Molson Coors Beverage Company (TAP) — Q3 2021 Earnings Call Transcript

Thank you, Charlie, and hello, everyone. Following prepared remarks today from Gavin and Tracey, we will take your questions. 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. And also, unless otherwise indicated, all financial results the company discusses are versus the comparable prior year period and in U.S. dollars. With that, over to you, Gavin.

Thanks, Greg, and thanks, everybody, for joining us here this morning. I'm going to change things up a bit here from our normal structure, and I'm going to share 7 key headlines from our third quarter. Firstly, Coors Light is growing share of the total beer category in the United States. This is our biggest brand in our biggest market, a brand that many doubters thought could get back onto this trajectory, and it's growing share in the industry for the first time in more than 5 years. Secondly, globally, Molson Coors' net sales revenue from its above premium portfolio has surpassed 25% of our brand volume net sales revenue on a trailing 12-month basis for the first time since the revitalization plan was announced. Thirdly, Molson Coors has grown share of the U.S. above premium segment for 2 straight quarters for the first time in over 5 years. Fourth, as we expand beyond beer, and with 3 months still left in the year, Molson Coors has sold nearly 2 million cases of non-alcohol beverages in the United States. Fifth, Molson Coors' total market share trend in Canada has improved for 8 straight months, leading to national share growth in the third quarter, and the European business has bounced back, essentially reaching 2019 revenue levels. Sixth, challenges in the global supply chain impacted our third quarter volumes. We are already seeing improvements in brewery output in October. We are back to shipping approximately 1 million barrels per week in the U.S. during the fourth quarter. And in aggregate, distributor inventories are starting to improve; and seventh, like for so many others, transportation availability and transportation costs are worse than they have been in years. So I want to start there and then we'll work backward. Like we've discussed for the second quarter and like other CPG companies, inflation was again a challenge in Q3, specifically with respect to transportation. Fuel prices are up, truckers are in short supply around the world and freight costs are up 2%. As Tracey highlighted in our second quarter earnings, we have long-term contracts with carriers and a robust hedging program as well as meaningful cost savings programs to mitigate price fluctuations. The driver shortages at our existing carriers are forcing us to use the spot market and to pay spot market rates which are significantly higher than they have been in many years. Right now, up to 1 in every 4 shipments are at these high spot rates. That level of inflation cannot be completely absorbed or avoided, and you're seeing the results in our COGS for the quarter. Beyond the hedging and cost savings, we are taking steps to reduce the impact, including shipping more beverages on rail. Also, we expect gross margin benefits as we continue to premiumize our portfolio under our revitalization plan and achieve improved efficiencies through our economy SKU deprioritization and rationalization plans. But even with those steps, inflation will continue to be a pressure point for us and for just about every other company. Our shipment trends in the third quarter were not what we wanted them to be. Some of that is related to the challenges of moving finished goods to distributors and also moving suppliers within our brewery network. Some of that is related to our own suppliers having difficulty in getting us the materials we needed since they're facing the same supply chain challenges as everyone else in the world. But the good news is that this trend, as I've said, has already started turning. While August and September were difficult production months, the steps we have taken in the third quarter to expand our base of material suppliers and improve our availability for most packaging materials have allowed us to increase shipments so far in the fourth quarter. We are once again shipping approximately 1 million barrels per week in the U.S., and that has helped us increase distributor inventories by approximately 20% over the past few weeks. So that is, of course, the measurement of our total network and that is a trend we expect to build on. I also want to quickly address volume. Some of you may look at our North American volume trends with concern. But I want to remind you that this is predominantly the result of an intentional and strategic decision we made to deprioritize and eliminate a large number of lower-margin, slower moving SKUs in the U.S. that were mainly in the economy segment. The intention was to simplify and premiumize our portfolio, and that is exactly what is happening. So our volume is down, but our net sales revenue per hectoliter is up. And I can again tell you that we are on track to deliver on our full-year key financial guidance for 2021. This is what is happening in Canada. We have improved our national share trend for 8 straight months, leading to total share growth in the third quarter. This is the best share trend performance we have seen in at least 6 years. As the on-premise reopens in Canada, our share is growing above 2019 levels, a big driver of our progress. Coors is gaining share of the segment in Canada as well with Miller Lite also growing approximately 30% in the quarter. Molson Ultra has seen strong year-to-date performance with volume growing mid-single digits along with strong share gains. These are all very good signs for our business in Canada. Not to be outdone, our European business has bounced back strongly. In the U.K., our on-trade net sales revenue has now reached 2019 levels, and margin has surpassed 2019 levels as the business continues to premiumize, which I'll touch on in more detail in a moment. As we look to the fourth quarter, we plan to keep this momentum up by stepping up our European marketing investments. Two years after