Mark R. Hunter - Molson Coors Brewing Co. Tracey Joubert - Molson Coors Brewing Co. Gavin D.K. Hattersley - Molson Coors Brewing Co..

Bryan D. Spillane - Bank of America Merrill Lynch Robert Ottenstein - Evercore ISI Andrea F. Teixeira - JPMorgan Securities LLC Stephen Robert Powers - Deutsche Bank Securities, Inc. Dara W. Mohsenian - Morgan Stanley & Co. LLC Amit Sharma - BMO Capital Markets (United States) Judy Hong - Goldman Sachs & Co. LLC Vivien Azer - Cowen & Co. LLC Lauren R.

Lieberman - Barclays Capital, Inc. Mark David Swartzberg - Stifel, Nicolaus & Co., Inc. Pablo Zuanic - Susquehanna Financial Group LLLP Brett Cooper - Consumer Edge Research LLC.

Good day and welcome to the Molson Coors Brewing Company First Quarter 2018 Earnings Conference Call. Before we begin, I will 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 and in U.S. dollars. Following the prepared remarks this morning, management will take your questions. In order to allow as many people to ask questions as possible, please limit yourself to one question.

If you have multiple questions, please ask your most important question first and then return to the queue to ask additional ones. Now, I would like to turn the call over to Mark Hunter, President and CEO of Molson Coors..

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

business; Fred Landtmeters, our Canada CEO; Simon Cox, the CEO of our Europe business; Sergey Yeskov, our International CEO; Lee Reichert, our Chief Legal and Corporate Affairs Officer; Brian Tabolt, our Global Controller; and Dave Dunnewald, Global VP of Investor Relations.

Today, Tracey and I will take you through our plans to drive long-term total shareholder returns, highlighting our first quarter results and also discuss our outlook for the business. Along with this, we are offering related slides on the Investor Relations page of our website.

As context to our 2018 first quarter results, we finished 2017 as the first full year of a new, larger Molson Coors, with solid financial and commercial performance and excellent progress on integration and synergy-driven cost savings.

Our First Choice approach to strengthen and premiumize our portfolio, build strong customer relationships and deliver meaningful profit contribution from our international business, while driving capability, productivity and sustainable cost savings, remains our strategy.

And this is underpinned by our absolute and primary focus on cash generation, deleverage, margin expansion and delivering total shareholder returns. In Q1, which is seasonally the smallest profit quarter of the year for us, our Canadian, European and International businesses maintained their underlying progress from 2017. The U.S.

beer industry had, as you are aware, a softer-than-anticipated start to the year, which has impacted both top and bottom line performance and which, when coupled with the U.S.

distributor inventory destocking and the anticipated cycling of the indirect tax provision benefit in Europe from last year, led to an underlying EBITDA reduction of 18.5% for our company in the first quarter.

We do not see these results as indicative of our full-year performance versus our plan and we remain committed to delivering our 2018 guidance. Now, looking more closely at Q1, there are three specific negative performance drivers, one of which is already behind us and another which we expect to fully reverse by the year-end.

The first relates to cycling the reversal of the indirect tax provision benefit in Europe, which negatively impacted net sales and pre-tax income by approximately $50 million and is now behind us. The second relates to reduction in U.S. STWs, which declined by 6.7%, as we under-shipped versus last year. U.S.

distributor inventory levels were lower than planned, compounded by the rollout of our new ordering system at the Golden brewery, which has taken longer to ramp up than expected.

Compared to last year, we under-shipped by approximately 450,000 hectoliters, which represent approximately $30 million of gross profit and we expect this to reverse on a full-year basis, with the negative first quarter profit impact reversing primarily in the second half of this year.

The third performance driver relates to overall industry softness with our U.S. brand volume or STRs down by 3.8%, as poor weather dampened overall industry demand. Our market share trends, however, remained consistent with 2017.

Against this backdrop of year-over-year headwinds, we continued to drive positive global pricing and improved first quarter EBITDA in Canada, International and Europe, excluding the impact of the indirect tax provision benefit from last year.

We expect the International business to contribute meaningfully to the bottom line in 2018 as we anticipate full-year EBITDA delivery of $20 million to $25 million.

In the U.S., the suite of consumer and customer activity that is just reaching the market has been very positively received by our distributor network and we're very encouraged by the early reaction to the portfolio additions, such as Sol and Arnold Palmer.

Now, we will continue to drive premiumization of our portfolio and our above-premium brands accounted for 19% of our portfolio, consistent with 2017. Despite strong growth from many of our above-premium brands, volume declined by 4% as we reduced promotional intensity in Mexico on Coors Light and saw softer volumes in the U.S.

in our flavored malt beverages. Continued premiumization of the portfolio and strengthening our mainstream brands remains central to our approach, as evidenced by the performance within Europe and Canada. Now, let me turn the call to Tracey to give more detail on the first quarter..

Thank you, Mark, and hello, everybody. Our 2018 bottom line focus includes delivering strong free cash flow, generating cost savings and strengthening our balance sheet via debt paydown. While our earnings release provides more details, I want to spend a moment to share the following specifics for 2018.

We are reiterating our underlying free cash flow guidance of $1.5 billion, plus or minus 10%. Cost savings guidance remains $210 million in 2018 and is part of our three-year target of $600 million. Recent input cost increases make these savings initiatives particularly important this year.

Also, while our COGS per hectoliter guidance remains unchanged for the year in the U.S., Canada and Europe, we are seeing added pressure from significant spikes in the cost of a few key inputs. These include aluminum and the particularly volatile Midwest premium storage cost, along with higher freight and fuel.

We have hedging programs in place, which provide partial protection from these increases. Last quarter, we quantified 2018 inflation headwinds of more than $110 million. In the current volatile cost environment, our teams are working to mitigate the impact of these increases.

Now, let's review our consolidated financial headlines for the first quarter versus a year ago. As highlighted in our earnings release, U.S.

GAAP net income increased 33.4% as a result of a $328 million cash payment received in January 2018 related to a purchase-price adjustment to our acquisition of the Miller International business, along with positive global net pricing, cost savings and lower interest expenses.

