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

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.

Thank you, Traci, and thank you, everybody, for joining us today. Before we get started, I want to mention that Tracey Joubert, our Chief Financial Officer, is unable to attend today. We moved our earnings date earlier this year, so it didn't conflict with CAGNY and Tracey had a very long-standing family commitment at this time. So Greg Tierney, our Vice President of FP&A Commercial Finance and Investor Relations, will be filling in on her behalf for this earnings call, and you'll see Tracey next week at CAGNY. At the start of last year, no one, absolutely no one, could have predicted what would happen in the beer industry. We are just growing the top and bottom line of this business, and we are committed to doing it again in 2023. Since then, we increased our expectations for the full year, not once but twice. We've continued to raise the stakes and I'm proud to say that once again, we have delivered what we said we would. In 2023, our global net revenue grew more than 9%, and we grew our bottom line by nearly 37%. These are our highest reported dollar results on record ever, on top of the already impressive results in 2022. We've proven that Molson Coors is the kind of business that can turn itself around, deliver against its commitments and continue to grow no matter the volatility of the external environment. Every year, for the past 3 years, our industry has faced challenges. We've gotten good at managing them, even when they're massive enough to permanently alter the beer industry. And every year for the past 3 years, we have navigated successfully through the challenges. We have delivered against our vision, and we have grown. But growth is not a strong enough word to describe what we achieved in 2023. We've set a new baseline for our business, and you don't need to look any further than our bottom line. In fact, our 2023 underlying pre-tax income was higher than we thought it would be, and frankly, higher than anyone I am aware of said it would be in 2028. So Molson Coors delivered 6 years of profit growth, 6 years of growth in just 1 year. That focus is a new baseline. We are ready for this moment. So let's get into why we are confident. In 2023, our top 5 brands around the world drove over 2 million more hectoliters than they did the prior year. This is like adding the entirety of Blue Moon's global volume to our portfolio. In the U.S., our core brands are growing distribution and space at retail. And as I will discuss in a minute, we expect to gain significantly more space in the spring. Last year, our brands in the U.S. also grew more share of the on-premise than any other brewer. This includes our core brands, and it also includes growth for Blue Moon. And as of the latest 12-week CGA Nielsen reads, we are gaining 3 times more share in the on-premise than Constellation, 3 times more. To put this performance into perspective, Coors Light and Miller Lite each grew more dollars in the on-premise than Constellation did as a total brewer. I'll let that sink in for a second. Because of this momentum, we added an incremental $1 billion in distributor revenue to our network in 2023, and our distributors are just as motivated to grow again this year. Perhaps most importantly, the consumers who have come to our portfolio over the past 12 months have stuck with us, and they are more loyal than we have historically seen. So we brought new consumers into our portfolio, we've retained our loyal base and our plans for 2024 are designed specifically to bring in even more new consumers and there's no better place to start than with our core brands. Let me start with the U.S. In the fourth quarter, Coors Light, Coors Banquet and Miller Lite all grew brand volume by double digits. Miller Lite ended in a very strong position into 2022 and still grew 0.5 points of industry dollar share in the fourth quarter. And Coors Light grew dollar share by nearly a full share point in the quarter. You've also heard us talk more about Coors Banquet and for good reason. Brand volume grew by nearly 20% for the full year in 2023, and it has grown industry share for 11 straight quarters. We have a lot of runway on Banquet, especially with younger consumers of legal drinking age. We gained more distribution in 2023 and grew on-premise draft lines for Banquet by nearly 50% in the fourth quarter alone. So you can expect to see us putting a lot of focus behind Banquet this year, along with Coors Light and Miller Lite. Coors Light and Miller Lite have grown significantly at retail, gaining more dollar share of displays in 2023 than any other beer brand. And that trend has continued in 2024 with Coors Light, Coors Banquet and Miller Lite growing dollar share of displays by nearly 20% in the 4 weeks leading up to the Super Bowl. This is an incredibly important point. The reason why is quite simple, store shelves and coolers have a finite amount of space. So floor displays represent incremental space and high visibility. This added space also means more days of inventory at retail for our brands. And from a consumer perspective, it means our brands are placed in areas of the store where they're more likely to sell quickly. Now we can't talk about our presence at retail without mentioning spring resets. You'll recall that Coors Light and Miller Lite gained about 6% to 7% more space during the summer and fall adjustments, which is a huge increase for brands this large. We are now starting to get a clearer picture of what we can expect again as spring resets take shape. Based on conversations we're having with top retailers, we expect to gain significantly more distribution and space for our brands in 2024 on top of the gains we made last year. In fact, one of our larger chain retailers has already confirmed space that is well above the four levels for our core brands this year. It's important to note that this won't happen all at once. Unlike the