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Text: [Operator Instructions] If you have technical questions on the quarter, please take them up with me or Traci Mangini on the IR team in the days and weeks to follow.
And GAAP reconciliations for any non-U.S. GAAP measures are included in our news release or otherwise available on our website.
Also, unless otherwise indicated, all financial results the company discusses are versus the comparable prior year period and in U.S. dollars.
So with that, over to you, Gavin.
Well, what a year it's been so far.
If you're like most people, there are probably a lot of words that come to mind when you think of 2020.
But for Molson Coors, this year, can be summarized in three words: persistence, perseverance and progress.
That is how 2020 has been defined by the Molson Coors Beverage Company as we drive for top line growth.
We're very pleased with our performance in the third quarter as we beat top and bottom line expectations and made tangible progress on our revitalization plans.
We had bold plans at the beginning of 2020, to build on the strength of our iconic core brands, aggressively grow our Above Premium portfolio, expand beyond the beer aisle, invest in our capabilities and support our people and our communities.
Yet 2020 has presented new obstacles for everyone, for which we've had to adjust.
Like all other beverage companies, one of the biggest challenges this year has been packaging supply.
To put into perspective the scope of the challenges, we sold 300 million more cans of beer in the first nine months of 2020 than we did in the same period in 2019 in the United States alone.
And there have been times over the past few months when demand for tall cans was four times what it was in 2019.
I'm pleased to report that while work remains, inventory is steadily improving in the U.S.
We are approaching historical levels of paperboard supply.
We are confirming most orders for bottled beer and seeing steady improvement in supply.
Our 12-ounce industry standard can supply is stabilizing, and we anticipate it will continue to increase through the year as we return to full inventory, and we are starting to more fully cover demand for tall cans and expect steady improvement in inventory through the balance of the year.
When 2020 has shown as challenges like this, we've, met each challenge head on, and we have never lost sight of our plan.
Now we're able to show what's possible as we execute that plan as we drive toward top line growth.
Coors Light and Miller Lite grew 6% to 9.5%, respectively, in the U.S. off-premise so far this year.
As of today, the combined segment share has grown for 24 consecutive quarters.
That is six straight years, and our aim now is to stabilize our biggest brands in the total beer category.
Above Premium products, a record higher portion of our U.S. portfolio since the business formed in 2008 despite the on-premise restrictions.
By the end of 2021, we plan to capture a double-digit share of the U.S. seltzer market, backed by what arguably is the most complete seltzer portfolio in the business.
Truss, our Canadian joint venture has quickly become a market share leader of ready-to-drink cannabis beverages in Canada.
The company estimates market share of over 50% in key markets such as Quebec.
And we believe that our emerging growth division can become a $1 billion business in revenue terms in three years' time.
We are expanding our production capacity for seltzers by over 400% and for Blue Moon Lightsky by approximately 400%.
We will continue prioritizing capital projects that will allow us to further expand our seltzer and innovation production capacity.
We will continue to take tangible steps to build a brighter future for our people and our communities.
I want to pause here.
I know there are questions about the complexity of our revitalization plan and about our ability to execute.
But not only can it be done in the future, we are already doing it today.
As you can see, we are building on the strength of our core while growing our above-premium portfolio and planting the seeds for future growth beyond beer.
And we're investing in our capabilities and our people to make it all possible.
I want to drill down on each of these a little more.
As I mentioned earlier, it's a great sign of strength of our core brands that Coors Light and Miller Lite grew 6% and 9.5%, respectively, in the U.S. off-premise so far this year.
And the combined segment share of our two largest U.S. brands has grown for six straight years.
And Coors Light, again, achieved a record high segment share in the U.S. since the business formed 2008, per Nielsen.
And our market research shows Coors Light has seen the biggest year-to-date improvement in consideration across the category, especially with 21- to 34-year-old consumers.
In Canada, Molson Ultra has performed very well this year, up 32% so far and has surpassed a large competitor in share of grocery in Quebec based on the recent 4-week data per Nielsen.
Our national champion brands in Europe saw significant trend improvement as a large percentage of the on-trade had reopened at the beginning of the third quarter.