These factors were partially offset by unrealized mark-to-market losses on our commodity positions versus gains a year ago, lower financial volume, the impact of cycling the indirect tax provision benefit and higher input cost inflation.

Underlying EBITDA decreased 18.5% on a reported basis and 19.7% on a constant currency basis, driven by lower financial volume, the impact of cycling the indirect tax provision benefit, global mix and higher input cost inflation, partially offset by positive global net pricing and cost savings.

Net sales decreased 4.8% due to lower financial and royalty volumes, negative global mix, adoption of the new revenue recognition accounting standard and the approximate $50 million impact of cycling the indirect tax provision benefit in Europe. This was partially offset by positive global pricing and foreign currency movements.

Net sales in constant currency declined 7.2%. Net sales per hectoliter, which is now presented on a brand-volume basis, decreased 2.6% in constant currency, driven by cycling the indirect tax provision reversal, adoption of the new revenue recognition accounting standard and geographic sales mix, partially offset by positive global pricing.

On a reported financial-volume basis, NSR per hectoliter increased 0.1%. Worldwide brand volume decreased 3.1%, driven by the U.S., Canada and International declines. Global priority brand volume decreased 5.6% and financial volume decreased 4.9% and was adversely impacted by reductions in brand volumes, wholesale inventories and contract brewing.

Coors Light brand volume declined in the U.S., Canada and International, but continued to grow in Europe. And now, I'd like to share some regional highlights.

In the U.S., underlying EBITDA decreased 12.2% versus last year, driven by lower STW volumes, negative sales mix, volume deleverage and COGS inflation, partially offset by higher net pricing, cost savings and lower MG&A expenses. Net sales per hectoliter increased 1.1% in the quarter.

Excluding the effect of the new revenue recognition accounting standard, NSR per hectoliter would have increased 1.4%. As Mark highlighted earlier, two factors negatively impacted our U.S. business this quarter.

First, our domestic sales to wholesalers declined 6.7% and reflected lower-than-planned distributor inventory levels, which negatively impacted gross profit by approximately $30 million and was compounded by the launch of our new ordering system at the Golden brewery that took longer to ramp up than anticipated.

We expect this inventory impact to reverse on a full-year basis, with the negative first quarter profit impact reversing in the second half of this year. Secondly, the overall industry softness was reflected in our U.S. brand volume decline of 3.8%. Despite the inventory and industry backdrop, our market share trend was consistent with last year.

We continued to gain share in Premium Light, as Miller Lite gained segment share for the 14th consecutive quarter, while Coors Light slightly underperformed the segment.

We gained share of segment and industry with our below-premium portfolio, while our above-premium share loss was driven by declines in the increasingly competitive flavored malt beverages category.

Premiumization of the portfolio did benefit from continued growth from our regional craft brands during the quarter and we are excited about activation for Blue Moon, Leinenkugel's Summer Shandy and our portfolio innovations as we approach peak selling season.

Our Canada underlying EBITDA increased 2.5% in the first quarter on a reported basis, driven by positive sales mix and foreign currency movements, partially offset by lower brand volume and net pricing. Canada underlying EBITDA on a constant currency basis declined 0.5%, showing continued improvement compared to previous quarters.

Net sales per hectoliter declined 2.9% in constant currency during the quarter as a result of the adoption of the new revenue recognition accounting standard. Excluding the effect of the new accounting standard, NSR per hectoliter would have increased 1.1% due to positive brand mix and this reflects our continued strategy to premiumize our portfolio.

Brand volumes decreased 3.3% in the backdrop of a weak industry in western Canada during the quarter, and high inventory levels in Québec at the start of the year as we concluded union contract negotiations.

While Coors Light and Molson Canadian volumes are still the majority of the decline, we continue to stay focused on improving our share trends in the premium segment.

In Europe, our underlying EBITDA declined by 65.2% in the first quarter on a reported basis and 68.5% on a constant currency basis, primarily due to cycling the indirect tax benefit in 2017.

NSR per hectoliter declined 18.3% on a constant currency basis, primarily due to cycling the indirect tax provision benefit and adopting recently revised excise-tax guidelines. During the quarter, we gained market share in Europe, driven by strong performance from Coors Light, craft and many of our national champion brands.

While Staropramen was down due to weak Czech Republic on-premise channel, we continued to premiumize the portfolio with growth from Staropramen outside its home market. Top and bottom line results were also impacted by the increased investment we made in our First Choice Agenda during 2018.

In addition, we have chosen to adopt recently revised industry guidelines for calculating excise tax payments in one of our markets, which reduced our Europe NSR per hectoliter by low-single digits. This was partially offset on the bottom line by the benefit of cycling an $11 million bad debt provision in Croatia last year.

Brand volume growth was achieved despite unfavorable March weather in many of our Central European markets this year. During the quarter, our U.K. team also successfully integrated the Aspall Cider business that we acquired in January.

For our International business, underlying EBITDA improved by $2.1 million from last year, driven by lower MG&A costs, including a settlement related to our Colombia business, along with higher net pricing. These factors were partially offset by the loss of the Modelo brands in Japan.

Net sales per hectoliter declined 0.5% in constant currency, driven by unfavorable sales mix, partially offset by positive pricing. We achieved organic volume growth in many of our focus markets. However, total brand volume decreased 7.1% in the quarter, driven by the loss of the Modelo contract in Japan.

Volumes were also negatively impacted by Mexico as we reduced promotional intensity to better balance volume and price and drive for higher bottom line performance in this large beer market.

As Mark mentioned earlier, strong Q1 performance and our full-year plans give us confidence in generating $20 million to $25 million of underlying EBITDA in our International business this year.

As a result of the adoption of the new revenue recognition standard and pension accounting guidance, we have provided incremental details in our earnings release and 10-Q, which our investor community may find helpful when modeling out our business.

Looking forward, we will ensure that our business generates strong cash flow, as we strengthen our balance sheet and deliver cost savings, while increasing our EBITDA margins over the next three to four years.

And, finally, as many of you have anticipated, we plan to discuss our capital allocation priorities in more detail during our Annual Investor Day in New York in June. At this point, I'll turn it back over to Mark..

