Molson Coors Beverage Company (TAP) — Q1 2025 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 reach out to the IR team. Also, I encourage you to review our earnings release and earnings slides, which are posted on the IR section of our website and provide detailed financial and operational metrics. Today's discussion includes forward-looking statements. Actual results or trends could differ materially from our forecast. For more information, please refer to our risk factors discussed in our most recent filings with the SEC. We assume no obligation to update forward-looking statements except as required by applicable law. The definitions of or reconciliations for any non-U.S. GAAP measures are included in our earnings release. Unless otherwise indicated, all financial results we discuss are versus the comparable prior year period and are in U.S. dollars. With the exception of earnings per share, all financial metrics are in constant currency when referencing percentage changes from the prior year period. Also, share data references are sourced from Circana in the U.S. and from Beer Canada in Canada, unless otherwise indicated. Further, in our remarks today, we will reference underlying pre-tax income, which equates to underlying income before income taxes, and underlying earnings per share, which equates to underlying diluted earnings per share, as defined in our earnings release. Now with that, over to you, Gavin.

Thank you, Traci. Hello, everybody, and thank you for joining the call. Like so many of our peers in Staples, it certainly was a challenging first quarter. The global macroeconomic environment is volatile due to uncertainty around the effects of geopolitical events and global trade policy, including the impacts on economic growth, consumer confidence, and expectations around inflation and currencies. These shifts have pressured consumption trends as the consumer faces a high level of uncertainty, and the beer industry has not been immune to these macro changes. Fortunately, while we are a global business, our beers and beverages are generally made in the markets in which they are sold, meaning the vast majority of our brands sold in the U.S. are made in the U.S. with U.S. ingredients. The same is true of our Canadian business. So from that perspective, we believe that we are one of the better positioned businesses in our category. Adding to the dynamics in the quarter, we had several expected shipment headwinds, as well as one-time transition and integration fees related to Fever-Tree. Given that this all occurred in our typically lowest revenue quarter of the year, there was a more pronounced impact on our quarterly results. Now we recognize that these macro-driven uncertainties persist, and it's unclear for how long. As we discuss the details around the performance in the quarter, I want to emphasize that there have been no changes in our belief in the continued strengthening of our core brands and in our long-term growth algorithm. The continued premiumization of our portfolio, ability to maintain unprecedented U.S. shop space gains, and our recent investment in Fever-Tree give us increased confidence in our long-term growth journey. But we do recognize the macro environment is impacting our performance in the near term. So we are focusing on controlling what we can control. We are taking actions to best ensure that we can navigate and mitigate the short-term challenges while continuing to support the medium and long-term health and growth objectives of the company. This means executing our strategy to further strengthen our core power brands and premiumize our business. We have strong commercial plans globally as we head into the peak season, which is still ahead of us. It means taking a deeper look at near-term non-business critical discretionary cost-saving opportunities to help protect profitability. It means adjusting our 2025 capital expenditure plans to best ensure we are utilizing our strong annual free cash flow in the most prudent ways, given the current environment. This entails refining capital investments to focus on our highest priority growth and productivity initiatives while continuing to return cash to shareholders. Now, while these mitigation efforts are helpful, the magnitude of the impacts of the macroeconomic environment and industry has been much greater so far this year than we had expected. For example, the University of Michigan Consumer Sentiment Index fell by nearly 20 percentage points since the beginning of the year and GDP turned negative for the first quarter. Amid these pressures on the macro and consumer environment, we are updating our guidance for the full year and we now expect a low single-digit net sales revenue decline on a constant currency basis as compared to low single-digit growth previously, a low single-digit underlying pre-tax income decline on a constant currency basis as compared to mid-single-digit growth previously, and a low single-digit underlying earnings per share growth as compared to high single-digit growth previously. However, we are reaffirming our underlying free cash flow guidance of $1.3 billion, plus or minus 10%. Now, Tracey will touch more on the guidance driver shortly, but let’s take a moment to discuss the quarter. Consolidated net sales revenue was down 10.4%, underlying pre-tax income was down 49.5%, and underlying earnings per share was down 47.4%. The top line performance was meaningfully impacted by volume performance, particularly in the U.S. U.S. financial volume was down 15.7% and this lagged U.S. brand volume, which was down 8.8%. As I mentioned, the unexpected macroeconomic pressures on consumer consumption behavior were a big driver of our results. However, there were several expected headwinds in the quarter that contributed to the volume performance. We were cycling significantly high demand in the first quarter of last year when SDRs were up 5.8%. There was also one less