long-term growth expectations. As Gavin discussed, in the US, excluding contract volumes, we deliberately shipped ahead of demand by about 1.1 million hectoliters in the first half of the year. This compares to the first half of 2023 when our STWs were behind our STR by about 400,000 hectoliters. And since we currently tend to shift to consumption for the year, we expect this to reverse in the second half, mostly in the third quarter. At the same time, our contract with Pabst continues to wind down, recall that we expected the impact for the year from the Pabst contract termination to be approximately 2 million hectoliters or about 3% of America's financial value. There is about 1 million hectoliters remaining that will come out of our system in the second half of the year, with over half of that expected to exit in the third quarter. These US shipment trends are expected to result in volume deleverage in the second half of the year. And recall that we had a volume leverage benefit on a consolidated basis, up about 60 basis points in the comparable period in 2023. For some perspective, on a consolidated basis, we estimate that our fixed costs in 2024 will comprise approximately 20% of our total cost. However, the anticipated benefits of roll forward pricing taken in the first quarter, premiumization of our portfolio, moderating inflation and cost savings should partially offset the impact of volume deleverage. And we expect SG&A for the second half to be down compared to the prior year period, as we tackle the second half of 2023 when we had high market investment to support the momentum in our brand as well as higher incentive compensation. As we look to the longer term, we remain confident in our growth algorithm, as we have multiple levers to achieve it. From our robust revenue management platform to our premiumization and innovation plans to our continued investment to drive efficiencies and cost savings, these levers help us to navigate various market circumstances. In closing, we had another strong financial quarter and remain committed to our short and long-term financial and strategic goals. And with that, I'd like to open it up to your questions. Operator?

Bonnie Herzog:

Hi. Thank you. Good morning, everyone. I guess I had a question on your guidance, which you did maintain in terms of full year on all metrics, which certainly implies a deceleration in the second half, as you highlighted. So, maybe you could unpack this a little bit more for us. For instance, how should we think about the volume deleverage impact in the back half? And possibly provide a little more color on any offsets do you have to mitigate the impact on margins? I think you touched on this. And then in terms of marketing spend levels, Tracey I think you just mentioned that you expect spending levels to be lower in the second half versus the first half. So just hoping for a little more color on your strategy with that and really how we should think about your spending levels moving forward, as I think about your ability to continue to hold on to some of these share gains since 2022? Thank you.

Bonnie Herzog:

Thank you.

Operator:

The next question comes from Andrea Teixeira with JPMorgan. Andrea, please go ahead.

Gavin Hattersley:

Thanks, Drew. Good morning and thanks for the question. Look, they're obviously, as you rightly said, there was a fair amount of noise in the second quarter. You know, there was holiday timing, a bit of turbulent weather in the first part. So certainly April, April and May were tougher and we did see some improvement in June. Collectively, when you look at the second quarter in totality, particularly if you adjust out for the timing of the July, the fourth holiday, it's just a continuation of what we've been seeing for a while, right? And from a consumer point of view, not trading down between or up between brands but more tax shifting within the brand portfolio to singles or to larger pack sizes. I think as we look going forward, and I think if Q2 taught us anything, it's that you can't make a prediction on the quarter based on a few weeks of data. So let's see how quarter three turns out. But certainly, Q2 is a continuation of what we've been seeing for a while. Tracey, the second part of the question?

Gavin Hattersley:

Thanks, Drew.

Bill Kirk:

Bill Kirk>

Operator:

The next question comes from Rob Ottenstein with Evercore. Rob, please go ahead.

Gavin Hattersley:

Thanks, Robert, and good morning to you. And, yes, I'll take the complement on the core brands, and we, of course, agree with you. I think our team has done a really nice job marketing and executing our core brands, and we're seeing the benefits of that. You rightly point out that we've got work to do in the premiumization space. In the US, I would say that our premiumization progress outside of the US has been very strong. It's growing strongly in Canada. We're over half in our EMEA, APAC business; and 75% of our volume in Latin America is in the above premium as well. But you're right, we've got work to do in the US. We recognize that, and Blue Moon is our biggest above premium brand. It's a big, important brand for us and for our distributors and our retailers, and we're committed to turning that brand around. And that's why we've launched the new packaging. It's why we've got a new campaign. We've got new innovation there with Blue Moon non-alc and we've repositioned Blue Moon Light this year and the early signs on Blue Moon Light are very promising, and we've seen initial very promising initial traction on Blue Moon non-alc well. So completely committed to reinvigorating this brand and we think the changes that we've made in the first part of this year are a really important step in that direction. As far as Peroni is concerned, I mean, we believe the Peroni could be a big brand. And we've obviously made some changes to that, which we've made very clear about, right, is we're shifting to domestic production of Peroni in the US. And that does three things for us. The biggest challenge that we've had with Peroni has been consistent supply and bringing it onshore and putting it into our supply chain network, which is operating really well and effectively at the moment. It's going to allow us to give us a really consistent supply of fresh Peroni to our distributors and obviously our retailers. So we think that's really important. It also gives us the opportunity to increase different pack formats that we have available in the US, which we haven't had with Peroni. That's going to allow us to much better compete in the US. And then, of course, it gives us more margin, right, because we're eliminating a very long part of the supply chain. And that's going to allow us to reinvest behind the brand from a marketing and execution point of view. So we think it's got a lot of runway. It's -- awareness is still fairly low and its distribution is low. So I like our plan. We've started it. It's just kicked off and our expectations for Peroni are high. Thanks for that, Robert.

Chris Carey:

Hi. Good morning, everyone. Gavin, you had spoken to trends, just kind of tracking your expectations at the overall category level or something of the sort. And I wonder, as the world as Wall Street is a bit more concerned about the consumer? Are you starting to see any sequential changes in the consumer appetite for your categories? Does that help or hurt your business on a relative basis? And I wonder if you could just comment on perhaps what you're seeing in July when it comes to overall consumer engagement with the category with your brands. So thanks for any perspective there.

Operator:

Our next question comes from Robert Moskow with TD Cowen. Please go ahead.

Gavin Hattersley:

Thanks, Victor, and good morning to you. Look, from a pricing point of view, I see your question is directed at the US. Our net pricing increased comprised, it's a little over half of the increase with the balance coming from mix, whether that was brand pack mix or Pabst coming out. So sorry, my comment on net pricing was for the consolidated results. It pretty much holds true for our Americas as well. Net price was a little over half of the game with the rigs coming from mixed benefits from Pabst point of view or a brand pack point of view. Thanks, Victor.

Bryan Spillane:

Hi, thanks, operator. Good morning, Gavin. Good morning, Tracey. I have a question -- my question is related to the US, Gavin. And I guess kind of twofold. One is at the start of this year there was a lot of anticipation around shelf sets and more shelf space gains. And so if you can kind of give us a little bit of insight in terms of how that's turned out. Has it helped, I guess, in terms of market share? And do you think that the space you've gained can be held? And then, if I could just squeeze also into that, you kind of look at the depletion in the US for the first half. Is it more or less in line with your expectations? I guess I understand that the share -- market share for certain seems like it is, but just kind of curious if just an overall volume, if that's come in relative to what you were expecting at the start of the year?

Operator:

The next question comes from Peter Grom with UBS. Please go ahead, Peter.

Gavin Hattersley:

Yeah. We can hear you. Loud and clear thanks.

Gavin Hattersley:

Thanks, Bryan. Tracey wouldn't mind taking the second part of the question. The first part, look, I mean, from a pricing point of view, Bryan, we've -- I think we've been saying for quite some time now that we believe pricing is going to sort of land in that historical 1% to 2% increased level. And that's where it's holding at the moment. And so that will translate into the full year. And from a mix point of view, you're right. I mean we do have a lot more Pabst volume to come out, which will be a mix favorable. So not intending to give any guidance from that perspective, but those are just the inputs which go into it. The trends are not going to change dramatically from a Pabst point of view and from a front-line pricing point of view. Trace, I think the other question was from shipments?

Gavin Hattersley:

So to summarize, Bryan, yes, most of it will take place in Q3.

Michael Lavery:

Thank you and good morning.

Michael Lavery:

Two quick ones. Just a follow-up on the shelf reset question. I know some of the consumer pack shifts that we've seen as a little bit more recent and perhaps difficult to have been planning for. But in the resets, were you able to tweak the sets at all to adjust for how consumers are going to more single cans or bigger packs. And is it potentially a better set given that you've had some chance to reshuffle there a little bit? And then just second, on the Romanian, the new brand launch there. Maybe what was some of the thinking of a brand-new brand? Obviously, you saw a Madri go really well when that's new to the world as well. Was that some of the, I guess, inspiration? Or was it just that there wasn't something else in the portfolio that's what you were trying to do? Just how do you think about that launch there?

Operator:

Our next question comes from Lauren Lieberman with Barclays. Lauren, please go ahead.

Gavin Hattersley:

Thanks for the question, Lauren. I'll take the second part first. In terms of share, our core power brands, which is Coors Light, Miller Lite, Coors Banquet, we grew 2.5 points of case share in the second quarter of last year. It was our highest share gain that we had that we experienced in the last year, and we've retained 80% of that. And so compared to the second quarter of 2022, our total portfolio is up over 1.7 points of volume share and obviously, we're very pleased with that. And in particular, given that we're going up against the peak share growth. And as I said, it only gets, in early comments, easier from here, but share came down and settled. And we've done that through the shelf resets, which I just spoke about, increased distribution. We've got increased display. We've got increased feature. We've got really relevant marketing campaigns, like our Miller Lite and All-Stars campaign that we've got our Coors Light [Indiscernible] cut, which is attracting new Hispanic drinkers into our portfolio. And so we're obviously planning to execute and retain as much of that share as we possibly can, given that we're now out of the toughest share comps. From an industry point of view, look, I think my comments that I made earlier or what we believe, right, is a lot of noise in Q2 in some weeks. But overall, it's sort of balanced out of where we were expecting where it's been for the last couple of years. And from a shipment point of view, that was a very deliberate strategy. We didn't over ship. We shipped what we wanted to ship in the first half so that we didn't have any inventory challenges going forward.

Eric Serotta:

Good morning. Thanks for the question. First, maybe you could come back to share road. Spirit has obviously been struggling in the US for over a year at this point. As you look forward and in light of the macro environment, how are you thinking about share growth and spirits versus beer? Do you think beer could continue to sort of outperform spirits at least in the short-term? And then maybe you can come back and talk a little bit about performance of your recent innovation from the past few years. It looks like simply quote quite a bit some of the earlier packages being to be struggling a bit. That was a very nice contributor over the past few years. So how are you thinking about innovation contribution?

Operator:

Thank you. We have no further questions and so this concludes our call. Thank you, everyone, for joining us today. You may now disconnect your lines.

Greg Tierney:

All right. Thank you, operator, and hello, everyone. Following prepared remarks today, we look forward to taking your questions. [Operator Instructions] 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, except as required by applicable law. GAAP reconciliations for any non-U.S. GAAP measures are included in our earnings release.

Gavin Hattersley:

Thanks, Greg, and thank you all for joining us this morning. In the first quarter, Molson Coors once again delivered against our commitments, growing the top and bottom line while making strong progress on our acceleration plan. We grew net sales revenue by over 10%. And we grew underlying pretax income by nearly 69%, and we drove significant margin improvement in the first quarter. This morning, we reaffirmed our full year guidance, which Tracey will discuss in more detail shortly.

Tracey Joubert:

Thank you, Gavin. We are proud to report another strong quarter. Net sales revenue grew an impressive 10.1% on strong Americas volume and favorable net pricing across both business units. This top line strength, coupled with volume leverage and ongoing cost savings drove meaningful margin expansion, while we continue to invest strongly behind our brands. As a result, underlying pretax income grew 68.8%. Now many of the details can be found in our earnings release and slides, so I'll focus on our prepared remarks on some of the key metrics and drivers of our quarterly performance, and our outlook for the year.

Bonnie Herzog:

All right. I guess I have a question on your quarter and then guidance. I guess, first, were your Q1 results better than you expected or more in line with your expectations? And maybe I'm asking specifically on the shipments, given some of the items you called out? And then you did reaffirm your guidance for the year out of prudence given the softer industry data we're seeing in early April.

Gavin Hattersley:

Thanks, Bonnie. Look, I would say for the first quarter, our shipments certainly were higher than what we were expecting. We were obviously planning to ship higher than our brand of volumes. But our supply chain team did a tremendous job actually exceeding our expectations each and every week. As you know, we have a strike down in Fort Worth, and we have a contingency plan and the contingency plan is working better than we had originally expected.

Andrea Teixeira:

So I was just hoping, Gavin, what you said now about April I mean, a couple of questions there. If you can help us with the STRs in April? And where do you think the softness coming from? Is that from the [carry] across alc income levels on mostly low-income consumer? And on that, if you're seeing anything to call out in the economy segment?

Operator:

Our next question comes from Bill Kirk from ROTH MKM.

Gavin Hattersley:

Well, thanks, Bill, and good morning to you. Look, I think I would draw your attention to the comment I just made around shipments, right? If you look at what happened in Q1, we were about 750,000 hectare liters shipped higher than brand volume. If you look at what we did last year, it was 100,000 hectoliters higher than brand volume. So we have 650,000 hectoliters above consumption, which we would expect to come back in the next 9 months, mostly, as I said, in the second half of the year.

Operator:

Our next question comes from Peter Grom from UBS.

Operator:

Our next question comes from Steve Powers from Deutsche Bank.

Bryan Spillane:

Gavin, Tracey. I'd like to get your perspective on 2 things, if I can, Gavin. One is just if you could give us a sense of on- versus off-premise performance, both, I guess, in the Americas and in Europe, actually specifically U.K. Just trying to understand if there's any distinction in the softness we saw in the U.S., whether it's more concentrated on or off trade.

Gavin Hattersley:

Thanks, Brian. Let's look at the U.K. I think that was the thrust of your earlier first part of your question. In the U.K., the consumer, as we've been saying for quite some time now has been quite resilient, particularly in the face of the severe inflation that we saw there. From an on-premise point of view, continues to perform well, right?

Christopher Carey:

Just one follow-up and then a question on cash flow. Just from a regional consideration in the U.S., have you seen any different trends by region that might lead you to believe that what you're seeing in April is perhaps maybe just weather-related versus anything else. And then regarding cash, do you have, I guess, a plan if -- obviously, the stock is under pressure to use a bit more cash through the year with the buyback program that you have and being active in the market in Q1. So just perhaps give us any context on how you would be looking at leveraging your cash flow profile this year?

Gavin Hattersley:

Thanks, Tracey. And the other part of your question, Chris, firstly, I wouldn't attribute the first few weeks of April's overall industry performance to weather. I don't think that we're seeing that at all. I mean, weather has not really been much of an issue. So I wouldn't pin it on that. It's more around consumer behavior and our belief that around consumer confidence, as I alluded to a little earlier.

Operator:

Our next question comes from Lauren Lieberman from Barclays.

Operator:

Our next question comes from Eric Serotta from Morgan Stanley.

Operator:

Our next question comes from Robert Moskow from TD Cowen.

Operator:

Our next question comes from Nadine Sarwat from Bernstein.

Michael Lavery:

I just wanted to come back to the strike impact. You called out the pull forward in the volume and touched on some of the operating leverage lift. Are there other puts and takes we should keep in mind just modeling going forward? And would it be correct or fair enough maybe to say that some of the -- any disruption costs seem to be roughly offset by just not having the workers on the payroll that are striking or how do we just think about what the impact is in the rest of the year? Or if or well, obviously, as long as this keeps going, but near term, say, second quarter?

Tracey Joubert:

Yes. Michael, as of now, the costs related to the contingency plan has not been material and we don't expect it to be material. So we do not expect it to be material for the balance of the year based on our current projections.

Brett Cooper:

There's been a lot talked about with respect to the soft beer industry. But one thing I would love to get your perspective on is, if you step back and not asking about first quarter or April, but over the last 12 months or whatever, there's been a narrowing in the gap of performance between [ cigarettes ] and beer in the U.S. And I would love to hear your perspective on if the beer industry is not a right with respect to some of the moves to flavors to be more competitive for share through in the overall alcohol space or if you think that this is somewhat transitory?

Gerald Pascarelli:

Great. Gavin, I had a follow-up on your above premium strategy and specifically within spirits. You acquired Blue Run last year, obviously, a very premium, but very small brand. So given your goal of driving an increased contribution to above premium and understanding that a big part of that will, in fact, come from beyond beer. Would just love to get your thoughts on whether you feel incremental M&A would be necessary to hit your targets and if increasing your exposure to spirits or American whiskey fits into that strategy?

Gavin Hattersley:

Thank you, operator. Greg?

Operator:

That concludes today's call. You may now disconnect your lines.

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.

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?

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.

Operator:

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

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?

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.

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.

Operator:

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

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?

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.

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.

Operator:

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

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. In terms of your other questions to what gives me confidence that we can sustain the share gains that we've got in the U.S. Look, I mean, the gains we've seen in our core brands have been consistent for over 9 months. We are growing in every region, every channel and with every major customer in the United States. And at this point, we believe that the shift in the U.S. beer industry are permanent. We're off to a fast start in Q1, as I said, momentum is continuing. We are leading all brewers in year-to-date dollar share growth. Our data shows that the majority of consumers who switched to our brands post April have stayed with us throughout 2023, and then much more loyal to [technical difficulty] brands than historically. So yes, I mean I would expect one of our competitors will almost certainly claim that anything better than minus 30% is a big win. But the reality is there's no reason to believe that these buyers are suddenly going to revert in April. We do expect strong continued growth in Q1. We expect it to continue to follow the patterns we saw last year. We saw signs of this with our momentum in Q4. For example, Coors Light volume growth in Q4 was higher than it was in Q2. So we've got multiple sales tailwinds from a sales perspective. And let me just run a couple of those for you, Nadine, given the high interest in this particular area. We expect even more space at retail starting in Q2, and then we'll start to see the benefit from spring resets. The majority of major retailers do full reset in the spring, both nationally and from a regional point of view, and we expect to be the biggest beneficiary of these [indiscernible] gains. We've already seen, as I said in my opening remarks, several of our chain retailers that put space for our core brands, well ahead of the 6% to 7% gains that we saw in summer and fall of 2023. And that's including some larger retailers. We expect to have much better strong -- and stronger display activity in the first half of this year. We are already seeing that with the Super Bowl. In the latest 4 weeks of Super Bowl retail program, Molson Coors gained more dollar and volume share of displays than any other U.S. brewer. And [indiscernible], I don't know, about a 25% lift in sales when they're on display. So last year, we were a clear winner on displays, and we expect that to be the case as we start cycling in April. And then the final point because I've gone on a little here maybe is in the on-premise. It's not letting up. We were by far the largest share gainer in the channel last year. We grew 3x more share as the next major brewer, which in this instance was Constellation. And just to put that into perspective, Coors Light and Miller Lite each grew more in dollars in the on-premise and Constellation it is a total brewer. And that's as of the latest 12-week C.J. Nielsen reads. Now let me stop there. I could go on into the marketing campaigns that we've got for [indiscernible Miller Lite but there are so many reasons to believe, Nadine, and we have strong confidence in the guidance in which we've given.

Bill Kirk:

Thank you. I'm going to try the COGS per hectoliter guidance again, but maybe regionally. And I asked because I think Americas COGS per hectoliter was down year-over-year in 4Q. So is it fair to expect that to continue regionally and in the Americas, but just in Europe, the COGS per hectoliter is up enough year-over-year for the total company COGS per hectoliter to be up in 2024.

Operator:

The next question is from Chris Carey of Wells Fargo. Chris, your line is open. Please go ahead.

Gavin Hattersley:

Yes. From a -- from an overall portfolio outside of the U.S., Chris, Canada, we do continue to see softness in the beer industry. But while the industry is down in, frankly, all regions, we've had strong share growth in Canada. And it's being driven by the strength of our core brands and the expansion that we've made into flavor. So since last March, Coors Light has been the #1 light beer brand in the industry, Molson brand family is growing share of industry and our flavor portfolio is looking really positive when you compare it against the rest of our competitors. We are growing the business. We are the only major brewer growing share and flavor in Canada. So whilst a little bit more cautious about the overall macro environment in Canada, our portfolio is strong and getting stronger, frankly, as we go forward. Our LatAm business, 2023 was a tough year, right? There were large macroeconomic challenges in some of our bigger markets in which we operate. We are seeing signs of improvement from that perspective. Miller High Life is performing really well in Mexico. Brazil remains a big opportunity for us. And overall, we do see some level of improvement from a macroeconomic environment in Latin America. And then finally, I covered off on Central Eastern Europe, where we are seeing some signs of slowing down inflation and consumer benefiting from that. In the U.K., we remain cautious as we watch the impact of some of the excise tax impacts in the fourth quarter. But overall, our portfolio in the U.K. is strong. From a calling [ph] point of view, from a Coors family point of view and from a -- from Madri and some of our brands, which we talk less about, Croatia, Ožujsko reached its highest market share since we kept records. Madri is expanding outside of the U.K. So overall, from a portfolio point of view, we are feeling really good about it. Cash -- capital allocation, Greg, do you want to take that one?

Gavin Hattersley:

Thanks, Greg

Steve Powers:

Hey, thanks. On the buyback, I'm sorry if I missed it, but I don't know if there was a specific level of repurchases that were envisioned in the '24 guidance. That will be helpful to know. I also just curious on the drivers of the higher interest expense relative to the run rate we saw exiting '23, just anything that you're contemplating in that in terms of refinancing or the like. And then my real question is just maybe you could talk a little bit. I didn't hear anything about Blue Moon. And I know that there are plans around that brand for [indiscernible] nonalcoholic, an updated marketing commercialization plan. Just any update on those endeavors relative to what we heard at Investor Day? Thank you.

Greg Tierney:

I think it was the interest expense.

Greg Tierney:

You can handle that. Very good. So Steve, on interest expense -- our guide for 2024 is very in line with what total interest expense was in 2023. I think if you think about just where our cash positions have been this year, Certainly, we had much heavier cash positions. We earned a fair amount of interest income on those cash positions throughout 2023, right? But as we look at overall year-to-year, the expectation is very consistent from '23 to '24.

Operator:

The next question comes from Eric Serotta from Morgan Stanley. Eric, your line is open. Please go ahead.

