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

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

Thank you, Gavin. Our work over the last several years has greatly improved the efficiency of our business, from supply chain to commercial operations. These efforts have helped to drive an increase in margins over the last two years and support the further expansion opportunity that underpins our long-term growth algorithm. There are multiple drivers that impact our margins. They include pricing, mix, input costs, volume leverage, and cost savings. And the impact of those drivers vary by quarter. In the first quarter, underlying costs of goods sold per hectoliter increased 6.1%. This is mainly due to volume de-leverage, given the U.S. shipment trends Gavin discussed. In the first quarter, volume de-leverage negatively impacted underlying cost of goods sold per hectoliter by 420 basis points, while in the prior year period, volume leverage was 110 basis points benefit. Mix also contributed, driving 220 basis points of the increase in underlying cost of goods sold per hectoliter. This was due to lower contract brewing volume in North America and premiumization in each business unit. But importantly, while these mixed impacts increase cost of goods sold per hectoliter, they are favorable to margin. As for inflation, while we did experience moderated increases in input costs, this was largely offset by our ongoing cost savings and extensive hedging programs. MG&A was up modestly in the quarter as increases in G&A, which included one-time transition and integration fees of approximately $30 million, related to the Fever-Tree partnership, were partly offset by slightly lower marketing. Turning to the balance sheet, at quarter end, net debt to underlying EBITDA was 2.47x. This was an increase from year end 2024, as we normally see a sequential uptick in the first quarter, given lower cash balances. This ratio is in alignment with our long-term target of under 2.5x and underscores the health of our balance sheet. This, along with the highly cash-generative nature of our business, provides us more optionality in the ways that we invest in the business, be it through capital investments that drive productivity improvements or through bolt-on M&A that support our strategic growth objectives. Our recent investments in high-growth non-alc brands, like Fever Tree, are great examples. It also provides us with the opportunity to return even more cash to shareholders. We paid $99 million in cash dividends and $60 million to repurchase 1 million shares in the quarter. Since the plan was announced in October 2023, we have repurchased 7.2% of our class B-shares outstanding. It's an up to five-year $2 billion plan, and as Gavin mentioned, we have utilized over 40% in just the first six quarters. And, as we previously announced, in the first quarter, we raised our quarterly dividend to $0.47. This was an increase of 6.8% and represented our fourth consecutive year of increases, clearly demonstrating our intention to sustainably increase our dividends. And given our share repurchases, we were able to raise the dividend without incurring aggregate higher dividend cash payments. And now I'll conclude with our financial outlook. First, there's a great deal of volatility in the global macro environment, resulting in uncertainty around the effects of geopolitical events and global trade policy, including the impacts on economic growth, consumer trends, and currency. These impacts are multifaceted and difficult to predict. 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 on the ground or up or down. Fortunately, as Gavin mentioned earlier, while we are a global business, our beers and beverages are generally made in the markets in which they are sold, meaning the vast majority of our brands sold in the U.S. are made in the U.S. with U.S. ingredients. And that is the same for our Canadian business. We have a limited number of brands that we import into the U.S., and their volumes are relatively small. For example, we import Molson Canadian from Canada and Sol from Mexico. Again, those very small brands in the U.S. Also, since a significant portion of our direct materials are sourced domestically or are USMCA compliant, we don't expect a material direct impact on the known tariffs on our input costs. Therefore, we believe we are one of the better positioned businesses in our category. Still, we continue to evaluate options to mitigate exposure and risk. For example, leveraging additional domestic supply where possible. And while tariffs have had indirect impacts, causing fluctuations in commodity costs like the Midwest premium, our extensive hedging program can help to mitigate some of that exposure. Lastly, please remember that net sales revenue and underlying pre-tax income growth guidance metrics are on a constant currency basis, and underlying earnings per share is not. Therefore, fluctuations in the U.S. dollar will impact our reported results as well as underlying earnings per share growth, and in the effective period using the current exchange rate. With that said, as Gavin discussed, we have updated several of our guidance metrics due to softer industry trends than we believe most expected, which we attribute to the macro shifts that we have discussed that have driven consumer uncertainty and pressured consumption trends. As such, we have updated certain key guidance metrics. We now expect a low single-digit net sales revenue decline on a constant currency basis as compared to low single-digit growth previously. A low single-digit underlying pre-tax income decline on a constant currency basis as compared to mid-single-digit growth previously. A low single-digit underlying earnings per share growth as compared to high single-digit growth previously. Lower capital expenditures incurred of $650 million, plus or minus 5%, as compared to $750 million, plus or minus 5% previously. All remaining metrics are unchanged, including underlying free cash flow of $1.3 billion, plus or minus 10%. Turning to our guidance drivers, our top line assumes an anticipated annual net price increase of 1% to 2% in North America, in line with the average historical range, and for other markets to trend in line with inflation. It also assumes mixed benefits from cycling contract brewing from 2024, as well as from premiumization. In 2025, we expect to continue to grow above premium net brand revenue in EMEA and APAC and Canada, as well as make progress in the U.S., where, as Gavin shared, we remain committed to turning Blue Moon around and are embarking on big plans for Peroni and non-alc. While Fever-Tree and the consolidation of