Thanks, Tracey. I began this call by outlining our plans to drive total shareholder returns. And going forward, we believe our ambition to be First Choice for our consumers and customers will be central to both our bottom and top line success. Our regional business priorities are clear and consistent.

In the U.S., we plan to rebuild distributor inventories in the second half, as we are continuing to drive our portfolio strategy of building distinctive brands across all segments to meet the needs of all American beer drinkers.

We'll continue to gain segment share in premium, grow volume in above-premium and continue to stabilize our below-premium brand volume and share. We gained share in Premium Lights, led by Miller Lite. And this brand will have even bolder messaging to further assert its positioning as the original light beer that doesn't compromise on taste.

We believe the new Coors Light creative and refreshed packaging will improve the recent trend declines, as the brand will reinforce its role as the World's Most Refreshing Beer, including the summer collaboration with YETI, a premium outdoor brand.

We have more work to do in the above-premium segment, but we are seeing strong demand for Blue Moon Mango Wheat and Blue Moon variety packs as well as the recently released 15 packs and 24-ounce cans of Blue Moon Belgian White.

We'll also look to build on last year's record-setting performance from Leinenkugel's Summer Shandy and compete more assertively within the strongly growing hard seltzers segment with Henry's Hard Sparkling, which is now available in the slim can package.

The geographic footprint of our regional craft brands will continue to expand and we expect Terrapin, Hop Valley, Revolver and Saint Archer, collectively, to continue to far outpace the craft segment. In below-premium, we continue to grow share of both segment and industry with our brands, led by the Keystone family. Our 2018 U.S.

innovation line-up is off to a strong start. The Sol brand was re-launched in April with redesigned packaging, supported by an integrated marketing campaign that will be prominently featured throughout the summer, especially during the FIFA World Cup. Early results are very promising.

Arnold Palmer Spiked Half & Half distribution is ramping up and will be supported through an expansive media campaign and suite of retail tools. And lastly, retro favorite and 2017 success, Zima will be available for a limited time starting on Memorial Day.

Despite the recent headwinds we have been facing, we believe we have the brands, plans and people to drive increases in profit and free cash flow and ultimately to reach our goal of volume growth. In Canada, the team continues to focus on executing our strategy to strengthen our business.

Our consumer excellence teams will continue to focus on evolving the shape of our brand portfolio, with the objective to stabilize our premium brand performance, accelerate the growth of our above-premium portfolio and simplify our offering in the economy segment.

In below-premium, we've seen the recently launched Miller High Life brand delivering strong early results and perfectly complementing our Pilsner and Black Label brands, as all three brands enjoyed growth in the first quarter. In the premium segment, we'll see increased brand activity starting in the second quarter.

While we approach the end of the hockey and basketball season, we have already shifted gears to baseball, which sees Coors Light starting its first season as the beer sponsor of the Major League Baseball in Canada.

As consumer preference for above-premium brands continues to increase, we'll keep driving an acceleration of the growth of our key import brand, Heineken, as well as our owned MGD and Coors Banquet brands.

Trou du Diable, our most recent addition to our craft beer portfolio, is broadening our footprint in the world of craft in Québec and delivering strong early results. In terms of above-premium innovations, we have lifted and shifted two MillerCoors brands, Leinenkugel's Shandy and Henry's Hard Soda, in March into the Canadian market.

Also, we will soon add Coors Edge, a new non-alcoholic product introduction complementing our current 0.0 offering in this rapidly growing segment, that's from Heineken 0.0. Finally, as we look to ongoing productivity improvements, the build-out of our new highly efficient brewery in B.C.

is on track for brewing in the next year and planning for our new brewery in Québec is advancing quickly. In Europe, we'll continue to use a balanced portfolio approach, disciplined retail execution and optimization of our brewery network and infrastructure.

The impact of the recently revised excise-tax guidelines and the increased investment in strengthening our First Choice Agenda will continue through the balance of 2018, as we seek to grow top and bottom line sustainably.

When modeling the results of Europe, we currently anticipate a low-single-digit impact per quarter to NSR per hectoliter for the remainder of the year and it's also important to note the changes in pension accounting this year that are outlined in our earnings release.

Our commercial teams will build on our positive momentum by further strengthening our national champion brands, including Carling, our largest brand in Europe.

As we approach peak beer and cider selling season, we are also excited about the potential we see for the Aspall business, which provides another above-premium cider brand as we further premiumize our U.K. portfolio.

Our balanced portfolio approach also relies on continuing commitment to maintain and improve our customer relationships as we continue to drive our First Choice Agenda.

In 2017, our International business broke through to EBITDA profitability as we expanded our geographic footprint and added significant brand scale and we expect significant additional bottom line progress in 2018 as mentioned earlier.

This business will continue to utilize an asset-light model in select markets, and our efforts will focus on Coors Light, MGD and Miller Lite. Our growth strategy includes several high-potential markets and success in these markets will play a pivotal role in reaching our long-term top and bottom line international growth targets.

Across Molson Coors, our teams are focused on our first priority, which is to drive margin expansion, bottom line growth and strong free cash flow to enable deleverage.

Our second priority remains to deliver an improved top line through our First Choice commercial excellence approach, which provides the most sustainable source of profit growth over the medium to long term.

Capital allocation within our business continues to be guided by our Profit after Capital Charge or PACC approach, as we seek to deliver total shareholder returns. Our regional business plans are clear and consistent with these priorities and we remain committed to delivering our full-year 2018 plans.

Now, before we start the Q&A portion of the call, just a quick comment, as usual, our prepared remarks and slides will be on our website for your reference later this afternoon. Dave Dunnewald and Kevin Kim will be available via telephone or email to assist with any additional questions you may have regarding our quarterly results.

And additionally, in the next two months, we hope to see many of you at two events. Firstly, we'll hold our Annual Meeting of Stockholders on Wednesday, May 23, 2018, in Denver, and secondly, we'll host our Annual New York Investor/Analyst Day at the New York Stock Exchange on the afternoon of Wednesday, June 6 of this year.

So, at this point, Alison, we'd like to open up for questions, please. Thank you..

Thank you. We will now begin the question-and-answer session. Our first question will come from Bryan Spillane of Bank of America. Please go ahead..