shifting from a beer company to a beverage company, we have reached a significant milestone. For the first 9 months of the year, we have sold nearly 2 million cases of non-alcohol beverages as we continue to drive towards our $1 billion revenue ambition for our emerging growth business by 2023. We have launched into categories where we think we can create scale offerings like water, energy and coffee. First, of course, is our partnership with Zoa, which has been making some serious noise since its launch just over 6 months ago. It's the #1 new energy franchise in 2021, and it's already a top 20 energy drink brand. Zoa already has 31,000 buying outlets and over 115,000 points of distribution with more coming online every day. There's a lot of upside for this brand. We have the distribution partnership for La Colombe's incredible lineup of ready-to-drink coffee, one of the fastest-growing spaces in the beverage industry. And thanks to our early success with distribution in large national retailers, we've also unlocked national distribution of La Colombe in grocery and mass channel stores for early 2022. Growing beyond the beer aisle is no longer an aspiration. We're doing it, and we're driving scale. Molson Coors has grown share of the U.S. above premium segment for 2 straight quarters for the first time in over 5 years. That mark is largely driven by the continued success of our U.S. hard seltzer portfolio, and this is another space I want to take a little more time to discuss. There's been a lot of noise over the past few months about hard seltzers in the U.S., a lot. Not all of it has been accurate, and much of it has been unproductive. Now hard seltzer is not going to keep growing at 200% per year. But of course, not. And we've been clear since last fall that we didn't expect them to do so. But in spite of the rosy forecast some had a year ago and the bleak forecast being thrown about today, there are some clear truths. Hard seltzers are here to stay. They make up over 10% of beer category sales and are growing. But the segment has matured and the easy growth is over. Moving forward, it is going to take distinctive, differentiated brands in order to succeed, and that's why we feel so confident about our portfolio. While so many of the mainstays are declining, Molson Coors has the fastest-growing hard seltzer portfolio in the United States. Vizzy brand volumes grew 50% in the third quarter versus the prior year and passed yet another competitor to become the #4 hard seltzer in the United States. Despite only being launched in 16 different markets in the U.S., Topo Chico Hard Seltzer occupies the #3 slot as a new item in the general malt beverages category. The brand also garnered a 2.4% share of the U.S. market according to IRI, and this success has led to the national expansion of the brand. But that is not the extent of our premiumization. Our joint venture with Yuengling launched in Texas this quarter, and we are very pleased with the very early results. By the end of August, it was already available for purchase in 40,000 locations across the state. As the on-premise continues to strengthen, so have 2 of our biggest above premium brands. Peroni is up double digits, gaining share in the category and outpacing all other European imports. Blue Moon Belgian White is up high single digits. And this quarter, we announced plans to build upon the success of Blue Moon LightSky, which our data shows is 96% incremental to the flagship Belgian White. Blue Moon LightSky continues to see double-digit growth year-to-date after finishing 2020 as the #1 new beer in the United States. In 2022, we'll add more muscle to the Blue Moon family as we launched LightSky Tropical Wheat. As I said in our second quarter earnings call, premiumization is here to stay at Molson Coors. All that growth in the U.S. is contributing to a significant premiumization of our entire global portfolio. So much so that as of the third quarter, the percentage of Molson Coors' portfolio that is above premium has surpassed 25% of our brand volume net sales revenue on a trailing 12-month basis for the first time since the revitalization plan was announced. And that progress is being seen throughout the company. The early returns on our Canadian hard seltzer portfolio have exceeded expectations with both Vizzy and Coors sales generating strong market share. We will extend that streak when we introduce Topo Chico Hard Seltzer in Canada in 2022, which we announced this month. Six Pints, our Canadian craft business, is growing double digits despite on-premise restrictions. Combined with the growth of Miller Lite and Molson Ultra, this has continued to drive the premiumization of our business in Canada. In Western Europe, our new Mediterranean lager, Madre, has already doubled its distribution goal for the year, now at approximately 5,500 on-premise outlets with more coming in the fourth quarter. In Central and Eastern Europe, New Smooth pilsner lager Pravha has been performing above expectations across the market with a presence in more than 15,000 outlets supported with strong media campaigns, reaching over 13 million consumers. And in Latin America, Coors Light is growing in Puerto Rico for the first time in 15 years, where it sells at an above premium price point. And speaking of Coors Light, that brings me to the final point I want to make this morning. In the face of many doubters, Coors Light is growing share of the industry in the United States for the first time in more than 5 years. The brand's strong performance in the third quarter was aided by the continued success of our Made to Chill campaign and through increased marketing investment. We're actually making progress on the things that are within our control and driving measurable results that continue us on the path to delivering on our goal of sustainable, long-term top and bottom line growth. We are 2 years into our revitalization plan, and I remain confident that we are on track to deliver our full-year key financial guidance for 2021, while continuing to invest behind our brands. And I'm very optimistic about the future for Molson Coors. Tracey?