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

Thank you. We will now begin the question-and-answer session. [Operator Instructions]. The first question today comes from Bryan Spillane with Bank of America.

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

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

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

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

Our next question comes from Bonnie Herzog with Goldman Sachs.

Yes, congratulations from me too, Gavin.

Thanks, Bonnie.

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

Thanks, Bonnie. Look, from a retention of our core power brands in the U.S., that meaningful step up that took place in 2023, we've retained almost all of that. I think when you look at where our core brands were before, Q1 of or Q2 of 2023, they were at around 13.5 share. And they almost immediately jumped up over the three-month time period in the following quarter to about 15.6. And at the end of Q1, we're at 15.4. So we've retained almost every piece of share that we gained. And I would attribute that to the health of our core brands, Coors Light, Miller Lite and Coors Banquet. I would attribute that to the tremendous work of our chain teams in gaining significant share of shelf space and actually retaining it, which is our expectation this spring. All the data that we've got suggests that we're going to retain and actually grow a little bit of share, particularly with Coors Banquet. Coors Banquet's trends are just on fire and it's being represented in our in our shelf resets. So I think that's the first point, Bonnie, is that we have retained a substantial amount of the share that we gained from a core point of view. As far as our total share trends are concerned, they have sequentially improved quarter-over-quarter since, the third quarter of last year. In Q3, I think we lost about one percentage in Q4 that improved to 0.7. And in the first quarter of this year, that improved to 2.6. So our trends have been improving quarter-over-quarter. Our Q1 trends were relatively stable through about the middle of the month. We did in mid-March have a little bit of accelerated share loss. That was two reasons. One is we made a pack, quite a meaningful pack shift change with our Blue Moon brand moving from 15s to 12s. And that caused quite a lot of disruption from a Blue Moon point of view. And the Simply, the Simply brand's share decline also accelerated because we let the Limeade innovation, which we had in Q1 of last year and innovation on Simply is actually coming in Q2 of this year. So a little bit of a timing difference there. From a from a overall industry point of view, there has been some improvement in the industry in the last four of April. And obviously, as I said to in response to Bryan's question, we are not anticipating that the industry will continue to decline at that sort of around 5% range as we go forward. So hopefully that's helpful, Bonnie.

Our next question comes from Filippo Falorni with Citi.

Gavin, congrats on the announcement. Maybe I want to start with the question on the beer category. Generally, look, we've been a pretty soft Q1. We've seen the trends to really not really accelerate that much into April. [Technical Difficulty]. I'm just curious what are your expectations for the balance of the year? Do you think like a decline more in the 3% to 4%? It's possible for a category that's like more of a down 1 or 2. And then on tariffs, if you follow up, it's pretty much like some of the pieces, but is there any sort of a broad impact that you're expecting within the 2025 guidance? Thank you.

Filippo, I'm sorry, I caught the first part of your question, but I didn't catch the second part at all. So if you wouldn't mind just repeating the second part. We didn't catch that at all. It was a lot of disruption.

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

Thanks, Filippo. Yes, got that the second time around. Trace will handle that in a second. But from an overall industry point of view, look, we don't have a public forecast of the industry for the year or the balance of the year. Just to reiterate for perspective, within the guidance that we are now revising, we have assumed that the industry will be better than what we've seen to start the year, which was down around that 5% in Q1. And we do expect over the balance of the year that we'll see the similar trend lines that we've seen over the last few years. Obviously, one quarter doesn't a year make. And there were some, we talked about the consumer confidence challenges in the macroeconomic environments. And obviously, we can't predict when that will end, but they are certainly cyclical and they will end. The timing of that is obviously uncertain. Trace, you want to talk about tariffs?