trading day in the first quarter this year, which adversely impacted the U.S. brand volume trend by 140 basis points. There were also shipment timing dynamics. In the first quarter of 2024, we deliberately built inventory as we prepared for the possible strike at our Fort Worth brewery, which, as you know, became a reality. As a result, STWs outpaced STRs by over 750,000 hectoliters. In the first quarter of this year, STWs outpaced STRs by only 200,000 hectoliters. This had a nearly 500 basis point negative impact on U.S. financial volume in the quarter. Further, as we expected, we cycled a combined approximate 590,000 hectoliters of contract brewing volume for Pabst in the U.S. and Labatt in Canada in the first quarter of 2024. This contract brewing volume, which related to agreements that terminated at the end of 2024, had a negative 4 percentage point impact on America's financial volume for the quarter. Again, while the exit of this contract brewing is a temporary volume headwind, we expect to have a positive impact in 2025 and beyond on mix, margin, and brewery network effectiveness. In fact, net sales revenue per hectoliter in the Americas was up 4.8%. In addition to favorable net price and growth, it was driven by mix benefits, which largely resulted from the exit of this contract brewing volume. It also benefited from positive brand mix led by the addition of Fever-Tree in the U.S., which is already showing early positive signs in our investment thesis and its long-term impact on our business. In EMEA and APAC, our financial volume was down 9.7% due to soft industry demand across our regions and the heightened competitive landscape. However, this was partly offset by net sales revenue per hectoliter growth of 5.4% driven by favorable sales mix, including high effective brand volume and continued premiumization and increased pricing. From a consolidated earnings perspective, we continue to closely manage costs while maintaining strong commercial support for our brands globally. However, lower volumes, volume deleverage, higher input costs, and one-time Fever-Tree transition and integration fees of approximately $30 million negatively impacted bottom-line results. Our underlying free cash flow was negative $265 million. The first quarter is typically a cash-use quarter and our smallest quarter of the year in terms of revenue and profit. Still, we invested $88 million for an 8.5% equity stake in Fever-Tree Drinks PLC and returned nearly $160 million to shareholders through a higher quarterly dividend as well as ongoing share repurchases. Despite a volatile quarter, we continue to view our valuation as compelling given our belief in our business and in our long-term growth algorithm. In fact, for the first six quarters since the share repurchase program was announced, we had already executed over 40% of this up-to-five-year program, which if you straight line the number would have us at only 30%. This belief comes from our commitment to our strategy and our ability to execute it. Through continued brand support and investments in our capabilities and partnerships, we are making progress in advancing our strategic priorities. I'll start with our core power brands. In the U.S., Coors Light, Miller Lite, and Coors Banquet have combined 15.4 volume share as compared to 13.5 in the first quarter of 2023. Said differently, these brands combined were up 1.9 share points since the first quarter of 2023, continuing to demonstrate that the step change improvement in volume share performance is sticky. Please refer to Slide 18 in our earnings deck, which highlights our strong and sustained share performance. Very importantly, we have retained the collective unprecedented U.S. shelf space gains for our core portfolio, which we achieved last spring. All this reflects the ongoing strength and resilience of these brands. Coors Banquet's momentum continued to accelerate with brand volume up double digits and growing industry share for the 15th consecutive quarter. This is no small brand. Banquet is our third largest revenue brand in the U.S. In fact, it remains the fastest growing top 15 brand in the U.S. on a volume percentage growth basis. Retailers certainly recognize this as evidenced by the 20% distribution gains in the quarter, with growing distribution across every channel. We expect the brand's strong momentum to continue based on the distribution gains that we are seeing with spring resets. Still, Banquet has only half of the outlets buying compared to Coors Light, and its awareness is significantly below those of other big beer brands. We are investing to unlock the big opportunity that lies ahead. We see no reason Banquet can't ultimately become a top 10 U.S. brand. In Canada, Coors Light remains the number one light beer in the industry, while the Molson family of brands gained volume share again this quarter, with gains accelerating for this brand with deep Canadian roots. This performance has helped us to drive eight consecutive quarters of shared growth, despite the challenging industry backdrop. In America and APAC, a number of our core power brands are leaders in their respective markets. Carling remains a top lager in the U.K., with strong brand equity among its core drinkers in the highly competitive U.K. beer market. We have continued to take a value-over-volume approach, which has weighed on volume performance. In Central and Eastern Europe, Ožujsko in Croatia maintained its position as the segment leader and continued to increase value segment share on a rolling 12-month basis, while Caraiman in Romania, which launched last year and has had strong trials, continued to gain value share of segment in the quarter. This has been despite industry softness in the region related to escalating global political and economic tensions. Turning to our premiumization priority for both beer and beyond beer, in the Americas, Canada continued to premiumize, driven by the ongoing success