Molson Coors Canada Q3 2026 Earnings Call Transcript

Molson Coors Canada (TSX:TPX) reported third-quarter financial results on Thursday. The transcript from the company’s third-quarter earnings call has been provided below.

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View the webcast at https://events.q4inc.com/attendee/198849716

Summary

Molson Coors Canada has been implementing its Horizon 2030 strategy, aimed at portfolio transformation, cost simplification and improved performance consistency.

Despite intensified external headwinds, including U.S. category softness, U.K. promotional activity and elevated freight costs, the company is seeing positive share trends in the U.S. and growth in certain key brands.

The company has revised its 2026 guidance downward, expecting declines in net sales revenue, underlying pre-tax income and underlying EPS due to ongoing cost pressures and market challenges.

Operational highlights include local execution successes, particularly with Coors Light and Miller Lite, as well as strategic investments in brands such as Carling in the U.K. and Monaco in Beyond Beer.

Management remains focused on cost savings and capital allocation while acknowledging the challenging environment and the need for continued strategic investment and execution.

Full Transcript

OPERATOR

Our earnings release and presentation materials are available on the Investor Relations section of our website. Today’s discussion includes forward-looking statements within the meaning of U.S. federal securities laws. Please refer to our earnings release and our most recent SEC filings for important information regarding these statements, including risk factors, as well as definitions of and reconciliations to any non-GAAP measures. Actual results may differ materially from our expectations and we undertake no obligation to update forward-looking statements except as required by applicable law.

Today we’ll focus our prepared remarks on our performance and outlook before opening the line for Q&A. To allow as many participants as possible to ask a question, we ask that you limit yourself to one question. Any technical questions can be addressed with our Investor Relations team following the call. Unless otherwise indicated, all financial results are comparable to the prior-year period and are in U.S. dollars. With the exception of earnings per share, all financial metrics are in constant currency when referencing percentage changes from the prior-year period.

Also, share data references are sourced from Circana in the U.S. unless otherwise indicated. Our remarks today will also reference underlying pre-tax income, which equates to underlying income before income taxes, and underlying earnings per share, which equates to underlying diluted earnings per share, as defined in our earnings release. And with that I will hand it over to Raul.

Tracy (Chief Financial Officer)

Thank you, Raul. In the third quarter, our results reflected a more challenging category and cost environment than we anticipated at the start of the year. While pricing mix and cost savings actions continue to support our plan, industry softness, freight tightening, and commodity-driven input cost pressures intensified as the year progressed. We expect these factors to persist in the near term. With that context in mind, let’s review our three key metrics for Q3 on a year-over-year basis. Consolidated net sales revenue of $2.9 billion declined 1.2%, underlying pre-tax income of $349 million was down 17.4%, and underlying earnings per share of $1.46 decreased 12.6%.

Let’s first walk through the drivers of the quarter which will help frame our revised guidance for fiscal 2026. Starting with the top line, lower financial volumes in the Americas and the UK were partially offset by positive net pricing in the Americas and favorable sales mix. The US beer industry declined more than 4%. Based on our internal estimates, our US volume share trend improved by almost 20 basis points from Q2 2026. Financial volumes declined by 3% while brand volumes declined by 4.9%.

Net pricing and positive sales mix drove positive 2% NSR per hectoliter growth in the Americas with favorable mix mainly driven by Monaco. EMEA APAC delivered a positive 1.1% NSR per hectoliter growth in the quarter mainly driven by favorable sales mix while the promotional environment in the UK remained competitive. Turning to profitability, underlying COGS per hectoliter increased 8.1% mainly driven by continued higher Midwest Premium and aluminum costs, freight market tightening, and fuel prices. The Midwest Premium alone drove approximately $30 million of year-on-year cost increase in the third quarter, representing roughly 40% of the year-over-year profit decline. As expected, G&A was down 7.4% largely due to targeted cost reductions in marketing and cost savings initiatives offset by higher technology expenses.

Turning to our balance sheet, our net debt to underlying EBITDA ratio was 2.53 times at the end of the quarter, modestly above our below 2.5 times target. Over the last several years we’ve worked deliberately to strengthen the balance sheet and improve our financial flexibility. That work is particularly important in an environment like this. While we expect commodity and freight costs to remain elevated in the near term, our balance sheet remains strong which we believe gives us capacity to manage near-term volatility while continuing to invest behind our long-term priorities.

That flexibility is also reflected in our capital allocation approach. We continue to prioritize investments that will strengthen the long-term performance of our business while also returning capital to shareholders through a durable dividend and our share repurchase program. We continue to generate strong cash flow and, year to date, we have returned to shareholders $273 million through dividends and $250 million through share repurchases. Since the plan was announced in October 2023, we have repurchased 16% of our Class B shares outstanding and we have $2.3 billion remaining under our authorization.

With that, let’s discuss the drivers of our updated 2026 guidance. We now expect net sales revenue to decline minus 1 to minus 2% on a constant currency basis versus our previously guided range of flat plus or minus 1%. While the US industry continues to track modestly better than 2025 on a year-to-date basis, that improvement largely reflects the strongest start to the year. More recent trends have been softer. Our revised top line guidance assumes that soft industry volume trends in both the US and EMEA APAC and promotional pressure in the UK will persist through the remainder of 2026.

We continue to expect an annual net price increase of 1 to 2% in North America in line with the average historical range and our assumptions for nine months of NSR contribution from Monaco remain unchanged. Year to date, we’ve seen quarterly variability in financial versus brand volume trends that has mainly been driven by shipment timing. We still anticipate the convergence of financial volumes toward brand volumes in the balance of the year on the assumption that US financial and brand volume trends will largely align.