Yes. So look, from an input cost point of view, Filippo, we import a very small portion of our U.S. portfolio from Canada and Mexico. It's really only Molson and Sol, respectively, which is really small volume for the U.S. markets. We do import the majority of Fever-Tree from Europe, but, we have the ability to onshore this brand through co-manufacturing, et cetera, in our network. One of the bigger impacts would have been Peroni, but, of course, now the majority of that is produced in the U.S. So that has isolated us from tariffs. The majority, as we've said, the majority of our direct materials are sourced domestically and with USNCA compliance. So immaterial impact from a input cost point of view. The one thing that we have spoken about is our extensive hedging program. And so, we've been able to hedge commodities, even though we source locally for local production. But we have also spoken about the Midwest premium. That's one of the commodities that is difficult because of the lack of transparency to the pricing of that commodity, as well as, the ability to hedge that. It's not, as liquid as some of our other commodities. So that is the one area, that doesn't sort of behave the way that we would expect market dynamics to behave for commodities. But really, we don't expect the material impact from known tariffs right now on our input costs.

The next question comes from Chris Carey with Wells Fargo.

I actually wanted to follow up on this. Hey, Gavin. I wanted to follow up around cost, inflation, and gross margin. Then a quick follow up for Gavin. So this was the first quarter, I believe of small net favorability in cost inflation within your COGS for hectoliters disclosures of the past few years. Is there a reason that would, change notably in the coming quarters? I know you don't guide on these types of topics, but just evolution of hedges, Midwest premium, tariff inflation, I'm just struck that is slight favorability in the context of recent history. And you sound comfortable around overall inflation. And I just wonder if you could contextualize that in the context of maybe like medium term evolution of that specific bucket. Then just the follow up would be Gavin, regarding timing of leadership transition, the types of leaders you and the board will be, assessing. I'd love any context on that. And hearty congratulations as well.

Thanks very much, Chris. I'll take your second question first, then Trace can take the cost of goods sold. Look, the process is underway. The board's looking at internal candidates and external candidates. Obviously the top priority is to navigate the process very thoughtfully, in terms of capabilities. I expect the board's paying a lot of attention to both, relevant and business and leadership experience, along with a cultural fit. But the culture that we've built here at Molson Coors is very special. And the board is intent on appointing a new CEO who will be able to galvanize our people and our partners around a clear vision for the next stage of our company. I think it's important to say that the board believes in our current long-term strategy. So obviously a new CEO will put their own stamp on the company. But the board is supportive of our long term strategy. And as I said, I think my closing remarks, Chris, business as usual, I'm going to run through the tape to the end of the year. Trace, cost of goods sold?

Yes. So thanks, Chris. So in terms of outlook for COGS for 2025, as we said in our Q4 when we were issuing guidance, we do expect underlying COGS per hectoliter to increase for 2025 due to inflation. But you're right, a lot of the investments that we've made in our business around, particularly on the COGS line to drive efficiencies and cost savings, we're starting to see that come through. So inflation did have a smaller impact to our Q1 numbers because a large part of that was offset by cost savings. The other part of our COGS was the de-leverage that we've spoken about that, the biggest driver was around de-leverage as we got out of the contract brewing arrangement. But also some of the STRs driving our financial volume. And then, the other thing just to note is that we do have the extensive hedging program. But as I said, to the previous question, the Midwest premium is the one that is a little bit more difficult to predict just because of the lack of transparency to that pricing. But in terms of hedging, we use our extensive hedging program to try and mitigate a lot of the volatility. And I think you've seen that come through in our results for the quarter and with our guidance for the balance of the year.

Our next question comes from Peter Grom with UBS.

Gavin, congrats from my end as well. I wanted to follow up just on category growth. And clearly it's a more challenging backdrop, but just given where we are, how do you dissect, what's typical given the macro versus what may be happening structurally? And then, a follow-up to Filippo's question, I get you don't have a category growth target and maybe this is too specific, but just as we continue to monitor category trends, do you have a view on when you would anticipate category trends to improve or do you have a thought in terms of where category growth may land for the second quarter? Thanks.