of Miller Lite, which is the fastest growing major beer brand in this market on a percentage basis, as well as by our flavor portfolio. We are one of only two major brewers growing share of flavor in Canada. In the U.S., many of our premiumization plans for this year are just getting started as we head into peak season. In beer, the Blue Moon brand family held share of industry through February, continuing the share stabilization trends we saw in the second half of last year. In March, Blue Moon Belgian White was temporarily negatively impacted as we converted from 15 packs to 12 packs to align with broader consumer preferences and given the benefits related to margin, supply chain efficiency, and packaging consistency. The positive momentum behind our newer innovation Blue Moon non-alc has continued, gaining over a point of dollar share in the non-alc beer segment in the quarter. Turning now to Peroni, the plans we've been talking about for a while now are just starting to kick off. As a reminder, with onshore production, we have unlocked meaningful cost savings, which we intend to deploy towards increased distribution and awareness to drive scale and margin for this brand. Through our strong commercial programs, along with improved continuity of supply and new pack sizes, we are securing more on-premise placements and expanding our presence at retail with placements up nearly 50% in chain. While it's early days, ultimately, we expect Peroni can rival the size of other major European imports in the U.S. over time. In Beyond Beer, which is an important part of our premiumization plans, non-alc is a key focus area. It's part of our strategic ambition to build a total beverage portfolio for a wide range of consumer preferences across both traditional alcohol and non-alc occasions. It provides us with the opportunity to capture more occasions, particularly among younger legal drinking age Gen Z consumers. We are investing behind the growing areas in non-alc, where we believe we have a right to win. Our approach in non-alc is multi-pronged. Within Beyond Beer, it includes pure players like ZOA, alcohol-adjacent products like Fever-Tree, and alcohol replacements like Naked Life. Last October, we increased our equity stake in ZOA to a majority position. By leading the entirety of the brand's marketing, retail, and direct-to-consumer sales development, and leveraging the strength of our network, we believe we can drive brand awareness and distribution. In fact, we have a significant number of new chain retailers coming on board with expanded distribution in several key accounts this spring. We are continuing to build on our partnership with Dwayne Johnson with a new campaign that delivers an impactful, functional message, supported by a bigger media push, and the early consumer sentiment reads on the campaign are promising. Then there is Fever-Tree, the world's leading supplier of premium carbonated mixes with the number one tonic and the number one ginger beer in the U.S. since 2021. Through this strategic partnership, we have the exclusive commercialization rights to the Fever-Tree brand in the U.S., its largest market. Fever-Tree U.S. volume was approximately 500,000 hectoliters in 2024. This adds real scale to our non-alc operations. This partnership has had an immediate impact, as every single case we sell of Fever-Tree is incremental to our business. When you consider that Molson Coors has about 500,000 outlets buying as compared to Fever-Tree, which has in the tens of thousands, we believe the upside potential is substantial. Having just completed our distributor RFP process, we are pleased to share that Fever-Tree's direct sales to distributors will shift to Molson Coors and affiliated non-alc beverage distributors. The excitement and responses to the RFP from the distributors demonstrate their commitment to taking Fever-Tree to the next level. We intend to leverage the scale and strength of our distribution network, combined with our marketing capabilities, to accelerate Fever-Tree's growth over time. Turning to EMEA and APAC, Madrí's net brand revenue was up high single digits in the quarter, continuing to support premiumization in a business for which net brand revenue is already more than half above premium. This four-year-old innovation is already a top 10 brand for us globally, and we see significant runway ahead. In addition to its strong performance in the initial market of the U.K., and a very successful launch in Bulgaria last year, we just added Madrí to our portfolio in Romania in March. A deliberate expansion of this brand is not just geographic. In March, we launched Madrí 0.0 in the U.K. to capitalize on the rapidly growing non-alc segment in the market. Now, before I pass it to Tracey, I'll conclude by saying that these are dynamic and uncertain times, but we are taking steps to protect our profitability and free cash flow while continuing to execute our strategic initiatives that support our long-term growth objectives. We remain committed to supporting the health of our core power brands globally. We have strong plans to premiumize our global portfolio, building on successes in EMEA and APAC and Canada, and executing targeted programs in the U.S. We expect to build on and leverage our capabilities across our organization that support premiumization and focused innovation, supply chain efficiencies, and commercial effectiveness. We intend to utilize our greatly enhanced financial flexibility to prudently invest in our business and return cash to shareholders. Our company, through its various iterations, has navigated volatile times for more than a century. By being proactive and adaptive, we have often emerged even stronger. We remain focused on what we can control, taking actions to help mitigate near-term challenges while continuing to invest in our business and brands to achieve our growth algorithm over the long term. With that, I will pass it to Tracey.