Gavin Hattersley:

Thanks, Eric. Look, I mean, I'll say again, despite the headlines, you might read, the overall beer category grew dollar share of total alcohol beverage in 2023, and that's unlike wine and full [indiscernible] spirit which declined. If you go back and look at what happened in 2023, though, in the first quarter, that was a tough quarter for the industry, and it was largely driven by really, really bad weather on the West Coast primarily. After that, the U.S. beer industry volume trends improved during 2023 as we move through the year and particularly in Q4. So our expectation, as you said, is the category is going to return to its more historical levels of flat to slightly up on a value basis. And it will probably fall slightly on a volume basis. And our expectation is that we will continue to grow share in that environment, and that's what's embedded in our guidance for 2024.

Eric Serotta:

If I could maybe just follow-up on Eric's question on the category. I think shipments were down 11 million barrels, which puts it to 1990-something levels. And while the pricing is there, I guess, one of the debates about beer is the relative pricing that's been taken over a period of time versus spirits. And so I'm curious how you feel about the category's sort of pricing position versus the other beverage alcohol categories. Thanks.

Operator:

Next question is from Robert Moskow from TD Cowen. Robert your line is open. Please go ahead.

Gavin Hattersley:

Thanks, Robert. From a cannabis point of view, I think it's fair to say that the cannabis beverage market hasn't grown anywhere like what the industry's initial expectations were. And that led to us getting out of our [technical difficulty] Not the average. I meant, the smoking cannabis.

Gavin Hattersley:

Yes. Well, we operate in the beverage market, and it certainly hasn't -- it hasn't performed as one would expect for cannabis beverages to operate. As far as your question as to whether it's impacted, we have not seen in the more developed cannabis markets like Canada, much have an impact on beverage alcohol. We have done work on a state-by-state basis. I would say to you that Colorado is one of our best-performing states over the last few years, and that I think was one of the early leaders from a cannabis point of view. So I think overarching, we have not seen cannabis negatively impact our alcohol beverage consumption in any meaningful way.

Brett Cooper:

Thank you. In the U.S., I think third-party data has shown weakness in industry about draft volume. So understanding that you were able to capitalize on the disruption in '23 and into '24 to benefit your performance. But then long-term, how do you address industry graph weakness in the U.S.? And are there learnings that you can pull from the U.K. to the U.S.? And I guess just from your perspective, how important is it for job [ph] to get back to at least industry performance or better for the health of the industry? Thank you.

Gavin Hattersley:

Thanks, Brett. This concludes today's Q&A session. So I hand the call back to Traci for any closing remarks.

Traci Mangini:

Thanks, Adam. If you have any additional questions, please follow-up with the Investor Relations team. And we look forward to seeing many of you at CAGNY next week as well as taking your calls as the year progresses. With that, thanks, everyone, for participating on today's call.

Greg Tierney:

All right. Thank you, Brita, and hello, everyone. Following prepared remarks today from Gavin and Tracey, we will take your questions. In an effort to address as many questions as possible, we ask you to -- we ask that you limit yourself to one question. If you have technical questions on the quarter, please pick them up with our IR team in the days and weeks that follow. 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 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. Further, in our remarks today, we will reference underlying pretax income, which equates to underlying income before income taxes on the condensed consolidated statement of operations. And with that, I'll hand it over to Tracey.

Gavin Hattersley:

Thank you, Tracey. In the third quarter, we continued the growth trajectory that we've been on for nearly two full years. In the quarter, each of our top 3 global markets are growing net sales revenue, volume, share or all 3. In the U.S., our shipments were up over 1 million hectoliters compared to the third quarter of 2022, and we were the top volume share gainer in the industry. Coors Light and Miller Lite are on track to collectively deliver net sales revenue growth for the third straight year, something that had not done since Miller and Coors came together in 2008. Coors Banquet volumes were up nearly 30%. Coors Light volumes were up double digits and Miller Lite volumes were up high single digits. We were the top dollar share gainer in the U.S. economy segment. In fact, our two biggest economy brands grew dollar and volume share of industry in the quarter. We have gained the second most U.S. share of flavored alcohol beverages of all major brewers. We grew share nationally in Canada in every region of the country and in every segment of our industry. Coors Light widened its position as the #1 light beer in the country, a position it has held since March. And the Molson brands grew share. Miller Lite grew volumes by 50%, and we grew more share in flavor alcohol beverages than any other company in the industry. We were the best-performing brewer in the UK in both value and volume share. Adding some very exciting news from the UK market, we are now the #2 brewer in London after ranking a distant #5 player only a few years ago. The transformation of our portfolio in the London market is a real testament to our team's commitment to a clear strategy that drives focus across all channels and customers. Additionally, Madri is now the second largest above premium lager in the on-premise and third largest world beer in the total trade across the UK. And in Central and Eastern Europe, Ožujsko, our core power brand in Croatia is growing value share of the beer category year-to-date, and it has over 50% value share of the core segment. Now of course, our business has benefited greatly from the broader dynamics of the U.S. beer industry over the past 7 months. But as you can see, the improvement in our business is being driven by more than one market. Improvement in our business is being driven by more than a couple of brands. The improvement in our business is being driven by more than one segment of the category and the improvement in our business predates April 1. Year-to-date, each of the top 3 biggest global markets are growing net sales revenue, volume and volume share. And as this slide plainly shows the trajectory of our business has been on the upswing. And in regard to our future, we believe we can lap these results in 2024. We delivered top and bottom line growth in 2022. We're on track to do so again this year. And we plan to do so next year, too. That's the plan we outlined at our Strategy Day last month. We've already gained thousands of tap handles across the U.S. since the beginning of the second quarter. We are already gaining significant amounts of shelf space this fall as retailers work to adjust their space to meet consumer trends. Now I have seen some, let's say, interesting commentary around shelf space. So I want to be extra clear here. The vast majority of chain retail accounts typically update their shelf space once a year due to the complexity of lining all their stores. And they typically do so in the spring. Over 50 retailers have made space changes in late summer or fall due to the massive shift in consumer purchase behavior we have seen since April 1. This is not common. In fact, in the last 5-plus years, we haven't had any adjustments in the summer or a change to the premium segment in the fall. Among the chains that moved their resets up to the fall, Molson Coors was the biggest beneficiary with Miller Lite and Coors Light gaining 6% to 7% more shelf space. For brands of this size, that is a massive amount of space. In fact, it's tens of thousands of cubit-feet of space. Regardless of how some folks might characterize the current environment, those are effects. The conversations for spring resets are well underway. And while we can't exactly predict the future, it's safe to say that we expect to gain more shelf space for our big brands in those resets as well. These retailers are smart businesspeople. And when consumer trends shift to the degree they are shifting, chain retailers have two options

Lauren Lieberman :

Great I was just curious if you could talk a little bit about going back to the beginning of the call, Tracey's comments and in the release on the beer category in the U.S. being stronger than what you had previously expected. So any color you can add on that would be great. Kind of what do you think some of those key drivers are? Is it around key consumer cohorts? Just color on the beer industry backdrop would be great.

Operator:

We now have Bryan Spillane of Bank of America.

Tracey Joubert :

Yes. Thanks, Bryan. So look, the free cash flow range that we gave was already quite wide. So we're comfortable just leaving it where it is. In terms of capital allocation, look, our priorities haven't changed. It's those 3 buckets that we speak about. It is investing in our business to drive the sustainable long-term top and bottom line growth. And that could be investment in our breweries or from an M&A point of view, the sort of spring uphill’s approach. We will continue to reduce net debt with a desire to improve our investment-grade rating. And as I remarked, we did get an upgrade from S&P and then returning cash to shareholders. So we did announce the $2 billion -- up to $2 billion share repurchase plan over the next 5 years. And we'll consider all of those things. I think the good thing is that with our strong free cash flow delivery, we do have optionality as to how we can balance the allocation of capital behind these priorities. But as always, we'll run all of the ideas through our models and make sure that we're investing where we are driving the higher return for our shareholders.

Andrea Teixeira :

I was just going to talk about a little bit of the share of voice. And I think you in the Analyst Day, you obviously discussed that against the incremental spend this year. Is there any KPIs you can talk about as you're tracking the development of the incremental spend? And if there is anything -- I know most of that $90 million, I believe, incremental spend for -- I'm not mistaken in the quarter, it's mostly compensation. But wondering if it's going to reaccelerate even further in the fourth quarter, so it sets you up for 2024? And on that, I was just trying to get -- Gavin, you mentioned that your market share continues to be solid. I think one of your main competitors talking about light recovering a bit. I know, obviously, from a variable base, anything you would be expecting to see and I understand, obviously, you may not count on that being -- that share gain being structurally 100%, but most of it could be. So I was wondering if you can comment a little bit more on the market share performance that is baked in your outlook next year.

Operator:

We now have Peter Grom of UBS.

Tracey Joubert :

I'll take that. So yes, look, we did say that we expect inflation to continue to be a headwind for us in the back half of the year, but to moderate. Now as it relates to Q4, we do expect our COGS per hectoliter to be a headwind. And this is because of the continued inflationary pressure in EMEA and APAC region, where we've seen continued inflation in the double-digit range. But the other drivers of our Q4 COGS per hectoliter would be a lower volume leverage in Q4 lower than Q3 and Q2. For those reasons that we spoke about coming out of Q3 and into Q4 and then also expecting our brand volume to outpace the financial volume growth. And also, we've got higher planned maintenance costs in the fourth quarter. So those would be the big drivers of COGS per hectoliter in Q4.

Bonnie Herzog :

I guess I wanted to ask a little bit about your MG&A expense. Could you maybe talk a little bit more about the areas where you're going to be investing incremental marketing dollars as you kind of talk through the end of the year. And then should we think about you continuing to invest at a higher rate we think about next year to support your brands and the growth that kind of Gavin, you mentioned in the stickiness. Just trying to think about or trying to hear how you're thinking about this.

Operator:

We now have Filippo Falorni of Citi.

Gavin Hattersley :

Thanks, Filippo. Tracey, do you want to take the shipment question, and I'll take the sort of Circana or Molson number, difference between ours and what you're seeing in track channels. I would say there's probably three big differences between the number we disclosed and the track channels you highlighted one of them, which is the trading adjustment. But then the other one is obviously the significant load-in that took place at the end of the third quarter last year, which obviously we didn't have this year because we had a large price increase last year. And from a track channels point of view, that measures consumer behavior, whether our brand sales represent sales that our distributors put into the retail stores. So the retailers would be buying ahead of the price increase that doesn't necessarily mean that the consumer is buying ahead of the price increase. And those would be the two biggest differences between those two numbers, Filippo. From a shipments point of view, Tracey, do you want to take that?

Operator:

We now have Vivien Azer of TD Cowen.

Gavin Hattersley :

Yes. Thanks, Vivien. You broke up a little bit there, but I think I got the gist of your question. From an overall consumer health point of view, we do remain cautious given the macroeconomic environment that is out there. We're particularly cautious in Central and Eastern Europe, which has been pretty consistent with our view for a while, right? I mean the tough economy, the high inflation has impacted our Central Eastern Europe business much more than our UK business, which is honestly more weather-related. We do, though, expect conditions to improve as inflation falls in Europe, and we are starting to see inflation falling there. In Canada, we are seeing softness. It's a tough economic environment out there. We're particularly pleased with our own performance in Canada, where we've really grown strongly. And actually, our share growth in Canada is higher than it is in the United States. In March, Coors Light took over as the #1 light beer and has maintained that position and even Molson's growing share of industry volume and NSR. In the U.S., we're still seeing premiumization with growth in RTDs and spirits albeit at a slower rate because of the falloff in sales consumers, to your point, are seeking more value through purchasing decisions, which they're making, either into the larger pack sizes like 30 packs or into the smaller pack sizes singles and 6 packs. The on-premise is running pretty at pace with the off-premise business. And we haven't seen any material trade down into our economy brands. if it happens, we're ready. I mean, Miller High Life and Keystone in particular, are well positioned and are showing very nice improvement given where they were. So if it comes, we believe that the portfolio that we've got is ready for it.

Robert Ottenstein :

Great. Just a few follow-ups on some of the points that have been mentioned. So Gavin, strong results. You're obviously super confident in the business and the momentum disconnect, right, in terms of what the stock is doing, I think you're trading at about a 10% free cash flow valuation. So given that, and I know your general points on capital allocation. I guess the question is, is there any impediments or any issues in terms of buying back stock now as in -- between now and the end of the year. So is there anything to stop you from doing that? So that's question number one. Question number 2 is just -- you had mentioned that the business was better in October than in Q3. Is that global? Is that U.S., Canada and Europe? Or is it just a particular region?

Robert Ottenstein :

Sorry, Gavin, I don't mean to interrupt you. I mean I know time's short. I wasn't challenging that. I was just saying, in the light of that, right, in the light of your progress, given where the stock is coming down here in the light of everything you're saying, which I'm not challenging. Is there any impediment? Is there anything to stop you from buying back stock between now and the end of the year? And again, sorry for interrupting.

Robert Ottenstein :

I am not sure that, there's no miscommunication.

Operator:

We now have the next question from the line of Nadine Sarwat of Bernstein.

Gavin Hattersley :

Thanks, Nadine. Do you want to talk about operating leverage, Tracey, and I'll talk about the market share gains and the stickiness.

Gavin Hattersley :

Thanks, Tracey. Look I don't -- I can't really comment on Anheuser-Busch's polling data, Nadine. But what I can say to you is that sales of what matter, right? And the sales are continuing as they have done since early April. As I said, the share gains are unchanged in 4 weeks, in 13-week and in 26 week. And in fact, in the latest 4-week read the big brand is actually getting worse. So that's the best indication of what's actually happening is -- the share has come to us and it is sticking and has done now for 7 months. And we've got a bunch of plans in place, which we showed our distributors, and we revealed a little bit of it at our Strategy Day, which highlights our intention to retain that share gain.

Eric Serotta :

So coming back to U.S. brand volume. You called out the double-digits for Coors Light Banquet and the high single-digit for Miller Lite. Your overall depletions were up in mid-single digits, which implies the rest of the portfolio was a lot lower. I realize a lot of those segments are not growing but bringing life to [indiscernible] now. But can you give some color as to how your -- I'd say your performance in the rest of the portfolio, either by segment or call out a couple of brands and how that is tracking versus...?

Operator:

We have our final question from Chris Carey of Wells Fargo Securities.

Gavin Hattersley :

Sorry, what was the second question, Chris?

Christopher Carey :

Competitive activity, are you -- sorry, yes, I should have been more clear. Competitive activity for the total business, specifically in the U.S. as we get closer to spring resets as competitors are jostling for space. So are you starting to see any changes? Obviously, you're stepping up marketing spending in Q4 I don't know if that's why, but just a broader comment on whether you're seeing any developments from a competitive activity, specifically in the U.S.? And then the other question was on the pricing in EMEA and APAC and how much of this is sort of durable because of premiumization and or how much is perhaps just list pricing that all that will normalize and some cyclical recovery of your channel mix.

Operator:

Thank you. I would like to turn it back to Greg Tierney for any final remarks.

Operator:

I can confirm that does conclude today's call. Thank you all for joining. Please have lovely rest of your day, and you may now disconnect your lines.

Greg Tierney:

Thank you, operator, and hello, everyone. Following prepared remarks today from Gavin and Tracey, we will take 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 our IR team in the days and weeks that follow. 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 non-US 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 US dollars and in constant currency when discussing percentage changes from the prior year period. Also, US share data references are sourced from Circana. 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.

Tracey Joubert:

Thank you, Gavin, and hello, everyone. In the second quarter, on a constant currency basis, we delivered tremendous results. Net sales revenue grew 12.1% and underlying pre-tax income grew 52.6%. We achieved this while continuing to invest in our business, reduce net debt and return cash to shareholders. As Gavin discussed, we have built our business to sustainably grow both the top and bottom line. We achieved this in 2022 and in the first quarter of 2023 before this recent period of accelerated demand in the US. And while we remain mindful of the dynamic global macroeconomic environment and recent beer industry softness, the foundation we have laid coupled with our strong second quarter performance provide us confidence to increase our full year 2023 guidance, meaningfully accelerating growth from our prior expectations. Now before we get to that, let's talk about some of the drivers of the second quarter performance. Net sales per hectoliter grew 9% in the quarter. This was driven by positive global net pricing due to rollover pricing benefits from higher than typical increases taken in 2022 and favorable sales mix driven by geographic mix and premiumization. Financial volume increased 2.8% and consolidated brand volume increased 5%. The volume growth was driven by strength in our Americas business, partially offset by a decline in our EMEA and APAC business. Turning to costs. Underlying cost per hectoliter were up 5.9%. As expected, inflationary pressures continue to be a headwind. As you may recall, we bucket COGS into three areas. First is cost inflation other which includes cost inflation, depreciation, cost savings and other items; second is mix; and third is volume leverage or deleverage. The cost inflation bucket drove 80% of the increase and was mostly due to higher materials and manufacturing costs, partially offset by cost savings. Volume leverage had a meaningfully positive impact on COGS per hectoliter in the quarter providing a 100 basis point benefit. Other COGS per hectoliter drivers included mix, which accounted for the remainder of the increase. This was largely due to the impact of non-owned brands as well as premiumization. And while premiumization is a negative for COGS, it is a positive for gross margin per hectoliter. Underlying marketing, general and administrative expenses increased 4.1%. The increase was driven by higher incentive compensation expense, which is a variable expense tied to our operating performance, as well as higher marketing investments. Now let's look at our quarter results by business units. In the Americas, net sales revenue grew 11.5% and underlying pre-tax income grew 40%. Americas net sales per hectoliter increased 6.2%, benefiting from positive net pricing across the region as well as favorable sales mix. The strong net pricing growth included benefits from higher than typical US and Canada pricing in 2022. As a reminder, in the US in 2022, we took two part increases, a spring and fall, each averaging approximately 5%. We lapped last year's spring increase in the third quarter and will begin to lap last year's full increase this September. Financial volume increased 5%. This was due to a 4.8% increase in US domestic shipments, driven by higher brand volumes due to a shift in consumer purchasing behavior largely within the premium segment in the quarter. In addition, Canada shipments increased in part due to cycling the impact of the Quebec labor strike in the second quarter last year. This was partially offset by lower Latin American and contract brewing volumes. Americas brand volumes were up 8%. US brand volume increased 8.7% largely due to growth in our core brands with Coors Light, Miller Lite and Coors Banquet all up double-digits. Growth was also driven by strength in our Above Premium portfolio led by flavor. In Canada, brand volume increased 11.3%. While sparkling the Quebec labor strike was a driver, we also achieved growth in each of our Canadian regions. In Latin America, brand volume was down 5.9%, largely due to industry softness in some of our major markets in that region. On the cost side, Americas underlying COGS per hectoliter increased 2.5%. Inflation remained the leading driver of the increase, but the impact was partially offset by benefits of volume leverage and lower logistics costs. MG&A was up on higher incentive compensation and higher marketing investments, particularly for key innovations like Simply Spiked. Turning to EMEA and APAC. Net sales revenue increased 14.7%, and underlying pre-tax income increased 82.7%. Net sales per hectoliter grew 18.3%. This was driven by positive net pricing largely related to the rollover benefits from increases taken in 2022, favorable sales mix and continued premiumization in the UK, fueled by the strength of brands like Madri and positive geographic mix. Financial volume declined 3%, relatively in line with brand volume, which was down 2.9%. Looking by market, financial volume grew in the UK on strong brand volume due to the resilience of the UK consumer and our strong on-premise performance as well as higher factor brand sales. But this was more than offset by the counts in Central and Eastern Europe due to industry softness, including the impact of the continued inflationary pressures on the consumer. On the cost side, underlying COGS per hectoliter increased 17.7%. This was largely due to inflation-related brewing and packaging materials and logistics costs as well as the mix impact of premiumization and high affected brands. MG&A was relatively flat. Underlying free cash flow was $570 million for the first six months of the year, and this was an improvement of $282 million, primarily due to higher net income and lower cash capital expenditures. Turning to capital allocation. Capital expenditures paid were $335 million for the first six months of the year. This was down $54 million and was due to the timing of capital projects. Capital expenditures continue to focus on our Golden Brewery modernization and expanding our capabilities in areas that we believe drive efficiencies and savings. We reduced our net debt by $308 million since December 31, 2022, ending the second quarter with net debt of $5.7 billion. And in July, we repaid our CAD500 million debt in cash upon its maturity on July 15. As a reminder, our outstanding debt is essentially all at fixed rates. Our exposure to floating rate debt is limited to our commercial paper and revolving credit facilities, both of which had a zero balance outstanding at quarter end. And we paid a quarterly cash dividend of $0.41 per share and maintain our intention to sustainably increase the dividend. Given our strong EBITDA performance and lower net debt, our net debt to underlying EBITDA ratio as of quarter end, reached our longer-term leverage ratio target of 2.5 times. Our capital allocation priorities remain to invest in our business, reduce net debt as we remain committed to maintaining and in time, improving our investment-grade rating and return cash to shareholders. But our greatly improved financial flexibility does provide us increased optionality among these priorities and we will utilize our models to determine the best anticipated return for our shareholders. Now, let's discuss our outlook. But first, please recall that we cite year-over-year growth rates in constant currency. We are raising our 2023 key financial guidance to reflect the continued strength we are seeing in our core brands in the US, while remaining mindful of the softness in the beer industry and continued caution around the consumer. We now expect high single-digit net sales revenue growth as compared to low single-digit growth previously. We now expect 23% to 26% underlying pre-tax income growth, as compared to low single-digit growth previously. And we also now expect underlying free cash flow of $1.2 billion, plus or minus 10% as compared to 1 billion plus or minus 10% previously. Now let me break down some of the guidance assumptions. From a top line perspective, given the strong demand in the US, we now expect growth to be driven not only by rate but also by volume. But we continue to expect a headwind related to the large US contract brewing agreement that has begun to wind down ahead of its termination at the end of 2024. As discussed on our first quarter call, we expect volume declines under this contract to accelerate in the fourth quarter. For context, the headwind impact of this is expected to be approximately 2% to 3% of America's financial volume in the fourth quarter. We continue to view the termination of this contract as a positive, because while a headwind from a volume perspective, we believe it is positive for us in terms of freeing up capacity and enhancing margins. As for distributor inventories before that we had both higher US distributor inventory levels at the end of the first quarter this year versus the prior year. However, given the strong demand, distributor inventory levels in the US declined following both the Memorial Day and fourth, of July holidays. We expect they will further decline following the Labor Day holiday. Recall that declines in distributor inventory held through the summer and particularly post our holidays during this period are typical. Also, as usual, we anticipate rebuilding inventory in the shoulder quarters being the first and fourth quarters. So while supply is currently tight, our brewery operations have done an excellent job of meeting the demand. As for pricing, given the strength of our brands, we continue to anticipate taking a general increase in the US this fall. At this point, we expect our pricing increase to be in line with industry average historical annual levels of 1% to 2%. In terms of costs, we continue to expect the impact of inflation on COGS to be a headwind for the year, but we expect it to moderate in the second half. While stock rates for a number of commodities have declined, we, like most CPG companies have a hedging program, which we expect will largely smooth out the impact of swings in commodity pricing. Further, our business in EMEA and APAC is expected to continue to experience relatively high inflationary pressure. In addition, we expect favorable volume leverage to partially offset cost increases. This, combined with continued premiumization and lower contract brewing volumes are expected to drive gross margin expansion for the year. Underlying MG&A expenses is expected to be approximately $100 million higher in the second half as compared to the first half of this year and up approximately 15% versus the second half of 2022. This is primarily due to higher marketing spend, which is expected to be up approximately $100 million, as well as higher people related costs as compared to the same period last year. As for our secondary guidance metrics, we continue to expect capital expenditures incurred of $700 million, plus or minus 5%, underlying depreciation and amortization of $690 million, plus or minus 5% and an underlying effective tax rate in the range of 21% to 23%. However, we are reducing our net interest expense guidance of $225 million to $225 million plus or minus 5% as compared to $240 million plus or minus 5% previously. This decrease is driven by the July payoff of the Canadian debt maturity, higher interest income due to higher cash levels and higher interest rates on deposits and lower short-term borrowings than previously anticipated. In closing, we are extremely pleased with our second quarter performance. While we could not have foreseen the shifts that we have seen in consumer behavior that began in the second quarter, our strategy has positioned us well. With a strong portfolio of brands across all price segments and the financial flexibility that enables us to continue to invest prudently in our business, we are confident in our ability to sustainably deliver top and bottom line growth not only in full year 2023, but also beyond. We look forward to sharing more details on our strategic initiatives, capital allocation and longer term outlook at our upcoming Strategy Day on October 3rd. With that, we look forward to answering your questions. Operator?