Thanks, Peter. Look, I think it's certainly clear to us that the incremental softness that we've seen in the industry is macro driven. And, obviously we're taking actions and steps to protect our profitability in the near term, but continuing to support our brands through that. The timing of these macro driven trends is obviously not something that we can forecast. And what we do know, though, is that it's cyclical. And our expectation is over the balance of the year that we'll see a move back to industry trends, which we've experienced over the last few years. So whilst we don't have a public forecast of industry, obviously our guidance is built on our own forecasts internally as to where we see the industry landing for the full year.

The next question comes from Robert Ottenstein with Evercore ISI.

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

Thanks very much, Greg. Look, I mean, obviously in the U.K., I think we said it, the industry did have a soft start to the year. That did continue the trend that we've seen in consumer demand in the U.K. last year, with the market being down on a volume basis. I think as we've said consistently now for a few quarters, and this hasn't changed, is the market has been increasingly competitive. There has been a higher promotional intensity across both channels, the on and the off premise. Our largest brand in the U.K., Carling, we've taken a value over volume strategy. We're focusing on the strength of the brand versus the competitors, and we are trying hard to leverage the strongest link that we have, which is soccer. A lot of our activity in the first quarter has been focused on the FA Cup. Madrí, our best innovation in a long time, continues to drive both volume and value growth across both channels, on premise and the off premise. We see a lot more runway for this brand in the U.K., and we've just launched it in new markets in Bulgaria and Romania. If you go across into Central and Eastern Europe, the beer industry remains sluggish. Again, it's driven by a decline in consumer confidence, partly because of the macroeconomic environment which exists there as well, but the added negative of global political and economic tensions which have escalated since last year. We are seeing higher promotional pressures across most of the markets. We're operating in Central and Eastern Europe, but we remain optimistic about the growth potential of our business, and we're executing against our plans. It includes lots of investment behind our national power brands. We're supporting the recent launches that we did in the above premium space with Madrí in Bulgaria, and now Romania as well this year. We're supporting our expansion of Coors into Hungary, and we're making headway in the beyond beer space with Apple, Pippin, and Wild Cider, which we're making available in a number of our Central and Eastern European markets, Serbia, Bulgaria, Montenegro, and Croatia. Seeing some of the same macroeconomic issues, but we're confident in our plans.

Our next question comes from Andrea Teixeira with JPMorgan.

Congrats to you, Gavin, and I hope you don't forget us and come to Cagney for a toast next year. So in your response before, you said you're assuming the industry will not going to be in this shape or form right now with the mid-single digit decline in the U.S. I was hoping if you can, I think you articulated in a few questions before, how do you feel about the pace of your market share and all of that, but I was hoping to see if you can comment on your price architecture. You talked about Banquet doing very well, but I'm thinking of Coors Light and some of your core, more kind of like, I should say, still domestic premium, but entry-level point, how you're trying to meet the consumer where they are, and if you're seeing that shift. And then related to that, you spoke about Blue Moon, that we sat on Blue Moon's pack. So I was hoping to see when we should be seeing that normalize and how you were seeing in general. And to a question, I think Bonnie asked a question about April, that it seems like things are better, but I was hoping to see if you can also add that on in terms of how the exit rate and the current trends are. Thank you.

Thanks, Andrea. Lots in that question. So, I mean, from a share point of view, the core share retention has been across all three of our core brands, Miller Lite, Coors Light, and Coors Banquet. Coors Banquet has accelerated actually well beyond the levels of share that we gained in Q2 of '23, and Coors Light and Miller Lite have held the large portion of the share that we gained there as well. So just to give you a dimension of that, Miller Lite was at sort of 6.1, 6.2 level in Q1 of '23, and that jumped up to about 6.9, and it's operating at about 6.8. So it's held, I'm not going to do the mental arithmetic, but that's more than 90% of what we gained. So again, I'm very pleased with the retention on our U.S. core brands. Our brands have come a long way since 2022, and we're continuing to support them. As far as Blue Moon is concerned, look, it remains a big, important brand for us. It's a top priority for us in above premium, and we're committed to turning that brand around. In the third and the fourth quarter, the Blue Moon family of brands did see an improvement in share of industry, total industry. We actually gained share in the craft space, and that trend continued into January and February of this year. But as I said, I think earlier, March was challenged for us, and that brought our Q1 family of brands performance down in the first quarter, and that's because we implemented a pack adjustment. We knew it would have a temporary performance impact, but it certainly aligns with consumer preferences, and it provides us a very meaningful benefit from a supply chain efficiency point of view and a cost of goods sold point of view. So a temporary bump with significant benefits coming from a profitability point of view. Beyond the core Blue Moon brand, we have seen some positive momentum behind our new innovations, which are continuing to bring new drinkers into the brand. As an example, Blue Moon non-alc in the first quarter was up almost 90% per Circana, and we expect to gain a lot of new distribution for this brand in the spring resets. We're also launching a new 8% higher ABV product, particularly focused in on the C stores. Again, our expectation is we're going to gain some very nice distribution for this brand in the spring resets. When you add to that, the vast majority of our marketing spend on this brand will take place between April and December. I think it's setting up well, but we've got lots of work still to do on the Blue Moon family.

