Mark Hunter - President & CEO Mauricio Restrepo - Global CFO Gavin Hattersley - CEO, U.S. Business Fred Landtmeters - CEO, Canada Business Simon Cox - CEO, Europe Business Stewart Glendinning - CEO, International Business Sam Walker - Global Chief Legal Officer Dave Dunnewald - VP IR.

Wendy Nicholson - Citi Research Vivien Azer - Cowen Judy Hong - Goldman Sachs Pablo Zuanic - SIG Mark Swartzberg - Stifel Nicolaus Bryan Spillane - Bank of America Rob Ottenstein - Evercore.

Good day and welcome to the Molson Coors Brewing Company's Third Quarter 2016 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Before we begin, I would like to paraphrase the Company's Safe Harbor language. Some of the discussion today may include forward-looking statements.

Actual results could differ materially from what the company projects today. So please refer to its most recent 10-K and 10-Q filings for a more complete description of factors that could affect these projections.

The Company does not undertake to publicly update forward-looking statements, whether as a result of new information, future events, or otherwise. You should not place undue reliance on forward-looking statements, which speak only as of the date they are made. Regarding any non-U.S.

GAAP measures that may be discussed during the call and from time to time by the Company's executives in discussing the Company's performance, please visit the Company's website, www.molsoncoors.com, and click on the financial reporting tab of the Investor Relations page for a reconciliation of these measures to the nearest U.S. GAAP results.

Also, unless otherwise indicated, all financial results the company discusses are versus the comparable prior-year period in U.S. dollars. Now, I would like to turn the call over to Mark Hunter, President and CEO of Molson Coors..

Thank you, Chad. And hello and welcome everybody to the Molson Coors earnings call. Many thanks for joining us today. With me on the call this morning from Molson Coors, we have; Mauricio Restrepo, our Global CFO; Gavin Hattersley, our CEO of our U.S.

business, Fred Landtmeters, the CEO of our Canada business; Simon Cox, the CEO of our Europe business; and Stewart Glendinning, the CEO of our International business, along with Sam Walker, our Global Chief Legal Officer, and Dave Dunnewald, our VP of Investor Relations.

Today, Mauricio I will split our call into two parts; first, we will take you through our third quarter 2016 results to an essence closeout Molson and Coors Brewing Company, as it's been structured for the past several years.

Then, we'll turn our attention to our recently completed MillerCoors transaction, and three newer updated financial reporting metrics along with some perspective for the fourth quarter of this year.

In third quarter we continue to focus on our First Choice ambition on building a stronger, broader and more premium brand portfolio underpinned by incremental sales and marketing investment as we've discussed all year.

Business highlights for the quarter and year-to-date included increased net sales revenue per hectoliter on a constant currency basis in all our businesses for the quarter and year-to-date. We increased investments in our brands globally. Coors Light and Miller Lite again gained share in U.S.

Premium Light segment for the quarter, including the highest segment share gain in three years for Coors Light. We saw 1.2% global volume growth for Coors Light on a year-to-date basis, with growth of more than 14% outside of North America. We had fast growing innovations in key markets including Henry's Hard Soda in the U.S. and Mad Jack in Canada.

And we saw global growth year-to-date in our above premium portfolio, for example, Doom Bar and other Sharps brands in the UK, Creemore Springs and Belgian Moon in Canada and our four newly acquired brewers in the U.S.

We also so strong growth by Staropramen across Europe outside of its whole markets and we also additionally saw cider volume increases with Rekorderlig in Europe and Strongbow in Canada.

Overall, we continue to strengthen our business through improvements through our sales execution and revenue management capabilities increased efficiency of our operations and implementation of common global systems. Regional highlights for the third quarter and year-to-date are as follows; in the U.S.

overall sales to retail volume decreased 4% for the quarter, and 2.5% year-to-date on a trading day adjusted basis driven primarily by our below premium and premium light brands. Coors Light and Miller Lite again gained segment market share, the SDR's declined reflecting industry trends. Coors Banquet continue to grow SDR volume and segment share.

And in a higher market above premium segment, Henry's continues to be the number one Hard Soda franchise. Also our Saint Archer, Sheraton [ph] Hop Valley and revolver businesses of significantly expanded our craft offering for consumers and customers.

Domestic net sales revenue per hectoliter grew 1.6% for the quarter, and 1.2% year-to-date as a result of favorable net pricing and positive sales mix. On the bottom line, U.S. segment underlying equity income increased 9% in the third quarter driven primarily by lower cost of goods sold, higher net pricing and positive sales mix.

Year-to-date underlying equity income increased 9.3%, primarily due to the factors mentioned above, as well as a $12.3 million anticipated refund of federal excise tax paid on imports which we discussed on our last earnings call. In Canada, net sales per hectoliter in local currency increased 0.6% driven by growth in our above premium brands.

This NSR increase reflected hairline price increases and positive brand mix but with higher levels of spend back as we ensured our brands were competitive on a market-by-market basis. Our performance in the above premium segment continue to be strong as we saw growth in both their own brands and their partner brands.

Coors Banquet, Mad Jack, and Belgian Moon; all continued to deliver strong growth and our craft brands continue to grow share in the total beer category.

The mainstream segment continue to face market pressure where our brand held scores for Coors Light and Molson Canadian have continued to improve month-over-month; and our sales execution input measures are similarly improving.

Our COGS per hectoliter increased 3.5% in local currency with most of the increase being driven by volume deleverage and mix shift to higher cost products. Our cost savings program continue to be strong and fully offset impacts of inflation and other cost increases in the quarter.

In the bottom-line underlying pre-tax income claimed by $15.9 million in the third quarter driven by lower volume, increased COGS, higher marketing investments and foreign exchange impacts of U.S. dollar-based supplier contracts.

Europe net sales decreased 0.6% in local currency for the third quarter driven by 1.4% lower volume due to weaker demand versus strong sales last year across much of the region. Along with some trade inventory overhand from the Euro 2016 Football or Soccer Championships in the second quarter of this year.