Bonnie Herzog:

All right. Thank you. Hi, everyone. I had a question on your guidance. You raised your underlying pre-tax income growth guidance, a fair amount, but given the Q2 beat, it does imply a healthy deceleration in the second half. So I guess I wanted to better understand the drivers of this, and really ultimately how much of the top line strength you now plan to reinvest versus maybe letting it flow to the bottom line. Also, are there any other headwinds we should be aware of for the second half, or is there may be some level of conservatism baked into your updated full year guide? Thanks.

Tracey Joubert:

Yes. Bonnie, the one thing that I would add is the PEP contract that's winding down. So as I mentioned in the prepared remarks, we will see a headwind in terms of volume and revenue from that contract, we expect on a book volume basis for that to have a headwind in Q4 of around 2% to 3% of our American volumes. And then just also, don't forget the sort of pricing as we lap the larger price increases that we took supplier in 2022. So we'll see that impact declining through the back half of the year as well.

Bonnie Herzog:

All right. Thank you.

Bill Kirk:

Thank you. I just wanted to follow-up and try to be super clear. So the guidance in the U.S. includes U.S. volume increases and rate. Has that changed just for what you've experienced year-to-date, or is your -- is your guidance now including those market share shifts that you've seen for them to continue in the back half of the year?

Operator:

Thanks, Bill. Our next question comes from Andrea Teixeira from JPMorgan. Your line is now open. Please go ahead.

Gavin Hattersley:

Look, Bonnie, not Bonnie -- sorry, Andrea. As I said, our momentum has not slowed down at all, and we're now towards the end of July. Our guidance assumes US brand volume growth in the second half of the year, which implies continued share growth based on current industry trends. It does consider continued caution around the consumer and the competitive environment. And we -- Tracey referred to the PEPs winding down and price increases. And then, of course, there's the extra $100 million that we've got going through from a marketing point of view. So we factored all of those items into our guidance.

Andrea Teixeira:

And when -- that the capacity increases, I also want to make sure that we all ship on that. The 2% to 3% headwind, right, that you spoke about volumes that you mind in this contract. It also gives you more capacity, right? So are you, together with what you mentioned Gavin in the beginning of your call in your prepared remarks that you have some of the top 12 retailers in the US taking on adjusting shop space for you. Would we see that capacity flipping into your own brands, or we should wait for that to settle before we can count on that as you go into the balance of the year? Thank you.

Operator:

Thanks, Andrea. Our next question comes from Vivian Azer from TD Cowen. Your line is now open. Please go ahead.

A – Gavin Hattersley:

A couple of points I'd make. One is that we came into the second quarter with very high -- we're not very high inventory. We came in with higher inventories than we normally did because we wanted to make sure we could supply our consumers and distributors through summer. Now we obviously weren't planning for the current situation, but it's -- we certainly had higher shipments coming into Q2. We always run close to full capacity in summer. So frankly, there isn't a lot of -- from a shipments point of view, a significant increase possible as we operate in summer. Notwithstanding that, our breweries had a record May and June since 2019 and are functioning extremely well. So those are the 2 factors that I would point you to, Vivien. From a capacity point of view, of course, we don't have unlimited capacity, but we're keeping up, I think, amazingly well given the short notice of this demand shift. And we'll rebuild our inventory heading into Labor Day, and we'll build -- rebuild inventory post Labor Day as we head towards the back of the year.

Nadine Sarwat:

Hi. Thank you. Good morning, guys. So last time we spoke, I know you mentioned your expectations at the time where the shelf resets could be more modest in the fall than some other brewers were expecting, but it sounds from your prepared remarks that you believe these are going to be bigger than initially expected. So could you provide a bit more color based on what you're seeing? I know you touched on it, but the puts and takes of those fall resets and then how you're thinking of going into the spring next year? And then one more, if I may ask, in the U.S., where your on-trade and off-trade trends meaningfully different or broadly in line? And if so, a little color on that as well. Thank you.

Operator:

Thanks Nadine. Our next question comes from Filippo Falorni from Citi. Your line is now open, please go ahead.

Operator:

Filippo if you want to -- your line is now open. Please ask your question. Again moving on to the next question. Our next question is from Eric Serotta from Morgan Stanley. Your line is now open, please go ahead.

Eric Serotta:

Hello. Can you hear me?

Operator:

Eric, we can hear you. Go ahead.

Tracey Joubert:

Yes. Hi Eric, it's Tracey here. So, look, we're going to monitor this very closely. Obviously, our distributor inventory levels, as Gavin mentioned, over the sort of holiday period will fall and then we'll grow it again. Typically, we grow on the shoulder quarters, the first quarter and the fourth quarter. But we're monitoring it very carefully. I mean, right now, we focus on making sure that we have enough inventory to meet the demand and that our distributors have enough inventory to meet their demand. So, as we get further into the year, we'll continue to balance that. And again, just really focused on making sure we've got there on the floor.

Gavin Hattersley:

Sure. Thanks Eric. Yes, look, I mean, the US industry in 2023 has been softer than expected. There are obviously a number of drivers behind that. Here on the West Coast, particularly California, big beer drinking market. We had some really difficult weather conditions in the first part of the year. And so that challenged the overall industry. And I think it's true to say that we've had higher-than-expected declines in the overall Seltzer segment. Our data with -- from Circana would suggest that there's actually been a slight improvement in Q2, when you compare it with Q1 and an improvement from an overall industry point of view versus the second half of last year. We do think that some of the bigger drivers of these trends are lifestyle choices and some buyers shifting to other categories. However, core beer drinkers are incredibly loyal and have maintained their share of dollars and volume in beer. So we have seen some pretty seismic shifts across the industries fueled by the continued growth in Mexican imports and fabs. And obviously, the disruption in the AVR [ph] portfolio, our brands, Coors Light, Miller Lite growing industry share. So what really matters here for us is that more consumers are reaching for our beers versus our competitors' beers, regardless of the -- of the segment that they are purchasing from. So those are the comments I would have from an overall industry point, Eric.

Peter Grom:

Thanks, operator. Good morning, everyone. So Gavin, this may be a hard question to answer, as we're still really only halfway through this year. But I would love to get your perspective on how you see the company's growth algorithm evolving in light of the share shifts we're seeing. Obviously, great to see the share gains, but you're also kind of increasing your exposure to an area of the industry where growth has been challenged for some time. And I know, you had previously communicated that you expect to exit this year with stronger bottom-line growth versus the low-single digits originally targeted for this year. So I would just be curious, how do you think about the ability to kind of grow off of this elevated base especially if some of these share gains prove to be less durable? Thanks.

Operator:

Thanks, Peter. Our next question comes from Lauren Lieberman from Barclays. Your line is now open. Please go ahead.

Tracey Joubert:

Yes. So maybe let me help maybe give a little bit of color and maybe a little bit more detail around our leverage and operating leverage. So on an enterprise basis, our fixed costs comprise about 20% of our enterprise underlying COGS. So now that does differ by geography. And the composition -- the composition of our year-over-year volume changes that can influence that. But on average, for enterprise COGS makeup is about 20% fixed. And then obviously, as we look at operating leverage, our marketing strategy also supports flexibility, which does allow us to put the right commercial pressure behind our brands. And so as Gavin mentioned, we're going to be spending $100 million more in marketing in the back half of the year. And then just from an overall sort of margin driver as well, we've mentioned the PET contract coming to an end. That's certainly going to help our margins, even though it is a revenue loss, but overall margin expansion as well as a lot of these efficiency projects that we've been working on our ongoing cost savings, that's all going to help drive that margin expansion over the medium term and this year.

Rob Ottenstein:

Great. Thank you very much. Just a couple of follow-ups, Gavin. First, you mentioned that on-premise was stronger than off, but I can't -- I'm not sure I heard by how much how much the on-premise was up? And you mentioned that you won 12,000 tap handles, I think, in Q2. Can you give us a sense of what that is as a percentage of total tap handles. And then second, we're seeing and hearing about some weakness in the market overall in the below premium side. Is that something that you're also seeing in your -- not just in your business, but in the market overall? Thank you.

Operator:

Thanks Rob. The next question comes from Chris Carey from Wells Fargo Securities. Your line is now open. Please go ahead.

Gavin Hattersley:

Thanks, Chris. Look, our tightest period obviously is always during the summer. And we always see a fall off after major holidays, just like we did in July 4th and we are currently rebuilding the inventory as we speak, and we'll continue to rebuild it in August. And then we'll have a fall off coming out of September. And then overall consumer or consumer takeoff traditionally does fall off in the fourth quarter. So it provides us a good opportunity to get inventories back to where we would like to have them going into next year. Our marketing activities, as I said is not just limited to the United States. We are putting more money into our other markets as well behind the momentum of a brand like Madri, behind the Coors Light and Molson trademark brands up in Canada behind some strength in certain territories in our Latin America business. But it's also true to say the lion's share is in the United States. And frankly, the at a very, very high level, two kinds of marketing right in selling expenses, some drive shorter term behavior, which we're investing behind, and some drives longer term brand health, and we're going to be doing both. So as I said, we don't have unlimited capacity, but certainly perhaps coming out of our system and then the shoulder quarters, as I think Lauren referenced in the fourth quarter and the first quarter give us ample opportunity to maintain inventory and supplies where we want them to be.

Bryan Spillane:

Hi. Thanks, operator. Good morning, Gavin. Good morning, Tracey. I just had two sort of related questions about free cash flow. One, Tracey, if you could just talk about the two and half times leverage target and just why that's kind of a desirable target just given how much cash flow tap the company throws off and it just seems a little bit conservative. So just kind of what the thinking was there in terms of getting to the two and half times? And then I just had one other related follow-up.

Bryan Spillane:

Okay. And then the $1.2 billion of -- or plus or minus 10% free cash flow guidance increase for the year. Is -- I think one of the questions we're getting today is just if you were to hold on to the benefits that accrue to the company this year, would that be a normal cash flow or were there other things like capital spending coming down or just other things that the free cash flow conversion, if we're sort of -- we sort of rebase the company from here could be higher, or put another way, would free cash flow necessarily be higher even for this year, if there weren't some other sort of unusual things pulling on cash?

Operator:

Thanks, Bryan. Our next question comes from Steve Powers from Deutsche Bank. Your line is now open. Please go ahead.

A – Gavin Hattersley:

Yes. Steve, look, we don't have unlimited capacity, as I said. But obviously, we had a strong May and June shipments, well above anything that you would have seen in 2020, 2021, 2022. And obviously, I think I've made the point we had higher inventories coming into the second quarter at the end of March, and that might have affected some of our shipments in the sort of first part of April. So there is that as well. We have long had a very robust program of seasonal workers and some are temporary workers which, frankly, if we needed to, we could continue even into the shoulder quarters. We traditionally haven't found that to be necessary. But in the event that it did, we could extend our summer brewery performance into the shoulder quarters. I'd also think, Steve, just to remind you that we are seeing pets come out, and that will free up a lot of capacity for us. And it will free up and simplify our breweries. There won't be so many changeovers. There will be longer runs much more effective and efficient. And as Tracey said, we start to see the benefit of that coming through at a faster rate in the second half of this year in the fourth quarter than we did in the first half, and then obviously, that will accelerate even further into 2024. So based on what we know now, we've got the capacity to supply the market demand.

Filippo Falorni:

You guys, can hear me okay now?

Filippo Falorni:

Okay. Great. So I just want to go back to your guidance for net sales growth on a constant currency basis of high single digits. It seems like, Gavin, you mentioned the momentum continued in Q3 in terms of Coors Light and Miller Lite at the consumer level, you should have a little bit of financial volume kind of recovery as you ship ahead of depletions to recover the inventories. So can you -- how many square like what are the other headwinds other than the PABs volume coming out in Q4 that you're assuming that kind of slow the momentum as you're expecting in the second half. Any other things that we should be aware? Thank you.

Operator:

We have no further questions at this time. So with that, I will hand back to Greg Tierney for final remarks.

Operator:

This concludes today's call. Thank you for your participation. You may now disconnect your lines.

Greg Tierney:

Thank you, operator, and hello, everyone. Following prepared remarks today from Gavin and Tracey, we will take 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 our IR team in the days and the weeks that follow. 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 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, formerly called IRI. And 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.

Tracey Joubert:

Thank you, Gavin, and hello, everyone. In the first quarter on a constant currency basis, we grew net sales revenue 8.2% and underlying pre-tax income 82.8%, while continuing to invest in our business and return cash to shareholders. While we remain mindful of the dynamic global macroeconomic environments and beer industry softness, our first quarter performance coupled with a strong foundation we have laid over the last three years provide us confidence to reaffirm our 2023 full year guidance. This guidance would mark another year of growth on a constant currency basis, delivering on our goal of sustainable top and bottom line growth. Now, let’s talk about some of the drivers of the first quarter performance. Strong global net pricing due to rollover pricing benefits from higher than typical increases taken in 2022 and positive sales mix from premiumization and favorable geographic mix across both business units lead to 8.4% net sales per hectoliter growth. Financial volume declined 0.2% as lower Americas volumes was partially offset by higher volume in EMEA and APAC. Consolidated brand volume declined 2.1%. Turning to cost, as expected, inflationary pressures continue to be a headwind in the quarter, driving underlying COGS per hectoliter up 7.4%. And as you can see from the slides, we back at COGS into three areas. First is cost inflation and other which includes cost inflation, depreciation, cost savings and other items. Second is mix, and third is deleverage. The cost inflation bucket drove almost 80% of the increase and was mostly due to higher material, conversion and energy costs. Cost savings and our hedging program helped to mitigate some of these cost pressures. As a COGS per hectoliter drivers included mix, which was about 20% of the increase. This is largely due to the impact of factored brands in the UK as well as premiumization. And while premiumization is a negative for COGS, it’s a positive for gross margin per hectoliter. Deleverage had a negligible impact on COGS per hectoliter in the quarter. Now let’s look at our quarterly results by business units. In the Americas, net sales revenue was up 6.5% and underlying pretax income grew 37.7%. Americas net sales per hectoliter increased 7.1%, largely benefiting from strong net pricing growth as well as favorable brand and geographic mix. The strong net pricing growth included benefits from higher than typical U.S. and Canada pricing in 2022. As a reminder, in the U.S. in 2022, we took two pricing increases, a spring and a fall, each averaging approximately 5%. The spring increase was taken in January and the beginning of February, which was earlier in the first quarter than usual and the fall increased began in September 2022. Financial volume declined 0.5% and this was due to industry softness as well as lower Latin American and contract brewing volumes. This was partially offset by 1% increase in U.S. domestic shipments to bring our distributor inventory levels primarily for our core brand to stronger position compared to a year ago. Brand volumes were down 1.5%. Looking at brand volume by region, the U.S. declined 1.2% on software industry performance and lower economy volume. There was also one more trading day in the quarter. So on a trading day adjusted basis, U.S. brand volume was down 2.8%. In Canada, brand volume increased 4.9% driven by growth in core brands and Latin, Omicronon-premise restrictions in the prior year period. In Latin America, brand volume was down 12.4%, largely due to industry softness in some of our major markets in the region. On the cost side, Americas underlying COGS per hectoliter increased 5.6%, while MG&A was flat. Turning to EMEA and APAC. Net sales revenue increased 16.1% and underlying pretax income increased 27.6%. Positive net pricing included the rollover benefits from increases taken in 2022. Favorable sales mix on continued premiumization fueled by the strength of brands like Madrí and positive geographic mix drove net sales per hectoliter growth of 15.1%. Financial volume grew 0.8% on the strength of our above premium portfolio and high effective brand volume. Brand volume declined 3.9%. Looking by market, brand volume grew in the UK, but this was more than offset by decline in our export and license business in markets impacted by the Russia war in Ukraine, which we exited in March 2022, as well as by declines in Central and Eastern Europe due to the impacts of inflationary pressures on the consumer. On the cost side, underlying COGS per hectoliter increased 15.2%. This is largely due to cost inflation related to materials, transportation and energy, as well as mix from premiumization and the impact of factored brands. Underlying free cash flow was a negative $174 million for the quarter, and this was an improvement of $185 million, primarily due to higher net income and lower cash capital expenditures. Turning to capital allocation, our priorities remain to invest in our business to drive top line growth and efficiencies, reduce net debt and return cash to holders. Capital expenditures paid were $181 million for the quarter. This was down $62 million and was due to the timing of capital projects. Capital expenditures continued to focus on our Golden brewery modernization and expanding our capabilities in areas that drive efficiencies and savings, and variety of factors that Gavin mentioned earlier. We ended the quarter with net debt of $6.3 billion, which is essentially all at fixed rate. Our exposure to floating rate debt is limited to our commercial paper and revolving credit facilities, which has zero balances outstanding at quarter end. Our net debt to underlying EBITDA ratio was just under 3x, and we remain committed to maintaining any time improving our investment grade rating and strive towards a longer-term leverage ratio target of approximately 2.5x. And we return cash to our shareholders with a quarterly cash dividend of $0.41 per share. The dividend represents an increase of 8% from the fourth quarter 2022 level. It is our second increase since we reinstated the dividend in 2021 and it aligns with our intention to sustainably increase the dividend. Now let’s discuss our outlook. But first please recall that we cite year-over-year growth rates in constant currency and when considering the first quarter in relation to our full year, remember the first quarter is our smallest quarter. So percentage changes in the first quarter are off much smaller basis. Onto our guidance. We are reaffirming our 2023 guidance, which includes low single digit growth for both net sales revenue and underlying pre-tax income and underlying free cash flow of $1 billion plus or minus 10%. This guidance anticipates full year growth despite softness in the beer industry, caution around the consumer and impacts of continued global inflationary cost pressures. As we discussed on our fourth quarter call, our underlying assumptions assume that top line growth is more rates than volume driven, as we continue to benefit from the strong global net pricing that we took in 2022 as well as benefits from portfolio premiumization. Keep in mind that due to the timing of our 2022 U.S. pricing increases, we had a disproportionate benefit in the first quarter of this year. And while it’s early, we don’t anticipate taking another potential general increase in the U.S. until the fall of this year at which point it is possible we could see pricing return to its more historical levels of 1% to 2%. In terms of financial volume, recall that we have a headwind as a large contract brewing agreement begins to wind down ahead of its termination at the end of 2024. We expect significant volume declines under this contract in the second half of the year with acceleration in the fourth quarter. And as I previously mentioned, we posted stronger U.S. distributor inventory levels at the end of the first quarter versus the prior year with U.S. shipment trends roughly four percentage points ahead of trading day adjusted brand volumes. We expect this inventory bolt will unwind in the subsequent quarter as we maintain our goal to ship to consumption for the year. In terms of cost, we expect the impact of inflation on COGS to remain elevated in the second quarter before moderating in the second half of the year. And we continue to expect it’ll be a headwind for the year. However, utilizing our leaders, which include pricing, ongoing cost savings efforts, our hedging program and continued premiumization, we expect gross margin dollars per hectolitre to increase for the full year in both business units. We also expect to continue to strongly support our core brands and key innovations, particularly in the key beer selling season. As a result, we plan to increase marketing dollar investments in 2023 versus the prior year. In closing, we are pleased with our first quarter performance and our ability to manage the dynamic macro environment. With a strong portfolio of brands across all price segments and the financial flexibility that enables us to continue to invest prudently in our business, we are confident in our ability to sustainably deliver growth in full year 2023 and beyond. With that, we look forward to answering your question. Operator?

Bonnie Herzog:

All right. Thank you. Good morning. So I had a question on your guidance. So given the strength you saw in Q1 and then the share gains you’re seeing maybe in the last few weeks from Bud Light pressures, your guidance feels pretty conservative, especially on pre-tax income with your guidance implying probably a low single digit decline for the remain of the year. So I guess, I’m trying to understand the drivers of this and maybe if you’re assuming some of these short-term gains you’re seeing won’t necessarily be sustainable? Or are you now planning on stepping up reinvestments possibly not letting any of the incremental top line strengths flow to the bottom line. So any color on that would be helpful. Thank you.

Operator:

Thank you. The next question is from the line of Kevin Grundy with Jefferies. You may proceed.