Thank you, Gavin, and hello, everyone. As Gavin mentioned, we are again reaffirming our key financial annual guidance for 2021. We continue to make real progress executing our revitalization plan. We invested behind our business, driving premiumization of our portfolio of our brands and strengthening our core business while continuing to delever our balance sheet and to reinstate the dividend. But like most consumer product companies, we face supply chain challenges and inflationary cost headwinds in the quarter, which had an impact on our quarterly results. Now let me take you through our quarterly results in more detail and provide an update on our outlook. Consolidated net sales revenue increased 1% in constant currency, delivering over 99% of third quarter 2019 level despite the on-premise continuing to operate below pre-pandemic levels. Consolidated financial volumes declined 3.9%, primarily due to lower brand volumes, which were down 3.6%, largely due to the economy segment, including the economy SKU deprioritization program. Top line performance benefited from strong global net pricing, favorable brand mix levels in North America as we continue to premiumize our portfolio, double-digit revenue growth in Europe and positive channel mix. Net sales per hectoliter on a brand volume basis increased 3.6% in constant currency, driven by the strong pricing growth, coupled with positive brand and channel mix. Underlying COGS per hectoliter increased 8.9% on a constant currency basis, driven by cost inflation, including higher transportation and input costs, mix impact from premiumization and volume deleverage. However, with our robust hedging and cost savings programs, we have been able to mitigate some of the inflationary pressure. Underlying MG&A in the quarter increased 3.5% on a constant currency basis due to higher marketing investment behind our core brands and innovation as well as parking targeted reductions to marketing spend in the prior year period due to the pandemic, which was largely offset by lower G&A expenses. As planned, we increased marketing investments in the quarter to levels above second quarter 2021 and third quarter 2019 levels, ensuring strong commercial pressure behind our key innovations and core brands. As a result of these factors, underlying EBITDA decreased 10.9% on a constant currency basis. Our effective tax rate in the quarter was significantly impacted by a discrete tax item. You may recall in the second quarter of last year following the issuance of certain U.S. tax regulations, we recognized a material discrete tax expense of $135 million. It was related to previously taken tax positions over several years. In the third quarter of this year, we reached a settlement with the tax authorities with regard to our tax positions impacted by those tax regulations. As a result of the settlement, we had a release of unrecognized tax benefit positions in the quarter that resulted in a P&L tax benefit of $68 million, including a $49 million discrete tax benefit in the third quarter. Underlying free cash flow was $933 million for the first 9 months of the year, a decrease in cash received of $227 million from the prior year period. This decrease was primarily driven by the repayment of taxes related to various government-sponsored deferral programs related to the pandemic. As a reminder, in 2020, working capital was positively impacted by over $200 million for benefits related to these government tax deferral programs. Capital expenditures paid were $363 million for the first 9 months of the year as we continue to invest behind capability programs such as our previously announced Golden Brewery modernization project and our new Montreal brewery expected to open by year-end. Capital expenditure levels were relatively consistent with the comparable period in the prior year. Now let's look at our results of our business units. In North America, the on-premise has not returned to pre-pandemic levels, but continued to improve on a sequential quarter basis. In the third quarter, the on-premise channel accounted for approximately 14% of our net sales revenue in the quarter, compared to approximately 12% in the second quarter of 2021 and 16% in the same period in 2019. In the U.S., the on-premise accounted for about 88% of 2019 net sales revenue in the quarter. In Canada, restrictions continue to ease throughout the quarter with the on-premise net sales rising to 80% of 2019 levels in the third quarter, up from about 25% in the second quarter. North America net sales revenue was down 2.1% in constant currency as net pricing growth and positive brand mix were more than offset by lower volume. North America financial volumes decreased 4.8%, largely due to lower brand volumes of 3.8%, driven by the U.S. In the U.S. domestic shipment volumes decreased 6.6%, trailing brand volume declines of 5.2%, driven by unfavorable shipment timing and declines in the deprioritized economy segment. The economy was down double digits as we deprioritized and announced the rationalization of approximately 100 non-core SKUs, which were primarily in the economy segment. Conversely, our U.S. above premium portfolio was up high single digits. Canada brand volumes improved 0.5% in the quarter, and Latin America brand volumes continued their strong performance and experienced 9% growth, reflecting the easing of on-premise restrictions. Net sales per hectoliter on a brand volume basis increased 2.4% in constant currency with net pricing growth and favorable brand mix, partially offset by unfavorable geographic mix given the growing license volume in Latin America. U.S. net sales per hectoliter increased 3.2%, driven by net pricing growth and positive brand mix, led by best premium innovation brands, including Vizzy, Topo Chico Hard Seltzer, and Zoa. Net sales per hectoliter on a brand volume basis grew in Canada due to positive brand and channel mix as well as net pricing increases while Latin America also increased due to favorable sales mix. Underlying cost per hectoliter increased 7.3%, driven by inflation, including higher transportation and packaging materials and brewery costs, volume deleverage, and mix impact from premiumization. Underlying MG&A decreased 1% as higher marketing investments were offset by lower G&A due to lower incentive compensation expense and the recognition of the Yuengling Company joint venture equity income. We increased marketing investments behind our innovation brands and our iconic core brands, Coors Light and Miller Lite, including an increase in local tactical spend as on-premise restrictions eased throughout the quarter. As planned, we increased