Nonetheless, we held our share position in the region and our continued portfolio premiumization and mix management drove a 1.2% increase in net sales revenue per hectoliter in local currency.

In the quarter, we achieved strong growth by Coors Light, Staropramen outside of the Czech Republic, and their craft portfolio including Blue Moon, Doom Bar, and other the Sharps brands, as well as Rekorderlig cider.

Underlying pre-tax income was lower in the quarter due to higher brand amortization expenses, lower net pension benefit, and unfavorable foreign-currency movements, especially related to the depreciation of the British pound.

Year-to-date the benefit of higher net sales and NSR per hectoliter in local currency, volume and market share in Europe were more than offset by unfavorable foreign currency movements, higher brand amortization expense, lower pension benefits and the termination of the Heineken contract arrangement in the UK.

Our international business continues to drive Coors Light momentum with year-to-date volume of this brand, up mid-single digits led by growth in Latin America and Australia.

Excluding impacts of total alcohol prohibition in Bihar, India and the transfer of the Staropramen UK business to our Europe segment, our year-to-date underlying pre-tax underlying performance has significantly improved versus last year driven by volume growth in the remaining international markets.

Now I will turn it over to Mauricio to give third quarter financial highlights and new performance metrics.

Mauricio?.

Thank you, Mark, and hello, everybody. As a reminder, all of the results that I will be discussing are in U.S. dollars, unless otherwise noted. So our third quarter and year-to-date financial headlines are as follows; net sales were down approximately 7% in U.S.

dollars in the third quarter and about 5% year-to-date, primarily due to currency movements, especially in Europe, as well as lower worldwide volume. On a constant currency basis, net sales decreased 2.2% in the third quarter and were virtually unchanged year-to-date versus the same period last year.

Our net sales per hectoliter in constant currency increased 1.3% in the quarter and 0.9% year-to-date due to positive mix. On a U.S. GAAP basis, we reported third quarter after-tax income from continuing operations attributable to Molson Coors of $202.5 million, up from $13.7 million a year ago.

This increase was primarily driven by cycling $275 million of impairment charges recorded for certain Europe brands last year. On a year-to-date basis, U.S. GAAP after-tax income increased 67.5% to $539.8 million, driven by brand impairment charges last year, and a gain on the sale of our Vancouver Brewery earlier this year.

Third quarter underlying after-tax income decreased 14.3% to $222.7 million or $1.03 per diluted share, driven by lower worldwide volume, a higher underlying tax rate, and higher brand investments globally, which were partially offset by positive mix and higher underlying U.S. equity income.

Year-to-date underlying after-tax income decreased 5.5% to $576.4 million, driven by the same factors as in the quarter along with the negative foreign currency movements. Underlying pre-tax income declined 6.2% for the third quarter and 1.3% year-to-date.

Underlying EBITDA in the quarter was $403.1 million, 4.1% lower than a year ago and our year-to-date underlying EBITDA declined 0.8%. Underlying free cash flow in the first three quarters of 2016 was $469.4 million.

This represents a decrease of $24.9 million from the prior year, primarily driven by lower underlying after-tax income and lower distributions from MillerCoors.

Total debt at the end of the third quarter was $9.9 billion, cash and cash equivalents totaled slightly less than $10 billion resulting in a net cash position of $94 million as we prepare to close the MillerCoors transaction on October 11.

Please see the earnings release we distributed earlier this morning for a detailed review of our business unit financial result in the quarter.

Also, please see the Investor Relations page of our website this morning for updated 2015 full-year and 2016 year-to-date pro forma financial statements that reflect our preliminary purchase accounting for the transaction. Now looking forward to the remainder of 2016, following are some financial factors to consider for the fourth quarter.

Our Europe business results will continue to reflect lower net pension benefit. Total alcohol prohibition in Bihar has presented a headwind in an international business since its enactment in April this year and we will continue to address this within our business.

And finally, foreign currency translation, which at current exchange rate would be a headwind of approximately $8 million to our underlying pre-tax results in the fourth quarter this year, with all of the impact in Europe. Given the volatility of our key foreign currencies, particularly the British pound, it is important to watch these rates closely.

Now regarding 2016 guidance, all of the following metrics exclude any effects of the MillerCoors and Miller global brands transaction.

For the full year, we continue to expect cash contributions to our defined benefit pension plans to be in the range of $45 million to $65 million in 2016 and pension expense of approximately $17 million, including our 42% of MillerCoors contributions and expense.

Underlying capital spending of approximately $220 million which excludes capital this year related to the construction of our new brewery in British Columbia, which we expect to be largely funded by the proceeds from the sale of our Vancouver Brewery earlier this year.

MG&A expense in corporate of approximately $120 million on an underlying basis which excludes expenses related to the MillerCoors transaction. Consolidated net interest expense of approximately $110 million on an underlying basis which excludes transaction-related interest expense and income.

An underlying effective tax rate in the range of 18% to 22% assuming no further changes in tax laws, settlement of tax audits, excise tax deductions or share-based compensation or adjustments to our uncertain tax position.

As far as our cost outlook is concerned, we continue to expect full year 2016 cost of goods sold per hectoliter in Canada and Europe to increase at a low single-digit rate in local currency, and we expect a low single-digit decrease in MillerCoors and a double-digit increase in international versus prior year.

As we first mentioned several months ago, with the completion of the MillerCoors transaction we are no longer providing the most recent volume trends for each of our businesses. Earlier this year we told you that we would share more specifics regarding three new performance metrics with you once the transaction closed.

These metrics are transaction adjusted EPS, and all in multi-year cost savings target, and an early view of our combined company underlying free cash flow target for 2017.

So taking these in order; transaction adjusted EPS is a new, non-GAAP performance measure we are introducing to provide enhanced visibility to the performance and value of our Company post-transaction.

To calculate this measure we start with underlying book EPS, a non-GAAP measure, and then add back after-tax book amortization that is directly related to the transaction, and we then add the transaction-related cash tax benefits.

Based on our latest pro forma financial statements which we will post on our website this morning, our 2015 pro forma transaction adjusted EPS was $6.11 per diluted share on an underlying basis.