Our next question comes from Kaumil Gajrawala with Jefferies.

Gavin, congratulations. It's been a fun and long road through many different versions of what the company looks like today. If we could talk a little bit about pricing, a lot of what you're talking about from a macro perspective, we're also hearing from many others, and we're maybe getting the earliest signs of maybe increased promotional activity or increased focus on value in some way. I'm just curious how you're thinking about the absolute price points of your various brands versus where the macro environment might be heading.

Thanks, Kaumil. Look, from an overall consumer point of view, we have continued to see some value driving behavior, which we've talked about by channel or by pack. But from an overall promotional point of view, based on what we're seeing right now, we don't expect anything unusual from a promotion point of view. It is very common to see heightened competition with additional activity as you head into summer, and that eases up as you get into the shoulder months. We saw it in 2024, and again, I'm sure we'll see it in 2025. But as I said, nothing terribly unusual from our point of view.

The next question comes from Lauren Lieberman with Barclays.

I know we've covered a lot of ground. I just wanted to just check in on the CapEx adjustment. Is there anything you can share with us on what you won't be doing this year that you had originally planned? Thanks.

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

I'll take that. Thanks, Lauren. We're postponing certain projects that don't relate to significant cost savings or don't relate to critical growth initiatives. So we'll continue to invest around health and safety, which is always our number one, and continue to put our spin behind those projects. And we've got a whole host of projects that do drive cost savings and growth initiatives. So we're prioritizing those. The ones that we are postponing are ones that don't have a significant impact on our performance.

Our next question comes from Michael Lavery with Piper Sandler.

Good morning, and Gavin, congrats as well. I just wanted to look at America's price mix and understand that a little bit better. It obviously has the mixed benefit from the less contract brewing, but it was a little bit below the lift in the last few quarters and a little bit behind where we would expect or had expected. Can you just give us a sense, I guess maybe one mechanically, did the Fever-Tree costs come through the top line somehow? Is that a bit of a drag? Or any other ways to understand maybe what to expect going forward? Should it pick up a little bit? Is that about the right run rate for the year?

Thanks, Michael. To answer your Fever-Tree question directly, the incremental costs because of the distributor transition go through MG&A line. So they don't come through the top line from a cost point of view. And the cost that will push through in the second quarter as we finalize that will also go through the MG&A line. The way that it works going forward, though, is that the credit will actually come through in net sales revenue, which is the way technical accounting works. So the debit is going through MG&A and the credit, which we will get back over the next three years, will go through the top line. From an NSR per hectoliter basis, from a North America point of view, that was up on a per hectoliter basis about 4.8%. Pricing sort of fell in that range that we said of about one to two. But the majority of that gain was in mix. And partly that's driven by a lot of contract brewing volumes, particularly up in Canada, where we saw a very significant mix improvement and then positive brand mix as we introduce Fever-Tree into our portfolio, which has only been there for a couple of months. So, certainly the mixed benefits that we're seeing right now, I would expect to continue all the way through the year. Thanks, Michael.

Our next question comes from Kevin Grundy with BNP Paribas.

Gavin, I want to extend my congratulations as well. I'll ask a question on capital deployment. We've covered a lot of ground on the quarter. So you guys have done a tremendous job getting your debt leverage down through COVID, et cetera. So congrats on that. The flip side is you pivot towards buyback. The stock is underperformed. It's under quite a bit of pressure today. What do you think the market is missing? What do you think the market under appreciates about the Molson Coors story? Number one. And then number two, do you foresee a set of scenarios where you revisit the string of pearls approach to M&A, where perhaps there's something bigger out there where you can diversify the portfolio away from mainstream beer, which has been a perpetual decline? So I appreciate that. Thank you.