U.S. marketing investment compared to not only the same period in 2020, but also versus 2019. North America underlying EBITDA decreased 14.3% in constant currency. Europe net sales revenue was up 14.7% in constant currency, with an 11% increase in net sales per hectoliter on a brand volume basis driven by positive brand, channel, geographic and packaging mix and positive net pricing. Top line performance also benefited from the on-premise reopening in the U.K. on July 19. And of note, in the third quarter of 2020, the on-premise had fewer restrictions than in the second and fourth quarters of that year. The U.K. on-premise channel net sales revenue reached similar levels to pre-pandemic levels in the quarter. Europe financial volumes decreased 2% and brand volumes decreased 3%. The decline was primarily due to lower Central and Eastern European volumes driven by increased on-premise restrictions related to the coronavirus and the disposal of our India business in the first quarter of 2021. This was partially offset by growth in the above premium brand volumes, which reached another record high portion of our Europe portfolio. Underlying EBITDA increased 2.7% in constant currency as revenue growth was partially offset by higher marketing investments. Turning to the balance sheet. As of September 30, 2021, we had lowered our net debt to underlying EBITDA ratio to 3.3x and reduced our net debt to $6.6 billion, down from 3.5x and $7.5 billion, respectively, as of December 31, 2020. On July 15, we announced that we had repaid in full the $1 billion, 2.1 senior notes that are maturing that day using a combination of commercial paper and cash on hand. We ended the third quarter with strong borrowing capacity with approximately $1.5 billion available capacity under our U.S. credit facility. Now turning to our financial outlook. We are again reaffirming our 2021 key financial annual guidance originally provided on February 11, 2021. While we are sitting in a better place than we were a year ago, it bears reminding that uncertainty pertaining to the coronavirus and its variants remains severely decreased by market. If restrictions are reinstated in some of our larger markets, this could have a significant impact on our financial performance over the next few months. Now I'll provide some underlying expectations to provide some additional context for the balance of the year. We expect to deliver mid-single-digit net sales revenue growth for the full year on a constant currency basis. We continue to work to build inventories with wholesalers, which have been at low levels. And as Gavin mentioned, we are making progress. In the U.S., we expect on-premise trends to continue to improve as we have fewer restrictions compared to the prior year period. In Canada, we continue to see greater on-premise reopenings bearing by COVID, which should continue to provide positive channel mix. In Europe, the U.K. top line should strongly benefit from the prior year fourth quarter, given the on-premise was fully locked down for November and December 2020, which are typically strong months given the holidays. Our guidance also anticipates continued strength in our premium portfolio, particularly hard seltzers, innovations and imports. Also, we expect continued solid progress against our previously discussed emerging gross revenue goal of $1 billion in annual revenue by 2023, against which we continue to track ahead of plan driven by Zoa, La Colombe, and Latin America. We continue to anticipate underlying EBITDA to be roughly flat compared to 2020 as top line growth is expected to be offset by continued cost inflationary headwinds largely transportation and packaging materials, including aluminum and the Midwest premium and increased marketing investments to deliver against our revitalization plan. Under the revitalization plan, 2021 has been a year of investment for the company, and we intend to continue to increase marketing investments to build on the strength of our core brands and support successful innovation. As Gavin mentioned, we expect fourth quarter marketing investment to be higher than the fourth quarter of 2019, as we continue to ramp up supply and put commercial pressure to support our big bet brands in both North America and Europe. We continue to anticipate underlying depreciation and amortization of $800 million, and net interest expense of $270 million, plus or minus 5%. However, due solely to the discrete tax benefit in the third quarter, we have adjusted our effective tax rate range for 2021 only to 13% to 15% from 20% to 23% previously. Also, as a reminder, in 2020, our working capital benefited from the deferral of approximately $130 million in tax payments from various government-sponsored payment deferral programs related to the coronavirus pandemic. We currently anticipate the majority to be paid this year as they become due. Moving to capital allocation. We continue to prioritize investing in our business to drive top line growth and efficiencies, reducing debt and returning cash to shareholders. First, we plan to continue to prudently invest in brewery modernization and production capacity and capabilities to support new innovations and growth initiatives, improve efficiencies and advance towards our sustainability goals. Second, we have a strong desire to maintain and, in time, upgrade our investment grade rating. As such, we expect to continue to improve our net debt position and reaffirm our target net debt to underlying EBITDA ratio to be approximately 3.25x by the end of 2021, and below 3x by the end of 2022. And third, on July 15, our Board of Directors determined to reinstate a quarterly dividend on our Class A and Class B common shares and declared a quarterly dividend of $0.34 per share payable on September 17. The Board made the decision to reinstate the dividend at a level that they believe is sustainable and provides room for future increases as business performance improves. In closing, to be sure we have faced challenges in the quarter, but are proud of our agility and the actions we have taken to manage through them. Through it all, we have continued to successfully execute against our revitalization plan with clear premiumization of our portfolio. And despite all the ups and downs throughout this year, we have reaffirmed our key financial annual guidance yet again. Like most consumer product companies, we face near-term challenges, but the fundamentals of our business remain strong, and we are confident we are on the right path toward long-term sustainable revenue and underlying EBITDA growth. So with that, we look forward to taking your questions.