This calculation includes transaction-related after-tax book amortization of approximately $42 million and cash tax benefits of $275 million per year, but it does not include any pre-tax income related to the Miller global brands nor any benefit from deal synergies.

Because the routes to market and supply chain structures for many of the Miller global brands markets are still being developed, the cost and margin structure for these businesses are also a work in progress. As a result, we have decided to exclude the Miller global brands from our pro forma results for periods prior to the close of the transaction.

For the first three quarters of 2016, pro forma transaction adjusted EPS was $5.43 per diluted share, an increase of 4% versus $5.22 per diluted share for the first three quarters of 2015.

Going on to our second metric, cost savings over the next three years; we have set and all-in target of $550 million which will be made up of ongoing cost savings in all of our businesses, as well as transaction related synergies, all of which will be delivered by the third full year of our combined company which is 2019.

Approximately half of this three-year cost savings target is synergies which represents a synergy goal that is nearly 40% larger and 25% faster than the original $200 million synergies target over four years that we shared with you when we announced the transaction nearly a year ago.

We expect the synergies delivery to be weighed towards years two and three while the other cost savings will be weighted toward years one and two of the program.

As we have been discussing for the past year, we expect these cost savings to come primarily from the areas of global procurement and shared services along with North American supply chain, so they will primarily benefit the cost of goods sold line.

As part of the planning process for the past year, we have also identified a moderate amount of savings from information systems. Please note, that we do not plan to provide additional specifics regarding annual phasing of the cost savings or a detailed breakout of transaction-related synergies versus other cost savings.

Related to this cost savings goal, we anticipate incurring approximately $350 million of one-time incremental cash cost over three years to capture synergies, about evenly split between incremental capital spending and cash operating expense, primarily in the first two years of the program.

Note that the incremental CapEx would be on top of our recent all in CapEx run rate of approximately $650 million to $700 million, plus or minus 10%, including 100% of MillerCoors CapEx in recent years.

With a base CapEx spend of approximately $2.1 billion over the past three years, the CapEx needed to capture synergies represents an increment of less than 10% to our current run rate.

We will continue to apply our pack model to these and all other significant potential capital and cash deployment decisions to help ensure that they are aligned with our priorities.

Finally, as always, when these cost savings initiatives are completed in three years we will continue to pursue cost reductions across our business in order to provide resources to help drive our top line, bottom line and shareholder value.

Finally, to help you model our business we also want to share our preliminary underlying free cash flow target for 2017, which is $1.1 billion plus or minus 10%. Note, that this target includes the impact of incremental interest expense, U.S.

tax expense, and synergies related CapEx in 2017, as well as the cash tax benefits resulting from the transaction. As in the past we plan to report back to you each year regarding how we are performing against these targets. So at this point I'll turn it back over to Mark for highlights of the transaction, business outlook, and Q&A. Mark..

Thanks, Mauricio. This clearly is a historic time in the evolution of Molson Coors. Three weeks ago we completed our acquisition of the remaining 50% stake in the Miller Coors joint venture, along with the Miller global brand portfolio.

We emerge as the world's third largest for bringing together Molson Coors and Miller Coors into a bigger, better organization, as one Company with an expanded portfolio of iconic brands, we intend to leverage or increase scale, resources, synergies and combine commercial experience to accelerate our First Choice agenda and deliver long-term shareholder value.

Because of this game changing transaction, Molson Coors now controls 100% of the highly strategic and attractive U.S. business, and will accelerate new growth the properties in emerging and developing beer markets globally with the Miller brand rights.

This transaction also improves our operating efficiency and go to market strategy by changing our commercial capability in a truly global scale.

Financially, this is a compelling combination based on a very attractive price, ground operational synergies, substantial cash tax benefits, and the attractive financial package that we put in place earlier this year.

As a reminder, for $12 billion of cash, we have purchased the remaining 58% of the Miller Coors joint venture that we didn't already own. The ownership of the Miller brands, which outside of the U.S. we managed in more than 50 countries by our Molson Coors international, Molson Coors Canada and Molson Coors Europe businesses.

Perpetual growth of free U.S. licensees for the existing ASP Miller import license brands, including Perrone, Fosters, gross and Reds [ph] for which Miller Coors most recently paid royalties of approximately $60 million in 2015. And finally, because this is an asset transaction for U.S.

tax purposes, we will receive immediate cash tax benefits that we now estimate will exceed $275 million annually, for the next 15 years. This represented an increase from a previous estimate of more than $250 million per year due to the detailed tax diligence work that we completed during last year.

The purchase price implies a headline enterprise by the multiple 11 times 2015 combined underlying EBITDA. When including the present value of the cash tax benefits to purchase multiple drops in effect of 9.2 times. These tax benefits are common with this type of asset transaction and they carry a high degree of certainty.

As such we believe this is the most appropriate way to value this combination. This represents a very attractive purchase multiple, even though it does not include the anticipated benefit of our transaction related synergies.

We expect this combination to be accretive to underline diluted EPS and transaction adjusted EPS in the first full year of operations before synergies and we expect it to meet our Cardinal rates in year one, which is consistent with their disciplined use of cash framework.

Now, looking forward as a combined Company, our teams are focused on driving our First Choice agenda. Finishing the year with strong performance in each of our businesses and hitting the ground running and integration.

You've heard us speak about these themes in the past for each of our businesses will continue to focus on transforming our portfolio to a the above premium segment, introducing value driving innovation, integrating the Miller brands and lifting and shifting best practices of talent across the global organization.

To provide just a few examples by business, in the U.S. [indiscernible] focus on the development integration of these new craft Partners, Saint Archer, Terrapin, Hop Valley and Revolver.

And FNB's Henry led a new hard great flavor to its line of hard sodas, we will introduce a new line of hard sparkling waters to claim the growing alcohol sparkling water category. Henry's Hard Sparkling will be launched nationally in March with lemon lime and passionfruit flavors.

Reds and Blue Moon Belgian white introduce new aluminum pipe packaging in the second quarter of 2017. Over the past few months we've built a strategy that elevates volume across our economy portfolio. For example, Miller High Life recently announced plans to reintroduce -- that brings back its classic jingle if you've got the time we've got the beer.

