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Text: GAAP reconciliations for any non-U.S. GAAP measures are included in our news release.
And also, unless otherwise indicated, all financial results the company discusses are versus the comparable prior year period and in U.S. dollars.
With that, over to you, Gavin.
I'm going to change things up a bit here from our normal structure, and I'm going to share seven key headlines from our third quarter.
Firstly, Coors Light is growing share of the total beer category in the United States.
This is our biggest brand in our biggest market, a brand that many doubters could get back onto this trajectory, and it's growing share in the industry for the first time in more than five years.
Two, globally, Molson Coors' net sales revenue from its above premium portfolio has surpassed 25% of our brand volume net sales revenue on a trailing 12-month basis for the first time since the revitalization plan was announced.
Third, Molson Coors' grown share of the U.S. above premium segment for two straight quarters for the first time in over five years.
Four, as we expand beyond beer and with three months still left in the year, Molson Coors has sold nearly two million cases of non-alcohol beverages in the United States; five, Molson Coors' total market share trend in Canada has improved for eight straight months, leading to national share growth in the third quarter, and the European business has bounced back, essentially reaching 2019 revenue levels; sixth, challenges in the global supply chain impacted our third quarter volumes.
We are already seeing improvements in brewery output in October.
We are back to shipping approximately one million barrels per week in the U.S. during the fourth quarter.
And in aggregate, distributor inventories are starting to improve; and seventh, like for so many others, transportation availability and transportation costs are worse than they have been in years.
So I want to start there and then we'll work backwards.
Like we've discussed for the second quarter and like other CPG companies, inflation was again a challenge in Q3, specifically with respect to transportation.
Fuel prices are up, truckers are in short supply around the world and freight costs are up 2%.
As Tracey highlighted in our second quarter earnings, we have long-term contracts with carriers and a robust hedging program as well as meaningful cost savings programs to mitigate price fluctuations.
The driver shortages at our existing carriers are forcing us to use the spot market and to pay spot market rates, which are significantly higher than they have been in many years.
Right now, up to one in every four shipments are at these high spot rates.
That level of inflation cannot be completely absorbed or avoided, and you're seeing the results in our COGS for the quarter.
Beyond the hedging and cost savings, we are taking steps to reduce the impact, including shipping more beverages on rail.
Also, we expect gross margin benefits as we continue to premiumize our portfolio under our revitalization plan and achieve improved efficiencies through our economy SKU deprioritization and rationalization plans.
But even with those steps, inflation will continue to be a pressure point for us and for just about every other company.
Our shipment trends in the third quarter were not what we wanted them to be.
Some of that is related to the challenges of moving finished goods to distributors and also moving suppliers within our brewery network.
Some of that is related to our own suppliers having difficulty in getting us the materials we needed since they're facing the same supply chain challenges as everyone else in the world.
But the good news is that this trend, as I've said, has already started turning.
While August and September were difficult production months, the steps we have taken in the third quarter to expand our base of material suppliers and improve our availability for most packaging materials have allowed us to increase shipments so far in the fourth quarter.
We are once again shipping approximately one million barrels per week in the U.S., and that has helped us increase distributor inventories by approximately 20% over the past few weeks.
So that is, of course, the measurement of our total network and that is a trend we expect to build on.
I also want to quickly address volume.
Some of you may look at our North American volume trends with concern.
But I want to remind you that this is predominantly the result of an intentional and strategic decision we made to deprioritize and eliminate a number of large -- a large number of lower-margin, slower moving SKUs in the U.S. that were mainly in the economy segment.
The intention was to simplify and premiumize our portfolio, and that is exactly what is happening.
So our volume is down, but our net sales revenue per hectoliter is up.
And I can again tell you that we are on track to deliver on our full year key financial guidance for 2021.
This is what is happening in Canada.
We have improved our national share trend for eight straight months, leading to total share growth in the third quarter.
This is the best share trend performance we have seen in at least six years.
As the on-premise reopens in Canada, our share is growing above 2019 levels, a big driver of our progress.
