Good day, and welcome to the Molson Coors Brewing Company Fourth Quarter and Full Year 2018 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Before we begin, I will paraphrase the company’s safe harbor language.

Today’s discussion includes forward-looking statements within the meaning of applicable securities laws. Important factors that could cause actual results to differ materially from the expectations and projections contained in such statements are disclosed in the company’s filings with the SEC.

The company does not undertake to update forward-looking statements whether as a result of new information, future events or otherwise. Regarding any non-U.S.

GAAP measures that may be discussed during the call, 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. Our call will open with some remarks from Mark Swartzberg, Vice President of Investor Relations. Please go ahead..

Thank you, Gary, and good morning, everyone. Following the prepared remarks this morning, management will take your questions. As a reminder, in order to allow as many people to ask questions as possible, please limit yourself to one follow-up question. And if you have additional questions to those two, please return to the queue.

Now I’d like to turn the call over to our CEO, Mark Hunter..

Thank you, Mark, and hello and welcome, everybody. With me this morning are Tracey Joubert; the CEOs of each of our business units; Lee Reichert, our Chief Legal and Corporate Affairs Officer; and Brian Tabolt, our Global Controller.

Today, Tracey and I will take you through our plans to drive long-term total shareholder returns, highlighting our fourth quarter and full year results and discussing our outlook for the business. And you can also find related slides on the Investor Relations page of our website. We accomplished much in 2018.

We delivered strong free cash flow and we met our deleverage commitments.

We restored underlying EBITDA growth in the quarter and the second half, and we continue to premiumize our portfolio across our regions, including launching Truss, our Canadian cannabis beverages JV, scaling volume and profitability in our fast growing international business and continuing to strengthen our European business.

Through the year we further scaled our cost saving program, which insulated us in part from the effects of weaker industry demand in North America, higher-than-anticipated inflationary pressures and challenges associated with the implementation of our U.S. brewery supply chain system. We entered 2019 with a U.S.

commercial plan focused on mix and share improvement, that’s fully resourced and showing early signs of impact against Coors Light, a commercial strategy that is working in Europe and International and continually improving commercial trends in Canada.

We are focused on further strong free cash flow delivery and deleverage supported by more than $200 million of cost savings in 2019 and further $450 million across savings across 2020 to 2022.

We remain committed to our plan to reinstitute a dividend payout ratio in the range of 20% to 25% of annual trailing underlying EBITDA, upon achieving around 3.75x leverage, which we expect to occur in the middle of 2019.

Against this backdrop of progress and commitments, let me share more about what you can expect from our strategy of earning more, using less and investing wisely, before handling the call to Tracey to elaborate on the quarter, the year and our outlook.

In terms of earning more, we will continue to build even stronger commercial excellence capability with a focus on portfolio premiumization and disruptive growth that drive mix improvements.

Almost 20% of our volume is comprised of above premium brands and this figure continues to grow, and we see considerable headroom for added growth in all of our markets. In international, we entered 2019 with an optimum cost structure, improved brand profitability and a portfolio of above premium brands gaining strength in our focused markets.

In Europe, our strategy of strengthening our core national champion brands while premiumizing the portfolio has well developed and working. In Canada, industry trends have been challenging, where our total share trend has improved three quarters in a row and pricing continued to show positive improvement.

We will continue to improve Coors Light share trends while premiumizing the portfolio and preparing for the launch of our Truss portfolio. In U.S., while we were dissatisfied with the 2018 top line and share performance, we also believe we have the strategy people in commercial execution to drive improving performance in 2019 and the longer-term.

We anticipate further contraction of the U.S. beer industry volumes, which we plan to offset by adding resources to accelerate our portfolio premiumization and improve our industry volume share trends. Using less is our second platform and is designed to fuel growth and protect our bottom line performance.

We are overdelivering on our regional cost savings plans for 2017 through 2019, allowing us to offset inflation and protect marketing investment. And as Tracey will cover, we expect to unlock another $450 million of savings over the period 2020 through 2022.

These savings are driven by our sustainable productivity driving initiatives such as world-class supply chain 2.0, our greenfield breweries in Canada, global business services, new IT programs and their ongoing procurement efforts and more rigorous ZBB across the entirety of our business.

Investing wisely is our third platform, and you knew our commitment to deleverage and increase cash returns.

Similarly, we’re committed to spending our marketing dollars more effectively than ever by scaling investment behind accelerated portfolio premiumization and through this full adoption of ROMI approach and increasing sophistication of our investment planning.

I also want to highlight that our spending is often understated by third-party aggregators, reflecting our shift of increasing amounts of digital and experiential platforms. So with that backdrop over to you, Tracey..

Coors Light, MGD and Miller Lite. Brand volume increased 2.2%, driven by organic growth in our focus markets, led by Miller High Life, Miller Lite and Blue Moon. Net sales per hectoliter decreased 6% in constant currency as the shift to local production in Mexico occurred as planned during the second half of the year. Now moving to outlook.

Our earnings release provides full details of our guidance. As Mark stated, we remain committed to our plan for rating agency leverage of approximately 3.75 times EBITDA around the middle of 2019, and the dividend intentions and EBITDA margin expansion guidance we communicated in June are unchanged.

In terms of cost savings, we remain confident in the $700 million of savings for the three years ending 2019 and now also plan an added $450 million for the period 2020 through 2022.

Procurement and supply chain, including brewery optimization, constitute the majority of these new savings, with IT and global business services also contributing to the $450 million.

We expect these savings to help fund our internal investment plans and the cost of achieving the savings as well as offset input inflation spread evenly over the period 2020 through 2022. We expect our International business to deliver a strong double-digit percentage increase to underlying EBITDA in constant currency for the full year 2019.

We estimate an underlying free cash flow of $1.4 billion, plus or minus 10%, this year.

We believe the main components of the difference between the midpoints of our estimates and consensus are lower estimates of capital spending, remember, we are still optimizing our brewery footprint in Canada; and high estimates of cash taxes paid as a result of onetime opportunities realized with tax reform in 2018.