Hey. Good morning, everyone..

Good morning, Bryan..

Hi. I've got a question, I guess, related to, in the U.S., the gap between sales to wholesalers and sales to retailers and I guess there's kind of two parts to it.

One is, I guess, as you had shipment issues out of the Golden brewery, has that at all affected service levels and affected sort of consumption at all, so there've been added stocks or any effect sort of in the commercial aspect of it? And then, the second, again, related to this gap is, has there been any retail inventory destocking? And I asked in the context of some large retailers have begun to kind of clean up inventory in the back room.

And so, just curious to the extent that that's affected your businesses and, if it has, will that sort to be a permanent reduction in retail export? Thank you..

Hey. Thanks, Bryan. Let me just give you a headline and then, Gavin, if you want to pick up the specific.

I mean, I think the important thing is if you take a half step back here and just look at our market share performance, so really look at the demand in the marketplace at consumer level, our market share performance has remained very consistent from a trend perspective.

So, I think, at a higher level, you can see that it hasn't really had an impact on our underlying market competitiveness. But, clearly, behind that, there are always puts and takes.

So, Gavin, do you want to talk just a little bit about some of the puts and takes on STWs versus STRs?.

Yeah. Sure. Thanks, Mark. Good morning, Bryan. Look, I mean, it's clear that we have had some out of stocks because of the Golden brewery rollout of our new system. It's been relatively more significant in our Central and Pacific Northwest regions and, to a limited degree, in the Great Lakes, while the rest of the country wasn't impacted.

From a retail point of view, Bryan, I would say no. I mean, the retailers have, for some time, been taking SKUs levels down. That has actually resulted in increased velocity for some of our faster-moving SKUs. So, I would say no to the second part of your question.

And if you look more broadly at STRs and STWs with STWs being down about 6.7%, if you took into account the change in the inventory levels and the impact on shipments, our trend would be much closer to the STR level of down 3.8%..

Thanks, Gavin..

Our next question will come from Robert Ottenstein of Evercore. Please go ahead..

Great. Thank you very much. Could you give us a little bit more color on your 1.4% increase in revenue per hectoliter in the U.S., which was pretty strong? But you noted that mix was negative. So, how much was price up and what were the drivers on the negative mix? Just a little bit more understanding of that number, please..

Hi, Robert. Sure. So, again, I'll ask Gavin to talk to that. I mean, I think, just to add to your question, one of the important things to recognize is if you look right across our business, we've seen strong focus and strong development of our NSR per hectoliter performance.

And I think that's testament just to the way that we're really driving our pricing and revenue management capability in our business.

But if you want to dive a bit deeper into the U.S., Gav, do you want to just talk about the relative price mix combination?.

Sure, Mark. On a comparable basis, Robert, and that excludes the impact of the new revenue recognition accounting guidance, our domestic net sales per hectoliter grew 1.4%. Sales mix was negative by about 90 basis points. That implies growth of 2.3% against net price components.

That net price portion does include a benefit from our portion of the federal excise tax law change that reduced it to $16 a barrel for the first 6 million barrels. So, that's in these numbers. And remember, we did pass along 30% of our saving across to our distributors in terms of our economic model. And that would probably about 50 basis points.

Our negative sales mix was primarily driven by package mix and it was led by the success of the Keystone 15 packs.

Our economy strategies are working really well as you can see by the growth in Keystone, Hamm's and Steel Reserve Alloy Series and, of course, we like the success of our economy strategy, but unfortunately it has a negative impact on mix, which did offset the strong growth of Peroni and Crispin and other regional crafts.

Going forward, we're going to stay highly focused on increasing our share of above-premium. We got lots of opportunity to do that, Robert. In Q2, we will ramp up our efforts on Sol and Arnold Palmer Spiked as Mark said in his opening remarks. And we're going to build on Leinie's Summer Shandy volume.

Our regional craft companies are going to drive positive mix and so will Blue Moon as we come out of our supply challenges that we've experienced together with the introduction of that new 15 pack and the 24-ounce singles. And we are going to increase our media pressure behind the brand.

From a mix point of view, Redd's remains a challenge and we're going to continue to optimize our flavor profiles and with Redd's Wicked, we're going to increase our spend behind that brand. So, given all these efforts, we would expect our mix to improve over the balance of the year..

Yeah. Thanks, Gavin..

Our next question will come from Andrea Teixeira of JPMorgan. Please go ahead..

Hi. Thank you for taking my question. Just I wanted to, Mark and Gavin, just to clarify, I mean the 3.8% that you've alluded to on the release was the STRs, I understand.

So, in the balance of the year, what do you think those STRs will likely migrate to in the context of your guidance, what you can control in terms of how you're seeing the balance of the quarter? And if you can give us any sort of quarter to-date approximate number, that will be helpful. Thank you..

Hey, Andrea. It's Mark here. We don't give that level of guidance either within quarter or on a full-year basis in relation to our volumes. And I think, again, if you take a step back, our market share performance remained consistent in the first quarter with what we've seen over the course of the last number of quarters.

I think Gavin and I's view would be that we expect the U.S. industry to be more in line with, I would say, the historical medium-term trends. So, that's how we are planning our business as we look through the balance of this year. So, we don't give specific STR guidance..

Our next question will come from Stephen Powers with Deutsche Bank. Please go ahead..

Hey, guys. Thanks. Good morning..

Hey, Stephen..

So, you guys in the category are obviously off to a tough start, but you've maintained the full-year outlook despite what I'm hearing as incremental headwinds in aluminum and international COGS and freight and fuel. So, I guess what I'm trying to get underneath is what gets better as the year progresses, as you sequence away from Q1.

It doesn't look like you're pulling forward any savings from the future or funding new savings. So, again, I'm struggling for where the offset is in your outlook.

And perhaps as you're answering that, you could talk about what you're expecting shipment trends to look like for the remainder of the year and just how clear your visibility is really in the context of Golden that the U.S. sales, the wholesalers will fully correct as the year progresses. Thanks..

Stephen, let me try and kind of break that down for you. So, to take your last point first, I think we've been consistent. We always try and ship to consumption. So, we expect the relationship between our STWs and our STRs to be in balance by the year-end.

