Molson Coors Brewing Company (MCBC) Aktie

Great. For our next session, I'm thrilled to welcome back Molson Coors Beverage Company. Rahul Goyal, the new President and Chief Executive Officer of Molson Coors is here with us; as well as Tracey Joubert, Chief Financial Officer. So Rahul and Tracey, thank you very much for joining us, and welcome.

Thank you. Thank you for having us.

Great. So I want to start, Rahul, with you. Just as you have now settled in, set a direction for the company. I guess what are the maybe 2 or 3 things that you would want investors to, I guess, best understand about where Molson Coors is headed and what may be different about this chapter versus the past?

Yes. No, thank you for that. I would say 3 main things I would probably leave everybody with. One is our portfolio. I mean we're pretty clear eyed about the category. We're pretty clear eyed about where our portfolio stands, but it is a strong foundation. So -- we know we have our core brands, our value brands that are scaled. They generate a lot of value.

There's a strong connection with consumers, and we need to make sure they're healthy. On the other hand, we are transforming the portfolio. On the other hand, right, I mean, our Beyond Beer journey is early, but we are transforming that part of the portfolio.

So portfolio is one piece I would leave everybody with. The second piece is around our -- I would call out the operating model, right? So what we're doing is different than what we have done in the past, whether it's about our commercial execution, whether it's about our local focus, driving accountability closest to our customers, whether it's about our focus on cost savings and optimization, right?

I mean the cost program we announced, the optimization work we're doing across our business. And then three, I would call out our investment in capabilities, right? So that's both technology-related and investments related is how are we leveraging our investments to really drive return for our business. And then the third one I'd call out is our balance sheet, right? If you look at our business, we are a pretty high cash yield business. And we are doing a number of different things with our balance sheet.

So whether it's investing in our business, whether it's returning money to shareholders and also keeping our leverage in a way to be disciplined on the balance sheet. So that's the big 3 things I'd flag for folks as they look at Molson Coors.

Okay. Great. And if we focus on the portfolio first, I mean, you've mentioned essentially that all segments matter across, right? So the core, the value brands, above premium, beyond beer. I guess -- how do we think about the role that each one of those pieces play?

Yes. So I would say the best way to look at our portfolio is in these 4 broad buckets that you called out, right? Core is scale. Core matters. The Coors Light, the Miller Lite, Carling in the U.K., Molson Canadian in Canada. This is all about share. This is all about making sure we can keep and win share. These brands mean a lot in the core markets, right? It's connected with consumers. And I know sometimes you look from the outside and like, well, is this -- can you find a way to grow it?

And we have pockets where we have shown the way to grow this, right, whether it's Canadian, the Molson Trademark in Canada, whether it's Banquet in the U.S. So core matters and its scale, it resonates with consumers.

The value segment, I would say, is from 2 places. One is from where the economic context is for consumers. They are looking for different price points. So brands like Keystone, brands like High Life, these matters. And then they may be a little bit more geographically focused, a little bit more local, but it is scaled. These are big brands, and so it drives a lot of utilization for our business.

So both from a consumer perspective and from a brand perspective, this part of the portfolio matters. And then if you look at our above premium agenda, we've done a decent job on that in beer in some of our other markets and not the U.S. So in the U.K., in our European business, in Canada, we have a pretty good part of our portfolio in the above premium part of the business. In the U.S., we are under-indexed. And so there, we just got to find scale, right? We've got to find a way to grow ourselves in the above premium beer. And then the fourth part is beyond beer, which is all new, right? We've been in business for 240 years. We know beer. Beyond beer, we've been in the business for less than 4 years. And there, it is about getting scale, right? We started with probably less than 1% revenue.

We are approaching 10% revenue, but we've got to get that big enough that, that part of the business can grow faster than some of the other parts of our business. So we're excited about having the ability to flex our business across 4. Again, I go back to a pretty clear eyed about category challenges, but we like the portfolio we have. We know we can find a way to resonate that with consumers and transform it with the parts of the business that are under-indexed for us.

Great. I want to drill a little bit deeper into each of those. But just on those category challenges, there's been a long-standing conversation amongst investors about the pressures on beverage alcohol broadly. And I guess your perspective on what may be structural changes that impact your strategy as well as some of the kind of cyclical dynamics that are more here and now. And Tracey, if you want to jump in on those 2?

I'll start, Tracey.

I mean if you think about the broad consumer dynamics, right? I mean the focus on health and wellness or changing consumer preferences with respect to the choices they're making around food and beverage. I mean those are longer-term issues. I think, again, we've been thinking about it, handling it and it's on us to make sure we can navigate our portfolio to be ready for that consumer change. I share this as an anecdote. I.

Mean, if you think about it, everybody says a big focus on health and wellness, and that is true, right? And so there you see us a lot of businesses and companies like us move towards the 0, 0 nonalcohol focus. But some of the fastest-growing segments in the Americas is high ABV, right? So you have consumers that are -- talk about health and wellness, and that is important. But on the other hand, you do have consumers that are looking for both flavor, value and high ABV. So that part, I would call things, Steve, that we just have to make sure our portfolio is fit for the future, right? The other part, I think the overhang on this industry and the category has been, I would say, just volatility in the last 12, 18 months, which is just macro -- different macro issues, right, whether it was last year, the impact on Hispanic consumers or low-income consumers. This year, the year started out okay. But getting into March and April, you had other macro issues, again, Middle East, oil prices, pressure on consumers.

So I think that part, as a business, we are pretty resilient. We know we can navigate those volatile moments. I will go back to the balance sheet. The team has done a great job of making sure we have a strong balance sheet. So the structural part or the long-term effects is making sure we have a portfolio that's fit for the future. The volatility is we recognize like every other company, we've got to make sure we can navigate through that carefully. So Tracey?

And I think the only thing I'd add is when you look at -- when people are consuming alcohol, beer is still the major part of that consumption. And so it's really important for us to continue to make sure that, that part of our portfolio is healthy, as Rahul has said. But then for people who aren't consuming alcohol, that's where we're moving to, whether it be zero alcohol beer or the sort of RTD spirits side or any of the other sort of non-alcohol type beverages as we expand our portfolio to cater for those.

All right. Let's dive into the various segments that we talked about a minute ago. And on the core, you alluded to -- you've got some brands like Banquet that have found growth. And then you have other brands, Miller Lite that need some energy. So I guess as you kind of think about the core brand portfolio, what's essentially the playbook to get that overall portfolio in a stronger position going forward?

Yes. No, I think if you look at our core, I like the way we were looking for the [indiscernible] word one on Miller Lite. But if you look at our core portfolio, again, I go back to this is a strong portfolio that resonates with consumers, right? So we're starting from a place where these brands mean something for people. If I think about the Coors trademark, Coors Light, again, it's in a good place, and we've got a lot of new action coming in, whether it's with the World Cup in the summer, whether it's a new campaign.

But if you look at the Coors brand family, it's doing what it's supposed to. It's holding share. And in some weeks, we gained share. Banquet, I use that as an example, right? I mean, academically or intellectually, if you look at that brand, mainstream brand, full flavor beer, it should not grow. It's a 150-year-old brand. There is no logical reason for it to grow. But it is growing, and it is growing because there's a way of connecting the brands to consumers. It's resonating in culture. So for me, that gives us confidence. It gives us a playbook to say how do we make sure our brands can really connect with consumers and grow. Miller Lite, to your point, it is definitely something. It's just -- it's taking a little bit more time, right? I mean if you look at our share performance, that's where probably where we have some work to do.

And if you go deeper, it is a little bit more regional, right? If you think about the Great Lakes or the Midwest of America, that was old Miller Land. That was where we were the strongest. We are the strongest, highest share. And that's where we've had a few new entrants and the competitive context is harder. So we're pretty energized going into the -- being in summer, being with the plans we have this year, whether it is America's 250 with Miller Lite, whether it's the music platform we have with Miller Lite, some of the local activation we're doing in particular regions to really make sure this brand is well supported.

But we recognize it's a competitive landscape, Stephen. It's going to be a competitive landscape. And so this is the way I know we talk about it internally, this is a battle and a fight week by week. It is about execution. It is about making sure our brands show up in the right way. So if you think about our broadest way, our core portfolio in the states, I think we're pretty well set up to give a good fight this summer. And if you look at our brands, again, in Canada, Coors Light continues to be the #1 brand in Canada. The Molson Trademark, again, has a new sense of energy around it. So core is important. Core needs to be healthy. And I think we've got a lot of both good plans, investment behind our core plan for this year.

Okay. And is there a better way to judge progress than share?

I would say I know that's the most visible way to measure share. Obviously, these brands and the health of these brands are important, both in the context of the returns they create for our business and the way we think about utilization, et cetera. So I know externally, that becomes an easy way of thinking about progress, recognizing the volatility in the category. So that's what I would use.

Okay. If we flip to above premium brands like Peroni and Blue Moon, those have had kind of spurts of promise and then followed by softer patches. How do you -- I guess, what are the opportunities to really improve kind of consistency around the performance of that part of the portfolio?

Yes. I mean if you think about our above premium beer, so again, I go back to the fact that we are starting from a lower index, right? If you think about total share of above premium in the U.S., we're much lower than what our portfolio -- complete portfolio is. I would say we've shown consistency in Peroni, right? If you think about it in the last, obviously, 6-odd months, but even 12, 18 months, Peroni has shown consistent focus both from an investment perspective and also from a growth perspective.

The work we have to do is on Blue Moon, right? So -- and the way I would break out Blue Moon is Blue Moon was built on-premise. And if you look at what's happened in the craft category, the craft category has gone through a bunch of volatility. So the first job was to make sure do we have the right execution and making sure we're building the brand back to what the basics are, which was on-premise. And I think that gives us confidence. So if you look at the metrics, you look at the numbers, you look at our performance in the on-premise, I think that gives us confidence that we have the right proposition there. The question is then how do we scale it beyond. And then that's where it goes into the craft category needs a little bit different ideas, a different way to engage with consumers.

That's why you saw us lean into the non-alcoholic Blue Moon, which is again doing really well. You saw us lean into higher ABV of Blue Moon because, again, the craft category with the volatility, just -- it's got noisy. And Belgium white is important, and we've got to get Belgium White back to growth in the off-premise. But overall, if you look at it, in the family of brands, we feel pretty good. We've got a good game plan around Blue Moon. But to your point, again, that's where we've got to put points on the board. So Blue Moon, I get the fact that we have work to do to showcase the points on the board. But Peroni, I think we've driven with a lot more consistency.

MYou made a distinction there in part in kind of on versus off-premise, talking about Blue Moon. I guess taking a step back, you think about near-term trends and some of the softness we've seen in the off-premise data, what are you seeing? And I guess, what are your planning assumptions around off versus on-premise for the balance, I guess, for the balance of the year?

Yes. I mean if you look at the mix of on and off in the Americas, that's still going to be in the 85%, 15% range. It plays a little bit differently by region. But broadly speaking, that -- so for us, the way we think about it is a couple of things.

First is on-premise is, again, where your ability to connect with consumers, your ability to -- because they're paying a little bit higher prices versus the off-premise, therefore, you need to make sure that your brands are stronger there. So that gives us confidence. So if you look at, I think, Nielsen CGA, et cetera, on-premise, all our big 6 brands are showing good growth, right, good progress there.

So I think that gives us, again, a sense of confidence, making sure we're clear on how these brands connect to consumers. On-premise is doing better than off, right? It -- it's a little bit of how do we translate that into the off-premise. And then I then translate that into occasions, right? If you look at our business, if you look at the category, I know overhang about are people drinking, not drinking. The fact is folks are still drinking. This is not about abstinence. This is about making sure there's enough occasions where they're engaging with our products, our brands. And that's why the summer gets us excited, right? And you probably heard this from multiple other folks.

It just gives us more occasions to have our brands showcased, right? It gives us an ability to bring people together. So that's what I would say is the part that I know we're all looking forward to is some just added occasions this summer.

Yes. Yes. Okay. Let's talk about beyond beer, where there's been a lot of activity, right? And there's a lot of activity in your portfolio with Fever-Tree and Topo Chico and now Monaco. I guess, -- we'll talk a little bit about Monaco specifically in a second. But I guess when you think about the overall portfolio you've constructed in Beyond Beer, how does it work together? And how does that translate into more of like a cohesive platform for growth?

Yes. No, I mean, I think that first start with what is the role of Beyond Beer. So if you think about our business, obviously, we are in great profit pools, and we want to make sure we can continue to grow our business in those large profit pools, right, Americas, Europe. And consumers are making different choices on how they engage with our business, our brands. And that's where the Beyond Beer platform is important.

We started with probably less than 1% of our revenue in beyond beer. We're approaching about 10%. So we want to make sure it is of scale, right? So I think your question is how does this all come together? I mean we want to make sure it's a scale and the growth rate in Beyond Beer is obviously -- should be higher than the growth in the rest of our business, which is what we're getting to, and I think we're demonstrating now. The question there is what segments do we work in? And how does we make sure that the execution in that in beyond beer is aligned to our broader enterprise. And I think if you look at the choices we're making, you talked about Fever-Tree, you talked about Topo Chico, Monaco. I mean these are brands and beverages and categories that are close to alcohol, right? So if you think about Fever-Tree, obviously, it's a non-alcohol product, but it is close to alcohol. You can find it in the same place in a grocery store or on a liquor store.

The on-premise accounts are somewhat similar, but expands the universe base. So execution matters in that, right? So making sure that we can execute these parts of the portfolio along with the big infrastructure we have. So that's the exciting part for us. Again, I used Topo Chico as an example, I mean our partnership with Coke. We've had some good success initially. But then the flavor category was volatile. And so there needed to be a little bit of a step back and rethink. And now we're getting Topo Chico back into growth in a good way because we were able to expand innovation, bring that production in-house, use our facilities, drive value to the bottom line.

So while it is -- we're not going to have 10, 15

brands. So to your point of how does all of this work? I mean we need to have a few scaled brands that can give us both the scale with retailers, scale with distributors and our infrastructure. And then the only other part I'd call out is the good part with some of these brands that we've added to our business is we have brought in capabilities that we did not have. So for example, in Fever-Tree, the Fever-Tree team in the United States have done a good job of executing in really high-end accounts, right, white tablecloth, on-premise accounts where traditionally beer maybe -- may not be sold. But guess what, now our teams show up where we can sell Fever-Tree and we can sell Peroni, right? So it is a capability that we're adding to our business also as we think about the Beyond Beer part of the portfolio.

Great. So on Monaco, which is the newest addition to the portfolio, I guess maybe a little bit on what role that plays and what gap that fills in the portfolio? And I guess, milestones, integration priorities over the next few quarters and if there are any unique capabilities that, that brand or that the employees that work for that brand bring to the table, that would be great, too.

No. I mean if you look at one of the pieces I would again zoom back out is the flavor category, right? I mean that the flavor category is a pretty volatile one. We started the journey with seltzers and then F&Bs and now RTD Spirits. So we knew we had a gap. We knew we needed to fill a gap in the RTD spirits space. But one of the tricky parts in this is the volatility of brands. right? And how do we make sure we're getting something that we can take as a base and a platform and really grow. The other part was important was scale. Scale relative, obviously, to our size because if it's too small, it becomes too hard, becomes too hard for our infrastructure, our business. So you need to have some level of scale, which we can take and then grow from there. The other thing which is important is both top and bottom line being a healthy business.

It has to be accretive to our business, right? We're not going to deploy dollars just for the sake of chasing the top line. We've got to do that in a disciplined way. So in a way, those were the criteria to think about. For us, what excited us about Monaco is that this business has been around since 12 to 14 years. right? So it's seen the way of the ups and downs. So -- and the team had done a great job of building this business on the back of singles, right? I mean I think 70-plus percent of this business is singles in convenience and independent stores.

I mean that's the hard thing to do, right? Two, it is pretty concentrated in a few states. I think 5 states make up 65-plus percent of that business, which gives us a great platform to start with. So to your question of brand proposition was right. It worked with consumers that are pretty a little bit different than our core demographics of what we sell to.

It was a platform that was scaled with a very disciplined way of building a business that we could take and move on. So the way we've done this is we've obviously closed it at the end of Q1 -- sorry, in April. We've integrated the people. So we brought on about 80-plus people from that team because this is where in some of these brands, you want to make sure it doesn't get lost in the big system, right, that there is enough time and attention, focus on making sure that we can keep the magic that exists with this brand. Job 1 right now is to make sure we can do the right transition. We say don't drop a case. But we also then want to make sure we get clear on our plans to take this business forward.

And the way I would think about it is in the markets that where it is pretty well developed, we want to make sure we think about multiple channels because if the team has done a really good job of convenience and liquor stores and singles, well, there's opportunity across different channels. And then on the other hand, we have the geography opportunity, it is concentrated in 5 states, how do we make sure we replicate that model in some of the other states.

So early days, I think we're getting to know the brand. We're getting excited. I know our distributor network is excited about the brand as we think about transitions. But it's one of those things that just gives us scale in beyond beer and shows our commitment to build this business for a portfolio for the future.

Let's get ourselves outside the U.S. for a few minutes anyway and talk about some of your larger international market, Canada, the U.K. And over time, those have been relatively stronger, I guess how are the dynamics that you're facing in those markets today different than maybe what we've described in the U.S.? And how are you navigating more aggressive competitor pricing, specifically in the U.K., which I think is the big issue?

Yes. No, I think if you look at our European business, right, I mean, the team has done a great job of growing the business even from a pre-pandemic perspective, faster than, I would say, the Americas team. So top line, bottom line. And if you break it down, I think, obviously, in the U.K., it's been on the back of things like Madri and premiumization and the portfolio transformation there. And Central Europe also has done a good job of just core execution in a pretty volatile external context.

I would say the Central European business is still pretty strong. There's, again, continued macro issues that affect particular specific countries, right, local elections, local tax issues. It is a competitive context. But in the -- in the broad scheme, we're holding and gaining share. So our Central European business in that regard. U.K. has just been a competitive landscape, right? I mean it is a highly competitive market. I think the category is also a little bit under pressure in the context of consumer sentiment. But it is all about, I would say, just being competitive, and this is where Madrid is a little bit under pressure, but holding its own. And we have work to do in Carling..

So the mainstream category has gotten pretty competitive. And I think you're seeing us lean into that both from an innovation perspective. So we obviously launched Carling Black Label. You're seeing us making sure we show up with Madri in the -- for the summer and with innovation with Madri Limón. So yes, I think when the category is challenged overall, this is one market that's highly competitive, then we're going to put it all in the field.

Okay. Well, it's good news. I was in the U.K. last week. It was very warm, and there was plenty of Madrid.

No, I appreciate that. I think, yes, if you -- and the team has done a good job, right? I mean if you again look at capability and -- and if you look at our history, right, we were pretty under-indexed in London in that area. And I'm sure if you guys today go out, I mean, we have a pretty broad portfolio, above premium portfolio in the U.K. and in that region now, right, between Madri, with Monte Carlo with obviously Coors. So it is a capability and a muscle that is going to help us long term.

Okay. Okay. We've gotten this far, we haven't talked about cost. Yes. So let's talk about costs, Tracey. We've been talking -- and we've been talking about costs for a while. I feel like every time we're on the stage, we're talking about aluminum and Midwest premium, but the question still lingers. So I guess what are you -- what are your latest kind of thoughts around the cost outlook? I know you're very well protected for '26, but I think a lot of investors are starting to think about what might be kind of building up as we look kind of beyond the calendar year. And I guess, your plans and ability and confidence to mitigate some of those cost pressures.

Yes. So I think the biggest cost pressure, the biggest headwind that we've faced this year, and it's not just us, but we've been talking about it for a long time is the aluminum side of it. So aluminum and the Midwest premium in particular. So you're right. I mean, for this year, we materially hedged.

So we feel that we can mitigate any sort of further increases, et cetera, around the LME as well as the Midwest premium. As it relates to next year, we have said that it's really difficult to hedge the Midwest premium beyond sort of 12 months. Now we are -- we do have hedges in place for next year. But in terms of the volatility that we've seen, and I mean, the commodities continue to increase and the war hasn't helped, the war in Iran -- so there's a couple of things that -- levers that we can pull.

So pricing being one of them, premiumization, we've spoken about the portfolio, just continuing to drive efficiencies in our breweries. So we have invested capabilities in our breweries, which is helping to reduce costs and increase efficiencies as we bring more of our portfolio in-house, produce in-house that's going to help margins. But then we also announced this cost savings program. So $450 million over 3 years. You'll see that starting now this year.

Last year, we made decisions end of last year in the Americas to take out about 400 roles in our Americas business. And then this year, we announced some closures, a U.K. brewery closure, also some U.K. cost savings, European cost savings as well that's going to drive that -- drive the cost savings and just help mitigate some of the inflation that we're seeing. But continuing to invest behind our capabilities is certainly helping to offset some of the cost pressures that we see.

On the $450 million, is there -- I guess, maybe cadence how that is likely to build as we go through the year and then over the life of the program?

Yes. So you'll see those cost savings starting now in 2026. So again, those -- a couple of those cost savings programs that I mentioned, we're starting to see that flow through. And as we start investing more in capability, that's going to take a little bit longer as we invest in technology, et cetera. But we'll see those coming -- the technology investments returns coming through next year and the year after. But this year, you're certainly going to see the headcount reduction, the closure of the brewery, et cetera, you'll see those cost savings kind of I would say, evenly spread out that $450 million over the next 3 years.

Yes. Okay. In terms of the investments that you need to make to support the growth and stabilization initiatives that we talked about, in light of the cost pressures that are building, what's your confidence that there's enough flex to make those necessary investments?

I mean we did say that our capital guidance, CapEx spend guidance is around the sort of 650 million. We think we can do all of this within that range. We've built new breweries in the past, all within sort of in that range. So we feel that we can manage that well. But we do feel it's really important to continue to invest in our breweries and invest in these tools and technology, the capabilities that we are building to continue to drive efficiencies,not just on the supply chain side, But also on the MG&A side. We continue to look at ways that we can make our marketing more efficient return on marketing investment. We continue to take decisions around driving more to working dollars out of nonworking dollars. So you'll see all of that play through as well, all within the sort of guidance that we've said.

Yes. Just maybe to add to that, Stephen, I know you've asked me about portfolio, but just to make this real, right? I mean, obviously, when you think about our big brands like Coors Light, Miller Lite, Banquet, you're going to see us show up in a different way. And you're seeing that, right, whether it's in TV, whether it's in live sports, right? I think we have our biggest investment in live sports that we've done in the last 10 years because these brands have to show up in a different way.

But then just to pivot a little bit to our value segment and that level of investment there, we want to make sure those brands resonate also with the type of investments we do are how we do it and the quant is doing it. So to Tracey's point, I mean, that's the pieces we are balancing, right? We talked about beyond beer, we are investing in people. We moved 90-plus people with Fever-Tree into our organization. We have 80-plus people that we've added with Monaco.

So we are investing in our business to make sure we're obviously being prudent and disciplined about managing a pretty volatile cost context, but investing in the business in the right way. I'll make one plug. If anybody has not seen the Keystone, Apple, TikTok or Reel, take a look. And I say that in jest, but it's an area about investing in technology, right? It is a small -- it's an ad that is getting some energy, but the investment we did in that was appropriate for that type of part of our portfolio. So it is -- we're making sure it's in the right investment, and as Tracey said, within the broad parameters we've laid out for this guidance.

I will check that out. I guess, Rahul, you mentioned at the start, the strong balance sheet of the company and the cash generation of the company. I guess from here, maybe both weigh on this, just Tracey, from a capital allocation perspective, the balance of capital return to shareholders, potential M&A and maintaining that strong balance sheet. And then, Rahul, I guess, what is the right deal from here? Because you mentioned you don't want 10, 15. So what is the right deal in the context, both strategically and financially?

Yes. So I mean, I think we've done a really good job in terms of our balance sheet, and we've got this target out there to be around 2.5x leverage. And I think we've been very disciplined on that. It's been really important. We just refinanced some debt and having that investment grade and was really good for the debt that we did raise. But because of our strong free cash flow generation, we are able to do a number of things.

So we continue to buy back our shares. We do think that our stock is a compelling investment. And so we do have the extended program out there. It's now up to $4 billion. So -- and we're ahead of where we would be if you just sort of divided it over 5 years. So we continue to buy back shares. We've continued to increase our dividend. So we have said that we want to sustainably grow the dividend. We've done that. But then we've also been able to make the acquisition of Monaco through our operating cash. And so we'll continue to probably most importantly, invest behind our business to make sure that we can continue to grow.

Again, the balance sheet is in a good place. And then we have also made the commitment to continue to return cash to shareholders. So again, within our strong free cash flow, we've been able to do all of that. Do you want to talk about that?

Yes. I think if you think about -- I'd start with the portfolio, Stephen. I mean, what are the gaps we need to fill, right? So we had talked about RTDs earlier in the year in February, and we fill that. I go back and first job is to execute what we have, right? We have a broad portfolio with core with value with above premium beers.

We've got to execute on that. We just added Fever-Tree last year. We added Monaco. So we've got to make sure organizationally, we are executing against that. So that's how I would first start with. And then we'll always be open to look at what opportunities come as we fill gaps in the portfolio. Again, we're not looking for another 10, 15 brands. What we need is a few scale brands that we know we can execute within our infrastructure, but it then rounds out our portfolio to really make sure that the beyond beer space can really scale, right? So probably that's the space that makes sense. But beyond -- if you think about beer, I mean, we continue to innovate in beer, right? So whether it's things like Keystone Apple or Keystone Ice, whether it is around Blue Moon, -- so we will -- it's around Coors, right? We just launched Coors 0.0 in the Northeast.

So we will continue to innovate in parts of the portfolio where we know we have the right to do. But beyond beer is probably where we probably need to deploy dollars over time.

Okay. We're just about out of time here. But I guess if there are 1 or 2 things or 2 or 3 things you think investors should be most focused on that you're most focused on in terms of the definition of success over the next 12 months, what would they be?

Yes. I mean I would go back to the 3 things I started with, right? I mean we have a pretty broad portfolio. And as a company, I know we can get our business back to growth definitely even in volatile times. So that's important.

Two, we're operating very differently than we have in the past. And so that's a good way to keep a measure on us as a business. And three is our focus on cash and balance sheet, right? I mean we'll be pretty disciplined about how we run this business. We're pretty disciplined about returning cash to shareholders, recognizing we still have to get our business back to growth.

All right. Great way to end it. Rahul, Tracey, thank you so much. Thank you. Thank you all for joining us.

Thank you.

All right. Hi, everyone, and thank you again for joining us. I'm very delighted to welcome Molson Coors CEO, Rahul Goyal, and CFO, Tracey Joubert. Molson Coors has had a strong start to the year as the company continues to make encouraging progress on its transformation journey. And as the beer category trends are slowly starting to improve. Molson Coors has moved to the next leg of its revitalization journey, which is to accelerate growth in its portfolio and deliver sustainable top and bottom line growth.

So thank you so much for joining me, Rahul and Tracey. Nice to see you both.

Nice to see you.

Trying to make sure that chairs are right. So welcome, and I wanted to kick things off today with a question for you, Rahul.

You've been in your seat now for, I think, a little over 7 months. So I'd love to hear from your perspective, sort of what surprised you the most in this relatively new role and then maybe what you underestimated?

That's nice question. I did not expect that from a -- No. Thank you, Bonnie. Firstly, thanks for having us here. The way I think all of us in the company and I particularly think is we get the privilege of working with a company that's 240 years old. I'm the new guy on the fleet, but I have been in the company 25 years. So our job is to make this company bigger, stronger, better for the future. And that's how we think about it. I think so new -- I would say new understood the business, understood the company -- probably the thing that your question of surprise or change is the impact you have on a lot of lives, right? I mean we got 16,000 people. We've got distributors. So the impact you have on them in their families probably is a little bit more deeper than I -- you know it, but the way it carries. But as a business, I've had the privilege of understanding and knowing our business for a long time. So that part, I think has not been any big surprise.

And then just in terms of like you mentioned the whole organization and the culture change that maybe you're trying to...

Yes. No. And that's what I would say is just that takes time, right? The change because I say this to our teams all the time. We're a good company. We have a strong brand. We have a good foundation. We're in great profit pools. But we got to go find growth. And to go find growth, we've got to think differently. We've got move with some urgency. We got to move with a little bit speed, risk taking and that sense of ownership in this company. So it's a great business. It's a great platform.

As you know, our challenge is go finding growth, and we believe in the new plan, we can go get that. And the exciting part is we can get our teams excited about that. And I think that's the part we look forward to.

Okay. Sounds good. And thinking about the category too and where you play, you touched on this in your earnings a couple of weeks ago, just in terms of the industry being down, I think it was 1.6%. But more recently, we've seen some of the growth decelerate, I guess. And I'd love to hear your perspective on what on earth is going on now within the broader beer category. And how do you think about -- I mean, we're still not quite at summer, but optimistic that maybe weather and some events can accelerate this growth.

Yes. I think coming into this year, I know everybody in the category was a little cautious coming out of last year, right? Last year was anomaly, you look at whatever time span. So I think coming in this year, we felt that this year is going to be better, right? You have these -- all these events last year. So I think that's where coming in, we would like a little bit more confident about the category. I think Q1, as you rightly said, was a little bit much better than broadly, I would say we expected.

And April has been a little bit of a jigsaw again. And so your question of -- if you think about the consumer first, I mean the consumer health coming into this year, Q1, the trips were higher, number of buyers higher, maybe basket size still cautious. But we're feeling good about the year. I think April, again, macro issues, if you think about the war that happened end of March, gas prices started hitting, accelerated levels at the end of March, early April. So it is going to be a volatile year. It is going to be a volatile year. I think that's broadly the theme. I know some of the questions in Q1 was, well, do you see this seeing forward? And I think our comments was, well, we like what we saw, but let's be cautious.

Now on the other hand, you rightly called out, I mean, we got some big occasions in summer. And we've talked about and the categories talked about is our challenge is not people not drinking. I mean people are drinking. They're drinking differently, but it is occasions. And the summer gives us a great platform for great occasions, right? You got the World Cup, you got Americas 250th. Weather always helps.

So I think we're pretty energized about going into summer. We'll see what April is, again, all of us need to learn, deal with ambiguous volatility, but we're excited about summer. I think we've got a lot ahead of us, May, June and then you start the buildup into the summer, that's exciting.

I forget the context of this with your top line guidance this year. Have you stated what that suggests for the category? Have you put a figure on what you expect the category to do this year?

No, we did not. So this year, I know last year, just given the volatility of the category, we gave some ranges. This year, we didn't. I think what's coming in, if you look at last year's category, it was in the minus 5-ish range. We expected this year to be better. Right now, whether it's -- yes, we'll see how the year plays out. I mean it's been pretty volatile start anyway.

I thought it could be the year beer stocks, right, considering everything the factors you just mentioned. And then -- but obviously, things always change, and you touched on the war and gas prices and the consumer. And very recently, maybe we're starting to see some signs, right, whether it's down trading, et cetera. So thinking about your portfolio and the value segment and how you're stabilizing that, are you starting to see any signs of maybe consumers trading down to some of those brands? And then if so, can you talk about any of the strategies maybe you're implementing to meet the consumer where they're at.

No, that's a great point. Again, if you think about the consumer, I know you asked about the value on. So just briefly, the top end of the economic consumer, they're doing okay. They're resilient, right? So for us, making sure we have a portfolio for them, whether it's Peroni, Fever-Tree is important.

So obviously, there, we're leaning in on some of our above premium pieces, even like things like Banquet. Trade down is a little bit -- we don't see trade down in our categories, right? So folks who love Coors Light are going to come to Coors Light. Miller Lite, they come to Miller Lite. Maybe we got to think pack sizes. So that's where we've been on a little bit, single, small packs and large packs. So we see a little bit of that trading.

Value is a big part of our business. It is a big part of where consumers are leaning in not for trade down because they care about those brands. So we are seeing some progress. And this is -- I want to be cautious because I know there's more work to be done on this. There's definitely more work. It's a long-term thing. But if you think about High Life, High Life is holding on to share. I mean we're on-premise, we're gaining share, off-premise, we have work to do on Keystone. And then -- so we have some new plans coming in that I think we're getting excited about, but this one is going to take a little time.

I'm going to take this forum to make a small plug if that's okay, a 5-second plug. If you guys have not seen the new Keystone Apple ad or video or TikTok or whatever that is. If you want a 2-minute fun, just smile, go take a look at it. And I use that as an example is we got to find just a way of connecting better with consumers with that portfolio, which historically we have not supported. And so now we just need to show a little bit of support and love, and we got 2 big ones, High Life and Keystone. But then there's a lot of brands that we have, which are very local that requires different ideas, different execution on that.

So it was leaning in on some of the strength, stabilizing those brands, especially given the broader consumer backdrop could actually work.

Yes. Absolutely, I think for us, like Keystone, I mean, we're going to have Keystone Ice coming in later in the fall, which is a little bit of on the ABV side, higher ABV. So as exactly you said, stabilized High Life and Keystone and then local execution on the rest of the portfolio.

Okay. And then thinking about guidance, your full year top line guidance of flat, plus or minus 1%, which you just recently reaffirmed. But you do expect, I guess, U.S. shipments to be down 6% to 9% in Q2 because of what occurred in Q1. Maybe walk through that for us, just kind of what's happening between Q1 and Q2? And then ultimately, what gives you the confidence that you'll see the recovery in the second half?

Tracey, Do you want to take that one?

Yes. So what we did say on our Q1 call is we went into Q2 with higher levels of inventory. We feel very confident in the levels of inventory that we will have going into the summer. Last year, Q2, we had higher levels of inventory. We were a little bit impacted by glass supply. And I think you've heard some other folks talk about that, that's cycling some of the headwinds from last year, but we have built up inventory. We do feel good. There's always going to be somewhere where there's a package that maybe is out of stock, but that's normal. But we're working with our suppliers, our distributors. And so we feel confident going into the summer with the inventory levels that we've got.

But just due to some headwinds in cycling from last year, Q2 is going to be lower. We do plan on shipping to consumption for the full year. So you'll see in Q2 -- Q3 I'm sorry, the second half of the year, our STWs will outpace STRs as we shift to consumption.

And in the context of that, Monaco, which we're going to talk about, that is part of -- factored into the guidance to get to that, I guess, flat or minus 1%.

So good visibility, see the recovery just some noise, if you will, between Q1 and Q2, but a lot of the initiatives that are being implemented.

Yes. If you look at Q1, we shipped ahead of consumption and we build inventory. It's a little bit of a phasing all the things Tracey talked about. And full year, we can still see the minus 1, minus 2 guidance that we laid out.

Okay.

Minus 1 plus 1.

Yes, exactly. Not changing guidance today. No, exactly. Core brands. I wanted to switch gears. You talked about regaining focus and then winning back share for the core brands, which is critical given the size and probably the profitability of those brands. So what are the specific strategies that you are implementing behind Coors Light and Miller Lite? And then ultimately, how do you evaluate if those strategies are working? I mean I know we've talked about this for a number of years, but just thinking through the...

Yes. No, absolutely. And that's a fair question, Bonnie. If you think about our big brands, right I mean, Coors Light, Miller Lite, I put Banquet in that. I put Miller Extra Lite in that. So if you think about our core portfolio, we've got to make sure they are strong and healthy. And I would say we've done a decent job on things like Banquet, things like Coors Light to some degree. The easiest measure is share, right? I mean, obviously, we think of volume, we think of NSR for the external world, the easiest measure is share. And if you see our progress since '23 or even in recent times, we've held that part of the category share has been okay.

Now we have some work to do on, for example, like Miller Lite. This year, we knew coming in, it was going to be a competitive context. And in a couple of regions in the United States, Miller Lite has been a little bit challenged. So we knew it's a competitive context, but that's where we need to react.

To your point of looking forward, if you think about the plans we have laid out over the summer. [indiscernible], we got the World Cup. We're pretty excited about how we're going to show up in the World Cup. As they say, there's 7, 8 Super Bowls in Houston and 6 Super Bowls in Dallas and obviously, regional, but a great way to activate and make sure our brands show up in a strong way.

Miller Lite, we launched some of the campaigns early just a way to make sure we've been competitive. So -- and then the last piece I'll call out, which I know sometimes people don't get out a new plan that we laid out is the local execution, right? So we've changed our operating model. We are looking at our brands very locally. We're looking at how do we make sure these brands resonate in those particular geographies. And then we can react to that. So whether it's promotions, whether it's pricing, whether it's activation, we can use the levers there.

So core brands, super important. Obviously, volume and NSR is key, share becomes an important way of measuring progress. But then in terms of making sure we have all the right plans leading into summer, I think we're feeling good about it going into the summer.

And you mentioned Miller Lite maybe needing some more work. Is there -- can you share with us maybe what's not resonating with the consumer with that brand? I mean -- and as you think about kind of trying to improve share, is it innovation? Is it better price pack architecture? You mentioned some campaigns and maybe different messaging. What are some of the key initiatives?

No, I wouldn't say -- I mean, yes, the campaign and the thinking and the focus we have on the Lite, I think, is the right one. That is resonating with consumers. I think if you've seen the Christopher Walton message, the message around the liquid, all of those are resonating. It's just competitive. So I think a lot more things to focus on price back in those particular geographies, thinking through pricing and promotional activity in those particular geographies. So it's a little bit of execution and making sure we are reactive to what's happening.

But in terms of what the brand stands for and how the brand is showing up, I think we're feeling pretty good about it. The other thing I didn't mention is Americas 250th celebration, right? So again, Miller Lite is a big brand that talks a lot about Americana. And so I think that's the other thing we're pretty excited about coming into the summer. So yes, I wouldn't say this is a national -- we've got to rethink on the brand. It's more about local execution given how competitive this context is going to be this summer.

So if we're sitting here again in a year, and I hope we are, would success to you be that these brands, Miller Lite, Coors Light are essentially flat with share? Are you expecting to grow share? I'm just trying to think through...

No, absolutely. That's a great question. So I think success for me, obviously, growing of share of total category is an easy one. But I think you've seen our numbers. We got to change the trend. And if the core is healthy, our business becomes pretty stable in that context. So for me, in the year's time, yes, we should be in the position of at least holding and in the right trajectory for share volume.

Okay. Maybe I'll switch to cost and the lovely Midwest premium. That's very topical. You've been talking about this, obviously, maybe early, earlier right? I know that's true. But really kind of started talking about this being obviously a major headwind to your business this year. And I think you called out a $30 million cost increase in Q1. So you expect it to be inflationary every quarter for the remainder of the year. It was, I think, the largest increase in Q2. So you have pretty good visibility in terms of that? How do we think through?

Yes. So we feel very comfortable with our hedge position for this year. We did layer on more hedges in February. So we've got pretty good line of sight as to what it would cost us. And I would say we probably -- we've mitigated for the most part, any further increases, the impact that it would have on our business. Having said that, though, I'll just keep saying, I mean, it's a difficult commodity to hedge. We -- I think I've spoken before, for every 1,000 aluminum hedges, there's 3 Midwest premium hedges. So it's not as transparent. It's not a great market to hedge, et cetera. So we'll continue to have a look at it. But for this year, we feel pretty comfortable with our hedge position and that we've mitigated most of any increases that may come forward.

And it's just hedged through this year, right? And I mean...

We do have some hedges on for next year. But typically, we have more hedges in the first year. But again, it's very difficult to hedge, especially out longer term.

Okay. And then how do we think about that in context? Because I'm pretty sure you're staying disciplined with the 1 to 2 points of pricing. Is that correct? And so this is why we're just ultimately going to see some of the margin headwinds. Any other factors that you can, I don't know, implement to help mitigate some of this, whether it's marketing spend, cost optimization, et cetera?

I mean we obviously got the $450 million cost savings program that we announced. And if we look at some of the actions that we took at the end of last year for the Americas G&A, we'll start seeing that flow through. We took out 400 roles. So we're starting to see the impact of that on our G&A. And then we've also taken some actions in our EMEA, APAC region, where we've closed the brewery, and we're looking at using technology and capabilities to drive further cost savings.