We are no longer communicating guidance on cost of goods sold per hectoliter by business unit in favor of estimated cost of goods sold trends on a total company basis. And of course, the U.S. remains the biggest driver of our cost of goods sold. And in 2019, we expect U.S.

cost of goods sold per hectoliter to increase at a similar rate to our estimated consolidated percentage increase of up mid-single digits. This amount reflects changes on aluminum and other key inputs and is per hectoliter and is on a constant currency basis versus 2018. As shared earlier, our U.S.

distributors ended 2018 with typical levels of inventory. This was below what we expected on our last earnings call due to lower-than-anticipated inventories outside of the Milwaukee brewery orbit. Milwaukee did see the expected build in preparation for the February go-live.

We expect to complete implementation of our new ordering system across our U.S. brewery network over the course of this year and foresee shipments converging with STRs for the year. Keep this in mind as you consider quarterly phasing in 2019.

In November, we announced that we reached a settlement, amicably resolving all outstanding issues in the Pabst case. And as you know, these terms are confidential. The original contract still has a number of years to run and, for the near term, has not changed. At this point, I’ll turn it back to Mark..

Thanks, Tracey. Earning more is one of the three platforms by which we drive PACC, and this pillar is built on our First Choice Commercial Excellence approach. I’d like to give you some evidence of that by region, followed by a few comments on the increasing potential of our enterprise growth actions.

In the U.S., Miller Lite continues its strong segment trend, while Coors Light’s relative performance improved, with the brand holding share of segment in Q4. In 2019, we have plans to accelerate our above premium portfolio through higher investment.

We plan to double our media spend on Blue Moon, the number one national craft brand; air national advertising for Peroni for the first time; and build on a very successful year one for both Arnold Palmer Spiked and Sol.

We’ll also increase Henry’s Sparkling presence in the fast-growing hard seltzer category, focusing on the brand’s clear product differentiators of zero sugar and only 88 calories, and introduce a number of innovations, including Cape Line, Saint Archer Gold, Crispin extensions and Sol Chelada, all before the summer. Our U.S.

business enters 2019 having further strengthened its position as the trusted category captain across chain accounts in both the off and on-premise. And more broadly, our customer excellence performance is market-leading and improving further, as evidenced by the Advantage Survey results.

And allied to this, we’ve ramped up our e-commerce approach within joint business plans and continue to build competitive advantage through our technology-enabled field sales teams with tools such as BeerMate, which we are now rolling out globally. We’re also thrilled to welcome Michelle St.

Jacques as the new Chief Marketing Officer and Brian Erhardt as our new Chief Integrated Supply Chain Officer for the U.S. business. Our new Coors Light advertising is now on air, and we know we are moving in the right direction with the brand, allowing us to take even more share in premium lights.

Coors Light will continue to emphasize its cold Rocky Mountain positioning as the world’s most refreshing beer. We’ll also invest more than ever on digital and social channels to engage and recruit 21 to 34-year-old drinkers.

Miller Lite, the original light beer with less carbs and calories, will further enhance its competitive messaging to drive greater consumer affinity and brand switching from its major competitor. In Europe, we continue to move in the right direction. Our brand volumes are growing and premiumizing.

Our national champion portfolio inflected to positive volume growth last year. Our global brands continued to grow well in excess of industry, and our above premium and craft portfolio also contributed to growth and mix. Our First Choice for Customer focus is also strengthening our customer relationships.

For example, according to the Advantage Survey of UK retailers, we rate number one in the multiple on-trade across all beverage suppliers. We’re delighted our national champion brands in Europe had such a solid year, and we still aim for more.

Our largest brand, Carling, has just begun a major new 360 degree campaign called Made Local, which started this month and will continue through 2019 and continue to strengthen the brand’s market-leading position. Finally, in Europe, we’re exporting and licensing our brands to multiple new markets.

We’re generating increasing profit from this business and are excited about its future because it’s low capital intensity and offers considerable room for growth. our First Choice Commercial Excellence approach and capability is building in Canada, too. As I mentioned earlier, in terms of commercial performance, there are multiple highlights.

Our total share trend has improved three quarters in a row, and Coors Light’s segment share also improved three quarters in a row, improving to flat in the fourth quarter. Craft volume grew, driven by Belgian Moon and Creemore, and our non-alcoholic portfolio of Coors Edge and Heineken 0.0 is delivering strong volume and segment share growth.

In the value segment, we delivered strong share growth, driven by our simplified portfolio strategy and the launch of Miller High Life. As we look at 2019 and beyond, we’re excited by the potential we see from our innovation pipeline. Coors Slice, for example, is an innovation that strengthens the Coors trademark.

And we’re encouraged by the tests behind our pending introduction of Aqua-Relle, our hard sparkling water. Our commitment to customer excellence includes the adoption of BeerMate to strengthen field sales management and promising joint business plan pilots with key customers.

For example, a pilot with Ontario’s LCBO is producing beer category growth well in excess of the total industry performance. Our two largest brands will benefit from new advertising, brand redesign and innovation in 2019.

For Coors Light, we’ll launch our new The Mountains are Calling campaign and introduce new packages, including a new chill pack in time for summer, and the Molson trademark enters 2019 with a new brand redesign and communication platform expected to unlock latent passion for the brand.

The Miller trademark returned to our portfolio in 2016, and we plan to build on a very successful 2018, building awareness and distribution of Miller High Life since its launch early last year and adding to the success of MGD and other non-U.S. markets by expanding the brand’s availability and above premium positioning.

Now as you know, the MillerCoors transaction also gave us the opportunity to get bigger internationally. In 2017, we began executing plans for improving our portfolio, route-to-market and profitability simultaneous with undertaking the structural changes, adding approximately $100 million in revenue to this business.

Last year was year one of our new International strategy, targeting focus markets and implementing the many actions of dramatically improved profitability.

These include our shift to local production in Mexico; favorable changes in the pricing of Coors Light, MGD and Miller Lite and accelerated growth of Blue Moon and Miller High Life; and standout performance at retail.