So, the imbalance you've seen in the first quarter, we expect to reverse both from a volume and a gross margin perspective through the second half of this year.

I think if you then come and look at our total performance, the one thing to bear in mind is that if you look through 2015, 2016 and 2017 on a full-year basis, we've always delivered on our full-year commitments and even when we've had some volatile quarters. So, Q1 of this year is a little bit unusual.

There's a couple of big events in there which are unusual and that's why we believe we are still committed to our guidance for this year. If you look historically, the first quarter is only about 14% or 15% of our total profit. So, we've still got the majority of the year ahead of us from a profit delivery perspective.

And we've talked again very consistently about the fact that we've retained flexibility in our P&L to deal with either opportunities or headwinds emerge. And we've done that, I think, very successfully over the course of the last two or three years. So, big picture, we've consistently delivered on our full-year performance.

We remain committed to our guidance and our full-year plans for this year and we've got the majority of our profits still to deliver through Q2 to Q4. So, that's probably the best context I can give you..

And, Mark, if I could just add there as well and, Stephen, just to talk a little bit about the COGS side, so we do have a very robust hedging program. We're not fully hedged, but that does provide partial protection to our COGS line.

And then, as Mark has mentioned around flexibility in our P&L, there are levers that we can pull and we've shown that in the past that we can do that in order to protect our bottom line and deliver on our medium-term guidance as well as our guidance for 2018..

Okay. Thanks, Tracey. Thanks, Stephen, for the question..

Our next question will come from Dara Mohsenian of Morgan Stanley. Please go ahead..

Hey, good morning, guys. So, just to follow up on Steve's question, I'm just wondering – I know you won't give us a specific number, but have your expectations changed on the U.S. volume front in terms of your delivery of that full-year guidance? And then, the real question is you basically highlighted that weather drove a lot of the U.S.

industry softness in the quarter. Presumably, there are other factors also.

So, just wanted to get your view around the industry softness? How much of that is temporary? Are you expecting a recovery in the balance of the year? How are you guys thinking about that? And then, I guess last, given the volume softness, any changes in plans for the way you manage the business in the remainder of the year, either on the pricing front or in terms of marketing investment behind the business? Thanks..

Dara, it's Mark here. So, let me again try and break that down for you. From our U.S. industry guidance perspective, it's really as per my previous comments, which we expect the balance of the year to be more in line with what we would see as kind of the medium-term historic trends.

Clearly, as we have come into this year with the first quarter being softer, as you'd expect in real time, we continue to manage our investment allocation by brands. We tend to plan very much on a spend per hectoliter basis. So, if volumes are higher or lower, then we can flex or spend accordingly.

The good news is that because of the disciplines we have in our business around pricing and revenue management and the utilization of our ROMI model, that gives us flexibility as we go through the year.

So, the last thing our business needs is any change in the strategy, but clearly, our tactics will continue to evolve as we go through this year and take kind of competitive pressures, industry headwinds, et cetera, but that's pretty normal. And I really would come back to the fact that the first quarter is relatively small.

There's a couple of unusual events there. And as an executive team, we are still very committed to a full-year plan and our full-year guidance and we believe we have the flexibility in our P&L to deliver against that accountability..

Our next question will come from Amit Sharma with BMO Capital Markets. Please go ahead..

Hi. Good morning, everyone..

Yeah, Amit..

A couple of modeling question I'll maybe go on (38:14). One is the ordering problems in the Golden brewery, are they fully behind us or you expect them to continue to have some impact in the second quarter? And then, Mark, you talked about having more flexibility and more levers there.

And I appreciate your answer about having your spending tied to per hectoliter, but how much of that is contingent on competitive environment in the Premium Light segment? If you see more promotions and stronger competition, does it change your view on the spending level here?.

Okay. Thanks, Amit. Gavin, do you want to just talk a little bit about our progress in relation to the Golden brewery? And then, I'll pick up P&L flexibility unless you've got specific perspective on the Premium Light segment, but start with Golden brewery..

Good. Thanks, Mark. Good morning, Amit. Look, I mean, in February, as you know we went live with the new draft system in Golden and we had a slow ramp-up than we experienced – than we were expecting. We encountered a few challenges primarily with the brewery warehouse system that slowed our loading and shipping capability.

And because of that, we did deal with low inventory and some out of stocks on some brands and PACCs. We've made progress in hitting our production and shipping targets. And though we're not quite fully caught up, we continue to drive progress to ensure that we're positioned well for summer.

And as it relates to going forward, obviously, we'll make the necessary adjustments to ensure a successful implementation at our upcoming rollout, specifically building more inventory at a distributor level than we did with Golden.

I'd just also point out that Golden is one of the largest and most complex breweries in the world and we do expect our next rollouts to be smoother than that.

From an industry point of view, Mark, I would only add one thing to what you've said and that is that most of our plans and activities that we've got for this year started in the second quarter and weren't there in the first.

And rollout of Sol, for example, which Mark mentioned in his opening remarks, are a new and enhanced marketing campaign behind Coors Light. All of these things are starting in the second quarter..

Okay. Thanks, Gavin. And, Amit, just to add, in terms of P&L flexibility in the Premium Light segment, we don't see anything unusual happening in the Premium Light segment from a competitive perspective. We are very clear about what our brands stand for, the consistency of positioning, the way that we're dramatizing that.

Clearly, the dramatization of the Coors Light positioning in 2017 didn't meet our expectations and that's why we've sharpened that quite dramatically as we've come into 2018.

And the take-up and buy-in to the promotional activity we've got across our distributor network and Coors Light in particular and our partnership with YETI across the summer to really underpin the World's Most Refreshing Beer is the strongest we've seen for many, many years.

So, we've got the flexibility, but we've got the plans there and we're going to drive those plans very consistently..

Our next question will come from Judy Hong of Goldman Sachs. Please go ahead..

Thank you. Good morning. So, I guess I had a couple of follow-ups. First, just in terms of the industry volume in the first quarter to down 3.8%, it does seem like that's a lot worse than what you or what we saw in the scanned data and clearly a big step-down in terms of the industry volume being down 0.5% to 1%.