And I would say we're on plan. We're on track with that, with our cost savings. Now the $450 million is over 3 years. But you'll start seeing that come through this year. So that's one of the things that we are doing, and we started last year to mitigate the inflationary pressures that we are seeing.

So Tracey [indiscernible] I know talked to a number of staples companies, and they have identified, already planned cost optimization, productivity savings. Have you been able to accelerate any of that or pull it forward? I mean you mentioned it's on plan, but is there a way to accelerate or move some of the projects earlier given these [indiscernible] cost headwinds.

Yes. I mean, we are looking at that. The capabilities that we're building is definitely helping us and then implementing some of the new systems and technology is helping as well. So yes, we're trying to pull forward as much as we possibly can.

I think you said this well, Bonnie. I mean in terms of us being disciplined about our business, I think we started that journey in Q4 last year, right? So we knew some of these headwinds ahead of us. So some of the hard decisions around our team structure, people, hard decisions around supply chain. We put it in place in Q4. We obviously are going to see those benefits as it translates. Tracey and the team in terms of hedging and trying to mitigate risk, I think we've tried to do that. I think the brand one, we obviously want to make sure we get the right return out of our investment, but we also want to make sure we're being competitive in marketplace, right? So that's why -- that's what we took into consideration when we gave guidance this year, and that's what we want to try to make sure we deliver against as a business.

And to be clear on that point, if I'm hearing you correctly, so the spend levels are not decreasing in terms of behind the brands to reaccelerate, maximize share, et cetera, you're going to get...

Yes. I think, again, we said it in our earnings, right? I mean if you think about our broad MG&A spend over the next 3 quarters, it's going to look higher than last year. Now some of it has onetime issues from last year of incentive and stuff, but we want to make sure we have competitive pressure in the market, right? So tough context in terms of aluminum and input costs, right cost savings program to optimize, manage the risk, but making sure that we can have the right commercial pressure in the market.

Yes. One thing I would say about our marketing investment. I mean, we are -- if we look at our core brands and what's important for us, whether it be Miller Lite like Banquet, High Life, Keystone Apple, as Rahul mentioned, even Fever-Tree, we've got a campaign, a new commercial for Fever-Tree, which we haven't had before. But we are putting more dollars behind that core, but against fewer bigger bets. So like the World Cup, like Americas 250. So there's more dollars going towards that, but we're making sure that it's in the big bets that are going to provide a return.

Yes. I mean just last comment there. I mean if you think about our visibility in live sports, we probably have the highest investment in live sports this year than we've had in a long, long time, right? So again, prior to meeting consumers where they are as relevant for our brands. So Tracey's point, appropriate level of investment, but making sure we can win with our consumers.

And let's switch gears a little bit to the somewhat recent acquisition, Monaco Cocktails. You just closed, I believe. And it does help close the gap in your RTD or the portfolio gap that you might have. So I'd love to hear more about your strategy to scale that brand, increase distribution, et cetera.

And then I think you've talked about that acquisition contributing a point of growth to the top line, but importantly, accretive on the bottom line. So maybe walk through that for us and how your strategy is evolving as it relates to M&A and kind of like you mentioned earlier, maybe a little bit more risk taking and...

Yes. I mean I can do the brand and portfolio. Tracey can do the numbers. If you think about the brand, right, we knew we had a gap in our portfolio. I mean, the whole flavor category has been so volatile from a consumer perspective. But we knew we had a gap on the RTD stuff. So I think if you think about Monaco it's been a business that's been around 10, 12 years. So this is not a new brand. The business was built in a very disciplined way on the back of singles, in convenience stores, in a very controlled geography, right?

I think the top 5 states probably make up 60%, 70% of the volume. And if you think about a big part of it is in signal. So it is a very disciplined business which we can then take and scale, right? So I mean, as an organization, we're pretty good at taking things that have got scale have got proven but then really making sure we can really make it bigger. So I think that's why it gets us and our team is excited.

Your point, it is about distribution. It is about capabilities, right? Convenience, if you look at our strength, we have good strength in convenience, but our big strength is in other big channels. And so therefore, then we can play that and build some capabilities with the people that have come on board. So that's where it's a great fit from a portfolio perspective. It's the right thing for us from a premiumization also, right? So compared to our normal NSR per hectoliter, this is a premium product. And so it does the right thing for us on premiumization. It is top line and bottom line accretive and gives us a good platform to really scale from there.

So it's the right fit for us. It fits the model and then it does fit within the metrics we laid out earlier. Over to Tracey.

Yes. I mean we said M&A going forward is going to -- must contribute between 1% and 2% of NSR and so on a trailing 12 months. And then importantly, also the bottom line, it must be profitable from day 1, and this brand is for us.

And so as I think about this acquisition that did just close, is it the priority to kind of focus on integrating this? And then will you continue to look at other potential M&A? How do you think about prioritizing those 2?

So in terms of execution, we got to make sure we -- the way we talk about it internally is don't drop a case, right? So we obviously had Fever-Tree last year. We executed that, integrating that, making sure we transition into our network with our distributors, get everything working and continuing the growth momentum we had on Fever-Tree last year and continuing to this year. So that is an important aspect, right?

And then we think about Monaco, right? And then how do we really make sure we integrate in this business, keep the commercial momentum that the brand has, accelerate the momentum and then look at all the other things that come along with that. So I think that's probably focus, Bonnie. I mean if you think of it, we don't need 10 more brands. We have a pretty strong portfolio. There's a few gaps we need to fill. And so -- and I'm sure Tracey will talk about capital allocation discipline, et cetera. But for us, it is about fill a gap in the portfolio, what makes sense for consumers, distributors and us and then integrate and accelerate, right? So -- and then everything else, Tracey, you want to add on the capital allocation discipline.

Yes. Just before I get on the sort of capabilities, I mean, what we do now going forward is we make sure that we can continue the business. And hence, we took over about 80 folks from Monaco business into our business. So they can continue to run the business and sell the brand and get the distribution.

And then we have another team doing the integration so that we're not -- we don't lose focus. But in terms of capital allocation, I mean, I've spoken about what a great job the company has done with their balance sheet. And so it does give us optionality that we can do more from an M&A point of view. And in the same time, return cash to shareholders as we have been doing with our share buybacks and paying dividends and then just keeping our balance sheet healthy. So we do have significant free cash flow, which is great. And therefore, we can do all of this.

Which has certainly changed when we've talked in the last years. So you're in a much better place today. And as you mentioned, Rahul, you see still some gaps in your portfolio. Do you care to expand where those gaps are. I'm curious.

Yes. I mean if you think about it, I mean the RTD space or the flavor space, I wouldn't call RTD. If you think about the flavor space, it's a big category now. And we want to make sure -- I mean, we love the fact what we've done with Topo Chico. We obviously have new ideas with simply in the market that we want to make sure we get that brand healthy. And so there's work to be done there. I mean those are great brands to keep building on.

And then I think Monaco adds a good complement to that in terms of channel, consumer. So for us, the priority is beyond beer. So if you think about capital deployment, it is going to be probably in the beyond beer side. We will always look at beer. But beyond beer is probably where we need some scale, Bonnie.

So again, right now, integrate Fever-Tree, integrate Monaco. As Tracey said, we -- our balance sheet gives us optionality, but we'll be disciplined about it, disciplined that we have the right brand and disciplined more importantly, that we integrate top, bottom line accretive and we can scale, that becomes important.

And yes, beyond beer being a price. So what percentage is beyond beer of your portfolio maybe today roughly? And then in the next 3 to 5 years, what would be the ambition to?

Yes. So I mean, if you think about it, we are approaching about 10-ish percent, right? I mean we started with 0, maybe not 0, less than 1%, right? I mean in beyond beer. We're approaching 10-ish percent of our total company NSR. And we need to make sure we get to be meaningful because we are -- and even I think we said this in our Q1 results, our Beyond Beer portfolio is growing faster than the rest of the company. It is growing at a much higher rate. And we -- unless we have that to scale, it doesn't do stuff to move the company forward, right? And we don't want to have a Beyond Beer portfolio that's 50 brands, right?

We're going to be disciplined about the categories we work in, disciplined about the brands we have, but we want to get at scale. We haven't shared an ambition externally, Bonnie, but I mean, you can think about the math. And unless it's not big enough, it doesn't do much for a $11.3 billion company, right? So we're pretty excited on that journey. We're early. We have more tools to work with, whether that's people, whether that's investment or the balance sheet. right? So I think the point Tracey made about getting capability and people is equally important in that space because it's different muscles.

No, true. And as I think about your business and your portfolio, I mean, the complexities have increased. But if you feel good about your ability to execute on all these different initiatives because any change capabilities that you think you have where you feel like you can execute on all of these different growth initiatives.

So I think that's a great question about complexity, right? I mean we've been disciplined to remove complexity from our business also, right? So if you think about the structure, if you think about the coming off some of our co-manufacturing arrangements, it was about removing complexities.

Now we are leaning into areas that make our business stronger for the long term, right. And by the way, this is not just us. If you look at our network, our distribution network, right? They're leaning into similar capabilities. So for us, this is more of making sure we have the right capabilities, not just for today's business, but also the long term. So -- and we're doing it in a disciplined way, right, whether it's G&A with the right brands, making sure we are building out teams with capabilities that are important. So again, I think we've shared this previously, our non-alc team used to be 6, 7 people, I think. Now we're about less than 200, right? So to your point, yes, that comes with some complexity, but you're building capabilities along with that complexity. So we feel good about making sure we have an ambitious goal for Beyond beer and then how are we best leading into that.

And I know we've touched on this or you mentioned it, whether it's Fever-Tree, Peroni, what has you the most excited or Monaco as you think about the next year? I mean is there anything that you think right now maybe is broadly underestimated?

Yes. I would definitely -- I mean, obviously, those are the big growth brands that we have, right? So they are exciting, Peroni, Fever-Tree, Banquet, Monaco. I think those will be the -- I think -- again, I know you don't talk a lot about Molson, the trademark in Canada, right? I mean that brand is doing well, gaining share and is in a good place. [indiscernible] Life continues to be 50 years to be the #1 beer in Canada. So we got a lot of good highlights. But the thing that I would love to be your point of a year from now, the excitement around Keystone and High Life and how do we make sure we can get some energy behind that. That's the thing that I'm looking forward to, right, that what as a team, we can really do to get that healthy, not just for consumers and our distributors, but for even us because we are a big brand.

And then that brings me maybe to my final question because it's your long-term algo, which I know you've mentioned you expect to return to your long-term algo of low single-digit top line growth and mid-single-digit underlying pretax income starting next year, right? So in the context of what you just mentioned, what will be the key drivers that will allow you to hit those?

So I know we've said that that's the goal. I don't think we gave '27 guidance, Bonnie, so just to be...

Maybe it was me being...

Yes. If you step back on our business, right, I mean, obviously, we, again, feel we've got a pretty good foundational business. We've been very disciplined about returning cash to shareholders, dividend and through buybacks. If you look at -- since 2025, I think our TSR, I think we reported in our 10-K earlier this year was 22-odd percent. So -- but we recognize for the next chapter of creating value for shareholders. We have to get this business to that algorithm, right, to low single and mid-single.

And obviously, volatile times right now. But between the right -- making sure our core of the portfolio is strong and stable and transforming our portfolio with the shape for the future, we think that's the right place to be. Right now, as we get through the year, we'll talk about '27 and what that looks like. But we still believe that, that is the right algorithm of where we think we create the most value for our shareholders, right? We will stay disciplined on the balance sheet. We'll return cash, but we recognize we got to get our business top and bottom line growing.

And optionality, as you mentioned, given the core and then everything you've been executing on. All right. Well, all of that sounds good, and thank you so much for the conversation. I appreciate your time. Thanks, everyone.

Thanks Bonnie.

Thank you.

Good morning, and welcome to the Molson Coors Beverage Company First Quarter Fiscal Year 2026 Earnings Conference Call. With that, I'll hand it over to Greg Tierney, Vice President, Commercial Finance, FP&A and Investor Relations.

Thank you, operator. Following prepared remarks today, we look forward to taking your questions. [Operator Instructions]. If you have technical questions on the quarter, please reach out to our IR team. Also, I encourage you to review our earnings release and earnings slides which are posted to the IR section of our website and provide detailed financial and operational metrics.

Today's discussion includes forward-looking statements within the meaning of federal securities laws. 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 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 Sircana in the U.S. and from Beer Canada and Canada unless otherwise indicated.

Further, in our remarks today, we will reference underlying pretax income, which equates to underlying income before income taxes and underlying earnings per share which equates to underlying diluted earnings per share as defined in our earnings release. And with that, over to you, Rahul.

Thank you, Greg. Now before I begin, I want to recognize our team for the focus and commitment they've demonstrated this year. We're operating in times and the work happening across our markets gives me confidence in our people and our direction. In the first quarter, we announced Horizon 2030, our strategy designed to strengthen our business and drive long-term value creation. We took action right away. For example, we said we'd leverage M&A to fill portfolio gaps, and we did just that by establishing a position in RTDs.

We also said we'd extend our share buyback program, and we executed on that as well. because we believe our shares are a compelling investment. While it's early in the year, we navigated a complex external environment and continue to make progress against our strategy. At the same time, the U.S. beer category started the year on better footing. However, macro uncertainty continues to put pressure on input cost and consumer behavior, especially lower income consumers. For beer, the number of trips and buyers improved while consumer sentiment declined. In EMEA And APAC macro pressures increased over the quarter, driven by geopolitical events, including the conflict in Iran impacting fuel costs and consumer sentiment.

Now that said, we believe Molson Coors is positioned to navigate this moment and strengthen our business, supported by our strong balance sheet, free cash flow generation and our portfolio that spans price points, geographies and consumer occasions. And based on what we are seeing today, we are reaffirming our full year guidance and remain confident in our ability to execute against our priorities. As we move through 2026, we're acting with speed and intent balancing near-term execution with our goal of long-term growth.

In Q1, we continued to sharpen our portfolio focus strengthen our commercial model and move accountability closer to our customers and consumers. While these efforts will take time to show up in our results, we're encouraged by the early progress. Our strategy begins with building strong and scalable brands that matter across beer and beyond beer. Our momentum in bars and restaurants and venues is a great example. Across the on-premise, our top 6 brands all delivered share growth in the quarter based on Nielsen CGA.

This includes Miller Lite, Miller High Life, Coors Light, Banquet, Blue Moon and Peloni demonstrating our strength in the channel across a range of price points. In Q1, we were among the top bev-alc Barak advertisers during March Madness and the exclusive sponsor of ESPN's bracket challenge reflecting our commitment to high-impact occasions. Looking ahead to the summer, we are also making a single largest media environment in many years tied to the World Cup, which will include multiple brands across our portfolio. This investment includes in-match media buys, extensive local activation in key markets, podcasts and influencer partnerships.

Now let's get into how our core brands performed in Q1. While U.S. brand volume trends improved, our share wasn't where we wanted it to be. We are executing against the actions we outlined in February, including new creative for all the 3 of our U.S. core brands. Coors Banquet continues to build momentum. And in Q1, it returned to national sports advertising for the first time in 5 years, an important milestone for a brand with enduring consumer relevance.

Miller Lite faced challenges in the quarter, mostly driven by heightened competition in a couple of U.S. regions. So we are working quickly and taking targeted actions, including new ads in English and Spanish for the World Cup and a custom visual identity and activation platform for America's 25th anniversary. Outside the U.S., we are also taking steps to protect and strengthen our core brands. In Canada, Coors Light remains the #1 premium light beer and is holding industry share. In the U.K., we reintroduced a fan favorite in Carling Black Label. And in Central and Eastern Europe, several of our key brands including and Yellen remain #1 or #2 brands in their home markets despite challenging economic conditions.

Now moving to the value segment. We've acted quickly while recognizing this is a long-term journey. While Miller High Life share has been fairly stable and is doing particularly well on premise, the needs some attention, and we are taking action. Distributor orders for Keystone Apple are pacing ahead of expectations. And even more recently, our decision to reintroduce Keystone Ice was extremely well received by our network. We're encouraged by the early signals as well as the continued expansion of Miller High Life Light, which is now available in 22 states and performing well.

Turning to above premium beer we held U.S. industry share in Q1, supported by our priority brands. Peroni continues to gain momentum and saw increased media investment during the Winter Olympics. Blue Wound non-alc also continues to perform well, and we recently launched new creative for the Blue Moon franchise. We're encouraged by the sustained on-premise trend improvements for Belgium Wide, while recognizing that a full turnaround will depend on continued focus and consistent execution.

In the U.K., we saw some softness inventory, driven by aggressive competitive pricing. Importantly, we do not believe this is a brand health issue. We're responding with intention, adjusting our commercial actions to remain competitive while protecting Madri's long-term strength. Our media investment for Madri is just now turning on for the year, and we continue to build the franchise with innovation like Madri Livon.

Moving to Beyond Beer. We're scaling up here and we're making great progress. This is the fastest-growing part of our portfolio, supported by brands like Fever Tree, Hard and as of this month, Monaco cocktails in the United States. Fever Tree delivered strong execution and contributed meaningfully to our top line performance in this quarter. The brand continues to resonate with distributors, retailers and consumers reinforcing our confidence in its long-term potential.

We just launched the brand's first national ad campaign in the U.S. a few weeks ago, which we will be supporting with in-person events at sponsorships this summer, including the PGA Tour.

Moving to Topo Chico Hard, which returned to growth in Q1 after our regional focus last year. The turnaround of this brand is a prime example of local execution down right. Looking ahead, we believe Topo Chico Hard will benefit from World Cup media support in both English and Spanish language. We also announced the acquisition of atomic brand maker of Monaco Cocktails during this quarter. This brand is highly incremental to our portfolio and strengthens our position in convenience

Importantly, we believe Monaco fits naturally within our route to market and gives us a platform to compete in RTDs. Integration is now underway, and we are approaching it with rigor. Monaco adds immediate scale to our portfolio and it fits into the M&A criteria that we outlined in February. As we expect Monaco to contribute about 1% to global MSR on a trailing 12-month basis, while also delivering incremental profitability in year 1 with 9 months in our portfolio.

As part of this deal, we also retained about 80 members of Monaco sales teams, providing continuity and immediately expanding coverage for our Beyond Beer portfolio. Combined with the team members we added for non-ag last year, we are meaningfully expanding our execution muscle at the point of sale. These feet on street should allow us to be more present for our customers, more agile in the marketplace and more effective across Beyond Beer. To further support our portfolio ambition, we've also continued to rewire how our teams operate with an emphasis on speed and bold actions. We've implemented changes to our operating model including clear performance measurements and revised incentive structures, ensuring that our people have both the authority and accountability to drive the business. We've established new routines for our commercial teams that encourage responsive investments across the portfolio rather than silo brand level budgets.

This approach recognizes that our commercial investments should be dithering with clear trade-offs being made to fund the highest impact initiatives in realtime. This practice takes local dynamics into account, in addition to factors like marketing effectiveness. These changes are designed to drive a strong results-oriented mindset across the organization while also improving the team's speed and execution. We've also taken steps to advance our 3-year $450 million cost savings program, announcing further actions in Q1 to strengthen our cost base. These include restructuring actions in EMEA and APAC and closing a brewery in the U.K. alongside other operational changes designed to unlock efficiencies in a region facing cost inflation and increasing macro uncertainty.

These actions help us manage 2 periods of higher inflation, while the initiatives we put in place in the Americas last year should also deliver a benefit in 2026, help offset cost pressures. Traci will discuss this further, but to summarize, we are operating amid heightened valuability and are managing through it thoughtfully.

Finally, Capital discipline remains central to how we run Molson Coors. We continue to apply a balanced capital allocation approach, investing behind our brands, pursuing M&A to strengthen the portfolio and returning cash to shareholders. We remain committed to our dividend and share repurchase program, and we continue to view Molson Coors as a compelling long-term investment.

Now as we move into summer, we are clear-eyed about the work required to strengthen our business. This is complex work. We recognize it will take time. And while the external environment remains dynamic, 3 things hold true. Our direction is clear, our priorities are defined and our teams are executing with urgency and in depth. Just as importantly, where performance has been more pressured, we are now addressing it with far greater precision. For brands like Miller Lite, we have a much clearer view into where and why and how it's performing by region, by channel or by execution lever, and we are taking targeted actions.

This sharper diagnostic approach gives us the confidence that we can stabilize trends and rebuild momentum overtime. The progress we're seeing across many brands, the more targeted ways we are addressing challenges and the operating changes we put in place all gives us confidence in our ability to improve portfolio performance and create long-term value.

Now with that, I'll turn it over to Tracey to discuss our financial performance and outlook.

Thank you, Rahul. In the first quarter, on a constant currency basis, consolidated net sales revenue was up 0.1% and underlying pretax income was up 16.2%. Underlying earnings per share increased 24%. On an underlying basis, the key quarterly drivers were positively impacted by some phasing considerations, but otherwise, were largely in line with our expectations. The U.S. beer industry was down minus 1.6% based on our internal estimates. Our U.S. volume share was down 60 basis points based on our internal estimates, including relatively better share performance in the on-premise channel compared to the off-premise.

U.S. domestic shipments outpaced brand volumes, resulting in a roughly 1 percentage point benefit to America's financial volume in the quarter. EMEA and APAC brand volume declined 3.4%, primarily driven by ongoing soft market demand and a heightened competitive landscape in the U.K. The Midwest premium remained elevated, adding approximately [ $13 ] million of year-on-year cost increase to Q1 cost of goods sold. And G&A was down 9.1%, largely due to lapping approximately $30 million in prior year transition costs, coupled with lower employee-related costs which more than offset additional investments in technology.

Turning to the balance sheet. At quarter end, net debt to underlying EBITDA was 2.5x. This was an expected increase from year-end 2025, as we normally see a sequential uptick in the first quarter given lower cash balances. Earlier this year, we announced that we had increased both the amount and the duration of our stock repurchase program, increasing our total authorization to up to $4 billion through December 31, 2031. And in the first quarter, we continued to make progress against this authorization.

We paid $94 million in cash dividends and $164 million to repurchase 3.4 million shares in the quarter. Since the plan was announced in October 2023, we have repurchased 14.8% of our Class B shares outstanding. And as we previously announced, in the first quarter, we raised our quarterly dividend to $0.48. This is an increase of 2.1% and represented our fifth consecutive year of increases. This clearly demonstrates our intention to sustainably increase our dividend. And given our share repurchases, we were able to raise the dividend while decreasing absolute dividend cash payment.

With that, let's discuss our outlook. As Rahul mentioned, we are reaffirming our 2026 guidance. Now before we get into the details, I'll remind you that the impacts of the global macro environment are multifaceted and difficult to predict. And while we have included in our guidance our best estimate of some of these factors, external drivers may significantly impact our actual results either up or down.

Starting with the top line, we expect to ship to consumption in the U.S. but now expect some variability by quarter. After relatively stronger performance in the first quarter, we expect our U.S. shipments to be down 6% to 9% in the second quarter our brand volume trends with shipments outpacing brand volumes in the second half of the year. And with the addition of monitor cocktails, we will recognize 9 months of NSR and profit contribution as we integrate the Monaco brand portfolio into our network. This impact is included in our guidance assumptions. All other top line drivers remain largely unchanged.

We continue to expect the full year 2026 U.S. industry volume trend to improve versus the down 5% we experienced in 2025 and expect our balance of year share performance to improve versus the first quarter as we continue to execute our strategy. We continue to expect an annual net price increase of 1% to 2% in North America in line with the average historical range and expect mix benefits from premiumization in both business units.

Moving down the P&L, we expect COGS to continue to be negatively impacted by rising commodity costs, as premium and base aluminum remain elevated versus the prior year. EMEA and APAC, in particular, experienced additional uncertainty given current geopolitical issues. On Midwest premium, we continue to expect elevated costs relative to 2025. For the balance of 2026, we believe we have meaningful hedge coverage, meaning that the impact of the recent rise in prices since February should be a manageable headwind. And on phasing, we expect Midwest premium to be inflationary over the balance of the year with the largest increase currently anticipated in Q2.

Recall that last year, we highlighted that the rising cost of Midwest premium was a $35 million headwind with most of the increase realized in half 2. As for MD&A, we continue to expect a significant increase versus 2025 over the balance of the year due to several factors. First, as previously highlighted, we expect incentive compensation expenses to be higher than 2025, with the largest increase expected in the second quarter. We also expect to make additional capability and technology investments to help drive our strategy and modernize our ERP system. And as with most acquisitions, we will have higher costs in the first year as we integrate the Monaco business.

As an example, we are adding over 80 members to our sales team and expect to incur additional costs as we market and integrate the brand into our business. And to mitigate near-term headwinds, we continue to take deliberate actions in driving our 3-year $450 million cost savings program. Rahul mentioned the actions we put in place in EMEA during the first quarter. We've also taken additional cost savings actions that are designed to optimize our supply chain within the Americas. These actions are expected to add to the savings driven by the implementation of the Americas structure and operating model at the beginning of the year.

And lastly, we remain focused on driving capital allocation decisions that we believe deliver long-term shareholder value. We've just added Monaco Cocktails to our portfolio and have again made meaningful progress in executing our share repurchase program. We continue to be a very cash-generative business. And looking forward, we continue to have optionality in supporting growth initiatives, returning cash to shareholders and evaluating debt paydown versus refinancing scenarios, while continuing to expect our year-end leverage ratio to remain below 2.5x.

In closing, with a solid start to the year, a strong global brand portfolio, a healthy balance sheet and strong cash generation, we are confident in our ability to navigate near-term uncertainty while supporting the long-term health of our business and brands.

And with that, we will take your questions.

[Operator Instructions] The first question today comes from Filippo Falorni with Citi.

Rahul, I was hoping to get your perspective on the U.S. beer industry. I think you mentioned like a 1.6% decline in Q1. Just what are your expectations as we move forward into the summer, especially with the World Cup and the Americas 250? And then, Tracey, I was hoping you can provide a little bit more color on the reason behind different shipment versus depletions in Q2 in the back half? What is driving the undershipment in Q2 and then stronger shipments in the back half?

Thank you for the question. If you think about the industry, and we spoke about this in February, coming into this year, we did expect 2026 to be better than 2025, right? And if you think about consumer sentiment and obviously, the challenges the category had in '25, the quarter 1 has turned out to be, I would say, a little bit better than what we expected. And all the science suggests that the balance of the year continues to be strong versus 2025.

Your question about how do we see the summer? I mean, we're pretty excited about going into the summer for a couple of reasons for the category and for our portfolio. We have some big events that are occasion friendly from a beer perspective. So whether that's Americas 250th celebration, whether that's the World Cup, so we feel pretty good about the balance of the year in terms of what the category can do compared to 2025.

Now we do need to just keep in mind some of the volatility that still exists from a consumer perspective, as you probably saw at the end of March, early April, fuel prices, consumer sentiment in the U.S. was pretty low. So again, we remain cautious in terms of -- and balance, but I definitely see the category being healthier than what 2025 is. And the exciting part in this is for our portfolio, right? I mean all the commercial tools that we have in getting behind our brands, whether it's in Coors Light or to a World Cup or it's Miller Lite with Americas 250, all the other brands, I mean all of that is coming live right now and getting into the summer. So I would say, broadly speaking, healthier category this year versus last year, and a lot to get excited about going into the summer. Tracey, do you want to touch on the Q2?

Yes. Thanks, Rahul. Listen, so I think overall, we want to say that we do expect to ship to consumption in the U.S. for the year, but we do expect some variability in the quarter. So as we said, we expect our STW to be down between 6% and 9% in the second quarter, trailing the brand volume trends. But we've been with shipments outpacing STRs for the second half of the year. So specifically, what impacts Q2, just looking at Q1, we did have some challenges with some one-off events related to weather and energy supply, et cetera, to our facilities, and we had some challenges with upgrades that we were making in our breweries and then also some challenge with some of our suppliers, particularly glass supply.

But we have been working with our suppliers, and we were able to ship ahead of the brand volume in the quarter. But there still remains a few pinch points in some of our packages and our network is feeling it. But our team is focused on this, and we're confident that we'll continue to make progress throughout the quarter, and we are communicating consistently with our network. Also recall that we're citing relatively higher inventory levels from Q2 of last year. And then in addition, for Q2, we do have some planned downtime to make some line upgrades in our Shenandoah brewery.

So that's also contributing to lower shipments versus the last year. But look, importantly, this is a temporary disruption. And we are expecting to benefit from our efficiencies and our qualities with all of these upgrades, et cetera, that we're making in the long term.

Yes. And if I could add something, Tracey. I mean we have a strong commercial program planned for the summer, and we feel good about making sure we can execute against that. And as Tracey mentioned, there is maybe a couple of packages that we have a few bench points on that we're working very closely with our network on.

Our next question comes from Peter Grom with UBS.

Great. Thank you, and good morning, everyone. Maybe picking up on that a little bit. So you touched on the optimism around the path forward and related to Filippo's question. But obviously, the world has changed a bit over the last 2 months. So I'm just curious if you've seen any shift in demand or channel dynamics as you exited the quarter or through April? And then just the guidance for Q2, minus 6% to me, I mean, that's a relatively wide range for 1 quarter. So can you maybe help us understand what do we think to be at the more favorable end of that versus the lower end?

Yes. I think, Peter, I mean I know we don't talk about in-quarter results. But I think to your point of sentiment, I think that's where the, I would say, somewhat cautioned in the balance of the year thinking, right? I mean there is still some variability if you think about just what happened in the Middle East and the impact across consumer sentiment at the end of March, fuel prices play an important role in terms of how consumers think in terms of purchasing at convenience.

So again, we're going into the summer with a level of confidence because we do have a lot of high beer occasion events planned. But on the other hand, we recognize the macro issues still around the category. So that's why we -- I would still mention that category health this year is probably better than 2025. How that plays out in the next few quarters, I think we'll obviously keep watching. So hopefully, that answers your first question.

I think your question of phasing of Q2. Within the 6 and 9, I mean, we obviously, as Tracey mentioned, our goal is to always shift to consumption, that's what we're going to keep focused on. It's just we wanted to make sure we were being transparent in terms of on how second quarter is going to play out. Our supply chain teams are absolutely working with some of our glass suppliers to make sure we can get enough product out to our distributors. But again, these are particular packages in particular geographies. But overall, we feel good about making sure we can meet the moment in the summer.

The next question comes from Chris Carey with Wells Fargo Securities.

So in the presentation, you talked about you would expect market shares to improve over the balance of the year relative to the first quarter. Can you just give us a sense of what an improvement means, does that mean back to share growth and some of the key drivers as you see them? And you just -- one, I guess, like logistical clarification, when you say that inflation will be the highest in Q2, are you referring to the increase in COGS per hectoliter should be the highest in Q2 relative to the full year? .

Thank you. So I'll take the first 2, and Tracey, maybe the inflation one, you can. So Chris, you're absolutely right in terms of share and as I said in my prepared remarks, I mean, we have work to do there. It is not where we want it to be. So if you break down our portfolio and shares and even Q1 and going into the balance of the year, I would say we've made progress, obviously, on the flavor side. So if you look at Pochico and flavor as a whole, I would say we've got to growth, share in growth, so flavor, we're making progress.

If you look at our above premium beer, we're definitely making good progress in terms of share. The value segment is where we have had a leaky bucket for a long time, and that's why we emphasized on this as part of our new strategy. And frankly, this is where we have more work to do going forward. So High Life, I would say, is doing okay, and we have more on Keystone. So to your point of market share and balance of year, value is something we need to show progress on.

Now one of the things we have done is done a few things to make sure we can get Keystone stronger. And so we are obviously launching Keystone Apple, getting ready for summer. We're bringing back Keystone Ice. So we have a few things in the pipeline that we've announced with our network to make sure we can slow down the leaky bucket in a way for our value part of the portfolio. I would say in our core portfolio, that's where probably we have a little bit more work to do on Miller Lite. and continues to grow Miller Lite is holding its own in a good way.

But Miller Lite in a couple of regions in the U.S. in Q1 I would say we have more work to do there. But the good part is that we know where the issues are. We're taking actions, whether it's through campaigns, whether it's through other commercial levers. And this is where the local execution matters, right? Because this is not a national concern is in the particular geographies where there's competitive action, and our teams are reacting swiftly and strongly.

So I think from your point of share, that's an important measure for us. Obviously, STR trends in Q1 were better than Q4. But I believe we have the right plans and get into summer. I think your question on drivers, I mean, those were the big ones that I would break out for different parts of our portfolio. And maybe the only other element I'd call out is a lot of the things we have on commercial pressure and the cyclicality of our business, as you know, is summer. So the next 4, 5 months, 6 months become important to win the year, and I think our teams are pretty energized to go after that. Tracey, do you want to talk about the inflation point?

Yes, Chris. So look, we do expect COGS to continue to be negatively impacted by the rising commodity costs that we're seeing. The Midwest premium and base aluminum and our fuel prices have continued to increase versus last year. Specific to Q2, we are expecting the Middle East premium to be inflationary again. But that largest increase we currently anticipate in Q2. Because if you recall last year, we highlighted that the rising cost of the Middle East premium was about a $35 million headwind, but most of that increase was realized in the second half of the year. So hopefully, that helps.

Our next question comes from Robert Moskow with TD Cohen.

This is [ Seamus Cassidy ] on for Rob. I wanted to ask about capital allocation. You repurchased 3.4 million shares in the quarter, which was a big increase year-over-year, while simultaneously closing Monaco and you ended the quarter just above your 2.5x target leverage range. So question is how do you rank order those priorities from here? Specifically, is buyback pace a lever you pull back on? Do you delever towards the target? Or does the 2.5x ceiling kind of flex upward if the right incremental M&A opportunity were to come along?

Good morning. Thanks for that. Tracey, do you want to take that one? .

Yes, sure. Look, we do intend by the end of the year that our leverage ratio is back to the 2.5x below 2.5x. Now remember, Q1 is a cash use quarter for us. And so typically, we do expect the leverage to be a little bit higher. But as I say, our intention is to be aligned with the leverage ratio of below 2.5x by the end of the year. In terms of how we look at capital allocation, I mean, there are 3 main buckets. We use models to determine how it's return for our shareholders in particular year. And so of those buckets, we focused on continuing to invest behind our business, whether that be behind our brands or with M&A.

And we announced on the first of April our acquisition of the Monaco Cocktail brands. So that would have been a use of our capital. But also, we do intend to continue to return cash to shareholders. And that is one of the capital allocation priorities. Now returning cash to shareholders is both dividends and share buybacks. From a dividend point of view, the intention is to sustainably increase our dividend, just as we have done for the last 5 years.

And then as it relates to share buybacks because we do see our shares as a compelling investment. We did announce in February the extension of the program to the end of December 2021 and also the increase to $4 billion. So typically, we would look at our capital allocation priorities and make sure that we are getting the best return for our shareholders, and that may differ from quarter-to-quarter. But we are still focused on on returning cash to shareholders.

The 1 thing this year is we do have a $2.4 billion debt coming due in July. And we have approval to refinance somewhere between $1.1 billion and $1.9 billion of that debt. So that's also one of the capital allocation priorities is to make sure our balance sheet remains strong, and we maintain our target debt leverage ratio.

The next question comes from Lauren Lieberman with Barclays.

Great. I was wanted you talk a little bit about the value brand strategy in the U.S. that you talked about at CAGNY, particularly on sort of the more localized approach. You discussed it as being kind of analysis phase. But curious kind of where you stand on that? Are you starting to move into implementation mode, any kind of key thoughts as you move forward on that front? Because in the prepared remarks, you spoke more about -- you did speak about Miller, of course, and like local issues there, but really want to hone on the value portfolio.

Thank you, Lauren. No, absolutely. I think it's a great point because if you think about our focus on value historically, I mean -- and if you -- if you look at our results, I mean it has been a big leaky bucket, as I call it, right? And so we do need to -- we are putting all the right plans in place in terms of localizing. So if you look at our portfolio in terms of the value brand, we have a pretty large base of our business in the United States on value, but it is a very localized portfolio.

I mean we have 2 big brands with Miller High Life and Keystone but then a number of other brands that are very local. So first, we want to make sure our big value brands are in a healthier place. So if you think about High Life on-premise share is pretty good. And if you look at Nielsen CGA, we grew share with High Life and on-premise. So I think you're going to continue to see us focus on High Life in different ways. I think I talked previously about High Life Light. Again, expanding into not the entire country, but I think we have now -- we have that now in about 20-odd states.

So we are going to be very localized in terms of being sure that brands works well. Keystone is something we have more work to do, but you see us innovating around Keystone now with Apple with also Keystone Ice and bringing that in particular geographies. Again, when we talk about execution being local, that applies to our entire value portfolio. These brands have a lot of loyalty, a lot of following in particular parts of the country. And therefore, how we invest behind these brands, how we execute behind these brands is very different than how we think of worldwide and Miller Light. So it is something which is an important part of our strategy. It is something that probably will take a little more time just given our historical trends and the plans that we need to put in place.

But I would say it's been a positive part of our portfolio for our distributors and our teams to get behind because it's a big part of our business and for our distributors. So more to come, Lauren, on this as we make progress, but hopefully gives you a few of the actions and drivers that we are taking to get this part of our portfolio to be a little bit more healthy.

Our next question comes from Drew Levine with JPMorgan.

Tracey, I wanted to ask if we could double-click on the cost phasing, on COGS, particularly related to the Midwest premium? You noted it was $30 million in 1Q, peaks in 2Q. I think the prior commentary from last quarter was that overall it'd be $125 million headwind to the year. So one, can you just confirm whether that $125 million number is still good to think about or maybe it's moved higher?

And secondarily, if you'd be able to maybe provide a little bit more context or dimensionalize the incremental headwind in 2Q relative to 1Q? And then, Rahul, just sort of playing off that, the commentary around input costs moving higher, you are hedged, and I think Tracey mentioned for a good part of 2026. But just thinking about the pricing environment, some of your peers, I think, are sort of projecting lower pricing this year around maybe 1%. Maybe you could just talk to or industry willingness to take more pricing in light of the escalating cost pressures?

Thank you. I think, Tracey, do you want to take the first part of it?

Yes, sure. So we did say at CAGNY that our guidance does assume an elevated Middle East premium which would impact our pretax income growth by about 9 to 10 percentage points. And that equated to that minimum of $125 million that would be at the low end of the range that you mentioned. And as expected, the Midwest premium and the base aluminum remains elevated versus last year. And then as we said in Q1, the Midwest Premium added about $30 million of year-over-year cost increase due to the cost of goods sold. But we have spoken about our extensive hedging program. We've also spoken about how difficult and how expensive it is to hedge the Midwest premium. .

But we do believe for this year that we have meaningful hedge coverage, meaning that the impact of the recent price increases that we saw in February for us is a manageable headwind. And then just in terms ofon the phasing side, we do expect the Midwest premium to be -- continue to be inflationary over the balance of the year. But the largest increase currently anticipated in Q2, as we said last year, we did speak about most of the $35 million was coming in the back half of the year. Rahul?

Yes. So I think generally, maybe to pick up on a couple of comments there. Obviously, we have a lot of focus on making sure our top line and our brands are executing well in the context of consumer pressure. But I think as Tracey said, the teams are managing through a pretty complex input cost context, right, whether it is invest aluminum, obviously, there's phasing of when investment went high last year, which was in the second half versus lapping of this year. So I think those are the things that's playing out that I would say the teams are trying to manage through that, both with respect to risk mitigation, but also with the cost savings initiatives that we put in place.

Your question about pricing and how we think about it. I mean, it is still within the 1% and 2% range, the guide of the guardrails we talked about earlier. But it is a competitive context out there. I think we're going to remain competitive for our brands. We talked about share and wanting to make sure we win with our brands. So probably can't comment on what my peers are doing with respect to pricing. But I think if you think about our business, we think about pricing, very, very granularly by brand, by geography. So we're going to continue to stay disciplined on that. We're going to obviously still be within the guardrails we shared, but we've got to be competitive.