We will also revamping its packaging for a further the unique heritage. Elsewhere, across the economy portfolio, Hams will be reintroduced nationally at an opening price point in Milwaukee's Best is getting a total packaging update to give a fresh new look.

And beginning early in 2017 we willfully revamp Keystone light including only packaging and advertising.

For innovation in the value category, we are introducing spike watermelon reserve brand family and we are increasing the size of our PET bottle singles from 40 ounces to 42 ounces for the same price, again to deliver value to our consumers and customers.

In Canada, our team is integrating the Miller brands back into our portfolio and will double down on the above premium MGD. We're also assessing the opportunities for Miller high life and other U.S brands that we can lift and shift into the Canada market.

Mad Jack is performing well in the FNB space and we will consider other innovative options to drive value for our Canada consumers and customers. In Europe, we now have the Miller brands in the U.K and Ireland and this business is also repairing to begin managing the international license and export business in the region starting in January 1.

This will allow us to drive and other league brands were fully aligned strategies across Europe. We will also continue to build our craft portfolio, including further expansion of Blue Moon across the region.

Our international business is well on the way to full integration of the Miller global brands into our portfolio, and we’re leveraging a new footprint, strategy in emerging markets. For example, in Panama and Honduras where our Partners have already embraced Coors Light we are ready to accelerate growth with the addition of the Miller brands.

The international team has also begun planning process for transitioning to Puerto Rico over from Miller Coors on January 1. Going forward Coors and Miller brands will be priority brands for international business.

To summarize, we are delighted to have completed the MillerCoors transaction which is a compelling, strategic and financial opportunity for our Company and our shareholders that catapults Molson Coors to the next level. In this combination key priorities in three specific areas.

Firstly, in brand lead growth the cash tax benefits and cost savings made possible by this transaction will provide resources that we can invest and accelerating the transformation of the front end of our business through, for example, investing behind our core brand across all of our geographies, premiumizing our portfolio and engaging with consumers in new ways, including cross-border exchange of category changing innovation, expanding the depth and reach of our international brands and fast growing markets, including securing a certain and aligned future for the Miller brands globally, and finally, leveraging our shared commercial capability through extraordinary brand building, world-class insight, digital leadership and unrivaled customer excellence.

Secondly, this transformation of our Company offers unique opportunities for us to drive cash generation, through substantial tax benefits, cross synergies, cross-border working capital improvements and disciplined use of our pack model across the combined Company.

We expect all of these benefits to provide strong free cash flow and allow us to quickly pay down acquisition debt and maintain our commitment to investment-grade debt ratings. And thirdly, this transaction represents a prudent high return use of cash for Molson Coors on our shareholders.

We're using this transaction only to make Molson Coors a bigger Company, but also a better Company with our integration complexity normally found in a deal of this size.

As we focus on deleveraging our balance sheet over the next two to three years, we expanded our share repurchase program and have announced we plan to maintain our current dividend of share level and we will revisit our dividend policy once deleveraging is well underway.

Overall, this combination is a game changer in our ambition to become First Choice for consumers and customers, and it's highly consistent with our goals and our focus on building extraordinary brands, delivering innovation and driving significant volume to our shareholders. Now, before we start the Q&A portion of the call just a quick comment.

As usual, our prepared remarks will be on our website for your reference within a couple of hours this afternoon. Also, at 1:00 PM Eastern time today Dave Dunnewald, will host a follow-up conference call which is an opportunity for you to ask additional questions regarding our Quarterly Results.

This call will also be available for you to hear be a webcast on our website. At this point, Chad, we would like to open up for questions, please. .

Certainly, thank you, sir. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Wendy Nicholson with Citi Research. Please go ahead..

Good morning. Just a quick clarifying question.

That $1.1 billion free cash I never did that include or exclude the cost required to get your synergies? Just a housekeeping item? And then second thing, of the $559 of savings to come, can you talk specifically about how much reinvestment specifically in advertising you expect to redeploy? I know some of the strength in Coors Light is probably a function of the fact that spending is up a lot in the year-to-date period in the U.S, so I'm just wondering about sort of targeted reinvestment level you can help us? Thanks.

.

Hi, Wendy, thanks for your questions, two questions. Let me just touch on the savings number and then Mauricio can just clarify in the free cash flow number. With regards to savings we don't offer guidance as to how we will allocate those savings through our business. I don't want to constrain our business with any specific formula.

And clearly as we drive the savings they will either drop to the bottom line or be reinvested back into our business or offset for example inflation on our business. We continue to review our Sales and Marketing investment on a geography by geography basis.

We now have a return on marketing investment model which is allowing us to drive significant efficiencies in our marketing spend, and we will continue to monitor our level of spend in each of our markets to make sure we can support our brands and a way that allows them to be competitive but were not going to offer specific guidance on allocation of those savings.

On the free cash flow number, Mauricio do you want to just clarify?.

Yes. Good morning, Wendy. The $1.1 billion is after taking into account the cost required to deliver the synergies. .

Got it, but just as follow-up to conceptual I know you said in your remarks that you're pleased that the Coors Light brand held scores have improved.

To what do you attribute that? I mean again we track the advertising spending and it looks like that's gone up a lot in the US but is there other stuff specifically that you can call out that you're doing weather is distribution, whether it's work with your salesforce that leading to the stronger brand held scores per se?.

Yes, we could get lost in lots of detail here, Wendy, and across all of our businesses using Coors Light go from strength to strength and I think what's at the heart of that is the clarity of the positioning of the brand which is distinctive and consistent.

So I've said in the past I would rather spend less money on a great idea that more money on a poor idea and actually I think we’ve got clarity on a position in a great creative platform certainly across our international U.S and our European business.

We have now started to transfer the U.S creative platform into our Canada business as well and as we've done that we've seen our brand held scores accelerate in Canada to the last couple of quarters though I really think it comes down to the differentiation and consistency of the positioning. .

Fair enough, thank you. .

Thanks, Wendy. .