Thank you, Gavin. Our work over the last several years has greatly improved the efficiency of our business, from supply chain to commercial operations. These efforts have helped to drive an increase in margins over the last two years and support the further expansion opportunity that underpins our long-term growth algorithm. There are multiple drivers that impact our margins. They include pricing, mix, input costs, volume leverage, and cost savings. The impact of those drivers varies by quarter. In the first quarter, underlying costs of goods sold per hectoliter increased 6.1%. This is mainly due to volume de-leverage, given the U.S. shipment trends Gavin discussed. In the first quarter, volume de-leverage negatively impacted underlying cost of goods sold per hectoliter by 420 basis points, while in the prior year period, volume leverage was a 110 basis points benefit. Mix also contributed, driving 220 basis points of the increase in underlying cost of goods sold per hectoliter. This was due to lower contract brewing volume in North America and premiumization in each business unit. Importantly, while these mixed impacts increase cost of goods sold per hectoliter, they are favorable to margin. As for inflation, while we did experience moderated increases in input costs, this was largely offset by our ongoing cost savings and extensive hedging programs. MG&A was up modestly in the quarter as increases in G&A, which included one-time transition and integration fees of approximately $30 million related to the Fever-Tree partnership, were partly offset by slightly lower marketing. Turning to the balance sheet, at quarter end, net debt to underlying EBITDA was 2.47x. This was an increase from year end 2024, as we normally see a sequential uptick in the first quarter, given lower cash balances. This ratio is in alignment with our long-term target of under 2.5x and underscores the health of our balance sheet. This, along with the highly cash-generative nature of our business, provides us more optionality in the ways that we invest in the business, be it through capital investments that drive productivity improvements or through bolt-on M&A that support our strategic growth objectives. Our recent investments in high-growth non-alc brands, like Fever Tree, are great examples. It also provides us with the opportunity to return even more cash to shareholders. We paid $99 million in cash dividends and $60 million to repurchase 1 million shares in the quarter. Since the plan was announced in October 2023, we have repurchased 7.2% of our class B-shares outstanding. It's an up to five-year $2 billion plan, and as Gavin mentioned, we have utilized over 40% in just the first six quarters. As we previously announced, in the first quarter, we raised our quarterly dividend to $0.47. This was an increase of 6.8% and represented our fourth consecutive year of increases, clearly demonstrating our intention to sustainably increase our dividends. Given our share repurchases, we were able to raise the dividend without incurring aggregate higher dividend cash payments. Now I'll conclude with our financial outlook. First, there's a great deal of volatility in the global macro environment, resulting in uncertainty around the effects of geopolitical events and global trade policy, including the impacts on economic growth, consumer trends, and currency. These impacts are multifaceted and difficult to predict. While we have included in our guidance our best estimate of some of these factors, external drivers may significantly impact our actual results, either on the ground or up or down. Fortunately, as Gavin mentioned earlier, while we are a global business, our beers and beverages are generally made in the markets in which they are sold, meaning the vast majority of our brands sold in the U.S. are made in the U.S. with U.S. ingredients. The same is true for our Canadian business. We have a limited number of brands that we import into the U.S., and their volumes are relatively small. For example, we import Molson Canadian from Canada and Sol from Mexico. Again, those are very small brands in the U.S. Also, since a significant portion of our direct materials are sourced domestically or are USMCA compliant, we don't expect a material direct impact on the known tariffs on our input costs. We believe we are one of the better positioned businesses in our category. Still, we continue to evaluate options to mitigate exposure and risk. For example, leveraging additional domestic supply where possible. While tariffs have had indirect impacts, causing fluctuations in commodity costs like the Midwest premium, our extensive hedging program can help to mitigate some of that exposure. Lastly, please remember that net sales revenue and underlying pre-tax income growth guidance metrics are on a constant currency basis, and underlying earnings per share is not. Therefore, fluctuations in the U.S. dollar will impact our reported results as well as underlying earnings per share growth and in the