Great. I was hoping both Tracey and Gavin clearly reiterated the expectation on EBITDA for the year. My only question is that it suggests significant growth in the fourth quarter. Given the COGS for hectoliter inflation was 9% this quarter, I know the comparison gets easier on cost in the fourth quarter year-over-year and you have some on-premise tailwinds with mix. But is there anything else we should be aware of that would support the type of EBITDA growth needed particularly in Q4 to meet the annual target given the cost environment? It would be helpful to get more insight on that.

Yes, we wouldn't restate our guidance if we didn't believe we could achieve it. Last year in the fourth quarter, Europe and Canada faced significant challenges due to a near-total lockdown of on-premise sales. This year, we don't expect that, and we haven't observed similar issues in October. I mentioned in my opening remarks that sales to wholesalers improved in October due to our proactive measures. Distributor inventory levels are about 20% higher than they were at the end of the third quarter, which is beneficial. Our premium brands, including Blue Moon Belgian Whites, Peroni, and our seltzer and emerging growth portfolios, are also performing well. On the other hand, we plan to increase our marketing spend. There has been some discussion about it being an either-or situation, but for us, it's both. We boosted our marketing spend in the third quarter above 2019 levels and intend to continue this trend in the fourth quarter to support our successful brands. I hope this information is useful for you.

I think some of the innovation, at least in the near term, may be dilutive to margin or may incur higher costs associated with the above premium and emerging growth segments. Is that correct, or are we already starting to see some of this cycle through by the fourth quarter? I'm also considering that the distributor inventory might be a significant factor, as the higher volume of shipments moving out could have a major impact on the overall equation.

Well, certainly, that is going to be positive for us in the fourth quarter. I'd like to emphasize again that our European and Canadian comparisons for Q4 are not particularly challenging given the on-premise environment we faced last year. As we begin to gain momentum with some of our innovations, it enhances profitability. We have increased our seltzer share by more than 50% since the start of the year, and our two brands in that category are growing faster than any other major company in the third quarter, and we aim to further accelerate that growth. Our seltzer share in the latest reports was close to 7.5%, which is already higher than what we recorded at the end of Q3. I believe that sums it up, Lauren.

Great. And Gavin, congratulations on your insight regarding the seltzer category. I would love to hear your thoughts on how you see that category developing, as well as the overall ready-to-drink category and the relationship between the two. Do you view them as essentially the same or somewhat different? Additionally, how do your perspectives on their development influence your long-term strategy?

Thanks, Robert. Yes, look, you're right. We have been saying for more than a year now that seltzers couldn't grow at the pace that they were growing. But I would say that it's still up double digits year-to-date. So I mean, the segment is significant, and it's here to stay. But it's important now, I think, in this new space in the seltzer categories, you need to drive strong brands with a clear point of difference. And that's why our 2 seltzer brands grew more share than any other major brewer in the third quarter and why we feel so good about those 2 brands. As far as the overall RTD space is concerned, I mean, obviously, it's an emerging and fast-growing segment. RTD sales already outpace spirits, and that gap is only going to widen in the future. Competing in this space is a natural fit for us, given that we've got hundreds of years of experience in alcoholic beverages and lots of experience in 12-ounce cans and bottles. So we will continue to compete in this category with brands like Superbird and potential innovation that we're looking at.

Gavin and Tracey, two related questions if I may. So the first is industry press has reported that you'll be significantly increasing your freight and fuel surcharge to distributors. So when does this increase become effective? And does this help you offset the increase in transportation costs? If so, by how much, given that pressure we've seen on margins? And the second related question is, could you elaborate both on the magnitude and cadence of your pricing increase over the next 12 months?

