Good day, and welcome to the Molson Coors Brewing Company's Third Quarter 2018 Earnings Conference Call. 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 at Molson Coors. Please go ahead.

Yeah, thank you, Chad, and hello, everyone. I am delighted to be here at Molson Coors after being on the other side of this call for many years. Following the prepared remarks this morning, management will take your questions. In order to allow as many people to ask questions as possible, please limit yourself to one question and one follow-up. That's one follow-up. And if you have additional questions, 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, to the Molson Coors earnings call. With me on the call this morning are Tracey Joubert, our CFO; the CEOs of each of our four business units: Lee Reichert, our Chief Legal and Corporate Affairs Officer; and Brian Tabolt, our Global Controller. Today, Tracey and I will be take you through our plans to drive long-term and total shareholder returns, highlighting our third quarter results and also discuss our outlook for the business. As usual, we're offering related slides on the Investor Relations page of our website. Before doing that, I would like to take a moment to recognize the passing of Bill Coors earlier this month. Our company stands on the shoulders of giants like Bill, who was a Chairman of Coors for over 40 years, and we honor his memory by rededicating ourselves to continuing the work he loved so much, brewing highest-quality beer to share with family and friends, one of life's simple pleasures. Now this quarter reflects progress on a number of fronts, as we drive our consistent First Choice strategy of earning more, using less and investing wisely. Brand volume grew in developed and developing markets outside of North America. NSR per hectoliter grew globally. We announced incremental cost reductions in the U.S. to protect investment and counter inflation. We grew underlying EBITDA in constant currency in each of our four business units. We further paid down debt as our teams across the business reduced working capital and cash taxes. And in early October, we completed the formation of Truss, our Canadian cannabis joint venture, naming Brett Vye as CEO. Brett is a long-standing commercial leader and most recently served as the Chief Commercial and Strategy Officer for our fast growing International division. In relation to debt…

Thank you, Mark, and hello, everybody. Before I share consolidated and regional financial highlights, I'd like to remind you of the new revenue recognition accounting standard, which we will refer to as the revenue recognition for the remainder of the prepared remarks today. As outlined in our earnings release, this is expected to have no significant impact to net income for the full-year, but will cause some timing differences between quarters, impacting some year-over-year comparability for net sales and MG&A primarily in the U.S. and Canada this quarter. For example, revenue recognition positively impacted EPS by $0.02 this quarter and negatively impacted EPS by $0.04 on a year-to-date basis, but this timing difference is expected to partially reverse and result in a benefit of approximately $0.03 in the fourth quarter. I will speak first to the quarter on a consolidated and regional basis, then anticipated savings, and finally to our capital allocation plans. Turning to our performance for the quarter, as highlighted in our earnings release, net sales increased 2.5% in constant currency. Net sales per hectoliter on a brand volume basis increased 0.4% in constant currency. Worldwide brand volume decreased 1%, and financial volume increased 0.8%. Global priority brand volume decreased 1.4%. Underlying EBITDA increased 11.1% on a constant-currency basis. And looking more closely at Q3, two specific positive performance drivers benefited EBITDA in the quarter. First, shipments to support ordering system implementations at our U.S. breweries as indicated and forecast in both our Q1 and Q2 calls. These shipments increased distributor inventory levels – sorry, inventory to levels at which they're expected to remain through the end of the year. This is in order to prepare for future implementations at our remaining breweries, which are expected to occur in 2019. And second, the amicable resolution of a dispute…

Thanks, Tracey. Earning more is one of the three platforms by which we drive PACC, and this pillar is built on commercial excellence. I'd like to give you some evidence of commercial excellence starting with our success premiumizing globally, then touching on how we're doing in our four business units. Across all of our markets, premiumization of our portfolio remains an important element of our strategy. And our above-premium brands grew 3.6% in the quarter, driven principally by Europe and International, bringing in their share of our total volume up to 21% of our portfolio from 20% last year. In the U.S., we believe we have the right strategy and commercial execution to drive improving performance in response to current top line challenges. Premium Light trends improved sequentially versus the first half driven especially by the strong performance from Miller Lite. Our plans are to continue gaining share of segment in the American light lager category with a bold competitive position of Miller Lite and reenergizing Coors Light as the world's most refreshing beer. The brand has just launched a new Blue Mountain cold beer digital campaign in October as part of our push to capture the attention of 21 to 34-year-old drinkers. Brian Rice, (15:39) who led the Miller Lite turnaround has recently become the leader of the Coors Trademark and family of brands. And above premium and craft, Peroni and Sol are posting the strongest percentage growth rates in their respective import segments, delivering highly profitable incremental cases to distributers and retailers. We'll build on the success from Sol with introduction of the best-selling Mexican ready to drink Chelada next year. Our regional craft brands continue to grow strongly and build their regional footprint. One of our regional craft brands, Saint Archer, will test a new lower calorie…

Thank you. We will now begin the question-and-answer session. At this time, we will pause momentarily to assemble our roster. The first question will come from Robert Ottenstein with Evercore ISI. Please go ahead.