Coors' growing share of the segment in Canada as well with Miller Lite also growing approximately 30% in the quarter.
Molson Ultra has seen strong year-to-date performance with volume growing mid-single digits along with strong share gains.
These are all very good signs for our business in Canada.
Not to be outdone, our European business has bounced back strongly.
In the U.K., our on-trade net sales revenue has now reached 2019 levels, and margin has surpassed 2019 levels as the business continues to premiumize, which I'll touch on in more detail in a moment.
As we look to the fourth quarter, we plan to keep this momentum up by stepping up our European marketing investments.
two years after shifting from a beer company to a beverage company, we have reached a significant milestone.
For the first nine months of the year, we have sold nearly two million cases of non-alcohol beverages as we continue to drive toward our $1 billion revenue ambition for our emerging growth business by 2023.
We have launched into categories where we think we can create scale offerings like water, energy and coffee.
First, of course, is our partnership with Zoa, which has been making some serious noise since its launch just over six months ago.
It's the number one new energy franchise in 2021, and it's already a top 20 energy drink brand.
Zoa already has 31,000 buying outlets and over 115,000 points of distribution with more coming online every day.
There's a lot of upside for this brand.
We have the distribution partnership for La Colombe's incredible lineup of ready-to-drink coffee, one of the fastest-growing spaces in the beverage industry.
Growing beyond the beer aisle is no longer an aspiration.
We're doing it, and we're driving scale.
Molson Coors' grown share of the U.S. above premium segment for two straight quarters for the first time in over five years.
That mark is largely driven by the continued success of our U.S. hard seltzer portfolio, and this is another space I want to take a little more time to discuss.
There's been a lot of noise over the past few months about hard seltzers in the U.S., a lot.
Not all of it has been accurate, and much of it has been unproductive.
Now hard seltzer is going to keep growing at 200% per year.
But of course, not.
And we've been clear since last fall that we didn't expect them to do so.
But in spite of the rosy forecast some had a year ago and the bleak forecast being thrown about today, there are some clear truths.
Hard seltzers are here to stay.
There are over 10% of beer category sales and growing.
But the segment has matured and the easy growth is over.
Moving forward, it is going to take distinctive, differentiated brands in order to succeed, and that's why we feel so confident about our portfolio.
While so many of the mainstays are declining, Molson Coors has the fastest-growing hard seltzer portfolio in the United States.
Vizzy brand volumes grew 50% in the third quarter versus the prior year and passed yet another competitor to become the number four hard seltzer in the United States.
Despite only being launched in 16 different markets in the U.S., Topo Chico Hard Seltzer occupies the number three slot as a new item in the general malt beverages category.
The brand also garnered a 2.4% share of the U.S. market according to IRI, and this success has led to the national expansion of the brand.
But that is not the extent of our premiumization.
Our joint venture with Yuengling launched in Texas this quarter, and we are very pleased with the very early results.
By the end of August, it was already available for purchase in 40,000 locations across the state.
As the on-premise continues to strengthen, so have two of our biggest above premium brands.
Peroni is up double digits, gaining share in the category and outpacing all other European imports.
Blue Moon Belgian White is up high single digits.
And this quarter, we announced plans to build upon the success of Blue Moon LightSky, which our data shows is 96% incremental to the flagship Belgian White.
Blue Moon LightSky continues to see double-digit growth year-to-date after finishing 2020 as the number one new beer in the United States.
In 2022, we'll add more muscle to the Blue Moon family as we launched LightSky Tropical Wheat.
As I said in our second quarter earnings call, premiumization is here to stay at Molson Coors.
All that growth in the U.S. is contributing to a significant premiumization of our entire global portfolio.
So much so that as of the third quarter, the percentage of Molson Coors portfolio that is above premium has surpassed 25% of our brand volume net sales revenue on a trailing 12-month basis for the first time since the revitalization plan was announced.
And that progress is being seen throughout the company.
The early returns on our Canadian Hard Seltzer portfolio have exceeded expectations with both Vizzy and Coors sales are generating strong market share.