Nadine, from the perspective of freight and fuel, we established a program with our distributors around ten years ago. The objective was to share the increase in freight and fuel costs and to reduce volatility. There have been years where the freight and fuel surcharge has decreased, like in the last two years. However, due to significant challenges in the freight and fuel market, we anticipate a considerable increase next year. This will be a shared cost between us and the distributors, with a roughly 50-50 split. We finalize the surcharge amount at the end of the year, and it will apply for the entire following year. Regarding pricing, that's a more complex issue. We don't provide guidance on future pricing for obvious reasons, but we consistently monitor and analyze our pricing on a market-by-market and brand-by-brand basis to align with our brand strength. Input costs also factor into our pricing decisions. We have additional strategies to help mitigate inflationary pressures, such as shifting from truck to rail and implementing cost savings programs, along with a solid hedging program. Our premiumization strategy has been positively impacting our net sales revenue per hectoliter, and this is the fifth consecutive quarter of growth in this area, despite significant comparisons from the previous year. Furthermore, we have developed various revenue management tools over the past six years, which puts us in a strong position in that regard.

I wanted to revisit Lauren's question regarding the fourth quarter to gain a clearer understanding. While I see the easier year-over-year comparisons in certain areas of the business, the guidance suggests a return to approximately 95% of the 2019 EBITDA for the quarter, which was a multiyear high. This is despite the increased marketing costs and the supply chain inflation we've discussed, as well as the potential expenses associated with some of the economy brands. If you could elaborate further, it would help us gain more confidence and connect the dots—not just to 2020, but back to the more stable 2019 period, as this seems like a significant jump compared to the year-to-date run rate. Additionally, regarding the 1 million barrels per week shipment velocity mentioned for October, does this imply that you expect to maintain this level throughout the fourth quarter?

Steve, I’ll do my best to clarify without repeating myself. We wouldn’t provide guidance if we didn’t believe we could meet it. Shipments are clearly a critical aspect of this, and returning to 1 million barrels a week is a significant milestone for us. This level of shipments is what we anticipate as we approach summer. So far in October, we are successfully rebuilding our distributor inventory levels and days. Many of our SKUs are already close to our targets. However, it won’t be 1 million barrels every single week due to holidays like Thanksgiving and Christmas. That’s an important factor to consider. On-premise performance in the U.S., Canada, and Europe is exceeding previous quarters. Currently, in the U.S., we are about 85% of 2019 levels for NSR in Q3. In Canada, on-premise restrictions have significantly eased, resulting in volumes near 80% of 2019 levels. Similarly, the U.K. and Central Eastern Europe are close to 100% of their 2019 NSR. Last year’s fourth quarter was quite challenging for both Canada and Europe. Our NSR per hectoliter compared to 2019 is expected to significantly improve due to our premiumization strategies.

So again, I'd like to come back to the seltzer comment probably more, I mean focus on what you are doing. You would be launching Topo Chico nationally beginning of the year, expansion into Margarita and some more figured expansion in Vizzy. So you used to give the street kind of your objective in terms of market share. Could you share with us what your objective for next year is and what you are trying to reach with those line extensions? And then probably, if I may, I mean, on the Beyond Beer. You mentioned about the 1 million case and it start to be meaningful. So how should we think about the economics for you guys of those brands? I'm thinking more about La Colombe and Zoa.

Laurent, regarding your question about seltzer, we are making significant progress towards our market share goals for hard seltzer. Our category share has increased by over 50% since the start of the year, and we are witnessing positive trends. According to the latest IRI data, we're nearly at 7.5%. This achievement comes despite limited distribution for Topo Chico and the fact that we are cycling about 1 percentage point for Coors Seltzer, which we no longer offer. Our ambitions extend beyond just achieving a double-digit share; we have the national rollout of Topo Chico planned along with exciting innovations for both of our seltzers, some of which have been announced and others that are yet to come. We have already secured share in various states and key retailers. In Canada, we are close to reaching our 10% share goal with Vizzy and Coors Seltzer, and we have similar innovations for Topo Chico lined up for next year. We are diligently working towards our seltzer goals and are confident in our distinct brands in that category. Regarding the beyond beer segment, we recorded 2 million cases, which pertains solely to non-alcoholic beverages. The Latin American business is thriving despite some coronavirus-related challenges and operates in the above-premium space. Although we haven't disclosed the specifics of our agreements with both companies in the non-alcoholic segment, we assure you that they are profitable, and as the business grows, we will achieve greater scale for brands like Zoa and La Colombe.