Great. Thank you very much. A question for Mark Hunter. In your opening comments, I believe, you, kind of, put out a little bit of a tantalizing teaser, if you will, saying that you think that Truss, your joint venture in cannabis, can get meaningful – if I got it right – meaningful market share in the recreational market starting in 2019. I was wondering if you could go into that in a little bit more detail in terms of, kind of, your reasons to believe and what you think – what percentage of the Canadian market on the recreational side you think will likely go into beverages and your strategy for that.

Hey, Robert. Thanks for the question. I wasn't trying to be tantalizing. I was just trying to be very straightforward, so let me cover that. I mean, we decided as a business that we did not want to be a spectator as this new market opened up. And we clearly wanted to be a participant. We think we've got a very balanced and thoughtful approach with our partnership with HEXO to create Truss. And clearly, there are lots of numbers which are being bandied around with regard to the potential size of the cannabis market in Canada. I think, if you take an average, then it suggests that this market may be somewhere between $7 billion and $10 billion in market value, with beverages somewhere between 20% and 30%. And that's obviously nonalcoholic cannabis-infused beverages. Even if you take the low end of that estimate, then it suggests that the beverages segment could be circa $1.5 billion of value. If you look at the strength of our go-to-market in Canada, if you look at our understanding of Canadian consumers and our understanding of brand-building in Canada and the capability that we have through our partner in HEXO, we believe that we're well-placed to be ready to take a meaningful share of that segment when it's legislated for and opens up in the fall of 2019. We have our CEO in place. That team is being built. We're already in research around the portfolio and the beverages that will be offered, and we will be able to share those with you as we get into the early part of 2019. But we'll be in a ready-to-go position and one of the first on the playing field as that market opens up.

And just to get to that point that you're talking about, meaningful share, whatever that is – and I know you can't put a number to that. But can you give us a sense of how much incremental investment you may have to do to get to that point?

Yeah, I mean, we haven't gone into detail on that, Robert, as the capitalization of the JV is within our current capital guidance, so this is going to be a lean business that will lean on the partnership that we have with HEXO and the knowledge that we have from a route-to-market basis. Now, clearly, we'll be in start-up mode from now through to the fall of 2019, so we'll be building the business. And as we currently are doing testing around the shape of the portfolio, we'll then be into revenue generation from the fall of 2019 and then into 2020 and beyond. So, I think as that team is in place, we'll be able to share more of that detail with you as we get through the early part of 2019.

But just in terms of ballpark, would it be fair to say we're talking tens of millions rather than hundreds of millions?

In terms of investment?

In terms of incremental investment, yes.

It would be on the tens, not the hundreds for sure.

Terrific. Thank you very much.

Next question will be from Judy Hong with Goldman Sachs. Please go ahead. Judy Hong - Goldman Sachs & Co. LLC: Thank you. Hi, everyone.

Hey, Judy.

Hi, Judy. Judy Hong - Goldman Sachs & Co. LLC: So, it's nice to see continued focus on cost savings and driving the margin expansion. I guess, just into context of U.S. STR being still down 4% year-to-date, Mark, I know in the prepared comments you talked about turning around Coors Light as one of the key priorities, but it seems like the brand is actually getting a bit worse in the scan channel. So, just give us kind of your roadmap of what you really think you need to do on Coors Light. And maybe even thinking about sort of a broader revamping of the portfolio strategy as you kind of look at your Light brands. I mean, why not just focus on Miller Lite? That seems to be doing much better and just put more resources behind that brand.

Okay. Thanks, Judy. There was a lot in your question and I'll pass over to Gavin shortly. I mean, one of the things we've tried to do Judy as we've come through this year is use the case study of how we reshaped our UK portfolio over a period of time. It was a very Carling-centric portfolio. Carling is still our biggest brand, but we have dramatically changed the shape and the premium nature or above premium nature of that portfolio. And that's really the path that we're on in the U.S., so it's always the (25:35), which is we have to defend resolutely our big positions in Miller Lite and Coors Light, while at the same time continuing to reshape the portfolio and drive in above premium direction. That's the path we're on and the plan that's in place. The notion of choosing Miller Lite over Coors Light or vice versa is not something we contemplate. If you go back to the end of 2016 and early 2017, both brands were taking share of Premium Light segment very consistently. Both brands were declining low-single digits. And we're feeling very, very good about that as part of our kind of growth algorithm for the U.S. business. The last three or four quarters have been disappointed for Coors Light, and in simple terms our work has been good and actually good is not good enough for Coors Light. The work needs to be world-class, and that's what the team are focused on delivering as we leave 2018 and go into 2019. The positioning of both Coors Light and Miller Lite is still highly relevant to today's drinkers. We've demonstrated that we can dramatize that very effectively on Miller Lite. And interestingly, if you look at our STRs for Q3 versus the first half of this year, our STRs in the third quarter were sequentially better by about 100 basis points from the first half of this year. So, we clearly still have got work to do, but we're very clear about what that work is and we're on it. Gavin, I maybe went into a bit too much detail there, but anything you would add to that?