In 2020, we have increased our number of major sports alliances across all of North America.
And while we aren't spending money against a lot of them this year during the pandemic, these partnerships should benefit our biggest brands for years to come.
We have also seen great progress in growing our Above Premium portfolio.
Above Premium products grew in the third quarter and have reached a record high portion of our overall portfolio in the United States since the business was formed in 2008.
Blue Moon Lightsky, which launched in February, has sold over 1.6 million cases through the end of the third quarter and is 2020's top-selling new beer in the United States per Nielsen.
And LightSky is highly incremental to the Blue Moon brand.
Blue Moon Belgian White, largest craft brand in the United States, has seen the third highest growth in the off-premise among all craft brands in 2020, according to Nielsen.
With the Lightsky at number one, the Blue Moon family has easily achieved the highest off-premise growth in 2020 among all craft franchises, according to Nielsen.
And this progress in Above Premium beer extends to Europe.
In Europe, but outside of its home market, the Staropramen brand grew by 9% in volume in the quarter.
And our export and license team grew volumes by 3% in the quarter, thereby expanding the footprint and the size of our premium positioned brands across the wider European segment.
Vizzy has risen to number eight on the Nielsen top 10 Growth Brands chart in 2020, selling over 2.5 million cases since its April launch, and it is seeing the highest repeat purchase rate among all seltzers made by the major beer suppliers.
And we are incredibly excited by the early results for Coors Seltzer, which has matched Vizzy's hot sales in its first months on shelves.
In some key retailers, the Coors Seltzer variety pack is outselling the Bud Light Seltzer for hourly pick.
Folks, we are building out arguably the deepest most diversified portfolio of hard seltzers in the industry.
We came into 2020 with an under two share of the segment.
We are now four share.
And by the end of next year, we plan to capture a double-digit share of the U.S. seltzer market.
That is possible because of the depth and differentiation of our seltzer portfolio, We believe Vizzy, with its Acerola cherry, high antioxidants from Vitamin C is the best positioned product on the market in the better-for-you space.
We believe Coors Seltzer can become the number one beer brand in the segment through the strength of its name and its social mission around restoring America's waterways.
Topo Chico hard seltzer is something no other product offers.
The benefit of the massive following of the Coca-Cola Company's Topo Chico Sparkling mineral water in a number of major markets across the United States.
Proof Point will also launch next year, differentiating itself with premium ingredients like real spirits.
And I would remind you that with our distribution deal for Bodega Bay hard seltzer in the U.K. and Ireland, also Coors as an early mover among European hard seltzers.
We had even more Above Premium both opportunities coming in 2021, when we bring Yuengling westward under our new joint venture.
There are 25 states open for expansion under the JV, all with 0 Yuengling distribution today and tens of millions of legal-age drinkers.
That is a significant growth opportunity for our company and for Yuengling.
Our emerging growth division has been doing a great job planting the seeds for future growth opportunities beyond the beer aisle.
Earlier in the year, we launched Mollo, our first canned one and the Truss joint venture launched Veryvell CBD and THC drops in Canada.
And in the third quarter, we stepped it up.
Trust launched its first ready-to-drink cannabis beverages in Canada partway through the quarter and already, it has become a market share leader.
The company estimates market share of over 50% in key markets like Quebec.
We launched a new line of nonalcohol products created in the beverage incubated L.A. Libations.
We took a minority stake in ZenWTR by noted beverage innovator Lance Collins, and we launched Vyne Botanical Hop water in Canada.
In Europe, we signed an exclusive agreement with Miami Cocktail Company to distribute their growing brands in the United Kingdom and Ireland.
This is really just the beginning for us.
We're learning in some of the spaces in a capital-efficient way, I would add.
And we'll apply what we learn to future growth opportunities beyond beer.
That is why I'm confident that altogether, our emerging growth division can become a $1 billion business.
For as much activity as you've seen in the past few months, you can expect to see more coming.
In the next few weeks, our U.S. Truss joint venture with HEXO will launch its first CBD-based products in Colorado, making us an early mover in this area.