The next question is from Vivien Azer with Cowen. Please go ahead..

Hi, good morning. .

Hey, Vivien. .

So firstly on the consolidated cost savings number clearly encouraging you being able to upsize that and pull that forward. Would you be able to offer any incremental color on what gives you that enhanced confidence around the total cost save realization? Thanks. .

Thanks, Vivien. Let me deal with that. So if you remember at the time we announced the agreement to acquire Miller's tours business we did some quick reasonably well informed analysis on the cost savings opportunity and we suggested it would be around $200 million over four years.

Will have the benefit of very, very detailed planning over the course of the last eight or nine months and that work has unearthed further opportunities and really in the detailed planning that's allowed us to move with more pace and set a target that's materially higher than our initial target. .

But just in terms of the three buckets that you guys had previously identified is there anyone bucket that's driving and outsize contribution to that more constructive view?.

We haven't given any color on the proportionality of the cost savings, but the three areas that we've flagged historically in terms of procurement, North American supply chain, shared services, we've endorsed those numbers that we had originally and some areas they have improved.

And in addition to that we've unlocked some additional synergies in the area of IT systems as we consolidate are IT infrastructure and worker pushing out into areas around commercial as well particularly North American level as we look at efficiency of our accretive platforms there, so.

But in the roundness still pretty much the same errors we identified initially and hopefully would expect that because of familiarity with the Business is high. So we went into this with a reasonably good estimate of where we could drive the volume. .

Perfect. That's very helpful, thanks.

Moving on to Canada, I would have expected a slightly better outcome given the level of investment spending that we saw in two Q4 so I was hoping you could comment a little bit more on that? I think you noted the softness in mainstream so it's really a two-part question, do you think that the indefinite spending is doing what it needs to? And does he think ahead to 2017, what potential impact he think is the legalization of recreational cannabis can have on the beer industry in Canada? Thanks.

.

I would describe it as a broad-spectrum test on your two question everything I was expecting the second part of that so while I'm chatting Stewart get thinking. Me just a couple of comments on the first part dumps and performance in the quarter.

Our strategy remains consistent in Canada around making sure that we modernize our supply train and drive our cost down taking for their cost out of our business and improving our overall commercial performance.

You aware of some of the changes we made at the leadership level and as Fred is number two in the customer area, across moved from Europe their focus will be on commercial execution really driving our field sales management and model and really I think the plane more assertive execution in the marketplace.

That started to show up in some of our information measures.

But Stewart, do you want to offer just a little more color on the third quarter? Things that you're pleased about and then if you could think about the recreational drugs question as well perspective on that would be helpful?.

Yes guess 100%, Mark. So looking at the third quarter, three big drivers of the results. First FX -- transactional FX related to US sourcing of raw materials, lower volumes and higher marketing spend. And on the volume side as Mark pointed out that we are seeing some reaches.

We have been growing share in the provinces the West which is having a difficult area for us in September as we saw progress through the third quarter September actually was flat share in Ontario big beer market for us with a growing share in the LC BOM on present.

So the number of tough areas is actually shrinking and I think our increased execution certainly will help that.

At the same time the higher levels of marketing spend are yielding positive improvements in our brand scores, and of course we expect that we will be able to translate that into improved volumes so that's I'll pause for a second because there's nothing else before I talk about cannabis?.

That's really helpful and thanks for indulging the cannabis question. .

Cannabis is something that we are thinking very carefully about not only as a business but also as an industry. And there's a lot of talk certainly about what it's going -- how it's going to be used and where it's going to be deployed et cetera, but there's just a lot we don't know at the moment.

And so we're not even really 100% on clear where it will be sold, when it will be sold, and in the best place I would suggest to look for guidance on what the impact might be would be probably to look at a state like Colorado and see what that has done to beer.

But for the moment, we are studying she goes because of the lack of clarity about the deployment of the drug itself. .

Fair enough. Thank you. .

Thanks, Stewart. .

The next question comes from Judy Hong with Goldman Sachs. Please go ahead..

Thank you, good morning. .

Good morning Judy. .

So a few questions, first, Mauricio, the transaction adjusted EPS for 2015 that's now $6.11 versus the $5.72 that you have given us at the September conference, so it went up by $0.39.

I think the cash tax went up by $0.12 and I think the book amortization actually went down, so can you just rip them $5.50 to $6.11 what's gone up in that adjustment?.

Yes, thank you, Judy so the two items that you mention are correct. What I refer you to the call that we are going to have afterwards led by Dave and you will be able to bridge that.

Now the other factor that you are missing there, is the fact that our interest cost went down from that preliminary number of $5.72 that we had given use of the third component that gets you to the EPS, but we will give you a more detailed walk on the comp. .

Judy, we can give you more details on the call a little bit later but at least the initial headline is that the bridge sorry the pro forma that we put out in May, that you are referring to for the $5.72 transaction adjusted EPS included bridge financing for US GAAP.

And then of course the financing we actually put in place for the long-term funding of the transaction actually in a very favorable rates much more favorable than the bridge loan financing, and so that's the driver of lower interest expense. .

Are the $5.70 is the number you given us in September, correct? I don't think that was the May number. .

Okay, well, adjustment interest rate, additional refinement of purchase accounting and, right, and the adjustment of cash tax benefits related to the transaction. .

Okay we can follow up later. And then Mauricio, just on the free-cash flow follow-up.

So, can you give us the underlying pro forma free cash flow for either 2015 or 2016? Because I'm just trying to get to the $1.1 billion based on kind of the transaction adjusted EPS numbers that you've given us and it seems to imply very little underlying growth and I'm just trying to see if I'm reading it correctly. .

Yes, Judy, look at this point we are just given -- we are going to give you the underlying free cash flow projection for 2017. I would encourage you to a little bit later on we post to the pro forma on our website, you can do your calculations there.

Obviously, when you do kind of the back of the envelope math that you can do there, you would think about the free cash flow generation for MillerCoors [ph] and the free cash the generation for Molson Coors [ph] pre the acquisition and you would get to a level of maybe $1.3 billion, $1.4 billion.