International’s recent wins include MGD, capturing leadership of Paraguay’s premium segment; our new Blue Moon Tap House in Panama, the first of many; and strong growth across our portfolio in Latin America and India.

Looking forward, our International business will remain committed to top and bottom line growth, driven by continued focus on portfolio mix improvements, building capabilities to expand within our priority markets and potential strategic entry into new markets.

Now clearly, we’re more than the sum of our regions, and our Enterprise Growth Team is helping our business unlock that value through our global brands, customer excellence and disruptive growth. Our global brands span many markets and still have enormous potential.

Coors Light continues to show very strong volume growth in Europe and is contributing to an improvement in region profits in Mexico, where we’ve reduced promotional intensity. Miller Lite’s responding positively to the change to its original white packaging in over 20 markets.

And MGD and Miller High Life are showing significant growth outside of their home markets from LatAm to Europe to India. Staropramen outside of Czech Republic continues to grow strongly across Europe, responding positively to its new visual identity with consistent messaging.

And finally, Blue Moon continues to grow in multiple markets, and we expect it to return to growth in the U.S. this year.

There are many examples of our success delivering customer excellence, from the rollout of BeerMate to the introduction of our B2B online platform, to the use of advanced analytics to drive category growth, to embedding our e-commerce approach into joint customer business plans.

And this approach has been recognized through multiple customer surveys across North America and Europe. Innovation and disruptive growth represents approximately 7% of our net sales. We continue to reenergize our core brands, expanding to new occasions, including low and no alcohol.

We also continue to expand the footprint of our portfolio into new and emerging segments such as sparkling cocktails and hard sparkling water.

Additionally, we have a range of initiatives such as Truss, which we expect to launch its non-alcoholic, cannabis-infused beverages portfolio in the fall of 2019, following legalization in Canada; the expansion of Blue Moon tap rooms; and our entry into markets such as kombucha.

All of these initiatives are underpinned by continuous investment in our brewing capability and R&D. Finishing on PACC and our efforts to drive shareholder value.

We’re pleased to be deleveraging at the pace we committed to, and we look forward to upping our cash returns to shareholders later this year, continuing our balanced approach to capital allocation and unlocking the top line opportunities in front of us through our First Choice for Consumer and Customer agenda.

Thanks for your time and attention so far today. And with that, I’ll turn it back to Mark..

Thank you, Mark, and good morning again, everyone. Just a bit of housekeeping. We look forward to meeting with many of you over the course of the year, and various corporate accents events are scheduled for the year. I also want you to know we plan to host an investor event similar to the one held historically in June every two to three years.

Now between such meetings, we plan to continue our many other forms of corporate access, including headquarter visits, field trips, non-deal roadshows and broker conferences. So I wanted to take care of that housekeeping item. And I think, Gary, if you’re ready, we’ll open the line to questions..

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Andrea Teixeira with JPMorgan. Please go ahead..

Hi. Good morning, everyone. Mark, Tracey, I was hoping if you can bridge your assumptions for the 2019 free cash flow guidance.

Why are you assuming for pricing in 2019, particular for the U.S., as I believe one of your competitors is moving their pricing earlier this year to April? And the second question is on the clarification of gauge on the cost save.

Is it being reported like going forward, I think starting in 2020, as part of underlying? So are you moving to a GAAP reporting for EBIT? And can you give us an idea or the cost to achieve those additional $450 million in savings? Like I know you probably had about $230 million, if I’m doing the math right, to achieve the $700 million by the end of next – the end of this year.

So can you give us like the costs, the expected costs to achieve the $450 million? Thank you..

Hi, Andrea, it’s Mark here. I think there was probably three question areas in there, free cash flow, pricing and cost savings. So Tracey, do you want to just talk about free cash flow? And then, Gavin, do you want to talk about our pricing position in the U.S.? And then we’ll come back and cover cost savings. So Tracey, just on free cash flow..

Yes, so our free cash flow guidance, Andrea, for 2019 is $1.4 billion, plus or minus 10%. That does include the cost savings that we have communicated for this year getting to $700 million. I think your question on – I’m not sure that I understand the U.S. GAAP EBIT question, but let me answer the $450 million of cost savings.

And the cost architecture includes both CapEx and OpEx, and those will be including – included in underlying. So in the past, when we stated cost savings and synergies, there was a portion that was included – that wasn’t included in underlying. Those were onetime costs.

But going forward, the CapEx and OpEx will be included in all the underlying guidance that we give you..

Thanks, Tracey. The other thing just to mention on our free cash flow, obviously, the free cash flow excludes any asset disposals, and we anticipate disposing of our Montreal brewery after 2019. So that will be additional cash to help support deleverage but not reported within our free cash flow.

And we’ll update you on that as we conclude that process a little bit later this year.

Gavin, do you want to pick up on pricing and the pricing environment within the U.S.?.

Sure, Mark, thanks, and good morning, Andrea. Let me just say, first off, that from a pricing point of view, it’s been fairly consistent over many years in the sort of 1% to 2% range. We’re particularly pleased with the progress that we made on pricing in 2018. And Q4 was a good quarter for us from a net revenue perspective.

Sales mix remains a big focus area for us. We were down 70 basis points in the fourth quarter. And obviously, our focus and a lot of our efforts is going towards premiumizing our portfolio in 2019 and improving the overall sales mix of our U.S. business unit.

From a pricing point of view, Andrea, I would point to you again that pricing has been fairly consistent over the years. We evaluate our pricing on a market-by-market basis. We price our product in the best interest of the brands to optimize revenue in each and every market.

So we evaluate competitive pricing, but we don’t share our strategies overall publicly..

Okay. Thanks, Gavin. Thanks, Tracey. Andrea, thanks for your questions. Hopefully, we managed to cover all parts of that. Gary, back to you..

The next question comes from Dara Mohsenian with Morgan Stanley. Please go ahead..

Hi, guys..

Good morning..

If I look at your MG&A line in the U.S. in the last couple of years, it’s down about 30%, which is a pretty large decrease in that line item.