Gavin and Tracey, I have a couple of questions about marketing that I’d like you to address. First, with the increase in marketing investments this year, are we at a sustainable level now, meaning the reinvestment has been made and we have a solid run rate? Or is there potential to boost that marketing investment further beyond 2021? Secondly, Gavin, regarding Coors Light in the U.S., could you discuss your current position in terms of share of voice compared to your direct competitors? It seems like you're gaining more impressions, and I wanted to confirm if that observation is correct.

We continue to strongly believe in the importance of investing in our brands to enhance awareness and consideration, as well as to draw new consumers into our market. Over the past few years, we have significantly shifted our media spending to focus on digital channels where our consumers are active. Previously, our spending in that area was not insignificant, but it was limited. Currently, more than half of our marketing budget is allocated to these channels. We plan to maintain our marketing investment behind our brands, particularly in our revitalization plan where we committed to increasing support for core brands like Miller Lite and Coors Light, as well as brands such as Carling, Ožujsko, and Staropramen in various markets. We are already seeing positive results from this strategy, particularly with Coors Light, which is performing strongly thanks to our Made to Chill program. Given this strong performance and our confidence in our campaign, we will continue to support this momentum with ongoing media investment. That covers the questions, Tracey. Per hectoliter, it will be a bit lower this year, right? Because this year is still somewhat uncertain. In the first part of the year, we didn't sponsor many of the events we typically would because they weren't held. Particularly on the local marketing side, there were fewer fairs, festivals, and sporting events in the early part of the year. So, I wouldn’t say it’s a completely straightforward year. However, we have increased our marketing spending this year. We have boosted it in the third quarter, and we will continue to do so in the fourth quarter as well.

Great. Gavin, I have a longer-term question that builds on some of the themes you've discussed. Specifically, how are you defining success in the U.S. over the next 3 to 5 years? Through the revitalization program, you are clearly taking the right steps and seeing positive results, which is encouraging, especially regarding the emphasis on products beyond beer. I believe you mentioned that the above premium segment now constitutes 25% of your portfolio and that it showed nice growth this past quarter, which is excellent. However, there are challenges due to the economic climate, which continues to impact demand; Light is also experiencing demand headwinds. That said, in response to Bryan's earlier question, the market share trends for Coors Light have been promising. A few years back, the company set a goal to return to flat volumes in the U.S., but that target was later adjusted. Now, as we look ahead, what specific measurable objectives would you like investors to focus on regarding your definition of success in the U.S. over the next 3 to 5 years?

Kevin, yes, you're bringing out a statement that I made, I think in 2015, about being flat in volume and growth. And obviously, our revitalization plan, our focus is on revenue, not necessarily volume. And the quality of our revenue and changing the shape of our portfolio is what is important to us now. So for me, what success looks like over the short, medium and long term is that we're driving sustainable top line revenue growth and at the same time, driving our profits. So it's not an either or for us, it's a both end. And we're going to do that, as I've said, by focusing in on our core so that would be Miller Lite and Coors Light. And we've talked a bit about the success of how we're doing with the Coors Light. In particular, in Canada and in the U.S. but also our core brands in our European markets. I mean a real success story for me is what the team have done with Ožujsko in Croatia. It was a brand that was in long-term decline, and they've turned that around and have been growing it nicely behind our increased focus behind core, changing the shape of our portfolio at the above premium levels was our second priority. And the third priority of beyond beer is coupled with above premium, right, because we're only going into above premium beyond beer areas. So whether it's the success of our efforts in seltzers or new brands like Madre and Pravha in Europe or Blue Moon Belgian White and Light Sky in the United States with Zoa and La Colombe. I'd like to see the shape of our above premium portfolio to obviously be bigger than 25%. We've got an internal goal yet, which we haven't shared externally. But obviously, we would like to see that grow to a higher level. So at its highest level, top line, bottom line, sustainable growth and a changed portfolio shape define success for us, Kevin. Given everything that we've experienced over the last 2 years, I'm very pleased with the progress that the team has made overall against our revitalization plan. If you were to ask me if I would be happy, we are where we are in the sort of first months of the gloom of the pandemic, I would have taken it in immediately, and we're in a good place.

Gavin, if I may ask you to maybe just simplify for myself and for investors, you kind of open talking about the success of a lot of these innovations. Can you maybe aggregate them and talk about how much they collectively contributed to your growth? I think you said 2 million cases for soft drinks, but maybe at Topo Chico and Yuengling and some of these other things in terms of how much they're contributing. The other thing you kind of mentioned at the very beginning was much of the volume decline is linked to your intentional decision to de-prioritize a series of some premium products. Can you talk about how much of a drag that was if you were to add that all up, and that could help us get an understanding of how the underlying business is doing.

Sure. Kaumil, let me try and answer that without actually giving you all about brand volumes because we don't do that. But let me start off by saying that our share loss per IRI in the third quarter was down 90 basis points. 80 basis points of that was economy. So 90% of our volume losses or reduction, should I say, is economy. Most of that or a large part of that is a deliberate decision that we've made to simplify the portfolio. So maybe that will help just the start. 90% of the...