Now there are obviously some tailwinds that are represented in the form of the $275 million of cash tax benefits but also some headwinds because we have a significant interest expense increase of around $250 million per annum because of the acquisition financing.

There is additional G&A expense from the step up, due to the fair value re-measurement required by purchase accounting of around $17 million, and there's higher income taxes because now we on the other 58% of MillerCoors so we’re paying additional taxes of around $200 or we will be paying additional taxes around $200 million in 2017 versus what we did before.

.

Okay and the three and $59 of cash restructuring charge is all that hitting in 2017?.

No, that $350 million number is what we will be spending, that will be a one-time expenditure but it will be spread over the three-year period. .

Okay. And then maybe, Gavin, just wanted to get your perspective on the volume performance for MillerCoors in the third quarter.

Obviously the industry has been a little bit soft, clearly you still have a vision to get to flat volume by 2018 but just seems like that's a pretty challenging order given the recent trend so do you think that you need to really step up investments even more on some of your key brands? Or do you think this is really just a broader industry problem?.

Hey Gavin, do you want to speak to that directly?.

Yes, sure, thanks, Mark and thanks, Judy. Look you are right, three SCR volumes were down across all brand segments and reflective of the industry.

Just as far as our expectations for, do you remember the long-term goals? So expectations are still to be flat in 2018 with growth in 2019, and yes we did see soft industry trends and you see that in our STR figure. But we have now for three straight quarters closed our volume gap with the industry.

We've got some work to do on the segment, but we really like our portfolio there with the largest craft brand in the country with Blue Moon and Leinenkugel's was in the top five as well, as we made four acquisitions we're pleased about them, we've grown our flavored malt beverage shared meaningfully over the last year or so.

Our premium brands continue to perform well. Miller Lite gained share of the premium line segment for the eighth consecutive quarter, Judy, and Coors Light gain share for the sixth consecutive quarter we’ve reengaged the economy drinker and it's a high priority for us.

And we've refinanced our economy strategy at the full distributor meeting, that was well received by our distribution network.

Our above premium performance specifically was hindered by some of the performance on Blue Moon and Leinenkugel's, but particular seasonally and variety packs and as an industrywide trend and an issue we are addressing we have execution plans for early next year, but we are pleased with our performance on a brand like Grapefruit Shandy which doubled its volume.

So overall, Judy, it's one quarter and I'm pleased with the performance overall, particularly from a share point of view. .

Got it. Okay thank you, everyone. .

Thanks, Judy. .

The next question is from Pablo Zuanic, SIG. Please go ahead..

Good morning, everyone. I want us two questions.

The first one bigger picture something that every investor I talked to asks me is what’s the track record of Mark Hunter and why are they the right people to execute here? And of course I asked the question with great respect, right but people look on Felipe having been for 20 years, so what want to understand when we look at MillerCoors of years ago 40 years now Gavin, so if you can answer the question in terms of what your track record, and why should investors be comfortable that this is the right management team to execute this significant plan? And the second question maybe is more for Mauricio, just basically in terms of numbers.

I guess there's different ways to judge the guidance that you've given us today. One way I judge it as I look at the cost savings that MillerCoors generate over the last five years on average, about $129 million per annum, $88 million last year, running about $80 million this year, another $99 this year for the third quarter.

So you can have $120 million on average over the last five years.

But then I look at the synergy number you're giving us today, $275 million divided by three is $92 million and then I take out from the balance the Molson Coors saving -- is another $52 million of cost savings, so synergies plus cost savings at MillerCoors and I know that the lines get blurred right about $124 million per annum, over the next three years; which is what MillerCoors did over the last five years.

So I am not so sure to be -- how to judge that number nice if you can sustain it, but if this is this significant transaction and there's this plethora of opportunities that we talked about in these cost savings, because you are wonderful Company, why would the cost savings, $124 million as per my math total would be similar to what you been doing for the last five years? I guess if you can answer -- well, those of the two questions.

Thank you. .

Pablo, it is Mark here. Clearly to your first question I'm not going to conduct a performance review over our quarterly earnings call or get into detail as to why our board believes that I am the right leader for this business and why I believe Gavin is the right leader for this business.

I will let the track record speak for ourselves, we are both seasoned professionals who have been the beer industry for a long period of time, given significant change across many businesses, integrated businesses like Starbucks [ph] and driven this transaction at a rate on which on a valuation multiple, I think it is utterly compelling for our business so I'll just leave it there, I'm not going to talk in any more detail with you on that.

Let me just backup one second you asked for Mauricio. What we have endeavored to do here is get full transparency and is sure that we are not duplicating any of the cost savings in our business and clearly we've now set a target for the next three years. We will update that on an annual basis.

There was a lot of questions around synergies number and we have scale that up and picked up pace in the synergies number, and we've ensure that there is no duplication with the synergies they are not underlying cost-saving.

And we will continue to test our sales if whether that number can be further improved, as we actually get into fully running the Business.

But we feel it's a number we can meet and we will attempt to beat it makes sense as we look out at our business which, if you remember has very, very little geographical overlap we are going to try this by a number of restructuring initiatives, setting up things like shared services globally and we will get at that and we will update you if there is any new news on that number but we feel it's the right number for our business at this point in time.

.

Thank you.

And just a very quick follow-up regarding cadence I know you're not willing to talk about savings are accretive to the bottom line, but would you be reasonable to assume given that you have this target of stabilizing volumes by 2018 and growing after that, that a lot of the savings would really invest initially we should be thinking more year three and four seeing the accretion decline if you could comment on that that's all.

.

Thanks Pablo. Again I haven't given any guidance as to how we apportion cost savings, one of things that did indicate earlier this year was that we have now developed a small global growth group led by Kandy.

That team will be looking for incremental opportunities to accelerate our topline performance clearly some of those opportunities will require incremental investment in our business. But we will look at those in the round as we aggregate our total Sales and Marketing spend across our business.

I'm more interested in the quality of our marketing and I think there's plenty of examples. There's one of the US market one where people are competitors have been spending very aggressively but let's just say that incremental spend always buy you success.