Not a lot I can add to that, Mark. I think you answered the question perfectly. The only thing I might add is to say that Coors Light is the second largest brand in the United States and we think it and Miller Lite (27:14) Premium Light, and certainly have no intention of giving up on Coors Light. Judy Hong - Goldman Sachs & Co. LLC: Okay. And then, Gavin, if I could just follow-up on the inventory levels now, so I know this is something you talked about in the first half in terms of building inventory ahead of the implementation of the new ordering system. So, at these levels now, we're kind of the level where you feel pretty satisfied with, and if you kind of look out to the fourth quarter, should we think about STR and STW pretty much being in line? Or should we still see shipments outperforming STR in the fourth quarter?

I think you're reading it exactly right, Judy. We've got the shipment, inventories to where we want them to be and I wouldn't anticipate inventories growing any further in the fourth quarter.

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

Good morning, everyone.

Hi, Amit.

Hi, Amit.

Tracey, thanks for clarifying the revenue recognition impact in 3Q and 4Q. Can you also give us a little bit clarity on the gross margin reversal from inventory build? How much was realized in third quarter and how much is still to be realized in the fourth quarter?

Yeah, Amit. So, just in terms of revenue, I'd just also let you know that there is a table in our filings with more detail, if you do want to just refer to that as well. It is laid out quite nicely. In terms of the reversal, so as we said in Q1 and Q2, our STWs were under the STRs for a number of reasons including the issues that we were facing with the Golden go live. The majority of that has now reversed in Q3. We did say that we thought it would reverse in the back half, but it has reversed in Q3 and to Gavin's earlier point, the inventory levels are now at a satisfactory level. We don't expect to build any further inventory in the fourth quarter. So, hopefully that's helpful.

That definitely is. And then, Mark, can you just if you look at the press release, it looks like the COGS inflation in the U.S. moderated a little bit from Q2. Are we seeing near peak levels from a COGS inflation pressure? And then just related to that, on pricing how much of the pricing is currently reflected and how much is still to be realized as you roll through pricing in the U.S.?

Yeah, well, let me pick up COGS, and then Gavin if you just want to talk about where we are on the pricing cycle. I mean, if you look at COGS across our business, in International, Europe and Canada, we expect COGS to grow back in the low single digits. We still expect the U.S. to be mid-single digits. So I think the inflation pressure that we have got that we've been seeing is already baked into our guidance around COGS. Clearly the unknowns as we go into 2019 and we will be able to guide on this as we get to the early part of 2019, it's just outlook on aluminum and freight. That's still certainly in freight moving around a little bit at the moment. But I think, the guidance we've given you feels solid at this stage on COGS. Gavin, do you want to talk on the pricing environment?

Thanks, Mark. But I'll just add one thing to the U.S. COGS, specifically. Remember, Amit, that we under-shipped quite meaningfully in the first half of the year and we over-shipped in the third quarter to get inventories back to where they were, and so this was quite a big deleverage swing between the two. That would be the biggest driver between COGS in the first half and the third quarter in the U.S. From a pricing environment point of view, we are right in the middle of our price increase cycle, and obviously we will assess over the next month or so how those price increases hold. From a third quarter point of view, we generated 1.3% NSR per hectoliter increase, with a front-line of about 1.8% and a mix of about 60 basis points, which was negative, but sequentially improved over both the first quarter number of 90 basis points negative and the second quarter number of 80 basis points negative.

Gavin, just a clarification on that. So the list price increases in the marketplace already across the entire portfolio?

No, not across the entire portfolio, and not across the entire country. We do it on a market-by-market, brand-by-brand basis. I would say to you though the majority of our price increases are taken in the fall though. We do have some markets that take in the spring, but most of it is in the fall.

Got it. Thank you so much.

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

Hey. Thanks. Maybe just a couple of cleanups to start on the quarter. You called out a benefit to MG&A this quarter resulting from the amicable resolution of the vendor dispute. Perhaps this will be in the Q, but I was wondering if you can just quantify that benefit? And then on the incremental cost savings that you announced, are these – should we view these as newly identified structural savings or will they be better described more as belt tightening measures that may drift back into the business assuming category headwinds moderate?