effective period using the current exchange rate. With that said, as Gavin discussed, we have updated several of our guidance metrics due to softer industry trends than we believe most expected, which we attribute to the macro shifts that we have discussed that have driven consumer uncertainty and pressured consumption trends. As such, we have updated certain key guidance metrics. We now expect a low single-digit net sales revenue decline on a constant currency basis as compared to low single-digit growth previously, a low single-digit underlying pre-tax income decline on a constant currency basis as compared to mid-single-digit growth previously, a low single-digit underlying earnings per share growth as compared to high single-digit growth previously, and lower capital expenditures incurred of $650 million, plus or minus 5%, as compared to $750 million, plus or minus 5% previously. All remaining metrics are unchanged, including underlying free cash flow of $1.3 billion, plus or minus 10%. Turning to our guidance drivers, our top line assumes an anticipated annual net price increase of 1% to 2% in North America, in line with the average historical range, and for other markets to trend in line with inflation. It also assumes mixed benefits from cycling contract brewing from 2024, as well as from premiumization. In 2025, we expect to continue to grow above premium net brand revenue in EMEA and APAC and Canada, as well as make progress in the U.S., where, as Gavin shared, we remain committed to turning Blue Moon around and are embarking on big plans for Peroni and non-alc. While Fever-Tree and the consolidation of ZOA provide incremental benefits to the top line, we will also be cycling revenue from the smaller regional craft breweries we divested in the first quarter of 2024, and more significantly, the 2024 Pabst and Labatt contract brewing volume. Again, these contracts terminated at the end of last year. On a combined basis, we expect a related 1.9 million hectoliter headwind to America's financial volume in 2025. In the first quarter, we cycled about 590,000 hectoliters of this contract brewing volume on a combined basis. We will cycle a similar amount in the second quarter. Recall that last year we had a higher than typical inventory build in the U.S. related to the Fort Worth strike, which ended in mid-May. As a result, STWs outpaced STRs by approximately 1.1 million hectoliters in the first half, with STWs exceeding STRs by about 350,000 hectoliters in the second quarter of 2024. Given that hurdle in the second quarter, we anticipate that this year's shipment trend catch-up to STRs will occur primarily in the third quarter. Moving down the P&L, we expect fixed benefits from lower contract brewing and increased premiumization, moderating inflation on input costs and productivity improvements and cost savings to be offset by higher than previously expected volume deleverage, given industry volume trends. We continue to expect MG&A to be up for the year. This is largely driven by higher G&A related to our non-alc initiatives, which include infrastructure investments to support our total non-alc business, as well as Fever-Tree one-time transition and integration fees. Due to the timing of the RFP process, in addition to the approximately $13 million recorded in the first quarter, we expect to record a remaining amount of under $10 million in the second quarter. However, we expect to recover these fees in the form of a credit to net sales revenue over the next three years. These G&A increases are expected to be partly offset by deliberate actions to manage our near-term cost structure, given the current macro environment. For example, we are taking a deliberate and more restrictive approach to our recruitment efforts in the near term, and we intend to reduce certain non-business critical discretionary items like travel and entertainment. As for marketing, we intend to put the right commercial pressure behind our brand, with strong investments behind our core power brands, Peroni, the Blue Moon family, Madrí, and our non-alc portfolio. We are also refining and prioritizing our capital projects for 2025. As a result, we are reducing our guidance for capital expenditures by $100 million, postponing certain projects that do not relate to significant cost savings or critical growth initiatives. We are committed to protecting and growing our underlying free cash flow while making prudent capital allocation decisions that support our growth initiatives and allow us to return cash to shareholders. To sum it up, these are uncertain times, but we believe we have the right strategy, a healthy balance sheet, and strong cash generation to continue to execute it, while continuing to return cash to shareholders. We believe we are taking the necessary steps to help protect profitability in the near term while supporting the health of our business and brands in the medium and long term. Now, before we open it up to your questions, Gavin has a few closing remarks.

Thanks, Tracey. A few weeks ago, the company announced my intention to retire at the end of this year. After nearly 45 years in the workforce and 28 years in this incredible industry, I felt it was time. I am so proud to have been a part of Molson Coors' many accomplishments over the decades and honored to have led this great company for the last six years. Now, while the board executes our succession process, I want you to know that it is business as usual at Molson Coors. We remain hard at work, executing our strategy and focused on achieving our revised financial objectives this year. As I prepare to step aside, I remain confident in the beer industry, in the company's position, its business plans, and its future. I look forward to continuing to engage with you all in the investment community in the months ahead as we set up the next leader to build on the company's success. And with that, we will take your questions.

Gavin, congratulations on the announcement. And I guess I could say thank you for all the patience. I know we've badgered a lot over the years and really appreciate that you've maintained your patience with us over that time.

Well, thanks for that, Bryan. I appreciate that.

Sure, you're welcome. I have two questions. One is just with regards to this year, maybe, Gavin, just at a high level and, or Tracey, just if I'm reading the press release and compared to Mark, what's changed since the start of this year is really just the U.S. market, slower industry, slower than I guess we all expected at the start. I guess perhaps a little bit of the promotional elements in mostly in Europe. So just, and I ask this just in the context of the guidance implies a bit of an improvement in organic sales over the back half of the year. Aside from the stuff that we know in terms of the comps from last year, I'm just trying to isolate like what should be what we should be watching as we go through the balance of the year to support what's implied as an improvement in organic sales in the back half or in the back three quarters.

Well, thanks, Bryan. And thanks for the question. Look, a lot of what happened in the first quarter was expected by us. I think we communicated that in the fourth quarter earnings call. The shipment timing issue, given the Fort Worth strike was expected. The Fever-Tree one-time costs were also expected. They were a little higher than we had originally anticipated. But, you know, we certainly expected the one-time costs that came through from Fever-Tree. What was unexpected was, you know, the macroeconomic conditions that have surrounded us. Frankly, almost every consumer company that has released results over the last few weeks has reported challenges with consumer confidence and demand. We certainly didn't have an industry forecast of down around 5% coming in. If you look out to the balance of the year and compare it with what happened last year, if you remember in the summer of last year, we saw economic pressure that caused some value seeking behavior by the consumers, which had a direct impact on category performance. While that was certainly the case in the largest selling season last year, by the time we got to the end of the year, it had recovered. Our forecast does not include a consistent down 5% industry for the rest of the year but does anticipate that the industry will improve from its current trend lines. Hopefully that's helpful. To add to that, as Tracey said on the call, the pricing environment we expected to fall into that 1% to 2% historical range that we talked about last time. An important point to note is that a lot of our activity and plans hit in the second quarter. We've already seen a nice improvement in the trends of Peroni, for example, and the plans really only hit now. Obviously, we've only had Fever-Tree for a couple of months in the first quarter, and our integration and plans for that are still ahead of us. Don't forget that every case of Fever-Tree we sell is incremental to our business. So hopefully that helps, Bryan. Thanks.

Yes, congratulations from me too, Gavin.

Thanks, Bonnie.

I wanted to ask, I guess, a follow-up question on guidance. Given the weak Q1 results, I'd like to hear, is you're losing more share than you thought? I assume your retained share that you've talked about in the past is now below the 80%. If you could update us on that, that would be great. Then maybe just a little bit more color, Gavin, on the month-to-month trends during the quarter and whether your trends have accelerated in April and then into May. I'm really trying to gauge the current run rate of your business in the context of the slower than expected Q1. Thank you.

Thanks, Bonnie. Look, from a retention of our core power brands in the U.S., that meaningful step up that took place in 2023, we've retained almost all of that. When you look at where our core brands were before, Q1 of or Q2 of 2023, they were at around 13.5 share and jumped to about 15.6. At the end of Q1, we're at 15.4. So we've retained almost every piece of share that we gained. I attribute that to the health of our core brands, Coors Light, Miller Lite, and Coors Banquet. I attribute that to the tremendous work of our chain teams in gaining significant share of shelf space and actually retaining it, which is our expectation this spring. All the data we have suggests that we're going to retain and actually grow a little bit of share, particularly with Coors Banquet. Coors Banquet's trends are just on fire, and it's being represented in our shelf resets. The first point is that we have retained a substantial amount of the share we gained from a core point of view. As for our total share trends, they have sequentially improved quarter-over-quarter since the third quarter of last year. In Q3, we lost about one percentage; in Q4 that improved to 0.7; and in Q1 of this year, that improved to 2.6. So our trends have been improving quarter-over-quarter. Our Q1 trends were relatively stable through about the middle of the month. In mid-March, we had a little bit of accelerated share loss attributed to two reasons: the meaningful pack change from our Blue Moon brand moving from 15s to 12s caused disruption from Blue Moon, and Simply brand's share decline accelerated due to the timing of innovation. There has been some improvement in the industry in the last four weeks of April. As I said to Bryan's question, we are not anticipating that the industry will continue to decline at around 5% going forward. Hopefully that's helpful, Bonnie.

Gavin, congrats on the announcement. I want to start with the question on the beer category. Generally, it was a pretty soft Q1. We've seen the trends not really accelerate that much into April. I'm just curious what are your expectations for the balance of the year? Do you think a decline more in the 3% to 4% is possible for a category that's down 1% or 2%? On tariffs, is there any sort of broad impact that you're expecting within the 2025 guidance? Thank you.

Filippo, I'm sorry, I caught the first part of your question, but I didn't catch the second part at all. If you wouldn't mind just repeating it.

Yes, absolutely. So the second part on tariffs, I was just curious if you can put some numbers in terms of the magnitude of the impact on a gross basis and just on the mitigation actions as well. Thank you.

Thanks, Filippo. Yes, got that the second time around. Trace will handle that in a second. But from an overall industry point of view, we don't have a public forecast of the industry for the year. Look, we expect the industry will be better than what we've seen to start the year, which was down around that 5% in Q1. We do expect, over the balance of the year, to see similar trend lines we've seen over the last few years—obviously, one quarter doesn't a year make. There were some macroeconomic pressures and consumer confidence challenges. We can't predict when those challenges will end, but they are cyclical. Trace, you want to talk about tariffs?

From an input cost point of view, Filippo, we import a very small portion of our U.S. portfolio from Canada and Mexico. It's really only Molson and Sol, respectively, which is a small volume for the U.S. markets. We do import the majority of Fever-Tree from Europe, but we can onshore this brand through co-manufacturing in our network. The majority of our direct materials are sourced domestically. We don't expect any material impact from known tariffs right now on our input costs. We have spoken about our extensive hedging program, which can mitigate some of that exposure. One commodity, the Midwest premium, is difficult to predict due to lack of transparency in pricing. We don't expect a material impact on our costs from tariffs.

I actually wanted to follow up on this. Hi, Gavin. I wanted to follow up around cost, inflation, and gross margin. I found it interesting that this was the first quarter with a small net favorability in cost inflation within your COGS per hectoliter disclosures of the past few years. Is there a reason that would change notably in the coming quarters? I know you don't guide on these types of topics, but just looking at the evolution of hedges, Midwest premium, tariff inflation. It's striking to see slight favorability in the context of current history. You sound comfortable around overall inflation, and I wonder if you could contextualize that in the medium term evolution of that specific bucket. Then just a quick follow-up for Gavin regarding the timing of leadership transition.

Thanks very much, Chris. I'll take your second question first, then Trace can take the cost of goods sold. The process is underway. The board's looking at internal and external candidates. The top priority is to navigate the process thoughtfully, focusing on capabilities and ensuring a cultural fit. The board believes in our long-term strategy, and a new CEO will put their own stamp on the company, but we are supportive of our long-term strategy. Business as usual, I’ll run through the tape to year-end. Trace, cost of goods sold?

In terms of outlook for COGS for 2025, as we said in our Q4 when issuing guidance, we do expect underlying COGS per hectoliter to increase for 2025 due to inflation. A lot of investments we've made in our business have started to drive efficiencies and cost savings, which we see in our results. Inflation did have a smaller impact on our Q1 numbers because much of that was offset by cost savings. The other part of our COGS was the de-leverage from exiting the contract brewing arrangement. The extensive hedging program helps mitigate volatility, so we've seen the benefits coming through in our results for the quarter.

Gavin, congrats from my end as well. I wanted to follow up just on category growth. There is a more challenging backdrop, but just given where we are, how do you dissect what's typical given the macro versus what may be happening structurally? And then, do you have a view on when you would anticipate category trends to improve, or where category growth may land for the second quarter?

Thanks, Peter. It’s clear to us that the incremental softness we’ve seen in the industry is macro driven. We’re taking steps to protect profitability in the near term while continuing to support our brands through this. The timing of these trends isn’t something we can forecast, but this is cyclical. We expect to see a return to normal industry trends, as we have experienced in the last few years. Our guidance is built on our own internal forecasts for the industry.

Yes, hi. This is Greg on for Robert. In the press release, you talked about the heightened competitive landscape in EMEA and APAC. Maybe you could just dive into a bit more about what you're seeing broadly in each of those two regions.

Thanks very much, Greg. Look, in the U.K., the industry started the year soft, continuing the trend seen in last year's consumer demand with a market down on a volume basis. We've noted that the market has become increasingly competitive, with higher promotional intensity across both channels. Our largest brand in the U.K., Carling, is focused on value over volume while leveraging our connection to soccer to drive brand strength. Madrí continues to drive both volume and value growth across channels, and we see growth potential for this brand in new markets. In Central and Eastern Europe, the beer industry remains sluggish due to a decline in consumer confidence driven by macroeconomic factors and global tensions. We've seen higher promotional pressures, but remain optimistic and active in executing our plans with investment pushing behind our national power brands.

Congrats to you, Gavin. I hope you don't forget us and come to Cagney for a toast next year. You mentioned that you're assuming the industry will not be in its current shape with mid-single digit decline in the U.S. I was hoping you could comment on your price architecture.

Thanks, Andrea. There is a lot to address in that question. From a share perspective, the core share retention across Coors Light, Miller Lite, and Coors Banquet is significant. Coors Banquet has outperformed expectations, while Coors Light and Miller Lite have held a large portion of the share. Overall, we've retained almost all of the share we gained in 2023. Blue Moon is an important brand for us, and we are committed to turning it around. The pack adjustment caused temporary performance impacts, but aligns with consumer preferences and will provide significant benefits from a profitability perspective. Beyond our core brands, we are seeing positive momentum with innovative non-alcoholic products. The majority of our marketing spend on Blue Moon will take place between April and December, which sets us up well for upcoming growth.

Gavin, congratulations. It’s been a fun and long road through many different versions of what the company looks like today. If we could talk a little about pricing; with the macro environment, we're also hearing signs of increased promotional activity. I'm curious how you're thinking about the absolute price points of your various brands versus the macro environment.

Thanks, Kaumil. From a consumer point of view, we’ve seen ongoing value-driving behavior, but we don’t expect unusual promotional activity. Higher competition typically leads to increased activity as you head into summer, easing off into the shoulder months. That’s very common. We’ll see it again in 2025, but nothing unusual from our perspective.

I know we've covered much ground. Just wanted to check on the CapEx adjustment. Is there anything you can share on what you won't be doing that you had originally planned?

Thanks, Lauren. Trace, do you want to take that?

We're postponing certain projects that don't relate to significant cost savings or critical growth initiatives. We will continue to invest in health and safety projects, which are our number one priority and have a whole host of projects that drive cost savings and growth initiatives. Those are being prioritized, while postponing those that don't have a significant impact on performance.

Good morning, and Gavin, congrats as well. I just wanted to look at America's price mix and understand that a little better. It obviously has the mixed benefit from the less contract brewing, but it was a little below the lift in the last few quarters. Can you give us a sense of whether Fever-Tree costs come through the top line somehow? Is that a bit of a drag? What to expect going forward?

To answer your Fever-Tree question directly, the incremental costs because of the distributor transition go through our MG&A line. They don’t come through the top line from a cost standpoint. The cost that will push through in the second quarter will also go through the MG&A line. The credit will come through in net sales revenue, per technical accounting. NSR per hectoliter from a North America perspective was up about 4.8%. Pricing fell in the expected range, while the majority of that gain was in mix. We should see mixed benefits continue throughout the year.

Gavin, I want to extend my congratulations as well. I’ll ask a question on capital deployment. You’ve done a tremendous job getting your debt leverage down. The flip side is you pivot toward buyback. The stock is under pressure today. What do you think the market is missing? What do you feel the market under-appreciates about Molson Coors? Number one. Secondly, do you foresee scenarios where you revisit the String of Pearls approach to M&A? Perhaps there’s something bigger out there to diversify the portfolio away from mainstream beer, which has been in perpetual decline?

Thanks, Kevin. You’ve identified many things I’m proud of over the last six years. Our balance sheet and debt reduction are top achievements. Our strong cash generation provides flexibility to return cash to shareholders. I believe investors miss the strength and resilience of our core brands and the work of our sales and marketing teams in retaining share. Most expected us to lose back everything we gained, but we’ve retained almost all share. Our String of Pearls approach has worked well. The board believes in the long-term strategy, but with a stronger balance sheet, the size of acquisitions can increase. I’m excited about our partnership with Fever-Tree.

Great, and congratulations again, Gavin. It’s been a pleasure working with you, looking forward to the next six to seven months. Most questions have been answered, but I would love to circle back and get your perspective on mid-term category growth through the lens of the various segments. Mexican imports have slowed, and I'm curious how you’re thinking of category growth over a three-to-five-year time frame, considering a larger base.

From a portfolio perspective, I’m pleased with where we stand with our core brands. We acknowledge that we have work to do in the premium space, but I feel good about the plans and the upcoming growth. The pressure we’re experiencing now aligns with what we’ve seen historically but is difficult to predict when it will normalize. We’ve shown some improvement in April, which indicates potential recovery ahead.

I just wanted to see, Tracey, if you could put a finer point on your forecast for North America. To what extent have you lowered sales expectations for the second, third, and fourth quarters?

We don’t provide quarterly guidance. The first quarter was markedly softer than anticipated across the industry. Gavin spoke about CPG companies facing similar macroeconomic impacts. Our guidance reflects a net price increase back to the historical 1% to 2% range, with a recovery expected in STRs and STWs aligning more in Q3. Top lines will reflect premiumization, innovation, and partnerships going forward.