So, is this the other channel – sort of the non-measured channel that's doing worse? And I'm just really trying to reconcile the Nielsen volume versus the 3.8% number. And it also implies in some of the other players at the high-end that's been gaining market share, if your market share was consistent, was actually not as strong.

So, can you just talk about what's happened to the industry, broadly some of the channel dynamics and some of the high-end dynamics for your other players? And then, I guess the broader question is just as we think about your performance also in the high-end, I mean I know that you've got a lot of plans in place to accelerate the growth, but you're seeing brands like Twisted Tea and Mike's Hard really doing very well from a volume growth performance standpoint.

And I'm just wondering why you're not doing better, particularly in the high-end segment? Thank you..

Hey. Thanks, Judy. So, Gavin, do you want to pick up on the high-end performance in the U.S. in a second? Judy, on the industry piece, obviously, we've talked to the fact that our STRs are down 3.8%. Consolidated U.S. industry in the first quarter was down about 2.3%.

So, clearly, when you're looking at the scanner data, that's only given you a sub-segment of overall industry performance. So, total industry was down about 2.3% is our best and kind of the – I think consolidated U.S. industry estimate. And as I mentioned, our share trends really didn't move as we came through the first quarter.

Clearly, our ambition is to improve those share trends over time as to all of the portfolio work that we're doing. So, hopefully, that gives you a little bit color on broader U.S. industry trends. Gavin, I don't know whether you'd want to add anything to that.

And then, do you want to talk specifically just about the focus we've got on getting our above-premium moving more positively?.

Yeah. Sure, Mark. Look, Judy, we've made progress on above-premium, but we've got lots of opportunity there and we're excited about the activity, which largely, as I said, kicked off in the second quarter. We've got our new partnership with Heineken for the import rights to Sol and we've not been able to play in the Mexican import category.

And as Mark said in his opening remarks, the initial reaction to Sol has been very positive from both our distributors and from our retailers and more recently, obviously because it hasn't been in the market long, from our consumers.

We've got the partnership with AriZona to sell Arnold Palmer Spiked and really we launched that with the 24-ounce cans with one retail chain customer and that did particularly well during the launch.

And the 6-packs have only been out in the market for the last 30 days or so and we're seeing a strong uptake on that, which frankly is in direct competition with Twisted Tea, but it is really very early efforts. And we have expansion efforts around our craft acquisitions.

We've also got new packaging as I referred to, we've got brand innovations in Blue Moon, we've got it in Leinie's with the Summer Shandy 24-ounce, Crispin Rosé is doing particularly nicely tapping into the rosé segment and we just launched our Henry's Hard Seltzer in slim cans, which is the consumer-preferred pack and our variety pack is doing particularly well.

So, I think we've got a lot of activity going on in above-premium, which will further drive growth in that segment for us. Obviously, Redd's remains a challenge for us and we've sharpened the packaging and we're sharpening our flavor profile with both Redd's and Redd's Wicked and we expect that to have positive benefit going forward..

Yeah. So, I mean, Gavin, just to kind of try and tie all of that together for you, Judy. I mean, we are still underrepresented in terms of proportion of our above-premium portfolio. It's an enormous opportunity for us as a business.

We've made, I think, very positive strides over the last few years and my belief is that there's still a lot of runway for us to go out. Our craft portfolio is in great shape and I believe that there's significant growth still to come from craft. And we're now in hard tea, which we've never been in before.

We've got a 1-2 punch on the import segment with Peroni, which is growing strongly, and Sol combined with that and with our FMBs as Gavin mentioned, Redd's is unsatisfactory from a performance perspective and that needs to remain essential to our focus.

And in the hard seltzers segment, we know of the pack that we didn't have last year, which is the slim cans and allows us to compete more assertively. And our innovation team continued to work on a range of further additions to that portfolio over time.

So, I would say we're in pretty good shape and there's a lot of opportunity ahead of us and the team really are focused on exploiting this opportunity..

Our next question will come from Vivien Azer with Cowen & Company. Please go ahead..

Hi. Good morning..

Hi, Vivien..

So, I wanted to ask a bigger picture question and it's one that I get from investors a lot and it's thinking about kind of the ultimate trough (47:13) share that we could see for the beer category within total beverage alcohol.

One of the ways that I've tried to think about it is with age cohort segmentation, seemingly younger consumers drink across a multitude of categories which is perhaps different from a legacy beer drinker who would have been more of a category loyalist.

So, can you offer any color on your own consumer insights work around beer preference by age cohort and how that informs how you're thinking about beer category share in a broader context over time? Thank you..

And, Vivien, I'm assuming you're just referring to the U.S.

as opposed to globally or any other specific market?.

Just the U.S., please. Thank you..

Yeah. I mean, to be fair, that's a relatively long conversation. I think it's something we'd probably like to do on a pedestal and share with you when we get together in June.

I don't know, Gavin, whether you'd want to offer any kind of just key headlines at this stage, but I think it's a critical question and it's certainly something we want to talk about as part of the context setting when we've got a little bit more time in our New York meeting. But, Gavin, any headlines you'd want to offer from a U.S.

perspective at this point in time?.

Yeah. Sure, Mark. And good morning, Vivien. Look, I mean, growth in wines and spirits has continued. There's no doubt about that. And consumer demographics, particularly with the younger millennial, the 21 to 27-year old has shifted with their preference shifting from beer to wine and spirits.

The beer industry, overall, has become increasingly fragmented with a vast array of SKUs which has hurt us from a category point of view. And there are a number of additional factors. You could call them macro cuts (49:00), right, such as cannabis and that is affecting the industry.

So, question is what are we doing about it? And I think from an innovation point of view, we're doing a lot about it.

Without wishing to be repetitive, we launched Arnold Palmer Spiked, we've launched Crispin Rosé to tap into the wine drinkers, Zima draws a lot of its drinkers from outside of the beer category, as does Henry's Hard Soda and Henry's Hard Sparkling. Redd's Wicked, (49:27) comes from spirits primarily, as does Steel Reserve Alloy Series.