Yeah, so in terms of the MG&A benefit, Stephen, that's subject to confidential agreement. So, we can't talk in any more detail other than what we've already disclosed. And I'm afraid you'll just have to go with us on that one because of the nature of our agreement. That agreement is not with an ongoing supplier, so it doesn't affect any of our ongoing supply relationships. In terms of the cost savings, as we came through Q1 and Q2, we talked about our desire to do two things. One was to drive further cost avoidance through 2018 to counter that inflation, and also to continue to drive our cost reduction program. Cost avoidance is one-off in nature because it's basically postponement of costs from one year to the other. Cost reduction is absolute structural reduction in our business, and what we've talked through today with an increase from $600 million to $700 million is a structural reduction in the cost base of our business.

Okay. That's great. Thank you. And then as I – I know it's early to talk about 2019, but just given that you've got this plan out there to achieve 3.7 times leverage by middle of next year, I was hoping if you could talk a little bit to us about the pathway from here to there in terms of the dynamic of STWs versus STRs over that timeframe. Because there's a lot of moving parts, especially in the U.S. when you factor in the building of inventories ahead of system implementations now that might unwind in early 2019, offset by the fact that we're cycling Golden and the adverse shipment timing of 2018 next year. So I don't know if this is a question for Mark or for you, Gavin, but just any help you could provide in terms of do you expect a net favorable STW versus STR shipment timing dynamic over the pathway to mid-2019? Is it more net neutral? Or is there a reason to believe that it's actually a headwind? Thanks.

Steven, to be fair, I mean, I wouldn't connect the two. I mean, our STW to STR, kind of, flight path is very much in line with what we've already tried to do in the U.S., which is to ship to demand. Clearly, there's volatility because we have multiple go-lives across our brewery network. And the intention is to be through those around the middle of next year. So both Gavin and Tracey have talked about for the balance of this year we don't expect to see any further STW builds. I would disconnect that from our total deleverage plan. That's based and driven by the strength of our free cash flow. We're very clear about the debt obligations we have for pay-down in the first couple of quarters of next year. All of that's factored into the commitment that we gave from earlier this year. And I think the encouraging thing is, assuming that we hit those commitments which we intend to do, and as we get into the second half of next year and then into 2020, even with the planned dividend increase, we still then have further flexibility in terms of our cash-use approach. And that could be further deleveraged. It can be further returning cash to shareholders beyond the dividend. And it could be brand-led growth opportunities. So we get much more back to, I would describe as, business-as-usual as we get into the second half of 2019 and then into 2020.

Okay. Fair enough. Thank you very much.

Yeah.

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

Hey. Good morning, everyone.

Hi, Bryan.

Couple of questions. I guess, first just to follow-up from Robert Ottenstein's question at the beginning of the call. He was talking – he was asking about investment, and I was, kind of, not clear what it was, we were talking about capital or P&L investment. So just one question is, to the extent that there's some investment behind the cannabis and cannabis products in Canada, is there – will there be any potential meaningful P&L implication that we might have to think about as we're looking into 2019 and 2020?

Let me pick that up, Bryan. So in terms of the capitalization of the JV, all of that's already in our current cash-use forecast. And so we'll do that within our current kind of envelope of available cash. And from an OpEx perspective, then clearly there will be some start-up OpEx as we put people in place. We've announced Brett in role as the leader of that business. He's recruiting a team. This isn't going to be a massive team. It's going to be a small, lean, fit-for-purpose team that will be working on utilizing both the HEXO route to market and the Molson Coors knowledge and route to market where appropriate. So there'll be some OpEx as we build up that team, and then obviously we get into revenue generation really from the fourth quarter of next year and into 2020. So there could be a little bit of a headwind from an OpEx perspective as we build the team, and we'll manage that in the context of our total Canadian P&L.

Okay. Thanks. And then second question just related to – for Gavin, I guess – related to Coors Light in the U.S. I guess, again, as we're trying to just think about a path to rebuilding momentum, to the extent that you – how quickly do you think – do you expect that you're – you will have the right ad copy, the right positioning, the right marketing to really be able to kind of put your foot back on the gas behind that brand? Is that middle of next year? Do you expect to hit the gate – hit the ground running at the beginning of the year? Just trying to understand how long it's going to take before we feel – where you expect that you'll be able to kind of go full throttle behind that brand again.

Gavin, do you want to pick that up?