We want to be competitive in the context of where the consumer is. Now the good part in this is the last comment is I go back to our portfolio, right? So we have pretty broad portfolio. And so we're excited about the value portfolio that we have because we can meet consumers at different price points. So I think we got all your questions there, but thank you.

Our next question comes from Christian Junquera with Bank of America.

It's Christian on for Pete. I appreciate the color you guys gave on how to think about MG&A expense for 2Q, but can you walk us through on how MG&A should trend during the second half of the year? Any color on phasing of marketing and sales expense versus general and administrative expenses would be helpful?

And Tracey, do you want to take that one?

Yes. Thanks, Christian. So look, we do expect MG&A to be a significant increase versus 2025 over the balance of the year. There's a number of factors that go into that. We've spoken about the incentive compensation expenses will be higher than last year, with the largest increase coming in the second quarter. We also expect to make additional capability and technology investments that will help drive our strategy and modernize our ERP system. And then as Rahul mentioned, with any acquisition, we will have higher costs in the first year as we integrate the Monaco business into our business. And as an example, as we said, we're adding over 80 members to our sales team.

We also expect to incur additional costs as we also market and integrate this brand into our business. And then typically, we spend most of our marketing dollars in the summer selling season. And obviously, with the the Soccer World Cup as well as Americas 250, you'll see continued pressure behind our brands. So that we show up on shelf, we show up to our consumers and drive our great brands into the summer.

Yes. Tracey, again, and just maybe to add a little color to that. Again, I think we said this in either the prepared remarks. I mean we're making some of our biggest investment in things like live sports, right, in the summer going into the next couple of quarters. So again, strong plans for our brands showing up in the right occasions, but also doing things differently, right, in terms of how we make sure our brands connect with consumers and with retailers. So thank you, Chris.

The next question comes from Kaumil Gajrawala with Jefferies.

I guess, Rahul, when you think about coming into your first year, if you think about taking risks, which us investor analyst types give you a little more freedom to do at the beginning. Are there any sort of big risks or big sort of things that you're thinking about, you really want to sort of go for in this first 12 months? And then, Tracey, to dig into the capital allocation question. When you think about your comments specifically on the stock being very compelling, what metrics are you using in terms of how you're thinking about the category, the profitability, it's obviously a long-term decision. So what are some of the sort of base metrics that you're thinking about when you think about buying back shares and the value of the business versus the current trading

So thank you for that. Your question, the first one, is a good 1 in terms of risk. And I'd go back and talk a little bit about 2030 when we laid out our new plan, right? So obviously, we have a good business, but we know what our portfolio challenges are, which I know a number of you are obviously familiar with. And we are working, I would say, in 2 different contexts, right? One is making sure our core is healthy and strong, and on the other hand, transforming our portfolio.

And we are being a lot more aggressive in transforming our portfolio than we have previously probably So we are going to use our balance sheet in a stronger way. I think we shared metrics previously that are beyond beer agenda. We're getting up to close to 10% or we want to make sure we can make that meaningful, right, because you can then have a growth profile for this business for the future. I think some of the actions we are taking in terms of how we're executing the reorientation of being local, the reorientation of reallocation of our spend in ways that can meet our consumers, whether it's live sports or being very local.

I think it is big changes that we are implementing for our organization the parts maybe we haven't spoken a lot about, but we want to make sure this category is healthy. So when we talk about championing beer, it is something we will continue to find opportunities and ways to keep focused on that. So I would probably point you back to the plans we laid out at Horizon 2030. We want to make sure we can take some of these big swings and the changes we are implementing for our system and for our business internally, but they are to get this business back into the medium-term growth commitments that we've made.

Now capital allocation is another key element of some of the changes we're making in a big way, right? I know I'll pass it on to Tracey on the buyback comment, but again, using our balance sheet, investing in our business, but then also making sure we can recognize and reward our shareholders in that journey. So Tracey, you want to...

Yes. Kaumil, I mean, I think the important thing is, look, we put a very strong balance sheet. And because of the strength of our balance sheet, it does give us optionality. And when we look at capital allocation, and we run it through our model, we do take a long-term view on it. And that's why you hear us saying we're going to invest in our business to drive sustainable long-term growth because it's that sustainable long-term growth that is going to drive the share price as well.

So we look at it long term. We look at what we believe the investment behind our brands, the investments behind M&A, the growth in our business, what that will mean for our share price. But as we're looking at that, obviously, because we have the strong balance sheet, we've got very strong free cash flow, we're able to do both. And so knowing that our strategy and our plans are all around sustainable growth, growing both the top line and the bottom line. And we believe that our share is a compelling investment. We are able to do both. So that's how we look at it.

Yes. And maybe to your question of just macro, how we think about the category, and we -- I think we recognize some of the challenges the category has. But again, we believe the category is going to get healthier as it is doing in '26 versus '25. And there's, as I mentioned, a little responsibility on everybody in the industry to make sure the category is in a stronger place in the future.

The next question comes from Nadine Sarwat with Bernstein.

Two for me, please. You called out Q1 doing a bit better at the market level in the U.S. I'm curious to hear what you believe were the underlying factors behind this. There's obviously the number and you called out consumer confidence season deterioration. So what do you think are the drivers of that being a little bit better than you expected? And then the second question, you called out different channel dynamics when it comes to the behaviors of consumers, how that relates to their position and their consumer confidence. Could you expand a little bit on that? Are you seeing different behaviors by pack size, downtrading? Anything else that can give us a flavor of how that U.S. consumer is reacting from the lens of a brewer like yourself?

Yes, thank you for that question. So if you think about Q1, obviously, Q1 was lapping a pretty bad quarter last year, right? So that's -- I would say that's a little bit of a baseline. But if you look at consumer trends, and I would call it out in maybe a couple of different ways. One is there is a group of consumers that are, I would say, pretty healthy. I mean that's where you see brands like Peroni, brands like continue to grow. So you do have a consumer cohort that is, I would say, doing okay.

And the good part is we need to accelerate our portfolio with that consumer. But if you think about low-income consumer, et cetera, I mean, this year, trips are up -- call it, visits up in terms of stores. Now we can take a look at maybe, call it, size of basket, et cetera, I think there's still some pressure there, but in terms of both trips, households, et cetera, purchasing is up. So I think that this shows there's a little bit of confidence into -- coming into Q1. Obviously, there has been a little bit of a reasonable way lens on this. I mean, the West is significantly stronger this year versus last year.

So there is some elements, I would say that giving us promise, right, as we think about the category and looking at it. Obviously, I balance that with still caution and just as we think about the balance of the year with obviously inflationary headwinds, the gas pricing at the end of the quarter and into April. But broadly, '26 should be better than '25. Your question then on channel. I mean that's an important one for us because in our category, consumers usually stick to the brands.

And what we're seeing, and this couple of trends have been longer term, right? I mean the move into singles, the move into large bags, I mean those bags continue to do much better. The pressure has been on, I would call, small packs and medium packs. Small packs have done slightly better than Q1. And so there's definitely that element, again, both on the giving us confidence, but recognizing that people are still looking for particular price points, right? So small -- sorry, singles and large pack continue to be the main driver of people making their decisions.

And then I do go back to, call it, value portfolio in terms of it shows up in different ways, maybe higher ABV or value portfolio in terms of beer. And this is why just one comment on Monaco, which gives us an excitement is, this business is predominantly a singles business and it's in convenience. So while we obviously are excited about the brand and the platform, it gives us for our business, Tracey talked about the people that are coming along with this business. And it's a great platform for us as we think about not just Monaco, but our overall capability. So hopefully, it gives you a sense of, I think, the 2, 3 parts of your question. So thank you for that.

Our next question comes from Gerald Pascarelli with Needham & Company.

Great. Thank you. Rahul, I'd like to go back to the World Cup. It's a huge on-premise beer drinking occasion and your on-premise share trends currently look better than in the off-premise. I think that's what you mentioned in the prepared remarks. So that would seem like a clear channel advantage, especially considering some of the challenges in that channel, currently being realized from some of your competitors. So maybe if you could provide some color or commentary on just your level of optimism and the tailwind that you think that event could have on your volume trends related to channel, I think, would be helpful.

So thank you. Great. So if you think about 1 of the things that I know we've spoken about and I think broadly, probably heard from the whole industry is, we talk about occasions, right? We talk about wanting to make sure we can engage with our consumers and occasions. And I think that's where we get excited about something like the World Cup because it gives us a platform and occasions to really engage with our consumers. It is like Super Bowl for particular cities, right? That's what's happening is you've got multiple games in different parts of the country.

And we got to make sure we are showing up to engage with consumers. So to your point of what gets us excited is, obviously, this plays into our our on-premise strength, but also making sure we can drive new occasions over the summer in bringing people around our brands. There's an element of people coming into the country for these games, again, we'll see how that plays out. But there's an element of, again, occasions for travelers coming into the country. And then to your point of how do we get folks excited about connecting to our brand. So if -- again, I'm going to make a little bit of a plug here for our new campaign, but if you guys go check out YouTube with the like campaign it is a way of engaging our consumers in fun ways, but resonating our brands with them.

So I think to your point of its occasions, it's obviously channel and execution in retail and execution on-premise is important. But then it is about making sure our brands resonate with our fans. Yes, so I think excited. We feel we're going in with the right pressure and something to get rally around.

Our next question comes from Chris Pitcher with Rothschild & Co Redburn.

A quick question on the integration of Monaco. I mean 10 years ago, you were buying craft beer brands and integrating them into the business. Can you give us a sense on Monaco about how you're going to retain these people that are coming across? Because it's a move into a new category, how are you going to ensure that you retain these salespeople. Is the founder locked in -- and then on the mechanics of it, I believe it's production is still outsourced. Is there scope to integrate that in the near term? And do you see an international opportunity in some of your other markets, particularly in the U.K. for these sorts of products?

Yes, thank you for that question. And I know you asked the question about Monaco integration. So I'm going to comment I start the comment with Fevertree because I want to make sure in terms of these brands, the discipline around integration is super important. And I think we've shown that with Fevertree as we focused on making sure we don't drop a case, right? So integrating Fevertree along with their teams, partnering and understanding what these brands stand for is important. Again, Monaco, we obviously closed in April.

And our goal is to make sure we keep the magic that this brand has. I mean this is a brand that's been around for a while, right? This is not something that just grew in the last 3, 4, 2, 3 years. I mean this has been around for 10-plus years, and they have built this business very diligently on the back of a clear proposition with clear channel execution. And so we want to make sure we can bring that magic into our business. So that's where our focus is on making sure our teams we bring those learnings in.

It is wanting to make sure that we keep the commercial pressure on the brand as we integrate the founders are involved, but we have 100% of this company, and we will execute on this within the Molson umbrella. And then to your point of production and other opportunities, I mean, we will obviously look at all of those pieces as we think through integration. For us, job 1 has always been sure we can keep the commercial pressure and the focus on the business going forward.

Our next question comes from Bill Kirk with ROTH Capital Partners.

My question is on fuel prices and maybe their impact on consumption. NBWA recently shared some regression analysis work that they had done that showed industry volume trends, actually improved when fuel prices went up. I guess the logic would be to leave the on-premise and the 2 beers there, and you trade it for 6 pack at home, I guess. I was a little surprised by this analysis. So I guess the question is, do you see a relationship where higher fuel prices result in a volume benefit?

Thanks for that question. I'm not exactly sure on the NPWA analysis. But I think the way we think about this is, obviously, fuel prices have a couple of correlations with consumers. One is obviously expendable income watch and be careful about how much money goes in there versus 2 is channels, right? I mean if you think about beer and one of our biggest channels in convenience stores and making sure consumers have that correlation when they are. And pack size, right, is how -- when there is a pressure.

So I think to answer your specific question, I'm not sure I'm going to say that increased fuel prices increases volume. That's -- but I do think it's something we watch very carefully, right, we watch it carefully in the context of pack size, singles versus small packs, we watch carefully with respect to, again, channel, as I mentioned, and making sure we have the right offering in our channels across the portfolio. And then obviously, what it carefully in the context of consumer sentiment, right? So yes, I think that's how I would think about it in the context of our business.

The next question comes from Rob Ottenstein with Evercore.

Great. Rahul, I'd like to double-click on Miller Lite. Iconic brand, great liquid but it continues to bleed. And I know you talked about some regional, I guess, competitive issues and that you have a plan for that. But can you tell us what you think a reasonable outcome for that brand is over the next 1 to 2 years? I mean, can it get to stable volumes or hold share? And I do realize that the segment that it's in is challenged. And so I guess the bigger question is, apart from what's a reasonable goal and time horizon is can you do this with just kind of tactical moves or do you need to fundamentally rethink or refresh the brand proposition?

Yes, Rob, I know that's -- there's a lot of questions there. So probably maybe a couple of comments. So if you think about Miller Lite, obviously, first, let me answer your question of what's our goals and long-term ambition. Obviously, we want to get the brands all back to growth. But the first thing we need to do is make sure we can get our share stable, right? I mean that's, I would say, the short- and medium-term goal that we talked about even in February is to get our big brands shared in a healthier place.

If you break Miller Lite's current challenge, I mean, the Great Lakes area continues to be where we need to make sure we are making progress. So it is something we are actioning. Your question of the proposition and the thinking around it, I mean we feel good about the campaign and the plans we have right now with Miller Lite, right? I mean this resonates with our consumers. It resonates with our distributors. I think our plans in the summer with Americas 250th and Miller Lite that plays both into the taste angle, but also the Americana angle. We feel pretty good about.

So I do think -- we do think that it is something we need to just work through, call it, region by region and just make sure we can execute against it. But then having the right plans to get our share, I would say, in a healthy employee. I think that's the best way to think about our focus on this going forward.

That concludes our question-and-answer period. You may now disconnect.

All right. Good morning, everyone. Welcome to the UBS Global Consumer and Retail Conference here in New York City. My name is Peter Grom, I'm the U.S. Consumer Staples Analyst here at UBS, and we are very excited to have joining us Rahul Goyal, President and Chief Executive Officer; and Tracey Joubert, Chief Financial Officer from Molson Beverage or Molson Coors Beverage Company this morning. So clearly, beverage alcohol has been under pressure from the top and bottom line perspective over the last several years. And several weeks ago, both Rahul and Tracey outlined the Horizon 2030 strategy as the company looks to navigate this challenging backdrop and return to more consistent growth.

In terms of format for today, I have a series of questions that I plan to run through with Rahul and Tracey during the 45 minutes we have here. But before we start, I'm required to read a legal disclaimer. As a research analyst, I'm required to provide certain disclosures relating to the nature of my own relationship and that of UBS with any company on which I express a view on this call today. These disclosures are available at www.ubs.com disclosures. Alternatively, please reach out to me. I can provide them to you after this webcast.

So with that, why don't we get started? Rahul, Tracey, thank you so much for joining us.

Thanks for having us, Peter.

So I wanted to start with Horizon 2030. And you outlined a number of different objectives from a top line perspective or a profit perspective that's going to allow the company to achieve the medium-term targets in the next several years. And I want to dive more specifically into some of those buckets. But I guess my question is, what's really different? You talked about investing differently, executing differently. What is changing within the organization? And what drives the confidence that these changes will generate more consistent top and bottom line growth?

Yes. So that's, I would say, a fair question. So if you -- I'd break it up into a couple of pieces. So first is the portfolio, right? So what is different? We've always talked about Coors, and Coors Light, Miller Lite, Canadian et cetera. So probably consistent to what we have said previously. There's a few things in that it's different, right? We've talked about Miller Extra Light, which is, again, a lower strength ABV. So again, a few different choices, but core, we've talked about consistently.

The value segment is different, right? We've not talked about that previously. And I say that in the context of the outside world and also for us as a business. So from the outside world, everybody knows about the K-shaped economy, but there is consumers looking for value products at the right price point, but also with brands that matter, that resonate with them, right? So I would say, again, internally, this is a big part of our business. If you just look at the volume we have in just the value segment, we'll be the fourth or fifth largest company, the beer company in the United States. So it is -- that part, I would say, is different and feels different, right?

Again, we're not trying to find a way to grow that part of our portfolio. We just need to make sure we take care of it and it doesn't decline as fast as it has been. Above premium beer, I would say, pretty consistent the way we have talked about previously. So probably not as different, Peter. But -- and then beyond beer, not different in the context of the ambition around beverage and beyond beer, but probably the levers we're going to use to deploy capital, right, our thinking on capital allocation to really scale there. So that I would call out in the portfolio. Probably the biggest things that are different for us internally is how we execute, right? Because we are in a category that is -- I mean, everybody knows where the category is.

Our commercial execution has to be closest to where our consumers and customers are. And what does that mean, right? We obviously are in multiple countries, but beer is sold very locally. And when I say locally, I mean state-specific or even city specific. And that's the changes we are making. We're making sure that our teams are accountable top and bottom line as close to the customer as possible. The simplest way I look at it is we spend a bunch of money on marketing. Is the marketing doing what it's supposed to do in those particular markets, right? Is the marketing spend or the people resources we have delivering the outcomes we want in particular geographies. If you look at our share and you break it down in different parts of the country, how Miller Lite needs to react and behave is different in the Great Lakes because we are the biggest share platform in the Great Lakes.

There, we are defending share versus if you look at Miller Lite in the Northeast of this country, there we have to gain share because Miller Lite historically has been more of the brand that needs to gain share. So execution closest to the customer is what is going to be different. That means changing how we plan our dollars, that means how we execute on our pricing, promotion, activation, any of those activities and also the incentives, right? How do we make sure our teams and our organizations are driven with their incentives closest to the customer. The other pieces I would call out is obviously our execution on capabilities, right? We want to make sure we can leverage and improve on the platform we are. We are in the best profit pools of the world.

We have a system, a platform that can deliver and execute in those profit pools brilliantly. How do we make sure our capabilities are top notch on that? So continue to build out our capabilities, investment in that. If you look at the other ones, obviously, championing beer and people and culture are important and different. Internally, it feels differently different as we think about the concept of ownership, making sure we can take risks and execute against it. And then I would call out, obviously, the cost program was due for us in a way of making sure we are disciplined around cost, not just to navigate what we are doing today. Historically, we've been a pretty disciplined company around cost, but obviously, we are navigating through a pretty tough external context. And then capital allocation is different. So if you look at the plan, I mean those were hopefully the big areas that I would say are different than what our plan was previously.

That's helpful. And I guess I want to start with the portfolio and kind of the 4 different buckets that you kind of outlined. Maybe just give us some historical performance within these buckets, where you see the biggest opportunity? And I guess, ultimately, what success would look like? And I guess I was going to start with the Coors. Coors Light, Miller Lite, Banquet. It's been a unique couple of years for those brands. But curious kind of where you see the biggest opportunity looking ahead. Is it really about that local execution that you were just mentioning?

Yes. If you look at our core, if you just break it up just on core, we obviously gained a lot of share in 2023. And in core, we have kept, I think, about 70% of that share still, right? So our core has been healthy and obviously, it moves a little bit quarter-by-quarter. But overall Coors Light, Coors Banquet, Miller Lite has been healthy. So that's something we got to keep focused on. Obviously, it is the biggest part of our portfolio. Coors and Coors Light, Coors Banquet, Coors Light, I would say, has been much more healthier. This year, Miller Lite is where we need to do work, and that's where the local execution comes in.

And then the other things, we will put a little bit of a few markers for the long term is things like Extra Light, right? There is a consumer that's looking for lower strength ABV. We have a product. It's a long game, but we want to make sure we can leverage our brands into that. So yes, to your question around core, it is about the portfolio, but then it is about execution within the core. The only other add point I would call out here is obviously the type of marketing we do and the campaigns and the thinking around the brands, right? So you saw that with Banquet where the brand resonates with consumers because it goes back to what it means. And that's what we leaned in with the new campaign with Christopher Walken with Miller Lite, right? It is around sociability. It is around beer occasions. It's around bringing people together. So I would say the creative and the thinking on the branding on the marketing is obviously going to be an important aspect of it, too.

Makes sense. And I guess one of the pivots, if you will, or something that seems a bit different than what we've observed in the past is just kind of this focus on value, right? Clearly, still a very large segment, but it really hasn't been touched on to the same degree as it has been since you've kind of taken over as CEO. So can you maybe just talk about this pivot? Is this simply a reaction to the current environment we're in? Or do you think this is -- or is this really an underappreciated opportunity?

Yes. No, that's a great point. And I would say it's in 2 ways. So first is from the outside in, right? If you look at consumers, they have an academic debate about K-shaped and people's economic health, but consumers are looking for value at different price points. And but they still want brands that matter. They still want brands that resonate with them in their lifestyle, right? And I would call out things like High Life, Miller High Life and what it means and how it resonates. So there is a consumer that's looking for value. So that is definitely an outside-in view.

I would say it is obviously be more stock in the last 1 year. But it is something that is going to stay with us for a while, right, whether we get through this initial sense of volatility, but that K-shape is not going anywhere soon. So we got to be making sure we have that proposition. Two, it is absolutely relevant for our business. And it's relevant for our distributors business, right? If you just quantify that part of our portfolio, if we had nothing else, we probably be a pretty large business in the United States. So we've got to show some love, some affection in terms of the brands. And it doesn't need the same way that we need to do it for Coors Light and Miller Lite. This brand and this part of our portfolio is local.

Keystone is stronger in particular states. High Life is stronger in particular states, Milwaukee's Best, Steel Alloy Reserve (sic) [ Steel Reserve Alloy ] , Hamm's. I mean, there's such a great set of brands we have in this part of the portfolio that are very local, that need different type of actions. And our goal is not to find a way to grow it. That's not what I've laid out as an ambition, right? We just got to slow the decline because that has to be -- it's such a big part of our business. We got to slow the decline, make sure we can meet the consumers where they need, and then it adds to the whole story for our business.

Makes sense. And then maybe thinking the other side of it, premiumization has been ongoing in the industry for some time. It's part of the strategy at Molson Coors. So can you just give us a sense for how some of the key brands in the segment are performing relative to your expectations? What does success look like here several years from now? And I guess, in order to achieve your long-term aspirations, is that possible with the brand portfolio you have today?

Yes. Thank you, Peter. I think that was more of a challenge than a question when you say is it possible. If you look at our above premium portfolio, I mean, we are, I would say, slightly under-indexed in the U.S. But if you look at our progress over the last few years, we have made progress, right? We've grown our portfolio total company about 5 percentage points in terms of above premium in the last 4 or 5 years. I would break up the premiumization initiative for us in 2 buckets. One is beer and one is beyond beer.

In beer, I would say, in places like Canada, in U.K., we've done a decent job, right? Our portfolio is 40-plus percent above premiumized on the back of things like Madri, on the back of things like Heineken in Canada, Madri in Canada. So I think as a portfolio, we've done a good job there. U.S., we are under-indexed. And in the U.S., historically, we've had only Blue Moon as the big brand that we leaned in. And now you have Peroni with onshoring of Peroni. So it is definitely gives us something to work on, right?

Peroni is growing consistently. We control the supply chain now. So it allows us to be invest in it without any other sort of incumbent issues. So I would say beer is definitely something we'll lean on. And then it is beyond beer, right? And in beyond beer, it is around flavors, which is a volatile category, and it is in the pure non-alc. So our goal is to obviously continue the acceleration of our premiumization, above premium portfolio, but it's going to be a mix of beer and beyond beer. I mean I think I shared these numbers. I mean we're getting -- in beyond beer, we're getting up to 10%. And so between that and beer, we have to be meaningful, right? To your point of the math, if you just keep beer core and value, unless the above premium and the premiumization is not big enough and meaningful enough, the math doesn't work. And so I think you're going to see us continue to lean into that.

Yes. And then maybe just to build on beyond beer. We've seen some nice pockets of growth across the industry, but it's been pretty volatile, right? So can you maybe just elaborate more on the strategy here? How do you stay nimble and make sure you're not investing in categories that will be short-lived, if you will? And I guess, where do you see the biggest opportunity for Molson Coors as it relates to beyond beer?

Yes. No, if you look at beyond beer, I'd break it up into, I think, the reference to flavor and pure non-alc. Flavor, it is a volatile category. And we got it right with a couple of our brands initially. We took Topo Chico and we scaled it dramatically big just as a seltzer. And then we took Simply and we scaled it dramatically big as a flavored ABV flavored beverage. But then things moved. The world moved and consumers moved and Topo Chico had -- has been in decline. To your point of this is where agility comes in, right? And I would say Topo Chico is where I would point in the last 3 to 6 months is where we have been able to pivot.

We pivoted from just being a seltzer to a little bit of a higher flavor beverage. We have a high ABV innovation. We have innovation in packaging. And you're starting to see the brand obviously grow share but also volume in a few months. So it is definitely something that you can do, but it is a category that is volatile. Same thing we have work to do on. Simply, and we are doing that. We have a new product now with a 12% ABV in a smaller can, not a big can, smaller can, making sure that we can pivot up our portfolio to meet where the consumer is, especially in the flavor side. And then we have some gaps. I mean the consumer has moved and they're looking for Spirits in RTDs, and we need to make sure we have the right portfolio in there, which is a gap for us.

So flavors, I think, is going to be volatile. And then beyond beer, just non-alc, we've got to be disciplined and execute the places where we can win. And I obviously will talk about Fever-Tree because it is a space where it plays close to alcohol. We know how to execute. It is something that plays in occasions in on-premise, that is close to alcohol. So definitely we can execute. But I'll call out even energy, right? It is energy historically beer companies or beer distribution has been able to build the brand. And we haven't been able to do that in ZOA, and we have more work to do in ZOA, but it is a category that we can win in. It is a category that we can -- we have an ability to win in. And so you'll see us stay disciplined around in non-alc, but in places where we can win, right? Because it is too broad, and we've got to focus on places where we have the capabilities to win.

Makes sense. So why don't we stick with the sales outlook, but just shift the discussion to the broader category. What's happened over the last 12 months? And how you kind of see it evolving from here? Clearly, '25 was a historical challenging year for beer, for beverage alcohol in general, a lot of debate on cyclical versus structural. But as you look back, have you been able to identify or isolate why trends were so challenged last year?

Yes, I would break it down into a couple of pieces. So again, things that I know a lot of people have spoken about. I mean, there was a big cohort of the consumer, the Hispanic consumer that had a different context and in a way we're making different decisions on their purchasing. I would say that is one. And then 2 was just the economic uncertainty, right? I mean I would broadly put it in those 2 buckets of if you want to diagnose what 2025 was. And that played out differently in different parts of the portfolio, right? It played out differently on how consumers were engaging with alcohol, whether they were engaging in on-premise versus off-premise or it was just decisions they were making on how much money they spend on alcohol as a whole.

So I think as probably, Peter, we shared previously is we see that volatility to continue for a little bit, right? I mean we don't think everything is going to be back to the negative 1s and 2s anytime soon. I think that volatility exists in the category. You're seeing that how it plays out in January and February. I mean, 1 month is good, 1 month is bad. So it's something we just have to watch. I go back to for us and our teams, it's about where can we execute, right? We have enough things to focus on, on our side on core. We have things to fix on value. We have opportunities in above premium. So while we obviously watch the category carefully manage through it, we've got enough things to focus on just within our own house.

Makes sense. And I guess on that point, right, so January was good. It sounds like February has kind of been returned to that. So kind of curious, maybe what you're actually seeing? It doesn't feel like the cyclical challenges are shifting. It doesn't feel like the structural headwinds are down there. So just maybe some more comments just in terms of why you think there's been such volatility in January and February. And I guess, any notable differences you're seeing on versus off-premise?

Yes. So I think the first one, I mean, I would generally say a little bit more optimistic this year than last year in terms of category, right? I mean, January, February, if you look at it, a lot of weather, a lot of storms, a lot of shutdowns in particular parts of the country. So I think generally, we're feeling as a company, as a team, a little bit more optimistic coming into this year. If you look at the things that are going to happen in the country this year, I mean there's big events that we're pretty all excited about.

Obviously, we had the Olympics, then we get into March Madness. But then we have the Soccer World Cup or the Football World Cup. We have America's 250th celebration. So I think generally, there's a sense of optimism going into the summer to make sure we are leaning in the right way. So I think that's the category. What was your second part of the question?

No. Have you seen any differences year-to-date on?

On and off. Yes. On and off, I think if you look at on and off, I mean, we haven't seen any big shift between on and off. I mean, the percentage split between on and off has been pretty consistent. I think what has been good is our performance on-premise has been much better than the off-premise, right? Our share gains in on-premise. So that gives us confidence that our brands are resonating well with consumers. We can obviously engage them in a different way. We can build the brands in the right way. But in terms of big shifts between on and off, I haven't seen anything dramatic last year.

And then Tracey, ask you a question here. So your guidance for '26, flat constant currency NSR plus or minus 1%. We just touched on a little bit more optimistic on kind of the category outlook versus the minus 5% we saw in '25. So can you maybe outline specifically what you're assuming from a category perspective and the guidance how you arrived at that target? And then just given the volatility we've been talking about, did you include any additional flexibility versus maybe what you would have done in a normal year?

Yes. So what we have said is we do expect the category to improve, improve from the down 5%. We haven't given specific guidance because it is very volatile, but we do expect it to improve. And then as we look at our medium-term guidance, this year, 2026, we've spoken about a couple of the headwinds, the things that we're cycling. So Midwest premium incentive comp, which didn't pay out last year. So if you take those 2 things into account, we will sort of end up the bottom line sort of flattish.

But in terms of what are we looking at, so we're not expecting big volatility in either up or down. We haven't built that in from a commodities point of view. But we have various plans depending on how the scenarios play out. So obviously, no one was expecting or at least we weren't expecting wars to break out. We don't know what the impact of the gas price is going to be. We know that it will have some impact on the consumer as we've seen in the past and impact on our consumer. So we've got various scenarios that we're planning to. But in order to mitigate some of this volatility, we are putting in plans in place like we've got a cost savings program, which we've announced it's around $450 million of savings over the next 3 years. That's going to come from all parts of our P&L.

So from a COGS point of view, we are looking at -- we've got a number of projects actually that we can put in place, which is going to be driven by procurement. It's going to be driven by some capital investments that we're making, investments that we're making around our capabilities. And then in our breweries, we've got a program called world-class supply chain, which is going to drive efficiencies and effectiveness. And then at the end of 2025, we announced an organizational structuring, which we're going to see some of that flow through in the Americas. And then in EMEA, APAC, we've got plans to grow or expand our margins as well. So there is a lot of volatility that we're seeing at the moment, but we've got various plans that we're laying out depending on how scenarios play out.

Makes sense. And then, Rahul, I wanted to pivot back. You mentioned the World Cup, the 250th anniversary in the U.S. and ultimately, some optimism around what that could bring. So can you maybe just talk about what you expect as it relates to those events? And whether -- have you included any sort of benefit in your guidance?

I mean we've tried to -- I know some of the questions was how do you get from the minus 5 to the minus flats, et cetera. I mean, Tracey talked about some lapping, et cetera. But we want to make sure our brands show up in the right way in this, right? So while for the World Cup, we may not have the sponsorship. I mean, there's a lot of things we can do around those events around -- in the specific cities, right, or how we show up with our brands on premise, how we show up around the -- in the city and where these games are held. And so I think we're pretty excited about that. We're going to be big in terms of TV, also with Coors Light with the World Cup. So again, these are occasions that people want to use to come together, right?

I mean, the simple thing we say internally is we got 8 Super Bowls happening in Houston, right? Sure, it's happening just in Houston or in Texas or in Kansas City or Atlanta, but it is 8 events that you have the opportunity for people that probably are traveling into the country, people are coming together for that particular event. So our brands have the opportunity to show up in a smart way. So that's what I think gives us a little bit of -- again, these occasions are important because, okay, we've talked about occasions. This is not beer and the category is not about people not drinking. It's not about people not engaging with beer. It is the occasions that was the tricky part. And the exciting part this year is we have the opportunity to create those occasions. And we're not creating it on our own. There are occasions where we are facilitating if that makes sense.

That does. That does. Maybe to round out the top line discussion. And going back to CAGNY, you reiterated your medium-term targets of low single-digit revenue growth. Now I get that does include some benefit from M&A, which I want to get to. But what's your level of confidence in delivering on that target if category growth is structurally lower?

Yes. I think if you look at what I said in that was we've been pretty good in terms of creating shareholder value by being disciplined on the bottom line and over the last 5 years, right, our TSR, et cetera. What we, as a management team have said that we know we've got to get our business back into that medium-term algorithm to drive the next chapter for growth, next chapter of shareholder value. And there, we know we have the portfolio we need, right? So the fact that we talked about core and value. We know what the game plan there is, right? Core is about share and managing share and gaining share and value is just protecting. Those are big parts of our portfolio.

So those are under pressure from a category headwind perspective. So it does come down to execution in those parts of the category. It does come down to how we make sure our resources are being deployed in the field, how we make sure our marketing dollars are delivering the outcomes we want. In above premium of premiumization, this is all new for us, right? We just inherently under indexed. So this is, for us, is all new stuff. This is absolute new dollars, right? So it's not just about share in beer, and it's just not about new categories. So this is where we can use the balance sheet in a way to enable us to get some scale. So that combination of both of these things gives us confidence that we can get this business back into the low single-digit top line growth, right?

On the bottom line, as Tracey said, it is a little bit of a volatile external context. We want to get through that phase with discipline. We talked about the cost program. And even since February, when we were in Florida, the Europe business, we've announced all of that publicly now, right? I mean, all the cost savings programs, we're chasing that stuff because we want to make sure we are pretty disciplined about how we manage this business through this period of challenge.

Makes sense. Tracey, I want to pivot to profitability for a second, and you alluded to the Midwest premium. So can you maybe just remind us what's embedded in the guidance as it relates to that, how do you see this playing out? Do the recent events that you were alluding to impact that trajectory. And I guess one of the bigger questions I've gotten from folks is why it's having such an outsized impact on your business in '26 relative to what we've heard from other CPG, other beer companies that have also have outsized can exposure. So is it simply hedging? Or is there another factor driving that?

So look, in terms of what's built into the guidance, we do hedge all commodities. And in the first 12 months, we've got much higher hedges on in place and then it's a little bit lower in the second year and then even lower in the third year. Specifically as it relates to the Midwest premium. We have spoken about how difficult it is to hedge and how expensive it is to hedge. And one of the stats that we have from insights that we can get, for example, trades that are exchange trades that we have line of sight to. For every 1,000 aluminum trades, there's 3 Midwest premium trades.

So that just shows you how difficult it is to hedge. And even when the price drops a little bit and you try and get the hedge in, there's no counterparty to hedge that. So it's difficult, it's expensive. Having said that, though, we do hedge it and we have got hedges on place in place. Just this year, again, the Midwest premium has gone up to another 20%. Not even people talk about gold and not even gold has gone up by over 300% in the last 12 months. So the Midwest premium is a challenge. And we are working on a number of things to try and understand that try and get transparency, et cetera. In terms of confidence in everything else, I mean, we've got a lot of plans in place. As I say, we've planned multiple scenarios.

So we're doing everything we can to mitigate. In terms of what other people are seeing, look, we just feel that this is a big part of our cost. And so we were very transparent, and we have been for a couple of years. I mean, you've heard us speak about the Midwest premium for a number of years. Now it depends on who else you're talking to. They may have different geographies where they are not paying Midwest Premium. I mean, Midwest Premium is specific to the Americas. So if you've got a bigger footprint in Europe, et cetera, you're not paying Midwest Premium. It also depends on your mix, how much is in glass, how much is in cans. And we have seen over a number of years, consumers moving to cans. And so for us, we felt it was necessary to call it out as we have been doing for the last couple of years because it is a big part. It's a big driver of our COGS. So I mean, other than that, I can't speak to other companies.

If you look at our business, I mean, our own business, right? I mean this is an Americas phenomenon. It's a U.S. phenomenon. We're not seeing a Midwest Premium implication in Europe, we're not seeing it in Canada. This is a U.S. phenomena. So I think to your point of -- obviously, we can't comment on other companies' stuff, that based on geography, based on landscape and product portfolio mix, this is a real issue.

Okay. No, that makes sense. And I guess, Tracey, building on that a little bit, but just sticking with the profit outlook, another big headwind was the reset of the incentive comp. But I guess there's just a lot of moving pieces in the base here, right? You're cycling integration, the onetime expense of Fever-Tree. So just in the context of the full year guidance of pretax income being down 15%, 18%. How should investors think about the phasing of that? Is it more pronounced in the first half just because that's when the inflation is building in? Or is it more balanced?

Yes. So Q1, we had the Fever-Tree onetime payments around $32 million last year. So we'll be cycling that. In terms of -- if we look at commodities and the Midwest premium, we really saw the Midwest premium elevated from Q3 and Q4. We did say that the Midwest premium had a $35 million impact on us last year. About $20 million of that was just in Q4. So much more elevated in the back half of the year. In terms of the incentive program, which we did say was one of the headwinds that we're facing this year, we saw most of that. We started to adjust that Q2, Q3 and then into Q4. So a lot of what we will be cycling is happening in the second half of the year, the big things like Midwest premium, like incentives, et cetera.

Okay. And then maybe to round out the discussion on '26. I mean even if I were to back out the Midwest premium incentive comp, the outlook for flat right? It's still nicely below the company's long-term algorithm. I get sales is slightly low as well. But what's driving the weaker performance in '26 even after backing out those dynamics, especially -- and I know we'll get to this, just considering some of the cost savings you've touched on.

Yes. So look, we're looking at 2026 as sort of the base year, and then we're going to grow from there. But we've spoken a little bit about the industry. We're not expecting it to -- we're expecting it to improve, but not yet back to this year to the historical levels of down 2%, down 3%, et cetera. So that's one. We did completely get out of the contract brewing arrangement. So we still had some contract brewing last year, which, again, was very low margin, but still added -- was a benefit to deleverage, et cetera.

So now we'll have -- and it was profitable, but not very profitable, but we're cycling that. So those are some of the challenges that we're facing. And then importantly, we're going to invest behind our business. We're going to invest behind our brands. We have said that we expect to increase our marketing spend this year. And also, we're going to invest behind capabilities and technology and that's going to help not just drive insights and analytics and things like that, but it's going to drive cost savings and efficiencies and be part of this $450 million cost savings program that we've announced. So there's still investment going into our business, which is part of the bottom line.

Makes sense. And I guess what gives you confidence that you can reaccelerate growth to that mid-single-digit range? Is it those -- the benefits from those investments you're alluding to? Is it the category maybe getting less? Just help us understand how we go from where we are this year to kind of getting back to on algorithm.

Yes. Certainly, I think there's a number of things. The category, as we've said, we expect that to improve. We have top line plans. So we've got the pricing that we normally talk about the 1% to 2%. We have got the mix. We are going to be focusing a lot more on the economy, the value side, but we're also going to continue to premiumize. And so brands like Fever-Tree, which is other than our full strength spirits. I mean, Fever-Tree is the highest NSR per hectoliter brand. So we're going to have a full year of that. We're going to continue -- that still has a lot of awareness and a lot of distribution to go. So we're going to focus in the portfolio. And then these cost savings programs, et cetera, is going to help to deliver the bottom line.

Okay. And then so maybe pivoting to the cost savings as part of Horizon 2030. You announced $450 million of cost savings around supply chain, commercial, function areas, EMEA, APAC, which you alluded to. Can you maybe just elaborate on the target? Where do you see the biggest opportunities across these buckets? Is it equally phased? Or should we expect savings to ramp into '27 and '28? And sorry, for the classic sell-side 5-part question. But just the broader philosophy around reinvestment versus letting these savings flow to the bottom line?

Yes. So certainly, if you look at our guidance for this year, I mean, a lot of the savings is going to go into investments and to help mitigate some of the inflation that we see -- that we spoke about from a Midwest premium. I think where we get the biggest benefit is around the COGS line. So with the plans that we've got around procurement, the plans that we've got around world-class supply chain in our breweries, we're going to see that. Now that doesn't all happen this year because we do need to invest in the capabilities to be able to generate the cost savings. But -- so this year is the sort of foundational year.

And then as we look at building off this year, that's when we're going to start seeing the benefits come through from some of these investments that we're making in 2026.