And more recently, we've introduced Two Hats into the economy space, which is a light-bodied lager with a little bit of flavor, which is specifically crafted to attract the 21 to 27-year old and get them to reconsider beers. So, as Mark says, we can get into more detail in June, but that would be a high-level commentary..

Yeah. And I think the only thing I would add to that, Vivien, is again, if you take a step back, the U.S. beer industry from a margin-filled perspective continues to expand and still accounts for 25% of the global beer profit build (50:09). So, we got to be a little bit careful that we don't get overly anxious about the U.S.

beer industry when it's, A, so large, and, B, continuing to expand from a margin perspective. Beer clearly needs to respond and our portfolio need to respond and we're absolutely in the middle of doing that, but it's something that takes time and we've seen that in other markets, other developed markets around the world as well.

So, I really look forward to that, can have a longer conversation on that topic when we get together in New York..

And our next question will come from Lauren Lieberman with Barclays. Please go ahead..

Great. Thanks. Good morning..

Hi, Lauren..

So, just looking at the profit performance in Canada, just as a starting point to this question – with the revenue shortfall, it looks like you managed to protect profitability really well there.

So, with that as the backdrop, I was curious if you could talk a little about whether or not in Europe, outside of the year-over-year $50 million comparison and also in corporate expense, it looks like those two, there were some, I don't know, big swings versus how people were thinking about things and those had a huge impact on where EBITDA came in versus expectations bigger frankly than the shortfall in the U.S.

So, if you could just talk about if those things were sort of in line with your budgeting given that you don't give quarterly guidance and also the degree to which you did manage operating expenses relative to volume performance in the U.S., because also again you cited $30 million gross profit impact from supply chain issues and that's roughly what EBITDA missed by in the U.S.

versus my numbers. So, to throw my arms around (51:56) kind of that protecting profitability and how much we saw that actually during the quarter underlying the reported aggregate results. Thanks..

Thanks, Lauren. I think I managed to capture all of the components. So, let me try and unpack that for you. Back to Canada, I think you've recognized the continuing improvement there from an EBITDA perspective.

Clearly, our revenue was impacted by the new revenue recognition methodology, but I feel good about the progress we're making in Canada and particularly the ongoing premiumization of our portfolio and the simplification of our below-premium portfolio.

Europe, I think, has been a very consistent success story over the course of the last two or three years under Simon's leadership. And from the top to the bottom of the P&L and from a cash flow perspective, we've seen very strong performance.

It's muddier or more opaque in the first quarter because of the indirect tax provision lapping year-on-year and some of the changes to revenue recognition and the excise tax policy as well. So, that makes things a little bit tricky to follow, but volumes up, shares up, underlying EBITDA continues to progress very positively.

Corporate expense, Tracey, do you want to just talk to corporate expense?.

Yeah. Sure. So, Lauren, if you're looking at our Q1 corporate expense versus last year, just a reminder, we were still ramping up the investments in our Centers of Excellence last quarter. So, that will be the big driver to this year, but our guidance for the full year is in line with our 2017 numbers.

And as a reminder, the guidance is $180 million, plus or minus 10%. So, there's no significant increase in our corporate expense from prior year..

Our next question will come from Mark Swartzberg with Stifel Financial. Please go ahead..

Thanks. Hey. Good morning, everyone. Tracey....

Mark..

Hey, Mark. Tracey, I guess this question is directed to you and it's really around the sensitivity on the $1.5 billion in free cash flow. If we assume your U.S.

share and mix objectives are met, but say the industry is 2 points weaker than you're building into that $1.5 billion, can you give us a sense of how sensitive that is? I mean I have my own view just by running the numbers, but does that put you at the 90% level of the $1.5 billion? Does that put you below that number? Just trying to get a sense of that..

Tracey and you go (54:37)..

Yeah. So – and Mark, yeah, we committed to our guidance of $1.5 billion, plus or minus 10%, for this year.

And just a couple of drivers of that in terms of levers, so obviously our income is a driver and that's why it's so important for us to deliver against our cost savings target, so that we can protect that bottom line and the EBITDA margin guidance that we have given.

But some of the other levers in our balance sheet and our free cash flow is obviously working capital, so there's timing of working capital at year-end as well that impacts that as well as a lever to pull would be around our discretionary CapEx.

So, whether we invest discretionary CapEx or not would be something that we could potentially look at, but we're committed to our guidance of $1.5 billion for this year..

Yes. Thank you, Tracey..

And our next question will come from Pablo Zuanic with SIG. Please go ahead..

Thank you. Look, it's a very simplistic question. So, the industry in the first quarter in total channels, you said was down 2.3%. And if I recall, last year, it was down 1.3% in total channels. I think the number comes from Anheuser-Busch. So, significant worsening in the first quarter.

Can you try to say whether there's a lot of weather effect there or whether that's more secular-related in terms of the worsening? I'm just trying to get a picture of where we are in terms of industry volume trends.

The first quarter much worse than last year, but how much of that was one-off? And related to that, we're hearing a lot of noise about pricing, but, obviously, you have given us some very constructive pricing commentary in terms of your company. So, just give us some color in terms of how we should be thinking about the pricing outlook.

I have a follow-up, but if you can answer that, please, because at the end of the day, your share price is down to the levels of October 2015 before the SABMiller deal. So, I'm just trying to think in terms of what can get better here. You can answer that, but if you can touch on those two numbers, please. Thanks..

Okay. Thanks, Pablo, and I'll ask Gavin to talk to kind of what's happening from a pricing perspective.

I mean I think your last comment was quite an important comment as well, because if you, again, take a step back and just look at our company, so the Molson Coors Brewing Company, at the end of 2015 versus where we finished up at the end of 2017, our volume is up 62%, our EBITDA is up 81% and our free cash flow is up over 100%.

And if you look at our free cash flow yield, which is running at double digits compared to the CPG segment, it's very, very competitive.

So, I feel that as an organization from a scale perspective and a platform perspective, we put ourself in great position while also recapturing our, kind of, independence, which gives us much more flexibility going forward.