I'm really focused on the quality and the marketing and the discipline of our execution, and will continue to drive efficiencies across our marketing spend, and if there's a return that makes sense for us as we will put it through the pack model and we will spend incrementally to generate additional return.

We want to drive very hard on getting the top line moving in that will be a focus for us over the course of the next 24 to 36 month. I won't get any more specific. .

Thank you, the next question comes from Mark Swartzberg, Stifel Nicolaus. Please go ahead..

Yes, thanks good morning, gentlemen. A couple on the free cash flow and then a couple in the US. On the free cash flow the $1.1 million you mentioned that includes these one-time cash costs.

How much of that $350 million is actually in that $1.1 billion? And how much as an expense item and how much as a capital expenditure item? And then are there other one-time items in there? On a per share basis we are at $509 million a free cash flow, you basically tone is the transaction adjusted EPS will be down in calendar 2017 or you are saying there is some pretty significant CapEx, I am just trying to understand what else is going on in that number?.

Yes hi, Mark this is a Mauricio. Look we haven't given a specific breakout of the $250 million than to say about half of that would be additional CapEx and half of that would be additional OpEx.

Know if you think about the nature of the cost savings are going to deliver including the synergies a lot of the delivery of the synergies will be happening probably towards the latter part of the three-year period which means that actually the investment to deliver those synergies will be weighted towards years one and two.

We haven't really given it a specific amount of how much of that will specifically hit 2017. As for the headwinds and tailwinds, the $275 million of cash tax savings obviously that's a tailwind for the next 15 years.

The additional interest expense, because of the Company financing, again that something that is going to be there for the foreseeable future, as will the additional DNA expense. Obviously even though that's a non-cash item but something is honestly also going to be there is a generator of those cash tax savings. .

Okay.

I'm still confused only because I'm sitting here with $611 million in your saying this year that number is growing, so call it $6.20, $6.25 represents an transaction adjusted EPS and then the free cash flow view is $5.09 so we are at more than $1 below the transaction adjusted EPS number, which implies again it implies some pretty significant CapEx or something else is going on in transaction adjusted EPS again which is all pro forma for this transaction and doesn't have the international brand so maybe it's a 1:00 o’clock-- so I'm still not I don't know if you have a response to the, yes?.

Rather than get into the weeds on this call, can I suggest we heard the question and I can give you an answer, so Dave and the team will pick it up this afternoon we will try to give you a bridge to give you the clarity. .

Okay. Fair enough that would be great. .

Best way to deal with the question, appreciate the question we will get a response and take you through that and this afternoon's call. .

Fair enough and just shifting to the U.S, I just a curious, Mark or Gavin, craft has been weak for everybody, so just from a broader industry perspective, why do you think craft has gotten weaker sequentially? And how enduring do you think that is? I know that's hard to have a crystal ball there but what do you think that is? And then, just mechanically for the U.S.

business it seems like your distributor inventories are higher than you'd like them to be so is it reasonable to think your own shipments will lag your STRS in the fourth quarter?.

So Mark let me split that into two so Gavin, I will pass it across to you on the STRS section in a second, let me offer a couple of headlines around craft.

I don't think it's true to say the craft is for weak for everybody, that's a really general statement I think there's a number of craft companies that continue to show very strong growth, and we just acquired a number of them which is a good thing for a business.

I think what you are starting to see though in the marketplace is what I describe is probably over supply of flavors and SKUs or beer spirals and SKUs in both retailers and consumers are trying to make sense of the plethora of choice and thus against the backdrop the craft has been good for the beer industry, because it's driven conversations and interest in beer to probably an all-time high, but you get to the point where each SKU has to deliver on a velocity basis and has to actually demonstrate its value to customers and consumers.

As Gavin mentioned earlier things like seasonal packs, which have been a big driver of the craft industry have really started to come under pressure, because consumers are now in essence making up their own seasonal packs by the way that they actually shop the shelf.

But I think what you're starting to see is from a retailer perspective; they really simplified offering and Walmart just did that recently as they reset all of their shelf sets, so the more progressive retailers are really trying to focus on those brands that have got long-term distinctive positioning’s, and drive velocity per SKU.

Also thing from a consumer perspective, because most of the craft growth has been driven in the back of heavily held IPAs consumers are recognizing; those beers are great but they are not beers you can probably take with you through a long occasion, and we are actually starting to see some consumers step back into some of the American light brands.

I think it is just craft starting to kind of shake itself out with the brands that are well positioned, clearly distinctive and alongside that the retailers really starting to simplify their offer, and that's incentive at the moment but that starting to have an impact on overall kind of craft velocity or craft trends.

Gavin you want to anything to that.

And then pick up the STW STRS puff question?.

Thanks, anything I can add to that, pretty much what you said, I mean there's tons of choice and there's not a lot of floor space, velocity retail is important, so that's why our building with beer program which we launched [indiscernible] had such a positive impact with beer buyers at retail, not only on premise but also off premise.

As far as the STWs STRS are concerned, Mark, fundamentally that's just a difference in timing. If you remember at the end of Q2, that dynamic was reversed with domestic STW s down and STRS were down less than that.

On a year-to-date basis, those two numbers are much closer and generally, we try and align those things much closer by the end of the year as we try to ship to consumption. I wouldn't get too worked up on quarter-over-quarter because of timing on those price increases and so on. .

That's great.

And if I could real quick and that's very helpful, July 4, Anheuser-Busch [ph] have called out the timing of July 4 as affecting the industry? Do you think the timing of July hurt the industry in the third quarter?.

Yes, it did, yes. I would agree with that statement. .

Great. All right, thanks, Mark. Thanks, guys. .

The next question comes from Bryan Spillane with Bank of America. Please go ahead..

Good morning, everybody. I'm going to hold off on the free cash flow question until 1:00 o'clock. Dave, this could be one of the most anticipated 1:00 o'clock calls in a while, I think.

So my question is just related to the cost savings and if you could give us some outside of the synergies, if you could give us an sense of like what's included and what's not? You've got the process you're going through in Vancouver in terms of selling the brewery and you'll migrate to a new brewery there.