And soon, Molson Coors be a distributor of La Colombe's incredible lineup of ready-to-drink coffees in the off-premise, starting with drug and convened store channels, another great example of how we can leverage our strengths to find meaningful, profitable top line growth.
And to achieve growth and our revitalization plan, we can't just rely on our stellar marketing team.
We are investing in our capabilities to make it happen.
We intend to expand our hard seltzer production capacity by over 400% by the end of this year.
By early 2021, we expect to complete a project to expand Blue Moon Lightsky production capacity by approximately 400% as well.
We just turned on a new sleek-can production line at the Rocky Mountain Metal Company, our joint venture with Ball Corporation, capable of producing 750 million cans a year.
We're modernizing our brewery in Golden, Colorado, making it easier to brew the beverages of the future.
During the coronavirus, we have improved online sales in the U.S. by approximately 200% through the 3-tier structure, while also developing new e-commerce and direct-to-consumer channels for our business in Canada.
These investments will help power our business forward, and we will continue prioritizing capital projects to continue expanding our production capacity for seltzers and innovations in 2021 and 2022.
I've talked a lot about how the revitalization plan shapes our business actions, and it's also shaping how we support our people and our communities.
That started earlier this year when we redefined our company values, starting with putting our people first, we built from there all year long.
Just this month, we held our first week of inclusion.
We redirected social media spending to 25 national and local organizations working to address issues of equality, empowerment, racial justice and community building.
We launched a new scholarship program, supporting people of color and LGBTQ+ students seeking degrees in brewing or fermentation sciences.
We have the opportunity and the responsibility to drive change, and we are doing just that, and we're not going to slow down.
When complete, the modernization project in Golden will significantly reduce CO2 emissions from the brewery, it will reduce energy usage by 15%, and it will reduce our water usage by 100 million gallons per year.
Look, we've made a lot of news over the past two months, from our continued investments behind our core brands, in the expansion in our seltzer production capacity to our joint venture with Yuengling, to our new line of nonalcohol beverages, to the launch of Coors Seltzer, to the addition of Topo Chico Hard Seltzer, to the distribution deal with La Colombe.
These are not a series of one-offs that all represents parts of one single strategy, drive our business to top line growth.
Now we've faced a lot of criticism over the years about the shape of our portfolio in the U.S., where it is too heavily weighted toward our two premium light brands.
I understand the viewpoint, but I believe our core is our strength.
And as I've outlined, a key part of our plan is to build on the strength of our iconic core brands.
And yet interestingly, under this strategy, as we roll out plans to aggressively grow our above-premium portfolio and expand into fast-growing Above Premium beverages beyond the beer aisle.
There have been questions as to whether these actions add too much complexity or distraction, and we should stick to our core.
But to suggest that we must focus only on our core brands or only on innovations is a false choice.
Part of our revitalization strategy, we organized our business to do exactly that.
The progress we are making is promising.
Our 2020 Above Premium innovations have already delivered an incremental 5.7 million cases for our business.
The health of our iconic core brands continues to improve, and we are planting the seeds for new growth opportunities beyond the beer aisle.
That is the plan we announced last October.
That is the plan we're executing, and that is the plan we believe will deliver top line growth for this business.
And now I'll pass it over to Tracey for the financial highlights.
I will first cover the quarter on a consolidated and regional basis and then move to our outlook.
So to recap the quarter, net sales revenue decreased 3.6% in constant currency, a significant improvement from our second quarter performance.
In the third quarter, we saw volume declines, principally in the on-premise channels, along with the corresponding negative channel mix implications across all major markets.
These impacts were partially offset by higher net pricing as well as the U.S. overcoming channel mix challenges to deliver positive brand mix behind strong performances in Vizzy, Blue Moon Lightsky and Coors Seltzer.
North America shipment timing was positive in the third quarter, but remain impacted by the packaging material constraints.
Net sales per hectoliter on a brand volume basis increased 2.1% in constant currency, reflecting positive net pricing in the U.S. and Canada, more than offsetting negative mix effects globally due to the various market dynamics and consumer shifts caused by the coronavirus pandemic.