Surely. Look, Bryan, I don't – I don't – I'm not going to put a timeline on it, right? But I will tell you we're moving quickly to stabilize the trends of Coors Light and get it back onto a solid footing and we've started that. Brand's at its best when it's laser focused on its messaging and makes it absolutely clear what makes Coors Light different than the competition. We think we focused too much on Rocky Mountain lifestyle and not enough on what makes Coors Light unique as the world's most refreshing beer. And we've just launched a new digital campaign which is going to be a push to capture the attention of the younger 21 to 34-year-old drinkers. I mean, we think we have a whole generation of drinkers that don't know about our cold activated packaging and we want to give them reasons to believe and understand that Coors Light is the world's most refreshing beer. So we're not waiting till next year. We've already started that process. I'm not going to call it victory by any manner or means, but the last two four-week reads on Coors Light has it stabilized and flat from a segment share in Premium Lights. So you're going to see a lot of work rolling out. Started a couple of weeks ago and you're going to see it continue through next year where we – where we bring this whole graphic expression to life.

Okay. Great. Thank you, everyone.

Thanks, Bryan.

Thanks, Bryan.

Our next question will be from Andrea Teixeira with JPMorgan. Please go ahead.

Hello?

Please go ahead, Andrea.

Hi. Good morning. Yes, sorry. Sorry for that. So I was hoping you can elaborate – sorry – more on the cost reduction. I understand the $100 million increase is more sustainable cost reduction, but I was hoping to see how much – what was the positive surprise from the initial guidance of $600 million. And I recognize that you don't want to update your annual guidance at this stage, but could you provide some color on the addition $100 million has been realized year-to-date and perhaps where you're pulling from the next 2020 to 2022? And as a follow-up on the previous question, on the cost avoidance, is there anything that we should be aware of? I mean, you – Mark, you said that potentially that's going to come back in 2019. So I was hoping to see if that's part of the Coors Light kind of repositioning. What should we – what should we be looking at this cost avoidance going into 2019? Thank you.

Okay. Let me try and kind of unpack. I mean, I'll ask Tracey to talk in a little bit of detail. But just as context, remember where we are. So we're in the middle of our three-year cost reduction program. If you remember, that started with guidance around $550 million that we moved to $600 million and we've now increased to $700 million. So that's the three-year program that runs 2017 to 2019. So not only are we on track, but the total scale of that cost reduction, so integration synergies and cost reduction combined, has now been stepped up further. We'll talk to you about 2020 to 2022 and the next generation cost savings when we get on our call in February of 2019. So that's the headline. So just remember that there's one program in flight. We've scaled that up and those are structural, additional cost reductions. There will then be a new program which will capture things like the new breweries in Canada, et cetera, and our ongoing cost reduction programs and more of that to follow in the early part of next year. Tracey?

Yeah, so, Andrea, hi. Just in terms of your comment around the positive surprise, so it actually wasn't a surprise. I mean, this was planned and as we hit it into this year and continued to see the inflationary environment that we were facing, particularly around aluminum and freight, it was necessary for us to accelerate some cost savings, as well as action more cost savings to mitigate against that inflation and also make sure that we are protecting the investment behind our brand. So the majority of the incremental $100 million is coming from the U.S. restructuring, which we made public in the last quarter. And, again, the majority of that, because that restructuring has just taken place and is still taking place, the majority of that cost savings of $100 million incremental will take place in 2019, but we're not giving specific guidance for 2018. But based on the timing of the restructure, you can build the majority of that for next year.

Okay. And there was Steve's question about the cost avoidance. Is there any color you can give us? What was postponed for 2019 that we should be aware?

So, I mean, when we talk about cost avoidance, as Mark said earlier, it's really a one-time benefit. So, the types of things that go into cost avoidance would be, for example, if we got any vacancies in the business, we just don't fill those for a while or we may cut back on certain travel, et cetera, but we don't specifically call that out in any of the guidance that we give. And in terms of 2019, as Mark said, we'll update you with that on our Q4 call early in 2019.

Okay. That's fair. Thank you, Tracey. Thank you, Mark.

Thank you.

Thanks, Andrea.

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

Great. Thank you. Good morning.

Hi, Lauren.

Hello, Lauren.

I was hoping you could – hey. Just to talk a little bit more about some of the recent updates and changes to the organization in the U.S. So, it was sort of clear to me that some of the cost savings was going to have to come from this restructuring, but I was curious about more functionally the changes that you've made, the new management positions you've – management positions, you've made some changes to, just help us understand a little bit the rationale, what you hope you can do better going forward because of this new org structure and what it really sort of looks like, what's different going forward than maybe was the case let's call it a year ago.

Okay, Lauren. The challenge for Gavin and the team is to make sure and this is true across all of our businesses that we're constantly looking at how we can be fit for future. So, just looking at inflationary environment, growth opportunities and ensuring we've got the right capability. And there are lots of examples across our business where, for example, we've introduced the enterprise growth team because we know that we want to change the trajectory of the business over the medium term and that team have been chasing down the opportunity in cannabis, the opportunity in brewed beverages, with things like Clearly Kombucha and securing partnerships on things like Sol and Arnold Palmer. So, there we've actually put some incremental heads into our business, because we know that we've got to disrupt some of the trajectory that we've seen from a top line perspective, and that's starting to pick up traction now. And then, each of our businesses then we got to make sure that relative to the inflationary environment we're seeing and the growth in the business that we are as lean as possible. And that was a context against which Gavin and the team led the reorg. So, Gavin, do you want to just talk about where that's panning out without getting lost in too much of the detail?