I guess there is a potential the same thing could happen in Montreal.

Is Eden, North Carolina brewery in that inside the savings number? Just any sense of some of those bigger items that may be in there would be helpful?.

Mauricio do you want to?.

Yes. Hi, Brian. So with respect to the cost savings -- I mean some of the items that you allude to, that you alluded to during your questions are indeed in there. So for example, the savings that will come from the Eden Brewery closure are included in there.

The work that we are continuously doing in terms of looking at our procurement in addition to the savings related to procurement that are in the synergy number and as Mark referenced to earlier, we made a concerted effort to ensure that we've separated what is sort of business as usual savings which as you know a way of doing business here from the piece that's going to come specifically from the synergies.

There are also other savings that are coming from looking at our supply chain network that are not included in the synergy piece of the optimization of the North America supply chain grid.

So just a lot of savings that are coming from our business as usual run-of-the-mill, running the business vis-à-vis the synergies that have specifically to do with those three buckets that we alluded to earlier..

Brian, this is Mark. The other context point I will give you is over the course of the last three or four years, at an enterprise level we've tried to drive forward what we've described as a one way principles.

So across our major functional areas to try and drive for consistency of approach and whether that's world-class supply chain, HR one way, and we're now introducing that from a commercial perspective in terms of our commercial excellence approach, really trying to drive for best practice orientation and consistency of approach wherever we can in the business and that's been one of the drivers for unlocking additional efficiency savings through our business.

I think a big part has been in our world-class supply chain where we truly believe that we are world-class or close to world-class in many areas. So we will continue to crack the handle on that and drive as much value and efficiency as we can out of those areas while overlooking the synergy opportunity as well..

All right, thanks, gentlemen. We'll catch up at 1:00 o'clock. .

Thanks, Brian. Nice to have you back. .

Our next question is from Rob Ottenstein with Evercore. Please go ahead..

Great. Gavin, we understand certainly the goals on the improvement in the volumes and trajectory for 2018-2019.

If that doesn't pan out and if we have a continuation of the current trends -- what sort of opportunities would there be do you think in terms of managing the brewery footprint to address that?.

Mark, do you mind if I take the question direct?.

No, just on you go Gavin and I will give you some….

I was talking to Robert, I'm not planning to fail, right. I think we've got the right plans, the right strategies, the right brands and the right people to get this done.

And I wouldn't look at this on a simple quarter basis this is a longer term plan, the industry had a tough quarter, it's surely but our expectations are still flat in 2018 with growth in 2019, and I can run you through all the high-level plans that we've got on our brands but I'm -- we as a business are certainly focused on that goal and believe we will achieve it..

And Robert, Miller color there is, as an enterprise level we're committed to supporting putting Gavin and the team to make that happen.

There has been lots of questions over the course of the last 12 to 18 months on how will we get there and we've tried to release simplified thinking into three specific areas; our economy, our below premium strategy, and many of you have asked about clarity on our thinking there, that's now been clarified and launched and generated a lot of excitement with their distributors.

Many of you have asked about our ability to get Coors Light and Miller Lite growing at the same time and we are now doing that consistently and alongside them Coors Banquet is going from strength to strength. And we continue to drive the premiumization of our portfolio on the craft acquisitions and Henry's are great examples.

Don't forget that Red's which is now such a significant brand didn't even exist just over three years ago. And my view is that we still have untapped opportunities in our own portfolio as well. So all of the component parts are there, a lot of it is down to how worthless we want to be from an execution perspective.

But Gavin and the leadership team have driven a significant change in the ambition and energy and focus in our U.S.

business and it's been great to see that happening and some quarters will be tougher than others but we are absolutely resolute on our ambition to get this business back into growth trajectory and as Gavin said, that's over the course of the next couple of years..

That's terrific.

On the international side, can you give us -- and I know some of this may have come out earlier on in the prelude but can you give us an update of where you are on the Miller brands globally and had there been any new agreements in terms of supply and distribution?.

Yes. So let me ask you Kandy [ph], who is obviously transitioning at the moment from his previous role across the Stuart but Kandy's been leading that stream of work.

So Kandy do you want to just offer some highlights around that at this stage?.

Sure. Hi, Robert. So we've got progress in terms of planning and executing a transition of the Miller brands into our systems because it was relatively easier in places like Canada and the UK which came on to our business footprint.

We have the cities or markets where we've had existing partners; Panama, Honduras, as an example where we moved the distribution on to our existing partners in the markets which were new to us. We have established with one or two exceptions, almost all of them new distribution agreements that are in place.

In terms of production, we are aligned either on our infrastructure like MillerCoors and in certain cases, we are continuing to rely on transitional service agreements by ABI; and we will be working to transition those into our own system as well.

But overall, I'm very pleased and Stewart, Simon, Fred are all involved this in terms of transitioning over into our set up, our initial two to three weeks has gone without any significant issues, and so we are quite pleased with the transition..

Are you able to discuss who any of the -- in the more notable markets, are you able to discuss who any of the new Partners are?.

We haven't made any kind of public statements around that other than in markets like Panama, we have an existing partner there and we've transitioned across but I think I would probably save that maybe until our Q4 February call.

Robert can give a filler update just because we are working through some of the finer detail at this point in time but where there is not a partner in place, there are TSA's, transitional service agreements in place and as I mentioned earlier, I mean some of the markets are doing better than we anticipated, some of the markets are going to take a bit more work to get back on the front so as you would expect in a transition of this nature but we'll get probably more color and a fuller update on our February call..

Great. Well thank you very much..

Thanks, Robert..

Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Mark Hunter for any closing remarks. .

I just like to thank everybody for their continued interest at Molson Coors. We've opened a new chapter in the history of our business and as a leadership team, we are delighted to be leading the business forward from this position. And we look forward to updating you as we make our business bigger and stronger in the coming quarters ahead.

So thank you for your continued interest in our business. Thanks, everybody..

And thank you, Mr. Hunter. This concludes today's conference. Thank you for attending. You may now disconnect. Take care..

Thank you..