Gavin Hattersley:

Thanks, Kevin. Yes, just a couple maybe additional points to that. Obviously, our focus right now is on our brands completely and not looking at what our competitors are doing. I’m particularly proud of the work that we’ve done over the last three years because we’ve built our brands very deliberately. And Kevin, we’re seeing progress across our portfolio as a result of that. And that tells us that our strategy is working. So, no matter what happens with our competitors, we are going to continue to make the right decisions for our brands and the long-term health of our brands. As I said to you, we haven’t factored in the current situation into the guidance – holding our guidance where it is. Honestly, we can’t say how long the current situation is going to last. And our focus is going to stay on our brands. Our guidance did contemplate previously an increase in our marketing spend in the – particularly in the summer part of the year as we head into Memorial Day and after that as we go into 4th of July, our guidance did include supporting our brands in a meaningful way. And I guess that’s about all I can say on that at this point, Kevin.

Victor Ma:

Hi. This is Victor Ma on for Vivien Azer, and thank you for the question. While it’s hard to know how durable the faster growth in April will prove to be, can you speak to the flexibility in your supply chain to accommodate outsize consumer demand for Coors Light and Miller in the U.S.?

Operator:

Thank you. The next question is from the line of Andrea Teixeira from JPMorgan. You may proceed.

Gavin Hattersley:

Thanks, Andrea. Look from an overall industry point of view and your questions directed more at the U.S., so I’ll keep my comments there. We had a number of dynamics that played out in the first quarter. In January it was certainly positive for us because we were cycling Omicron, which certainly benefited the on-premise volume trend versus the prior year. But in March we did see on-premise trends slow a little bit, didn’t provide us the offset to – the off-premise performance, which remained reasonably softer in the quarter, mostly because of what was happening out in the Pacific region and specifically California. That was the biggest geographic driver of industry softening frankly, Andrea, at least in part, probably mostly due to the weather situation at that part of the world. From our point of view, we did perform ahead of the industry in the Pacific region and California, and we gain share in California, which we are particularly pleased about. And when you couple all of that with the current macroeconomic environment and the fact that we haven’t built any of this current trend change into our guidance, it’s just left us a bit cautious in the short-term. But very confident that our portfolio, the work that we’ve done over the last three years has strategically positioned us to navigate the dynamic environment that we’re seeing. So thanks for that question.

Gavin Hattersley:

Yes, sure. So in Europe from a UK point of view, the consumers remained, frankly, remarkably resilient. And so we haven’t seen much degradation in consumer behavior in the UK. And certainly from a sales revenue point of view, our on-premise trends are above what they were in 2019. A little different in Central and Eastern Europe, I mean, the consumer there is less discretionary disposable income and with the inflation being where it is and particularly in consumer durables – sorry, not durables, fast moving consumer goods we’ve seen more of an impact in Central and Eastern Europe than we have in the UK. In Canada, we saw a similar trend as we did in the U.S., excluding the – obviously, the California situation. And we were very pleased with the fact that our volumes in Canada were up, 4.9%. So thanks for that, Andrea.

Operator:

Thank you. The next question is from the line of Rob Ottenstein with Evercore. You may proceed.

Gavin Hattersley:

Robert, you're right. I mean our supply chain is in much better shape than it was several years ago. And as I said, they've done a brilliant job of meeting demand as we've gone along. And you're right, the more volume you get through your breweries, the more fixed cost deleverage or the opposite of that comes into play. But as I said earlier, none of this – what's happening in April is any of our guidance going forward as we assess it and see what happens and see how sustaining it is. We always were going to increase our marketing spend as we headed into summer and Memorial Day and into 4th of July, in fact, for the whole of summer. So we feel that we have really strong plans for summer behind all of our core brands, whether they here in the United States or up in Canada or across the Asian. So we'll continue to spend what we think is right behind our brands. If we saw an opportunity, we could change that obviously, but that's factored into our guidance as we got it now.

Gavin Hattersley:

Yes, Robert, as you're kind of implying where our focus is and our focus remains on our brands and not really focused on what the competitors are doing. And as I said, we've built our brands very deliberately over the last three years, and we've made great progress on our portfolio. I think our portfolio, particularly our core portfolio is really great spot from an overall health point of view. The momentum we saw in our core brands coming out of 2022 continued into the first quarter. And we believe we're set up for a really strong summer regardless of what's happening in the broader environment. And our marketing plans and support plans from a sales execution point of view, we're designed to support that brand strength before all this happened.

Gavin Hattersley:

Thanks Robert.

Bryan Spillane:

Thanks operator and good morning, Gavin and Tracey. I actually had two quick questions, if you will. The first one is just in the first quarter in the U.S., the shipping ahead of consumption, is that really more just kind of getting back to a normal seasonality, right. You try to build some inventory in the shoulder seasons to have enough in the peak. So with the supply chain normalizing, is that really kind of what – why you would have shipped ahead in the first quarter? And then I have a follow-up.

Bryan Spillane:

Okay. And then just a quick one on MG&A. It was a little bit lower than what we were expecting in the first quarter. And I think Tracey, in your remarks, you talked about more of the spend in the middle of the year. So I just wanted to make sure that that was – there wasn't anything unusual in the first quarter and what we're seeing is just sort of the anticipation or the expectation that you'll have more marketing spend in the middle of the year?

Bryan Spillane:

All right, that’s helpful. Thanks Tracey. Thanks Gavin.

Steve Powers:

Thanks. Good morning. Just going back to the supply chain, I guess, should these share shifts prove to be structural and the trends continue or even extend? I guess, I just want to go back to it and think about over the course of the summer, is there any risk that you can't keep up if these trends continue all the way through the peak selling season and that we hit inventories and potential for out of stocks over the summer? I just want to kind of sanity check that. And then on the volume leverage that you're getting, again, assuming these trends continue, is there a tipping point where the positive leverage and the economies of scale through the course of your factories and supply chain become sort of too much to handle and you start to get into this economies of scale trying to keep up with much faster than expected volumes. Just want to think that through as we think about the remainder of the year. Thanks.

Operator:

Thank you. The next question is from the line of Nadine Sarwat of Bernstein. You may proceed.

Gavin Hattersley:

Thanks, Nadine. Look, from a consumer point of view and from a distributor point of view, I – frankly, I don’t think anybody can say how long the situation is going to last. And that’s why our focus is squarely on our brands and taking advantage of the momentum that we created coming out of 2022 and also out of the first quarter. In terms of spring resets, look, the retailers only make meaningful changes to their resets coming into the spring, and then they do minor ones in the fall. Most of the retail chains have finished their sets and have actually begun the resets process. And as you can expect, there was a bigger growth in shelf space going to RTDs coming directly from FABs and seltzers with some reduction in shelf space for craft, and craft changes seemed to be very dependent on retail strategy and it’s not consistent across retailers. We have seen a significant growth in space for imports and premium lights and super premium is growing, but to a lesser extent, we don’t have a complete picture of all the research that have taken place, but where we do have a read, we’re growing both distribution and we’re growing physical space. And frankly, we’ve seen growth – strong growth in distribution and space due to innovation, but we’re also growing space in the core of our portfolio as well. So the biggest opportunity for us to gain additional retail space aligns really well with the category segment trends we’re seeing in seltzers and craft. And we are feeling really good about our biggest bets in innovation for 2023 like Simply Spiked.

Gavin Hattersley:

Thanks, Nadine.

Chris Carey:

Hi. Thank you.

Tracey Joubert:

Hi, Chris.

Gavin Hattersley:

Thanks, Chris. Look, I mean I’ll make the point upfront that we are not seeing competitive moves from a promotional point of view to the degree that you may have seen – been reported, it certainly isn’t a full market thing. It’s not a full portfolio thing and certainly not half of last year’s full GI, we have seen some increase in brewer funded levels, but hard to say where that’s all going. But certainly it’s not as widespread as you may have read in the media. We continue to do pricing as we’ve always done it, right, which is on a brand by brand, market by market basis. We’re holding steady on what we said on our last earnings call that obviously we’ve cycled through the spring price increases from last year and we’ve now got the full price increase we put through last year, which was in the sort of 5% to 6% range holding steady through this coming fall. And we still continue to believe that the full price increases will revert back to more historical levels in that sort of 1% to 2% range. But obviously there’s plenty of time between now and when we have to make a decision on that to determine exactly what we’ll do for a pricing point of view for our brand portfolio. Thanks, Chris.

Lauren Lieberman:

Great. Thanks. Good morning. I had two questions. The first was just knowing that you said the recent shared momentum that you’ve seen in recent weeks is not included in the guidance and who knows what happens from here. But I was just curious how to think about that in the context of the four point spread between brand volume and financial volume in the U.S. or four-ish. So the thought was what it is in guidance is it kind of takes all year or through the year that you work through that. Should the recent market share dynamics hold in the volume trends that we see in Nielsen, would that gap be closed sooner? Would that be something that – yes, that, that we should just think about in closing more quickly? So that was kind of question one. And the second was on the contract manufacturing exit, I think and I know you’ve spoken to it before, but in a not quite as specific fashion, and I think the language previously or at least as we’d heard, it was a gradual sort of wind down until the contract terminates, but now you’re speaking to an accelerating and significant pressure from that in the back half. So I was just wondering, and more so in the fourth quarter, if you could put any kind of quantification around that because that might also help with tying in some of the decision to hold the line on guidance despite such a significant outperformance in Q1. Thanks.

Tracey Joubert:

Yes. So again, I – yes, I can’t quantify this because it is with a contract brewing partner Lauren, but it is a large contract brewing agreement. It does wind down at the end of 2024. We do expect based on forecasts, et cetera, that we do receive to see a significant decline in volumes related to this in the second half of the year and as I mentioned, accelerating in Q4. So other than being able to quantify, which we can’t, that’s about as much color as I can add to that.

Filippo Falorni:

Hey, good morning guys.

Filippo Falorni:

Question on – good morning. Just question on, again, the pricing that you are assuming in the balance of the year. I know obviously you mentioned the competitive dynamics, you haven’t really seen anything yet, but do you see a need maybe for the beer industry to step up a big promotional activity to reflect some of the trade down or signs of more consumers looking for more value? How do you see that evolving in the balance of the year? And in bigger picture, obviously, we talked a lot about market share dynamics within the beer industry, but what are your expectations for the entire industry growth for 2023? Thank you.

Filippo Falorni:

Thank you.

Gavin Hattersley:

Eric?

Gavin Hattersley:

Maybe Eric had this question answered already.

Gavin Hattersley:

Thanks, Eric. Look, I mean – you’re right. I mean, we don’t have an emerging growth division anymore, so the $1 billion goal is no longer applicable. But the changes to the all structure that we’ve made here in the Americas is completely designed to support accelerating future growth. We’re going to have more aligned priorities, we’re going to have more aligned leadership. The collaboration between sales and marketing is going to be much more. And it allows us to have more scale in Beyond Beer. And it does allow us to accelerate and have more aligned capabilities to examples of that would be innovation and then obviously digital. And all of that is in support of our Beyond Beer initiatives as well as obviously our core brands. With total Beyond Beer coming together, because they were sort of housed in different houses, like Topo Chico Spirited and expanded relationships with Coca-Cola with Peace Hard Tea, full spirit strength, full strength spirits like Five Trail and Barmen and Nelk with brands like ZOA. All of the activity that now fits into this one big house is designed to drive that even faster. And we’re seeing that with simply, we’re seeing that with Zoa, we’re seeing that with our full strength spirits. So we’re only about 45 days into the new structure, but the benefits that are already becoming really clear. So I’m very pleased with the sort of first month or two of our new process. So thanks for that question, Eric.

Peter Grom:

Thanks, operator. Good morning, everyone. So, Tracey, I appreciate the commentary on inflation and I know you still expect gross margin per hectoliter to increase. But when you look at your kind of inflation basket today versus earlier in the year, has anything materially changed? Is it broadly similar? And then just given the strong starts of the year, how should we think about the phasing of gross margin more on a year-over-year basis, particularly as inflation moderates. Thanks.

Gavin Hattersley:

Thanks, Peter.

Gerald Pascarelli:

Hi, good morning. Thanks very much for the question. Just on simply spikes, it’s obviously been incremental to your top line growth and you’re going to come up on cycling your national launch in June. So how do you think about cycling these distribution gains that you’ve been achieving? And then going back to shelf resets, do you think the fact that we likely see less shelf space allocated to Hard Seltzer. Does that help to mitigate the potential impact you may see in the back half of the year due to better product placement? Any color there would be helpful. Thank you.

Operator:

Thank you. That concludes our Q&A session for the call this morning. I would like to turn the call back over to Greg Tierney for concluding remarks.

Operator:

That concludes today’s conference call. Thank you for your participation. You may now disconnect your lines.

Greg Tierney:

Thank you, operator, and hello, everyone. Following prepared remarks today from Gavin and Tracey, we will take 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 our IR team in the days and the weeks that follow. 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 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, in order to better align with GAAP reported metrics in our filings and simplify reporting, references to net sales per hectoliter will now be on a financial volume basis, instead of on a brand volume basis. 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.

Tracey Joubert:

Thank you, Gavin, and hello, everyone. In 2022, on a constant currency basis, we grew net sales revenue 7%, exceeding our guidance and underlying pretax income 7.6%, delivering our guidance. This performance resulted in record underlying pretax income levels for a fourth quarter, which many questioned we could achieve. But we delivered with underlying pretax income up 51.1%. We did this despite the challenging global macroeconomic environment and a softer beer industry all while continuing to invest in our business and enhancing our financial flexibility and returning cash to shareholders. Now, before I take you through our results and outlook, as a reminder, we discussed our business performance on a constant currency basis. However, currency impact from the strong U.S. dollar did have a meaningful impact on our top line and resulted in a net sales revenue headwind to reported results of $89 million in the fourth quarter and $298 million for the year. Now let’s talk about some of the drivers of the fourth quarter performance. Our ability to take strong global net pricing and deliver positive sales mix across both business units led to 11.4% net sales per hectoliter growth. Financial volumes declined 6.9%. The biggest drivers were lower brand volumes in the Americas given the industry softness as well as cycling a significant prior year distributor inventory build in the U.S. Conversely, EMEA and APAC financial volumes increased, resulting from a fairly resilient consumer in the UK and cycling Omicron-related restrictions in the prior year period. Turning to costs. As expected, inflationary pressures continued to be a headwind in the quarter, driving underlying COGS per hectoliter up 11.5%. As you can see from the slide, we bucket costs into three areas

Unidentified Analyst:

Hi there. This is Patty Kanada [ph] on for Bonnie. Thanks for the questions. I just had a couple of them on your EMEA-APAC performance. Your financial volumes across the broader region were much better than expected. Could you break out for us how much of a tailwind the World Cup was? And any other benefits that may be one-off like the cycling of the on-premise restrictions you pointed out in terms of contribution? And then, hoping to dig a little bit more on what you’re seeing at the consumer level in Central and Eastern Europe, specifically given the pressures on demand that we were talking about last year. Did you say that volumes actually recovered in this region? And could you just give us an update on the consumer demand trends you’re seeing there? Thank you.

Operator:

Our next question comes from Peter Grom of UBS. Peter, your line is open. Please go ahead.

Gavin Hattersley:

Yes. I mean, as Tracey said in her remarks, it’s going to be more rate than it’s going to be volume. Obviously, near term, consumer behavior and consumer impacts, as you can see in any consumer goods company is challenging. And so we’re a little cautious there from a volume perspective. So, more rate than volume for sure. And we’ve got the other thing going on in our top line our contract brewing, right? I mean, it’s well known that we’re exiting a large contract brewing arrangement, which is coming to an end. I think it’s the end of next year. And this year is a transition year. So it’s a decent chunk of that volume comes out. And that’s obviously carries a fair amount of NSR with it. Now, we are confident that it will take a lot of complexity out of our business and reduce our overall cost structure, and it’s just going to make us a whole lot more efficient. So, we’re in the transition year from that as well. So hopefully, that answers that, Bryan. [Ph]

Bill Kirk:

So my question is what is the right level of ad spend? Obviously, 4Q had the year-over-year ad declines. But you’re seeing some competitors increase their spending on their core brands. So, I guess the question is, do you need to adjust your marketing strategies from 2022 levels? How should we think about maybe the response to some of the extra marketing competitors are putting in the marketplace?

Operator:

Our next question comes from Andrea Teixeira of JP Morgan.

Gavin Hattersley:

Okay. Drew, a lot going on there. Let me make sure I can catch all that. Let’s just stand back and look at what we did from a pricing environment or pricing point of view in 2022. We took a reasonably strong price increase in the spring of last year, and we took another strong price increase in the fall. In fact, it was at the higher end of the guidance that we put out there from a pricing point of view. The price elasticities that we saw in the spring GI were actually well below historical levels. I mean, it was still elasticity, but they were less than what we’d expected. And since our four price increases, which is really a couple of months of data, that is it has elevated a bit, but it’s still below historical levels. So, it’s only been a couple of months. We continue to keep a close eye on how consumers are reacting. The price promotion environment hasn’t elevated as I said in my remarks. And from a pricing point of view this year, well, we put large price increases, as you know, most of the country in the fall, but there were some markets where we didn’t take price in the fall. And so, in the spring of this year, you’ll see a few price increases there. It will be fairly localized, so not a broad sway. And I think as we look out to the balance of the year, I would expect our price increases in the fall to be closer to where they’ve been from a historical point of view. So, 1% to 2%. I think your other question was around volume and how we’re feeling about that. Well, obviously, the fourth quarter volume was down. From a consumer spend point of view, just like every other consumer goods company, we did see changed behavior from a consumer point of view. So that impacted our fourth quarter retail sales or brand volumes. There was also one less trading day in the fourth quarter, which we don’t adjust for in the reported results. So, that had a meaningful impact. And there was a little bit of pull forward from Q3 into -- from Q4 into Q3 is ahead of that big price increase. Year-to-date this year, I’m not going to give you a an absolute number because obviously, we’re not that far into the year, but I would tell you that our trading performance has improved from a volume perspective as we’ve gone through, which is not terribly dissimilar behavior than we saw after the spring price increase, where we saw some muted volume after that, and we saw muted volume after the fall increase and bouncing back. So, that’s -- that kind of summarizes for you. And I hope I captured all your questions.

Kevin Grundy:

Great. Thanks. Good afternoon. And congrats everyone on a good year. Two for me, if I could. Gavin, one just a comment you made on the longer-term outlook, wanted to drill down on that; and then Tracey, just on return of capital. So first one, Gavin, for you. I noted with interest your comment that you expect higher top and bottom line growth going forward relative to what the Company expects in 2023. I’d argue that’s not much to get on your share price, I guess, number one. Number two, does that imply mid-single-digit top line and EBT growth longer term? Maybe just sort of drill down, Gavin, if you wouldn’t mind a little bit on some of the optimism around the outlook. Also just sort of reconcile that with the impairment charge. We all get that it’s noncash. We understand that there’s a higher discount rate being used. But maybe just sort of reconcile those two things. And then, I have a follow-up for Tracey. Thank you.

Tracey Joubert:

Yes. So, Kevin, I’m sure you’re aware that the -- we’re required to do an annual impairment exercise. And it’s really a mathematical equation of future cash flow. The big driver, as you mentioned, the big input is the rise in the interest cost, and I think you’re seeing that everywhere, and then, the inflationary impact that we are seeing on our costs. But we remain optimistic about the growth outlook for our company, as Gavin mentioned, performance beyond 2023. And in particular, our optimism around our America business units, and we’re committed to achieving the top line and bottom line growth.

Kevin Grundy:

Yes, I’ll follow up. Yes. No, that makes sense. Just the cross currents between better delivery over the past few years, I would say, and then, Gavin, your optimism going forward with the higher discount rate. But I can chat with Greg and Tracey offline. Tracey, for you real quick, not to monopolize time. But I think it’s important, you guys have made tremendous progress with debt leverage in extremely volatile environment. So now down to 2.9 times debt leverage, the target is 2.5 times, can you comment on the Board’s interest in returning even greater cash to shareholders, which would seem to be near and would be very accretive, particularly from an EPS perspective, given where your stock is trading? Maybe comment a bit on the time line for a return to a much greater share repurchase than we’ve seen recently while the Company expense is leveraging. Thank you. I’ll pass it on.

Operator:

Our next question comes from Vivien Azer of Cowen & Co.

Gavin Hattersley:

Thanks, Vivien. Yes. Look, I mean, we’ve made tremendous progress actually on our above premium and our beyond beer pillars of our Revitalization Plan. It was a core tenet of our plan was to aggressively premiumize the portfolio. And we’ve now taken that, as I said, to a record level of 28% and I think it was 23% when we started this process. So obviously, our continued efforts in this space continue. We’ve got brands like Topo Chico and Blue Moon and Peroni and Simply Spiked and emerging growth brands like ZOA in Europe. As I said we’ve got Madrí. So, above premium certainly is an area that I would expect us to continue to grow. And we put out a number there of almost a third of our NSR in the medium term is going to come from above premium. So, that will certainly improve our overall mix. On top of that, we’ve laid a nice foundation in the spirits space, both in the large bottle, but also we’ve got a really nice innovation coming with Topo Chico Spirited in this current year, both of which -- for Five Trail and for Topo Chico, we have high expectations for. So, you can expect our above premium portfolio to get an ever larger part of -- would be an ever larger part of our portfolio, and that obviously has benefits all the way through the P&L.

Unidentified Analyst:

This is Greg on for Robert. Just a quick question and then maybe a follow-up after that. But you just went through the $600 million and you delivered above that on your cost savings, which is great. Any color on kind of what the cost saving outlook is from here, any new targets to just kind of how we should through that? And then, just one quick follow-up after that, please. Thanks.

Unidentified Analyst:

Great. That makes sense. And then, just a quick follow-up is on your emerging growth portfolio. If you could maybe talk about -- you obviously went through some changes with La Colombe and some other things over the past few months. Maybe just how you’re thinking about like a sales target for that, if it’s moved at all versus $1 billion previously and just kind of which of the core brands do you see driving the majority of the target or of the growth going forward? Thanks, guys.

Operator:

Our next question comes from Eric Serotta of Morgan Stanley.