We will extend that streak when we introduced Topo Chico Hard Seltzer in Canada in 2022, which we announced this month.
Six Pints, our Canadian craft business, is growing double digits despite on-premise restrictions.
Combined with the growth of Miller Lite and Molson Ultra, this has continued to drive the premiumization of our business in Canada.
In Western Europe, our new Mediterranean lager, Madre, has already doubled its distribution goal for the year, now at approximately 5,500 on-premise outlets with more coming in the fourth quarter.
In Central and Eastern Europe, New Smooth pilsner lager Pravha, has been performing above expectations across the market with presence in more than 15,000 outlets supported with strong media campaigns, reaching over 13 million consumers.
And in Latin America, Coors Light is growing in Puerto Rico for the first time in 15 years, where it sells at an above premium price point.
In the face of many doubters, Coors Light is growing share of industry in the United States for the first time in more than five years.
The brand's strong performance in the third quarter was aided by the continued success of our Made to Chill campaign and through increased marketing investment.
We're actually making progress on the things that are within our control and driving measurable results that continue us on the path to delivering on our goal of sustainable, long-term top and bottom line growth.
We are two years into our revitalization plan, and I remain confident that we are on track to deliver our full year key financial guidance for 2021, while continuing to invest behind our brands.
And I'm very optimistic about the future for Molson Coors.
As Gavin mentioned, we are again reaffirming our key financial annual guidance for 2021.
We continue to make real progress executing our revitalization plan.
We invested behind our business, driving premiumization of our portfolio of our brands and strengthening our core business while continuing to delever our balance sheet and to reinstate the dividend.
But like most consumer product companies, we face supply chain challenges and inflationary cost headwinds in the quarter, which had an impact on our quarterly results.
Now let me take you through our quarterly results in more detail and provide an update on our outlook.
Consolidated net sales revenue increased 1% in constant currency, delivering over 99% of third quarter 2019 level despite the on-premise continuing to operate below pre-pandemic levels.
Consolidated financial volumes declined 3.9%, primarily due to lower brand volumes, which were down 3.6%, largely due to the economy segment, including the economy SKU deprioritization program.
Top line performance benefited from strong global net pricing, favorable brand mix levels in North America as we continue to premiumize our portfolio, double-digit revenue growth in Europe and positive channel mix.
Net sales per hectoliter on a brand volume basis increased 3.6% in constant currency, driven by the strong pricing growth, coupled with positive brand and channel mix.
Underlying COGS per hectoliter increased 8.9% on a constant currency basis, driven by cost inflation, including higher transportation and input costs, mix impact from premiumization and volume deleverage.
However, with our robust hedging and cost savings programs, we have been able to mitigate some of the inflationary pressure.
Underlying MG&A in the quarter increased 3.5% on a constant currency basis due to higher marketing investment behind our core brands and innovation as well as parking targeted reductions to marketing spend in the prior year period due to the pandemic, which was largely offset by lower G&A expenses.
As planned, we increased marketing investments in the quarter to levels above second quarter 2021 and third quarter 2019 levels, ensuring strong commercial pressure behind our key innovations and core brands.
As a result of these factors, underlying EBITDA decreased 10.9% on a constant currency basis.
Our effective tax rate in the quarter was significantly impacted by a discrete tax item.
You may recall in the second quarter of last year following the issuance of certain U.S. tax regulations, we recognized a material discrete tax expense of $135 million.
It was related to previously taken tax positions over several years.
In the third quarter of this year, we reached a settlement with the tax authorities with regard to our tax positions impacted by those tax regulations.
As a result of the settlement, we had a release of unrecognized tax benefit positions in the quarter that resulted in a P&L tax benefit of $68 million, including a $49 million discrete tax benefit in the third quarter.
Underlying free cash flow was $933 million for the first nine months of the year, a decrease in cash received of $227 million, from the prior year period.
This decrease was primarily driven by the repayment of taxes related to various government-sponsored deferral programs related to the pandemic.
As a reminder, in 2020, working capital was positively impacted by over $200 million for benefits related to these government tax deferral program.