That was for share, right? Not for volume share, not for absolute numbers, just to make sure I heard that right, 90% of the volume share was linked to the economy side.

The loss in share was significant, with 80 basis points of the 90 we lost attributed to the economy. In fact, 90% of our U.S. volume losses were due to economic factors. Therefore, it's reasonable to conclude that most of the decline is linked to this. Although we won't disclose every detail of our volume performance within the above premium portfolio, we do see strong growth in our Latin American operations, which are also positioned in the above premium segment. The performance can vary depending on whether it's export or licensed, with exports performing particularly well. In our non-alcoholic segment, we're starting from a low base, and a substantial portion of the incremental 2 million cases is new business that, while currently small, is experiencing strong growth. Regarding Yuengling, while the brand was on the market for months, we only capture part of that volume due to our joint venture with the Yuengling family. Notably, our U.S. above premium segment saw a single-digit increase in Q3, indicating that our strategy is taking shape.

Gavin, Tracey. It's following a recent line of questioning just around the economy SKUs and how you see the mix of the portfolio evolving over time and the focus on value over volume and how that can play out in the near term. I guess if you look at your portfolio today and you think about your aspirations for the go forward on getting to a volume growth basis, do you still see aspects of your portfolio, which you potentially need to improve? And I suppose there always are these opportunities, but maybe more strategically. And then if that is the case, do you see the premiumization strategy over time as enough to offset some of these decisions and then it's all sort of connected to the volume dynamic, but the share gains are well taken in some of your most important brands. But I guess the other side of that is just the categories have been under pressure, tough comps, and there are other aspects that are in play there. But do you have any view on where you kind of see category growth going forward? I know it's not something that you can necessarily control, but that is an important dynamic here. So if I put all that together, there's this dynamic around the portfolio, how you see it today. But as premiums issued could be enough to offset future decisions and just maybe your latest thoughts on the category, the categories which you play would be helpful.

From our perspective, we believe we've made the right decision in the economy segment by simplifying our focus on four key economy brands. We have always maintained that all segments are important to our consumers, and our decisions regarding our economy portfolio reflect that belief. We are concentrating on four main brands: Keystone Light, Miller High Life, Steel Reserve, Alloy, and the Tiki series. This reduction in complexity allows both us and our distributors to focus effectively on these brands in the economy space. Regarding overall segment performance, we believe that seltzers are a lasting trend with potential for growth. We see strong opportunities in the beyond beer category, and we recognize the necessity of providing products that go beyond traditional beer. That's why we are dedicating significant resources to this area. We expect that innovation in both beer and seltzers will enhance value for the category and for us in the next three years, which is why we are prioritizing a focused innovation portfolio. It's important to note that our primary goal is not necessarily to increase volumes, but rather to drive revenue and value. As such, I wouldn’t anticipate our volumes becoming positive due to the recent changes in the economy portfolio, but we believe these changes are appropriate. Additionally, we do not plan to make any more significant moves in our economy segment, as we have already made the necessary adjustments and will concentrate on the four key brands moving forward. Thank you.

Just Gavin, I'd love to get your perspective on the sustainability or durability of your efforts into the flavored side of the world, whether that be seltzer, whether that be ready-to-drink spirits given, I think, historically, the lack of success that the industry has had. And I know you won't get into talk about other people's brands, but maybe what you see either qualitatively or quantitatively with brands like a Vizzy or Topo Chico relative to some of the F&B products that you've had historically that haven't been able to retain their volume and sales that they initially logged.

Okay. Yes, look, I mean, I think making sure that we've got differentiated brands that the consumer actually wants is a big factor for us, right? Because we do continue to see strong performance from Vizzy. There's lots of distribution runway available for it. It's holding firm as the #4 brand in the space. Topo Chico continues to deliver. It's currently in just 16 markets. And remains the fastest turning brand in Texas, the third fastest turning brand nationally. And we believe there's a very strong opportunity for seltzers to bring Latino drinkers into the space because they're relatively under shared. And we think that Topo Chico plays really, really well into that space given the data that we have. So I think the key for us is differentiation. We've been preaching it for a while now, Brett, we wouldn't have been as successful as we have been in the seltzer space. If our brands weren't differentiated, if it was just a me-too with what was there. And so the brands that we brought are differentiated, that are fast moving, and we have real differentiated innovation coming behind both of those brands in the new year. So we think there is lots of upside for our portfolio in this space. And as I said, we also believe that this is a big segment that is going to be here to stay. And we intend to be a meaningful player in it. Thanks, everybody, for your interest. And if there are any follow-up questions, our Investor Relations team would be happy to take them. Thank you.