So can you give us some kind of sense for how much of the decline is due to lower advertising spend in the U.S., particularly given Mark’s comment alluding to the available third-party data sometimes missing some of your spending on digital or other areas? And then second, as we think going forward, you’ve obviously talked about your desire to improve U.S.

market share and volume trends. There’s a more aggressive innovation cycle and marketing levels from your key competitors in the U.S. Some of that is even targeted directly at your brand. So going forward, do you think you need to redo spending significantly behind the U.S. business, either in advertising, R&D or any other areas going forward? Thanks..

Let me pick that up. And Gavin, I’ll try and hit the high spots, and let me know if I missed anything. I mean, if you look at our MG&A line across our business, not just the U.S., we’ve been working very hard in two fronts. One is to make sure that we’ve got a cost base that’s set for the future.

And we’ve taken some significant steps right across our business and, obviously, through the second half of 2018 to actually reduce our overall cost base. And we’ve been working really hard at removing or reallocating what we describe as nonworking marketing dollars and really getting that right at the front end of our business.

That’s allowed us to actually take some reductions in some marketing spend. But we don’t break that out by region because it’s competitively sensitive. And linked to your second part of your question, the focus in our business is making sure that we’ve got marketing or advertising that’s really working for us.

And it’s clear, as we came through 2019, that we were suboptimal with two or three of our brands in the U.S. So the focus is less on incremental spending but much more on making sure that we’ve got work that really connects with consumers and changes behavior.

And there’s plenty of examples of brands in the marketplace that have increased their spending and that had no impact on their overall brand performance. We’re very focused on specification of our targeting, the productivity of our marketing investment and the strength of our creative work.

And 2018, I think, demonstrated that we still have some improvements to make, and I think that’s one of the reasons we’re excited about Michelle joining our team. And she’s on board and, I believe, will have a big impact on the quality of our marketing work in the U.S.

But Gavin, anything else you would add to that? Or have I covered all the bases?.

Well, I think you covered all the bases there, Mark. Maybe I can just add in Q4 specifically. Obviously, we had the restructuring, which we talked about in the last earnings call, and obviously, we had – we’ve had employee-related cost reductions as a result of that. And then, of course, we didn’t have a particularly good year last year.

We had smaller – or much smaller annual incentive payments to employees, which also would have reduced MG&A in the fourth quarter..

Okay. Thanks, Gavin..

Okay, that’s helpful. Thank you..

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

Thank you. Good morning. So, I guess, my question is just in terms of the U.S. beer industry volume trends. Clearly, second year in a row that I think volume had gotten worse. And it sounds like maybe 2019, you don’t really expect things to get better. So I just want to understand how you’re thinking about the industry volume trends playing out in 2019.

And then, for kind of in this reality of persist volume declines for the industry, how does that shape your strategy going forward because a lot of the things that I think you’re talking about, I’m not sure if there’s meaningfully different than what we’ve kind of heard in the past.

So I guess, I’m just wondering strategically over the next few years how should that strategy evolve if we’re going to see the industry continuing to see volume decline 1% to 2%..

Let me start with the second part of your question. And Gavin, do you want to just offer a perspective around kind of the industry drivers? The second part of your question, Judy, I would come back to, really, the continued expansion of the margin pull or the revenue pull in the U.S.

So yes, there’s pressure on volume, but consumers are drinking slightly less, but better for one of a headline, and that means that our strategy in terms of our portfolio has got to be accelerated premiumization of that portfolio.

That’s what we indicated that we were leaning into very hard as we go in – came into 2018, that’s why we’ve made additions to our above-premium portfolio and that’s why I indicated on my script earlier that we’re doubling down on in particular, Peroni, Blue Moon and Sol, as well as our innovation agenda.

So it’s no different to what we’ve done in our European business over a number of years, where we’ve consistently reshaped the portfolio. I mean, in our European business, we are close to 30% of our volume is in above premium. We are underrepresented in above premium.

And while we continue to protect, defend and stabilize our large brands, Coors Light and Miller Lite, we must accelerate the pace of premiumization in our portfolio. So that’s second part of your question in terms of our response.

Gavin, do you want to talk about just the drivers on the beer industry more generally?.

Sure, Mark. Good morning, Judy. Look, I mean, our estimates are aligned with yours, right, which is at the full year 2018, industry trend was pretty similar to that 2017.

Some of the bigger drivers, the overall health of the industry is the weakness of the biggest brand, Bud Light, Miller Lite, Coors Light and obviously, Mark has talked a little bit about what we’re doing there. Growth in wine and spirits has continued.

And as an industry, we need to be pro-beer first and a lot of our innovation is focused in that particular area. Consumer demographics continue to evolve whether it’s styles, whether it’s flavors, and we, obviously, you need to resonate with those consumers. And again, our innovation is focused there.

I think the beer industry has become increasingly fragmented with a significant number of new SKUs that have been added in recent years and that’s creating confusion in retail, and our big chain customers are recognizing that and are dialing back on the proliferation of SKUs. And then there’s a whole host of other micro cuts.

As to what we’re doing about it, but I think Mark covered that of in enough detail. But our focus is, obviously, Miller Lite and Coors Light and driving strong growth in above premium..

Okay. And Gavin, just o ne clarification, the STW versus STR.

So the fact that outside of Milwaukee, the inventory came down, does that reverse in 2019? Or is it just a reality of maybe a lower STR trend? And then the higher inventory levels in the Milwaukee brewery, does that also reverse? So net-net, we’re looking at a wash just in terms of inventory levels in 2019?.

Yes. Look, Judy, I think what – I think the message you should take away from an inventory point of view is we always and drive convergence between sales-to-wholesalers and sales-to-retailers, and this year won’t be any different. There will be moves, obviously, Milwaukee will come down. But Albany will go up as we get ready for the Albany rollout.

So there’ll be an increase in net overturn as we then rollout to Irwindale that’ll elevate during that particular period of time. But from a full-year perspective, I think the message is we try and drive convergence between those two..

Got it. Thanks..