Well, I mean, we're largely through it, Mark. And we do have some folks that will be with us for the next few months, but the program is largely complete. I think, Lauren, we didn't do a blanket cut across the organization. We looked at every function, and we made changes that we believed were appropriate. We've been very clear about what we want to focus on and what work we're not going to do. We tried to make sure that our commercial front-facing side of the business was limited in its impact. That doesn't mean there was no impact because there was, but it was limited in terms of how our distributors see us going to the market. I think the new structure is going to allow us to be much more disciplined. It's going to make us – it's going to allow us to make decisions much more quickly, much more nimbly going forward. As Tracey says, most of the benefit will come next year. I mean, there will be some in the fourth quarter, but most of it will come next year.

Okay. Great. And then I also was curious if you could talk a little bit about Canada. So, STR has improved. I think it's the third quarter in a row and underlying sales up strong. Can you just talk about – and then, Mark, this has historically been a little bit choppy. So, can you just talk about what change that you feel like is – whether this is sustainable and particularly as it relates to kind of Coors Light and then the balance between Premium and Economy brands?

Okay. So I'll ask Fred to talk to some of the specifics, but the headline here is that we did commit to turn our Canadian business around from a profit performance, and I'm encouraged that we're really starting to see some of the improvements, that we're seeing consistent sequential improvement in the business both top to bottom line, and we feel that we've got with some of the portfolio additions that we've made in the last 12 to 18 months, definitely the right portfolio to compete. But, Fred, do you want to just give a little bit more color on Canada, on the priorities that you've laid out under your leadership for the business?

Sure. So from a portfolio perspective, we have always said we would focus on three priorities in different segments. So, first of all, in the economy segments, we said we would simplify the portfolio, we would launch Miller High Life. That actually has really generated earlier results and continuing to do so. So we're seeing strong segment share growth and also category share growth in that segment. And to your question earlier on, yes, I do think that's sustainable and that's definitely what we're focused on going forward. From a Coors Light and premium segment perspective, we're noting a few quarters of sequential segment share improvements. Share in the segment is still negative, but just to give you a sense of magnitude, we have now got a couple of quarters where we have halved the share decline compared to where we were earlier or in the beginning of the year. In the above premium and craft segments, Heineken is growing nicely. So absolute – so segment share growth but also absolute volume growth. Belgian Moon which is our national focus from a craft perspective is continuing to grow double digits. So while I do see opportunities to continue to improve and accelerate the growth especially in the premium and above premium part of the portfolio, we are pleased with the results we're currently seeing.

Great. Thank you.

Thank you.

The next question will be from Kevin Grundy with Jefferies. Please go ahead.

Thank you. Good morning, everyone.

Hi, Kevin.

Question with respect to MG&A in your U.S. business. So a couple strong quarters in a row now, down mid-single digits, and I'm adjusting in the third quarter here for the resolution of the vendor dispute. So a couple questions. One, can you share whether advertising was also down at a similar level, that being mid-single digits in the quarter? And if so, is that the appropriate level given some of the top line headwinds? And then, Tracey, maybe talk a little bit about just the sustainability of this level of decline given fixed cost inflation, given the need to invest behind the business. So as we think about Q4 and we think about next year, is this the case where 2Q, 3Q down this level was particularly strong and we should be thinking about more moderate levels of declines in MG&A?

Kevin, it's Mark here. I mean, let me give you a bit of context. And we don't break out M from G&A. But if you just look at the third quarter and remove the impact of revenue recognition, our total marketing investment was down low single digits. So we still invested well over $400 million across our organization in support of our brand equity building. And some of that is because we continue to try and drive our spend per hectoliters consistent so volumes are down. We try and maintain our spend per hectoliter, but take into account any, kind of, volume reductions. And we continue to see the benefit of some of our procurement savings across our whole marketing group and the benefit of ROMI, where we're driving more efficient utilization of our marketing dollars. But just to give you a sense of magnitude, we still invested well over $400 million in marketing and that was down very low single digits year-on-year. I think, your broader point about cost reductions and marketing spend, I mean, that's a live conversation in our business. We try and flex (52:29) that as we go through the year and we've demonstrated our ability to flex that (52:32) Tracey, anything you'd add?

Yeah, what I would add is, and I think we state this cost savings is just a way of life at Molson Coors. We continue to look for efficiencies. Part of our cost savings programs that we have spoken about for 2019 as well, includes items such as IT consolidation as well as our global business services center in Romania and the regional one that we have opened in Milwaukee. So that will continue to generate cost savings. And as we ramp up those initiatives, we'll just continue to look at effectiveness and efficiencies of all of our G&A areas.