Gavin Hattersley:

Thanks, Eric. I’ll take the second question first. And then Tracey, you can take the other one. Look, I mean, I think there’s still lots of upside with the innovations that we launched last year. I mean we launched Simply Spiked in the middle of the year and the reception for that was amazingly positive, and we weren’t able to meet demand as I think we were very packed about it. We’ve got process in place where we will be able to meet demand this year. So lots of upside in Simply Spiked, and we’ve got great innovation coming with that brand as well, right, with the Peach coming. The way we’re looking at our innovations is -- we’re looking at flavor more broadly. So, it includes seltzers, but it also includes FMBs and RTDs. And when you look at those segments together, we grew more share than any other supplier in the last 52 weeks. We’ve got the number 4 and 5 seltzers with Topo Chico and Vizzy. We’ve got the second fastest growing hard seltzer in Topo Chico. And in Canada, we’re the only large brewer growing share of hard seltzer. So, we’ve still got lots of upside with our existing innovations that we just launched. And as I said, we’re launching Topo Chico Spirited in this year. We’ve got a nice line extension with Peach on Simply Spiked. And the awareness for Topo Chico is still a lot less than its largest competitor. So, we think we’ve got a lot of opportunity to drive more awareness for Topo Chico and improve the momentum there. So, -- improving momentum -- maintain the momentum, right? It’s already growing triple digits. Tracey, do you want to cover off on that?

Operator:

Thank you. Our next question comes from Nadine Sarwat of Bernstein.

Gavin Hattersley:

Thanks, Nadine. Tracey, do you want to take the guidance question?

Gavin Hattersley:

Yes. The other side of your question, Nadine, was around consumers and consumer behavior. I think overarchingly, I’d say we’re not seeing anything terribly different than any other fast-moving consumer good. So the beer industry is no different there. We’re not observing significant trade down, which was the other part of your question, across our portfolio, or frankly, in the industry. Of course, if that comes, we think we’ve got the ideal portfolio to deal with that, but we haven’t actually seen it at this point in time. And as I said in my prepared remarks, we are seeing consumers trading down maybe from a 30 pack to a 24 or 24 to a 12 or a 12 to a 6. Obviously, that is negative from a volume perspective, that contraction, but it’s actually positive from a mix point of view for our organization. So hopefully, that answers your question.

Chris Carey:

So, I just wanted to follow up just quickly there and then ask you a question. But, Tracey, you made a comment about your inflation -- the COGS per hectoliter inflation running, I guess, at this level into the front half and then fading. Can you maybe be a bit more specific about what you meant there? Did you mean the rate of -- COGS per hectoliter inflation to stay at this kind of level and then trail down in the back half? So you’re really looking for mid- to high single-digit underlying, or just any perspective there? And just what you think is going to be driving that between commodities and some of these non-commodity costs like conversion and freight. So I just wanted to clarify that.

Chris Carey:

Okay. And then, when you said gross margin expansion, you meant total enterprise for the year -- next year?

Chris Carey:

And that would lead to total company gross margin expansion?

Chris Carey:

Yes. Great. Okay. Thanks so much. Thanks for clarifying that. Then just on -- if I look at your 10-K, marketing obviously down and it implies a G&A run rate up about high single. I think you were very clear that the marketing was down because of the discontinued SKUs, and you’d be investing and marketing would be up next year. And so that’s very clear. But that underlying G&A rate, would you expect that to ease next year, or are we talking about another year where there’s wage inflation, there’s -- everything costs a bit more now? And so can you just talk about your ability to manage that line item? And just conceptually how you see G&A, excluding marketing for next year? So, thanks so much.

Operator:

Thank you. Our next question comes from Filippo Falorni of Citi.

Gavin Hattersley:

Thanks, Filippo. Yes, we have seen a rebound in volume performance in the first part of this year compared to what we experienced in the fourth quarter of last year. I think as far as the full year is concerned, I’d point you to Tracey’s comments around the fact that our top line guidance is more rate driven than volume driven. And I think I gave a little bit of clarification around that from a contract brewing point of view. And yes, you rightly point out that Miller Lite and Coors Light are healthier than they’ve been in years. I mean, they grew combined NSR in the U.S. in the second half. And that continues to be strong upward trajectory that we saw in 2021. We grew NSR for both Coors Light and Miller Lite in Canada, and they posted their strongest dollar share performance in over a decade. So, I think we’ve done an excellent job of ensuring that Coors Light and Miller Lite have a very clear differentiated brand position and Coors Light, obviously, owns refreshment, Miller Lite owns beer taste. And we’ve built on those foundations with very strong consistent marketing programs Made to Chill for Coors Light and Miller Lite’s Beer Point of You. And then on top of that, we’ve got strong sales execution across chain and grocery. And we’ve actually outpaced Bud Light in both feature and display for seven of our largest chain retailers. So, all of that translates into good share gains versus our competitors. I think we’ve got really strong programs for 2023, starting with the Super Bowl, which wasn’t just a point in time. It was a buildup for several months before that, and we’ll continue to leverage that post the Super Bowl. So, we don’t shy away from being the challenger in the challenger position versus our competitors. And we’re going to make the dollars that we’ve got worked pretty hard for it -- for us. How that translates into share gains, well, let’s wait and see.

Kaumil Gajrawala:

Can you talk a bit -- looking forward, can you talk a bit about capacity and how you’re thinking about cap utilization given what we’re observing with volumes?

Operator:

Thank you. And our final question today comes from Christian Junquera of Bank of America.

Gavin Hattersley:

Thanks, Christian. Look, I mean, we’ve shied away from giving specific guidance on hard seltzers because it’s a little challenging in new categories, right? But what we haven’t shied away from is saying that we think hard seltzers are here to stay. And they’re now a foundational part of the overall beer -- segment. Having said that, and as I said in answer to an earlier question, we’re realistic about the trends that we’re seeing there, which is why our premiumization strategy looks at flavors more broadly. So, it’s not only seltzers, but it’s FMBs and RTDs. And so, you can expect us, as I said earlier, to continue focusing on Topo Chico -- Topo Chico is number 4 in the country, Vizzy is number 5. In Canada, we’re growing share nicely behind Vizzy and Coors Seltzer. We just launched that Topo Chico as well. Simply Spiked has been a massive success for us since it launched in the summer of 2022. We’ve got a strong hot tea proposition with Arnold Palmer Spiked. And as I said earlier, we’re also launching Topo Chico Spirited in the first quarter of this year. So, we’re confident in the diversified approach to flavor. It allows us to benefit from the shifting consumer preferences. And I think we’ve got the portfolio to win both nationally and regionally. And we saw that momentum in 2022, and we intend to accelerate it even further in 2023.

Gavin Hattersley:

And I will hand it over to Greg.

Operator:

Ladies and gentlemen, thank you for joining today’s call. You may now disconnect your lines.

Greg Tierney:

Thank you, Nadia, and hello, everyone. Following prepared remarks today from Gavin and Tracey, we will take your questions. [Operator Instructions] If you have technical questions on the quarter, please pick them up with our IR team in the days and weeks that follow. 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 non-U.S. GAAP measures are included in our news release. Also, 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. Further, in our remarks today, we will reference underlying pretax income which equates to underlying income before income taxes on the condensed consolidated statements of operations. With that, over to you, Gavin.

Tracey Joubert:

Thank you, Gavin, and hello, everyone. For the third quarter, we delivered another quarter of net sales revenue and underlying pretax growth. We continue to invest in our business. We reduced net debt, and we returned cash to shareholders. Despite the challenging global macro environment and overall industry softness, there consumers remained resilient in our three major markets in the third quarter, while we saw softness in our Central and Eastern European business. And as expected, global inflationary pressures continue to be a headwind for our bottom line performance. Taking this all into account, we are maintaining our 2022 key financial guidance but we do now expect underlying pretax income growth on a constant currency basis to be at the lower end of our high single-digit range. While we discuss our business performance on a constant currency basis, it is also relevant to consider the currency impact of the strong U.S. dollar, which was a meaningful headwind to the reported results in the quarter. On a reported basis, our third quarter net sales revenue was negatively impacted by $109 million, and our underlying pretax income was negatively impacted by $21 million. Before we discuss our quarterly performance, I wanted to provide some context on our on-premise recovery. Our third quarter on-premise has nearly fully recovered to 2019 total revenue level. However, in looking at the map on Slide 8, we can see there are variations by market. In the U.S., the on-premise reached 94% of 2019 total revenues, the highest since the pandemic. While in Canada, where on-premise restrictions have been more severe. The on-premise continued to improve on a sequential basis but has not returned to 2019 levels. However, in the U.K., similar to the second quarter, the on-premise well exceeded 2019 total revenues. Now I'll take you through our quarterly performance and our outlook. Turning to Slide 9. Consolidated net sales revenue grew 7.9%, driven by strong global net pricing and favorable sales mix. Consolidated financial volumes were essentially flat. America shipments were down due to the continued impact of the Quebec labor strike, which was resolved in June, while financial volumes were higher in EMEA and APAC on increased U.K. brand volumes. Net sales per hectoliter on a brand volume basis increased 9.2%, driven by strong global net pricing and positive sales mix across both business units. As expected, inflationary pressures continued to be a headwind in the quarter. As you can see on Slide 10, underlying COGS per hecto to increase 12%. The two biggest drivers were cost inflation and mix. Cost inflation comprised more than two-thirds of the increase and included higher input materials, transportation and energy costs. Our mix drove roughly 350 basis points of the increase and was due to premiumization, which is a negative in terms of COGS, but a positive in terms of gross margin. While inflation remains a significant headwind, we continue to judicially deploy our multiple levers, including pricing, premiumization and our hedging and cost savings programs to help mitigate the impact. As it pertains to our hedging program, it is worth reminding that our program is longer term in nature as we hedge commodities over 1 to 3 years, and we operate within guardrails and take a more opportunistic rather than programmatic approach. The purpose of the hedging program is to smooth out the impact of big swings in commodity prices. So in a situation like the third quarter, where we saw some sequential easing of certain commodities, it will take time to see that impact on the P&L. Further, we are exposed to other costs that cannot be hedged, such as freight, but also material conversion costs and third-party manufactured contracts that extend over periods of time, which can be material contributors to our COGS. MG&A increased 3.5% as lower marketing spend was more than offset by higher G&A. Marketing investment decreased as we cycled higher spend in the prior year period when investments exceeded third quarter 2019 levels. We continue to provide strong commercial support behind our core brands and new innovations at the U.S. launch of Simply Spiked. G&A increased due to increased people-related costs, including travel and entertainment expenses and legal costs as well as cycling the Yuengling company equity income, which was included in G&A in the prior year period. Now let's take a look at our results by our business units. Turning to Slide 11. The Americas net sales revenue increased 7.4%, benefiting from net pricing growth and positive brand mix, partially offset by lower financial volumes. Americas financial volumes decreased 1% driven by Canada, while U.S. domestic shipments increased 1.4%. Americas brand volumes decreased 1.5%, driven by Quebec and U.S. brand volume declines of 0.9%, which approximated industry performance. U.S. brand volume trends were driven by high single-digit declines in the economy brands largely due to the SKU rationalization program and to a lesser degree, by low single-digit declines in premium brands. Conversely, the U.S. above premium portfolio continued to grow strongly, up low double digits for the quarter. Brand volumes in Latin America also increased. Net sales per hectoliter on a brand volume basis increased 7.5% due to net pricing growth and favorable brand mix. And as you can see in the slide, strong pricing and premiumization in our two largest markets in the Americas, the U.S. and Canada drove that performance. On the cost side, Americas underlying COGS per hectoliter increased 11.4%. As with our consolidated results, the primary drivers were inflation including higher materials, energy and transportation costs as well as mix impacts from premiumization. MG&A decreased 1.4%, driven by lower marketing spend. As I mentioned, we strongly supported the national launch of Simply Spiked, but overall marketing spend declined due to lower U.S. national marketing and sales control spend related to alliance and media phasing. G&A increased as a result of the same drivers discussed for the consolidated G&A I mentioned earlier. As a result, Americas underlying pretax income increased 10.5%. Turning to EMEA and APAC on Slide 12. Net sales revenue increased 9.6% driven by higher financial volumes, net pricing growth and favorable mix. Financial volumes grew 2% due to higher brand volumes in Western Europe, where the demand remains strong, along with higher factor brand volumes. This was partially offset by brand volume declines due to Russia war in Ukraine and weakened demand due to inflationary pressures in Central and Eastern Europe. EMEA and APAC net sales per hectoliter on a brand volume basis was up 14.3% driven by positive net pricing as well as favorable sales mix driven by the strength in our above premium brands like Madri and positive geographic mix. On the cost side, underlying COGS per hectoliter increased 13.8%. Similar to the Americas, the drivers with cost inflation and mix from premiumization. MG&A increased 21.7% as we accelerated market investments behind our national champion and above premium brands, especially in the U.K. supporting Carling, Madri and Staropramen and fueling on-premise strength. G&A also increased as we cycled lower relative spending in the prior year. As a result of these higher costs, EMEA and APAC, underlying pretax income declined 38.9%. Turning to Slide 13. Our underlying free cash flow was $597 million for the first 9 months of the year, a decrease of $336 million from the same period last year. This was primarily due to higher capital expenditures and lower underlying pretax income, partially offset by the prior year net repayment of various tax payment deferral programs related to the pandemic and lower cash taxes. Our capital allocation priorities remain to invest in our business to drive top line growth and efficiencies, reduce net debt and to return cash to shareholders. Capital expenditures paid were $531 million for the first 9 months of the year, an increase of $167 million from the prior year period, and we're focused on expanding our production capacity and capabilities program. which support improved efficiencies and help us deliver our sustainability goals. Capital expenditure levels remain in line with our expectations of approximating pre-pandemic annual levels. We ended the quarter with net debt of $6.1 billion, down nearly $500 million since December 31, 2021, and a trailing 12-month net debt to underlying EBITDA ratio of 3.13 times. And approaching our target of below 3 times by the end of 2022. We ended the quarter with $125 million of commercial paper outstanding. In this rising interest rate environment, it's notable that substantially all our debt is at fixed rates. In terms of returning cash to shareholders during the third quarter, we paid a quarterly cash dividend of $0.38 per share to holders of Class A and B common stockholders. And we paid approximately $12.6 million for 250,000 shares under our share repurchase program, which is essentially an anti-dilution program for annual employee equity grant. Now let's discuss our outlook, which you can see on Slide 14. And while we start year-over-year growth rates in constant currency, please note that current exchange rates will generate a headwind in our fourth quarter reported results at similar relative levels to what we experienced in the third quarter due to the strength of the U.S. dollar. For 2022, we are reaffirming our guidance of mid-single-digit net sales revenue growth high single-digit underlying pretax income growth and underlying free cash flow of $1 billion, plus or minus 10%. However, given increased inflationary cost pressures and weakening demand in Central and Eastern Europe, we expect underlying pretax income growth to be at the lower end of the range. Based on our annual guidance, this would imply for the fourth quarter on a constant currency basis, underlying pretax income growth in the range of approximately 45% to 60%, and we expect to be at the lower end of the range. Now let me walk through some of the assumptions that will help you understand why we have reaffirmed our guidance. Gavin has already discussed some of the top line drivers like our full pricing in the U.S., easing comparisons in the U.K. and Canada and the World Cup tournament. Also, in the fourth quarter, we have fully lapped the shipment headwind from our economy SKU rationalization. These drivers are partially offset by weakened demand in Central and Eastern Europe. From a COGS point of view, we continue to expect margins to be impacted by inflationary pressures particularly with acceleration in commodity costs in EMEA and APAC. But offsetting some of the inflation costs, we continue to expect our cost savings program to be weighted to the fourth quarter. And we now expect lower depreciation, which is due to the timing of capital projects and the impact of significant foreign exchange movements. Turning to marketing. We continue to expect overall spend to be down in the fourth quarter compared to the prior year period. We are comfortable with our planned level of marketing investment, which is comparing against the prior year period when marketing investment exceeded 2019 levels. Looking out to 2023, while we are not prepared to provide any guidance, we remain committed to putting the right commercial pressure behind our core brands and key innovations, including our first official Super Bowl ad in more than 30 years. In terms of our other guidance metrics, we continue to expect net interest expense of $265 million, plus or minus 5%. However, we are lowering our underlying effective tax rate to a range of 21% to 22% from our prior guidance range of 22% to 24%. And we are lowering our underlying depreciation and amortization to $700 million plus or minus 5% from our previous guidance of $750 million, plus or minus 5% for the reasons I just mentioned. So in closing, we put up another quarter of growth and did so in a challenging macro environment. While these remain dynamic and uncertain times under our revitalization plan, we have built our business to manage through challenges with strong brands across all our segments and greatly enhanced financial and operational flexibility, we remain confident in our ability to navigate near-term macro challenges while investing in the business and staying the course towards our goal of long-term sustainable top and bottom line growth. And with that, we look forward to answering your questions. Operator?

Kevin Grundy:

Great. Two questions, if I could, Gavin. The first long-term oriented. The second, more near-term. The first, just regarding your outlook for the U.S. beer industry. Jim Cook recently grew some attention with his comments at Boston Beer's wholesaler meeting that traditional beer may never grow again in our lifetimes in the U.S. ABI's leadership was recently asked to react to Jim's comments on their earnings call. So I'd like to get your reaction to Jim's comments as well. And then the second, more near-term oriented, what adjustments are you making here, if any, to the playbook over the next 12 months given the more challenging inflationary backdrop and weaker consumer environment, particularly in your European business?

Operator:

And our next question goes to Rob Ottenstein of Evercore. Rob, please go ahead. Your line is open.

Gavin Hattersley:

Look, I mean it's -- if you look at pricing, we obviously took a fairly meaningful price increase in the spring of this year. It was higher than our normal average. So 3% to 5% in the spring. And then we put a pretty similar price increase through in the fall. So it's a little soon to determine the impact of the second price increase, which we put into the marketplace. I mean, in some instances, we're actually still putting price there. Some of it went to back end of September, some in October, and we've got some going in November. So there isn't a data to show what that price increase is -- has done to the consumer or will do. The price increase that we took in the spring, the price elasticities were not as elastic as they have been historically. I think the consumer has been quite resilient to the price increases we've put into the market, given that they're actually quite substantially lower than many other fast-moving goods that consumers have been exposed to. So same effect we've had in Canada and the same effect that we've had in U.K. It's only really EMEA APAC, Central Eastern Europe business, where I think the sort of head space and disposable income hasn't proven to be as strong as the rest of our businesses. As far as... sorry, Robert? .

Gavin Hattersley:

We've actually taken different price increases by market, Robert. So in some Central and Eastern European markets, we've taken double digits in in the United Kingdom, not as much as that. The United Kingdom price increases are closer to what we've done in the U.S., again, by brand, by country. If you then look at the first

Gavin Hattersley:

We don't follow the same pricing calendar in the United Kingdom as we do in the U.S. If my memory serves me, we have taken more than 1 price increase though, but it's not the same timing as the U.S. Now you're up to four questions, Robert. So I'm going to answer your question quickly and then move on to someone else. But from October -- from an October point of view. Look, it's too soon to tell what the impact is, right? Because there was load-in from some of our price increases in late September. And surely, that is impacted in the first couple of weeks of October, just as every price increase has a load. In many of our markets, that sell-through has now taken place, and we've reverted back to trends that existed before. But in other markets, the sell-through is still taking place. So I think we'll get a good assessment of it, obviously, in the next few weeks. Just remember also that in October of last year, that was really where we recovered our inventory levels following the cybersecurity attack. If you remember, we spent the whole of the second and third quarters playing catch up and just keeping our head about water from a shipments point of view. And we really did recover shipments in the fourth quarter of last year. We exited the third quarter this year with our inventories in a really good place. And so that will be sort of negative headwind, so to speak, for the fourth quarter as we do plan to ship to full year consumption.

Chris Carey:

Gavin. Can I just confirm what you just said and then I'll switch to my question, but did you just say that inventories are now clean and so that could be a bit of a headwind and you will shift to consumption in Q4, and I'd just like to confirm whether some of the recent headwinds associated with the Quebec strike and economy SKU reductions and some of these other things that have been lingering through the year have now -- are now in the rearview. So just wanted to confirm that, then I'll ask the question here.

Chris Carey:

And then Gavin, can you just give us an update on how you see this portfolio shaping up over the next year from a mix percentage, obviously, you put out some targets for the percentage of emerging growth, the percentage of the portfolio that will be premium. I wonder if you can talk to the craft business effectively, there are some strategies to evolve this portfolio over time. And you know that time line over the next year is kind of how you guys have described that I wonder if you can just give us an update on how you see things today and how these things are evolving? And then just Tracey, if I could squeeze in just -- did you say that noncommodity inflation should continue to pick up as your commodity inflation eases. So that's just, again, I just wanted to confirm that from Tracey, but really Gavin the complexion of the portfolio over the next year would be helpful.

Tracey Joubert:

So Chris, from what I just say from a COGS point of view is we expect to had our margins continue to be impacted by inflationary pressures, particularly in EMEA and APAC. And then also, we are exposed to other costs that can't be hedged. So again, we're comfortable with our hedge coverage level for the balance of 2022 and into 2023. But there are costs that can be material contributors to our COGS, such as freight that we can't hedge material conversion costs I mentioned. And then our third-party co-manufacturing costs, which also cannot be hedged. So that's from the COGS side.

Vivien Azer:

Gavin, Tracey, I apologize, I dropped off the call momentarily, so I hope this hasn't been repeated. But I did want to follow-up on Robert's question around October. So it seems like with the beer purchasers index being remarkably low in the quarter, that might be a function of the fact that you overshipped to your inventory squared away. But just a follow-up on that theme. I'm just in your discussions with wholesalers and distributors, whether there's been any shift in your alignment around perspective on price elasticity given the price increase?

Operator:

And the next question goes to Steve Powers of Deutsche Bank. Steve, please go ahead. Your line is open.

Gavin Hattersley:

Tracey, if you can take two and three, I'll take one. From a comparable point of view in the third quarter, Steve, I'd say around 5% was in the third quarter. So that lines up well with the sort of 3% to 5% that we put in, in back end of September and then into October. So that's a North American number. The U.S. number is not terribly dissimilar from that. So call it 5% is the comparable number. Tracey?

Steve Powers:

Go ahead. Sorry, I don't want to talk over you.

Operator:

And the next question goes to Andrea Teixeira of JPMorgan. Andrea, please go ahead. Your line is open.

Gavin Hattersley:

Thanks, Andrea. Look, I'll take that one. Let me just go back again to the drivers of why we're confident on our guidance for the fourth quarter and obviously the full year. And just to be clear, yes, your math is correct, right? It does imply income before income tax growth of around 40% to 60%, and we as we said on the call, traction the call, we expect to be at the lower end of that. If you look at the top line, a number of positive tailwinds for us in the fourth quarter. We've got the strong pricing in the U.S., Canada and the United Kingdom. As I said in Q4, when you combine that with the pricing that we put in earlier in the year, we're looking at around a 10% price increase per hectoliter in Q4. We're comping Omicron in the prior year of Q4, which, if you remember, had a really big impact in the U.K. and Canada. We lost the Christmas holidays in Canada -- sorry, in the U.K., that's a big selling occasion for the U.K. market. We're not expecting that. And frankly, because of all the impacts that we had last year, we only made $5 million in the EMEA, APAC business unit last year. So it doesn't take much of a move to produce meaningful profit increased percentages in our EMEA, APAC business. We're also looking at the World Cup, as I said, in November. It's a really big beer drinking occasion, particularly in the U.K. and it's never been this late before. And as you rightly point out, in Q4, we fully lap the economy SKU rationalization. Partially offsetting this, as I said, is the weakened demand that we're seeing in Central and Eastern Europe and the shipment comp that we've got coming through in the U.S. business in the fourth quarter of last year. And then a positive tailwind again is our Quebec business as we rebuild our inventory levels in Quebec, Canada. From a COGS point of view, that's a headwind for us. There's no question about that. It's a headwind for everybody, and we're not immune from that. Tracy has talked about that. We do expect savings under our cost savings program to come through in the fourth quarter. If I remember correctly, it was actually weighted towards the fourth quarter of this year. Tracey has talked about the lower depreciation. And yes, we are expecting marketing to be down year-over-year. We've said that from the beginning of the year, right, that we were phasing our marketing into the first half of the year and less so in the second half of the year. So that is also a positive. And then we've got a positive mix coming through, right? And we've got a nice positive mix coming through from a from our above premiumization strategy across the world, not just in the United States. So that's what gives us confidence to keep our guidance at the levels that we have.

Gavin Hattersley:

Tracey, can talk about the hedging. I'll talk about it from a high level, right? So we're not going to give guidance on this call. We always give it on the fourth quarter call, which is February once all our internal plans are signed in Sand Board. But step back to the revitalization plan, Andrea. The objective of that plan was to drive both top line and bottom line growth on a consistent basis. We grew top line in 2021. Our guidance is out there that we're going to grow top and bottom line in 2022. And it's not meant to be a one-off thing. It's meant to be a consistent driver of top line and bottom line growth for our business is the very essence of our revitalization plan. But from a hedging point of view, can you give any more color without giving guidance?

Operator:

And the next question goes to Eric Serotta of Morgan Stanley. Eric, please go ahead. Your line is now open.

Gavin Hattersley:

Thanks, Eric. Look, I mean, as I said, if you look at the U.K., market demand has been resilient. The consumer is holding up, and we haven't seen any change in that post the end of the quarter. Certainly, we have started to see a tightening in the Central Eastern Europe market. As I said, the hedge space from a disposable income point of view is a lot tighter in Central and Eastern Europe and the impact of energy and inflation has been a lot stronger in our Central and Eastern European markets. So we certainly have seen a softening in demand from our Central European business, but in the U.K., the consumer has remained resilient.

Nadine Sarwat:

Two quick questions for me, please. So first, could you just walk us exactly through what changed between the last results and today such that you're guiding the earnings growth guidance to the bottom end. So just working through what has happened that was unexpected versus what you thought last quarter? And then secondly, can you give us any indication of how you plan to approach pricing next year, especially given that input cost headwinds will still be there given the hedging programs Tracey flagged?

Operator:

And the next question goes to Kaumil Gajrawala of Credit Suisse. Kaumil, please go ahead. Your line is open.

Gavin Hattersley:

Remember, our guidance, Kaumil, is in constant currency, right? So we eliminate the impact of foreign exchange flow-throughs in our guidance. So it's a constant currency basis.

Tracey Joubert:

Yes. So just remember, the $50 million reduction is for the full year. So it has been running lower for the first 9 months of the year. So I don't expect like if the full $50 million in Q4.

Kaumil Gajrawala:

That clarifies that. And then just quickly on the World Cup and marketing, it's just -- maybe it's just timing, but I might have expected that marketing would be higher during a World Cup period. And I think in the past or before years, there's this little sort of bump in marketing. Just curious why it's intended to be lower at this time.

Operator:

And the next question goes to Gerald Pascarelli of Wedbush Securities. Gerald, please go ahead. Your line is open.

Gavin Hattersley:

Look, we see these two brands operating in quite different places, right? So Topo Chico is way more in the seltzer space and simply is in the flavored malt beverage space, right, the fuller flavored area. So let's just take those two separately. Simply Spiked has been an incredible success so far. It's the number one new item in total [indiscernible] since launch. We only launched it halfway through the year. So we've got a full 6 months next year of no compass at all. And then we've got a full 6 months, frankly, where we -- not a full 6 months. It's the biggest selling season for Simply where we were severely constrained from a supply point of view because this brand just blew our socks off from a volume point of view. So in terms of compass, we -- we've got a lot of tailwind behind Simply Spiked next year. We've got the production to handle it. We in-source it into Fort Worth much quicker than we were originally thinking we were going to do. And we're certainly going to innovate with Simply Spiked as well. I mean, simply, the non-ALC version is the number one chilled juice brand in the United States. It's founded one out of every two American households and as we look to the future, we can tap into the simply non-op portfolio for ideas and how we're going to take innovation forward with Simply. So yes, strong, strong potential for this brand next year, and we have the production and the distribution gains to do that. And you're right. It was the number one flavored malt beverage this summer across many of our top rate. Topo Chico is slightly different, right? But just as impressive performance from our perspective. I mean, in -- from a Topo Chico in its first year of national distribution. It's growing more dollar share than any other Seltzer brand in the last 52 weeks. Molson Coors as a whole with Topo Chico and buys got the fastest growing Hard Seltzer portfolio of any brand in our competitor set. Obviously, Topo Chico drives a large part of that. But we've just scratched the surface with Topo Chico Hard Seltzer. As I said, it's only got half the awareness of White Claw. It's got strong momentum and performance across the country, not only in its expansion markets like Michigan and Wisconsin and North Carolina, but also in its original markets of Texas and California. It's bringing new drinkers into the category. We over-index significantly with the Latino consumer who has typically under-indexed from a Seltzer point of view. And we've got lots of innovation planned around Topo Chico. We launched Ranch Water in January. We had Topo Chico Margarita that we launched in April, and we've got Topo Chico Spirit that's coming next year. So overall, in two very different spaces, we think we've got some really exciting innovation that's got a lot of run rate, a lot of tailwind behind it.

Brett Cooper:

Gavin, as we continue to see nonelite advertiser position itself against Ultra, I have to assume that you're finding success in recruiting or winning consumers relative to a competing brand, but I was hoping that you could speak to the interaction between brands and your success. And then I guess this is a backward-looking question, so where we are today, but also cognizant are thinking about the competition that's coming into light beer from large brands in 2023.

Operator:

Thank you. We have no further questions. I'll hand back to Greg for any closing remarks.

Operator:

Thank you. This now concludes today's call. Thank you all for joining. You may now disconnect your lines.

Greg Tierney:

Thank you, operator, and hello, everyone. Following prepared remarks today from Gavin and Tracey, we will take your questions. In an effort to address as many questions as possible, we ask that you limit yourself to 1 question. If you have more than 1 question, we'll answer your first question and then ask you to re-enter the queue for any additional or follow-up questions. If you have technical questions on the quarter, please pick them up with our IR team in the days and the weeks that follow. 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 non-U.S. GAAP measures are included in our news release and also 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. With that, over to you, Gavin.

Tracey Joubert :

For the second quarter, we delivered another quarter of top line growth on a constant currency basis and achieved income before income tax at the favorable end of our anticipated range, while we continue to invest in our business, reduce net debt and return cash to shareholders. We did this while navigating global inflationary pressures, the Quebec labor strike and starting a strong shipment quarter in the prior year. Our performance and our organizational agility demonstrates our successes against our revitalization plan. And it's the efforts and outcomes of that plan that provide us the confidence to reaffirm our guidance which calls for both top and bottom line growth for the year. Now I'll take you through our core key performance and our outlook. Consolidated net sales revenue increased 2.2%, driven by strong EMEA and APAC growth. As restrictions have eased, we have seen sequential improvement in the on-premise performance with variations by market and total net sales revenues returned to 99% of 2019 levels. Consolidated net sales revenue growth was driven by strong global net pricing, favorable sales mix from portfolio premiumization, and positive channel mix. These factors were partially offset by lower financial volumes. Consolidated financial volumes decreased 4.6% as we cycle distributed inventory recovery efforts in the second quarter of 2021. The impacts of the Quebec labor strike as well as lower U.S. economy brand volumes driven by our SKU deprioritization and rationalization program that started in the second quarter of 2021. These factors were partially offset by strong financial and volume growth both in EMEA and APAC due to higher brand volumes and factored volumes, along with growth in our U.S. Above Premium portfolio. Net sales per hectolitre on a brand volume basis increased 7.1% driven by global net pricing and positive brand and channel mix, with premiumization delivered across both business units. Underlying cost per hectoliter increased 11.5%, driven by cost inflation, including higher input and transportation costs, mix impacts from premiumization and factor brands in EMEA and APAC as well as deleverage. This was partially offset by lower depreciation expense. Underlying MG&A in the quarter increased 7.5%. G&A was up due to higher people related cost, including increased travel and entertainment, while marketing investments increased as we continue to provide strong commercial support behind our core brands and new innovation. As a result of these factors, underlying net income before income taxes decreased 22.8%, which was at the favorable end of our outlook range of down 20% to 30%. While we discuss our business performance on a constant currency basis, on a reported basis, our second quarter results were negatively impacted by the strength of the U.S. dollar. This impacted our reported net sales revenue by 280 basis points, and our underlying income before income tax by 150 basis points in the quarter. Underlying free cash flow was $287 million for the first half of the year, a decrease of $271 million from the same period last year, primarily due to the timing of cash paid for capital expenditures and lower net income, partially offset by lower cash taxes. Capital expenditures paid were $389 million for the first half of the year, an increase of $177 million from the prior year period and focused on expanding our production capacity and capabilities program. Now let's take a look at our results by business units. In Americas, the on-premise has not returned to pre-pandemic levels, but continues to improve on a sequential quarterly basis. In the second quarter, the Americas on-premise channel accounted for approximately 13% of our net sales revenue compared to approximately 16% in the same period in 2019. In the U.S., on-premise net sales revenue improved to 93% of 2019 levels compared to 87% in the first quarter of 2022. And in Canada, on-premise net sales revenue was 77% of 2019 levels, up from 55% in the first quarter of 2022. Americas net sales revenue was down 1.7% as net pricing growth in the U.S. and Canada and positive brand mix were offset by lower financial volumes as declines were expected. Americas financial volumes decreased 8.1%, largely due to cycling higher U.S. shipments due to the prior year period inventory recovery efforts as well as 2.2% lower brand volumes, including impacts related to the Quebec labor strike. In the U.S., net sales revenue declined 2.1% with domestic shipments down 8.2%, outpacing brand volume decline of 1.7%. Brand volume declines were driven by Economy brands, which were down high single digits, largely due to the SKU deprioritization and rationalization program. To a lesser degree, our premium brand volumes also declined, reflective of a soft industry. Volume declines were offset by continued strength in the Above Premium portfolio, which was up nearly double digits for the quarter. In Canada, net sales revenue decreased 2.3% as brand volume declines of 8%, driven by the Montreal brewery strike, were largely offset by positive pricing, premiumization and channel mix. Latin America net sales revenue decreased slightly as higher brand volume of 1.8% was offset by mix shift to our licensed business. Net sales per hectoliter on a brand volume basis increased 6.2% due to net pricing growth and favorable brand mix. U.S. net sales per hectoliter increased 6.7%, driven by net pricing growth and positive brand mix led by the Above Premium brands. Net sales per hectoliter on a brand volume basis grew 8% in Canada due to net pricing increases and positive sales mix, while Latin America decreased 4.2% due to unfavorable sales mix. Americas COGS per hectoliter increased 10.2% due to inflation, including higher cost for brewery, packaging and brewing materials and freight as well as volume deleverage and mix impacts from premiumization, and this was partially offset by lower depreciation. Underlying MG&A increased mid-single digits on higher G&A due to increased people-related costs, travel and entertainment expenses, and increased U.S. marketing investments. In the U.S., we increased marketing investments high single digits, putting strong support behind our core brands and innovations, including Topo Chico Hard Seltzer and the June national launch of Simply Spiked Lemonade as well as in local sponsorship and events. As a result, Americas underlying net income before income taxes decreased 20%. Turning to EMEA and APAC, net sales revenue increased 20.5% driven by higher financial volumes, net pricing growth and favourable mix. Top line performance also benefited from fewer on-premise restrictions in the U.K. compared to the second quarter of 2021. Recall that the on-premise in the U.K. was closed the entire first quarter of 2021 and did not fully reopen without restrictions until July 19, 2021. So in the second quarter, our on-premise net sales revenue in the U.K. exceeded 2019 second quarter levels. EMEA and APAC net sales per hectolitre on a brand volume basis, was up 16.5%, driven by positive sales mix with the on-premise reopening and strengthening our Above Premium brand as well as net pricing growth. Financial volume growth of 6.2% was due to higher brand volumes in Western Europe as well as in Central and Eastern Europe, along with higher factor brand volumes. COGS per hectoliter increased 22% due to rising inflationary pressures and increased factor brand sales. MG&A increased 14.2% as we cycled lower relative G&A spending in the prior year and increased marketing spend, accelerating investments behind our national champion and premium brands, especially in the U.K. supporting Carling, Madri and Staropramen fueling on-premise strength. As a result of these higher costs, EMEA and APAC underlying net income before income tax declined 22.7%. Turning to capital allocation. Our priorities are to invest in our business to drive top line growth and efficiencies, reduce net debt and to return cash to shareholders. We ended the quarter with net debt of $6.4 billion, which included the repayment of our $500 million, 3.5% USD notes upon maturity on May 1, 2022, using a combination of commercial paper borrowings and cash on hand. Notably, and are particularly important during these volatile times, our debt is substantially all at fixed rates with a minimal amount of variable rate debt. We ended the quarter with $250 million of commercial paper outstanding, leaving us with strong borrowing capacity with $1.3 billion available on our $1.5 billion U.S. revolving credit facility. Our trailing 12-month net debt to underlying EBITDA ratio was 3.2x as of the end of the second quarter, down from 3.35x at the end of the second quarter in 2021. We remain on track to achieve our target net debt to underlying EBITDA ratio of below 3x by the end of 2022 and remain committed to maintaining and in time, upgrading our investment-grade rating. Also, during the second quarter, in addition to paying a quarterly cash dividend of $0.58 per share to holders of Class A and B common stockholders, We paid approximately $12.1 million for 250,000 shares under our share repurchase program. Now let's discuss our outlook, we are reaffirming our fiscal 2022 guidance, which calls for both top and bottom line growth in 2022, performance we have not seen in over a decade. Before we go through the guidance, please be reminded that year-over-year growth rates are on a constant currency basis. However, it's important to note that continued strength in the U.S. dollar will result in a headwind to our reported results in the effective period using current exchange rates. For 2022, we continue to expect to deliver mid-single-digit net sales revenue growth, high single-digit underlying income before income taxes growth, and underlying free cash flow of $1 billion, plus or minus 10%. We are confident to reaffirm this guidance as our announced 3% to 5% pricing increase in some U.S. markets, as Gavin mentioned, are expected to offset volume headwinds given the softness in the industry and residual impact of the Montreal brewery strike that was resolved in June. In terms of top line phasing, in the third quarter, we will still have some volume headwinds from the Economy SKU rationalization program, which we will not fully lap from a shipment perspective until the fourth quarter. Also, while the Quebec labor strike was resolved in mid-June, it will take time to ramp up production and we don't anticipate returning to normal shipment levels from this brewery until the fourth quarter. In the fourth quarter, we had multiple top line growth drivers. First, we have announced additional pricing in the 3% to 5% range in many markets in the U.S. That pricing will take effect in the fourth quarter. Second, recall that year-over-year top line comparisons will begin to ease in the fourth quarter, given the renewed on-premise restrictions in the fourth quarter of 2021, particularly in the U.K. and Canada. And in November, the World Cup will take place, which is a big beer drinking occasion in Europe and notably the U.K. Third, as I just mentioned, we will have fully lapped the shipment headwind from Economy SKU rationalization by the fourth quarter. On the cost side, we expect margins to continue to be impacted by inflationary pressures in areas including input materials and transportation costs in the second half of the year. That said, we have multiple levers to help offset inflationary pressures, which include pricing, mix from premiumization, and our cost savings and hedging programs. When comparing year-over-year COGS per hectoliter growth for the second half of the year to the second quarter, it's important to note a few things. First, the second quarter was meaningfully impacted by volume deleverage, which we would not expect to continue in the second half of the year. And due to the timing and ramp-up of initiatives, the realization of savings and our cost savings program is weighted to the fourth quarter of this year. In terms of marketing, we continue to expect to invest more in 2022 than we did in 2021, but in the second half of the year, overall marketing spend is expected to be down compared to the prior year period. We anticipate higher year-over-year investment in the third quarter. However, in the fourth quarter, we do not anticipate increases. We are comfortable with our level of marketing investment in the second half of the year and would remind you that in the second half of 2021, we had ramped up marketing levels to those exceeding that of the respective period in 2019. In terms of our other guidance metrics, we continue to expect net interest expense of $265 million, plus or minus 5%. Underlying depreciation and amortization guidance of $750 million plus or minus 5% and an underlying effective tax range -- rate in the range of 22% to 24%. In closing, our strategy is working, and we expect that to continue to play out in our long-term financial and operational performance. To be sure, these are dynamic and uncertain times, but we have built our business to manage through challenges. Molson Coors is a highly cash-generative business with a dramatically improved balance sheet, enhanced flexibility in its operating and cost structure, and a product portfolio that addresses all segments of the market while consistently evolving its concentration to areas of growth. We are proud of the progress we have made against the revitalization plan and the successes achieved under that plan give us confidence in our 2022 guidance and in our long-term goal of sustainable top and bottom line growth. And with that, we look forward to answering your questions. Operator?

Kevin Grundy:

I wanted to pick up on your guidance, perhaps a question for both of you. So reaffirm for the year, the back half still implies a pretty sharp ramp in underlying EBT growth. So I'm not asking you to kind of go through or parse through all of that again. But it would appear that the market seems to harbor some concern on the achievability of that. Maybe just discuss your visibility on the mid-single-digit, underlying sales growth for the year, some of the building blocks around that category growth, brand growth, et cetera. And then also just touch on the visibility from a cost perspective and some of the margin drivers in order to deliver sharply higher EBT growth in the back half of the year.

Tracey Joubert:

Yes. So Kevin, maybe just a little bit of context, I'll just talk about firstly our COGS per hectoliter in Q2. So we reported an 11.5% underlying cost per hectoliter increase. So if I break that down, inflation was 570 basis points of that. And then the mix, our premiumization of our portfolio was 300 basis points. So we always look at that as a good thing driving the premiumization. And then deleverage was 210 basis points driven by, as we said, the inventory goals last year in the U.S. and the Quebec strike. So those are the big drivers of our COGS per hectolitre in the second quarter. As we look out then to the balance of the year, I mean, we expect inflationary pressures to continue. But we do expect to mitigate some of that through our hedging and our cost savings program. So in terms of the hedging coverage, as we look out over the balance of 2022, we're very comfortable with our hedge position. We continue to make good progress against our cost savings program, and we expect the realization of some of those savings under our program to be weighted to the fourth quarter of this year. And then as I also mentioned, I think it's very important to understand that the deleverage that we saw in Q2, we don't expect to see a similar deleverage impact in the second half of the year to what we saw in Q2. So I would just consider those big drivers as you look out at the back half of the year as it relates to our costs.

Eric Serotta :

I know you guys don't give monthly STRs anymore, but Gavin, hoping to get some at least qualitative color for you -- from you as to what you're seeing in terms of the beer market -- the U.S. beer market as the summer has unfolded. Heard July 4 was generally solid for most of the industry, but then have heard some mixed things as July unfolded. Hoping to get your perspective.

Operator:

Our next question comes from Nadine Sarwat of Alliance Bernstein.

Gavin Hattersley:

Thanks, Nadine. I'll let Tracey answer the COGS question, but from a pricing point of view, just -- let me just clarify some of those comments you made. So the 3% to 5% is on a national average basis. So we expect to take pricing in that range on a national basis on average in the -- it will hit primarily in the fourth quarter and probably that will come towards the end of the third. That means that in some markets, we'll take above 5%, and in some markets, we'll take below 3%. But on average, we expect it to land in that range. And then secondly, yes, it is incremental to the pricing we already took in the beginning of this year. And yes, it is bakes into our expectations for the full year. Trace, do you want to take COGS, cover the COGS question?

Operator:

Our next question comes from Bryan Spillane of Bank of America.

Gavin Hattersley:

Well, Bryan, to advance that golfing, yes, I think we landed in the middle of the fairway, maybe about 10 yards further than than we expected. We didn’t really – we didn’t obviously head into our guidance the voluntary product withdrawal. I think the Montreal went on just a couple of weeks longer than we were expecting it to. And despite all that, as you said, we landed in the middle of the fairway. Well, what's changed, right? I mean we knew we were going to take a price increase in the fall. We're probably going to get a little more than we were expecting. So it was our expectation that we're going to get it. But we're probably taking a little bit more, as I said. I think the overall industry is maybe just a little softer than we had expected. And when you add all of these things up, that gives us the confidence to deliver what we said we're going to deliver, Bryan. I don't know if that's helpful.