And Gavin, just building on that, Judy, I think we were pretty as we come through 2018, and that’s what we expected to occur on a full year basis in 2018 with STWs and STRs converging by the year-end, and they did do that.

The encouraging thing is as we’ve started 2019, certainly, based on all of the news and data, the trends from an STR perspective for the MillerCoors portfolio are – have improved materially versus what we saw in the fourth quarter..

Understood. Okay, thank you..

The next question comes from Robert Ottenstein with Evercore ISI. Please go ahead..

Great, I think you’ve kind of got to what I was going to ask. So just really talking about the Q4 in the U.S. surprisingly – a little bit surprisingly weak, was that more a function of your business or the industry? And again, you just sort of touched on it.

The – some of the standard data is better in January, the beer producers NBWA index was positive kind of the best reading in sometime in January.

Can you give us any sense of how we should kind of be looking at these various data points in terms of what’s going on? Were there calendar issues? Issues of holidays? Issues with the weather? Just trying to get a better feel of what’s actually going on with the U.S. market over the last four months. Thank you..

Gavin, do you want to dive into some of the detail around that?.

Sure, yes. Hi, Robert. Look, I think there’s obviously a number of factors that drove our third quarter performance and industry overall. Some of them were duplicative. So the industry did have a fairly meaningful price increase in the fall of 2018, which drove some loading into Q3 and the industry felt a fall out of that in Q4.

The overall beer industry, Robert, in the fourth quarter was pretty weak. We actually improved our overall share trends in Q4 versus where we were in Q3. And then, of course, we probably, which is related to us, had a large restructuring, which was surely disruptive to our own internal system.

As Mark said, the fourth – the first sort of six weeks are interesting. I mean, obviously, we’ll have to see how it transpires over the course of the full quarter. But we’re very encouraged by the results for both the industry and for MillerCoors.

And if you take the last four months from October through January, industry is performing pretty similarly to that, which it did in the whole of 2018 and the whole of 2017. Now according to Nielsen, our year-to-date trend has improved to down low-single digits compared to the mid-single digits we saw in Q4.

Coors Light and Miller Lite are driving stronger performance with Coors Light also improving to down low-single digits, while Miller Lite, according to Nielsen, is now firmly in positive territory year-to-date, keeping pace with the industry. So only six weeks, Robert, but we’re confident in our new Coors Light marketing campaign.

We think we got the right message with Miller Lite, and we’ve got a really exciting lineup on premium initiatives, which we’re going to execute in the first part of this year..

Can you give us maybe just a little bit better sense of what’s going on in terms of key channels, on-trade, off-trade, for instance? Is there any particular weaknesses or strengths there?.

I think traditionally, the on-premise has been a little weaker. Foot traffic is down a little bit. I don’t think that’s a trend that changed in the fourth quarter in any meaningful way, Robert. Pretty consistent with what we’ve been saying in the past..

Okay.

And in terms of the encouraging results for the first six weeks of the year, do you think that’s weather-related or anything that you can hang your head on?.

Well, I’m not going to get into the weather-related side of it because we have good weather and we have bad weather all over the country. I think six weeks is just about half the quarter, and we’ll have to see how the quarter transpires.

There were some – a few timing differences between the end of last year and the beginning of this year from an overall industry perspective, Robert. But we had some good weather weeks and we had some bad weather weeks. They will kind of wash out in the fullness of time..

Great..

Robert, this is Mark Swartzberg. To be clear, what Mark and Gavin were talking about was the Nielsen data that you have..

Yes..

So they’re commenting on the data that you can draw conclusions from it as well..

Okay. Thank you, Mark..

Thanks, Robert..

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

Hey, good morning, everyone..

Hi, Bryan..

So I just wanted to get – come back to the questions around the net leverage target for the middle of the year. And one, I guess, in the presentation, it just says leverage.

So is it gross or net that you’re targeting to get the 3.75?.

So this 3.75 is underrating agency calculation. So I mean, really, it’s – you want to take out cash into account. But it does take a number of items, such as pension, et cetera. So yes, it’s EBITDA over net debt basically..

Okay, alright great, thank you..

Bryan, that’s been consistent with how we have described it for the last three years and consistent with the commitment we gave in the middle of last year as well. So there’s certainly no change there.

And we are pleased with where we ended up at the year-end and very much on track to strengthen the balance sheet and continue to delever and raise our dividend as we’ve indicated..

Okay, great thank you. And then I guess, the second question I had is just relative to Brexit.

Is there anything that is, I guess, contemplated in your outlook or your plans for this year that have any kind of provisions that you might have to take to the extent that you get a hard Brexit?.

Let me ask Simon to pick that up. He’s intimate with Brexit. He is certainly intimate with it.

So, Simon?.

Yes. Thank you Bryan, I think it’s probably important to just understand the shape of our UK business. We are very much a U.K producer for the UK market within the UK. So whilst we do import small amounts of volume on things like the Rekorderlig Cider and we do export small amounts of volume of things like Carling to tourist markets in Spain.

We are, generally speaking, not really exposed to that sort of import/export side of it. But most of the impacts would be in some of the macroeconomic things you might think about. But honestly speaking, we’re not unduly concerned by Brexit. The UK business continues to perform really strongly.

We’ve made sensible provisions, as you would expect still on things like managing supply chain imported goods to make sure that we don’t run out of critical supply that do come from the continent. And overall, I wouldn’t take it significantly into account in terms of modeling our European business..

Okay, great. Thank you..

Thanks Bryan..

The next question comes from Lauren Lieberman with Barclays. Please go ahead..

Thanks good morning. I wanted to ask a little bit about the COGS per hectoliter guidance. So I think, Tracey, you said in the U.S., it sounds like you’re expecting it to be in line with the overall company guidance for mid-single-digit inflation.

Could you maybe help us aggregate a little bit logistics, just conceptually, because I’m sure you wouldn’t give numbers, but logistics versus raw materials and also the degree which volume deleverage is playing into that? Because I just would have thought that the inflation would not have been as significant given lapping the Midwest premium dynamics and freight cost.