Capital expenditures paid was $363 million for the first nine months of the year as we continue to invest behind capability programs such as our previously announced Golden Brewery modernization project and our new Montreal brewery expected to open by year-end.
Capital expenditure levels were relatively consistent with the comparable period in the prior year.
Now let's look at our results of our business units.
In North America, the on-premise has not returned to pre-pandemic levels, but continued to improve on a sequential quarter basis.
In the third quarter, the on-premise channel accounted for approximately 14% of our net sales revenue in the quarter, compared to approximately 12% in the second quarter of 2021 and 16% in the same period in 2019.
In the U.S., the on-premise accounted for about 88% of 2019 net sales revenue in the quarter.
In Canada, restrictions continue to ease throughout the quarter with the on-premise net sales rising to 80% of 2019 levels in the third quarter, up from about 25% in the second quarter.
North America net sales revenue was down 2.1% in constant currency as net pricing growth and positive brand mix were more than offset by lower volume.
In the U.S. domestic shipment volumes decreased 6.6%, trailing brand volume declines of 5.2%, driven by unfavorable shipment timing and declines in the deprioritized economy segment.
Economy was down double digits as we deprioritize and announced the rationalization of approximately 100 non-core SKUs, which were primarily in the economy segment.
Conversely, our U.S. above premium portfolio was up high single digits.
Canada brand volumes improved 0.5% in the quarter, and Latin America brand volumes continued their strong performance and experienced 9% growth, reflecting the easing of on-premise restrictions.
Net sales per hectoliter on a brand volume basis increased 2.4% in constant currency with net pricing growth and favorable brand mix, partially offset by unfavorable geographic mix given the growing license volume in Latin America.
U.S. net sales per hectoliter increased 3.2%, driven by net pricing growth and positive brand mix, led by best premium innovation brands, including Vizzy, Topo Chico Hard Seltzer and Zoa.
Net sales per hectoliter on a brand volume basis grew in Canada due to positive brand and channel mix as well as net pricing increases while Latin America also increased due to favorable sales mix.
Underlying cost per hectoliter increased 7.3%, driven by inflation, including higher transportation and packaging materials and brewery costs, volume deleverage and mix impact from premiumization.
Underlying MG&A decreased 1% as higher marketing investments were offset by lower G&A due to lower incentive compensation expense and the recognition of the Yuengling Company joint venture equity income.
We increased marketing investments behind our innovation brands and our iconic core brands, Coors Light and Miller Lite, including an increase in local tactical spend as on-premise restrictions eased throughout the quarter.
As planned, we increased U.S. marketing investment compared to not only the same period in 2020, but also versus 2019.
North America underlying EBITDA decreased 14.3% in constant currency.
Europe net sales revenue was up 14.7% in constant currency, with an 11% increase in net sales per hectoliter on a brand volume basis driven by positive brand, channel, geographic and packaging mix and positive net pricing.
Top line performance also benefited from the on-premise reopening in the U.K. on July 19.
And of note, in the third quarter of 2020, the on-premise have fewer restrictions than in the second and fourth quarters of that year.
The U.K. on-premise channel net sales revenue reached similar levels of pre-pandemic levels in the quarter.
Europe financial volumes decreased 2% and brand volumes decreased 3%.
The decline was primarily due to lower Central and Eastern European volumes driven by increased on-premise restrictions related to the coronavirus and the disposal of our India business in the first quarter of 2021.
This was partially offset by growth in the above premium brand volumes, which reached another record high portion of our Europe portfolio.
Underlying EBITDA increased 2.7% in constant currency as revenue growth was partially offset by higher marketing investments.
Turning to the balance sheet.
As of September 30, 2021, we had lowered our net debt to underlying EBITDA ratio to 3.3 times and reduced our net debt to $6.6 billion, down from 3.5 times and $7.5 billion, respectively, as of December 31, 2020.
On July 15, we announced that we had repaid in full the $1 billion, 2.1 senior notes that are maturing that day using a combination of commercial paper and cash on hand.