unprecedented resets we saw last summer and fall, spring resets are phased between spring and summer. The impact will likely show up over time, roughly between March and July of 2024. Leading up to those months and throughout our core brands in the U.S. will have large integrated campaigns running across TV, digital, retail, and live events. You've already started to see this with Coors Light and the Super Bowl which got a great reaction from consumers and supported our success in the marketplace. In the 4 weeks leading up to the Super Bowl, we added an incremental 160,000 display units of Coors Light at retail. During the same time, Coors Light velocities grew by nearly 14%. So not only are we selling much more beer, it's also selling much faster. As far as what's next, Coors Light's Choose Chill campaign will run throughout the year with strong media pressure and amplification from celebrity fans, including Grammy award-winning country music star Lainey Wilson. In March, we plan to launch a campaign of comparable size for Miller Lite. I can't say much about that right now, but it's some of the best work I've seen on Miller Lite in a long time, and that's a very high bar. So we are excited about it. The growth of our core brands is not limited to the U.S. In our other global markets, we continue to see strong performance and have plans to continue the momentum in 2024. In Ontario, Coors Light and Molson Canadian are now the #1 and #2 beers in the total market, and both brands grew share of the industry in Canada for the full year. Miller Lite, which sells at an above-premium price point in Canada, continues to grow at a rapid pace with fourth quarter volumes accelerating up nearly 60%. In Croatia, Ožujsko achieved its highest share levels in recorded history and now holds more than a 50% share of its segment. In the U.K., Carling grew value share versus its competitive set in the fourth quarter, and we are very excited that Carling is now the first official beer partner of the Men's and Women's FA Cup, which will provide significant visibility and relevance for the brand in 2024. So our core brands have carried their 2023 momentum into this year and the higher end of our portfolio has a lot of runway in 2024 as well. In the fourth quarter, our EMEA and APAC business achieved a record high 52% of our net brand revenue at an above-premium price point. In the U.K., Madri Excepcional continued its growth streak. In the fourth quarter, Madri was the fastest growing major beer brand in the U.K., both by volume and value sales. Madri's volumes grew by 80% for the full year, easily surpassing 1 million hectoliters. Growth like this does not come easy in the beer space, especially in less than 3 years for a new to the world brand that launched during a pandemic. We're expanding with Madri, so it should not be a surprise that we have ambitions to scale this brand and expand its global footprint. Last month, we announced that we are launching in Canada, and product is rolling out onto shelves starting this week. We plan to grow this brand thoughtfully in markets where the opportunity and desire are clear. We are starting with Canada and select European markets this year. So that is our focus right now, and we will consider future expansion when the time is right. In terms of our flavor portfolio, Simply Spiked continues to be a growth engine for our business and the industry. This brand more than doubled its volume in the U.S. in 2023 and Simply Spiked Peach was the #1 innovation by volume and dollar sales in the grocery channel. Simply Spiked is also gaining ground in Canada, where we launched nationally less than a year ago. Already, it has nearly a 4% share in a matter of months. Along with brands like Coors Seltzer and Vizzy, it has driven Molson Coors to become the only major brewer growing share of flavor in Canada. We plan to continue our growth in flavor this year, but our approach will be focused and deliberate. We are launching Simply Spiked Lemonade in the U.S. this month. In March, our new-to-the-world innovation Happy Thursday will hit shelves and eCommerce platforms across the U.S. We've received great responses from retailers for both of these launches, and we plan to support them with strong marketing and sampling activations in every region of the country this spring and summer. So we are very confident we can build off our tremendous results in 2023, and we are very confident in the momentum of our brands and our plans for 2024. You can be confident that we are going to deliver what we say we will deliver, just as we have for the past few years. We are confident because we've weathered every recent challenge imaginable—challenges in our industry and challenges in the macro environment. From that perspective, we continue to see signs of improvement. Contrary to conventional wisdom, U.S. beer industry volume trends improved during 2023 and particularly in the fourth quarter, consistent with strong improvements in consumer spending. In fact, the overall beer category gained dollar share of total alcohol beverage in 2023. Our brands led the industry volume improvement during 2023. We focus on our position as the leader of this industry. So we plan to grow Molson Coors' top line again in 2024. Are we cautious about the year ahead? Of course. While inflation has come down, there are still plenty of reasons to be wary about the macro environment, but our strong results give us confidence in our ability to deliver in 2024. I know a number of you remain skeptical of our ability to grow this year. We were skeptical in 2022 and also in 2023, but the numbers don't lie. We delivered what we said we would. So for 2024, here's what I will say: we are committed to growth. And for the long-term, we've shared our growth algorithm, and we intend to deliver on it, just as we have delivered on what we have said we would over the past 4 years. With that, I'll turn it over to Greg to share some details on our financials and our guidance.