Thanks..

You Tracey do you want to talk that?.

Yes, a couple of things to consider, Lauren. So we do have a robust hedging program in place, and we’re very comfortable with our hedge position across all of our commodities. One of the things also just to consider is as we go into 2019 if you remember back in 2018 one of the biggest drivers of our aluminum cost was the Midwest premium.

And the Midwest premium only significantly increased towards the back half of the first quarter of last year. So for the first bid of the year, we did have lower Midwest premium. And since then, it hasn’t come down. It’s still sort of in that $0.19 a pound range. So we’ve got that to consider.

And then inflation from a freight point of view is still a bit of an issue. As hedging comes down to the extent the other commodities have, so we’re still dealing with that.

But that’s why it is important as we look at our cost savings for this year is to mitigate that inflation that we are continuing to see from some of our commodity headwinds as well as the freight environment..

Okay. And then sort of following on that, the geographic mix for cost savings, I know you talked about the $450 million plan going forward.

But in terms of the 100-ish that’s "left" for ‘2019, is it reasonable to assume that well more than half of that is flowing to the U.S.?.

Yes, Lauren its Mark here. We haven’t broken out geographically our cost savings program. We broke out the big drivers across procurement, IT, supply chain, et cetera. So we haven’t given guidance.

I mean, if you look at the shape of our business and where our costs actually reside, I think you can draw your own conclusion from where those costs should actually flow through. But we haven’t given specific guidance. But I think you can do a reasonably easy kind of math exercise on that one to work that through..

Okay. All right. Thanks so much..

The next question comes from Amit Sharma with BMO Capital Markets. Please go ahead..

Hi, good morning every one..

Hi, Amit. Good morning..

A couple of follow-ups and then one for Mark. Tracey, the cost saving $450 million is clear. You talked about more of those costs you achieve this will fall to in the operating. Can you give us a sense of how much of total you should have modeled for to achieve this cost? And then for Gavin. Gavin, you gave the pricing commentary.

It’s very market by market that’s fully understood. But if you had an opportunity to take another round of pricing to follow up your competitor, are you open to that? Or is that also contingent on how you’re looking at your share performance? And then I have one for Mark after these two..

Okay.

So Tracey, do you want to kick off on the cost savings?.

Yes, so, I mean, we’re not giving cost to achieve number just because it is going to be part of that underlying, so it is included in all of our underlying guidance including the CapEx guidance and the operating margin guidance. So it’s split between OpEx and CapEx, but we are not giving detail around that..

Gavin, do want to pick up on pricing?.

Sure. Amit, I mean, I can’t really give you anything more than I gave you earlier on, right? We don’t provide forward guidance on pricing. What I can say to you is that pricing has been very consistent over the last two years.

We’ve been pleased with our revenue management process over the last year and you can see that demonstrated in the fourth quarter. And obviously, one of the inputs into our revenue strategy is competitive pricing. So once we assess what’s going on in the competitive environment, we’ll do what’s best for our brands to optimize revenue..

Got it. And then, Mark, just a question for you. I mean, very clear you are focused on free cash generation and then use that to grow dividends starting next year as well. But if you look at the stock price, the market doesn’t seem to be rewarding that capital allocation strategy.

So just wondering, is there – is this up for debate at the Board level? Or are we pretty set on this course, at least in 2019 and 2020?.

Yes, we’ve had, I think, pretty good debate at the Board level and with the Finance Committee. We feel very good about the plan that we’ve laid out through the first half of 2019.

Clearly, if there was anything unexpected happened relative to our estimates of our business performance and our stock, then we’ll obviously reengage with our Board and our Finance Committee. But we laid out a plan and we’re committed to that plan.

And I think one of the things that we’ve endeavored to do in our business, as we kind of prepped for and executed the MillerCoors transaction and then drove through integration and deleverages to deliver on the commitments that we’ve made.

And this is a commitment that we’ve made because we feel that we are uncompetitive from a yield perspective, we want to reset that. But the thing to be reminded is the resetting our dividend and our competitive yield still then gives us pretty significant flexibility beyond that move.

So if you look at our overall free cash flow and cost of increasing our dividend, then we still have flexibility as we get through the second half of 2019 and then to 2020.

So our capital allocation strategy around brand-led growth opportunities, further balance sheet strengthening or further return of cash to shareholders will always be on the table. And I don’t think that’s in any way undermined by our commitment to step up our dividend from the middle of 2019. So flexibility still exists beyond that commitment, Amit..

Got it. Thank you so much..

The next question comes from Steve Powers with Deutsche Bank. Please go ahead..

Great. Thank you very much. So Mark, if we could start with international. I think you called out an expectation for strong double-digit EBITDA growth in the international business 2019. And I was hoping if you could just expand upon the drivers there. Clearly, good progress made in 2018.

But I guess, what are the big stepping blocks as you see it in 2019?.

Yes. Well, obviously we changed the leadership of the international team just over a year ago. I was already stepping in and he’s driven a very, very focused game plan there where we really consolidated the markets that we’ve prioritized and the brands that we’re driving and really worked to stepping up our partner engagement and accountability.

So we have a stronger brand portfolio. We’re in markets that we believe that we can go much deeper in terms of our overall brand scale. And we’ve now got our cost base, I think, set for purpose that allows us to scale up the business without any significant additional cost.

So all of the volume or contribution of sites gives us opportunity to flow that through the business going forward. So really good progress.

We delivered again on our commitment in 2018 in terms of the step up in our international performance, and we have a high degree of confidence in our ability to continue to generate strong double-digit EBITDA growth in that business. So again it probably took of all your glory there, but….

Okay. Thank you very much.

Sorry, did you want to add?.

No. I kind of did it earlier..

Okay, very good.

And then, if I could follow-up, Gavin, just netting out the comments you made in response to Judy’s question, I believe, and also Robert’s, can you just drill down and maybe add a little bit of clarity the anticipated cadence of STWs throughout the year relative to STR trends? I think Tracey might have mentioned it in her prepared remarks, but I missed some of it.