While a significant number of the on-premise establishments were opened throughout the quarter, those that were opened were not operating at full capacity.
This had an adverse impact, albeit improving from second quarter levels on mix globally.
As many of our higher-end products are skewed toward the on-premise, closures or restrictions in this channel has an unfavorable impact on our brand and channel mix.
Worldwide brand volume decreased 5.2%, while financial volume decreased 5%.
Underlying COGS per hectoliter increased 1.5% on a constant currency basis, driven by inflation and volume deleverage, partially offset by cost savings initiatives.
Underlying MG&A decreased 7.6% on a constant currency basis, driven by reduced marketing spend, partially offset by slightly higher G&A as we cycled onetime benefits related to long-term incentive compensation reversals in the third quarter of 2019.
This was largely offset by revitalization cost savings and lower discretionary spend.
As a result, underlying EBITDA grew 0.5% on a constant currency basis.
Underlying free cash flow of $1.160 million for the nine months ended September 30, 2020, was $275 million favorable to the prior year period driven by favorable working capital.
The working capital benefit was driven by the deferral of over $200 million in tax payments from various government-sponsored payment deferral programs related to the coronavirus pandemic, of which we currently anticipate approximately half to be paid in the fourth quarter of 2020, while the remaining amount to be paid beyond this fiscal year.
In North America, net sales revenue decreased 0.8% in constant currency, driven by financial volume declines of 4%, reflecting lower brand volume.
North America brand volumes decreased 5.2% as the on-premise closures or limited capacity reopenings during the quarter more than offset the strength in both the U.S. and Canada in the off-premise.
Also contributing to the decline was packaging constraints, which primarily impacted the economy and premium segments as we prioritize higher-margin SKUs.
In the U.S., brand volumes decreased 5.3% compared to domestic shipment declines of 3.9% in our efforts to address the year-to-date under shipment positions attributed to the aluminum can supply constraints.
Net sales per hectoliter on a brand volume basis increased 3.6% in constant currency, driven by net pricing increases in the U.S. and Canada and favorable brand and package mix in the U.S., partially offset by negative brand and channel mix in Canada, attributed to the shift of volume from the on-premise to the off-premise.
In the U.S., net sales per hectoliter on a brand volume basis increased 4.6%, driven by favorable sales mix and net pricing.
The U.S. delivered its best quarterly sales mix performance in the last decade and the best brand mix performance since the first quarter of 2014.
In Canada, negative mix more than offset the net pricing increases.
While in Latin America, net sales per hectoliter on a brand volume basis was largely consistent with the prior year.
Underlying EBITDA increased 2.5% in constant currency as SG&A reductions more than offset unfavorable gross profit from lower financial volumes and COGS inflation.
The MG&A reductions were driven by lower marketing spend in areas impacted by the coronavirus pandemic, such as sports, events and festivals.
We also adjusted the timing of marketing investments behind brands and tax for which we experienced supply constraints.
However, media and advertising spend ramped up sequentially within the quarter and increased compared to the prior year period as we supported core brands and key innovations.
Also contributing to the MG&A reduction were other cost mitigating actions and the continued progress in realizing cost savings related to the revitalization plan.
All of this was partially offset by cycling lower incentive compensation in the prior year period, largely due to the onetime benefits from long-term compensation reversals in the third quarter of 2019, as mentioned earlier.
For Europe, which is more heavily skewed toward the on-premise, net sales on a reported basis decreased 15.3% in constant currency due to lower volumes and lower net sales per hectoliter, reflecting the impact from the coronavirus.
Net sales per hectoliter on a brand volume basis declined 5.9% in constant currency, driven by unfavorable channel, brand and geographic mix, particularly in the high-margin U.K. business, partially offset by slightly higher net pricing.
Financial volumes decreased 7.7% and brand volumes decreased 5.4%, a significant improvement from the year-on-year declines experienced in the second quarter as more on-premise accounts were open, even though many were not operating at full capacity in the quarter.
We have also greatly improved our capacity levels to meet the highest levels of demand in the off-premise.
Europe's underlying EBITDA decreased 8% on a constant currency basis versus the prior year, driven by gross margin impact of volume declines and unfavorable geographic and channel mix, partially offset by lower MG&A expenses as a result of cost mitigation actions to navigate the coronavirus pandemic.
Which takes me to our financial outlook.
On March 27, we withdrew our guidance due to the uncertainty driven by the pandemic.
With the rise in the new virus cases in both North America and Europe, governments are mandating new closures, were imposing lockdowns to varying degrees, and thus, set uncertainty remains.
As a result, we have not reinstated guidance but are providing additional visibility on forward trends and a perspective on how we believe we will be impacted by the coronavirus.
We do not expect to continue to give this visibility once conditions have stabilized or we resume guidance.
And we are very proud of our performance and agility in navigating the coronavirus pandemic and executing against our revitalization plan, but recognizing there are still headwinds ahead.
The pandemic continues to impact our businesses due to on-premise losses and across all our geographies and disproportionately, in Europe.
Also, we continue to face the fire constraints.
However, we do expect to return to full inventory of 12-ounce industry standard cans by year-end, and we're making progress on remediating constraints for the Coors Light pour can.
As a result, we expect domestic shipment trends in the U.S. to be higher than brand volume trends in the fourth quarter as we continue to build inventories.
For SG&A, we expect marketing investment to increase in the fourth quarter from the prior year as we build on the strength of our core brands and ramp up support for key innovations like Blue Moon LightSky, Vizzy and Coors Seltzer, in alignment with additional supply coming online.
We will continue to be nimble, adapting to the environment to ensure we are achieving the highest possible return on our marketing investments, while supporting strong brand equity.
Therefore, as of the third quarter, some of our anticipated fourth quarter spend will be dependent on factors, including the occurrence of live sports and events.
And finally, as discussed on our second quarter call, in the fourth quarter, we will stifle lower incentive compensation and a nonrecurring vendor benefit, which occurred in the fourth quarter of 2019 and totaled approximately $27 million.
In response to the coronavirus pandemic, we have shifted our focus to ensure adequate liquidity for the near term while positioning the business for medium and long-term success.
This included a desire to maintain our investment-grade rating, which is important for all of our stakeholders.
Being investment-grade rated reduces our cost of debt, improved our access to capital markets, including commercial paper and gives us more operational flexibility to execute against our strategy.
As previously discussed, we have significantly improved our liquidity position by favorably amending the covenant terms of our $1.5 billion revolving credit facility, adding a GBP300 million commercial paper facility for our U.K. business, which is incremental to the borrowing capacity under the $1.5 billion facility, suspending the dividend in May for the remainder of 2020, reducing previously planned capital expenditures by around $200 million for 2020 and generally reducing discretionary spend where possible.
And in the third quarter, we continued to reduce our debt position with a payment of CAD500 million that is due, using a combination of cash and commercial paper.
As of quarter end, we had reduced our net debt position by just over $1.2 billion since we began the revitalization program.
And we have maintained strong borrowing capacities on both our facilities.
As of October 29, 2020, we had $1.4 billion under our U.S. facility and the full GBP300 million under the U.K. facility in available capacity.
So we invested in our business to support medium- and long-term growth objectives.
In addition to necessary safety and maintenance projects, we are making capital investments that deliver cost savings and high-return growth initiatives such as our significant investment behind hard seltzer and innovations in our Fort Worth and Milwaukee brewery.
And over the next few years, we plan to prioritize capital investment to include hundreds of millions of dollars to add significant capacity for our innovation, including seltzers and slim can capacity.
Given the operating environment, we are very pleased with our third quarter financial performance, making another quarter of progress on our revitalization plan to drive long-term value creation.
We achieved solid financial and operating results and again, exceeded top and bottom line expectations.
And we did so while navigating the continued changes posed by the coronavirus pandemic, further improving our liquidity and investing in efforts to advance our long-term goals.
We are mindful of the challenges and continued uncertainty ahead and remain focus on doing what is best not only in the near term but positioning the business for medium and long-term success, and we look forward to updating you on our continued progress.

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qtrly total worldwide brand volume down 5.2%.
currently remain unable to provide an updated detailed financial outlook.

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