And I think, Peter, I mean, if you look at the -- your question of the intent of pace right? I mean some of these things, we started immediately last quarter, when we started seeing some of the headwinds in Midwest premium, et cetera, I mean, all the Americas work that we did in Q4 plays out in '26. We just announced even since mid-Feb, all the changes in our European business, right, with the reduction with the shutting down some facilities. So I think we recognize -- when I talk about we are in this moment of volatility, right? We are leaning in from being very disciplined about that. Now we also need to make sure that we are setting the business up to get the medium-term growth algorithm, right?

So in terms of cost savings, execution of that, the stuff which we kicked off in the Americas, the stuff we kicked off in Europe in the last few weeks is to get us all into that medium-term algorithm as quickly as we can.

Great. And that makes a ton of sense. So Rahul, ever since you've taken over, M&A has become a much bigger topic of discussion and even looking at some of your capital allocation priorities that you outlined at CAGNY around investing in the business, that now includes M&A. And I think specifically, you're targeting deals that would help top line growth by, call it 1 to 2 points per year. Can you maybe just talk about the strategic and financial criteria for M&A categories that are most attractive to Molson Coors? And then ultimately, just given where leverage is today, would you be willing to do something on the larger side?

So I think I'll take a few and then Tracey can help me in a few of. If you look -- think about the portfolio, right? Again, I go back to your 4-bucket portfolio conversation. I mean the first 2 in beer, we have to do and execute and take care of it. So when we talk about M&A, this is finding the gaps in our portfolio that we need to fill. And it's probably in the beyond beer or maybe above premium beer space. Those are the areas we got to go solve that. In beer, we have a big portfolio. So obviously, we will look at it, but we want to make sure we're being smart about beer brands that fill some gaps that we may not have.

Beyond beer is probably where we do need to look at it. And in beyond beer, I go back to non-alc spaces where -- or flavor spaces where we have the ability to win. So once you start thinking about those categories, then the funnel becomes very small, then it becomes small in terms of the categories you want to work on. And then your second part of the question is which -- what's the criteria? And so we've been very clear, right? We're not trying to chase top line growth just for the sake of top line growth. We want brands and businesses that have good top and bottom line discipline. And for 2 reasons. One, because it is in spaces that is volatile. You can catch a brand in the peak and then for a couple of years, you're just dealing with how to manage it.

So we want to make sure we're being disciplined about both top and bottom line, right? So I think to your point of funnel of the type of categories we want to be in is narrow because that's where we can execute, we can deliver, integrate it well, criteria of figuring out what quality of businesses we want to look at. We want to be disciplined in top and bottom line. And then it is a balancing act of our leverage ratio. And so Tracey, do you want to take that one?

Yes. So our medium, long-term targets for leverage has been to be below 2.5x., and we have achieved that, and we're currently operating under the 2.5x. We feel that, that's a sweet spot for us. We like our investment-grade rating, and we've done a really good job with the balance sheet. So our debt is in pretty good shape. The cost of our debt is in good shape. So that's one -- this was one of the focus areas early on to get our balance sheet strong. But now we've got optionality. So when we talk about M&A, it can be slightly bigger than maybe what we were talking about a couple of years ago. But the other part of the capital allocation, which is really important is to continue to return cash to our shareholders.

And so at CAGNY, we did announce an extension and a larger share buyback program, which is now in total of $4 billion up to the end of 2031. But also, it was really important to us to be able to continue to increase our dividend and to keep that dividend sustainable. And so with the strength of our balance sheet and with a significant amount of free cash flow that we do generate, we do have options. And so when Rahul talks about M&A, yes, I mean, that's going to be a focus and something that's bigger than maybe what we've spoken about before.

And again, it goes back to the objective, right? What is -- why do we believe this is the right algorithm to get our business back. It is to get back to the medium-term growth algorithm. Tracey said, it's to give shareholders value during that journey with the buyback, but recognize we've got to get our portfolio in a place where we can deliver consistent top and bottom line growth. So I think this optionality is what I would say is the best word, right? We've created optionality to execute against whatever comes at us.

Makes sense. And Tracey, one follow-up, I guess, just given how quickly you lean into buybacks with the original authorization, how does the shift in focus around M&A while maintaining the leverage impact the buyback philosophy from here, if at all?

Yes. No. So I mean, look, we took that into account when we gave our medium-term guidance. And again, we generate a significant amount of free cash flow. And so we are able to do both end. We feel that our shares are a compelling investment. And so that's why we increased and extended the share buyback program because we do think it's a good investment, and we'll continue with the cash that we've got. But it doesn't mean that we're not going to do M&A or we can't do one if we do the other.

Okay. And maybe to close it out on a question for both of you. Obviously, it's been a challenging several years for the industry for Molson Coors. But as you look out over the next 12 months, maybe the next several years, what metrics are you going to be focused on to assess whether the strategy is working? And I guess if we were to do this fireside chat next year, years from now, what does success look like?

Yes. So for me, I mean, it's hitting our guidance. It's been able to deliver that and deliver on the commitments around the free cash flow, the share buybacks, the dividends, but then also making sure that we are investing in the business to grow the top line. That will be meeting in that guidance will be important for me.

Yes. And I would say it starts with obviously the medium-term guidance we've laid out, Peter. We got to get our business back into that routine and that rhythm, right? So low, mid and high from an EPS perspective. If you go break that down further, what are we looking at? How are we measuring ourselves internally and just checking that we are moving, right? Share becomes an important element. The category is volatile. So while we obviously look at absolute volume and NSR, share is a key component. Two becomes portfolio transformation. Are we on this journey of portfolio transformation, right, a year from now, 2 years from now? Are we -- have we moved the needle in our premiumization? Have we moved the needle in beyond cost savings, the things we've announced are we delivering on that?

And is it touching the margin factor, right? Your question of how much are you reinvesting, how much you dropping to the bottom line. All of that needs to show up in margin, right? So that becomes a key important criteria. So I think those become the key elements. Obviously, the buyback and dividend is the journey we are with our shareholders. If you look at our dividend, I mean, we did increase it, but we did it in a way to create flexibility for ourselves. So I would say those are the probably the metrics below the guidance that I think we can judge ourselves and then we want to continue that dialogue with the investment community.

Great. Well, we are out of time. Rahul, Tracey, on behalf of UBS, everyone in the room, those listening online, thank you so much for being here today. Super helpful as always. And we wish you nothing but the best of luck moving forward.

Thank you.

Thank you.

Good evening, everyone. It's a pleasure to welcome Molson Coors back to CAGNY this year. Joining us today, we have President and CEO, Rahul Goyal, and CFO, Trace Joubert. Also, please join me in thanking them for their sponsorship of the beverage reception immediately following their presentation, which will be outside these stairs -- right outside of stairs. Thank you so much for that.

Now it's an exciting time for Molson Coors as the company has made progress on its transformation journey, having changed over the course of a few years, how it invests, how it markets and how it operates to return the company back to growth. Having completed its revitalization plan, the company is now into the next leg of its journey which is to accelerate growth as well as taking complexity out of their system, allowing them to deliver sustainable top and bottom line growth.

So with that, I'm going to turn it over to Rahul to hear more about their efforts. Thanks.

Thank you, Bonnie. Thanks for the introduction, and good afternoon, everybody. Thanks for being here.

Before I get started, our lawyers said I got to read every single word on this slide. I think they were doing the [indiscernible] so the only thing I'm going to say is our discussions today include forward-looking statements within the meaning of U.S. federal securities law. So please refer to the forward-looking statements disclosure in our presentation materials for more information.

So I am excited. I'm excited to be here to share an update about our business. I'm excited about sharing our new plans and our new strategy going forward. After 25 years in the company, I get the honor of defining the next chapter for Molson Coors, a company that has a 240-year old legacy in this country. So those who have followed us and those who are new to our company, we are a top 5 global brewer. We're in about 80 countries. We have about 16,000 people with 1 purpose, to unite people to celebrate all of life's moment.

But more importantly, we're in some of the most exciting and largest profit pools of the world. And we've made progress. We've made progress around our core brands in most of our markets. We've kept shares that we gained in the United States in 2023. We have about -- we've kept about 70% of that share that we gained in '23 with our core brands. We've been on our journey for premiumization and portfolio transformation, and we've increased that about 5 percentage points. And we are on the early innings of our beyond beer beverage strategy. And we are approaching about 10% of our revenue based on beyond bill and a lot more runway in front of us. And we've done that on the back of brands like Topo Chico Hard and Fevertree.

Along with that, we have strengthened our balance sheet. Our debt is lower than what we started with, and our leverage ratio is in a much healthy place. And we've been consistent in terms of delivering cash back to our shareholders. Whether it's through a consistent increase in our dividend or by executing about 70% of our buyback program in just 9 quarters, which was a $2 billion program over 5 years. So we know we have delivered shareholder value, but we do know that the next chapter for creating shareholder value is going to be on the back of consistent, scalable and repeatable top and bottom line growth. and that's what the new plan is.

Well, before I talk about the new plan, I want to address the 2026 guidance. It's no secret that our industry is facing significant headwinds. 2025 saw material industry declines, and that was cyclically deviations from what the historical trends were. And that uncertainty remains for us. So if you go deeper into the bottom line guidance we just said, there are 2 factors that are impacting our business right now.

One is cost inflation through the increases in the Midwest premium and aluminum pricing. And two is just lapping about lapping of a onetime incentive from because we didn't achieve anything in 2025. Now we're navigating this period of uncertainty and volatility with discipline. We took immediate action in Q4 on focusing on costs. We're taking the right actions in pricing, making sure our brands by region are being competitive. And frankly speaking, we're looking at everything around the Midwest premium.

Along with that, we want to make sure we are investing in our business, investing in smart ways, getting our business back to growth. And this means investing in our brands, in our capabilities and in technology. We will navigate this period of volatility being diligent and they're taking the hard decisions, but we want to make sure we set our business up right for growth in the future. And so what does all this mean? Right? So now this is what I'll review with.

We have a strong foundation. We have brands that have scale. We have a historical track record of delivering cash -- cash generation. We are doing that we said in 2026, just to navigate this moment of volatility and uncertainty to get our business back. And I'm excited to talk about the next chapter of figuring on how to grow our business, both top and bottom line going forward in the medium term. So it all starts our new plan, Horizon 2030. So this is not just a new plan on a page. It is a plan and a blueprint of how we get our business back to growth. It is about rewiring our business in a world of constant change. It is about taking bold opportunities and reacting on that quickly. And it is about meaning -- and it means spending more time in the market where our consumers are and where our customers operate. That's what's going to get us back to growth. And it starts with our portfolio.

So let's talk about our portfolio. Now each segment has a role to play and to make sure that we, as a business, can reshuffle potential but we are making different choices. We are investing differently. We are investing differently, and we are executing differently of our brands in the market. And across these portfolio pillars, we feel we have the plans to grow share, revenue and profits for our total business.

And I want to take you a little deeper on that. But then look at the second part of our plan, and this is what we're doing to operate differently. And this is what I call rewiring our business differently. We want to put commercial execution as closes to customers and consumers. We're going to modernize our capabilities to make sure we're driving efficiency and value. And then we are going to champion there and beer occasions, right, in this industry where the category is under challenge, we're going to champion there and we're going to evolve our culture to drive ownership among [indiscernible]. Now all of this has to be supported by being disciplined on our cost savings and having a clear dynamic approach to capital allocation. So we're going to go deeper into all of these key areas, right?

Let's just start with our portfolio. This is what we do. This is our bad drop. It spans beer and beyond beer to reach consumers where they are. And it's based on the thesis that all segments matter. But within that, we are making clear choices. We have to strengthen our big brands, the core and value segments. While we transform our above premium and beyond beer strategy.

So let's talk about the core. And you probably know this, long called beer drinkers represents the vast majority of all beer volumes. But what you probably don't know is that this group has the strongest loyalty with premium lights, and we have the brands to compete there. And we have the opportunity to continue to strengthen our brand with the core consumer and gain more share ahead of the category. So how are we going to do this? It does mean investment in our brands and breakthrough marketing. And you saw -- you probably saw some of this in the NFL and leading up to the Olympics with the Miller Lite campaign -- it talks about real life connections. It talks about real life occasions. And with the perfect spoken [indiscernible] that spans generations. And you can expect us to come forward with more work like that for Coors life. We're going to continue the journey on Coors Banquet and leaning into that brand as we grow that both volume and share and with Molson Canadian, where we're gaining both volume and share in Canada.

In this subcategory, we are also identifying new opportunities like the lower trend there. We're expanding Miller Extra Lite, which is about a 2.8% ABV brand in key markets and regions. These brands have the scale. They have the trust of millions of our consumers, and they have the right to win with our core consumers and get our share of the category.

Now let's talk about the part of the portfolio that we probably haven't spoken about in a long time, which is the value segment. We are elevating that because in a K-shaped economy today, the value consumer is feeling the pressure, and they are looking for options within their budget. And frankly, speaking, we have the scale. Just for context, if you just think about our value segment, we're probably the first -- we are the fifth largest beer company in the country. So this are matters. This is not about just being defensive. This is how do we use that and make sure we're leaning in with -- for the consumers that are looking for this option.

But we're going to increase the focus on value in a very selective way. We're going to have selective investment in selective markets and with very pointed innovation. We're going to expand brands like Miller High Life light across a few more states. We have some new innovation coming with [indiscernible] in the summer, which is again very directed to this subsegment. Our value portfolio has a strong reach. We have deep consumer loyalty, and this is the way to win for us, but even for our distributors.

Now as we think about value, premiumization is not going anywhere. And we have the opportunity to just get some more runway there. If you look at our business, we're pretty strong in premiumization in Canada and in the U.K. But in the U.S., we are underrepresented. And therefore, we just have a new opportunity to keep leaning into that. things like Peroni and you probably saw that in the Olympics, again, leaning into the brand with on-premise brand ambassadors. All the work we already have done in [indiscernible] the U.K. and continue to grow in U.K. but also expand that brand across Europe and Canada. And while [indiscernible] is still work in progress. The [indiscernible] non-health brand is growing 25% and is now probably the #2 [indiscernible] brand in the country.

Now the other side of premiumization is beyond via I talked about being in the most exciting profit pools, and this is where the consumer needs evolving. And we're going to continue to -- on our total beverage journey to make sure that our brand meets the consumers and meet them in more moments and we're proud of the progress we've made. And if you think about the [indiscernible], you have first with flavor. And this category has been volatile. And there, we need to be agile, right? We have some great success initially, but then we got to figure out a way to pivot and we did with [indiscernible]. We've pivoted from being a hard seltzer brand now to a full flavor of beverage with higher ABV innovation and new different packaging from our occasions. And we've changed the trajectory of this brand. We have been consensual dollars and share trend performance improvements in all quarters of 2025.

And with CVC we're just getting started. We just finished the transition last year. We're getting it into our network, and we have an excited distributor work. We have an excited retail network, and we have an excited team to get really behind it. There's a few brands that you can get the whole trisector working, and we believe we have the option to do that with B. And in this space, we have the other opportunity of deploying M&A dollars in a very disciplined way to make sure we are augmenting and filling gaps in our portfolio. And I know Tracy is going to talk a little bit more about that in the future.

So hopefully reduce your sense of the clear choices we are making in our portfolio. But let's talk about how are we going to make this happen. And this is where folks we are executing a big change within the organization because how we execute, how we make sure we rebuy our business is super important in this business, in this category. And it starts by putting our customer and consumer at the heart of everything we do. Folks talk about beer being a global business. We talk about being a national business. But actually, there is a very, very local business. And we need to make sure we're putting the P&L accountability at the level close to the customer. That's where pricing decisions, promotions, assortment, investment that's where those decisions are being made.

And that's what we need to unlock for our teams. We've got to unlock clear accountability that drives outcomes. We're going to make sure we're taking decisions with precision where we can change tactics, move spend across the actions that are working for our total portfolio in particular markets. and we need to do it with speed, where decisions are done in days, not weeks, not months and definitely not quarters. And this is not just an academic principle. This is how we want to make sure our planning process and our execution model changes. And we have already started that journey in Q4 and going into 26 with our distributors. The next part of our plan is we talk about capabilities.

And I talked about us having -- being in the largest profit pools. But we also have the largest platforms in these profit pools where basically we execute across the entire market. And so we will keep investing in our capabilities, investing in capabilities that drive efficiency and value to the bottom line. This is in the area of sales and marketing, where we're going to put capabilities in AI, in analytics to make sure our sales seems outfront forward-looking and not in the back. And when I talk about AI. This is not about using in marketing just to create new brands and assets. We obviously are going to do that and drive efficiency, but how do we literally use it to make investment decisions.

And then the third element of our capabilities is our investment in our ERP and our technology to augment and automate areas in our supply chain to drive the value and to optimize business processes. And as we think about our internal business, we have to keep a lens externally. And that involves championing beer. We talk about the category you're doing declining, et cetera. And 1 of the things I talk to our distributor network is none of us should accept a declining category. That should not be okay. we must find a way to get this category healthy again. And we need to do it together as an industry. This is not about us we have the humility to realize that this is 1 company can't change it, but we need to lean in to make sure we can build beer's relevance back. We need to make sure we can bring people back into the occasions where they fit.

And so we've got to lean in this, and we're going to do our part, right? We're going to do our part in marketing on how we talk about Miller Lite, you saw that, but also a new campaign we had just over the holidays, which was just about just bring the beer. This campaign is designed to put beer back on the shopping base. It's to put it in the center of social moments driving category relevance. Right. Again, this is not what's the word I want to -- this is not a use of idea. I mean when we think about our sales teams, we have about 22% market share in the country. category captains for 60% of our retailers. So how do we really lead with the category fund focus?

And then the fourth pillar is around building a culture of phone issue. We have 16,000 people that are passionate about our business, are passionate about our brands, but we need to change how we operate in this moment. And that's where I'm asking them to lean in 2 of our key values, being bold in the sizes and take accountability. This is designed to empower our teams to move with urgency to move with pace and drive ownership within the business. And this matches the complexity we have from an outside world perspective. So hopefully, you see that. And then you see, okay, how do you know we're going to make progress? Like what are the key metrics? We should be seeing market share improvements in our key markets. We have to continue the acceleration of our portfolio transformation across all our portfolio and the investment we're making in our capabilities and cost savings need to show margin improvement.

And while we're doing this, we're going to be disciplined about returning cash to shareholders. We are setting 2026 with clarity and transparency, but we are rewiring our business and our operating model for execution. We're investing in brands and our capabilities, but we are being very deliberate on how we do that. And we're going to fund our growth with discipline. And there's 2 key elements of the plan that I'm going to have Tracey come over and talk about, which is making sure we're disciplined about cost savings and having a clear and dynamic approach to capital allocation.

So with that Tracey?

Thank you, Rahul. Hello, everyone. Good to be back here. Look, as Ral highlighted, we have a compelling strategy. We're really focused on discrete actions that will support our medium-term growth algorithm. So I want to give a little bit more color on our financial discipline and the capital allocation priorities that we all mentioned and I'll highlight how they support our ability to execute against our strategy.

So our ability to drive strategy starts with a strong cash generation. We feel that we have compelling cash conversion and we continue to be a very cash-generative business. Now we delivered over $1.1 billion in 2025. And as we announced earlier with our release earlier this afternoon or earlier this evening, we expect to deliver a similar amount in 2026. Now we plan to build on this very strong base through profitable growth and also a new cost savings program.

So over the past 5 years, we have delivered over $1 in free cash flow for every dollar of underlying earnings. And we have amongst the highest free cash flow yield in all of CPG. Our solid cash generation has significantly strengthened our balance sheet. Now moving forward, it should enable us to invest in ways that we believe will drive value for our shareholders.

So let me take you through a few of the details around our new cost savings program, which we believe supports both our medium-term algorithm and also strong cash generation. So to help fuel our strategy, we are announcing a 3-year cost savings program targeting up to $450 million, with savings beginning in 2026. The program anticipates savings across both our business units, and it will also come through multiple lines in our P&L. Now in cost of goods sold, we have a very strong pipeline of plans and projects. This is enabled by procurement, the investment that we make in capital and productivity and efficiency improvements that's going to get delivered to our world-class supply thing program.

Now in Americas G&A, we've already unlocked meaningful savings by implementing our new structure at the end of 2025. And as you heard from Rahul, we expect to deliver further savings in M&A enabled by technology and new capabilities that we'll be investing in. In EMEA-APAC, we have plans that are designed to expand operating margin and also improve profitability in that business unit. And this will be done for implementing new technologies evaluating supply chain opportunities and also portfolio optimization. Now these savings are intended to be used to mitigate the impact of inflation and also will allow the right levels of investment to fuel our business for growth. So let's talk about how we're thinking about deploying our capital to execute that strategy.

Now our first priority is to invest in our business to drive long-term sustainable growth. Through capital projects and new capabilities, investing behind our brands and using our financial flexibility to fund M&A. From a capital standpoint, we are rebasing our medium-term CapEx expectations, and we now expect to spend approximately $650 million a year. Now this level should allow us to continue to invest in margin enhancing cost savings projects and also make investments in technologies to drive efficiencies and increase our capabilities. And we target double-digit returns on our cost savings program, and we have delivered against that goal over the last few years with programs, including our variety packaging that we -- the capabilities we built in Fort Worth, adding shelter capability in Canada and also the domestic production of Peroni in the U.S. And to grow our business, our aim is to look to invest in M&A to drive meaningful portfolio transformation.

Now we would target deals that would add around 1% to 2% NSR annually to the enterprise, but that are also bottom line accretive. To contextualize these could be in the range of about $200 million to $350 million and are expected to be funded from cash from operations. Now these targets must be scalable, they're mass for white spaces, and there also must be in areas where we believe we have the right to win. Second, we remain committed to maintaining a leverage ratio below 2.5x. At the time of the 2016 MillerCoors acquisition, our net debt was $15.4 billion -- and our leverage -- sorry, $11.5 billion, and our leverage ratio was 4.8x. And by the end of the year in 2025, our net debt was $5.4 billion and our leverage ratio at 2.3x. -- so reducing both by more than half. And we've continued to hold the highest credit rating that we've had since 2016.

And that brings me to our third capital allocation priority. Multiple cars has a long track record of paying cash dividends to its shareholders. And it remains our intention to sustainably increase our dividend, just as we have done for the last 5 years. We also feel that we've made tremendous progress against our $2 billion share buyback program, which is over 5 years. We announced that back in October of 2023. And as I all said, through just 9 months, we've executed 72% of that authorization, tracking to complete the $2 billion well ahead of the schedule.

Now given what we view as a compelling valuation for our stock, our Board has approved an increase to the amount and extended the duration of our existing share repurchase program. So this increases the initial authorization from up to $2 billion to an aggregate authorization of up to $4 billion, and that's inclusive of the approximately $1.4 billion that we've already experienced up until the end of 2025. And that plan will now run through December 3, 2031.

Now we believe that this should not only help to drive earnings power, but it also demonstrates our confidence in our business our confidence in our strategy and our confidence in our medium-term growth algorithm.

So with that, we look forward to taking your questions, and all will come back up, and we'll ask [indiscernible] to maybe just manage the questions for us.

I can repeat the question, Bob. [indiscernible] margins, certainly, aware of Midwest premium the inflation. But just how and why is that going to be such a drag on your business in kind of talk through that on the gross margin level and then maybe help frame for us with the plan you laid out the marketing spend that you're expecting?

Yes. So I'll take it and Tracey, you can add -- so if you look at the Midwest premium and aluminum pricing, right? I mean I think we shared an estimate last year of what we think the exposure is. And if you look at this year, that was in the somewhere in the range of $40 million to $45 million range. We have an incremental headwind of about $125 million this year in 2026. And this is -- when Midwest in goes up 300%, there's not immediate actions you can take to action that, right? Obviously, we took all the actions we could in terms of cost savings in the Americas.

So the Midwest premium is the biggest part of our oxination. If you look at our 2025 results and look at cost inflation, we have initiatives and we have the programs to make sure that we're managing to it. We're trying to manage $125 million increase. So you're going to see that in the way it shows up in gross margin in through the Midwest -- the onetime incentive from business, it's a lapping issue from, and so that's more on the G&A.

And then the marketing and capabilities, investment, I would say the way to think about it is we know we can get this business back to our midterm growth target. Right the mid-single digit. And we just want to make sure we are building our brands and supporting our brands in a pretty competitive context of the category, meaning where the category is. So I think that's how I break it down 1 is the Midwest premium being the big part of [indiscernible] and then the other 2 pieces are of this.

Kevin Grundy, BNP Paribas. Rahul, maybe with the longer-term guidance I suspect we'll probably be some surprise about the decision to maintain it, just given the challenges in the alcohol industry in -- where we've seen domestic year volumes decline, not just the past 2 years, 3 years, 5 years. I mean we go back 15, and they been down low single digits and in certain cases of your portfolio, the more challenge than that more dire. So I think maybe a little bit more on that, like what gives you confidence with what you're doing in terms of execution that things are going to get better because the data points you seem to be mounting against the industry in terms of younger consumers moving away and it's 1 to take the industry collectively even more than that, it's probably moving into it areas.

Lastly, with your answer because I think it's topical, you've seen a number of new companies from [indiscernible] invest in practice market solution stimulate volumes and industry but volumes are challenged that come into your thinking at all as part of the solution to stimulate volumes.

Yes. So let me try to address the 2 or 3 parts of the question, right? So how first is how do we get our business back to top line growth? If you look at our share losses even in the recent past over the last few years, we've done a decent job on making sure core share is there. We lost a little bit, but not in a big way. Our challenges has been in some other parts of our portfolio, right? That's why you see us elevating in the value segment. Because if you look at the majority of our share losses, a big part of our share losses has been the value and flavor and some of those pieces.

So we need to make sure that our portfolio and when we talk about strengthening the core, and the value, it just means making sure we can keep ground on our share, right? So we make sure we're keeping share and gaining share in that space. What the category does, we'll see how -- what the category does, but right that our share then it does become a question of mix. Can we transform the portfolio fast enough to make sure that we can handle the potential declines in the core piece.

Your question -- so the 3 pieces that we think about as we think about driving our top line revenues, obviously volume, but it's price and mix. And I think those are the 2 levers that gives us confidence that we can get this business back. Your question on pricing. We definitely the pricing by brand and by region. But we also want to make sure we're competitive. And that's why you see us leaning in, in the value segment, right? We have a portfolio which meets the consumer needs at the right price points and the right budget levels they have. usually in there, people don't leave their brands, right? In core, they're usually looking for different price packs. They're looking for different channels.

So if you look at what's happening in our business, you got singles doing really well, and you've got big packs doing really well. So with our core business -- core brands, we need to make sure we're leading in that space. But the value piece is where we need to pace we can get some support on the margin piece. So I think between price mix and the transformation on beyond -- that's why we have confidence we can get our business back to low single-digit growth, right? I mean this is it's a low base in that regard. And in terms of your pricing decision, it's making sure we can use all levers of our portfolio to really get after the volume play.

Eric Serotta from Morgan Stanley. You mentioned that the midterm that the cost savings, [indiscernible], offset inflation and allow for reinvestment. What we expect to expand upon the reinvestment side a little bit. Any -- can you give us any context for what kind of content you're expecting in terms of reinvestment for 2026 and the midterm, whether it's marketing, technology, other capabilities, how to think about that? And then in terms of the worn terms of the menu algo, mid-single-digit pretax on the high single digit on GDS, you're going to be spending more or invested more on M&A to it from cash cooperations. The CapEx come from somewhere should there be less of a contribution from buybacks than you've had historically or deleveraging.

Thank you. I'll let you do the buyback on Tracy, but me address the 2 questions you have. First is on the cost savings and then the investment profile, right? So if you look at our cost savings, there are 3 broad buckets. It's obviously the work we need to do in the Americas. And we took all those hard decisions in quarter 4. So making sure we can take the actions in optimizing our teams, how we execute the issue, we have the right resources and pressure on the front end of the organization versus internally.

On supply chain, we're going to keep looking at opportunities on optimizing and driving savings, right? So other than the onetime issues that we have with the best payment in aluminum, our teams do a great goose match and drive savings to -- for any cost inflation. And then EMEA, APAC is where the opportunity lies. I mean, that business has done a good job in terms of growth, but we have the opportunity to improve our margins there.

So that's where we try to unpack all the areas of our business to make sure we can lean on the savings side. If you think about our investment, the way I'd leave this was -- we're not looking to step up investment in a significant way. We want to make sure that our brands are competitive. We want to make sure we are putting the right pressure against our brands across all these segments. When I talk about elevating the value segment, this is not about big investment in the value sector. This is about pointed investment in brands, in particular geographies in terms of winning. We do have investments in our capabilities around systems and infrastructure.

And again, both to drive value and efficiency to the bottom line. So we judge that and carefully make sure we are investing in the right places, but we talked about the ERP implementation, but all of that investment needs to drive some outcome. And that's what I mean when I talk about efficiency and value. So -- there's not -- I would say, not a significant step-up in terms of investment that we're looking for, we feel our brands are well supported. And some of it is to manage the challenges we have in the headwinds we have -- but that's the cost savings and making sure we invest it right. And Tracey, do you want to take that?

Yes. So I think -- look, we're really proud of the work that we've done on our balance sheet going from a leverage ratio of 4.8x to 2.5x. It has given us a lot of optionality. So we have done things like we're reducing our medium-term CapEx spend. If you recall in previous years, is in the range of $750 million, plus or minus. We've reduced that to [indiscernible] we also believe that we have opportunities in working capital. And so we'll continue to focus on that. And then as we grow the top line and expand our margins to some of the efficiencies and the capabilities that we're building, that's obviously going to contribute to the bottom line. But we are a very cash-generative business. We have delivered on our free cash flow. And with our new share repurchase program, it does extend out to 31. And we will make the right decisions around how much and when to buy shares.

But as you've said, we've done a really good job with that. I mean we're already 72% of the way in our previous share buyback program. So it gives us confidence that we're able to with our strong balance sheet to all of those things, number one, invest in the business, to drive long-term sustainable growth. We're going to be very disciplined around the investments, for example, the capital. And with that, we're able to sustain and to increase the dividend and continue the buyback program.

[indiscernible] I was wondering if you could talk a little bit about the change, the fundamental change that you're making in terms of how the organization is run by the accountability, local pricing decisions more local specific number one, how -- where is the idea or where the change come from? And two, you talked a little bit about execution of that how exactly does that get executed? How do you deal with national accounts, how you keep coordinated and not kind of trip over yourself in certain areas and how local this low? I mean roughly just how does this [indiscernible].

Yes. No, I think, Robert, that's a great question. Again, this is something that is important. When I've gone in the door, we made some changes in our leadership team. And it was to drive to that out, right? I mean I think 1 of the previous questions, we know what the category is challenged. We know the shape of our portfolio. So we have to figure out a way to execute with the portfolio we have and use the investments we have, right? I mean, I talk about this all the time. We've got to make sure our marketing dollars and our people dollars are going after the right things in the market.

So your question of how we're going to make it, right? We took all those actions, we have the leaders of sales and marketing and our Canada business around the table now. We're making sure that we reoriented our regions in the United States. And this is, by the way, applicable into our EMEA APAC business. We're making sure that we look at our investments as a collective pool and making sure we're getting the right ROI against that by geography.

What's the right level, Robert, I think that's a little bit more, we'll share that a little bit later. But we want to make sure in terms of how the brand show up, your question about how do you coordinate how the brands show up is obviously going to be in 1 way, right? You're not going to have 5 core line of focus like you're going to have 1 close but you're going to have 1 mile light. But how those brands are executed in those geographies matter differently. And this is what I say is beer is very no. And it's true, by the way, for brands like Rose live and middle light and obviously, for the value segment.

So the question is how do we repay our business to really drive that. So we implemented those changes in quarter 4. We're in the process of executing it. We oriented our planning with our distributors. So this is more of our distributor-facing organization. And we, frankly, are leaning into that starting already in January. And this has resulted in different conversations with our distributors, right? -- on how we bring France and how they bring trans on early winning in that particular geography. So it is the concept of there being local. It is about organizing our teams -- and then frankly, we did the hard stuff in Q4 to really put that within our organization.

The only other part I'd add is we're also changing the incentive plans. -- right, incentive plans of how we measure our people. When I talk about P&L accountability closest to the market, it doesn't mean anything if folks are not measured both on the top and the bottom line as close to the market as possible.

Chris Carey, Wells Fargo. Just I guess this starts as the earnings call. So I'm going to be a bit tactical about this and then strategic. But Tracey, is there any phasing considerations that you want to put out there for the guidance this year, Midwest premium basing brand volume as like whatever that is. And connected to this is -- some of this is going to have to ultimately get to like an exit rate for the business. We're talking about medium-term top line growth, bottom line growth in a way, you're going to be measured against perhaps you exit 2026. I don't really know how all that will go, right? But at what point do we start anchoring you towards some of these medium-term objectives that you've laid out today? And what are the metrics that we should be looking at over the course of 2026, like improving market share should be volumes centering positive, like whatever you think that we should be looking at in order to gain that perspective. So just the basing thing on this year, how do we measure you for the easing work.

So let me start. So in terms of phasing, we expect the quarters to look very similar to this last year. So the shape quarter-by-quarter very similar. We've got the same number of days, April sort of fall into the same quarter as last year. There might be a little bit of load-in in fourth of July, but really very similar. 2025 was different because we had the contract brewing arrangement that was coming out. And so it was a lot more volatile with that. In terms of the Midwest premium, if you look back, the Midwest premium really rapidly went up in the second half of last year. So the first half was still a little bit muted, although from February, this sort of go up, but the big rise was really the second half of the year. So we'll be lapping that only in the second half. Other than that, I mean, the pricing when we take part in that, all very similar -- the way that we're investing in our brands, generally, we tend to invest marketing dollar more in the summer selling season where it matters. So you'll probably see similar phasing around that as well.

Yes. And your question about what metrics and how do you see they're making progress. I'd call out market share is obviously a key one, right? I mean we know where we are in the category. We know the shape of our portfolio, but we are start seeing share improvements. The other thing I'd call out is in the portfolio transformation journey is mixed. I mean more and more about NSR. I think the question was, so while pricing lever will lean on that where we can, but mix has to be an important aspect because that's where the portfolio transformation happens. We're excited about the Fevertree business coming into our full year 26. I think tetris our biggest per hectoliter brand we have now, right? So I would say those 2 are the key ones. And obviously, the cost savings and our investment all is around margins, right? So those 3, I would say, are the key metrics. We're going to keep talking about and making sure we can show progress. Along with the buyback, I know the question is about cash and buyback is there, -- we're committed to making sure we continue on the buyback journey while we're making sure we set and get our business back to growth. I think 1 is coming us to give us a sign. There's 1 more question.

We're running out of time. So I think we're going to have to stop there. Please join me in thanking Molson Coors again for the upcoming recession [indiscernible] outside the stairs. There'll be around to hopefully answer any more of your questions. And as a reminder, please don't forget to take all of your belonging because this room will be locked. Thank you.

Great. Good afternoon, everyone. I'm Eric Serotta from Morgan Stanley's Beverages and Household Products and tobacco team, and I'm very pleased to welcome Molson Coors back to our Global Consumer and Retail Conference. Before we begin, please see the Morgan Stanley research website at www.morganstanley.com/researchdisclosures for important disclosures. And if you have any questions, you can reach out to your Morgan Stanley sales rep.

So joining us today, we have Molson Coors' new CEO, Rahul Goyal; and CFO, Tracey Hubert. While Rahul just became CEO on October 1, he's a 24-year veteran 24 years at Molson Coors was a key architect of TAPs beyond beer and overall strategy in his prior role or his most recent role as Chief Strategy Officer. So Rahul, Tracey, thanks so much for joining us.

Thank you.

Thank you, Eric. Thanks for having us.

Great. So Rahul, you've stepped into the CEO position at a challenging time for both Molson Coors and the U.S. beer industry. Industry volumes are on track to decline 4% to 6% this year. Big picture, what do you see as the biggest challenges and opportunities ahead? And what advantages does Molson Coors bring to the table to navigate this difficult environment?

Yes, it's a great setup, Eric. So if you think about it, I mean, there's a lot written about the challenges. So I'll just touch upon that just for context, but more about the opportunities ahead of the way we think about the business. So -- there's a lot about the category and the headwinds in the category, whether that's all of alcohol, whether it's beer, that's definitely something we think about if you think about the cost side, inflation relevant to us in our business, we have the Midwest premium. We think about that.

Those, I would say, are the big things that are outside our control, right, than the macro issues that every other CPG companies are dealing with. So those are the big macro issues. But I think the opportunities is what we try to focus on is what can we control and what can we do. And I break that down for us in our business is 1 around our portfolio.

So if you look at our brands and our portfolio, right, we have a pretty broad portfolio that meets the needs for different consumers. So I think that's a great opportunity. And I know we'll talk a little bit more about that in the context of core brands, what those mean. And when I say core brands, I mean, like Coors Light, Miller Lite, banquet, economy category. So our economy category is an important aspect, especially in light of what's happening with the consumer and making sure we have an offering for them.

We have so much runway in above premium, both in beer and beyond beer. So the portfolio overall, I think, is exciting. The other aspect I'll call out as opportunities for us is our capabilities and our infrastructure in some of the best profit pools of the world, right? So if you look at our global footprint, we are in markets that we have very good profit pools. And we have a big infrastructure and capabilities that we can weight in that infrastructure, right?

So we have our distribution network, brewery infrastructure, supply chain, commercial capabilities, so I'd look at that as definitely in a strategic advantage as we think about the category and the challenges.

And then the third thing I'd call out is our balance sheet, right? So if you look at us as a business, free cash flow yield in terms of cash, our leverage ratio. And our balance sheet is in a much stronger place today than it has been previously that allows us to go into this next chapter in a strong way.

So yes, external context is hard, category is hard, some of the things are outside our control, but we've got so much opportunity to lean into the places that we can drive our business forward.

Great. And then as we've look ahead in the context of the whole cyclical versus structural debate, which we're not going to solve here, but -- how are you thinking about growth for the industry next year and over the midterm? And then realizing you haven't come out with your full strategy yet and address the algorithm, but sort of how does this tougher industry outlook and competitive environment kind of play into your midterm plan?

Yes. No, I think it is -- I know that is a question on everybody's mind, right? Cyclical structural, what does that mean? And the way I'd contextualize this is, if you go back just even COVID years and pre -- around that time frame and 10 years before that, the beer category has been in the minus 1, minus 2 space, volume-wise, right? The last few years has been in the minus 3-ish number. And then this year, it's in the minus 4, minus 6 range, right? So the minus 4.7 from minus 5 range.

So there's definitely something happening this year. Now is it consumer health? Is it Hispanic consumers? Is it folks pressured under just generally what's happening in the macro environment, all of that is true. So we do believe that, that this cycle will pass, right? This cycle will pass, and we need to get our -- this category back into a place where back into the 3-ish range in terms of what the category can do.

Now there is a responsibility on us and the category as a whole to make sure we are investing in the category and making sure we talk about beer in a way that is meaningful and engages consumers. I was talking to some folks earlier today, beer and alcohol gets a little bit of a bad rap, but I'm sure you guys have all seen the studies that something affecting younger population today bigger than anything else is isolation, right?

And that's 1 of the issues. And then if you think about beer, it is the choice of moderation. It is way of bringing people together. So I think there's a category thing that we need to lean in us as a company and us as a category. But then to your question of, for us, Molson Coors, if you break down our portfolio, we have good core brands, that we need to make sure are healthy and winning share.

We have economy portfolio that we haven't talked about a lot in the recent times, but we just need to make sure we're keeping that healthy. There is a consumer that loves those brands. We need to make sure they are relevant. Our brands are relevant, and we just got to stop the leaky bucket in a way.

And then above premium beer is just opportunities for us. So while we have made good progress in Canada and the U.K. we have more work to do in the U.S. So for us, all of that is upside. And then beyond beer is, again, new vectors of growth that we did not have previously. So with that combination, once the category gets a little bit more settled, I think we can find our way getting back to our growth of top line and bottom line.