Okay. Thanks for that. If I could squeeze in one more. Mark, this one would be for you. So some of the Nielsen trends in October suggest some slowing broadly in the U.S. beer category. Do you care to comment if that's what you're seeing in your portfolio as well? There might be some hurricane impact in there. If so, why do you think that's the case? And then looking out beyond just sort of October, there was an ambition to get back to flat volume growth this year. Is that a reasonable ambition longer term? If so, would you care to frame the potential timeline to achieve that? Thank you.

Okay. So, Kevin, just as a reminder, I mean, we stopped talking about short-term for weekly sales numbers because it was just proving to – to be honest, just to be a distraction. And there's always so much volatility in any four-week period, as you say, whether it's hurricanes or weather or other bits and pieces. I would remind you as well the scanner data only covers about 40% of the U.S. beer industry. So it's indicative, but it does not by any stretch of the imagination give a complete picture and that's why you quite often see a disconnect between our STRs, which are real, and scan data which is part of the marketplace. So I'd just ask you to bear that in mind, but I'm not in a position to comment on October specifically. I think with regard to your broader point, Gavin and I have been very consistent that with the aspiration that was in place since really 2015 within the U.S. business of back to flattened growth has proven to be more challenging as the industry has been softer and Coors Light performance hasn't helped. So we've been clear as we've come through this year that the aspiration to stabilize the business from a volume perspective is still strategically very important to us, but we've got to do this in a way which allows us to continue to maintain the strength of our P&L. Job number one is to improve our share performance and get back to a position where we're actually holding our share of the U.S. beer industry. And while we do that, continue to premiumize the portfolio. So those, for the foreseeable future, are the two priorities. When we tick those boxes, and particularly holding our share, then we can start to talk about a timeline for getting to flat volume. But we'll stay very focused on improving our share trajectory and premiumizing the portfolio, certainly, as we go into 2019 and probably into 2020 as well.

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

Yes. Good morning, everyone.

Good morning.

Hey. And just building on the previous question, so I know you are not providing sales guidance anymore, but as by your calculation, 1% volume drop is worth about $60 million of hit to your free cash flow. I mean, it is important for us I mean to get some directions in the U.S. and Canada, for example, where sales has been soft for quite some time. What are you planning for the beer and SMB (56:08) categories of share gains? And more specifically, it was long awaited, I mean, having a Mexican beer in your portfolio. It looks like Sol had been slow in terms of gaining ACV. I mean, I know (56:24) is partially right, but I mean you only get 23% ACV just almost for nine months where actually your major competitor reached above 80% (56:37) in six months. So could you please give us a bit more kind of granularity into the direction of where we should be thinking about sales growth or sales, and Sol specifically? Thank you.

So, Laurent, on your first point, rather than get into a discussion on the call, can I suggest you take that up with Mark and Kevin afterwards? Because I'm not sure your math actually makes sense. So I think it's probably best to do that on a one-on-one and just get into the detail there, so we can understand how you arrived at that number. But in terms of a deleverage in our free cash flow, we again have reiterated our guidance there. And as an executive team, we're very clear on our requirement to and our commitment to deliver on that free cash flow number. And we've done this consistently in our business over the last multiple number of years. So even when volumes have been stronger or volumes have been weaker, we have a great ability to drive the cash flow generating ability of our business. So, I mean, that's all I would say on that. We know where we want to be in deleverage, we know the cash requirements and we are going to deliver on that. On Sol, Gavin, why don't you pick up on Sol and just the progress that's been made as the team have repositioned that and the strength of the brand at retail?

Thanks, Mark. Look, I mean, we're actually very pleased with the performance of Sol. We have only had the brand for – I mean we've had it for less than a year, and we've only been marketing behind it for six months. We've grown tremendous distribution in chain. Our chain team has done a fantastic job of building distribution, which just wasn't there before. We've got triple-digit growth in volume, and that's in the face of taking quite a substantial price increase on Sol. And revenue is growing at about 300% per Nielsen, volume is growing at about 200%. So we think we've got off to a really good start, and we think the brand's got great potential based on its provenance, its heritage, and its positioning. We brought a lot of investments and focus to the brand this year. We intend to step it up next year. We're going to have PACC extensions, and we're going to introduce the Sol (58:47). So we think the upside for this brand is strong, and we're very pleased with the start.

Yes. And just on your comment on Nielsen. I mean, is it right to think that, I mean the ACV number is in the 23%, 25% range?

Yep. That will be about right, yes.

Okay. Thank you.

Okay. Thanks, Laurent.

The next question will be from Pablo Zuanic with SIG. Please go ahead.