Thanks very much, Kevin. And look, you've hit on the ones that I'm proud of a lot of things over the last six years, right? But the one I'm probably most proud of is how we've got our balance sheet into a really, really good place. Our debt ratio, as you rightly call out, is low. And our cash generation is very, very strong. And I think we've demonstrated that over the last six years. It remains one of, I think, the strongest benefits of our company and one of the most underappreciated. And it certainly gives us flexibility to return cash to shareholders. I think potentially investors miss the strength of our core brands and what a tremendous job our sales and marketing teams have done to retain the share that we gained a couple of years ago. I think if you recall and go back and read some of the comments from those days, Kevin, you will find that most people expected us to give it all back. And the opposite has happened. We've actually kept almost all of it. And Coors Banquet is growing from strength to strength. So I think that is a missed area for folk outside of there. We think that our String of Pearls approach works really well. And I think we've also been clear now that our debt ratio is where it is, targeted under two and a half times, that the size of those pearls can get a little bit bigger. And we've demonstrated that with Fever-Tree, where we took a stake in the listed company in the U.K. for slightly under $100 million. And we bought the whole of the Fever-Tree U.S. business. I'm very excited about this partnership relationship that we have with Fever-Tree. It's very complementary to our portfolio. The distributors are very excited about it. And it's obviously two months. And two months doesn't a trend make, but very pleased with the way that that brand has started in line with actually slightly ahead of our business case. So feeling really good about that. But I think the most underappreciated thing about us, Kevin, is the strong generation of an ongoing generation of cash and how strong our balance sheet actually is.

Our next question comes from Eric Serotta with Morgan Stanley.

Great. And congratulations again, Gavin. It's been a pleasure working with you and looking forward to the next six, seven months. Most questions have been answered, but Gavin would love to circle back and get your perspective on midterm category growth through the lens of the various segments, Mexican imports, which have obviously been powering the beer category over the past decade, have slowed lately. Clearly some macro and demographic factors there. But just wondering if you could provide some perspective on how you're thinking of category growth over a three-to-five-year time frame. If we have a much larger base, since we have a much larger base for imports today, maybe you'll grow a little bit slower. At the same time, domestic super premiums are a lot larger. And then obviously your perspective on premium and premium light. Thank you.

Thanks, Eric. Look, as it relates to our portfolio, again, as I said, I'm very pleased with where we are from a core brands point of view. And we've acknowledged that we've got work to do in our premium space. And given the plans that we've got, which I feel very good about, and the fact that the pressure is now coming in April and beyond behind those plans, whether it's Peroni, whether it's the Blue Moon Family, whether it's Miller Lite up in Canada, which operates in the above premium space or Madrí and a number of markets, you know, I feel and we believe in our goal to get to a third of our net sales revenue in the above premium space. From an overall category point of view, I'm not sure there's much I can add to what I've already said, Eric. I mean, it was obviously a tough first quarter, which I don't think anybody predicted. And we do expect that to normalize back to where it's sort of historically been over the last few years. The precise timing of that is obviously difficult to predict. As I said earlier, April has shown some signs of improvement from an industry point of view, but it's just one four week read. And we need to be cautious about that until we see it manifest itself in a more stable trend going forward.

The next question comes from Robert Moskow with TD Cowen.

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

Yes, thanks, Robert. So we don't give courts any guidance. But what we can say is the first quarter was much softer from an industry point of view than I think what everyone had anticipated. And Gavin spoke about CPG companies in general talking similar around macroeconomic impacts, et cetera. But just in terms of going forward, some of the drivers of our guidance around top line is the net price increases back to the sort of 1% to 2% range that we've seen historically in North America, in terms of our other markets more in line with inflation. From a shipment point of view, we expect the recovery. So sort of STRs and STWs to sort of get more aligned, mostly in Q3, so not in Q2, where we expect similar performance from the exit of our contract brewing arrangement, as we saw in Q1. And then, top line also driven by our premiumization, innovation and then some of the partnerships that we've spoken about, for example, Fever-Tree, which has a positive impact on our top line as well going forward. Although there is a sort of there is some cycling of our smaller regional craft breweries that we divested in the third quarter. But I would say that that would be the sort of main drivers of first half of the year versus the second half of the year from a top line point of view.