So, I think it's an important context point we can't lose sight although as we look at some nuances on a quarter-by-quarter basis. So, that would be, kind of, a headline reaction to your comment on stock price. If you come back to the industry in U.S., again I would reiterate the fact that the U.S.

beer market is a great place to compete from a margin and profit pool perspective. Clearly, U.S. industry on a full-year basis in 2017 was down about 1%, first quarter is down 2.3%. Our belief is that a big part of that has to do with very poor weather year-on-year.

I think Gavin was mentioning that February in 2017 was probably the hottest or second hottest February on records. It was awful this year and beer is affected by that. So, I'm not unduly concerned by some of the short-term trends we've seen from an industry demand perspective. And we have a 25% share. We don't have 75% in the market.

That's a big opportunity for us alongside the premiumization of our portfolio. So, those are a couple of context points relating to, I think, two of your questions.

Gavin, do you want to talk a little bit about, I think, Pablo mentioned pricing noise in the marketplace?.

Sure, Mark. And the only other thing I would add to your weather comment is in the very few states where the weather has been fairly comparable to last year 2017 in the first quarter, our trends have actually been much better than the overall MillerCoors trends. I'd start Florida (59:08) as an example.

From a pricing point of view, our domestic net sales revenue per hectoliter has been pretty consistent for the last four quarters, Pablo. I've given you some direction and insight into how we think mix will look for the balance of the year.

And I would just add to that, that most of – in fact all our mix negativity in the first quarter is driven by package mix. In fact, our brand mix was slightly positive.

As far as current activity, you always get activity going into the summer selling season and the first big holiday of Memorial Day and nothing terribly different to what we've experienced in prior years..

Okay. Thanks, Gavin..

Alison?.

And our next question will come from Brett Cooper of Consumer Edge Research. Please go ahead..

Hi. Big question on – again, you guys a while back obviously were targeting flat volumes in 2018, growth in 2019 and clearly you stepped back from that. But I was wondering if you can reflect back and see where the shortfalls all are relative to you getting back, so I think what that would imply is a relatively stable market share.

And then, as you go forward, there's obviously an emphasis on FMBs and flavors and things like that.

If you could just offer thoughts on the ability for you guys to bank that as sustainable volume as opposed to, I think, what we've seen in FMBs and things like Redd's where you get a lot of trial, but repeat doesn't hold, if it's year two or year three beyond. Thanks..

Okay. So, Gavin, why don't you pick up thoughts around FMBs? And, Fred, if you've got any perspectives on that as well in relation to Canada on the basis that we're now moving Henry's up into Canada, that would be helpful.

On your first question around flat in 2018 and growth in 2019, if you remember that, firstly, it's a strategic imperative for us to get our business stabilize from a volume perspective in the U.S. and then back into growth. And I'm not prepared and our executive team is not prepared for us to continue to watch volume disappear in the U.S.

in such an important beer market. The assumption around the aspiration really related to the fact that we assume that the beer industry will be relatively flat over the course of 2017 and 2018. Clearly, the beer industry has been softer than that.

It doesn't change the strategic intent or aspiration that we have, but as I've said consistently, we will not do that at any cost and we'll do that in a methodical sustainable way. And if it takes us longer to get there, then so be it. It's tough work, it's important work and it's work that we are committed to.

So, we still have the same aspiration to get our business stabilized from a volume perspective in the U.S. You've seen some of the additions to the portfolio this year. And we continue to work on other opportunities as we look out into the future as well.

Gavin, do you want to talk a little bit about the FMBs and the importance to above-premium portfolio?.

Yeah. Sure, Mark. Look, I mean, just to reiterate what I said, right. I mean, FMB statement is a very competitive segment. And Redd's is a very large brand within that segment and we had remarkable success with Redd's when we launched them in 2015 and part of 2016. It got our annual volume to around 1 billion barrels. This is a big brand for us.

It generates profitability for us. And despite its challenges recently, it remains a big and profitable brand for us. Redd's Wicked is – we're pleased with the performance of Redd's Wicked and we're leaning in hard there with new flavors.

For example, Redd's Wicked Lemonade, which will be coming out shortly and we believe will challenge our competitors. And then, I spoke to Arnold Palmer Spiked, I spoke to sparkling water category, which we believe is sticky.

We believe that's a category that will stay and grow and we intend to be strong participants in that with our new slim can and the variety pack, which we've just launched.

And then, of course, we've got Zima, which had a remarkable comeback last year and we're increasing our production and volume for that brand and we're actually lengthening its period, which it will be in the market from a Memorial Day point of view. So, that's how I would summarize our view on the Flavored Malt Beverage category..

Yeah.

So, just a full stop on that, Brett, it's big, it's important and it will remain an important part of our portfolio and a lot of our existing brand efforts and our innovation thinking is designed to ensure that we participate fully in terms of the broader flavor opportunities I described from an adjacency perspective to be or so, you'll see more from it as we leave 2018 and go into 2019.

So, more of that in due course..

And our next question will come from Judy Hong of Goldman Sachs. Please go ahead..

Oh, thank you for taking a follow-up. Tracey, I had just a quick question on your COGS. So, I think for commodity inflation, you talked about $110 million headwind this year.

Can you tell us how much that was incurred in Q1?.

No. Judy, we don't split it up in a detail quarter-by-quarter. So, it's really what we're looking at for the full year 2018 versus our full year of 2017. So, we don't have the detail by quarter..

Okay. Thanks, Tracey..

Okay. And ladies and gentlemen, this will conclude our question-and-answer session. At this time, I would like to turn the conference back over to Mark Hunter for any closing remarks..

Okay. Thanks, Alison. Thanks, everybody, for the time and attention this morning. We obviously look forward to seeing you in June in New York. Just as a reminder, as a leadership team, we continue to be fully committed to our 2018 plans.

There's been no change to our guidance that would come to a small volatile quarter with a couple of big and moving parts in it, but we remain consistent behind our strategy around our portfolio, premiumization of our portfolio, our customer relationships and principally this primary focus on our cash generation deleveraging margin expansion.

For 2018, we remain committed to that plan and we remain committed to our guidance. And we look forward to talking to you in more detail and sharing some of our emerging plans and talking about our capital allocation policy as well when we get together with you in New York in June. So, thanks for your time and attention.

We look forward to the follow-ups in due course. Thanks, everybody..

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines..