Q4 2023 Earnings Summary
- Molson Coors has achieved strong and sustained market share gains in the U.S., believing these shifts are permanent, with growth across every region, channel, and major customer. The majority of new consumers have remained loyal throughout 2023.
- The company is the largest share gainer in the on-premise channel, growing three times more than the next major brewer, with brands like Coors Light, Miller Lite, Blue Moon, Coors Banquet, and Miller High Life all increasing share.
- Strategic initiatives in premiumization and innovation are driving growth, including the successful launch and expansion of Madri Excepcional and plans to revitalize the Blue Moon brand with new products like Blue Moon Light and Blue Moon Non-Alcoholic showing positive early results.
- Challenging performance of Blue Moon and the broader craft beer market: The company acknowledged that Blue Moon had a "challenging year" in 2023, noting that it hasn't been immune to the challenges in the craft beer market as a whole.
- Weak consumption in key international markets: There was "weak consumption in the U.K. as well as some sustained pressure in Central and Eastern Europe," with uncertain prospects for near-term volume growth in these regions.
- Potential competition from cannabis among younger consumers: Analysts highlighted the risk that "younger consumers seem to shift more and more towards cannabis as a preference rather than beer," which could impact beer sales, especially in states where cannabis is legal.
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Sustainability of U.S. Market Share Gains
Q: Will you maintain U.S. market share gains into 2024?
A: Gavin Hattersley expressed confidence in sustaining U.S. market share gains into 2024. He noted consistent growth in core brands over nine months, momentum continuing into Q1, and believes the shifts in the U.S. beer industry are permanent. The company expects to continue gaining share, supported by increased retail space, stronger display activity, and on-premise gains. -
EPS Guidance and Share Repurchases
Q: Why is EPS growth aligned with pretax income, and what about share repurchases?
A: EPS growth guidance is mid-single-digit, slightly less than the long-term algorithm due to an increased tax rate from profit mix across regions. Regarding share repurchases, the company plans a sustained and opportunistic approach under its $2 billion program, implying roughly $400 million per year over five years. -
Rising Cost of Goods Sold
Q: Why are COGS per hectoliter rising despite strong volumes?
A: COGS per hectoliter are increasing due to premiumization, which leads to higher production costs for above-premium products. Additional factors include material cost inflation and existing hedges on input costs acting as headwinds, even though spot prices have declined. -
EMEA and APAC Volume Outlook
Q: Do you expect EMEA and APAC volumes to improve?
A: The company reported double-digit top and bottom-line growth in EMEA and APAC last year. Signs of lowering inflation and reduced consumer impact are expected to continue improving in 2024. Growth is anticipated to be driven by premiumization and successful brands like Madri, which is expanding into Bulgaria and Canada. -
Capital Allocation and Cash Use
Q: How will you deploy cash if volumes fall short?
A: Molson Coors maintains its capital allocation priorities: investing in the business, keeping leverage below 2.5x (currently at 2.2x), and returning cash to shareholders through dividends and share buybacks. Should volumes fall short, they may adjust buybacks timing but will adhere to strategic priorities. -
U.S. Beer Category Outlook
Q: Will the U.S. beer market return to flat to down 1% volume?
A: The company expects the U.S. beer category to revert to historical levels of flat to down 1% in volume after improvements in 2023, particularly in Q4. This expectation is embedded in their 2024 guidance. -
Impact of Cannabis Legalization
Q: Does cannabis legalization threaten beer sales?
A: Molson Coors has not observed a significant negative impact from cannabis on alcohol consumption. In markets like Canada and Colorado, beer sales remain strong despite cannabis legalization, indicating limited cannibalization. -
Blue Moon Brand Performance
Q: What's the outlook for Blue Moon?
A: Despite challenges in 2023, Blue Moon shows signs of improvement in the on-premise channel. Plans for 2024 include redesigned packaging, a new marketing campaign, and innovations like Blue Moon Light, the #1 light craft beer, and Blue Moon Non-Alcoholic, which quickly became the #3 craft non-alcoholic beer by volume. -
U.S. Volume Growth Post Q1
Q: Will U.S. volumes grow after Q1 despite tough comps?
A: Molson Coors aims to continue gaining market share and driving top-line growth through pricing and premiumization, even with tougher comparisons in Q2. They expect to maintain momentum beyond Q1. -
Addressing Draft Volume Weakness
Q: How will you address industry draft volume declines?
A: The company is growing share in the on-premise channel, with brands like Blue Moon, Coors Banquet, and Miller High Life performing well. Draft volume weakness is largely due to the decline of craft brands, but Molson Coors' portfolio remains strong and healthy in this segment. -
Pricing Position vs. Spirits
Q: How do you view beer's pricing compared to spirits?
A: Beer has historically taken higher pricing than competitors in the alcohol space, though not as much as spirits. Molson Coors expects pricing this year to be in the historical 1% to 2% range, consistent with past expectations. -
Portfolio Outside Core Brands
Q: How is your portfolio beyond core brands performing?
A: Outside the U.S., the company is seeing strong share growth in Canada, driven by core brands and flavors. Coors Light became the #1 light beer, and the flavor portfolio is outperforming competitors. In the U.K., despite cautious outlook due to excise tax impacts, the portfolio is strong with brands like Madri expanding internationally.