Moving down the P&L, we now expect underlying pre-tax income to decline -21 to -24% which equates to approximately 18 million at the midpoint on a constant currency basis as compared to our previously guided range of -15 to -18%. As Rahul mentioned earlier, we’re expecting lower profitability for the balance of the year than our year-to-date performance would imply. This is largely due to the impact of higher commodity and logistics costs. For the full year, we continue to expect Midwest Premium costs to exceed the prior year by approximately $130 million.

To put that into perspective, the year-over-year increase in this surcharge alone equates to roughly 10 percentage points of underlying pre-tax income impact or more than $0.50 of underlying earnings per share. At the midpoint of our 2026 guidance, we now expect underlying earnings per share to decline -16 to -19% as compared to our previously guided range of -11 to -15%. We have also updated our underlying free cash flow guidance range to $1 billion plus or minus 10% versus our previously guided range of $1.1 billion plus or minus 10%. This was mainly driven by the reduction in our previously guided underlying pre-tax income range. All other guidance drivers remain unchanged.

Looking ahead, we currently expect several of these inflationary pressures to continue into 2027. On the Midwest Premium specifically, we do have hedge coverage in place for 2027. However, as we have previously discussed, the Midwest Premium remains difficult and expensive to hedge and our exposure is never fully hedged. We expect market conditions for commodities to remain dynamic into 2027. On the productivity side, the previously announced restructuring actions in EMEA are now producing benefits that will extend into 2027 and beyond.

Separately, certain brand owners have sought to terminate their distribution agreements with Coors Distributing Company, our wholly owned distributor in Colorado. CDC is pursuing legal actions to enforce its rights under those agreements. We don’t expect this to have a material impact on our fiscal 2026 results and the impact on 2027 will depend on the outcome of these legal actions. We will provide an update as the situation develops. We’ll provide our formal 2027 outlook on our fourth quarter call as is normal practice.

In the meantime, we remain focused on the factors within our productivity, disciplined revenue management, investing in our brands, and prudent capital allocation. We recognize that any individual year, 2026 included, can be significantly affected by the external cost and category environment. That does not change our commitment to our growth objectives or the actions we are taking to strengthen the business and we remain committed to our medium-term growth objectives.

In closing, this has been a challenging operating environment, but at the same time we are seeing tangible benefits from our actions. We continue to benefit from a portfolio of enduring brands, a productivity program that creates both savings and reinvestment capacity, and a disciplined capital allocation approach. Together, we believe these attributes give us the financial resilience and flexibility to navigate near-term pressures while continuing to invest in the long-term evolution of the business.

With that, we will take your questions.

OPERATOR

Thank you. We will now begin the question and answer session. Please limit yourself to one question. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Peter Grom with UBS. Your line is open. Please go ahead.

Peter Grom (Analyst at UBS)

Great. Thank you. Good morning, everybody. I hope you’re doing well. So the updated guidance implies a relatively wide range of outcomes for the fourth quarter, on the model mine a pretty challenging exit rate. So maybe could you walk through kind of the puts and takes out for you the high end versus the low end, but maybe related I would love to understand how we should be thinking about this exit rate as we begin to kind of adjust our models for 27.

Maybe just some guardrails in terms of what we know today. And I ask this just in the context, it doesn’t seem like category trends are improving. It sounds like, Tracy, to your point, inflation is volatile and persists. So trying to think about how you manage these headwinds or balancing these headwinds versus setting up the business for better performance over the longer term.

Tracy (Chief Financial Officer)

Good morning, Peter. Thanks for the question. So let me help break down your first part of the question, which is around, you know, the guidance, the wide range, etcetera, and then we can talk a little bit about 27. So the four pieces maybe I call out is, let’s talk about the top line first. So, you know, you talked about the category challenges in the US or the performance of the category. I think that definitely we’re seeing that and expecting that to continue for the balance of the year. If you look at our share trends, we are making good progress and improving our share trends every quarter, but we know we have more work to do there. And then the last piece on the top line I call out is our EMEA APAC business.

You know, the first H1 of this year had been challenging and the team’s done a good job of, you know, putting all the right commercial pressure now, and you’re seeing the progress in Q3. But Q4 is a big, big quarter for EMEA APAC. In November, December with Christmas is a big quarter. So, you know, those are the big drivers, I would say, for the top line. The added piece on the bottom line is the pressure on commodities, predominantly freight and fuel. If you think about this year coming in, you know, we understood the pressures on aluminum, Midwest Premium. We have all the right actions, whether it’s around the hedging, around the cost savings initiatives, but we do see that playing out for the balance of the year in terms of the inflationary pressures. There are a couple of other elements in terms of just timing, shipment timing and financial volume and brand volume, but all of that will get caught up by the end of the year.

And then there is a little bit on timing in terms of G&A software. You know, hopefully that gives you a sense on just Q4 timing and the range, just given the volatility and some of the variables as having. Peter, the way I would say is, you know, obviously we’ll give guidance, but it goes back to what, you know, the core foundations of Horizon 23. You know, the category has been volatile, look this year between Q1, and what’s important for us is to make sure our portfolio is leading in different parts of the category. So our focus on getting stronger, given where consumers are feeling pressure. We’re making good progress on above premium and beyond beer.

You know, the progress we’ve made this year in terms of transforming because, you know, inflation and the elevated levels probably.

OPERATOR

Ladies and gentlemen, we are currently experiencing technical difficulties. Please stand by as we resolve the issue.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company’s SEC filings and official press releases. Corporate participants’ and analysts’ statements reflect their views as of the date of this call and are subject to change without notice.