Great. And then so digging into your portfolio segments as you laid out, looking at the U.S. So your core brands, Miller Lite, Coors Light, Banquet, huge progress in terms of brand health and market share if we take a multiyear horizon. But in the past year or so, we are seeing some heightened competition some improved market share trends from ABI, whether it's Ultra, whether it's [ Light ]. So I guess what's the playbook from here to improve the core brand market share and eventually top line?

No, no, I think that's a great question. And I think you're right. If you look at our share performance this year compared to last year as a total company, we have lost share. But if you break that down, the 2 areas that we've lost majority of our share is the economy portfolio and flavor.

We've lost some share in core brands, as you said, Coors Light, Miller Lite and banquet. And if you go deeper into that, but that's a very small part of what we've lost share. But if you look at that place, Coors Banquet is doing really well. We're gaining share. Even Coors Light is pretty strong if you compare to Coors Light, right? I mean we have to do some work on Miller Lite in particular regions. But we have -- this is part of the portfolio that we just have to win share. I mean that's the thesis.

So I think we're pretty excited as we turn the corner this year going into next year. If you look at Coors Light, we have, I think, 30-plus college affiliations in terms of sports and how we bring the brand to life. With Miller Lite, we have, I think, 19 NFL partnerships, we're excited about some of the new campaigns we're going to be bringing forward starting next year around sociability and how do we make sure we bring people together, using our big brand.

So -- so while we have work to do in our total portfolio, I think it's important for these brands to be healthy, it's important for these brands to be gaining share. And again, our regional execution and the way we're going to do things will help make sure we address some of the gaps we have in things like Miller Lite in a particular region.

So overall headline is these 3 brands, obviously super important to us. Very focused on it being sure, we have the right level of investment, change a few things on execution, but feeling good about our ability to keep -- keeping the share and gaining share in these 3 in the core.

Good. So turning to your above premium portfolio. You've had some successes like Peroni. Other areas have been a bit more mixed, Blue Moon progress, some signs of progress, but a little bit slower than I think we'd all like. Some ups and downs with your flavored offerings, which not unlike the category.

So can you talk a bit about what you're doing to accelerate the growth for the above premium business and sort of how that fits with your target to increase your global premium mix from was it 27% to about 1/3 over the next few years?

Yes. No. So if you look at our above-premium agenda, I think your 27% is the right reference point now. I think we were 23%, 24% when we started this journey 4, 5 years ago. So we have been making progress. And most of our progress, frankly, has been in countries outside the U.S., right? So in Canada, we've done a great job of premiumizing U.K., we've done a great job of premiumizing. But yes, we've been in the U.S., that's been a challenge.

And if I break it down into 3 buckets for premiumization. It's about premium beer, it's flavors, as you said, and then call it pure-play non-alc, if that's the third bucket. And if you look at beer, Peroni has done well. We have so much runway, so much opportunity in that brand with the green bottle and really winning in the United States. But Blue Moon's been hard. And frankly, we have work to do on that. If you look at Blue Moon as a brand, the innovation is starting to show some progress.

So if you look at non-alc, if you look at the high ABV brand, high ABV Blue Moon. That stuff is starting to put some support for the total brand family. But our core brand needs some work. And if you look at Q3 numbers, I mean, if you go back to Blue Moon, Blue Moon was built on-premise, right? It was built with the orange and Q3, our on-premise trends for Blue Moon got better. So we have work to do on Blue Moon. It is something we're going to be super committed to. It is taking more time. So I think that is true.

We have a new campaign now at Colin Jost coming in Jost, sorry, I missed announced his name. But we're excited. It is a brand that is important to us. It's a brand that we're going to stay committed to. But yes, you're absolutely right. We have work to do on the core Blue Moon brand. It's just taking a little longer.

To your question on flavors, flavors is a volatile category. I mean, we had some good success with Topo Chico. We had some good success with Simply initially got some scale, but this category is volatile. And we got to stay fleet of foot and make sure we're winning in a way that the consumer pivots in this category. And I think we've been able to do that with Topo Chico, how we pivoted firms, Seltzer to more full flavor of beverage, the margarita, but we have work to do on Simply.

Simply is where the majority of our drag is in the flavor side. We have some new launches with higher ABV products, smaller packaging. But flavor is volatile, and it is something we have to make sure we're not overproliferating in terms of flavors, et cetera, but it is something we'll have to continue to work on.

And there are some gaps in solving in the RTD space that we need to lean in on. And then just the last part and above premium is, I would say, non-alc beyond beer is you're making progress. I mean this year, we have Fever-Tree. It adds to our premiumization effort. It's complementary to our portfolio. It works well between non-alc and alc.

So it is an execution and we can execute it well within our business, within our infrastructure. So I think all of those 3 things will help us move the journey on the premiumization piece. Again, go back to if you look at the consumer today in our core markets, it's a bifurcated consumer. You got top end of the consumer that's doing well. And our brands like Peroni, like Fever-Tree are relevant to that consumer. On the other hand, we need make our economy portfolio and other parts of our portfolio are relevant to the rest of the consumer.

Yes. It is a good segue into my next question at the other end of the portfolio spectrum. You said on the third quarter call, a few times that all segments matter, which I don't think I've heard from Molson Coors in a few years, maybe back when Gavin was CFO, I heard some talk about that.

So you also said that you'll be increasing investments behind a few economy brands like Miller High Life and Keystone Light. So I guess what's driving the change here and what's the goal for the economy portfolio within the U.S. business? Are you just trying to hold share? Are you trying to go back on the offensive?

Yes. No, I think that's a great question. And I would ask you to think about it in the context of the consumer first, right? Again, I go back to the U.S. consumer in Canada and to some degree in U.K., you do have a bifurcated consumer, right? You have folks that things are going pretty well for them. And that's why Peroni sells well. That's why Fever-Tree sells well.

And -- but then you have a consumer that is under economic pressure. And our economy portfolio is a sizable part of our business. I just use this as a frame of reference. If you just look at our economy portfolio, we probably be fourth or fifth largest beer company in the country. So it is an important part of our portfolio, and we need to make sure we're giving it the right -- it's important to us, it's important to our distributors.

So it is relevant from a consumer perspective. It is relevant from our business perspective. And now we need to find a way to win in that space, right? We have been leading share. We've been leading volume there. And I would say there's 2 goals there. 1, this is a very regional business, right? The economy portfolio is very regional. There's a few brands that work in very specific geographies. High Life and Keystone are big brands that are more national, but even those have a very different geographical footprint. On how these brands show up. So we got to win with these brands.

Again, I think I shared this anecdote with folks. Anybody here heard about the Hamm's convention in Minnesota? No and you probably didn't hear about the Hamm's convention in Minnesota, but Hamm's, for some of you who may be Hamm's is a great brand and -- but it's sold in 4 states. And you have consumers that love the brand. And by the way, we don't sponsor that convention. They just make this stuff up on their own.

But it is -- I talk about the love for these brands, right? It's relevant. And now it's on us to make sure we can bring that relevancy for those folks in a way and engage them on this. So it is both a play of making sure we meet the consumers where they are. But then also making sure we have the right investment. These are not -- we're not talking about big national campaigns around sports, et cetera. We're talking about very localized focused efforts around economy portfolio and where these brands are relevant.

Great. And then your performance on-premise over the past couple of quarters has been notably stronger than off-premise. So a little surprising, given, as we talked about that consumer bifurcation or at least the low-end consumer weakness. So what's driving this? And how sustainable is it as you look to 2026 and beyond, when you win TAP Handles, how sticky is that real estate?

Yes. And I think I go back again a couple of points is about sociability, right? I mean, beer is the product of sociability. Beer is the product we're bringing people together. It is about celebrating moments together. So to your point, as an industry, on-premise in Q3 was slightly better than off-premise trends, I think, about 2 plus points. And then our performance, I think, was a little bit better than that in the on-premise. So if you look at on-premise for us, obviously, we have the big brands that matter Coors light, Miller Lite. But the things I'd call out is Banquet, right?

Again, it's a 150-year-old brand and is 1 of the most popular brands with Gen Z. It's 1 of the most popular brands with Hispanic consumers. So it is -- you've got to find the right connection of these brands with consumers. And I think Banquet has done a phenomenal job of -- of making that connection. And I think you saw that in the on-premise numbers. And then I go back to Blue Moon, right? I mean we have work to do on Blue Moon as a core brand.

But on-premise trends in Q3 got better than Q2. So I do think on-premise is important. I think generally, consumers want that connection want to find a way of coming together and sociability. Obviously, beer plays an important role in that. And then our job is to make sure our brands are front in that game, right? And I think -- we've been able to do that with our core brands, but we need to keep doing that with a bunch of other brands in our portfolio.

Great. So turning to your international operations. You've had a nice round of market share improvement in Canada despite a soft industry, although I think I read earlier in the week, WallStreet Journal article about the industry picking up a bit in Canada. And then you've had some continued momentum from Madrid in the U.K. despite a soft industry there and some pretty tough competitive activities. So how are you thinking about the outlook for your international business over the next 12 to 18 months? And then over the medium term given these cross currents?

Yes. No, I think, again, if you think about our business, right, I mean we are operating in a set of geographies, U.S., Canada, U.K. and a few countries in Central Europe. And I, again, go back to this is -- these are great profit pools to be in. In Canada, you rightly said the category has not been as volatile as the U.S., which is surprising, right? Usually, Canada is a lot more volatile than the U.S., but Canada has been volatile month by month, but generally, it's been much healthier than the U.S. this year.

And we've been growing share. We've looked at different provinces. We've been growing share. So -- we're making good progress. Canada, again, Coors Light is the #1 brand. We keep fighting for that spot, but it is the #1 brand. So -- and the Canadian trade bank has done really well in Canada. To your point, in the U.K., it is a competitive market. It is a super competitive market, but we've continued the journey of premiumization.

Madrid continues to grow. We have some work to do in our core in calling, but we're doing the right things in terms of winning in U.K. And then in Central Europe, I would say, just pockets of growth in places, where we have a big footprint, right? Croatia, Romania, I think we've done a good job of making sure we can both keep our core brands healthy, but also premiumize.

Central Europe has a lot of other solid macro issues around geopolitical concerns in that part of the world, energy pricing, et cetera. But if you step back and look at our business, premiumization, we've done a good job across most of our markets, except the U.S. If you look at our European business and the growth profile we've had on that business since even pre-COVID, right? I mean we have bigger business, top line and bottom line.

The growth rates have been comparable or better than Americas business. So those parts of the business are doing well. Now I also say that recognizing that we have work to do, right? And if you look at our European business, we have work to do on improving our ROIC. We have work to do in making sure our margin structure and really making sure we can get a good margin structure that's comparable to our peers. So there is definitely more work to do, but good progress, good progress in making sure our brands are showing up in the right way, both in Europe and in Canada.

Good. So Tracey, turning to costs. You noted on the last earnings call that the Midwest premium was at sort of the upper end of your third quarter expectations and slightly above it in October. So I know you're not giving guidance yet, and you don't give guidance by line item.

But how are you thinking about COGS pressure as you close out 2025 and then inflation in your commodity basket into 2026. Given that you have a pretty extensive hedging program, but then Midwest premium is sort of the outlier there hardest to hedge?

Yes. I mean our biggest challenge is the Midwest premium right now in our COGS line. We've spoken about this extensively -- at the beginning of the year, the Midwest premium was trading around $0.20. October, it hits an all-time high, and now it's trading around $0.86, $0.87. I mean there's no reason for that. We've spoken about the fact that the Midwest premium price is basically set by 1 entity.

There's no -- it's not a liquid market. It's not transparent. We do hedge it, but one of our lease-hedged commodities. And the reason for that is because it is difficult to hedge. It's difficult to hedge it just far out. I mean some of our commodities, we hedge out in 3 years. We can't do that with the Midwest premium. It's difficult hedge. It's very expensive to hedge.

And because it's so volatile, it makes it expensive. So as I said, we do hedge it, but it's difficult. So at the levels that it's at, it will continue to be a headwind for us, a big headwind. We spoke about the year-over-year impact for us this year, just the Midwest premium we said in Q2, it was going to be $40 million to $55 million will kept on climbing. And so we guided to at the high end of that range. But if it continues at this level, it's going to continue to be a big headwind for us.

So what do we do? We mitigate that as much as we can through cost savings programs, a lot of our cost savings programs are focused on the COGS line. With our breweries with our network. So we have made some difficult decisions, closing some smaller underperforming breweries in Wisconsin earlier this year. But we've also made investments in the past couple of years that have helped us to keep our costs low. So capital investments that we've made in our breweries. And we've built new breweries in Canada. We just completed the modernization of our golden brewery that was hundreds of millions of dollars over multiple years, but we're starting to see those cost savings and those efficiencies come through as well.

And then the other thing I would say is all of the other commodities, we know how to hedge and they're easy to hedge. And I think we do a really good job. If you look at our COGS per hectoliter, you'll see it's well below inflation. And so all other commodities, I think we do a really decent job. It's the Midwest premium that continues to be a big challenge. And we're not sitting back and not doing anything.

We're trying to shine a spotlight on this as we have for a while now, trying to get people to look at it and really try and understand like what is driving this because there's no apparent reason. And then just as we touch on some of our European operations, obviously, the inflation is a little bit higher as it has been since COVID, and there's a lot of geographical political turmoil in those areas. So inflation is still a little bit high there, but we again mitigated through cost savings and really having a look at what efficiencies we can drive through our breweries.

So moving down the P&L, and I guess this would be for both of you. Are you running currently at the right level of marketing and brand support? Or do you see any need for any kind of a step change going forward? And then as you look a bit more holistically at capabilities and investments, whether it's the breweries that Tracey mentioned or supply chain, digital, are there areas where you need a further step up? Or are you comfortable with the level after the big increases under the revitalization plan?

Yes, I can take the initial part Tracey. I mean if you look at our brands, I mean, I know we talk a lot about the category. We talk a lot about what's happening cyclical structure. But I think what we're going to stay focused on making sure our brands are well supported, right? Again, your question about, do we think we need a significant increase in spend. We probably don't need that. I mean we -- I think we're doing the right level of spend. We need to optimise our spend.

We have some new brands that we've added on to our portfolio like the non-AC portfolio like Fever-Tree. So we will spend the appropriate marketing to really lean into some of those brand things. On the G&A front, I think there's a little bit of just -- if you think about this year and next year, there's a little bit of recycling of things. I mean, this year, we're going to end up with low to no incentive for our teams, and therefore, there's a little bit of cycling.

But as we think about capabilities and investment in capabilities, we always think about what is it doing for the business? Is it driving some sort of a bottom line impact? Is it driving top-line impact? There is definitely areas of technology, et cetera, we want to lean in on -- but in terms of -- I know this is probably a question in the context of what does '26 look like. But if you look at it, I mean, there will be -- we're going to keep looking at ways to optimize things. But nothing significant, I would say, is the way to think about it.

I mean I think anything that I would add, and it is true for this year as well, despite it being a difficult year, I mean, we're not going to cut our marketing to hit the bottom line targets. We'll continue to put pressure behind the brands, our core brands, in particular, behind Peroni as we've seen, Peroni is growing close to 30%. We're going to put continued pressure behind Fever-Tree -- we'll have it for a full year next year, that brand still got a lot of awareness gaps that we need to go after.

And so we'll put the right amount of pressure behind our brands. And then as Rahul said, certainly capabilities is something that we're focused on right now, whether it would be in the AI range, around insights and tools, et cetera, whether it would be systems work, with ERP systems, et cetera. It's really important for us to continue to stay maybe not ahead of the curve, but with the curve in terms of technology.

Turning to M&A. Rahul, since -- on the third quarter call and since then, you've really sounded much more open about the role of M&A going forward. Calling out portfolio gaps like spirit-based RTDs implying that transactions could be larger than the former String of Pearls approach. So can you talk a bit about the strategic and financial criteria for evaluating potential M&A?

And then the question I get from people is, well, how big theoretically, are they willing to go? Is this going to be transformative or somewhere in between string of pearls and something much larger. And relatedly, how central is this to the -- to your beyond beer aspirations?

Yes. No, that's -- so I understand the context of the question, right? So I'd break it down into 2 parts. So first is portfolio. what problem are we trying to solve in our portfolio. And if you look at our portfolio, we have a great beer portfolio. We talk about core, we talk about economy, we talk about above premium. We're always going to look at beer, but we have a good beer portfolio.

And that has to be healthy and strong for our business to grow period, right? That has to work. So a lot of energy in time is going to be around that piece. Now we also recognize where consumers are going, and this is why you have the beyond beer approach, right? And in that, we need to solve some gaps in our portfolio. We're not talking of 10 different brands. We don't need 10 new brands. We have some gaps we need to fill like an RTD spirit, as you said, right?

And flavor is a very volatile category, and we need to make sure we get an asset that makes sense to us, and we can execute well on. So we will look at deploying capital in terms of gaps we have in our portfolio in a very measured way. I think second part of your question was in the context of capital deployment and size. right?

So if you look at our business, our balance sheet is in a very healthy place. We are a pretty strong free cash flow yield company. And we're going to keep disciplined about how we -- what we've done over the last few years. leverage ratio and the debt paydown is an important criteria. We're going to keep making sure we have that as a key criteria returning money to shareholders through a stable dividend and buyback is important.

And then thinking through capital investment and M&A. That's where it needs to make sure it has the right return, whether it is CapEx and investments we make in a brewery, Tracey talked about, some of the investments we made in our brewery is really delivering bottom line benefits, right, whether it is labor capabilities or variety packing, things like that. So -- so we will definitely look at an ROI approach to all that investment.

In terms of your question of size, I know we haven't shared any specific metrics around this, and I look forward to sharing that down the road. But think of our business the $11-plus billion revenue. We need to have brands that move the needle for us, right? If it's too small, it doesn't do anything. It just -- it's a lot of energy, a lot of just institutional work to take care of them. So it has to be brands that move the needle for us. It has to be in a way it's disciplined for top and bottom line.

And I emphasize that because it's easy to chase sometimes assets for top line. And I don't think we're going to be in that mode, right? We're going to be disciplined about being sure we can get top and bottom line. It needs to fit the portfolio piece I talked about. And it needs to fit how we execute these brands.

And again, use Fever-Ree is a great example. We know how to get it on trucks. We can probably drive -- we are driving a bunch of around that in terms of execution. But then we see a path in the next 12 to 18 months of localizing production in the United States, right? Instead of getting it from the U.K., and that's going to drive a lot more on the bottom line.

So I know folks -- the way I would best characterize it disciplined capital allocation, definitely need to fill some gaps in the portfolio, but we'll do that in a prudent way for both the top and bottom line, Eric, at this stage.

Great. So Tracey to dig a bit deeper into capital allocation. So you ended the third quarter net leverage in the low 2s, I think it was 2.3 versus your 2.5 target. You had just under $900 million left on your 5-year $2 billion repurchase authorization.

So can you discuss the capital allocation priorities from here, further buybacks even beyond the existing authorization? How could that fit in with the aspirations around M&A in the portfolio?

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Sure. I mean, where we are today is obviously in a much stronger position with our balance sheet. So we had this target to have our leverage below 2.5x. And as you rightly say, we achieved that much earlier than we thought. But that gives us a lot of options around the rest of our capital allocation.

And so Raul has spoken about M&A and investment in our business. We plan to keep that leverage ratio. We think it's a perfect spot for us. The rating that we've got, the investment grade is important to us. And so it's important for us to keep the strong balance sheet. And then other than the investment in M&A and our business, the third bucket is returning cash to shareholders. And as you rightly say, I mean, we've got this $2 billion share buyback program.

We're well ahead of where we should be if you just divided it over 5 years. We have got $880 million left on that. We will continue to execute behind that share buyback. We do believe that our share is a compelling investment. And so we'll continue returning cash to shareholders through buying back our own shares, but also paying a dividend. And when we reinstated our dividend during COVID, we did say that we want to sustainably grow our dividend over time.

And you can see over the last couple of years, that's exactly what we've done. We want to make sure that we do return cash to shareholders through a dividend. But -- but truly, the share buyback has been a big program for us. And yes, we will continue to execute the program that we've got in place.

Great. So to wrap up, I want to turn back to Rahul with a broader question. Certainly bring unique perspective is new to the CEO role, but long-term executive with the company. So what do you think is sort of the most misunderstood or underappreciated part about Molson Coors story today?

Yes. No, thanks for that. That's a good question. I would call again go back into probably 3 ways to think about us as a business, right? 1 is our portfolio. And I know folks sometimes look at our portfolio saying it's too broad, it's too big. But all segments do matter. And then I ask you to look at that from the context of the consumer, right? The top end of the consumer is driving it. I mean premiumization has been an important factor in our category in alcohol.

And we have so much runway that we can go after, right? Because we are underrepresented in that part of the consumer. Our core brands and the economy portfolio matters because it matters in all consumers, right? So I -- what excites me is the fact that we do have brands that matter in all segments. And obviously, our job becomes how do we make sure our brands resonate with the right consumer in the right places in the right channels.

So the portfolio is an exciting part for us, right, especially in the context of the consumer and where they are. I wouldn't underestimate the capabilities and the infrastructure we have in the biggest profit pools. I go back to that. I mean big plants, our ability to get product to 500,000, 600,000 outlets, twice a week, 3 times a week.

I mean this is a capability that I think is an important factor, right, in the business we are in. And you're seeing that play out with brands like Fever-Tree and in terms of scaling them -- so it is, I think, another exciting part of making sure we can leverage our infrastructure, leverage our capabilities to really drive scale.

And then the third aspect is I would call out is our free cash flow and our balance sheet, right? So if you look at our balance sheet, I think we've been pretty diligent about it and really disciplined about it. If you look at our free cash flow generation, that's a pretty strong story. So that's what I would leave you guys with is our portfolio, our capabilities and our balance sheet and cash flow. I think those are the compelling reasons for Molson Coors.

Great. Well, not quite Miller time yet, but I'm sure we're going to be enjoying some of your products at the reception tonight.

So with that, I want to thank you Rahul and Tracey. And...

It is Miller time any time by the way. Thank you.

Thank you so much.

Good morning, and welcome to the Molson Coors Beverage Company Third Quarter Fiscal Year 2025 Earnings Conference Call. With that, I'll hand it over to Traci Mangini, Vice President, Investor Relations.

Thank you, operator, and hello, everyone. Our discussion today includes forward-looking statements within the meaning of U.S. federal securities laws. For more information, please refer to the forward-looking statements disclosure in our earnings release. In addition, the definitions of a reconciliations for any non-U.S. GAAP measures are included in our earnings release. Please note that with the exception of earnings per share, all financial metrics are in constant currency when referencing percentage changes from the prior year period.

With me on the call today are Gavin Hattersley, former Chief Executive Officer, who retired October 1, but remains with the company on an advisory capacity until year-end. Rahul Goyal, Chief Executive Officer and Tracey Joubert, Chief Financial Officer. Today, Gavin would like to share some opening remarks before passing to Rahul to provide an initial high-level view of his vision going forward. Tracey will then wrap up with a brief review of the quarter and our 2025 outlook.

A more detailed presentation of our quarterly performance, including financial and operational metrics and drivers available in our earnings release and earnings slides, which are made available earlier today on the IR section of our website. Upon the conclusion of our prepared remarks, we will take your questions. And as always, we ask that you limit yourself to 1 question, and then if needed, return to the queue. With that, I'll pass it to you, Gavin.

Thank you, Tracey, and hello, everybody, and thank you for joining the call. I am pleased to be here today for what is my last earnings call with Molson Coors. It has been an incredible journey, and I could not be prouder of this team and the strong foundation that we have built. This includes our iconic brands across the world, our leading capabilities from supply chain to marketing and dramatically improved balance sheet and our strong free cash flow generation.

And while I'm retiring during a difficult time in the industry, I am confident in the company's ability to return to growth. So with that, it is my great pleasure to introduce Rahul who took over the role of CEO on October 1. During my 6 years as CEO, I worked closely with Rahul, his deep strategic insights, institutional knowledge, fresh perspectives and proven ability to deliver, which are particularly important in these dynamic times make him in my view, the right choice for the job. And while he has only been in role for about a month, he has certainly hit the ground run and to share more about this, I'll pass the call to Rahul.

Thank you, Gavin. It has been a true privilege to work with you for so many years, and I look forward to building on our many accomplishments and continuing to support the strong culture you have built that makes Molson Coors so special. Now clearly, these are dynamic times, and we like many staples companies have been affected by macro-related factors that have pressured consumption behavior. In the U.S., these macro impacts have had a disproportionate effect on the lower income than Hispanic consumer.

And within there, these consumer segments have driven a reduction in the number of buyers as well as -- with a continued shift to singles in the third quarter. In Europe, the macro environment has also contributed to continued industry softness, pressuring demand across our regions. But we continue to believe that the incremental softness in the industry this year is cyclical, and we believe that we are well positioned with a healthy balance sheet, strong free cash flow and great brand that serve a wide range of consumer occasions and preferences.

This all helps us to navigate these near-term cyclical headwinds while investing in our business to support the long-term growth. I know everyone is eager to hear more about -- for the future, and there will be more details to come. Today, I would like to provide a high-level view of our strategic priorities and how we plan to adapt in these challenging times, improve our commercial performance, capitalize on opportunities and ultimately return to top and bottom line growth. I want to assure you that we are moving with a sense of urgency and with a clear purpose.

In my first 30 days, we have already begun to implement structural changes, both in terms of leadership and operations to put us on the path to success. At the highest level, it begins by focusing on our portfolio to build strong and scalable brands in both beer and beyond beer. This entails prioritizing our investments to build on the strength of our core and economy per portfolios and to transform our above premium beer and beyond beer portfolio. In beer, we already have a strong core portfolio with iconic global brands and regional market leader.

They are the majority of our business. So we intend to continue to put strong commercial pressure behind that. For Miller Lite and Coors Light, this means new campaigns and high-profile sports and music alliances that build on their strong brand health and support ambition for share growth for these brands. And for Banquet, we can to capitalize on its impressive success by leading in even more to fuel its strong momentum and to continue to bridge the sizable distribution gap with Coors Light. Recall that Banquet is only in just over half the buying outlets of Coors Light and not only is Banquet, an important growth driver in our U.S. business, but it offers learnings that we believe can be applied more broadly across the portfolio.

We also plan to selectively increase our focus on certain economy brands like Miller High Life and Easton Life, which are big brands with loyal consumer base. We firmly believe that all price segments matter. And while as an industry, we are not seeing trade down at the brand level in today's environment, more than ever, economy is an important segment. And we continue to see big opportunities in above premium. While we have had strong premiumization success in markets outside the U.S., we meaningfully under-indexed in above premium in the U.S., and we plan to lean in even under to change that in both beer and beyond beer.

In beer, it's no secret that we think Peroni has great potential. It's only been 2 quarters since we fully onshore Peroni and activated our commercial plans and we are already seeing good progress with brand volume up 25% in the third quarter. And with expected increases in media investment next year, including programming for the Olympics and with only about 1/3 of the distribution of the other major competitors, we see significant runway ahead. We also remain committed to stabilizing Blue Moon and to be frank, we haven't seen the success we would like.

Recent innovation with non-alc and high ABV brand extensions have been encouraging, while the core Blue Moon Belgian White continues to be challenged. We are going to be looking closely with a fresh commercial perspective at what we can do differently to best ensure that this big and important brand supports our premiumization objectives. Now while beer is our roots and at the core of our business, you can also expect us to step up our focus on beyond bear because we believe we can win here. Not only does it help to premiumize our business that it also creates value for our customers by appealing to a wider range of consumer preferences and serving more occasions.

In flavored alcohol, we already have big brands, and some have been rechallenged recently. But Topo Chico is a great example of how with the right commercial road, we can improve trends by focusing investments on the markets where the Topo Chico brand most strongly resonates and through thoughtful innovation, we achieved positive dollar share gain in the third quarter in these regions. And we recognize we have debts, including RTV spirits, and we intend to fill that. In non-alc, we are focused on building scale, and we are off to a great start. We believe our partnership with Fever-Tree in the U.S. provides a strong base from which to grow our total non-alc portfolio.

In fact, Fever-Tree volume has been performing strongly, and it has been very well received by distributors and retailers, and we are excited by the opportunity to significantly in the brand in the years to come. And this is just the beginning of our non-alc efforts, as we see opportunities to enter some other interesting areas. So we are making the infrastructure investments in people and systems that help to support the development of this business into something meaningful over time. Now to achieve our commercial ambitions, we are taking a fresh look at our approach to commercial execution and that opportunities to optimize our cost structure to fuel reinvestment in the business.

On the commercial side, creating value for our customers and consumers remains at the forefront of all that we do. but we believe we can be even more effective at this by focusing ownership of this business even closer to the market. And we intend to do this by deploying marketing and G&A investments based on specific market dynamics and portfolio priorities. This should help to increase our speed of decision-making our agility to execute and ensure greater accountability and return-oriented mindset at the local level of our business. On the cost side, as announced last month, we are implementing a corporate restructuring plan of our Americas business unit designed to create a leaner, more agile organization while advancing our ability to reinvest in the business.

This entails reducing our Americas salaried headcount by approximately 400 positions or 9% by the end of the year. This includes hundreds of salary positions that were already open due to headcount for transition efforts earlier this year and those who indeed granted voluntary severance as part of this restructuring. We intend to redeploy some of these savings to step up our investments behind key brands, commercial capabilities and in supply chain and technology that support ongoing productivity inefficient. And we will continue to be disciplined stewards of our capital, using a dynamic capital allocation approach, balancing investments in M&A to fill portfolio gaps, while continuing to return cash to shareholders.

We'll be sharing more on capital allocation in the near future. But today, let me be very clear on 2 things. First, we seek scalable deals that we expect to be accretive to both top and bottom line and are prudent from a balance sheet perspective. And second, we remain committed to our dividend and to our share repurchase program as we continue to view our stock as a compelling investment. Now there is a lot of work to do, but we see a clear path forward. Results will take some time, but we are moving with a sense of urgency. We're confident we have the right brands and the plans to be successful. And I look forward to updating you on more of the details of strategy and financials and operational objectives in the coming months.

With that, I will pass it to Tracey, who will talk about our financial performance and outlook.

Thank you, Rahul. Third quarter consolidated net sales revenue was down 3.3%. Underlying pretax income was down 11.9% and underlying earnings per share was down 7.2%. On an underlying basis, the key quarterly drivers were largely as expected. The U.S. beer industry was down minus 4.7% based on our internal estimates. Our U.S. volume share was down 40 basis points based on our internal estimates including relatively better share performance in the on-premise channel compared to the off-premise. Contract brewing was a 450,000 hectoliter or 3 percentage point headwind to the Americas financial volume.

Excluding contract going, U.S. STWs outpace STRs resulting in a nearly 2 percentage point benefit to Americas financial volume in the quarter. EMEA and APAC volume continue to be pressured across all regions by ongoing soft market demand and a heightened competitive landscape. The Middle East premium remained innovative, which was within the expected price range, although at the higher end. And marketing was up, while G&A was down largely due to lower incentive compensation as compared to prior year. While our discussion today as typical has been on an underlying basis, we also recorded a noncash partial goodwill impairment charge of $3.6 million as well as noncash intangible asset impairment charges of $274 million in the quarter, which I'll discuss in detail in today's earnings release and 10-Q.

I also wanted to address the execution of our share repurchase spend during the quarter. Restrictions under our policies have prohibited us from executing under the repurchase plan during the open trading window following last quarter's earnings because we were in possession of material nonpublic information regarding our CEO search. We expect our regular quarterly trading window to open tomorrow, and we want to stress that we remain fully committed to our share repurchase plan and continue to strongly believe our stock is a compelling investment. With that, let's discuss our outlook.

We are reaffirming our 2025 guidance, but we now expect to come in at the low end of the prior range is our key metrics. These key metrics and ranges are as follows: Net sales revenue to decline 3% to 4% on a constant currency basis. Underlying pretax income to decline 12% to 15% on a constant currency basis, underlying earnings per share to decline 7% to 10% and underlying free cash flow of $1.3 billion, plus or minus 10%. Now before we get into the details, I remind you that the impact of the global macro environments are multifaceted and difficult to predict. And while we have included in our guidance, our best estimate of some of these factors, external drivers that significantly impact our actual results, either up or down.

Starting with the top line, we now expect lower year-end U.S. distributor inventory levels. Year-to-date, U.S. STWs largely caught up to STRs in the third quarter. However, given lower 2025 volumes impacted by industry performance, we now anticipate year-end distributor inventory to be lower compared to year-end 2024 on an absolute basis. The year-end days of inventories remain relatively consistent and at what we view as healthy levels entering the new year. As a result, for the fourth quarter, we expect the U.S. STW trend to trail the U.S. STR trend excluding contract billing.

All of the top line drivers remain unchanged. We continue to expect U.S. industry volume to be down on average 4% to 6% for the second half of the year, while mindful the comparisons versus the year ago period was somewhat softer earlier in the third quarter before becoming more difficult into year-end. We will cycle 1.9 million hectoliters of contract brewing volume in the Americas in 2025 related to Pabst and Labatt and will so the remain 300,000 hectoliters in the fourth quarter. And we continue to expect an annual net price increase of 1% to 2% in North America in line with the average historical range and mix benefits from cycling contracts growing from 2024 as well as from premiumization in both business units.

Moving down the P&L. We expect costs to be negatively impacted by volume deleverage, including the lower expectations for year-end U.S. distributor inventory. Also, Middle East premium pricing has continued to increase. Our guidance assumed a price range of $0.60 to $0.75 per pound. This implies for the full year, Midwest premium costs will exceed the prior year by $40 million to $55 billion, with most of the increase occurring in the second half of the year. However, as you can see on Page 18 of our earnings slides, the price trended at the upper end of this range in the third quarter and was slightly above it in October. Therefore, we expect increases to be at the high end of that range.

As for MG&A, we continue to expect it to be down slightly for the year due to lower incentive compensation, which is largely offset by higher non-alc infrastructure costs as well as the Fever-Tree onetime transition and integration fees in the first half of the year. Again, those onetime fees were approximately $50 million and will be recovered through net sales over the next 2 years, which began in the second quarter of this year. In closing, we remain committed to improving shareholder value and look forward to sharing more about our strategic plans and long-term objectives in the coming months. With that, we will take your questions. Operator?

[Operator Instructions] Our first question today comes from Peter Grom with UBS.

Great. Just 2 questions for me, one for Rahul and one for Tracey. First, Rahul, you've been in the role for about 30 days at this point and recognizing you've been with the company for some time. But just as you step into the CEO role, I would love to get your perspective on what you see as the biggest opportunities and challenges ahead?

And then, Tracey, I just was hoping to get some color on the implied improvement for the fourth quarter embedded in the top line guidance, just given the commentary on tougher category comps and now expecting to ship behind in Americas, can you just walk through the building blocks for 4Q as you see them today?

Thanks, Peter. If you look at the last 30 days, my focus and our priority has been, I would say, in 2 fronts. One is listening to our people and then our customers. And if you look at our business, right, I mean, I come from the place of we have a strong foundation. We've got great brands, healthy balance sheet, but we have great opportunities. So if you look at our performance this year, majority of our share losses has been in the few areas, the economy category or the flavor category but we've got co-brands that are pretty strong. And so we need to find a way to make them stronger.

In above premium, we have great opportunities with the portfolio we have. Peroni is doing really well. We have some more work to do in Blue Moon. Again, at the beyond beer strategy, I think this year, Madri has been a great add to our business. So if you look at imbalance, I'm pretty excited about a number of things we have going, but recognize the challenges we have in some other parts of our portfolio and wanting to really get behind it. I think the piece I'll leave you with is we're definitely moving with a sense of urgency and pace, right? I mean we recognize the volatility in the category this year, but we also recognize the things that we can work on within our team. So -- now looking forward to Peter, it's been a quick 30 days, but definitely moving with pace. Tracey, do you want to take the second one.

Thanks, Peter, for the question. So in terms of Q4, look, we are expecting better top line performance in our EMEA, APAC and Canada business units. And in addition, we are lapping softer comps from contract brewing in the U.S. So that's a big driver. Those 2 are the big drivers of our top line performance. And then just as that also translates to better bottom line performance as well as we will have lower G&A in the fourth quarter, really driven by the lower incentive compensation.

Our next question comes from Chris Carey with Wells Fargo.

Congratulations Gavin on your career and best of luck. And so just from an inventory perspective, I think the message today is that you expect them to be lower in 2025 on an absolute basis, but closer to historical average on a days inventory basis. And I just wanted to maybe check this. Does that mean if the category improves a little bit next year from the current lows? You would be entering 2025 with low inventory, stay lower than average of the category to picks up just a little bit.

I'm just conscious beer distributors often used year-end to clean up inventory and perhaps they're feeling a bit more anxious about that even more this year. And so I just want to test kind of how you would see your inventory position going into next year. And I was listening to the prepared remarks from Rahul, thank you for all that, is it fair to say that you don't see this massive need to reinvest in the business as is typical when you enter a new leadership position and that with restructuring and sustained commitment to some of the strategies that you've laid out as you evolve into new strategies, you don't see that? Or do you see a business that perhaps is a bit underinvested in this opportunity going into next year on top of the soft year. So thanks on the inventory and the investor piece.

Thank you, Chris, and I think if you look at distributor inventories, I think the way we look at it is we have a pretty healthy place, right? I mean you've seen what's happened to the category this year. So going into the end of this year and getting ourselves into next year, days of inventory, we believe in a good place. In terms of our capacity to pivot and make sure we have the right level of supply in Q1, we feel good about it with our brewery network and infrastructure. So -- and if you remember, lapping a few things around the Fort Worth, the strike, et cetera, earlier this year.

So I think we feel pretty good about being in a good place, closing out this year but also preparing and pivoting to getting our distributors the right inventory levels next year. In terms of your question of shape of reinvestment, I'd share with you a couple of comments, and I know probably looking for the clarity of what 2026 looks like. But I'm committed to making sure that we are building our brands, right? And if you look at our category, we need to be championing here. We need to be making sure we as -- along with other folks in the category are making sure that the category is healthy. And in that, we're going to be leaning in and making sure we can support our brands appropriately, whether it's the core brands above premium.

In the economy, one, I call out as being very disciplined around a geographic view of isonomy portfolio and making sure we are investing it in a smart way. The other part I'd just call out is our balance sheet and cash flow, right? I mean we committed to returning cash to shareholders. But we also want to find ways to deploy capital to fill some gaps in our portfolio to get our growth going. So I'd say it's going to be a combination of all of those in terms of making sure our brands are well supported, but also using our balance sheet in a smart way of enabling the open bottom line growth but also returning cash to shareholders.

Our next question comes from Bonnie Herzog with Goldman Sachs.

I was hoping you could give us a little more color on the pressures you're facing that are facing the beer category. And I guess why you believe it's cyclical versus structural? And then what is your expectation for category growth this year? And do you expect the category to recover next year? And if so, what do you think will be the drivers of this? I guess, ultimately, where do you see the biggest areas of opportunity and I guess, risk next year?

Thanks, Bonnie, and good morning to you. So I think I'll break your question into 2 or 3 pieces, right? So if you think about the pressures on the category pre 2025, the last few years, our category has been in the minus 3-ish range. And if you look at this year, we've been in the minus 4% to minus 6%, and I think that's what we shared at the end Q2 that we believe this year's category is going to be in the minus 6% -- minus 4% to minus 6%. And this year, every quarter, every month have been pretty volatile, but we probably end up in that range, right? So I think our internal estimates suggests that we're in the minus 4.7% range in terms of the category health.

So there's something different this year. Right now, there's the structural issues that we've all talked about in the industry, whether it's health and wellness, whether it's the generational change. But this year, there's been a lot of other macro issues, right, whether it's the economic impacts, tariffs, immigration. So we still believe that we are -- this year or going into next year is cyclical. Once we get through some of these macro issues behind us, we should be getting back to the pre 2025 levels. So that's how we're thinking about the business.

And the way I would roll that out is if you look at our portfolio, we definitely have so much more opportunity to really lean into our business, right? So while we've done a great job of premiumizing outside the United States, we're so under index in the U.S. And therefore, that opportunity for us there remains. And then if you look at our share losses this year, it's been around flavors and the economy, and that's why you see me talking a little bit more about that because those are the gaps we need to be filling or improving on.

So hopefully, I answered your question about the category performance and just our views on that in the last -- in the short term and then also the long term.

Our next question comes from Andrea Teixeira with JPMorgan. Please go ahead.

This is Drew Levine on for Andrea. So Rahul, you just noted the expectation, I guess, that industry could return to pre 2025 levels. You also noted in the prepared remarks that results will take some time to see. So I guess if you could just provide any more context to -- if you think that the company could return to low single-digit organic sales growth if the industry remains down in that sort of 3% range?

And then you also talked about being willing to deploy the balance sheet and cash flow to fill portfolio gaps. I know Gavin was talked about as sort of a string of pearls approach if you think that given where the industry is, if we could be on the lookout for anything a little bit more sizable?

Yes. Thank you. Just a couple of comments, I think, on your few questions. So with the industry being where it is, I think we still see the pathway for delivering growth both on top and bottom line. If you look at this year, what's impacted obviously category, but also on the COG side, right, there's been so much volatility around inflation with best premium, I know we've spoken about. So those are the, I would say, the headwinds we're dealing with this year. If you again go back to the pathway to get back to top line, I mean, in the U.S., I'd break down our portfolio, maybe in 4 buckets, strengthening, core and economy becomes important.

And these are big parts of our portfolio. And frankly, they are big parts of our distributor portfolio. So making sure these parts of the portfolio are strong and healthy is important. And I would say we've done a decent job on share with our co-brands, right? Our core brands is still higher share than 2022, but we have work to do on economy. But the runway we have in above premium is so much in beer and beyond beer, right? And in beer, we are under index. I called out in my comments that we have work to do on Belgium White, Blue Moon -- growing. Flavor is something that is volatile. We had some good success with our brands.

But this year, we have some challenges with Simply. Topo is starting to get much stronger and then the non-alc piece, right. Fever-Tree was a great ad. It's an exciting brand for us. It's exciting brand for our network. So between the combination of that and along with our Canadian and Euro business, we can get our business back in low single-digit growth. And there is obviously deploying capital, right? So your question of M&A. We want to make sure we deploy capital for brands that fill gaps in our portfolio, right? So I think that's important. Two, we want to be disciplined about it being accretive to both op and bottom line, right? So we're not going to chase top line just for the sake of top line.

And then third is we want to do it in a way that is prudent from a balance sheet perspective and utilizing our balance sheet. So we stay committed to our investment-grade rating. We stay committed to a 2.5x leverage ratio, returning cash to shareholders, but we can deploy capital to really augment the portfolio and make sure we're making some changes that are meaningful to our total enterprise. So probably I can't give you a specific number or size, but definitely want to lean in, in the right way of enabling total enterprise growth.

Our next question comes from Peter Galbo with Bank of America.

Good morning, Gavin, Rahul, Tracey, thanks very much for the question. I also actually wanted to ask 2 questions on the balance sheet or related to the balance sheet. Molson Coors has done, I think, a better job relative to history of kind of preparing the balance sheet to weather maybe some downturns or more structural cyclical headwinds. But 2 things I'd like to ask kind of one Tracey, I think there's -- this quarter, you moved into a relatively big bond maturity that's coming in the next 12 months, just maybe how we should think about addressing that, particularly as we start to contemplate '26?

And the second would be just on the impairment itself, again, relatively sizable hit to the balance sheet. Rahul, I think, understandably, you have to go through impairment testing, but in the context of cyclical versus structural, I would think this would lean more towards the structural lens. So maybe you can help compare and contrast just what happened with the impairment charge relative to kind of your views on the overall industry.

Thank you, Peter. Let me have Tracey answer the bond maturity question, and then I'll take your impairment question.

Thanks, Peter. So yes, we do have some debt coming due in 2026. And as with all our debt, we will review that as we get closer to the due dates, I think the important thing is that we remain focused on maintaining our leverage ratio, as Rahul said, in alignment with the target of being below 2.5x. And we are currently in that range. And we will make sure that going forward, we are in sort of below 2.5x. So closer to the time, we'll assess what we do with the date. Thanks, Peter.

Yes. Thanks, Tracey. And Peter, I mean you're absolutely right. I mean we took the impairment charge to goodwill of about $3.6 billion in Q3. And so firstly, a number of factors that impacted, right. So obviously, this year's performance. There is a question about the outlook of our business. But the other factors that come in is discount rates, risk premium and frankly, the multiple, right? So the way I think about this is we can get this business back to top and bottom line growth.

We think we are very undervalued in the context of our market cap right now. Those are the things that we need to lean into and make sure we can demonstrate quarter-over-quarter. And this is something that, as you said, it's something we need to do every year and check ourselves to make sure we think you do the business in a prudent way and the impairment -- and the segment a function of that.

Our next question comes from Bill Kirk with Roth Capital Partners.

Rahul, I was hoping to get a little bit more on your vision for the business. You mentioned portfolio gaps a couple of times. Do you think the gaps are more related to regions, are the gaps more like categories related or the gaps brand specific? And then maybe backing up even further, should the company's focus become more narrow? Or should the focus broaden and introduce new regions and categories?

Yes. Thank you, Bill. Definitely looking forward to sharing a lot more about the plans and how to think about that. But let me maybe break it down in maybe 3 different ways. So 1 is about portfolio. As you said, we have a pretty broad portfolio in the U.S. We have a great product portfolio in Canada, even in Europe. And generally, we do believe all segments matter, right? So we do descent work within that. Now how we work, the specific part of the portfolio, I think that's where you see me highlighting some of the areas of opportunity we have.

Now in some parts, we do have gaps, right? So I talked about the flavor part of our portfolio, right? So we have some gaps that we need to fill. We fill some gaps in beyond beer non-alc right? So there is an element of both fixing some of the portfolio plays we have, filling some gaps. So that's, I would say, part 1 of the broad plan. The second part is execution, right? And I think all of you know while beer is a global business and a national business, it is a very local business. So us executing as close as possible to customers and distributors and retailers is going to be super important. And that's not just in terms of just the sales function, right?

It is about how we deploy our people resources, how we deploy our marketing resources, has to be as close as possible to our consumers and customers. So there is definitely a difference in how we execute and take that to our brands to market. The third element to your question is capabilities. We have a strong foundation in our infrastructure, whether it's breweries, whether it's supply chain, but it is an area that we need to make sure we are keeping up with -- either on the commercial side, whether it's on the technology side, optimizing our brewery footprint in the best possible way with making sure we can meet some of the needs of our new capabilities.

So you're definitely going to see that us leaning into that. And then capital deployment, driving our capital allocation approach, Tracey mentioned us wanting to be disciplined about that. So I would say those are the broad areas. Your question about being broader or narrow, we love the markets we are at. I mean we are in some of the best profit pools in the world. We just got to win in those. So that's how you're going to see us lean in on winning in the markets that we directly have a very strong foundation.

Our next question comes from Filippo Falorni with Citi.

Rahul, so I wanted to ask about your experience working with and building the partnership with Coca-Cola, Fever-Tree and some of the non-alc initiatives like ZOA. Should we expect more initiatives like that from also causing in the future, to your point, as a way to fill some gaps in a capital-efficient way? Or do you see still the opportunity for maybe more traditional acquisitions going forward?

And then on the restructuring that you've announced recently, you indicated most of the charges, $35 million to $50 million will be in Q4. Can you provide some sense of the savings on a run rate basis going forward? And when should we expect those savings to flow through?

Thank you, Filippo. Let me talk about the portfolio and the partnership comments and Tracey, if you can help on the restructuring piece. If you look at our portfolio, it, I mean, we're definitely going to be focused on beer. I just want to make sure that's been our roots and it's a big part and foundation of our business. So beer is always going to be super important and definitely leaning into that space.

In terms of partnerships and acquisitions, I think if you look at what we have done with both Coca-Cola, Fever-Tree, I think we've figured out a way of working with partners to really leverage our platform, leverage our infrastructure to scale brands. And I think I would say both of those partnerships have worked really well for our business. But in terms of deploying capital, I do think we continue to look at areas and opportunities to deploy capital to augment our portfolio.

So your question of whether we're going to do more partnerships versus more acquisitions, I think that is a function of how these opportunities come up. But what you will see us leaning into spaces where we have gaps in the portfolio to fill, right? Maybe 3, 4 years ago, we didn't have the capital to deploy, if it's right now. I think our balance sheet is in a strong way that we can do it in a disciplined way. So potentially focus on beer, continued focus on some of the above-premium agenda. But in the beyond beer space, we probably need to be both creative and deploy capital to fill some gaps. And Tracey, do you want to...

Yes. Thanks, Filippo. So in terms of cost savings, look, we haven't provided specific cost savings target as we're still finalizing the details around this restructuring. What we have said though, you correctly say, we expect charges to be in the range of $35 million to $50 million. And they are expected to be the future cash expenditures over the next 12 months. Substantially, all of the charges are expected to be related to severance payments and post-employment benefits.

But one thing in terms of the cost savings, look, a meaningful amount of the headcount reductions was from the elimination of open positions in 2025. So we wouldn't expect to get a full benefit in 2026 because we did have the open headcount as we prioritized our costs in 2025. So that's from sort of a cost savings point of view. But because we do intend to redeploy some of the savings to invest behind our brands to invest in -- capabilities as well also in commercial and in supply chain and in technology to support the ongoing productivity and efficiencies around our business.

Our next question comes from Steve Powers with Deutsche Bank.

Great. I guess these are probably 2 follow-ups to much of what you've just recently discussed. On the restructuring, I'm curious, you spoke about how this is going to make the Americas organization faster, more nimble, more agile. Just curious as to exactly how the restructuring will enable that increased speed, number one. And then number two, Rahul, you've talked a lot about the portfolio in beer versus beyond beer, I'm just -- I'm still struggling to really conceptualize the balance of those investments in your mind.

Clearly, it's a game of the hand and as you described it, and both are important. But just looking at that balance beer, obviously, the bigger business investments to drive premiumization seem to be a core part of the vision. But do you see beyond beer is the bigger growth driver going forward? I'm trying to figure that out? And if so, how does that influence your investment prioritization, broader capital allocation, et cetera.

Thank you, Steve. So maybe address both the different questions. One is about restructuring and portfolio. So if you think about going back to what I said about customer and consumer focus, we wanted to make sure that the leaders driving that agenda has a seat tiltable, right? So whether it's U.S. sales, whether it's our marketing leadership, whether it's the Canadian leadership. We needed to make sure that in a land where category -- challenged in the category, right? I mean we talked about minus 3s, minus 4s, minus 6. We need to be getting much closer to how we execute in the runt end of our business.

So it starts from that thesis of making sure we can bring these leaders around the table, really make sure we're executing with speed with everything where we need to. We're being reasonably focused where we need to. And it's also about shifting our resources, internal both people and marketing dollars, where we see the opportunity, right? So that requires us to be, I would say, a lot more quicker, not more nimble. And it starts with, obviously, being leaders having the ability to drive that. The other part I obviously talked about briefly was around making sure we can enable our teams who are closest to the market to make those decisions, right?

And so how do we drive both the decision-making and accountably as close to the market as possible. So I think most of the 2 few principles that we've used and that's what we're trying to drive in terms of the restructure changes both in the U.S. and in Canada in making sure we can execute faster because, yes, we are in a category context that is challenged. In terms of portfolio, I'd break it up in 2 different ways. One is around marketing dollars, investment and then about balance sheet deployment of capital, Steve. You're going to see us continue making sure we have the right pressure against our big brands. So whether that was like Miller Lite Banquet, things like Peroni, Blue Moon. So those are important brands that we believe have so much potential and make sure we are winning in the beer landscape.

So you will see us continue being super focused on those and making sure we have the right marketing pressure around it. In terms of beyond beer, we do want to make it big enough that it starts having an impact to our total enterprise. I would say we are still early in that journey. And that's where I would say the balance sheet comes in to help us a little bit on being sure we have the right portfolio. In terms of what the right balance is between beer and beyond beer, I think more to come on that piece. But the way I would think about investment is making sure we have the right marketing pressure against our big brands, but making sure we can use the balance sheet to augment our portfolio, add some scale brands that we can really use as a foundation in the beyond beer space.

Our next question comes from Michael Lavery with Piper Sandler.

Congrats, Gavin and Rahul, both. Just want to come back to a couple of things. You touched on needing to win an economy, you touched on in your opening remarks. I just wanted to focus a little more on Keystone. Can you maybe touch on why you think might not have been winning there already? And whether it's maybe an innovation issue, a price issue, just not enough marketing, what more maybe should we expect looking ahead?

And then just a follow-up on the goodwill. You touched on how is impacted by the assessment process is impacted by this past year's results and evidently has a bit of a backwards look, but also seems to reflect an outlook ahead? And maybe what is kind of the balance there? And how much is it more a function of what's happened already or what you think is to come.

Thank you, Michael. So again, just let me talk about the economy portfolio and then add a few comments and Tracey, anything else you would like to add on the well. But -- if you -- I would go back to a couple of ways to think about the economy portfolio. First is a consumer lens, right? Consumer -- I think you and everybody is aware, I mean the consumer from a stable perspective is special. And so for us, making sure we have a portfolio that can meet our consumers in every location. In this category in beer, we definitely don't see trade down from a brand perspective, but we have brands that consumers love like High Life, like Keystone, like Canada et cetera, right?

So we have a broad economy portfolio that consumers really love and this is big, Michael. I mean this is a big part of our portfolio in terms of scale and volume. And it's -- practically, it's a big part of our customers' portfolio. So making sure that we're doing the right things of keeping it as healthy as possible is super important. So the things you talked about, all of that matters, right, whether it's the right level of marketing. It's the right level of innovation right. Again, but price back in that part of the portfolio. And I would call how the regional event of it, right? So this is -- our portfolio is very regional, and we need to make sure that we are winning in a very, very regional way with all of that.

So probably less -- slightly different the way we think about Coors Light and Banquet, which are big national brands that need to win in different ways. The focus on economies, I would say, in a -- for solving a different purpose. To your point at goodwill, it is a function of this year's performance. It's a function of discount rates, multiple. But yes, it does have a view of the outlook, right, again, versus what we had previously. And I think that was informed by this year's both category performance and outperformance. So I would say those are the big drivers. But as you know -- in these things, discount rates and multiples have a big impact on some of these elements. So Tracey, anything else?

No, I think you've basically covered it Rahul. Just maybe an added thing in terms of the current outlook is the cost, particularly driven by the Midwest premium. We have seen that now in October being the highest level ever with potential more increases coming. So that was also a part of the outlook for our costs. But having said that, look, we remain confident in the resilience of the air industry. And also, as Rahul has said, our ability to return to both top and bottom line growth.

Our next question comes from Rob Ottenstein with Evercore.

Great. Congratulations to you Rahul and to Gavin and best of luck. So I guess the question I'd like to try to approach all is to get a sense of your mandate from the Board and what -- how much freedom do -- is the board giving you to the sense that if you wanted to make significant changes is kind of everything on the table, no sacred cows and that kind of approach, so something that may be a departure from the past? Or is the mandate from the Board more like just kind of stay the course, tweak things around the edges, improve execution here and there.

But basically, let's weather the storm and keep kind of plugging forward. So just really just trying to get a sense of kind of how those discussions went and what range of freedom you feel that you have to create shareholder value here?

Thanks for the question, yes. I would say we definitely -- our Board is always focused on what's the best thing for all shareholders, right? I mean, that's definitely the lens. And frankly, I don't -- there is no sacred cow. I mean, I think they've given us -- given me the freedom to say, let's make sure we have a plan that can drive the most shareholder value, and that's what we are -- is what I'm leading for. So yes, there are no sacred cow. There's no constraints. I think you and everybody on this call understands the challenges that are in the category.

I know there's been a lot written about our portfolio. So I mean all of that is real, and that's the context to work within. But in terms of the direction from the Board, it is about driving maximizing shareholder value in the best possible way we can. So definitely don't feel any constraints that there be no sacred cows. I think the tricky part in terms of your colleagues asked this question, right, a category is going through a tricky time this year. Again, I go back to, we are in great geographies with big profit pools, but yes, it comes with a different shape of category health.

And those are all reality context, but it doesn't take away from the opportunities we have for our portfolio. So I think that's the best way. And again, that's why you see me talk about even the balance sheet and while we're committed to returning cash to shareholders. We're going to find the right ideas to deploy capital to get ourselves back to top and bottom line growth also. So -- yes. No, I understand the question, Rob, but no constraints here from the Board or anybody else.

Our next question comes from Eric Serotta with Morgan Stanley.

And congratulations again to Gavin and Rahul. Rahul, I was hoping you can talk a little bit more about the overall level of investment and capabilities, your comfort with current level. I know you talked about having the right marketing pressure behind the brands. But if you look a little bit more broadly, investment, obviously, is more broad than marketing support. As you look at the organization, it's come a long way in terms of capabilities since 2019 and the revitalization plan, are there areas either that need increased investment or where you need to further build out capabilities either from an OpEx or CapEx standpoint from here?

Thank you, Eric. And yes, no, I would break out the capabilities in broadly maybe 3 broad buckets, right? So 1 is that's a large chain, wanting to make sure that we have the right level of CapEx that gets -- drives the right ROI, but also build capabilities in our infrastructure. So again, I give you an example, and I know we've spoken about this in the last few years, is things like variety packing and things like having the ability to do flavors in our breweries. These things were never possible maybe 5 years ago. And this is an investment that we've made to change these capabilities in our infrastructure, right?

So making sure we have the right level of CapEx, right, which is -- will be important. So I think that's 1 thing we're going to continue to look at. So supply chain continues to be an area of making sure we have strong capabilities. Again, in outside CapEx and supply chain, it seems like optimization of logistics and transportation costs, right? So some of the new tools and technology, et cetera, to enable us to do that. The other one is commercial capabilities, right? So if you think about our market share in the United States, but our category captaincy is significantly higher than the market share we have. And that means we are -- take a role in driving that capability with our retailers.

So that, again, goes back to examples of capabilities. And then the last part is technology. Both in terms of baseline technology needs with some of the new capability around AI and how do we leverage that with our infrastructure. So we're going to continue focusing on these areas. I think your question around what's the right level of investment. I think, again, more to come on that as we think about our total business, but the lens we usually have on this is what is the driving for our business, right? Is it productivity? Is it efficiency? Is it enabling the top line? So being very clear on all the KPIs or metrics that we use to make sure that these investments are returning something to the business.

So while we will focus on capabilities, it is from a lens of productivity, efficiency or to enable top and bottom line.

Our next question comes from Kevin Grundy with BNP Paribas.

Great. Rahul, a question -- 2 questions for me, actually kind of pulling together some of the themes that we've talked about and that is your assessment of the company's cost structure more broadly, particularly from a supply chain and brewery optimization perspective. So the company made some difficult choices at the corporate level. But as the volume outlook is certainly become quite a bit more challenging perhaps the company's fixed cost structure is not appropriately sized for kind of the new realities if you will.

So one, do you view that as a fair assessment? And two, in light of 1 of the questions earlier on investment levels, do you view incremental productivity as an enabler to support higher investment levels? Or would incremental investment be a near-term drag on margins?

Thank you, Kevin. So let me address your first thing around the brewery one. And the second one, I just want to make sure I got your question right. But on the brewery stuff -- on our brewery infrastructure, I mean, we're always looking at ways of making our brewery network efficient, right? And you've seen some of the actions we've taken in the past. A couple of things I'd call out as we think about our brewery infrastructure. One is around transportation costs, rather than making sure that we are looking at brewery infrastructure in the context of transportation. The other part is the seasonality of our business, right?

So seasonality in terms of summer and making sure we think about that. So to answer your question broadly, yes, we're absolutely going to be thinking about all the elements of our fixed cost base right now, I don't believe we need to be closing a brewery. I think we need to be smart about how we think about lines and particular breweries, where we produce, what product, how do we get smarter about some of the efficiency in terms of moving our brands around. I think that's how we think about it.

A fair question as we think about the volume outlook and what that does, but cost thing will always be a focus for us, whether it's on the fixed side, whether it's on the G&A side, I think that priority and focus will, I would say, always remain. Your question about do we need investments to drive productivity. I think that was the theme of the question. I don't believe we need some high elevated levels of investment to drive productivity. I think we need to look at our CapEx in the right way and be checking ourselves to make sure we get the right ROI.

We need to make sure that the investment we have in people, technology is desiring the right returns. But I don't believe -- I think the question was, do I see or expect a big spike in investment to drive productivity. I think that -- I don't believe I see that right now. I think marketing, again, I want to make sure we have the right pressure against our brands, again, but check -- test ourselves to make sure we're getting the right return on the marketing, right? So hopefully, I answered Kevin, both your questions in terms of fixed costing and the investment profile.

Our next question comes from Kaumil Gajrawala with Jefferies.

Hey, everybody. Congratulations all around. Also, I think congratulations to Eric Serotta might have been the first analyst to pronounce your name correctly. You'll find name pronunciation to be a thing on many of these calls. You're getting the same question, I guess, over and over again around the restructuring and investment levels. And I think a lot of that is because in many instances, when the industry is struggling and has struggled for over a decade.

We see bigger restructurings, bigger savings at the time of management change. And what one so far seems small. So just curious, is this just the first step and there's bigger restructuring to come? Or is it sort of everything is in place now and it's time to go.

Thanks for the question. I think -- I know I'm keen to also talk about our total plan. I look forward to sharing that in the coming months, right? I mean we definitely -- if you think about our business and you said this with respect to long-term trends, making sure we are looking at our cost base in the right way. I think we're going to look at everything. The piece that we took action on in the short term in the last 30 days was to make sure we have set up while in the Americas for 2026. So I would say more to come as we think about all the elements of the plan, cost and efficiency is another element that is super important.

But we were trying to move with pace as we think about setting ourselves up in the Americas for 2026.

Our next question comes from Lauren Lieberman with Barclays.

One thing I want to go back to was just in the prepared remarks role when you commented on -- I'm just going to find the call again. On the commercial changes, I know you -- and answer to Steve's question, you talked a little bit about org structure. But you also talked about deploying marketing based on market dynamics and portfolio priorities. And I just -- I was curious like what were you doing before? Because that sounds like I would think that's what's already happening. So I'm just curious how you maybe compare and contrast and what it is that needs to change?

Yes. Thank you, Lauren and absolutely a fair question. I think the way I would think about this is how do we react faster to the external market dynamics, right? I mean if you look at our brands, while we have big national brands, they play different roles regionally, they operate in terms of market share we have in each state or each region is different. And we need to just find ways of being -- deploying our internal resources in a stronger way. The added part -- and some of this we were doing, right?

But again, the pieces I would say, is different or will be different is in the context of accountability. How do we make sure our decision-making is as close to those markets as possible, how do we make sure we can shift both people and dollar resources closest to that decision-making. And I think that's -- those are the changes that would be different for our teams, how we operate, how we engage with our distributor network, Lauren. So I think it is things I would say we were doing, but we just need to lean in harder given how the category has changed, right?

I mean if you look at even regional performance, we -- I know we talked about the national performance of the category. The category is performing very differently in different parts of this country. And we need to make sure we're pivoting to that, both from a resource perspective, from a brand perspective, that's where the economy context comes into conversation, right, because some of our economy brands are very big in particular geographies. And if we are not putting the right focus on those, that's -- the whole growth algorithm becomes very hard to make happen. So those -- I would say those are the big highlights I would call out, Lauren, to your question.

Our next question comes from Nadine Sarwat with Bernstein.

I'd like to come back to some of the cyclical pressures that you called out in the prepared remarks, and in particular, what are you seeing in terms of consumer sentiment for your consumers in Q3? And to the extent that you can comment on this in October, I appreciate the prepared remarks you made, but are there any internal surveys or analytics that you're able to share about what's driving consumer behavior today? And how does that help you be more confident in your statement that the incremental pressure we're seeing today is firmly cyclical as opposed to structural?

Yes. Again, I understand the question, but -- so if I address it in maybe a few added points to give you some context of at least how we're seeing it. I mean, if you go in -- back to pre '25, I mean some of these trends have been with us at the beer category for a long time, right, whether it's health and wellness, whether it's generational change, whether it's people making choices around alcohol. I think that some of those have been -- we and everybody in the industry have known about those. And if you look at the category historically used to be in the minus 1.2%. In the last few years, it's in mid minus 3-ish range.

This year, I would say that's been definitely added pressure. And you see that across staples, and beer hasn't been immune to that. So whether that is impact of tariffs on consumer sentiment, if it is the focus on the Hispanic community at any of those elements. So I do believe that has had different type of an impact to the category this year. And that's where once we've got through these macro issues, then we need to get back to those baseline levels of how we think about the category and then making sure we're winning in that category.

Our next question comes from Robert Moskow with TD Cowen.

I'm trying to summarize all of the commentary about the regional execution versus the national marketing of your brands. And I just want to make sure I understand, like you have Coors Light and Miller Lite, your 2 biggest brands. Is it your view that on a national level, that the marketing of those brands has been just fine because there's been multiyear share losses of those. One of your competitors has made great inroads in the light category probably at their expense. So is there -- do you think that the national marketing of those brands is doing just fine? And really, it's just the regional execution could improve and that's the way to stabilize.

Thank you for that question. We definitely think there's opportunities for us as we think about how these brands show up. If you think about the work we are doing on Miller Lite with a 50-year campaign. I think -- and if you look at share losses of Coors Light versus in Q3 versus Q2. So definitely, that's something we're looking at of the national campaigns for our big brands and how do we lean into it differently, how we think about it going forward?

And I'd just point you pointed out to Coors Banquet, right? I mean I think it's a brand that has really met a consumer need as resonated with consumers. We've obviously executed well in the context of distribution gains. But absolutely, focused on making sure we've got the right campaigns for Coors Light and Miller Lite. And I think you'll see some of that play out as -- with large sports in the coming months.

Our final question today comes from Gerald Pascarelli with Needham & Co.

Great. Rahul, I guess, just going back to some of the prior commentary on this call and to summarize, is it fair to assume or expect that bolt-on M&A or a more aggressive push on to beyond beer ultimately becomes a more important part or a larger part of the capital allocation strategy looking forward? And then for Tracey, just going back to the Midwest premium obviously been increasing $0.81 per pound. I know there's like less than 2 months left in the year. But if the premium continues to spike, is there a spot price threshold for us to be mindful of that could potentially put your PBT guidance at risk for the year? Any color there would be great.

Yes. Thank you, Gerald, for that and Walling. If you look at M&A and deployment of capital, we have a pretty strong beer portfolio across the world, right? I mean we continue to fill some gaps in that. But the places where we need to fill some gaps are probably in the beyond beer. So in terms of deploying capital, you will see us probably lean in a lot more on the beyond beer space than the beer space. But if there are ideas that make sense that augment our business and drive top and bottom line growth, we're going to look at that. But I think, broadly speaking, I think your assessment of deploying on the dollars in beyond beer is probably the right way to think about it. Tracey, do you want to address the Midwest premium question.

Yes. So look, I mean, we've spoken about the Midwest premium a lot. And as you rightly say, it just continues to increase at hit an all-time high in October, potentially going much higher. Now we do have an extensive hedging program that operates sort of there's a blend between structured as well as where we use opportunistic depending on the markets, we're able to hedge out multiple years. And really, the objective is to smooth out the impacts of any unfavorable swings in commodities and in ForEx.

But as it relates specifically to the Midwest premium, look, we do have coverage, and we do follow the guardrails in our program. But as I've said before, it's a very difficult and very expensive commodity to hedge. Its pricing does not follow conventional market east and flows and liquidity is limited. And so it continues to be a headwind for us. And we do try and eliminate the volatility through hedging. But at the levels that it is, there's no -- there's sort of reason for that. So we will just continue to track it and do what we can in terms of trying to mitigate the volatility that we do see in that commodity.

Thank you. That concludes our question-and-answer period. You may now disconnect.

Okay. We're going to get started. We have Molson Coors Beverage Company next. Very happy to have the company's CFO, Tracey Joubert, with us today in Boston. And also Traci Mangini, IR. Thank you for joining us on the stage, a little female power up here.

Okay. So still lots of debate on whether soft alcohol consumption trends in the U.S. are cyclical or structural. I know you've leaned towards the former. How do you assess the industry's response to the slowdown in category growth? And what more can or should be done?

Okay. Good. Well, firstly, thank you for having us. It's really good to be here. So look, we do believe that the industry softness is cyclical. We believe that it's being driven by macroeconomic factors, which is driving consumer sentiment and consumer uncertainty. And in particular, we are seeing a bigger impact on lower-income consumers and Hispanics, where we are seeing less buyers and also shift to singles. So we are definitely seeing a dynamic there.

In terms of what can the industry do about it? Well, I can tell you what we're doing about it. We believe that we have the right strategy. Over the last number of years, we have been developing a more robust portfolio to focus on not just Beer, but premiumization within Beer and also premiumization being driven by Beyond Beer and also investing in our capabilities.

Now with the softer industry, we are also taking actions. So we are looking at nonbusiness-critical discretionary spend where we have pulled back. And we're also looking at efficiencies, driving efficiencies in our breweries, whether it be how we're operating our line, how we're using capacity, et cetera. So we're taking a lot of actions to make sure that we're investing in the right places to grow our brands and grow our business and drive cost savings and efficiencies.

Okay. Great. And even before the industry had suffered from a few years now of 3% decline, you were already working on diversification efforts, Beyond Beer. And I know we'll talk a bit more about it later, but it's interesting to also see beer distributors increasingly going that route as well. Back on this question of the notion of what can the industry do and are they doing enough? Is there a risk that it almost becomes a self-fulfilling process that the industry, that the distribution tier that everyone pulls back too much from supporting beer?

Yes. Look, I think -- I mean, big beer is really important, and it's important to us, and it's important to our distributors. So when I talk about big beer, I'm talking about high velocity, which we see in premium lights. I'm talking about higher margin. And that's important to us, our distributors and our consumers. But we also need to make sure that we're looking at where the consumer is going and catering to the consumers' needs. And therefore, we have -- and we are developing a broader portfolio to meet the consumer preferences and also add to occasions that we don't currently operate in or where we can broaden those occasions.

So as we talk about our portfolio, as I said, Beer is still really, really important. But we're also playing in categories where we are seeing growth, might be small, but growing like non-alc beer. So we have 2 wonderful brands, Blue Moon Non-Alc and Peroni 0.0, really great liquid. They taste very much like the mother brand. And so we're really excited about the growth that we're seeing in those brands. But then we also are catering to new occasions with adjacent type segments like Fever-Tree, which plays in both the alcohol occasion space and the non-alc occasion space.

And then we're playing in the non-alc occasion space with brands like ZOA. And then also, we've launched a non-alc RTD, Naked Life, which is the largest RTD coming out of Australia. So we are building a portfolio that caters across consumer needs with how the consumer preferences are changing as well.

Okay. Your updated guidance -- just turning to kind of shorter term, your updated guidance assumes continued mid-single-digit declines in the back half of the year, but your long-term expectations are still for low single-digit sales growth. So what type of longer-term beer assumptions underpin that low single-digit algo?

Yes. So when we spoke about and we updated our guidance back in -- on our Q2 call, there were 2 main factors that drove lowering the guidance. One was the continued industry softness that we were seeing. So our assumptions is that for the back half of the year, the industry is going to continue to be down around minus 4%, minus 6%. So that was the one assumption that we took into account with our guidance. The second was our share. So we expect our share to continue to be down around 50 basis points for the back half of the year.

Now in terms of the longer-term guidance and having a look at our targets, we haven't publicly given a volume target because it does differ year-by-year. But why it's important to expand our portfolio and to really premiumize is that a lot of our top line, our revenue, NSR is going to come from price and mix. And so it's really important to continue to premiumize both within Beer and Beyond Beer. And then also, one of the assumptions that we've taken from a pricing point of view is we expect in sort of North America, that pricing to be around the 1% to 2% range, which is historical. And then in other countries in Europe, et cetera, it's closer to inflation. So those are the sort of key levers, key drivers of our longer-term growth on our top line.

Okay. And so beer industry volume in the U.S. and with that 1 to 2 points of positive pricing, we can think about that embedded in your long-term plan is flat to sort of a low single-digit decline in terms of beer industry volume?

Yes. So I mean, the beer industry for the last number of years, previous year has been around the down 3%. But again, NSR is growing. So it's driven by that 1% to 2% pricing, particularly in the U.S. and then the Above Premium category in beer is still growing, which is really exciting. And that's why our focus on some of our Above Premium beer portfolio.

Perfect. Okay. And then on profit, sticking with the outlook for this year. The plan is for constant currency mid-single-digit underlying pretax income growth. How much flexibility is there in that outlook and the implied margin expansion? So in the event that the category and things remain lower for longer, increased consumer pressure in the back half, slowdown in premiumization, just how much flexibility is in that mid-single-digit profit outlook?

Yes. So look, I mean, I spoke about the drivers of the top line, which is also a driver of margin. So premiumization typically comes with higher COGS, but also comes with higher margin. And so that's why the drive to premiumization and then pricing, as I said. So that's part of the margin. And then as we look at COGS, for example, we've done a lot of work around investing in our breweries to drive cost savings, efficiencies, taking out the low-margin contract brewing Pabst has certainly helped take a lot of complexity out of our breweries, and we will fully have cycled that at the end of this year.

So it takes a lot of complexity out of our breweries. It also allows us to have capacity to make our own higher-margin brands, particularly during the peak selling season, but also it has allowed us to do things like onshore Peroni, which is driving -- I mean, it's been a best premium brand, much higher margins now that we've onshored it, and it's growing really nicely. And also, it allowed us to sort of -- taking out that sort of contract brewing lower margin has allowed us to close smaller underperforming breweries like we did in Wisconsin last year.

Yes. Okay. Do you think longer term, again, in this like down low single digit, down 3% volume backdrop, is there further opportunity or need to take out capacity as you continue down this road over the next, call it, 5 years?

Yes. Look, I mean, we're really happy with our brewery footprint at the moment because, again, taking out the Pabst contract brewing has allowed us to bring in higher-margin brands and being able to make that in our breweries. But when we look at our brewery footprint, we also -- one of the things that we have to consider is transportation cost is very high.

So you have to consider if you close a brewery, how much you're going to add to logistics cost to move your beer from one brewery across the country to another. And that is a high cost. So we take that into consideration. But when we look at capacity, we also -- before we make a decision around closing brewery, there's a whole lot of other things that we can do as well. So it could be taking down a line in a brewery or reducing shifts in a brewery. So we make those decisions first because, again, logistics cost is a big driver of costs. And so taking a brewery down is a big decision.

Okay. That's really helpful. Looking closer in, how would you characterize the U.S. consumer environment through the end of the summer?

I mean, I think what we're seeing as we sort of got to the end of summer is very similar to what we saw in the beginning of the summer. Consumers are still very uncertain. Consumer sentiment is low. We are seeing less buyers, but we're seeing that same sort of dynamic that we've been seeing for a while now is we're seeing channel shifting and SKU shifting. So either consumers looking for value through higher -- bigger packs or going to C-stores, singles, et cetera. So we continue to see that. But no difference from a sort of promotional activity and things like that, that we've seen in the past. But certainly, the consumers are stretched and uncertain in terms of economics.

And you just touched on, you said no real change in the promotional environment. Is that right? And as you think through the back half in this continued pressured environment, what do you think about the risk of that change stepping up?

I mean as we go into the summer, we always do see increased competitive activity. We see increased promotional activity. But again, it's not really different to what we see. Now there has been some retail accounts, et cetera, that have done different things. But generally, a lot of that, in our belief, is retailer driven. So the brewers -- and again, I can't talk for our competition. But generally, we don't participate in what the retailers do because they do it a lot to drive footfall -- foot traffic through grocery stores, et cetera.

But again, if we do see any increased activity, whether it be promotional or consumer dynamics, we look at it for the long term of our business. I mean we're not going to do anything short term that's going to harm our brands. We're going to look at it market by market as we always do with our pricing, market by market, SKU by SKU, brand by brand, and that's worked for us.

Okay. Great. And in the U.K., just we've been talking so much about the U.S. I think that was a market where you had seen some elevated competitive pressure. Just latest on the consumer and promotional environment, just focusing in on the U.K.?

Yes. So maybe, Traci, you want to talk a little bit about the U.K. consumer and...

Sure, sure. So in the U.K., I mean, consumer sentiment remains challenged. It actually is in negative territory by the indexes that they follow. But the -- like real wages are up and inflation is coming down. So the macros are looking better, but again, the sentiment is still challenged. So we continue to push forward with our plans. Obviously, we have a strong portfolio of brands there. But it is a highly competitive environment.

We see that at sort of the mainstream level with Carling, where some of our peers have reduced ABV on their products. We have chosen -- we have not done that. We certainly looked at it, but we have not done that at this point. But what that means is that at times, in the off-premise, our brands -- our Carling, for example, could be 20% higher in price point. So there has been some -- obviously, some challenge there, but we've taken a value over volume approach.

Very positively, though, we continue to premiumize very nicely. For example, in Q2, Madri U.K. business was up mid-single digits. Staropramen, another Above Premium brand we have in the U.K. was up double digits. So premiumization continues to be positive for us as we manage the competitive environment.

Okay. Great. And let's shift back to the U.S. You shared this targeted plan for the convenience channel. I think we first talked about it at CAGNY, if I remember correctly, where your share had slipped a bit since 2019. Could you talk a little bit -- just give some background on this "influence point strategy" and give us an update on how that's going and some of the associated innovation?

Sure. Yes. Look, we've done a lot of work around our C-store strategy. And look, the C-store is the biggest sort of beer channel. So it's really important, and we do under-index in the C-store. So we spend a lot of time looking at consumers, we interviewed thousands of consumers and really trying to trace the path to purchase in the C-store. And the insights that we've got from that is every C-store visit is different. And it may be -- as you look at the path to purchase, it may be an influence at home or in the car on the way to work or at the pump or in the store at the [ cooler ].

So there's all these influence points as you call it, these points that matter that we are focused on. And so I'll give you an example. The biggest visits to C-stores is generally impulse visits. And so someone might be just popping into a C-store to grab a snack. And so we want to nudge them to say, with that snack, grab a beer. And so we're doing things partnering with various companies. So for example, Miller Lite partnering with Pringles in the C-store or Miller High Life partnering with Planters peanuts or Topo Chico with Takis.

So providing that sort of promotional, just a nudge around beer. And then also, it's not just one sort of promotional sort of in the store, but we can influence them at the pump through commercials at the pump, just to remind them to pick up their beer or in the store at the cooler, et cetera. So there's a lot of work that we have done around the C-store consumer. And that's also driven some of our C-store innovation.

So this year, we launched 3 higher ABV brands, 8% brands, Blue Moon Extra, I always have to look at Traci to help me with this; Simply Spiked Bold and Topo Margarita MAX. I think I got that all right. All at 8% ABV. Simply Spark Bold was the #4 singles launch in C-store with Blue Moon Extra #6. So we're really excited about the traction and what we are seeing with those brands, early days. But some of our C-store strategy and insights drove us to make decisions like that, which again, we're quite excited about.

Okay. Great. Let's talk about Coors Banquet. I mean another area you've had great success. So 16 quarters of share growth, 5% of U.S. volumes now according to [ Beer Marker ] data. What do you see as the brand's ultimate potential, especially given distribution is still so limited relative to Coors Light. I think on the last call, you said it was about half the outlet coverage. So curious about the path and potential for Banquet?

Okay. So other than Banquet being an exceptional liquid with a wonderful heritage. I mean, there's such a lot of opportunity for Banquet. So you're right. I mean, Banquet is in about half of the outlets that we see Coors Light in. So a lot of opportunity around distribution still to come. But what's also just really, really exciting is the new consumers that the brand is attracting.