Just when I look at all the moving parts and kind of interpret what you said earlier, I’m assuming you’ll receive some shipment timing benefits in the first quarter and perhaps the first half before it then reverses. But I just wanted to sanity check that assumption..

Thanks, Steve.

Gavin, do you want to pick up?.

Yes, sure, Mark. And Stephen, I mean, again, I’ll go back to from an overall point of view, we plan for convergence between the two. We don’t give quarterly guidance. I don’t think Tracey gave that either.

Obviously, we had some shipment challenges out of Golden last year, which are fairly well-known and our brewery rollout subsequent to that have been much more positive. So that will obviously give us some benefit in 2019 when you do a strict compare against 2018. But we are still rolling out the system.

Trenton, Fort Worth breweries went live last year and they have been encouraging and much better than Golden, but that’s a big system implementation and we’re going to have challenges and we do.

Milwaukee and Chippewa Falls breweries just went live and they are so far – certainly, been a week, but they’re so far performing better than Fort Worth, which is the one that went live before that. So we’re getting more and more effective at these rollout as we do them.

Lots of things change in a quarterly-by-quarterly basis, Steve, from timing of holidays, timing of shipments and so on. So we’re not going to give specific guidance on that..

Okay. Fair enough. Thank you very much..

Steve, the only thing I would add is as you look at the first quarter, just remember that we’re cycling two or three big kind of adjustments year-on-year. Last year, we had the indirect tax provision, which had flown through the benefit in 2017 and obviously, was a headwind in 2018 with some shipment challenges around the Golden go live.

I think it was well documented. And the good news is how the team have responded from Golden and our go lives subsequent to then certainly have been a lot smoother. And then, obviously, they’re just underlying industry performance.

And as we’ve talked to this year, it certainly seems to be off to a more positive start and our trends relative to market are more positive according to Nielsen as well. So just bear those in mind as you contemplate the first quarter..

Yes. Thanks, Mark. That’s very clear. Appreciate it ..

Thanks, Steve..

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

Hi good morning..

Good morning, Vivien..

So I really appreciate the commentary around the better trends in the U.S. in the first six weeks of the year that certainly is apparent in Nielsen. But when look at your market share and your market share came up a lot, Mark, within your and Tracey’s prepared remarks.

I’m trying to understand like how you balance market share aspirations around Coors Light specifically, which is obviously critical to total portfolio performance relative to potential cannibalization.

Because as I look at your volume share, the Coors Light improvement is apparent, but from a total company perspective, it seems like, at least in the last eight to 12 weeks, that’s unfortunately been more than offset by Keystone Light.

So number one, is volume share that you’re thinking of, or is it dollar share? Number two, is it market share targets for the total portfolio in addition to Coors Light? Number three, any specific commentary on the interaction between Coors Light and Keystone Light specifically?.

All right, Vivian, wow. Let me try and unpack that one. So I think Gavin and I have been very consistent as we’ve come through 2018 that job number one for us in the U.S. business is to start to get our volume performance to match the industry performance.

That’s not something we think will take six or 12 months, but it’s certainly the medium-term target that we’ve set for our teams, and we want to be holding our share of the U.S. industry and alongside premiumizing our portfolio. So really margining up the business. So that’s as simple as I can make the objective we’ve set for our U.S. team.

Clearly, part and parcel of that we have to ensure that both Coors Light and Miller Lite are outperforming the segment that they operate, and Miller Lite is there, Coors Light is moving back in that direction. And as I mentioned and below premium, overall, we have actually stabilized that position and actually took a little bit of share.

In terms of the cannibalization between Keystone and Coors Light, anything you would add on that particular point, Gavin?.

No, Mark. We’ve done study after study after study on that because the question comes up periodically. And Keystone Light performance is very well in stores, where Coors Light is not even available. As a large national chain sometimes where Keystone is one of our only products there. And so there’s very little interaction with Coors Light.

So that’s not of all what’s driving it. I mean, what’s driving it is and Anheuser-Busch has reacted with their economy brands on a 15-pack basis. And so they’re driving fair amount of price and value to consumers, and Keystone is going up against that strategy. So Anheuser-Busch copied us and that’s impacting our economy share.

From a Premium Lights point of view, we’re very pleased with the performance. Miller Lite continues to grow significant share in the Premium Light segment. And Coors Light, for the last four weeks, is actually also been positive. So we’re pleased with that, as I said earlier on..

Your question was about a volume share versus value sure. So job number one is getting our overall volume to match the industry trends in the U.S..

That’s perfect. So just to summarize just to make sure I’m hearing you guys correctly. So the strategy is to manage your volume share at the segment level. So Above Premium, Premium Light and Below Premium.

And to improve your volume share within each of those segments with the ultimate aspiration of that driving total volume share gains, but you have to manage it at the segment level..

The only correction there I would make is that job number one is to get the place where our volume is matching the industry trends and holding our share in the medium-term..

Understood. Thank you so much..

Okay. Thanks, Vivien..

The next question comes from Laurent Grandet with Guggenheim. Please go ahead..

Yes. Good morning, Mark and Tracey. Two questions. One on Coors Light, one on cannabis. For the second one, actually, could you please update us on your Truss cannabis JV.

Would you be ready to launch new and/or test your product in Q4 and it’s become legal in Canada for beverages? And what about your position regards to CBD products in the U.S.? And on Coors Light, really, I mean, what are the early positive sign you are seeing with Coors Light specifically with consumer? I’m not interested in the Nielsen analysis.

I’d like to understand if you are seeing any consumer impact, if any are to the corn syrup and Super Bowl complaint from your competitor? Thanks very much..

Okay. Thanks, Laurent. Let’s start with cannabis. Fred is here, and Fred, obviously, has overall accountability for cheering our Truss JV.

So Fred, do you want to just talk about our status and expectations as we look through this year?.

Sure. Good morning, Laurent. So we set up the Truss JV back in October last year. And from the beginning, I think we were very clear that our objective was to be ready to capture a meaningful share of the cannabis-infused beverages markets from day one of legalization.