Gavin Hattersley:

Well, if you look at our 3 big markets, Bryan, in the U.K. from an on-premise point of view, it's settled down very close to 2019 levels. So I think in the first part of the quarter, it was a tad below and in June, it was a tad above. So call it, 98% of 2019 prepandemic levels in the U.K. In Canada, it's a little bit more tricky for us, right, because Quebec is an important on-premise market, and we were constrained in supply in Quebec. But even outside of the Quebec market, Canada has lagged the rest of the world in terms of consumers' propensity to get back into the on-premise. And in the U.S., Bryan, which is obviously our biggest market, it has settled down in the sort of 85% to at the top end sometimes 90% level. And I think that's probably where it's going to settle until circuit back into the big cities like New York and Chicago, and start visiting bars and restaurants on a more regular basis. I think commuting and office work habits have changed fairly meaningfully through the pandemic. And obviously, that's hitting the bigger market. So I would say it's probably more in the off-premise side than in the on-premise side that, that comment applies to.

Chris Carey:

So I just had one quick confirmation and then just a follow-up on Bryan's question around pricing. So just on the confirming 1 thing around the Economy SKU exit. Had you always expected those to go into the back half of the year? My understanding was those would mostly be done by Q2, but perhaps it's just taking a little bit longer to get those out of the system. So that's just kind of a follow-up. And then maybe just -- trying to maybe frame just a level of confidence on the pricing in Q4. Specifically, if you're pricing, I guess the category, which you expect to be a little bit softer in the back half from a volume perspective, right, because the volumes are weaker, and that was kind of what drove the deleveraging on the cost per hectoliter line. And so it sounds like you're being pretty targeted about the pricing in some areas over 5, some areas below 5. So it certainly sounds like you're pricing in areas where gives confidence that brands can withstand the higher rate. But I'd love to maybe just get a little bit more context on just the level of comfort that the pricing won't accelerate elasticities. So thanks for the follow up on the SKU axis and that commentary around pricing.

Operator:

Our next question comes from Kaumil Gajrawala of Credit Suisse.

Gavin Hattersley:

I guess you're asking to break down the industry -- the shipment decline, Kaumil. And I would say that the overall North American shipment decline was driven primarily by 2 things, right? One was the strike in Canada, which was the entirety of the Canadian volume loss. And the second 1 was obviously the -- I think I said this on the call last time around, we pulled out every stop we possibly could in the second quarter of last year to try and recover from a devastating cybersecurity attack. So we were shipping beer all over the country, we were -- folks were working long hours, over time, everything to try and make sure that we got as much beer out to the distributors. And that was inefficient and it cost us a bunch of money last year to do that. Obviously, this year, we're in a much more normal environment given our inventory levels. And we're not making sort of -- we -- our service levels are where we need them to be. So we're not having to ship beer all over the country at a higher cost in the second and the third quarters to meet that demand. And because of that, obviously, our shipments are a lot less. So that would be the biggest impact from a deleverage point of view. And the second biggest would be obviously our Canadian volumes. Our overall plan for the year is to ship to consumption, Kaumil. So that's generally our plan. We have shipped less than retail so far. And we'll get the deleverage benefit going forward. I don't really think deleverage will be a driver for us in Q2. In other words, a negative drag. Sorry, not in the second half -- yes, it won't be a negative driver for us in H2.

Gavin Hattersley:

our plan for the full year is to shift to consumption, Kaumil. We've got work to do in Canada to catch up with what happened with the strike, right? I mean, obviously, having an 11-week strike at a really big plant like that is not a positive for us. And it will take us the whole of Q3 and into Q4 to recover from that. So certainly from a Canadian point of view, we will be shipping -- my expectation we would be shipping higher than we were selling. In the U.S., I think we shipped below STRs in the first half. And so you can expect that we will align that over the full year.

Drew Levine :

This is Drew Levine on for Andrea. I just really had two clarifications, if I may. On the incremental pricing slated for the fourth quarter, it sounded like the company is not really building in any sort of incremental volume decline or elasticity from the pricing increase, relative to kind of what was built into the guidance before? And then the second 1 is just on the MG&A. I think in the first quarter, you said it was slated to be up double digit on marketing and then in the second quarter, and it came in somewhat below that. Just curious if there was anything you saw to pull back on or if it was just kind of didn't see enough opportunity to deploy more spending?

Operator:

Our next question comes from Vivien Azer from Cowen.

Gavin Hattersley:

Thanks, Vivien. Look, I mean, the strength of Miller Lite and Coors is like long predated, the softness of some of our competitors seltzers. So you can take from that what you wish. But I think our Miller Lite and Coors Light brand performance has been very strong for quite some time now. And that's because they've got great differentiated marketing programs and are really nice and healthy. I mean we had the best quarterly industry share performance in the U.S. in nearly 7 years. And potentially when you look at the outstanding performance of Topo Chico Hard Seltzer, its something which might be driving the softness of some of our competitors. I mean our market share has grown 25%, as I said, and that's largely driven by Topo Chico, which is actually doing really well in markets where the Topo Chico name is not necessarily that well known. We're getting we're getting strong growth in market shares in those markets. So I guess that's what I would say, Vivien.

Lauren Lieberman:

We've covered so much on the call, so I'll let it go and look forward to catching up with you guys in person soon.

Steve Powers:

I'll ask 1 just to keep it going. So I wanted to pick up on the marketing comments, Gavin. You explained the 2 key dynamics, I think, pretty clearly. And Tracey called at the start, your overall comfort with second half marketing plans. I guess what I'm just left with is on a full year basis, have marketing intentions or plans undergone any changes versus where we were coming out of the first quarter, whether either in overall magnitude or focus, given what you've seen in the marketplace, some of the pockets of softness you called out? I mean, that's really the main question. I guess the second part of that would be things trend a little bit better than maybe your base case in the back half given places where you've got momentum like Simply or Topo Chico or what have you -- would the -- is the -- is the bias that you would invest some of that upside against some of those momentum? Or is the marketing plan pretty well fixed at this point?

Operator:

Our Next question comes from Rob Ottenstein of Evercore.

Gavin Hattersley:

Well, look, from an overall perspective, I think Miller Lite and Coors Light, which is 2/3 of our U.S. business, Robert, both of those brands grew the top line in the quarter. They grew share in the quarter, and they are doing -- they're well positioned and doing well. In terms of individual brand volumes, Robert, we don't have plans to disclose that at this point.

Gavin Hattersley:

Yes. Robert, I'm not going to give you individual brand volume -- that brand volume performance. We don't do that, and I don't plan to.

Gavin Hattersley:

Tracey has pointed out that I can tell you that our brand volume declines in the U.S. were driven by the Economy brands. So you can assume from that, that everything else in total grew. So just that piece of context. As far as the revitalization plan is concerned, Robert, from a cost point of view, I mean we're pretty much done. There is a little bit more cost still to come out from the revitalization plan, but it's not meaningful. On -- from a cost point of view, though, we are always looking at taking more efficient ways of doing things in our business. We invest capital in a variety of ways to achieve that. The Simply in-housing, for example, is a fine example of that, right, where we can take our cost down without actually much capital investments in the process. So revitalization costs pretty much done. Ongoing, we've always been looking for ways to be more efficient and that won’t change. From a revitalization plan point of view, obviously, our goal ultimately with the revitalization plan was to drive top line and bottom line growth at the same time and on a consistent basis. And that obviously remains our goal. And this year, we've got guidance out there that says that we will do it. And it's obviously not intended to be a one-off goal for us. It's supposed to be an ongoing goal for us. In terms of making sure that our core brands are healthy and strong. I don't think that 1 can ever say that it's done. We need to stay strong and vigilant behind that, but I think we've made amazing progress there. And we've still got lots of work that we want to do in the Above Premium and the Beyond beer space, Robert. We are doing well. Above Premium is exceeding our economy share of our portfolio. But our ambitions to drive our Above Premium volumes and revenue up doesn't stop there. So we'll continue to invest behind that space, to invest behind the innovations and to drive our emerging growth division with some of the great new brands and relationships that we've got in that space. ZOA, obviously, being 1 of the lead ones.

Operator:

Our final question today comes from Peter Grom of UBS.

Tracey Joubert:

Yes. Let me just say -- let me reiterate our guidance for the full year. But let me kind add some color for you for the third and fourth quarter. So firstly, from a phasing point of view, I would tell you that in Q3, just remember that we're still going to be cycling to some degree, the Economy SKU rationalization. And again, as Gavin mentioned, the Quebec labor strike, even though ended in June, it will take time to ramp that brewery back up with normal shipments not resuming until Q4. So that's in Q3. When we look at Q4, there's several positive drivers, as I've mentioned, that's going to help offset the headwinds in Q3. We spoke about incremental pricing. We've spoken about the top line comparisons really beginning to ease in the fourth quarter with the on-premise restrictions in the fourth quarter of last year. I mentioned the World Cup, which is taking place in November. So that's a big beer drinking event. And then just from an investment point of view, I think Gavin mentioned that we expect to invest more in 2022 than we did in 2021. But in the second half of the year, we expect marketing investment to be down, but in Q3, higher relative year-over-year investments in the third quarter. And then in the fourth quarter, we don't anticipate increases. And then just a final thing to mention is the deleverage impact in the second half of the year. I mean we don't expect to see that deleverage impact that we saw in Q2 of this year. So yes, that's about as much color, I think, that I can give here.

Gavin Hattersley:

I think what we're trying to say there is that we're not expecting to have the situation in the fourth quarter of last year as we had in the fourth -- this year, as we had in the fourth quarter last year. So if you -- if you think back to what was happening in Q4 of 2021, the Omicron was fairly rampant, and we pretty much lost the Christmas season in the U.K., which is a big season for us. So we're not assuming the same thing to happen. We're not also assuming unrealistic expectations in terms of, if the U.S. is at 85%, we're assuming something pretty similar to that. But we are assuming better performance out of Canada and U.K. when you compare it with last year, yes. Over to you, Greg.

Operator:

Thank you for joining today's call. You may now disconnect your lines.

Greg Tierney:

All right. Thank you, Breca, and hello, everyone. Following our prepared remarks today from Gavin and Tracey, we will take your questions. In an effort to address as many questions as possible, we ask that you limit yourself to one question. If you have more than one question, we will answer your first question, and then ask you to re-enter the queue for any additional or follow-ups. If you have technical questions on the quarter, please pick them up with our IR team in the days and weeks to follow. Today's discussion includes forward-looking statements, and 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 non-U.S. GAAP measures are included in our news release. Also, 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. So with that, over to you, Gavin.

Tracey Joubert:

Thank you, Gavin, and hello, everyone. As Gavin highlighted, while macro trends have been challenging, we had a strong first quarter, delivering double-digit top line and triple-digit underlying bottom line growth. We achieved our highest quarterly top line growth in over a decade as we continue to premiumize our product portfolio through the execution of our revitalization plan. While we, along with the rest of the world are facing inflationary pressures, our efforts over the last two years have built a strong foundation for future growth and have given us confidence to reaffirm fiscal 2022 guidance for both top and bottom line growth. Now I'll take you through our quarterly performance and our outlook. Consolidated net sales revenue increased 17.6% with strong growth in both our EMEA and APAC and Americas business unit. On-premise net sales revenue has not yet returned to pre-pandemic levels in all markets. But as on-premise restrictions had eased, we have seen sequential improvement in the on-premise net sales revenue performance with variation by market. Consolidated net sales revenue growth was driven by strong global net pricing, favorable sales mix from portfolio premiumization, positive channel mix, as we cycled significant on-premise restrictions in the prior year period, and we also delivered high financial volumes. Consolidated financial volumes increased 5.1%, largely driven by strong brand volume growth in EMEA and APAC, higher contract and factored volume and cycling of lower U.S. distributor inventory levels in the prior year. This was partially offset by a decline in Americas brand volumes, which was driven by lower U.S. economy brand volumes as a result of our economy SKUs deprioritization and rationalization program implemented in the second quarter of 2021. Net sales per hectoliter on a brand volume basis increased 10.2%, driven by global net pricing growth and positive brand and channel mix with premiumization delivered across both business units. Net sales per hectoliter on a brand volume basis, which is an important metric from which to measure our progress against our revitalization plan, increased 12.2% compared to the first quarter of 2019. Underlying COGS per hectoliter increased 8.6%, driven by cost inflation, including higher input and transportation costs, as well as the mix impact from premiumization and factor brands in Europe, partially offset by lower depreciation expense. Underlying MG&A in the quarter increased 15.7%, largely due to our planned increases in marketing investment, which surpassed first quarter 2021 and 2019 levels to provide strong commercial support behind our core brands and new innovations. G&A was up due to higher people-related costs, including increased travel and entertainment. As a result of these factors, as well as lower interest and depreciation, underlying net income before income taxes increased 383.1%. Underlying free cash flow used was $359 million, an increase of cash used of $271 million in the same period last year. This increase in cash used was primarily due to higher capital project spending, partially offset by favorable timing and working capital. Capital expenditures paid were $244 million and focused on expanding our production capacity and capabilities programs, such as our previously announced Golden Brewery modernization projects and expanding our hard sulfur capacity in Canada and the U.K. Now let's look at our results by business units. In Americas, the on-premise has not returned to pre-pandemic levels, but continues to improve on a sequential quarter basis. In the first quarter, the on-premise channel accounted for approximately 15% of our net sales revenue compared to approximately 18% in the same period in 2019. In the U.S., on-premise net sales revenue was about 87% of 2019 levels. And in Canada, on-premise net sales revenue was about 55% of 2019 levels because even though the on-premise restrictions continue to ease, they still impacted results. Americas net sales revenue was up 8.5% as net pricing growth across the business units and positive brand mix were partly offset by lower volumes. Americas financial volumes decreased 0.8%, largely due to 3.1% lower brand volume, partially offset by cycling lower U.S. distributor inventory levels due to the March 2021 cybersecurity incident and the February 2021 severe Texas storm. In the U.S., net sales revenue grew 8.9%, with domestic shipments down 2%, outpacing brand volume declines of 4.3%. More than 100% of the U.S. brand volume declines were due to lower U.S. economy brand volume. In the U.S., our economy portfolio was down high teens, while our above premium portfolio was at the mid-teens for the quarter. In Canada, net sales revenue increased 4.1% as brand volume declines of 2.5% due to softer industry performance were more than offset by positive pricing and mix premiumization. Latin America net sales revenue increased 29.7% on brand volume growth of 13.8%. Net sales per hectoliter on a brand volume basis increased 9.8% with strong net pricing growth and favorable U.S. brand mix. U.S. net sales per hectoliter increased 11.1%, driven by net pricing growth, as we took pricing earlier than usual this year and positive brand mix led by above premium innovation brands. Net sales per hectoliter on a brand volume basis grew high single digits in Canada due to net pricing increases and positive sales mix, while Latin America increased low double digits due to favorable sales mix. Americas cost per hectoliter increased 6.7% due to inflation, including brewing and packaging materials and freight, as well as mix impact from premiumization, partially offset by lower depreciation. Underlying MG&A increased 14.7% as we increased marketing investments behind our core brands and innovations, including the national launch of Topo Chico Hard Seltzer, as well as in local sponsorship and events, as pandemic-related restrictions eased versus the same period last year. G&A was up as well due to increased people-related costs and legal and travel and entertainment expenses. Americas underlying net income before income taxes increased 9%. Turning to EMEA and APAC, net sales revenue grew 92.3% driven largely by Western Europe, but we also experienced growth in Central and Eastern Europe. Top-line performance also benefited from fewer on-premise restrictions in the UK compared to the full closure in the first quarter of 2021. The UK on-premise channel net sales revenue exceeded pre-pandemic levels in the quarter. EMEA and APAC net sales per hectoliter on a brand volume basis was up 30.1% driven by positive sales mix with the on-premise reopenings and above premium brands reaching another record high portion of the portfolio, as well as net pricing growth. EMEA and APAC financial volume increased 29.4% and brand volumes increased 19.8%. The increase is primarily due to higher UK volumes, partially offset by declines in Central Europe and our export and license division. Strength in our core brands like Carling and new innovations like Midri led to strong double-digit growth in above premium and premium volumes, partially offset by double-digit declines in the economy. COGS per hectoliter increased by 29.3% due to rising inflationary pressures and increased factored brand sales. MG&A increased 19.4% as we cycled mitigation efforts to lower costs in the prior year with on-premise restrictions and higher marketing investments to support our brands and fuel on-premise strength. EMEA and APAC underlying net loss before income tax improved 62.1%. We ended the quarter with net debt of $6.9 billion and a trailing 12-month net debt to underlying EBITDA ratio of 3.28 times compared to 3.14 times as of the end of 2021. With the first quarter typically being a cash use quarter, this leverage ratio was up from the fourth quarter which is typical between fourth and first quarters. Still, our leverage ratio remains substantially below the end of the first quarter of 2021 when it was 3.74 times. We ended the quarter with $160 million of commercial paper outstanding, leaving us with strong borrowing capacity with $1.34 billion available on a 1.5 billion US revolving credit facility. Now let's discuss our outlook. We are reaffirming our fiscal 2022 guidance, which calls for both top and bottom line growth in 2022, performance we have not seen in over a decade. Before we go through the guidance, I wanted to note that year-over-year growth rates are on a constant currency basis. Also, if on-premise restrictions are increased and/or reinstated in some of our larger markets, this could have a significant impact on our financial performance during that period. Additional risk factors include the impact of rising global inflation beyond that currently anticipated and a prolonged strike at our brewery near Montreal. For 2022, we continue to expect to deliver mid single digit net sales revenue growth, high single-digit underlying income before income taxes growth and underlying free cash flow of $1 billion, plus or minus 10%. We expect to continue to be impacted by inflationary pressures in areas, including materials and transportation costs and expect those pressures to increase for the balance of the year. However, we intend to judiciously pull our multiple levers to help mitigate the impact. As discussed on our fourth quarter call, we announced 3% to 5% price increase early in 2022, which in the US, we took earlier than typical. Also, we have other leaders to help offset inflation, including mix from premiumization and our cost savings and hedging programs. In these unusually challenging times, we want to provide a bit more color on our quarterly outlook for the rest of the year. As Gavin mentioned, we have several headwinds and tailwinds that will impact our quarterly earnings phasing. As a result, we expect our second quarter underlying income before income taxes to be down between approximately 20% and 50% from the prior year period. We expect stronger relative year-over-year performance in the second half of the year, enabling us to reach our full year guidance. Now let me walk through drivers. First, we are planning a double-digit increase in our year-over-year marketing spend in the second quarter, putting marketing investments well above 2021 levels. Recall, in the second quarter of last year, we had lower relative spending with when our inventories were low due to the first quarter 2021 cybersecurity incidents and severe Texas storm, and we were still experiencing on-premise restrictions across all of our major geographies. We did not begin outstanding until the second half of last year, investing above 2019 levels. Second, our inventory position in the US heading into peak summer season is the best it's been since before the pandemic. And last year, at this time, it was the lowest it has been in years. While the fact that we won't be playing catch up this year is taking a very positive development, it also means we don't expect our US STWs to be as high as they were in the second quarter last year. Third, our ongoing strike at the Longdel brewery and distribution centers or Montreal will have an impact on our second quarter results. And fourth, year-over-year top line comparisons will begin to get more difficult in the second quarter relative to the first quarter comparisons particularly in the UK, where the on-premise began to reopen in April 2021 with pent-up demand. However, these comparisons should ease in the fourth quarter given the renewed on-premise restrictions in the fourth quarter of 2021, particularly in the U.K. and Canada. In terms of our other guidance metrics, we continue to expect underlying depreciation and amortization of approximately $750 million, plus or minus 5% reported. Net interest expense of $265 million plus or minus 5% and an underlying effective tax rate in the range of 22% to 24%. Turning to capital allocation. Our priorities remain to invest in our business to drive top line growth and efficiencies, reduce net debt and to return cash to shareholders. We are maintaining our target net debt to underlying EBITDA ratio of below three times by the end of 2022, as we had a strong desire to maintain and in time, upgrade our investment grade rating. We repaid our $500 million, 3.5% USD notes upon its maturity on May 1, 2022, using a combination of commercial paper borrowings and cash on hand. Also, during the first quarter, we paid approximately $14 million for 280,000 shares under our share repurchase program, which was approved by the Board of Directors on February 17, 2022. As a reminder, this share repurchase program authorized the company to purchase up to an aggregate of $200 million of our Class B common stock through March 31, 2026, with repurchases primarily intended to offset annual employee equity award grants. In closing, we remain confident in our strategy and pleased with our progress. These are dynamic and uncertain times, but what's clear is that we have built our business to manage through challenging times. Our demonstrated operational agility through the pandemic are dramatic improvements to our financial flexibility. Our successful cost savings program that has served to fuel targeted investments to support our core brands and key innovations have all further strengthened our business as we continue to drive toward our goal of sustainable long-term top and bottom line growth. And with that, we look forward to answering your questions. Operator?

Kevin Grundy:

Great. Thanks. Good morning everyone and congratulations on the strong results and continued progress. Why don't we start with your guidance and just that the composition now, particularly between volume and net sales per hectoliter? Whether that's changed at all, given the strong start to the sort of offset maybe with what's clearly a more difficult costs environment. And then within that now Gavin maybe you could just comment on how you see the progress and for your key brands, particularly Coors Light, Miller Lite and well as some of the Beyond Beer products, including Topo which are off to a really strong start. So thanks for that.

Tracey Joubert:

Yeah. So hi Kevin, yeah, I'll talk a little bit to the guidance and then touch on the volume versus revenue question, but - as you know, 2022 guidance calls for mid-single-digit top line growth and high single-digit underlying net income before income tax growth. And what we are seeing is, even though the on-premise has not return to pre-pandemic levels across all of our markets, we do feel confident in our guidance. In the U.K. markets, where we're more exposed to the on-premise. We've already seen restrictions lifted. And our on-premise volumes returned to about 98% of pre-pandemic levels. In other markets such as Central Europe, where there was still some uncertainty as the Omicron wave hits a little bit later, we've seen improvements as well. In Canada and in the U.S. where our on-premise revenues particularly represent around 16% of revenues and we continue to see sequential improvements each month, even though trading does remain below the pre-pandemic levels. So, just from the bottom-line guidance as we look at our rising inflationary cost, I mean, we seen that on certain commodities and packaging materials for sure. And, and the freight markets, still remains quite tough that we've got multiple levers to help mitigate there. So you know, we spoke about crossing guard really strong pricing and revitalization is around premiumizing our portfolio and you see that coming through now. And then, you know, we've got our hedging and cost savings program which will help mitigate some of that inflation. So, as we look at the balance of the year, we do expect to see channel and geographic mix benefits as we tackle some of the second quarter restrictions that we saw in EMEA and APAC. This will have an overall lower COGS to hit there. And then, one other item is just and we see some benefit from our depreciation expense as we cycle out of the 5-year period of asset fair value exercise on the MillerCoors acquisition. So I know I've put a lot into that, but hopefully, it gives you some color around how we're looking at volume and how we're looking at revenue and certainly guidance, reaffirming the guidance for the full year.