So in latest 52 -- I think it was at July, latest 52 weeks, we saw an increase of [indiscernible] Gen Z consumer, up 25% with Coors Banquet. And also, importantly, we're seeing a 20% increase of Hispanic consumers buying Coors Banquet in latest 52. So a huge opportunity that we're seeing in Banquet. Now why is Banquet so successful? Well, other than the fact that it's a 150-plus year-old brand and is growing because of the exceptional liquid and heritage, it's just -- it's a very cool brand. People love to hold a little stubby bottle. It's a unique package. As I said, it's driving new [indiscernible] drinkers into the space. And then added to that, there's a lot of work that Coors Banquet does with conservation and the firefighters, et cetera, that is really appealing to younger drinkers.

Okay. Great. And just on the flip side, how do you think about the contribution of Coors Light and Miller Lite to growth in '26 and beyond? And how is that shaping your resource allocation decisions?

Yes. Look, I mean, Coors Light and Miller Lite will always be important to us. They are our 2 biggest brands. And look, over the last couple of years, we've actually gained a lot of share. So our share is up 1.8 share points since 2022. So that's big. And our focus now is to retain that share and to actually to grow the volume. I mean, it really is important. Coors Light and Miller Lite is important to us. And as I say, the big brands are important to our distributors as well.

So we're really looking at continuing to strengthen our core brands. And because they are so big and so important to us, they do take priority in terms of investment. And so typical, if you look at going into football season, we're putting a lot of money behind those 2 brands with our NFL alliances as well as our college football alliances, which we're very excited about.

Okay. Great. Relatedly, I want to talk a bit about marketing spend in 2025 and beyond. How are you thinking about marketing investment levels as you balance this tough category backdrop and macro backdrop with the need to defend share, protect the share you've earned and also continue to drive premiumization?

Yes. So look, I mean, we're not going to do anything short term that's going to harm the long-term health of our brands. And so despite the macroeconomic headwinds that we're facing, we're going to continue to invest behind our brands. We're going to continue to spend our marketing dollars behind innovation, behind non-alc and behind our core.

So if you look at our big spending quarters in a year, Q2 and Q3 are where a lot of the investment takes place because it's peak summer selling season, et cetera. And so for Q2, Q3 of this year, we expect to be flat year-over-year to last year. A little bit of shifting. We actually expect Q3 to be higher year-over-year than Q3 last year as we continue to fuel some of the non-alc brands as we continue to get awareness around Peroni, for example, our campaigns just really kicked off in Q2. So continue to put pressure behind our premiumization and then continue to build behind Miller Lite and Coors Light. But we want to make sure that all our marketing returns a good investment. And we're certainly, again, not going to cut our marketing to drive a bottom line for the short term.

Okay. Great. You mentioned Peroni and Blue Moon a bit earlier. You're targeting a 1/3 sales mix from Above Premium going forward. You've been active with Peroni and Blue Moon in the U.S. What would you say is the next major milestone or proof point to watch for each of these brands in terms of some of the plans and support that you've had in market for them are working?

Yes. So I wouldn't say that there's a specific proof point, but it's more just continuing to grow those brands. So if we look at Peroni, the focus is on continuing to take share. The focus is to continue to get more awareness and then continue to drive distribution. So if we look -- just look at awareness and distribution, I mean, Peroni has only got about 40% awareness of its competitor in the market. It's only got about 1/3 of the distribution. So we see a lot of opportunity with Peroni.

And as I say, the Q2 really, we kicked off the campaigns, but just a lot of opportunity. It's also only 10% of the volume of Stella. And we see no reason why Peroni can't be as big or bigger than some of the other imports like Stella. So very excited about Peroni, very excited about some of the partnerships we have with Ferrari and Formula 1, et cetera. And then added to Peroni is Peroni 0.0, which we've spoken about the non-alc.

I mean in terms of Blue Moon, look, the focus is to stabilize that brand. Now we have seen a trend change in the on-premise Q2 over Q1 with Blue Moon Belgian White. So really focused on driving that on-premise as a big on-premise brand, but also focusing on the off-premise. And so I spoke about the higher ABV Blue Moon Extra. That's one of the ways to continue to drive awareness of Blue Moon and grow the Blue Moon brand.

Okay. And these are both the brands you're really pushing in terms of NA. Just curious, how would you score your progress on NA beer? And maybe even before that, how big do you think NA beer can become in the U.S.?

Yes. Look, I mean, it's not like Europe. Europe's non-alc beer is very big, much bigger than here. It's still small in the U.S., but obviously growing. And there is a little bit of a more mindful drinking focus with some consumers. And so we want to make sure that we play in that segment and in that category. And we're doing that with the 2 big beautiful brands, Peroni 0.0 and Blue Moon Non-Alc. And we're very excited about what we're seeing so far.

So Peroni growing 30%, Blue Moon Non-Alc growing 30% in Q2. So seeing a lot of growth, and we'll continue to put focus and investment behind those brands because, again, they're just wonderful liquids. They're very -- the profile is very similar to the mother brands. And so we do think there's a lot of opportunity still.

Okay. Great. Half of your Above Premium growth is expected to come from Beyond Beer. Just curious, what is the relative profitability of Beyond Beer given things like brand, the consumer is really sickle, I think, in that space, flavor churn, it's a lot more activity relative to big beer at the other end of the extreme. So cost to launch new brands, more frequent innovation. So how do we think about profitability of Beyond Beer given that that's to be a big part of the Above Premium growth?

Yes. So I would say it differs -- profitability differs. So it depends on a number of things. Is it an existing brand that you're just sort of adding to? Or is it a new brand? Obviously, existing brands, you wouldn't have to spend that much in terms of getting awareness. Is it regional? Is it national? Is it produced in-house? Or do we co-manufacture it? So all of those things play into profitability, and it's all different.

But if we look at our Beyond Beer Above Premium innovation -- sorry, our innovation all plays in that above premium space. So it's all higher margins. Generally, it comes with higher margins. But it does -- profitability does differ. But as we are able to bring things in-house, that adds to our margin. As we're able to bring things like Fever-Tree into our network and into our portfolio, it drives the top line and margin. So Fever-Tree, if you take out full-strength spirits, Fever-Tree NSR per hectoliter is our largest -- is our highest NSR per hectoliter brand. So that drives top line. It also drives margin through mix as well.

Okay. Great. I want to touch on some elements of the financial outlook for this year, in particular, free cash flow, which you reaffirmed at $1.3 billion, even with the lower expected pretax income growth. I think you talked about working capital as being part of that offset on weaker profit. But can you clarify maybe what's driving that working capital benefit and whether the improvement is structural or more timing related?

Sure, sure. So yes, so we -- when we reported Q2, obviously, we're very pleased to reaffirm at that time our $1.3 billion free cash flow even though we had reduced on the bottom line. And 2 of the reasons were the working capital benefits that you mentioned as well as some cash tax benefits from One Big Beautiful Bill. So there's both a timing element as well as an ongoing element to that.

So for the working capital benefits, those are things that we're always doing, trying to improve working capital. So we would expect sort of ongoing benefits from that as we continue to focus on improving in areas of receivables and payables. So those are just certain examples of things that we're working on in the different markets that we're in. And so those are benefits that would be ongoing.

Okay. Great. Midwest Premium. So it was a driver of the negative profit revision for this year. Is there anything that can be done to manage the volatility from the Midwest Premium differently looking at 2026 and beyond?

Yes. Look, I mean, the Midwest Premium, it's -- we're continuing to monitor it. It doesn't make sense to us. Why it's gone up 180%. There's -- it's an opaque pricing mechanism. It's priced by one company. It's difficult and expensive to hedge. It's not as liquid as other commodities. Now we do hedge the Midwest Premium. But as I said, it's more difficult and expensive. So it's one of our least -- or it is actually our least hedged commodity.

Now when we hedge, we have guardrails. We're never 0 percent hedge, we're never maximum percentage. So we've got this exposure to the market. And again, the Midwest Premium is the fact that it's gone up as much, it's -- I mean, it's unexplainable, but we try and manage what we can manage. And just assume that at some point, it's going to get back to where it should be.

Okay. I know we've been very U.S.-centric in this conversation. So I did want to just kind of squeeze in a question on all the activity you've had in EMEA and APAC over the past couple of years on bringing in new brands. Just curious what the framework is for deciding where and when to expand. Does that differ when it's like a new to the world brand versus a legacy brand like Coors? So just some color on that brand expansion in non-U.S. markets?

Yes. I mean, again, we'd look to where we can add to complement our portfolio in specific countries. And Madri and Coors Light are the 2 big priority brands in terms of expansion. So Madri, probably our most successful launch in decades, just a wonderful brand driven by not just the amazing liquid, but the whole experience with the on-premise. That's how we started it, even though we launched that brand during the pandemic. On-premise grew and then we really focused on the off-premise.

So because of that success of that brand and how we managed to build that brand, we were confident in taking it into different markets. So we launched in Canada where it really exceeded expectations. We then launched it in Bulgaria, where we launched those 2 together, and then we launched in Romania just recently. So we look at markets where we've got a strong route to market, where we are premiumizing and the market is allowing the premiumization. And so Coors Light and Madri are 2 of those brands, which we've learned from expanding into other markets, and we believe we're going to do it in the right way, but we know that we've learned how to really launch strong brands like that in different markets. So that's brands that we currently have.

And then new to market would be -- I mean, a good example is Caraiman that we launched in Romania. Now it was a dormant brand that we had there. It plays in the sort of mainstream space. But we wanted a dual strategy in Romania. And so we launched this brand, which is very strong in the western part of Romania. It really resonates -- the name resonates there. And so that's been really successful as well.

Now again, it's core. So it's not in the premiumization, but it was a whitespace that we saw an opportunity for to expand in that country. And again, really exceeded expectations on a dormant brand that we always had in our portfolio.

Okay. Great. A few minutes left. I just wanted to close the question on the CEO transition on the horizon. So how are you and the team ensuring continuity in the existing acceleration plan and maintaining strategic momentum as this is sort of -- it's going to be -- it's a long transition?

Yes. Look, I mean, we're not taking our foot off the gas. I mean we believe that our strategy that we've got is the right strategy. Despite all the macroeconomic headwinds, et cetera, our strategy is right. I mean we're building on the strength of our core brands. We are focusing on above premiumization of our portfolio. We're focusing on Beyond Beer, and we're also focusing on capabilities and partnerships like we spoke about the C-store strategy and insights as well as partnerships with fantastic brands like Fever-Tree. So certainly not taking our foot off the gas. We know that our strategy is the right strategy for us. And a new CEO coming in, I think we've built a really great foundation to continue to strengthen our portfolio and grow our portfolio.

Okay. Great. All right. We'll wrap it there. Do you want to break out? Is it a break-out session or...

I think so.

Yes, okay. So we're going to have a breakout session, so I had to whisper. But please join me in thanking Tracey and Traci for being here, and then we can carry on in breakout.

Thank you very much.

Good morning, and welcome to the Molson Coors Beverage Company Second Quarter Fiscal Year 2025 Earnings Conference Call.

With that, I'll hand it over to Traci Mangini, Vice President, Investor Relations.

Thank you, operator, and hello, everyone. Our discussion today includes forward-looking statements within the meaning of U.S. federal securities laws. For more information, please refer to the forward-looking statements disclosure in our earnings release. In addition, the definitions of a reconciliations for any non-U.S. GAAP measures are included in our earnings release.

Given our quarterly performance, including financial and operational metrics and drivers is detailed in our earnings release and earnings slides, which were made available earlier today on the IR section of our website. We will focus our prepared remarks on what we believe is top of mind for you, and that is the industry, how we're responding, capital allocation and our financial outlook.

And please note that given the current environment, we are providing a more detailed than typical review of our 2025 guidance drivers. [Operator Instructions]

With that, I'll pass it over to you, Gavin.

Thank you, Traci. Hello, everybody, and thank you for joining the call. During the second quarter, we continued to execute against our strategic plans to support our long-term growth objectives and to return cash to shareholders while navigating a challenging and volatile macro environment. As a result of the uncertainty around the effects of geopolitical events and global trade and immigration policies, consumer sentiment in the U.S. has remained at relatively low historical levels.

This has continued to pressure consumption trends. These macro impacts in the U.S. have had a disproportionate effect on the lower income in Hispanic consumer. And within beer, these consumer segments have driven the reduction in the number of buyers as well as spend with a shift to singles in the second quarter.

In addition, while less impactful certain regions of the U.S. experienced some severe weather conditions during the quarter which had a notable impact on the important Memorial Day weekend. These factors have resulted in a much softer U.S. beer industry so far this year than we had previously expected. Recall our guidance issued on May 8 that assumed the U.S. industry would improve for the balance of the year from down approximately 5% in the first quarter to levels closer to that of the last several years, which averaged down around 3%. But in the second quarter, the industry continued to be down around 5%.

Further, the Midwest premium pricing, which is a component of our aluminum cost has been indirectly impacted by recent U.S. tariff announcements, causing another substantial and unexpected spike in the second quarter. For perspective and as you can clearly see on Slide 19 of our earnings deck, in July, the Midwest premium jumped to $0.68 per pound, an increase of over 180% since January.

As a result of these macro drivers and to a lesser degree, lower-than-expected share performance, we are reducing our top and bottom line guidance for 2025. We now expect net sales revenue to decline 3% to 4% on a constant currency basis as compared to a low single-digit decline previously. The range assumes U.S. industry volume will decline between 4% and 6% for the second half of the year. We now expect underlying pretax income to decline 12% to 15% on a constant currency basis as compared to a low single-digit decline previously.

The range includes for the second half of the year, incremental costs specific to the Midwest premium of $20 million to $35 million which assumes a respective price per pound of $0.60 to $0.75. This is partly offset by lower expected incentive compensation given the change in outlook. As a result, we now expect underlying earnings per share to decline 7% to 10% as compared to low single-digit growth. However, we are reaffirming our underlying free cash flow guidance of $1.3 billion, plus or minus 10%, as we expect higher cash tax benefits and favorable working capital to offset the guidance decline for underlying pretax income.

Now Tracey will speak to our guidance in more detail in a moment. But first, I want to stress that we continue to view the incremental softness in the industry performance this year is cyclical, driven by the macroeconomic environment. And this belief in our view, is clearly demonstrated by the execution of our share repurchase program well ahead of our original expectations. While U.S. consumer basket sizes are smaller in the current environment, the percent of alcohol in those baskets has remained the same. And legal drinking age consumers continue to engage with beer at similar levels across all generations and compared to historical levels, it's the occasions that are left.

Recognizing this, our strategy was built to develop a portfolio that appeals to a wide range of preferences and captures more occasions. So as we navigate these macro pressures, we are continuing to execute the strategy and prudently invest behind our business. To build on the strength of our core power brands, to premiumize our business in both beer and beyond beer and to develop and leverage our capabilities and partnerships to support profitable growth.

In the U.S., our core power brands, Coors Life, Miller Lite and Coors Banquet have retained the unprecedented shelf space gains achieved in spring of 2024. Collectively, they commanded a 15.2% volume share of the industry for the first half of the year. Recall that 3 years ago, these brands collectively commanded 13.4% of the U.S. industry.

And what's clear in the scanner data, and as shown on Slide 20, is that these brands have held most of their share gains from the last 2 years through the second quarter. Banquet in particular, has been a strong performer. After 16 consecutive quarters of share growth, it was a top 5 volume share growth brand in the quarter. And given it's only about half the buying outlets of Coors Light, we believe there is significant distribution runway ahead.

In fact, Banquet gained over 15% distribution in the first half of this year, growing across every channel and on top of over 15% growth in the same period last year. In Canada, despite a challenging industry backdrop, the Molson family of brands with its deep Canadian routes posted another quarter of volume share gains, while Coors Light, which is proudly locally produced held its #1 life beer position in the industry.

In American APAC, the industry in the U.K. has remained highly competitive, and in the Central and Eastern Europe region, it continues to experience softness related to escalating global, local political and economic tensions. But our brands like Carling in the U.K. and Azusko and Croatia remains segment leaders in their respective markets, which we intend to continue to support with targeted commercial plans.

Turning to premiumization. As we have said for several quarters now, in the U.S., there has been a shift to value-seeking behavior, but it has been focused on pack size rather than on brands. And despite the pressure on the consumer, the industry continues to premiumize, albeit currently at a slower post. So we remain committed to our premiumization plans, which are focused on both beer and beyond beer.

Over the last few years, we have talked a lot about our premiumization successes outside the U.S. In EMEA and APAC, it's been fueled by a hugely successful innovation with, we believe still has significant runway, both in its initial market of the U.K. and through recent geographic and brand extensions. In fact, in the latest 12 weeks, as of June 14, Madri had overtaken Peroni to become the #2 brand in the world's large segment and #4 beer overall in terms of value across total trade in the U.K. In Canada, premiumization has been led by the ongoing strength of Miller and our flavor portfolio.

But in the U.S., our largest market, we under-index in Above Premium, which makes it a big opportunity. Our Peroni plan that began in the second quarter are starting to show positive results with the brand growing volume double digits in the last 13 weeks through July 27, supported by continued growth in chain and on-premise placements. And while smaller for now, we are encouraged by our innovations. Blue Moon non-alc continues its rapid growth, and we are seeing growing placements for our new higher ABV brands, Blue Moon Extra, Simply Bold and Topo Chico MAX Margarita. These higher ABV brands not only support our push to expand in C-stores but are particularly timely given current value-seeking behavior.

And while these innovations are helpful to their respective brand families, we recognize the challenges of their big flagship brands and are focused on stabilizing it. For example, with Blue Moon, we have completed the pack-size conversion to 12 from 15 packs. This was a near-term volume headwind, but it's very positive for margin. In the on-premise, which is a big channel for Blue Moon, we saw dollar share trend improvement during the second quarter. And in the third quarter, we have been ramping up a new national advertising campaign with comedian Colin Jost and then there is non-alc. Fever-Tree is now our highest NSR per hectoliter brands aside from full strength groups.

While we began to consolidate Fever-Tree into our financials in February, we only completed the distribution network transition in June. And the incoming distributors are very excited about the opportunity to significantly expand Fever-Tree's presence across both existing and new channels and buying outlets. It's early days, but the brand has already contributed meaningfully as the key driver of positive brand mix in the Americas.

And while Fever-Tree is already the world's leading supplier of premium carbonated mixes with the #1 tonic and the #1 ginger beer by value in the U.S., we believe we can accelerate its growth in the U.S. over time by leveraging the scale and strength of our distribution network, combined with our marketing capabilities.

Now before I pass it to Tracey, I'll sum it up to say, it's been a difficult start to the year, but we viewed beer as resilient. And amid a challenging macro backdrop, we are focusing on what we can control to position our portfolio and our business for long-term success.

That means keeping our core power brands healthy, continuing to premiumize in EMEA and APAC and Canada and successfully executing our plans in the U.S. Leveraging our deep capabilities across our organization to support premiumization and focused innovation, supply chain efficiencies and commercial effectiveness and utilizing our enhanced financial flexibility to prudently invest in our business and return cash to shareholders.

And with that, I will pass it to Tracey.

Thank you, Gavin. We are very pleased with the health of our balance sheet and our strong cash generation. and this is particularly important during a challenging macro environment as it allows us to continue to invest behind our brands to help ensure their long-term health, to continue to make capital investments that support our growth initiatives and cost savings plans and to not only pay what we view as a competitive dividend, but also execute a meaningful share repurchase program as we continue to believe our stock is a compelling investment.

In fact, we have raised the quarterly dividend each year since 2021, and we have actively executed our current share repurchase plan since it was announced in October 2023. We have repurchased 9.4% of our Class B shares outstanding. It's an up to 5-year $2 billion plan, and we have utilized almost 55% in under 2 years. For perspective, if we had executed it on a straight-line basis, we would have only utilized 35% of the plan so far.

With that, let's discuss our financial outlook. First, the impact of the global macro environment are multifaceted and difficult to predict. And while we have included in our guidance, our best estimate of some of these factors, external drivers may significantly impact our actual results either up or down.

As it relates to tariffs, as we have previously said, while we are a global business, our products are generally made in the markets in which they are sold and with locally sourced ingredients. So we don't expect material direct impact from the known tariffs on our input costs. That said, tariffs do have indirect impact, but the recent spike in the Midwest premium pricing. While our extensive hedging program can help to mitigate some of the impact due to the barrels of our program, we are never fully hedged.

Further, given its opaque pricing at a time limited liquidity, hedging the Midwest premium can be difficult and expensive. And for these reasons, the Midwest premium is one of the commodities for which we currently have the least amount of hedge coverage.

With that, let's discuss the drivers of the guidance Gavin outlined. Our top line guidance range now assumes the U.S. industry is down 4% to 6% for the second half of the year. Our price mix assumptions are unchanged. We expect an annual net price increase of 1% to 2% in North America, in line with the average historical range. We expect mix benefits from cycling contracts growing from 2024 as well as from premiumization.

We expect to grow above premium net brand revenue in EMEA and APAC and Canada as well as make progress on our U.S. above premium initiatives. Fever-Tree and the consolidation of ZOA are incremental to the top line, but we are also starting the divestiture of the smaller regional craft breweries in the third quarter of 2024. And more significantly, 2024 PA and the bad contract brewing volume as these contracts terminated at the end of last year.

We expect the related Americas contract billings headwind to be 1.9 million hectoliters in 2025. In the first half, we cycled over 1.1 million hectoliters, and we will cycle over 450,000 hectoliters in the third quarter. Also, last year, we had higher than typical first half inventory build related to the Fourth West Strike, which ended in mid-May. As a result, STW's outpaced SCR by 1.1 million hectoliters in the first half of last year.

This year, STW outpaced STRs by 800,000 hectoliters in the first half. So year-on-year, we had an approximate 300,000 hectoliter shipment timing headwind in the first half that we expect to reverse in the second half and mainly in the third quarter. Note that we did have some shipment trend catch-up to STRs in the second quarter, which had an approximate 150 basis point positive impact on U.S. financial volume in the quarter. We had previously not expected to build higher than last year given the cycling of the Fourth West Strike. Other, we were able to ship further ahead of STRs than expected due to the softer-than-anticipated industry demand.

For a detailed review of these U.S. shipment trends, please refer to Slide 21. Moving down the P&L. We expect mix benefits from lower contract brewing and increased premiumization as well as productivity improvements and cost savings to now be more than offset by higher volume deleverage given the industry volume trends as well as higher Midwest premium costs. For the full year, this would result in Midwest premium costs exceeding the prior year by $40 million to $55 million. We now expect MG&A to be down slightly for the year as we now anticipate lower incentive compensation due to the adjusted outlook for this year.

Also, and to a lesser degree, the Fever-Tree onetime transition and integration fees were less than expected, totaling approximately $50 million in the first half of the year. Again, these fees will be recovered through net sales over the next 3 years beginning in June.

As for marketing, our plans are unchanged. We intend to continue to put the right commercial pressure behind our key brands and innovations, including our core power brands, Peroni, the Blue Moon family, Madri and our non-alc portfolio. While marketing investment was down in the second quarter, slightly up spend in the prior year period, we expect it to be up in the third quarter due to the timing of our commercial plans and lower spend in the same period last year.

As a result, we expect marketing investment in the peak summer months to be consistent with prior year period levels. We are also slightly adjusting our net interest expense outlook. We now expect $225 million plus or minus 5% as compared to $215 million plus or minus 5% previously. This is driven by lower cash balances, including the impact of higher share repurchases as well as foreign currency impact. And lastly, we are reaffirming our underlying free cash flow guidance of $1.3 billion, plus or minus 10%.

In closing, with a strong global brand portfolio, healthy balance sheet and strong cash generation, we are confident in our ability to navigate these challenging times while supporting the long-term health of our business and brands. 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 even more cash to shareholders.

With that, we will take your questions. Operator?

[Operator Instructions] Our first question today comes from Peter Grom with UBS.

Thanks, operator, and good morning, everyone. I wanted to touch just on the updated guidance. Can you maybe just unpack the moving pieces a bit more clearly the top line is a bit pressure here, which we can see in the data. But can you maybe just unpack the profit headwinds and specifically aluminum and kind of the Midwest premium, and I guess, as we look out to the back half of the year, how does the kind of updated guidance impact the second half performance? And I guess related -- still early, but are there any implications that we should consider today as we look out to fiscal '26.

Thanks, Peter, and appreciate the question. Look, from an updated guidance point of view, I would put it on 3 things, right, that we did not anticipate the last time we spoke. One in the industry did not get better as we were expecting it to. We had expected it to navigate back to where it's been for the last few years of around down 3, and it didn't.

And certainly, consumer confidence and the macro environment whilst we continue to believe very strongly that it is cyclical. We're not seeing any signs of that changing in the balance of the year, and it certainly didn't in the second quarter. So that was probably the biggest driver. Obviously, we did not expect the dramatic increase in the Midwest premium of 180%. And we've talked a lot about that, and Tracey can get into more detail on the difficulty of hedging and forecasting that.

So that obviously played a pretty significant negative role in our Q2 balance of the year assumptions. And frankly, our share performance did not meet our expectations. So the first two, I would characterize as somewhat out of our control and the third one is within our control. And our share performance wasn't what we had expected. It stayed relatively same as it did in Q1, and we had expected an improvement.

And our estimate of our share performance was a little better than what you might see in Circana and so on because our on-premise performance is better. And so we estimate we lost about 50 bps of share in the second quarter. And we've made the same assumption for the balance of the year. Now obviously, we're working very hard to change that. But from a guidance point of view, we've assumed a little change in our share performance.

From a sort of second half and I think that sort of covers the second half. But from a longer-term point of view, Peter, we still believe, as we said in our remarks and I think the environment supports that is that the current industry to decline is cyclical. Consumer confidence will turn, I don't know when, but it will turn. And the Midwest premium will revert back to the mean from these extreme moves that we've seen, both of which have had a pretty negative impact on our business this year.

We've got a very strong balance sheet. We delivered really strong cash flow, as you heard from Tracey and our updated guidance did not change that We continue to be very pleased with how we've retained the majority of our market share on our core brands. Coors Banquet is on fire. Our non-ALC strategy is coming together with the acquisition of Fever-Tree and all of that is incremental in the second half. and we'll still have incrementality obviously, next year as well.

It provides a nice halo effect to ZOA. Peroni, our plans kicked in, in the second quarter and brands doing very, very well. And Canada is holding its own from a market share point of view and Molson Canadian is doing well. Miller Lite is doing well. Coors Originals doing well as we head into next year. And when you look at EMEA and APAC our premiumization strategy is doing very nicely, led by Madri and frankly, others. If you look towards the balance of the year, this year, contract brewing headwinds become less and less as we head towards the end of the year.

And in the fourth quarter, I don't think we've got any real headwinds from a perhaps point of view to speak of. We obviously still have the FICO headwind. And then next year, that all goes away, right? So we will have no headwinds from contract brewing Tracey spoke about the shipments in the back half of the year. And whilst we did get some of that into the second quarter, which we weren't anticipating given the performance of retail sales. We do get the rest of it primarily in the third quarter. And in EMEA and APAC, we're expecting to perform better from a top line point of view as we head into the back half of the year during the environment. So Tracey, did I forget anything?

No, I think you covered it all.

Our next question comes from Chris Carey with Wells Fargo.

I wanted to follow up on a couple of areas there. One is just a clarification. Tracey, the impact from Midwest premium increases that you're expecting for the year? Have you seen any of those increases in Q2? Or is that all in the back half of the year? I'd just say that in the context of the Americas inflation in the quarter was fairly poultry. So I just wanted to confirm that piece and how we think about the aluminum inflation perhaps more on a 12- to 18-month time frame.

And then just following up on the overall category. I think there are certainly a number of reasons why we may view what's going on cyclically? A lot of categories and consumer are dealing with sluggish trends. The question I would have, though, is volumes in the beer category have been soft going back to 2022.

Obviously, the category leader dealt with a pretty substantial headwind, but nevertheless, I wanted to just test that confidence level around this being cyclical versus perhaps changing in consumption and habits and how you reconcile or get comfortable with that concept and it's kind of a category that's been a bit softer over the past few years. So thanks on those appreciate it.

Thanks, Chris. Tracey, if you wouldn't mind taking the Midwest Premium one, I'll talk a little bit more about the category and our belief in it. Look, I think from a consumer confidence point of view and the impact that had on consumers in a number of different ways, Chris, took place towards the back half of January and early February, right?

And I mean it's clear that consumer confidence took a hit at that time and frankly, hasn't recovered. So we continue to believe that over time, that will change. I mean, it could be sooner rather than later or it could be in the same time period next year. The items that have been impacting the overall alcohol category, like I've often heard GLP-1s talked about.

I mean we don't have a lot of data that suggests that that's having any meaningful impact on either the alcohol category or our category at this point. The other item that gets talked about is D9. And I think the impact of D9 does vary by market. And in some markets, it's not sold. In others, it carries strong restrictions.

And so that's certainly an area that we continue to monitor the impact of that. I think consumer confidence has had a disproportionate impact, as I said, across some consumers differently to others. And again, we believe that, that is cyclical. Tracey, do you want to add anything on Midwest premium?

Yes. So Chris, so look, I mean, no one expected the Midwest premium to increase 180% from the beginning of the year. So for us, even though we are somewhat hedged because it is such a difficult -- it's not transparent. It's expensive to hedge. It is a commodity that we -- the least amount hedged.

But as it equates to the balance of the year, I mean, we're expecting an incremental $20 million to $35 million of Midwest impact for the balance of the year. So that's around $0.60 to $0.75 a pound. Our full year impact is between $40 million and $55 million.

And again, that's just the Midwest premium. From a rest of a commodity point of view, our hedging program is very expensive, and we expect very little impact from tariffs. But these indirect impacts, specifically the Midwest premium is just a problem because it is so difficult to hedge, and it just doesn't follow normal market dynamics.

And then just to tie a bow on the industry, Chris. I mean, our acceleration claim strategy is designed to address some of the areas where we believe that there is an opportunity, right? So our Beyond Beer strategy from both a non-alc beer point of view and also from a non-alc point of view is obviously a fair fairly close tie-in between Fever-Tree from a mixer point of view and alcohol. And so that's an area that we're leaning into and feeling really good about the initial progress that we've made on Fever-Tree. So our innovation strategy and our brand portfolio strategy is designed to address consumers' changed consumption habits and differing occasions.

Our next question comes from Andrea Teixeira with JPMorgan.

I appreciate your comments on the consumer confidence potentially improving. Now I'm curious to see if you're seeing any green shoots because all we hear from your peers and retailers is that, obviously, with inflation hitting harder in the second half with tariffs, we could see things getting worse before they can get better.

So can you comment on the exit rate for consumption in North America and Europe? I know from your slides, and I appreciate the details there, you're still running STWs against STRs at a higher level. So I was hoping to see if you can help us with the cadence as we incorporate your new guide.

Do you want to talk about shipments perhaps, and I'll just talk about how we're seeing the consumer health by market. In the U.S., Andre, candidly, we have not seen an improvement in overall consumer confidence or behavior.

So we have not seen that yet. And we are continuing to see value-conscious consumers engaging in some channel and pack shifting as we've seen previously, certainly buying more singles and large packs and less of those mid-packs. But that certainly has continued. I mean we obviously serve a very broad set of consumer demographics across many income levels without with our portfolio. And we think we've got a portfolio that meets everybody's needs.

So no, we haven't seen much change. The environment is impacting all consumers in one way or another. We do see the Hispanic consumer is disproportionately impacted by the overall macro environment. If you look north of the border in Canada, I mean inflation has eased over time. But consumers up there also remain cautious about spending and ongoing concerns around housing and food costs and while interest rates have stabilized, I think there is a more global concern around trade tensions and tariff-related impacts.

So whilst Canada beer industry volumes trends have been somewhat similar to the U.S., they've performed slightly, slightly better. In the U.K., the consumer confidence index remains negative. We did see a little bit of an improvement in May. I think this is it more broader optimistic view of the overall economy in the U.K. And, but overall sentiment, I think I would say, remains cautious. And then in Central and Eastern Europe, certainly, that consumer is probably being impacted more than most given the significant political and socioeconomic issues that are impacting the Central and Eastern European markets. So that's sort of a run through of our markets and how we're seeing consumer confidence. Tracey the shipments?

Yes. So in terms of the first half of the year, our shipments did outpace our sales to retail by 00,000 hectoliters in the first half was about 1.1 million hectoliters. So there's about a 300,000 hectoliter to reverse in the second half of the year. Most of that will be in Q3 and as always, we plan to ship to consumption. So we expect that to converge but as I say, mainly in Q3.

Our next question comes from Bonnie Herzog with Goldman Sachs.

I just had a quick question on pricing and then the promotional environment. I guess, given the pressures on the category and consumers, how are you thinking about pricing for the remainder of the year? Also, what about the promotional environment? Are you seeing signs of levels increasing recently and how you expect that to play out?

Thanks, Bonnie. Look, I mean it's quite common to see Horton competition with strong promotional activity during the summer. And you see that easing up in the shoulder months. And we've seen that in prior years, and we're seeing that again. And we just take a strategic approach to how we evaluate the competitive environment.

From an overall pricing point of view, the historical average, as we've said before, range is in that 1% to 2% range. And we expect that to fall in that range again this year. Whilst we have seen the impact of the economy, consumer confidence having consumers searching full value, any trading seems to be coming in channel and pack shifting, not necessarily in segment trade down.

Our next question comes from Filippo Falorni with Citi.

I wanted to follow up on the margin question on the Midwest premium for the second half. If I take the, call it, $20 million, $35 million incremental Midwest premium cost is still a relatively small headwind to margins. So maybe, Tracey, can you talk about like the other drivers of the big margin contraction that is embedded in your guidance in terms of volume deleverage, SG&A for the back half of the year?

And then just a follow-up on top line, Gavin, you mentioned the on-prem is performing better than what we see in track channel data. So can you give us a perspective of how July played out relative to your expectation, including the on-premise business? We see still soft trends, especially around fourth of July in track channels, but I'm curious at the total company and total industry trends, including on-premise.

Tracey, you'll handle the margin one. I'll just quickly deal with July in the on-premise. I mean look, from a July point of view, as we say every time on these calls, right, we've only got a few weeks of the following quarter in the books. So let's see what happens for the balance of the quarter from an overall industry and outperformance point of view. From an on-premise point of view, I know we've talked a lot about Blue Moon over the last couple of years. And we are starting to see improvement in the on-premise. Belgian White's STR trends improved 6 points in Q2 versus Q1, which is very encouraging given that brands are built and expand from the on-premise out. So we're pleased with that.

Peroni is obviously playing a role in that as we implement the plans we've talked about for a while now, which kicked off in Q2. So that's been a positive catalyst for us as well. And then Coors Banquet, just remains on fire as it gains distribution, both in the on-premise and the off-premise. So I would say that those are the 3 brands that are having the most positive impact for us in the on-premise.

Tracey, do you want to get into that a little bit more?

So then when you say, look, from a margin point of view, we don't specifically give gross margin guidance. But just to note, our underlying gross margin percentage has improved in each of the last 2 years. But a couple of things as we look at 2025. So we've spoken about the top line. In terms of the COGS, we do have the deleverage headwind driven by the contract brewing, which we've discussed. And we also have higher premiumization, which drives higher COGS across our business units. We have spoken about the Midwest premium. And although we do have productivity improvements and cost savings, these are more than offset by the deleverage and premiumization as well as the Midwest premium. .

Our next question comes from Rob Ottenstein with Evercore ISI.

Great. So Gavin, a pretty pessimistic view on second half volumes for the industry. And I'm assuming that July was pretty bad. And this is in the face of, I think, easier comps given how bad the weather was last year. So I guess what I'd love you to help us think through, assuming that does play out the way you're guiding to, what are the impacts on the industry and how can the industry address that? So are you starting to see pressure, for instance, on shelf space, not for you specifically, but for the beer industry as a whole as retailers start to look at the fall and shelf set changes and into next year and how you may be combating that?

Any impact on, not just yours but industry brewery footprint, the potential for some sort of consolidation of volumes and maybe doing a reverse, doing more contract brewing instead of letting contracts go actually maybe bring more in to keep brewery utilization going given the high fixed costs of breweries and dependence on volumes. So just love to get your thoughts on industry action, your reaction to these unprecedented volume declines.

Thanks, Rob. Yes, a lot of questions in there. So let me try and take them off. So from a comps point of view now, July had easier comps, but the rest of the year did not, if you remember correctly. So yes, there was poor weather and the industry was pretty tough in July of last year.

So the comps are a little softer in July. Going forward, they're not. They're actually the industry improved quite vastly heading into the balance of the year from about August onwards. So the comps don't get easier from an industry point of view, they get tougher. And obviously, we've built that into our thinking as we put the guide out there.

From a shelf space point of view, look, from a -- from our point of view, we obviously had a significant uptick in 2024 in both the spring and in the fall of 2023. We held on to those games. And so we finished 2024 significantly higher than we did in 2023. And again, in the spring of this year, we held on to those Shelf Games and Banquet again was a particularly strong beneficiary of that, we gained strong double digits.

And we're not expecting to see a significant activity for the fall of 2025 based on what we're seeing and what we're hearing. And frankly, we would know if it was different by this time, where retailers have made shelf changes to accommodate other brands they've made in the flavor space and the craft space primarily, I would say, they haven't paid them in the traditional beer space.

From a brewery footprint point of view, obviously, our capacity utilization varies by season. So in the summer, we're fully utilized and in the shoulder periods, not necessarily. I would tell you that removing PAPs from our system is very, very helpful. It has allowed us to remove a lot of complexity. It's allowed us to free up capacity in the summer. It certainly helped our decision to onshore Peroni which we have now completed and it's completely onshore. And obviously, we see a big opportunity for Peroni and we're starting to see that benefit coming through in the second quarter.

I've often said and look forward to seeing in the future that Peroni can. There's no reason why comp as big as its other European competitors. And we certainly gained meaningful share versus our European competitors in the second quarter now that our plans have kicked in. It has -- it allowed us to tidy up our footprint by closing a couple of smaller breweries.

So we were able to tidy that up. And it certainly allowed us to bring Yuengling. And our Yuengling relationship into our business and producing in a couple of breweries and this will allow us to expand further with Yuengling when the time is right. So as it relates to the brewery footprint, we're pleased with our brewery footprint. And yes, I think that covers off on all of Rob's point, Tracey.

Our next question comes from Eric Serotta with Morgan Stanley.

Great. Good morning, everyone. Wanted to first ask you, Gavin, in terms of recent market share trends. Clearly, the cost premise trends at least have weakened vis-a-vis your largest competitor. I know you called out better on-prem trends, but are there any changes to your marketing or go-to-market strategies that you're implementing or contemplating in light of what seems like a resurgent competitor, at least for 2 of their main brands?

And then for Tracey, a couple of housekeeping items. Could you help quantify how much the incentive comp reversal was? Was that all in the second quarter? And then in terms of the free cash flow, how much of -- sort of how much of the bridge between the earnings reduction and their free cash flow reiteration is the cash tax and working capital? And all else equal, with the working capital benefits reverse next year or are these sustainable? I know there's a lot there, but, thank you.

Thanks, Eric. Yes, I love beer. Let me see if I can answer that. Look, I think from an overall share point of view, I think I'd start by saying that our total Molson Coors share trends in the U.S. now I'm talking specifically in the U.S. has improved each quarter since the third quarter last year, right? So Q3, we were down about 100 basis points. Q4, we were down about 70, Q1 was down about 60, Q2 is about the same, right? And if you peel back the envelope as to where we are losing that in Flavors and [indiscernible] is the biggest part of that decline.

And so -- we are seeing some improvements in Topo Chico. It's not enough to offset the declines that we're seeing on Simply and Vizzy from an economy portfolio point of view, that's roughly about another 1/3 of the decline. And obviously, our 2 focus brands in the Miller High Life and Keystone Light are showing better trends and then the number of total brands that we still have in that segment.