So we still expect legalization to happen in the fall of 2019 around the October time. We’re currently following up on all the regulatory aspects that are coming into place. And the team are racing to get ready for day one. So they’re working on the portfolio, the operational side of the business.

And I think, in summary, I can say we’re on track to be ready on day one..

Yes, I mean, I would add a couple of things. I think we’ve got a great partner. We feel really good about the relationship. We’ve got a great leader in the business in Brett Vye, a very capable team in place and the portfolio is really starting to come together.

So as Fred said, we’ll be on the playing field from day one and competing very hard in that marketplace. I think you asked a question about CBDs in the U.S., so the team that we had working internally on our Canada initiative have continued to work on other market opportunities. I think it’s too early to comment on the U.S.

Obviously, we’re watching where there’s federal approval. And clearly, that’s something that’s important to us as we’re federally regulated. So we’re watching the CBD space. We’ve got a team looking at it. And it’s too early to comment beyond that at this point in time.

On Coors Light, Gavin, do you want to pick up on Laurent’s question around our competitors – competitive advertising?.

Sure, Mark. Thanks. Good morning, Laurent. Look I mean, it’s disappointing that ABI has chosen to single-handedly damage the overall health of the beer category health initiative by disparaging American farmers and natural ingredients that most brewers including themselves, I might add, use quite extensively.

On the positive side, Anheuser-Busch could not have handled it as a better gift if they tried harder. Our distributors are proud. They are fiercely competitive and they lack nothing more than a good fight. And honestly, Laurent, nothing we could have done, could have fired them up so much.

Our employees are just as fired up and the next few months are going to be interesting for sure. My comments around the first six weeks obviously include pre-Super Bowl and post-Super Bowl, which was when the ad was flattered. So that was close to telling you what’s going on from an individual brand point of view as I’m going to do.

But Coors Light is growing its market share over the last four weeks in the Premium Lights segment. We’ve got a new Chief Marketing Officer, who actually joined us the day after the Super Bowl, Michelle. Mark referenced to her a little bit on the call. She’s been a rising star at Kraft Heinz. She understands what makes brands unique.

She’s ready to take our brands to the next level. And what she’s going to bring us – bring to us is new ideas and speed.

And actually, you can see the way we’ve reacted and in fact, once we define that this is the route that we’re going to take, we actually preempted the campaign on the Sunday and then followed it up with speed in a number of different angles over the last sort of 10 days or so and watch the space..

Thank you very much. We appreciate your response..

Thanks, Gavin..

The last question comes from Kevin Grundy with Jefferies. Please go ahead..

Hey, good morning, everyone..

Hi, Kevin..

Just as a follow-up question for Fred on the cannabis strategy. And Fred, I think the comment was you expect to gain meaningful share. So two questions here.

Number one, what’s the level of investment we should anticipate without putting an exact number, but just sort of order of magnitude that’s going to flow through the Canadian segment as you support this effort? And then, two, with respect to strategy because, of course, your key competitors are going to be there and look to capitalize on the significant TAM as well.

Can you give us a sense of how many products perhaps you intend to launch? How you handicap competitive positioning, product superiority? And as we sit here today, what gives you confidence that you’ll indeed be able to succeed given what appears to be likely a crowded market? So thanks for that..

Thanks, Kevin. Fred, I think there’s a bundle of questions there for you..

Yes, the first one, Kevin, the level of investments, as you know, the cost of the Truss JV are consolidated in our Canadian results, but we’re not commenting on the specific investments we’re making in the JV. I think it’s appropriate to say that the JV is properly funded.

We’re confident that we made, together with our partner, HEXO, the right level of investment to deliver a strong portfolio on day one of legalization. And I’ll leave it there in terms of details to disclose. Now the products to be launched in the marketplace, I mean, we’ve got a very entrepreneurial team in place.

They’re working hard to get in the portfolio ready. There’s a lot of emerging ideas. And I think we’re in the stage now of confirming what the brands portfolio is going to look like. But we said from the beginning, you should probably think broadly in terms of beverages that can be infused with cannabis.

And at this stage, we don’t have many more details to disclose about specific products to be launched..

Yes, I think it’s fair. It’s probably around the middle of this year, we’ll be in a position where we can as we start to talk to route-to-market customers, then we’ll to be in a position to share more broadly the shape of our portfolio. So if you can just bear with us on that, clearly, we don’t want to show our hand too early.

I think it is worth just reminding people, Kevin, of the estimates around the size of the cannabis market in Canada. So anything from $7 billion to $10 billion beverages, anything from 20% to 30%. So if you take the low end estimates of that, there’s a potential over time for that market to be worth around $1.5 billion.

So I think with our position and knowledge of the Canadian market and the great partner we have, we’re well positioned to be on the playing field from day one and to compete very effectively, and we know how to compete effectively in Canada..

Thank you. And just the quick follow-up, a point of clarification will be it seems like you do not anticipate either further OpEx or elevated OpEx or further investment into the JV in order to support the initial rollout.

Is that how we should think about it at least for 2019?.

Tracey, do you want to....

Yes, I would say that to Fred’s comments not significant. We went into this joint venture really having a look at the cash required and the investment required, and we feel comfortable with the level of investment that we are going to make and the operating expenses that we’re going to include. But they are not significant..

Yes, and very good..

Thank you..

Mark, it is not available until October probably of this year. So the impact on Q4 would, I think, be relatively small. And 2020, then you’ve got full year of revenue up against the full year of costs as well. So look, I think we can give more detail once we get into the marketplace, and we can see what kind of consumer reaction we get..

Thank you, everyone. Good luck..

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

Okay. Thanks, Gary. Could I just thank everybody for their interest in the Molson Coors Brewing Company.

Hopefully, we’ve laid out very clearly the significant progress we’ve made as a company and also given you a little sense of transparency against the opportunity areas that we continue to work on to further strengthen the performance of our business and our overall shareholder return.

So I look forward to catching up with people on a one-to-one basis, as per Mark’s comments, and thanks again for your interest in Molson Coors..

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