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, driven by tremendous strength in our core power brands. In fact, 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 meeting the high consumer demand in the U.S., leading to financial volume growth of 3.5% and brand volume growth of 5.3% for the year. We delivered strong margin expansion as cost savings and volume leverage significantly offset inflationary pressures and higher SG&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 strategically invest in our business, further strengthen our balance sheet, raise our dividend by 8%, and repurchase 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 solid top-line growth of 5%. Underlying pre-tax income increased 2.1% as we continued to invest strongly behind our brands, which is particularly impactful to the bottom line in a typically lower profit quarter. 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 agreement ahead of its termination at the end of 2024. Consolidated financial volume increased 0.8% as growth in the 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 was a headwind of approximately 2% to America's shipment volume. 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 strong momentum of our core brands. 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. Despite industry softness weighing on brand volume, we continued to grow share in Canada for the quarter, adding nearly 2 share points. That was the strongest growth of any major brewer in the country. In Latin America, while the 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%. Cost savings, volume leverage, and 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 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 by 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. 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 deleverage 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, an increase of 8% from 2022. 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, which represents an increase of 7%. 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, 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%. Let me walk you 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, it's 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 the above-premium portfolio. Financial volume is expected to be impacted by the PEPs contract brewing arrangement, which terminates at the end of this year. We expect it 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 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, remember 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 SG&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. 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.

Good morning, and thank you, Gavin and Greg. Regarding your guidance assumptions, are you expecting the market share to continue improving from where it was in the fourth quarter, based on the phasing you mentioned, Greg, particularly for the first quarter with stronger volumes? Additionally, what are your expectations for volume behavior in the U.S. for 2024? Thank you.

Thanks, Andrea. A couple of things I would say in response to your question. Firstly, we believe the changes in the U.S. beer industry are permanent. We are off to a very fast start in Q1. The momentum that we saw in Q4 has continued into Q1. In the U.S., Molson Coors is leading all brewers in year-to-date dollar share growth by growing 1.5 points. We are ahead of Constellation's share growth. ADI continues to decline more than any other major brewer in the U.S., losing about 4.5 points year-to-date. From an industry point of view, we would expect the U.S. industry to fall back to a sort of flat to down level, and we expect to gain share as we continue into this year. There are lots of drivers and multiple levers to support our top line growth algorithm, which includes pricing, projected to be in the historical 1% to 2% range, and is market-by-market. We expect to get pricing in Canada and EMEA APAC as well. It includes positive mix from our continued premiumization of our portfolio. And of course, you rightly point out the headwind of PEPs. When you put all those factors together, that gets to our guidance for this year of low single digits. Thanks, Andrea.

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

Thanks, Bonnie. We introduced the long-term growth algorithm with EPS at our Investor Day in the fourth quarter of last year. We wanted to ensure that our guidance 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 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?

Share repurchases.

Share repurchases, that's right. Look, we've got an approach, Bonnie, that for our share purchase program, which is both sustained and opportunistic. So we've got a sustained ongoing repurchase and an opportunity to repurchase. The program is $2 billion, which roughly equates to $400 million each year over the 5-year period. 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.

Yes, good morning, guys. This is actually Bryan Adams on for Peter. Thanks for taking the question. So just 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 sustained pressure in Central and Eastern Europe as the primary driver. Obviously, that's been a challenge there over the last several quarters. 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? Has there been any sequential improvement that would envision a return to volume growth in the near-term? Or should we expect the premiumization to be the primary driver in '24? Thanks.

Thanks, Bryan. EMEA and APAC had a tremendous year last year. We grew both top and bottom line by double digits, and I don't think we've done that for a while. In terms of the various markets in which we operate, Central and Eastern Europe, we've been very clear about that over the last six or so quarters that the consumer is more challenged in that market. We are seeing signs of lower inflation and a lower impact for that consumer. Our expectation is that, that is going to continue to improve as we head into 2024. In the U.K., you are right. We've had two slower quarters from an overall industry point of view for Q3 and Q4. Q3 was largely weather-driven. Q4 was largely off-premise driven. There was a fairly substantial excise increase in the off-premise of around 10% in the U.K., which likely had somewhat of a negative effect in the fourth quarter. The U.K. consumers remain remarkably resilient, and our expectation is that will continue. You pointed to our premiumization; yes. We had tremendous success with the launch of Madri in the U.K. Who would have thought you could launch a brand at the beginning of a pandemic in the on-premise, and three years later, it would have the share that it has in the on and off premise, and be well north of 1 million hectoliters already? What’s even more surprising is the low awareness that exists for that brand. There’s a lot of runway for us to drive Madri, not only in the U.K., but we're also launching it in Bulgaria, and we are launching it in Canada as we head into this year. Thanks, Bryan.

Great. Thank you very much. Gavin, your team on the supply chain side and the brewery side really did a fantastic job last year, given the abrupt and unyielding change in the business dynamics. Under those circumstances, though, and given the extent of the change I'm assuming that it would have been very difficult to optimize the system, both in terms of the breweries and logistics. You've had a little bit more time now, I would think, to do that. Looking into 2024, have you been able to unlock and make the system more efficient given the dramatic changes in the volumes? Obviously, the PEPs contract is going to have an impact, but that's going to be a higher margin product that you're going in there, providing a chance to re-optimize there. And in that context, I'm a little surprised that the COGS per hectoliter are still projected to go up given what used to be very strong volumes and declining aluminum costs. Maybe if you can kind of put that all together and give us some context. Thank you.

Thanks, Rob. I'll start, and Greg can add some color on COGS as well. First thing, yes, I think our supply chain team has done an amazing job over the last 3 years reacting to every imaginable crisis, and they’ve become 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 will continue that on an ongoing basis. In terms of the PEPs contract winding down, that gives us a chance to optimize even further. It reduces a lot of complexity in our business, allowing us to do longer runs of our own higher-margin brands. As for COGS, there are a lot of factors at play, not just operating leverage. One would be as we drive toward our above-premium goal, above-premium products tend to come at a higher cost to produce, which negatively impacts overall COGS. Greg, why don't you provide some color on COGS?

Gavin, thank you. A large headwind drives costs, as we talk about premiumization and moving towards that one-third goal. It's beneficial for our business overall but will be a headwind to cost of goods. We see material cost inflation as a headwind, particularly material conversion costs, and we have hedges that are going to add to the pressure this year, layered on in 2022 and 2023.

Thanks, Greg. That all just wraps up into our guidance for underlying profit, which is mid-single digits, in line with our long-term algorithm. Thanks, Rob.

Good morning, everyone. I wanted to revisit the guidance and clarify that while you indicated a strong volume performance in Q1, Gavin, are you also expecting volume growth in the U.S. for the remainder of the year? This is particularly important considering the tougher comparisons we will face later in the year. Assuming there will be permanent changes, that would suggest further market share gains. Any insights on the U.S. volume performance after Q1 would be appreciated.

Yes, thanks. Overall, just a comment around the industry, right? As I said, despite the headlines you might read, the overall beer category grew dollar share of total alcohol beverage in 2023. That's important context when you consider consumer habits, which essentially underpins your question as well. We have many levers from a top line point of view. We've got pricing and a positive mix from premiumization. And notwithstanding the comps coming in the second quarter, it is our expectation and goal to continue taking market share. Thanks, Filippo.

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

Thanks, Nadine. 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, which drove underlying profit to exceed our guidance. It wasn't a lot; we were just under 37%, which in the greater scheme of things isn't significant compared to our overall underlying profit. EMEA and APAC did a little better than we expected. Canada performed slightly worse, but overall, nothing significantly diverted from our expectations. In terms of your second question regarding our confidence in sustaining the share gains in the U.S.: The gains in our core brands have been consistent for over 9 months. We are growing across every region, channel, and major customer in the United States. At this point, we believe the shifts in the U.S. beer industry are permanent. We're off to a fast start in Q1, and momentum is continuing. We're leading all brewers in year-to-date dollar share growth, with our data showing that the majority of consumers who chose our brands post-April have remained loyal throughout 2023. I expect that one of our competitors might claim that anything better than minus 30% is a win, but realistically, there's no reason to believe these buyers will revert in April. We're anticipating strong continued growth in Q1 that follows last year's trends. We saw signs of this momentum in Q4; for example, Coors Light volume growth in Q4 was higher than it was in Q2. We have several sales tailwinds supporting us. We expect even more retail space starting in Q2, particularly from spring resets. The majority of major retailers do full resets in spring, both nationally and regionally, and we expect to benefit significantly from these retail space gains. We've already seen several chain retailers commit to increased space for our core brands, exceeding the 6% to 7% gains we saw in summer and fall of 2023. We're also optimistic about stronger display activity in the first half of the year. As I mentioned, we performed exceptionally well in display gains leading up to the Super Bowl, and these displays boost sales by approximately 25%. Last year, we were leaders in display gains, and we expect to maintain that trend as we cycle into April. Lastly, in the on-premise channel, we were the largest share gainer last year, and we grew 3 times faster than the next major brewer, which in this case was Constellation. To put this into perspective, Coors Light and Miller Lite each grew in dollar terms more than Constellation did as a total brewer, as indicated by the latest 12-week CGA Nielsen reads. Let me end there. I could go on about the marketing campaigns we have for Miller Lite, but there are many reasons to believe we have strong confidence in our guidance.

Thank you. I'm going to try the COGS per hectoliter guidance again, but maybe regionally. I ask because I think Americas COGS per hectoliter was down year-over-year in Q4. So is it fair to expect that to continue regionally 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?

You're right. We do have regional differences in our cost of goods sold, driven by various factors, from cost savings programs to premiumization. The U.S. will come off a smaller base from a premiumization point of view than EMEA APAC. The U.S. will be more negatively impacted by a growth in above premium products compared to EMEA and APAC, where inflation tends to be slightly higher at a macro level. Remember, our hedging program is designed to minimize the highs and lows of our input costs. You might be looking for more detail than we are willing to provide. There are many factors at play regarding COGS, and they all feed into our guidance of mid-single digits for underlying pre-tax.

Hi, thanks for the question. Gavin, can you just comment on the portfolio outside of the U.S. and how you feel about shelf placement for this year? Separately, from a cash perspective, obviously, there's a lot of debates about growth, specifically on the top line. Can you let us know how you would be thinking about deploying the balance sheet? Should the fundamental picture become a little bit less as you expect—as the year progresses. Another way to ask is if volumes come in short, would you lean into your buyback initiatives, front-load those more than you might otherwise do on the multi-year plan? Any perspective on cash use and how the businesses are setting up for this year from a shelf perspective on the non-Miller non-core business would also be helpful. Thanks so much.

From an overall portfolio outside of the U.S., in Canada, we continue to see softness in the beer industry. While the industry is declining in all regions, we've had strong share growth in Canada. This growth is being driven by the strength of our core brands and our expansion into flavors. Since last March, Coors Light has been the #1 light beer brand in the industry, and the Molson brand family is growing its industry share. Our flavor portfolio is also performing well compared to competitors, making us the only major brewer growing flavor share in Canada. So, while I remain cautious about the macro environment in Canada, our portfolio is strong and getting stronger moving forward. Our Latin American business faced significant macroeconomic challenges in 2023, but we are seeing signs of recovery. Miller High Life is performing well in Mexico, and Brazil remains a big opportunity for us. Overall, we expect some level of improvement from a macroeconomic perspective in Latin America. Finally, I mentioned Central and Eastern Europe as well. We are witnessing some signs of lower inflation benefiting the consumer. In the U.K., we remain cautious while observing how the excise tax impacts the fourth quarter. Overall, however, our portfolio in the U.K. remains strong. From a calling point of view, the Coors family is performing well, and Ožujsko in Croatia reached its highest market share in recorded history. So overall, from a portfolio perspective, we feel quite positive.

Chris, regarding capital allocation: Our capital allocation priorities have not changed. They remain focused on investing in our business first. We made significant strides in reducing leverage, down to 2.2x, which is aligned with our long-term goal of under 2.5%. The third priority is returning cash to shareholders. We raised our dividend again by 7% this year, following increases in prior years. We're also making good progress on our share buyback plan with the $2 billion program.

Thanks, Greg.

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 would be helpful to know. I am also curious about 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. 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 non-alcoholic, an updated marketing commercialization plan. Any update on those endeavors relative to what we heard at Investor Day? Thank you.

Yes, sure, Steve. On the share buyback front, our program runs on both a sustained and opportunistic basis. We have forecasts for what we will do for 2024 in our guidance assumptions. However, we're not legally allowed to disclose specific levels. You can assume we have a $2 billion share buyback program, implying roughly $400 million a year, which we will execute on a sustained and opportunistic basis going forward. Regarding Blue Moon, yes, we faced challenges with Blue Moon in 2023. The brand hasn’t been immune to the craft beer market’s challenges as a whole. On a positive note, Blue Moon is seeing some signs of improvement in the on-premise market. It is now growing its share based on the last 4-week Nielsen CGA data. We’re not satisfied with the brand’s performance, but we have big plans for a turnaround in 2024. We have redesigned packaging hitting shelves in March to unify the Blue Moon family, which previously felt disjointed. We're launching a new campaign in March as well, supported by strong media pressure across TV, digital, and retail. We’re also introducing two innovations: the repositioned Blue Moon Light, now the #1 light craft beer, and Blue Moon Non-Alcoholic, which is already ranked #3 in the craft segment by volume in just 4 weeks in the market. Feedback from both retailers and consumers for both products has been overwhelmingly positive. Overall, we have high hopes for the Blue Moon family in 2024.

As for interest expense, our guidance for 2024 aligns with what total interest expense was in 2023. Keep in mind our cash positions have influenced interest income throughout 2023.

Thanks. Gavin, just hoping you could expand upon your comment earlier about the overall beer category in the U.S. reverting back to flat to down 1% in terms of a volume standpoint. What do you think the drivers of that will be since 2023 was quite a bit below that? Were you referring to that as what's embedded in your 2024 guidance, or is that more of a midterm expectation?

Thanks, Eric. I'll reiterate: despite the headlines, the overall beer category gained dollar share of total alcohol beverage in 2023, which is unlike the trends in wine and spirits, which saw declines. Looking back at 2023, Q1 was quite challenging for the industry largely due to exceptionally poor weather on the West Coast. From that point on, the U.S. beer industry volume trends improved as we progressed through the year, particularly in Q4. Our expectation, as I mentioned, is for the category to return to its historical flat to slightly up on a value basis and likely slightly down on a volume basis. We anticipate continuing to grow our market share in this environment, and that expectation is embedded in our 2024 guidance.

If I could follow up on Eric's question on the category. I think shipments were down 11 million barrels, which puts it at 1990s levels. While the pricing is there, one of the debates about beer is the relative pricing taken over a period of time versus spirits. I'm curious how you feel about the category's pricing position versus other beverage alcohol categories.

Yes, thanks. Overall, beer has taken higher prices over the years than our other competitors in the alcohol sector and has not necessarily been in line, but has been more so with spirits. Our view is that pricing for this year will fall into the 1% to 2% range. We've been fairly consistent with this expectation.

Hi, thank you. I'm sure you've been asked about cannabis many times in many different ways, but there is a potential catalyst here with the next presidential election and the possibility of broader legalization. How do you evaluate the risk associated with that, especially since younger consumers seem to preference cannabis over beer? Secondly, have you looked into growth rates by state, especially in Colorado, where cannabis legalization occurred, to see if it's more impactful on beer consumption than in non-legal states? Thanks.

Thanks, Robert. It’s fair to say that the cannabis beverage market hasn't grown as much as the industry had initially anticipated. That led us to exit our cannabis beverages. Notably, we've observed that in more developed cannabis markets, such as Canada, it hasn't significantly affected alcohol beverage consumption. We've analyzed state by state, and I can say that Colorado, one of our well-performing states, has seen little negative impact on beverage alcohol consumption post-legalization.

Thank you. In the U.S., third-party data has shown weakness in industry draft volume. I understand that you've been able to capitalize on the disruption in '23 and into '24 to benefit your performance. But how do you address the long-term industry draft weakness in the U.S.? Are there learnings from the U.K. that could apply here? Also, how important is it for draft trends to improve for the health of the industry?

Thank you, Brett. I believe the primary reason for the negative draft performance is the proliferation of craft brands, some of which are being discontinued in the on-premise sector. Most of our major markets are close to pre-COVID levels from an on-premise standpoint, some slightly ahead and others lagging, but overall, we're near our former position. We were the largest share gainer last year, growing at a rate 3 times faster than the next major brewer; it's not just Premium Lights seeing this growth. We are seeing brands like Blue Moon and Coors Banquet gaining share as well. Our portfolio is solid and healthy within the on-premise channel, and I think some of the industry's draft weakness stems from this surge of craft brands that are flooding the market. Thank you, Brett. This concludes today's Q&A session. I will hand the call back to Traci for any closing remarks.

Thanks, Adam. If you have any additional questions, please follow-up with the Investor Relations team. 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 in today's call.