Operator:

Thank you. We now have a question from Nadine Sarwat of Bernstein. Sir, please go ahead. I have opened your line now.

Gavin Hattersley:

Thanks, Nadine. I'll take those two tricks. I’ll start with Quebec first. Yes, the strike is still ongoing. We're obviously doing what we can to produce and ship our beers within the confines of the law and our hope is that the union come back to the negotiating table so that we can reach a reasonable agreement for all the parties. This point in time, obviously, there are some out of stocks, but we're continuing to produce and ship blind with our contingency plans. As far as US brand volumes are concerned, look, I mean, we were very clear about the fact that we rationalized our economy portfolio last year, and that we would be facing those headwinds for a full 12 months. And if you look at the first quarter, obviously the first month was tough because we had the Coronavirus impact, the Omicron which pretty much shut down the on-premise again. And we saw sequential improvements beyond that. But you know, just remind you that we're going against the economy, skew rationalization and brand elimination. We will start to cycle out of that in the second half of the second quarter and then obviously fully into the into the second half. A 100% of volume reduction in the US, in fact more than 100% was driven by the economy portfolio, premium light or premium and above premium portfolios collectively group.

Gavin Hattersley:

Sure.

Lauren Lieberman:

Great. Thanks. Good morning. Okay, good. So just continuing on the question of Americas volume performance. So you commented on industry dynamics, right, the you're starting kind of soft in January related to COVID, but the trends for February and March were a little bit softer than what you've seen in prior phases post a pandemic surge. So I was curious if, one, you could just talk about what you think is underlying that if you have any insights, how you're thinking about overall consumer demand in the categories as we move into the key selling season? And then I was intrigued by the fact that you said that premium and above premium volumes were still up in the quarter, even with your comments on February and March being a little bit softer from an industry standpoint. So do you think that these - that your brands can actually grow volume in a non-COVID up and down comp dynamic environment? Like are we to a point where Miller Lite, Coors Light could be in positive volume territory over time?

Lauren Lieberman:

Sorry.

Lauren Lieberman:

Great. Thanks so much.

Operator:

Thank you, Lauren. The next question comes from Laurent Grandet of Guggenheim. Please go ahead, when you’re ready.

Gavin Hattersley:

Sure, Laurent. On Simply Spike, we're on track to launch that in June of this year. Lots of excitement from our system with our retailers, our consumers what consumers are saying on social media ahead of this launch is anything to go by, it's going to be a very successful launch. But I guess, not entirely surprising, right? It's a powerful brand. It's Coca-Cola's second largest brand in the U.S. only behind the Coca-Cola trademark brands. So we're excited about it launching a 12 pack and a 24-ounce can. And at the beginning, it will be produced outside of our production facilities. Topo Chico is, as you say, we now produce it in-house, and we actually outsource it as well, whatever we expect for us. We haven't been specific and detail about the margin improvement, Laurent, but you can assume that it's a meaningful margin improvement for us when we do bring it in-house. And then, I think your next question was on revenue, the 10.2%, half of that was due to net pricing. Remember, this is a global number. Half of that 10.2% was net pricing and the rest was a favorable mix and a few other odds and ends. Thanks, Laurent.

Operator:

Thank you Laurent. We now have Bryan Spillane of Bank of America. Please go ahead. I have opened your line, Bryan.

Gavin Hattersley:

Hey, Bryan.

Gavin Hattersley:

Yeah. Sure, Bryan. Thanks. Without wishing to complicate things overly, right? There were two elements to the economy portfolio. One was a new prioritization as we came out of the cybersecurity attack and the Texas storm. So, there were brands that we were not going to do rationalize, but we were constraining the production so we could focus in on Miller Lite and Coors Light. And then, of course, there's the SKU rationalization and the elimination of some of the plants. So, those two elements. We came out of the sort of, how do I put a pause skew earlier than the rationalization skew. So we should start seeing improvement in brands like Keystone, Miller High Life, Steel Reserve and hands and already are even in the first quarter, Bryan. And that will accelerate as we start cycling some much easier comps, probably as much detail as I want to get into, Bryan, without really decomposing between the brands, but your thesis at a high level is correct.

Gavin Hattersley:

Sure.

Eric Serotta:

Great. It's Eric on behalf of Dara Mohsenian. Just a quick housekeeping question and then another question. First, from the housekeeping perspective, how much did the higher freight and fuel surcharge this year add to the US NSR per hectoliter? And then my main question is just what you're seeing in terms of Topo Chico as you're cycling last year's launch, how are those launch markets comparing - how are those - how is this year's performance in the launch markets comparing to where we were last year? And relatedly, what are you seeing in terms of rate of sale velocity trial in new markets as you've expanded that rationally, how do those new markets compared to the initial markets from last year?

Eric Serotta:

Thanks. I'll pass it on.

Robert Ottenstein:

Great. Thank you very much. I would like to follow up on Topo Chico, which you guys have done a fantastic job with. Can you talk a little bit what your team is telling you Topo Chico was drawing from, so any sense of what percentage just coming from other brands or is drawing new consumers into hard seltzer, new demographics any data around that? Second, based on the momentum of the brand, do you think that at a 10% market share is realistic in the next one to two years? And then finally, we continue to get a lot of questions on exactly how the brand hits the income statement. So if you could review that again? Thank you.

Robert Ottenstein:

Any color on where its sourcing from?

Robert Ottenstein:

Thank you very much.

Q –Unidentified Analyst:

Hi, everyone. Thanks for the question. So just on the expected decline in Q2 profit. I just wonder, conceptually, how much of that is related to the investment. You noted the step-up in marketing spending versus like the higher COGS per hectoliter. You've also noted that inflation is stepping up. And then just conceptually, as we head into the back half with the implied ramp in profit to get to the full year guide, I appreciate spending - timing is likely a factor COGS per hectoliter may now be higher than your initial expectations? Can you confirm that? Maybe just conceptually, is there anything that gives you confidence from launch timing, specific plans you have around product categories into the back half momentum in brands that gives you that confidence on the top-line. Clearly, price mix is a very good story, and that I suspect it will remain so, but perhaps on the volume side as well. So it's really just on kind of drivers of Q2, but then conceptually why things ramp from here and fundamentally sort of the brands and product categories that might be getting you there. So thanks for that.

Tracey Joubert:

Yeah. Hi, Chris, if I talk to our Q2 phasing, as you heard me say, we expect our underlying pre-tax income to be down between 20% and 30% versus prior year. The main driver of that is our marketing investment. So we're expecting a double-digit increase in marketing. If you recall, we had a very low relative spend where our inventories were low last year this time due to the cyber incident and the Texas storm. And then we still had on-premise restrictions across three part of our geographies in the prior year. We also - another driver of the Q2 phasing is really the higher inventory position that we're going into the summer this year, a much higher inventory position than we had last year, which was actually a really low inventory position. So we don't expect our STW to be as high as they were in the second quarter of last year. The other thing impacting our Q2 is, Gavin, mentioned the strike at our long elbow and distribution centers near Montreal, that will have an impact on Q2 results. And then year-over-year, our top line comparisons are a little bit more difficult in Q2 versus Q1, particularly in the U.K. where the on-premise began to open in April of 2021. As it relates to the balance of the year and giving us confidence, I mean a couple of things to think about there. We expect continued top line growth from both price and premiumization of our portfolio. In the second half of the year, we will also cycle out of the headwinds from the economy's skew rationalization and deprioritization that Gavin just spoke to as well. And then, in Q4, we'll be cycling a period of lower sales in 2021, especially in the EMEA region, which were impacted by Omicron at the back half of last year and the U.K. on-premise sell again. And then finally, we'll be cycling higher marketing and sales spend in Q3 and Q4 of the prior year, which increased last year, much higher than the year before, so 2019. And if you recall, we didn't spend as much in Q1 and Q2 of last year. And so you'll be seeing an increase in Q1 this year and a planned increase in Q2 of this year versus the back half of this year as well. So, just a couple of points of color. Hopefully, that will help.

Q –Unidentified Analyst:

Gavin and Tracey, thanks so much for the answers.

Operator:

Thank you, Chris. We now have Steve Powers of Deutsche Bank. Please go ahead. You are ready, Steve.

Gavin Hattersley:

Thanks, Steve. Look, we had a very clear and detailed plan with our distributors by brand. It was discontinued by SKU that was discontinued to try and make sure that we fill it with the brands that we wanted there. Some of it would well have landed up in the Premium Light space, and some of it would have extended some of the brands that we kept in the economy space. I mean, I would also be naive to suggest that we didn't lose some shelf space to our competitors. I'm sure we did. But our sales and guys and our distributors had a very clear plan to execute against, and they did that.

Gavin Hattersley:

Sure.

Brett Cooper:

Thank you. I was hoping you can give us some insight into how you look at attacking in priorities in categories or parts of the industry, which you have some more presence today. So clearly, the culture was – is a big priority you've had success. But if you look at the beverage industry there's numerous opportunities. So if you could touch on sort of thoughts or plans for just how you prioritize things like low crab briefly success in Canada. And I guess, obviously, you had the unfortunate timing with Saratoga or SMBs are relatively low share. Just how you think about that and prioritize that as a company. Thanks.

Brett Cooper:

Great. Thank you.

Operator:

Thank you, Brett. Our final question on the line comes from Andrea Teixeira of JPMorgan. Please go ahead when you’re ready.

Gavin Hattersley:

Andrea, I mean, Tracy went through that in quite a lot of detail. So in the -- when we talk about elevated inventories, all -- I think the point Tracey was trying to make was we have very low inventories at the end of first quarter last year because of the cybersecurity and this year we don’t. So you know, as I said, our inventory levels are where we want them to be going into summer and we worked very hard of that out of stocks, particularly in our skew, our core skews are lower than they were pre-Pandemic so we’re well positioned and just enough stock problem in our organization.

Gavin Hattersley:

Andrea, look, we're not going to give -- I think we discontinued that practice some time ago. I do think in my opening script or at some point in this conversation, I've said that April has sequentially improved, January was tough because of Omicron than February, March and April have all sequentially improved for us. There are different things going on in the back half of the year, right? So I mean the UK went into lockdown pretty much again in the fourth quarter of last year. So that will be an easier comp. Canada had some challenges in the fourth quarter from a prior year point of view as well. But getting into shipment detail by quarter is not something we plan to do. I think the important thing is that we've reaffirmed our guidance, and we're comfortable with that.

Operator:

Thank you, Andrea. As we have no further questions, I would like to hand it back to Gavin for some closing remarks.

Greg Tierney:

Thank you, operator, and hello, everyone. Following prepared remarks today from Gavin and Tracey, we will take your questions. [Operator Instructions] 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 non-U.S. GAAP measures are included in our news release. And also, 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. With that, over to you, Gavin.

Tracey Joubert:

Thank you, Gavin, and hello, everyone. As Gavin highlighted, 2021 was a year of tremendous progress against our revitalization plan. Despite the challenges that we and so many other companies face, we achieved our top line guidance of mid-single digit growth for the year, delivered strong free cash flow, enabling us to further reduce our leverage ratio and return cash to shareholders. We continue to execute our revitalization plan, building a strong foundation for future growth and we issued fiscal 2022 guidance that underscores that progress. Before I take you through our quarterly, our full performance and our outlook, I would like to update on a couple of naming convention changes in our business unit reporting. This does not change our reported results for these segments and was done for the names better effect the geographies within the segment. As of December 31, 2021, our reporting statements are the Americas, formerly called North America and EMEA and APAC formally called Europe. Now let’s discuss the fourth quarter. We delivered strong top line and EBITDA performance. While we benefited from cycling significant on-premise restrictions in the prior year, we were still impacted by the rapid emergence of the Omicron variant in mid-November, which resulted in overall on-premise softness compared to the third quarter. In December, the U.S. on-premise net sales revenue was approximately 86% of December 2019 net sales revenue, down from third quarter levels of a approximately 88%. Canada was approximately 60% of December 2019 net sales revenue, down from third quarter levels of approximately 80%. And the UK was below 80% after being close to 100% in the third quarter. Consolidated net sales revenue increased 13.7% driven by EMEA and APAC growth of 56.5% and Americas growth of 7.1%. Consolidated net sales revenue growth was driven by higher financial volume, positive global net pricing and favorable brand and channel mix due to premiumization and fewer on-premise restrictions versus the prior year. In fact, consolidated net sales revenue increased 4.3% compared to 2019. Consolidated financial volume increased 7.4% as we rebuild U.S. domestic inventories and group brand volumes 2.3%, driven by EMEA and APAC, Canada and Latin America. This was partially offset by lower U.S. economy brand volumes as a result of our economy SKU – and rationalization program. In the U.S., we grew net sales revenue 6.3%, with domestic shipments up 3.3%, reflecting our efforts to bold distributor inventories – the supply disruptions in 2021. U.S. brand volumes declined 3.8%, but this was driven entirely by the economy portfolio which was down double digits, while our premium portfolio grew low single digits and the above premium portfolio was up double digits for the quarter. Canada, our net sales revenue increased 9.9% on strong brand volume growth of 6%, while Latin America net sales revenue increased 15.9% on brand volume growth of 12.4%. EMEA and APAC net sales revenue grew 56.5%, driven largely by Western Europe, but also growth in Central and Eastern Europe. Strength in our core brands and new innovations like Madri led to double-digit growth in above premium and premium volume, partially offset by double-digit declines in economy. Net sales per hectoliter on a brand volume basis increased 3.8%, driven by global net pricing growth and positive brand and channel mix with premiumization delivered across both business units. Underlying cost per hectoliter increased 5.2% driven by cost inflation, including higher input and transportation costs and mix impact from premiumization. So we benefited from volume leverage due to higher production volumes and continued progress on our cost savings program. Underlying MG&A in the quarter increased 2.4% as we continue to invest behind our core brands and innovations across both business units, while G&A was flat. As planned, we increased marketing investments in the quarter to levels above the fourth quarter in both 2020 and 2019, providing strong commercial support behind our brands as 2022. As a result of these factors, underlying EBITDA increased 21.9%. And recapping the full year, consolidated net sales revenue increased 4.7%, with Americas up to 2% and EMEA and APAC, up 19.6%. Top line growth was driven by global net pricing, favorable brand and channel mix from premiumization and fewer on-premise restrictions and EMEA and APAC volume growth. This was partially offset by lower financial volumes in Americas. Consolidated financial volumes declined 0.5%, while brand volumes declined 1.7%. Americas brand volumes declined 3.2% as a result of the economy SKU deprioritization, which began in the second quarter of 2021 and rationalization program, which was announced last July. EMEA and APAC brand volumes were up 3%. Net sales per hectoliter on a brand volume basis grew 3.8% due to global net pricing growth and favorable sales mix. In the U.S., net sales per hectoliter on a brand volume basis was up 4.4% for the year, driven by net pricing growth and the succession of both premium products, including Vizzy, Topo Chico Hard Seltzer, [indiscernible] and Peroni. Underlying cost per hectoliter increased 6.9%, driven by cost inflation, including higher input and transportation costs, mix impact from premiumization and volume deleverage. However, with the benefit of our robust hedging and cost savings programs, we were able to mitigate some of the inflationary pressure. Underlying MG&A increased 2.9%, largely due to higher marketing investments versus 2020. In the second half of 2021, we began to progressively increase marketing spend with the redemption of more sports and live events. MG&A increases were also driven by lapping profited cost mitigation actions in 2020 due to the coronavirus pandemic, and were partially offset by our cost savings program. In 2021, we delivered approximately $220 million across MG&A and cost of goods sold in our three-year $600 million cost savings program. Over the 2020 through 2021 period, we have delivered an aggregate $490 million, taking us well on track to meet our $600 million target in total growth savings by the end of 2022. As a result of these factors, underlying EBITDA decreased 3.5%. This was slightly below and approximately flat and was driven by the on-premise process as a result of the Omicron variant. However, underlying net income before income taxes was approximately flat for the year as a result of lower interest and depreciation, 5.6% underlying EPS growth compared to the prior year. Underlying free cash flow was $1.1 billion for the year, a decrease of $183 million from the prior year. This decline can be wholly attributed to the repayment of approximately $100 million of taxes related to various government-sponsored deferral programs related to the pandemic, which benefited the prior year free cash flow of [indiscernible] creating a negative swing factor of about $250 million on our 2021 free cash flow. Excluding these changes, networking capital movements was favorable to the prior year. Capital expenditures paid were $523 million this year, down from $575 million in 2020 and focused on expanding our production capacity and capability programs such as the previously announced Golden Brewery modernization project, our new Montreal Brewery. which opened during the fourth quarter and expanding our hard seltzer capacity in Canada and the UK. We have continued to make great progress strengthening the balance sheet and improving our financial flexibility. We reduced our net debt by nearly $1 billion in 2021 and our trailing 12-month net debt to underlying EBITDA ratio to 3.14 times better than our guidance of approximately 3.25 times, and down from 3.5 times as of the end of December 2020 and down substantially from 4.8 times in 2016 at the time of the MillerCoors acquisition. We ended the year with strong borrowing capacity with no borrowings outstanding on our US$1.5 billion revolving credit facility. That take me to [indiscernible] which calls for both top and bottom line growth in 2022 for the first time in over a decade. Before we go through the guidance, I wanted to note that year-over-year growth rates are in constant currency basis. We are adjusting the metrics providers to best align with the goals of our revitalization plan. Also, and consistent with our historical commentary uncertainty as it pertains to the coronavirus and its variants remains varying degrees by market. If on-premise restrictions are increased and/or reinstated in some of our larger markets. This could have a significant impact on our financial performance during that period. For 2022, we expect to deliver mid-single-digit net sales revenue growth. We expect to deliver high single-digit underlying income before income taxes growth and underlying free cash flow of $1 billion plus or minus 10%. This guidance implies that we will ship to consumption in the U.S. for the year. In terms of phasing, recall that we will start lapping the economies to deprioritization and rationalization in the second quarter of 2022. In addition, we expect to face continued inflationary pressures, including transportation and material costs. While we have levers to offset inflation, including pricing, mix from premiumization and our cost savings and hedging program. These headwinds are expected to continue to pressure gross margin but have been built into our guidance. And we expect to continue to invest behind our core brands and key innovations, which entails increasing the level of marketing investment from the prior year. Given the on-premise restrictions in the first half of 2021, we expect greater year-over-year increases in marketing spend in the first half of 2022. We also intend to invest behind our capabilities with cash capital expenditures anticipated to return to more normal pre-pandemic levels. As a guidance metrics include underlying depreciation and amortization of approximately $750 million, plus or minus 5% reported, net interest expense of $265 million, plus or minus 5%, and an underlying effective tax rate in the range of 22% to 24%. Turning to capital allocation. Our priorities remain to invest in our business to drive top line growth and efficiencies, reduce net debt and to return cash to shareholders. We are maintaining our target net debt to underlying EBITDA ratio of below 3 times by the end of 2022, and we have a strong desire to maintain and in time upgrade our investment-grade rating. And on February 22, 2022, the Board declared a dividend of $0.58 per share, an increase of 12%. Also on February 17, 2022, the Board of Directors approved a share repurchase program, authorizing the company to purchase up aggregate of $200 million of a company’s cost common stock through March 31, 2026, with research is primarily intended to offset annual employee equity award grants. In closing, 2021 was a volatile year, but it did not deter us from executing our plan. The progress we have made has laid a strong foundation to achieve our goals of sustainable long-term top and bottom line growth and our 2022 guidance demonstrate our confidence we are on the right part. And with that, we look forward to answering your questions. Operator?

Kevin Grundy:

Great. Thanks, good morning, everyone. And congratulations on the continued progress, particularly in the difficult environment. I want to start with the sales guidance for the year. Tracey, this may be for you. Maybe just spend a moment on how you expect that to break down between volume and net sales per hectoliter within net sales per hectoliter. Maybe just comment broadly on the contribution you’re hoping for between price and mix, particularly from a pricing perspective, given the difficult input cost environment? And then, Gavin, maybe just at a high level coming off of what’s been a strong year for your key brands. Just offer some thoughts, if you wouldn’t mind on your outlook for Coors Light and Miller Lite in the upcoming year. And then I’ll pass it on. Thank you for that.

Tracey Joubert:

Okay. Yes. I mean, we’ve spoken before about our robust taking program and how we cover all our key commodities. So as we look into 2022 and 2023, we’re really comfortable with that our hedge position and that hedging program is going to play a part in mitigating some of the inflation that we seen.

Kevin Grundy:

Yes. That’s very thorough. Thank you very much. I have a number of questions I’ll take offline with Greg and Traci, but continued success. Thank you.

Operator:

Thank you, Kevin. Our next question goes to Rob Ottenstein with Evercore. Rob, your line open. You can go ahead.

Gavin Hattersley:

Thanks, Rob. Look, I’m not going to repeat what I said to Kevin, as far as our overall brands are concerned. But if you look to the January, yes, I mean the data that’s publicly available, will say that the whole industry, it wasn’t the easiest of months. I don’t think pricing has got anything to do with it because the pricing increases came in the month of – even into February to impact January trends. So I don’t think it’s got anything to do with it. And frankly, the price increases, as I just said, for us, 3% to 5%, well lower than inflation rates, which are speaking in the consumers’ minds. I’d point a finger squarely at the second point you raised there, which is Omicron, right? Consumers were resistant to going out into the on-premise December and into January. And as we’ve got further into January and now into February, we’ve seen the consumers come back to the on-premise, particularly in our European businesses where restrictions have been largely lifted, but also in the United States and, to a lesser degree, in Canada. So I’m going to point the finger squarely at Omicron, Rob.

Gavin Hattersley:

Well, we always – we understand pricing elasticity in a normal world, right? And I think we’re operating in somewhat unknown territory. So I think it’s a little too soon to tell exactly what the various price increases that have gone into the market, what impact that will have from a volume perspective, Rob. I think as we head into spring and summer, we shall see.

Operator:

Thank you, Rob. Our next question goes to Andrea Teixeira with JPMorgan. Andrea, your line is open. You can go ahead.