And then core, right? We talk and I have talked a lot about our core share attention because it's factually correct, we have retained 10 points of the share that we gained in 2022, and it is meaningful. Banquet continues to be the star of the show there. it's up another 20 basis points in Q2. And it remains one of the fastest-growing major beer brands in the U.S.

In fact, it grew in all 50 states plus Washington D.C. in the first half of the of the year. So we are very pleased with the Coors Banquet's performance. What are we doing about the rest? Well, as we head into Q3, we're focused on driving our Miller Lite 50th anniversary campaign. We're going to execute strongly behind our NFO alliance presence. We have a relationship with a number of NFL teams. So you'll see us in all channels. We'll see incremental media pressure, particularly in our Great Lakes geography. We're going to be executing against our Coors Light.

College programming with our ESPN Game Day partnership, and we're going to continue to put the accelerator down on Coors Banquet's momentum with the start your legacy program. From an Above Premium point of view, I've talked a lot about Peroni and Madri from a Blue Moon point of view, we are working very hard to change the trajectory of that brand. And we are, as I said earlier, seeing green shoots starting to show up in the on-premise, and we're seeing good performance behind our innovation, particularly Blue moon, non-alc, but from a higher ABV point of view, obviously, our strategy behind Blue Moon and Simply and Topo Chico and the convenience stores is something we're putting effort behind starting in the second quarter. So big important brand for us. It's a top priority for us in above premium, and we remain very committed to turning it around. I think that was all. Anything you want to tell?

Yes. So Eric's comment and incentive compensation, we accrued for incentive comp throughout the year. And then based on our adjusted outlook for our guidance. We have reversed a large portion of what we had accrued in the first half of the year. In terms of the free cash flow, look, the cash tax benefits that we've got as well as the working capital largely offset the profit shortfall. And then if you recall, when we had our Q1, we our capital spend by about $100 million. So that gives us the free cash flow of around $1.3 billion, plus or minus 10%, as we have guided to.

Our next question comes from [ Peter Galbo ] with Bank of America.

Gavin and Tracey, thanks for all the detail in the deck, very helpful. Tracey, I just wanted to go back maybe to Filippo's question, particularly around the volume deleverage piece. I think it was about a 300 basis point impact in the first half. And I know that you kind of gave some high-level commentary on where it would be for the year. But was just hoping to unpack that a bit more as we think about the second half and the year specifically, how we should think about the volume deleverage impact?

Yes. So in terms of our outlook for the year, what we had said is that STW's outpaced the STRs by about 800,000 hectoliters in the first half of the year. We always plan to ship to consumption. And so there's going to be about $300,000 or so that we will reverse in the second half of the year. Maybe in Q3, because last year, for the first half, we did ship more than the retail by about 1.1 million hectoliter. So the difference between that is about 300,000 hectoliters, which we expect to reverse. And then, yes, because we plan on shipping to consumption, we expect most of that to converge by the end of the year, but mainly in Q3.

Our next question comes from [ Bill Kirk ] with Ross Capital Partners.

So my question, since pre-COVID since 2019, you have more market share than you did. Your earnings per share are much better than they were, but the stock price doesn't really reflect those improvements. So I guess the question is, if you aren't getting credit for market share gains, the profit growth in your current categories, so something needs to strategically change? And then when underlying COGS per hectoliter are up mid-single digit or more, why only take a 1% to 2% price increase?

Thanks, Bill. Look, from our -- the first part of your question, I mean, obviously, and we've said this before as well, is we believe that our business is a very attractive investment at these levels, and we continue to demonstrate our belief by buying back significantly ahead of the authorized Board program from an overall category point of view, I'm very pleased with our acquisition of the U.S. business of Fever-Tree and the integration is going well, and our volumes are exceeding our expectations from a business case point of view, our distributors are excited about it.

And it really does give us a nice footprint from a non-health point of view, and we believe a halo effect to our other non-ALP activities. The pricing, Yes. I mean, look, Bill, we obviously look at pricing from a -- every single market is different. Every state is different. Every brand is different. And we obviously take any number of factors into account, not only input costs, but also consumers' behavior and receptivity to price increases and so on. So we've got a very robust revenue management program, and we will continue to do what we think is best for our brands in every single market.

Our next question comes from Robert Moskow with Katie Cohen.

Thanks for the question. in the past couple of years, the productivity gains at Molson Coors have been substantial and helped offset a lot of the negative impact from volume deleverage, but now it looks like the volume deleverage is accelerating and you've had to call down your guidance. Tracey and Gavin, at what point do you have to take another look at your asset footprint both in terms of manufacturing and distribution. And with volume declining at this pace, will you have to take another look at that and maybe make more reductions.

Thanks, Robert. I mean, look, I mean, from a capacity point of view, we're pleased with our brewery footprint. We have obviously really strong utilization from a capacity point of view in the summer months. We've removed contract brewing from our system completely, which is why we're we have that headwind and have had the headwind all year, that obviously starts to tail off as we head into the back half of this year. But not much more I can say than what I said earlier, Robert.

I mean removing pass from our system has proven to be very helpful. It's allowed us to take a lot of complexity out of our system. It's allowed us to change things from a shift configuration point of view, from a line point of view, from a temporary labor point of view, it's overall from a brewery footprint point of view, been very positive for us.

And it's allowed us to bring Peroni in, which, as I said, is growing very nicely, and we hope to have that brand as a big brand in the future. And it's allowed us to support our Yuengling partnership, where we've got a very successful launch in Illinois this year. So we're pleased with our brewery footprint, I guess, is the summary.

Our next question comes from Michael Lavery with Piper Sandler.

I just wanted to come back to the guidance update and the EPS bridge. The Midwest premium has gotten a lot of attention, but as you've called out the math, it's maybe 1 to 2 points of the 10 or 13-point to cut the EPS growth outlook. And you've got some stepped up buybacks as well. what are the missing pieces, I guess?

And if you've said what's new is Midwest premium, the category trends and then your share expectations, is it just all of that and the operating deleverage that we've covered a bit? Or is there other inflation we should have our eye on as well? Or you mentioned the interest expense change, that's also quite modest. I mean, Help us maybe figure out if there's any other moving parts here? Or if just the top line flow through is that significant?

Michael, yes. So look, I mean, -- there is some marketing timing. We do expect to spend similar levels of marketing in our peak summer selling season as last year. So that's one thing. But the other thing is -- remember, our EPS is not in constant currency. So we do have foreign exchange impacts to it. And as the dollar weakens, there will certainly be a tailwind. And then the other thing that goes into it is tax. Now we have kept our effective tax rate guidance at the same level as what we had previously. But those could be 2 items that do impact our EPS. But yes, just probably to call out that although marketing was down in Q2. We do expect it to be up in Q3 because of some of the timing of our commercial plans and also cycling lower spending in prior year.

Our next question comes from Lauren Lieberman with Barclays.

So I know you talked about the softer U.S. share performance in the release. And I was just curious to kind of talk a little bit more about that. given the competitive premium light space these days. And like are there any specific regions in the U.S. where you're seeing underperformance? And I know you said the guidance for the second half seems the share trends kind of are consistent. You just commented on our marketing. But I was curious about plans to defend share in the second half and beyond? Like is there a point where you'd consider addressing pricing? Is it a matter of more marketing? Or is the view more like don't over spend into a soft market backdrop?

Yes. Thanks, Lauren. Look, I mean, we're obviously very thoughtful about how we spend our marketing, and we turn it over quite carefully. But certainly, we're seeing really pleasing momentum in a number of our brands without wishing to repeat myself too much, right? I mean we're seeing strong momentum behind Banquet Peroni. And we've got our non-al portfolio coming in, Fever-Tree, we're spending more money behind it. Madri in our other markets has performed very well. So notwithstanding the current overall macro environment, which we, as I said, believe is cyclical.

We're going to continue to invest behind our brands so that when the tide turns, they're in the best position that they can be. I talked a little earlier on about some of the areas that we're focusing in on our core brands, not only Banquet, but also Miller Lite and Coors Light, and we're going to continue to support those. But you can be assured that we turn over every marketing and sales dollar carefully for effectiveness before we spend it.

Our next question comes from Carlos Laboy with HSBC.

Yes. Good morning, everyone. Can you come back, please, to the cash offsets that you mentioned earlier. You mentioned tax benefit. That was another one. If you could expand on both of those, please, it would be helpful.

Yes. So we -- for our free cash flow, we've received some cash tax benefits this year as well as some working capital improvements. So that has enabled us to keep our free cash flow guidance at the $1.3 billion, plus or minus 10%. Those are the 2 items that we mentioned in particular.

The biggest driver there, obviously, is the benefit coming out of capital deductibility one big beautiful but point of view.

Our next question comes from Nadine Sarwat with Bernstein.

I know we've talked a lot about the U.S. So I'd actually like to turn attention to EMEA and APAC. Your financial volumes were down close to 8%. And I know you called out weakness in a number of the markets. But could you provide perhaps some additional color by region? So how is the U.K. business doing versus your other markets? And then how do you view this segment performing over the remainder of this year specifically?

Thanks, Nadine. Look, I mean, the market in the U.K. continues to decline, declines in both channels. We have seen a little bit of a category improvement Q-to-date, starting to see some trend improvement in our share trajectory. That has been aided by the benefit of the Easter shift, right, which moved out of Q1 and into Q2. And I know you live in the U.K., so that you will know that the weather has been particularly good in the U.K.

We are expecting those figures to show a somewhat greater decline once we've got June data in because I think we're lapping a big football tournament from last year. So there is that going on. Competition in the marketplace, it remains intense, frankly. And despite the increase that we've seen in promotional frequency in the off-premise with our largest brand. It does remain challenged given the actions of some of our competitors, which we have chosen not to follow. I mean we're seeing some of our competitors in that space price consistently 20% lower than calling on shelf.

So that's certainly challenged us from a main brand point of view. Our Madri volume growth, it continues. It's up again mid-single digits in Q2, and we're going to continue to put the right level of commercial support behind those brands. If you look across the water into our Central Eastern European business, look, there's no doubt that the overall beer industry remains sluggish in this market. It's driven by another decline in consumer confidence that began at the end of 2024 after we've seen some improvement.

And those factors that are driving that are well understood and well known from a global political point of view and local, social and economic tensions that exist there. We have seen a higher promotional activity across most of the markets. We have had some challenging customer negotiations as well, which are now resolved.

And so all of those factors impacted our volume performance in the first half of the year. We continue to remain optimistic about the growth potential for our Central Eastern European businesses. We're putting investments behind our national power brands and we're supporting the recent launches that we have in the above premium space with -- we launched Madri in Bulgaria last year, and we launched it in Romania this year. And both of those doing very nicely.

We launched Coors in Hungary, which is doing well. And our innovation in the beyond beer space for example, [indiscernible] cider in Serbia and Bulgaria, and Montenegro and Croatia is also doing is also doing well, although early days. A real success story for us is our premiumization in our EMEA and APAC business, and you can actually see that in the mix benefits, which we got in APAC in the second quarter, I think that's generated almost 490 basis points of positive mix for us. So Nadine, that's kind of a quick high-level run through our European business.

Our next question comes from Gerald Pascarelli with Needham.

Great I had a question on capital allocation. Just -- given these volume declines, if industry volumes and then your own volumes remain lower for longer, as you think about this business long term, do you believe larger-scale M&A or more aggressive bolt-on M&A may be necessary to just expedite your portfolio towards more attractive subsectors and beverages, whether it be more nonalcoholic exposure or exposure to above premium brands, et cetera. Just looking for any color or thoughts around how M&A or evolving M&A just fits into your capital allocation strategy?

Thanks, Gerald. Look, from an M&A point of view, I think we've been very clear about how the string of pearls approach has worked for us. And the early days when we still had somewhat of a challenged balance sheet with a higher leverage ratio. Those pearls were relatively small. As we've put ourselves in a really strong position from a balance sheet point of view, I'm very proud of the work that the team has done to get the balance sheet where it is after the last 4 or 5 years.

That has allowed us to look at slightly bigger pills. And certainly, the one we did this year with Fever-Tree is very strongly supportive of our overall strategy. And there's a much bigger pearl than we perhaps would have considered 5 years ago when you add everything up from a from a working capital point of view and a distribution point of view and our investment in Fever-Tree. That number was well north of $100 million. So we remain committed to our string of pearls approach. Obviously, beyond that, I'm not going to comment on any M&A, but very pleased with the progress that we've made with Fever-Tree so far.

Our next question comes from Kevin Grundy with BNP Paribas.

Great. Thanks. Good morning, everyone. I was hoping to get an update on the CEO search process, given Gavin's plans to retire. By year-end, of course, you will be missed. But any update there just in terms of where that process stands? Any comments on internal versus external candidates, attributes that the Board is looking for? And perhaps maybe how that's evolved a bit given the demands of the current environment. So any comments that you can offer to folks, I think, would be appreciated. Thank you very much.

Thanks, Kevin. I appreciate the kind words. Look, I mean, the process is well underway. The Board has made significant progress. Obviously, it's navigating the process very thoughtfully given my planned retirement by the end of the year. In terms of capabilities, the Board is paying a lot of attention to both relevant business leadership experience along with a cultural fit. Obviously, I'm very proud of the culture we've built here at Molson Coors. It's really it's very special. As we've said previously, it's very common for companies of our size to look at both internal and external candidates for a CEO position.

And that's what our Board is doing. Doing at the moment. They remain supportive of our current long-term strategy. Obviously, I would expect any new CEO to put their own stamp on the company. So that's the update, Kevin.

Thank you. Those are all the questions we have today. And so I'll hand the call back over to Gavin for closing remarks.

Thank you, operator. Appreciate that. Appreciate all the questions. I'd like to close by thanking our Molson Coors team and our partners for their continued support behind our business and our brands. I continue to be very proud of the dedication and commitment of our over 16,000 employees are incredible partners and our best-in-class distributor network. I'm confident that together we can navigate this challenging environment and certainly emerge stronger with this team behind us. So thanks for your time today.

Thank you, everyone, for joining us today. This concludes our call, and you may now disconnect your lines.

Okay, everybody. Thank you. Welcome to our final session for the day. I am thrilled to welcome back the Molson Coors Beverage Company to the conference. As I know, many of you know, Molson Coors is a leading global beer company with nearly $12 billion in annual sales, built at its core behind brands such Coors Light, Miller Lite, Molson Canadian and Carling, but it is increasingly moving far beyond both those brands and beer roots in general with growing ventures in spirits, flavored malt beverages and increasingly non-alcoholic beverages as well, as evidenced by the company's recent partnership with Fever-Tree.

With us today, I am thrilled to welcome back Gavin Hattersley, president and chief executive officer of the company as well as Tracey Joubert, chief financial officer. Tracey and Gavin, thank you and welcome back.

Thank you for having us.

Okay. So we're going to use the entirety of our time for Q&A, and we'll just jump right in.

And Gavin, I wanted to start with you as many in the room probably know, you've recently announced your intention to retire at the end of the year. So this will be your final time with us in Paris as CEO. So we're sad to see you go, but excited for your future. I guess as you reflect on your tenure, first as CEO of MillerCoors, and now as Molson Coors since '19, I guess, what would you say are the accomplishments you're most proud of? And what is your assessment of the company's positioning against future challenges and opportunities?

Yes. Well, thanks for having us again, Steve. Look, I mean, the thing I am most proud of, and it's -- I mean, it's probably less maybe important to the investment community, but it's really important to us is our people and our culture. We've been around for hundreds of years. And so our culture has been developed over a long time. And I think we've really made some great strides over the last 6 years. And I think that has allowed us to weather innumerable challenges that we've had to weather over the last 6 years, some of which other companies have had to weather as well, but some have been unique to us.

So I think I'll leave a legacy of great people, strong bench and a really cohesive and strong culture. So I feel really good about that. I feel really good about our balance sheet. I think our balance sheet compared to what it looked like when Tracey and I took over Molson Coors 6 years ago. It is in a substantially better place. Our leverage is below 2.5x. We've got a really strong capital allocation plan, which we've executed against, I think, very nicely. Our cash flow is substantially more than it was at that time. So I feel really good about that. And I think the legacy that I'm leaving for whoever succeeds me is from a balance sheet point of view is strong. We're making a lot more money, which is also pretty helpful.

Our core brands are in a great place. I think we've proved a number of our skeptics wrong, when we had the dislocation in the Premium Light space, and we've retained almost all of the share that we gained and we've certainly retained and actually gained a little bit more shelf space than we had got about a year ago, mostly through Coors Banquet, but Coors Light and Miller Lite have held their own quite nicely. So I'm feeling really good about that. We've launched the best innovation we've had in 25 years. It's a top 10 brand already for us.

Madri, it's expanded into a few other countries. We've got Peroni, which we're just about to -- and you will see it in the data that's out there, the public consumer data, Nielsen IRR, how Peroni starting to do what we said it was going to do, which is accelerated as we got all the stars aligned around that brand. And then of course, there's a move into the non-alc space. I think that the acquisition of Fever-Tree is exciting. This year is obviously a transition year for us as we bed it down in our network. But it plays a nice role in the intersection between alcohol and non-alcohol. And I think the opportunities through our distribution network are strong. So I can probably go on for a bit longer, Steve, and I think those are the high points. I'll cover that one.

Well, as you can see from Gavin's answer, he's not done yet. Still sprinting to the finish line. So in that context, we zero in on the here and now look to complete '25 against just a difficult backdrop. What are you most focused on in terms of making sure you get right, executing on over the balance of the year?

Yes. So I mean, you're right. It is a tougher economic environment, macroeconomic environment, consumer sentiments are tough. And so we're really focusing in on the pillars of our strategy. And so we are focusing and making sure that we don't drop the ball from a share point of view on our core brands. That we keep the momentum of Coors Banquet going. We've talked for a while now about the potential behind Peroni and we also talked about the fact that a lot of those plans we're going to hit in the second quarter. And they are hitting now. And so there's a lot of focus on Peroni inside our team to make sure that we execute appropriately, right?

I mean we've now got all the stars aligned on that brand. It's being produced in the U.S. So our cost of goods sold was a lot less. Producing it in the U.S. allows us to introduce SKUs that we haven't perhaps been able to use -- utilize before. The significant margin expansion that we've got from onshore, and we're now able to invest through additional marketing, which we're doing. And all of that has given us a really great story to take to retail, and we're seeing the benefit of that in substantially enhanced shelf space. And so a lot of focus going on that.

Obviously, bedding down and transitioning fee which is really important. I am excited about that brand. I think it really has the potential to accelerate our non-alc portfolio meaningfully. I think ZOA will benefit from that because we're putting a lot of extra -- a couple of hundred extra folk behind our non-alc activities. Who won't only be focusing on Fever-Tree, they'll also be focusing on ZOA. So I'm feeling really good about that. But now is the time for us not to drop a ball because we are busy transitioning across to largely our beer distributor network.

And that it's really important that we keep the momentum of our brand growing. North of the border, Canada, we've gained share for 8 consecutive quarters. So making sure that we keep the foot on the accelerator up there with brands like Coors and Coors Light and Molson Canadian is seeing a resurgence. Miller Lite, which plays in the above-premium space up there is doing really nicely, so making sure we don't drop any balls there either. So I'm pretty much, Steve, doing what I've been doing in my whole career right. I'm going to run through the tape and then head off.

Great. Because you were mentioning Fever-Tree, maybe I'll ask about it now, just -- what is the opportunity there that you see? I mean both for each brand individually and then as you say, the linkages between them and how they may sort of reinforce each other, especially with your distributor network.

Yes. Well, I mean, just at the very bottom of the pyramid, I suppose, is that we're -- we've taken on roughly 0.5 million hectoliters which is a meaningful size brand for our distributor network, and it's profitable. And that doesn't often happen when you try something new. So we've taken on an established brand. And I'm not saying it's going to be easier, but it will be easier than, for example, building a brand from the bottom up like we've had to do with ZOA. And with all the extra resourcing that we're going to put behind Fever-Tree at the same time, they will be focusing on ZOA. They will be focusing on Naked Life, which is the nonalcoholic cocktail that we've brought from Australia.

So we've now got critical mass in that non-alc portfolio. Our distributors know we mean business there. Their reaction to the RFP was very strong. They are clearly excited about it based on the their reaction. And I think the capability of our distribution network and the number of additional points of distribution that the optics that they're going to get to is going to be meaningful. It's also fairly underdeveloped, if at all, in the C-store chain, which when you couple that with our push into the higher alcohol space through singles, through Blue Moon and Simply and Topo Chico you layer on to that Fever-Tree. And I think we've got now an even better message to take to our C-store customers than we've ever had before.

Yes. Okay. Very good. So like a lot of companies, in general, and here at the conference, Molson Coors recalibrated lower '25 financial targets alongside calendar 1Q results. I'll -- Tracey, I'll have you weigh in here in a bit. But just, I guess, walk us back in time and kind of the major drivers of that revision. And as we sit here today, how do you see demand shaping up relative to your revised outlook?

Well, I mean, the singular big issue that we didn't have coming into this year is that we certainly didn't predict. I don't think anybody predicted that the industry was going to be as down as much as it was in the first quarter. We certainly didn't have a down 5 in our bingo card. And as we looked to that and as we looked into the future, we did see and our guidance is predicated on an improvement in that and getting back to not sort of where it's been for the last 3 years on an annual basis. But certainly, for the balance of the year, we saw migrating back to the sort of down [ 3 ] level, which is where it's been for the last several years. Why did we think that? Well, we had the data points in April, which showed that it had migrated back to 2%, 3%.

And if you remember, Steve, we had a particularly tough summer last year from an industry point of view. And certainly, that makes our comps June, July, August, a lot easier. And so when we factored all in -- all of that in and settling down of the consumer environment and sentiment. That's what we baked into our ongoing forecast. Now we saw that for April, we saw that for a couple of weeks in the beginning of May. And we've had some really tough industry numbers that have come out more recently.

I hate blaming the weather and don't yet have the data to blame the weather entirely, but I think based on the markets, which seem to have been most affected over the Memorial Day, they were the ones that had really poor weather, it was rainy in the Northeast and temperatures were 20 degrees lower than they were last year. And so once you've got a more fulsome assessment of what happened on Memorial Day, I'll be able to share it with you. Don't have that yet. But that certainly is the emerging hypothesis. There's a lot of what happened over Memorial Day weekend with...

Cold weather.

It was cold weather and wet.

Okay. Tracey, so building on what Gavin just ran us through, there are just a number of timing puts and takes this year in the outlook. Does general shipment versus depletion considerations that you've got cycling last year's contract. Brewing experts have talked about ZOA and Fever-Tree layering on. Maybe just help us with the kind of level set on those factors? And maybe walk us through the financial implications as we think about the balance of the year.

Yes. So a lot of puts and takes, as you say. So if we look at the volume that's coming out from a contract brewing point of view. That's 1.9 million hectoliters that we had in our volume last year. And so as we wound down the year, we had roughly in Q1 about 590,000 hectoliters that we were cycling, Q2 is a similar amount, about 570,000 hectoliters. And then it's sort of continues to decline to the balance of the year, where by the end of December, we would have cycled completely out of the contract brewing arrangement, which we're really happy with, by the way, but it obviously is a headwind from a volume and a deleverage point of view.

If I go back to the top line, we do have Fever-Tree, which is incremental. The consolidation of ZOA now is incremental. It is offset by, if you recall, we sold our craft breweries. So there's a little bit of a headwind from the craft breweries that's going to impact that. But we've got premiumization built into our top line. So Gavin spoke about our plans around Peroni. We've got Madri in the U.K. and now expanded into other markets that you mentioned, that's above premium.

Our Canada business is doing really well as well. Miller Lite up there is growing. Miller Lite, is an above premium brand up in Canada. So there's a lot of portfolio shifting. If you recall, we've got a medium-term target of getting to 1/3 of our brand revenue coming from the above premium side of the portfolio. And so about half of that we expect to come from beyond beer, which is things like Fever-Tree, ZOA flavors, et cetera. From a balance of the shipments, if you recall, we also -- we're expecting a strike in our Fort Worth brewery at the beginning of last year. And so we built up inventory going into the summer. That was around 1.1 million hectoliters for Q1 and Q2.

Q2 was about 350,000 hectoliters. So as we go through the balance of this year, we expect our shipments and our retail to converge, mainly Q3 and Q4. So comps will be easier. And then as we look at G&A, for example, our G&A, we're expecting that to be higher this year. With the transition of Fever-Tree, we had transition costs. We mentioned about $30 million in Q1. There's another under $10 million coming in Q2. And then marketing, we're going to continue to invest behind our brands, our core brands, in particular, but also around some of the above premium innovations, whether that be Fever-Tree, ZOA is getting incremental spend. Peroni, but the fact that we're onshoring that. It frees up a lot of costs. And so we're investing that behind the brand. And then brands like Coors Banquet, which just continues to grow, even in bad weeks, we're seeing good growth from Coors Banquet that will get incremental dollars as well. So that's how we're kind of looking at the sort of balance of the year.

Perfect. And as it relates to costs. You mentioned sort of the investment initiatives. But around -- remind us where you stand on key cost considerations from an input perspective, I guess, any updated thoughts around how you're managing through tariff-related volatility. and then the productivity on the offsetting side?

Yes. So from a COGS point of view, obviously, again, the deleverage of contract brewing is a headwind. Premiumization is also a headwind on the COGS side because generally, your above premium brands come at higher COGS that comes at a higher margin as well. So we're happy to take that cost. And then from a commodity point of view, we've spoken about our extensive hedging program. And from a tariff point of view, the work that we've done over the last number of years where we've actually diversified our supplier base and brought a lot of the sort of the input materials onshore. So we procured locally for local production in the local markets. That applies to the U.S. and to Canada. We import very little. The only impact that we have from I'd say from a commodity/tariff point of view is the Midwest Premium. I think everyone is really challenged and frustrated by the Midwest Premium because it sort of went through the roof as people just mentioned tariff, but there's no fundamental reason why it should behave that way.

We do hedge the Midwest Premium, but it's difficult and it's expensive, and it's very volatile. So that's the one thing that I would say is a headwind from a cost point of view. But otherwise from a tariff point of view, I think, we've isolated ourselves pretty well. And so from an input cost point of view, we don't expect tariff to have a material impact. Now that's input. Obviously, as it relates to consumer sentiment and inflation, and that's something that we're watching. And every day, it's a little bit different.

Okay. Gavin, Tracey mentioned sort of the above premium initiatives that the company has and premiumization within -- I was going to say within your alcohol portfolio, but within your portfolio overall has been a big theme. In the current environment where we've heard a lot about value-seeking behavior amongst consumers, does premiumization -- does the role of premiumization change at all in how you think about initiatives and allocate strategic capital?

No, it doesn't. It's an important component of our overall strategic pillars and arguably even more important for us to really get a bigger share of our net sales revenue into the above-premium space. So it doesn't change our focus or dilute our focus at all. From a consumer point of view, we've not seen much change in behavior from -- certainly from a brand point of view, folks are not trading down in any noticeable way from a brand point of view.

Now they might be making slightly different pack decisions. But certainly, it's not changing our focus. Tracey mentioned that we're going to push hard on Peroni, Miller Lite up in Canada. Madri as it expands into additional markets, that will get extra marketing in our EMEA, APAC division. All of our brands in South and Central America are in the above-premium space. So we'll continue to push into that space. So the short answer is no, Steve. It's not going to change our focus.

How do you think about long-term category growth, maybe kind of parsing U.S. versus ex U.S. or however you want to -- however you think about it? And has your thought -- your thinking around those kind of normalized growth rates changed at all as we've seen fluctuations in more recent demand?

Well, the industry in the U.S. and Canada have pretty much mirrored each other. They sometimes are a little different. But by and large, I would say they are pretty similar. And they've been pretty similar with the exception of what happened in Q1 for several years now. And so certainly, that's a world that we see. It is one of the drivers behind us wanting to make sure that we become a total beverage company and not just a pure-play beer company, and we've been on that journey now for several years. And I think we've laid a really nice platform and springboard for success as far as that's concerned.

We've seen the U.K. in particular has been more resilient and Central and Eastern Europe has been more volatile. Last year, we had a pretty good year from an industry point of view. This year is a little tougher. And it's also the macro environment, now slightly different macro environment to what we're experiencing in the U.S., but still macro environment is influencing consumer confidence and driving more cautious behavior from a spend point of view.

Okay. Maybe to round out the kind of the category dynamics. Number one is on-premise versus off-premise. Dynamics you're seeing evolve over the current -- over the -- in the current environment, number one. And then I guess the mirror image of the question on premiumization, the core kind of power brands in your portfolio, is there appetite to lean more into those brands to meet consumers where they may be economically in the current environment?

Well, from an on and off-premise point of view, on is -- has -- is performing slightly better than off, and that's been a somewhat consistent theme for a while now. And certainly, we're seeing that right now. In the last few years, it's been a more normalization of folks going to bars and restaurants post COVID. But I think we're kind of through that normalization now and -- but we're still seeing folks spend more time in bars and restaurants for sure. As far as our core portfolio is concerned, we're certainly going to keep the -- our foot on the pedal there. If you look at how Canada has gained share for the last 8 straight quarters. It's been on the back of Coors Light and Molson Canadian more recent resurgence.

So certainly, we're going to continue to invest and push what's working up there, which are those 2 brands. In our EMEA, APAC operation, brand like Ozujsko in Croatia is a big brand. It's strong. It's market share within its space is doing very nicely. It has got more than half of the market. So we'll continue to lean in there. We'll continue to focus on our value versus volume approach in the U.K. with Carling. And then if you cross back over to the U.S., as I said, Coors Light, Miller Lite, Coors Banquet gained a lot of shelf space over the last year, and it's retained that shelf space by and large. And Coors Banquet, in fact, has actually gained additional shelf space. I think the last number I saw was in the low teens of additional shelf space. And that's helped us retain almost all of the market share that we gained a few years back.

Coors Banquet is a really interesting brand, right? It's been around for hundreds -- I mean, it's been around for a long time. It goes back to the beginning. And it is a big brand, and it's growing. Even in the weeks where you see the industry performing particularly poorly, Coors Banquet is just chugging along. Sometimes it's -- most of the time, it's growing double digits in the really poor industry weeks. It's still growing but at a slightly slower pace. It's attracting new consumers to our portfolio, whether it's Latino consumers, whether it's younger legal drinking age consumers are coming in through Banquet.

They love the Western heritage. They love the heritage of the brand. They love the sort of original [ sturdy ] bottles, which is unique in the marketplace. They love the marketing, whether that's Yellowstone or whether it's our program around firefighters and the first responders in the west. I think we've got formula with Banquet, which is working really well, and we're gaining a lot of share from that. So yes, we're going to continue to lean into our core brands, not because consumers are trading down to them. We haven't seen that, but consumers want them.

Yes. Coors Banquet, I mean, it's multi-decade growth story. Is there -- is it kind of lightning in a bottle, so to speak, in terms of it's just really unique? Or are there things that you have done over the course of the last half decade on Coors Banquet that you can take as learnings and apply to other brands.

Well, it depends when you talk to in our organization, right? If you talk to the marketing folks, they'll say this isn't entirely in marketing, but if you talk to the brewing folk, they will tell you it's a great, high-quality product. And if you talk to the sales folk, they'll tell you it's all the extra distribution we've got. And I'd say it's all 3 of those as, right?

I mean I remember a few years ago at the sales conference, we actually put up a chart for our distributors, where we showed them where distributors had Coors Light and Coors Banquet distribution on display together, how both brands actually performed quite a lot better than those distributors have just had Coors Light. And so over the last couple of years, we've seen a narrowing of the gap on distribution between Coors Light and Coors Banquet, but there's still a long way to go. So there's a lot of distribution upside for that brand.

And it was one of those seminal moments in the distributor convention, where you can see and hear that something is landed and that landed with our distributor network, and they've been executing really well against that. So Steve, it's a combination of all 3 of those things. Getting more distribution on Coors Light and Miller Lite is a little hard because they've got a lot of distribution. So -- but closing that gap with Coors Banquet is a real opportunity for us.

Yes. Okay. We've talked -- kind of alluded to a lot of change in the portfolio, a lot of reshaping in terms of the additions of ZOA and Fever-Tree and the divestment of the craft portfolio, et cetera. Maybe a question for both of you in terms of both the strategic desire for more portfolio reshaping and also the financial capacity to undertake it.

Yes. So as I said, I think -- as we look at our long-term growth algorithm of getting to about 1/3 of our net revenue to come from our premium portfolio. About half of that growth we expect to come from beyond beer. And part of that is expanding into spaces like we've done with Fever-Tree, which was a white space for us, but also something that our distributors are really excited about and get behind.

So we've said that from an M&A point of view, we like the string of pearls approach. We think it works for us. The pearls because of our ability to generate the significant free cash flow that we are able to generate and the fact that our balance sheet is so healthy. It does give us a lot of optionality, but it also means that those pearls could be a little bit bigger, like the investment that we made in Fever-Tree.

So we -- yes, I mean, we've got the capacity. We want to do things properly, things that we -- that does fill a white space. It does give us the right to win, but also that's scalable. And something like Fever-Tree is the perfect example of that. So yes, we've got options. And we certainly will look at things that fill all of those spaces that I just spoke about.

And I know you get this question a lot, but how do you balance that consideration against the other capital allocation priorities, obviously, investing in the business, as we talked about, but you've got an ongoing buyback that's quite considerable. There's obviously the dividend that is very healthy. Is there a point -- can you do both? Or -- and is there a point at which the M&A would take precedence over the share buyback.

Yes. So I mean we do have models that we run our capital allocation decisions through, but I would say that again, with the strength of our balance sheet and free cash flow, we were able to do all of those things. So if you just look at what we have done over the last number of years, we've invested in capabilities whether that be in our breweries, whether that be through systems and tools, whether that be AI, for example, in our breweries where we actually use AI quite a bit or whether that be returning cash to shareholders. So you mentioned our share buyback program. It's a $2 billion buyback over 5 years.

In the first 6 quarters, we've already utilized 40% of that. So we're well ahead of where if you just take a straight line where we would be. And it's because we actually think our share is a good investment. And so we're investing in our shares ourselves, but also part of that capital allocation is to sustainably grow our dividend and we have been doing that actually for the last number of years. So again, I think, depending on what gives our shareholders the highest return is where we're going to invest. But because we have the strong free cash flow, we do have the ability to fix whether that be M&A or whether that be returning more cash to shareholders. So yes, I mean, it depends.

Okay. Gavin alluded to it a little bit in his opening, but the -- as did you just now in terms of advances in organizational capabilities, across a wide spectrum of initiatives. Are there specific capabilities that you feel you want to highlight as something that you've made the most advance on just in terms of like your own improvement? Or I guess more importantly, are there places where you see true advantage versus the competitive set. And I guess the other side of that is capability -- if you had 1 capability, you'd want to further hone over the next year or 2, what would it be?

Okay, let me start and jump in if I miss anything. So I think we are really proud of the capabilities that we've invested in, whether it be in the commercial space or the supplier space. So if you think about commercial, the capabilities that we built around our insights and analytics has driven us to make decisions and innovations like Happy Thursday, where we looked at a cohort of legal drinking age consumer. We've got a consumer group that looks at that. And so we brought the bubble free flavored malt beverage and Happy Thursday to market. It also gave us insights around our C-store strategy, say that quickly. And so it's things like where we're investing in higher ABV for our C-store single serve. So whether that's be Blue Moon Extra or simply Bold, Topo Chico, Max. We haven't played in that space. We've under-indexed in C-stores.

But what we've been able to glean from our insights is this is a place where the consumer is looking for higher ABV, single-serve, C-store, quick run in, run out. And so we've just launched those 3 brands in C-stores. And that's driven by our commercial insights. And then from a supply chain point of view, which I'm mostly proud of because it has driven returns, and you can see that in our COGS per hectoliter. You can see that in the ability to mitigate some of the inflation that we see is we've built 2 brand-new automated efficient breweries in Canada. We've just completed the modernization of our Golden Brewery, which is our largest brewery.

It's going to drive a lot of efficiencies, a lot of waste out of the system. We've built additional capacity from a brewing and packaging point of view in our U.K. business. We've built flavor capabilities, which we didn't have before. So now we can do all of those flavors Simply, Topo Chico, Happy Thursday, in our breweries. We've also built capability around variety packing, which it's a lot of cost savings because we save a lot on logistics.

So I would say there's a number of things that we're really proud of. And again, I mean, you're starting to see those investments come through, especially on the COGS line. Where our COGS per hectoliter is not as high as what it has been over the last couple of years, driving a lot of efficiencies, a lot of cost savings. So yes, I don't know if I -- I'm very proud of a lot of things.

You've covered quite a bit.

In terms of wish list in terms of 1 or 2, whether it's on the supply chain or in-market commercial or consumer insight building. Is there 1 place or 1 or 2 places you'd really like to kind of make the next quantum leap?

I mean I think, we're all talking about AI. And so we're really actually proud of some of the investments we've made around supply chain using AI. So whether that be things like we call it smart SKU, what is the SKU we need in this market that's going to drive lower out of stocks or no out of stocks. But this distributor needs it in the market. So we've done a lot of things around what are the smart SKUs that we need, AI has driven that. So for me, using some of the AI capabilities...

I've got a couple of minutes left, Gavin, and I want to -- going back to today's operating conditions, there's a debate between the structural versus the cyclical, right? Obviously, skeptics around the industry challenges are more structural, whether rooted in demographic headwinds or health and wellness headwinds or what have you. And obviously, more optimistic investors around the cyclical side. Where do you stand in that? And how do you separate the cyclical from any kind of structural considerations?

Well, I think very clearly, Steve, I'm on the cyclical side. I think the macroeconomic environment is uncertain wherever you are in the world, right, and perhaps more so in some of the bigger markets in which we operate. And that is a macro situation that will change, and it will improve. Now I can't tell you when exactly, but I'm certainly on the cyclical side.

Okay. So in the last few minutes, so Gavin, final question. if your successor was in the room with us today, what would be your key messages or words of advice for him or her? What's critical that they get right to best position the company for profitable growth throughout their coming tenure?

I could make some mischief now, couldn't I, but I won't. Look, I think I'd start by saying that our Board is supportive of our strategy. So I think that's an important point. I think that my successor needs to treat our culture with care because I think it's a strong culture, and I think it's a good culture. And I think that there's a reason why some of the folks who choose to partner with those do, and that is because of our culture, because of our people. And I think to Fever-Tree and I think to Yuengling. And we've got partnerships with a lot of folks, some of them would surprise you. But I think that's a strength of ours and I think it's because of our people and our culture. So I think that would be something I would take care with because it's been built up over a long time, not just in the last 6 years.

And then I think the -- obviously, Tracey talked extensively about the balance sheet and the strength of it. We generate a lot of cash. And I think we've been really smart about how we've allocated that cash, we obviously believe that we're undervalued at the current price. And so as Tracey said, we've leaned into share buybacks. And I think we've got a double-digit return -- cash return in our business. I think we're one of the best out there. But it does give my successor optionality. I think we've proven particularly good at doing string of pearls M&A. And if I was still around, I'd be continuing that process because I think we've laid a nice foundation.

And then obviously, any CEO is going to put their own stamp on the organization. Every CEO does. I'm not sure the next year will as well. But I think the foundations of our strategy are laid quite nicely, and they can lean hard into some of those areas where perhaps we haven't been as successful. Maybe you look at perhaps above premium and in the U.S. market specifically. They could lean harder in there. I think they've got a really good brand with Peroni in the beer space and Fever-Tree in the non-beer space to really go after. So yes, I think, there's a lot of opportunity there. And I feel good about our long-term growth algorithm. I feel good about it partly because of what Tracey said, right, is we're removing quite a few headwinds that we're experiencing this year from contract brewing and getting out of the craft space. So I look forward to seeing him or hers progress.

Great. I thought you're going to say make sure you always come to Paris in June. That would have been a good one.

Well, yes. This is a very good one to come to. Yes, I'll give them that advice.

I think that's a great place to end it. We're out of time. Thank you, Gavin. Thank you, Tracey. Thank you all for joining us. Appreciate it.

Thank you.