We ended the third quarter with strong borrowing capacity with approximately $1.5 billion available capacity under our U.S. credit facility.
Now turning to our financial outlook.
We are again reaffirming our 2021 key financial annual guidance originally provided on February 11, 2021.
While we are sitting in a better place than we were a year ago, it bears reminding that uncertainty pertains to the coronavirus and its variants remains severely decreased by market.
If restrictions are reinstated in some of our larger markets, this could have a significant impact on our financial performance over the next few months.
Now I'll provide some underlying expectations to provide some additional context for the balance of the year.
We expect to deliver mid-single-digit net sales revenue growth for the full year on a constant currency basis.
We continue to work to build inventories with wholesalers, which have been at low levels.
And as Gavin mentioned, we are making progress.
In the U.S., we expect on-premise trends to continue to improve as we lack restrictions in the prior year period.
In Canada, we continue to see greater on-premise reopenings bearing by COVID, which should continue to provide positive channel mix.
In Europe, the U.K. top line should strongly benefit from the prior year fourth quarter, given the on-premise was fully locked down for November and December of 2020, which are typically strong months given the holidays.
Our guidance also anticipates continued strength in our both premium portfolio, particularly hard seltzers, innovations and imports.
Also, we expect continued solid progress against our previously discussed emerging gross revenue goal of $1 billion in annual revenue by 2023, against which we continue to track ahead of plan driven by Zoa, La Colombe and Latin America.
We continue to anticipate underlying EBITDA to be roughly flat compared to 2020 as top line growth is expected to be offset by continued cost inflationary headwinds largely transportation and packaging materials, including aluminum and the Midwest premium and increased marketing investments to deliver against our revitalization plan.
Under the revitalization plan, 2021 has been a year of investment for the company, and we intend to continue to increase marketing investments to build on the strength of our core brands and support successful innovation.
As Gavin mentioned, we expect fourth quarter marketing investment to be higher than the fourth quarter of 2019, as we continue to ramp up supply and put commercial pressure to support our big bet brands in both North America and Europe.
We continue to anticipate underlying depreciation and amortization of $800 million, and net interest expense of $270 million, plus or minus 5%.
However, due solely to the discrete tax benefit in the third quarter, we have adjusted our effective tax rate range for 2021 only to 13% to 15% from 20% to 23% previously.
Also, as a reminder, in 2020, our working capital benefited from the deferral of approximately $130 million in tax payments from various government-sponsored payment deferral programs related to the coronavirus pandemic.
We currently anticipate the majority to be paid this year as they become due.
Moving to capital allocation.
We continue to prioritize investing in our business to drive top line growth and efficiencies, reducing debt and returning cash to shareholders.
First, we plan to continue to prudently invest in brewery modernization and production capacity and capabilities to support new innovations and growth initiatives, improve efficiencies and advance toward our sustainability goals.
Second, we have a strong desire to maintain and, in time, upgrade our investment grade rating.
As such, we expect to continue to improve our net debt position and reaffirm our target net debt to underlying EBITDA ratio to be approximately 3.25 times by the end of 2021, and below three times by the end of 2022.
And third, on July 15, our Board of Directors determined to reinstate a quarterly dividend on our Class A and Class B common shares and declared a quarterly dividend of $0.34 per share payable on September 17.
The Board made the decision to reinstate the dividend at a level that they believe is sustainable and provides room for future increases as business performance improved.
In closing, to be sure we have faced challenges in the quarter, but are proud of our agility and the actions we have taken to manage through them.
Through it all, we have continued to successfully execute against our revitalization plan with clear premiumization of our portfolio.
And despite all the ups and downs throughout this year, we have reaffirmed our key financial annual guidance yet again.
Like most consumer product companies, we face near-term challenges, but the fundamentals of our business remains strong, and we are confident we are on the right path toward long-term sustainable revenue and underlying EBITDA growth.

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reaffirms key 2021 financial guidance.
qtrly net sales revenue per hectoliter increased 3.6%.
qtrly net sales $2,822.7 million versus $2,753.5 million.

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