Thank you. Just one question for Gavin. Gavin, I want to, I guess, challenge a little bit the notion that the problem with Coors Light, it is really just about the brand message. I would argue that the Bud Light message hasn't necessarily improved much. And Miller Lite has a consistent advertising message, but I can't say it's so differentiated either. So if we explore that, can you talk about, for example, does Coors Light and Miller Lite, how differently are they managed internally, whether in terms of spending, whether in terms of salespeople? Obviously, there is overlap to some extent on the distribution side, but it would help to understand that better. Or is it about a competitive issue? These brands, although they are national, they do have big differences in terms of regional coverage. Is Coors Light more exposed to the growth of craft than Miller Lite? I mean it just seems to me that the big gap in performance within one brand and the other, I wonder if it's just about the brand message? And the last question related to all that topic, if it's true that it's still a regional brand and I understand the industry is saturated to some extent, does Coors Light still have ACV opportunities, whether on-premise or off-premise? Thanks.

Gavin, do you want to get into that? It's going to be challenging to cover all of the questions.

Yeah, there were a lot of points in there, Mark. But let me just try and give it a quick bash, right? So from a marketing point of view, we do have two separate teams. There's a Coors family of brand team, and a Miller family of brand team. We put a substantial amount of marketing and sales money behind both of those brands. And Mark, gave you some kind of insights into the third quarter numbers. So both of those brands get large investment. We have found where brand propositions are sharp and they're differentiated, they succeed. And I think you can say that Miller Lite has clearly succeeded in that. And where some of our brands have struggled, you'll see that the brand propositions are either soft or they're not communicated well. And we think that that's the challenge that Coors Light has faced. There's no doubt that the American light lagers are facing a number of different challenges, but frankly, Pablo, the American consumer, it still represents more than 40% of beer sold in the United States. And that percentage doesn't even include other satiable (1:01:56) lagers like the Mexican imports that are similar in style. So we think that there's a lot of volume out there for us. We think by sharpening up and focusing on Coors Light, that we can turn this brand around and perform at the same level as Miller Lite, if not better. And that's our job, and that's what we're focused on.

Okay.

Gavin, the other thing I would add to that, I mean, let's say (1:02:21) if you go back to Q1 2017, so if you go back four or five quarters, both Coors Light and Miller Lite were performing at down kind of 1%, 1.5%, so. And that was very consistent right through 2016. The Coors Light dramatization of its positioning was changed at that point, and it hasn't had the impact that we anticipated. We were looking to actually accelerate the performance, and we've seen a deceleration. So we have to put our hands up and say that work wasn't good enough, and we think we know why, and changes are currently being made and we'll be hitting the ground running as we go into 2019 on that. But we've been there before, Pablo, and we've made it work and we believe that we can continue to make it work. And I think as the U.S. consumer continues to look for what we call active lifestyle brands, Miller Lite is the original active lifestyle brand. That's what it was built on when it was first launched, and it's been a big part of what Coors Light stands for as well. And we believe that there is a very real and significant role for these brands and consumer repertoires. But the job of our marketing team is to get the dramatization of our positioning compelling and motivating, and it's not been good enough and we have to fix it.

The next question will come from Brett Cooper with Consumer Edge Research. Please go ahead.

Hey, guys. Quick one for me on the U.S., and we have seen main stream beers decelerate over the last 18 months. So I was wondering if you could share with us what insights you have into where those consumers are going? And, I guess, a couple of points on that is, is it a brand-specific issue? Is it a bigger segment issue? And then if that deceleration in trend is actually occurring, does it mandate a more dramatic change for Molson Coors with respect to your strategy on portfolio transformation? Thanks.

Hi, Brett. Let me start with your last point first, and then, Gavin do you want to just talk about trends in the U.S.? I mean we've laid out a very clear strategy about – and in simple terms, it's about really defending the segment share that we have of our large core or national champion brands. We are doing that very successfully in many, many markets around the world, while at the same time premiumizing our portfolio. I think as I mentioned earlier that we want to accelerate the pace at which we premiumize the portfolio in the U.S. We've made a couple of significant moves in the last 12 months with our introduction into the tea segment and our introduction into the Mexican import segment. I mean, Gavin and I and our team continue to look for further opportunities to strengthen that above premium portfolio. We feel we've got currently a great suite of brands and we're seeing very strong growth across a number of those above premium brands. So, I think the strategy is clear. The pace at which we execute and how we can accelerate that strategy is really the question as opposed to whether there's a different strategy required. And where we've deployed that successfully in the UK and more broadly in Europe is really paying dividends for us, which is why Simon never gets any questions on these calls, because it's working so well. But, Gavin, do you want to talk more specifically about some of the trends around mainstream brands in the U.S.?

From an industry point of view, Brett, obviously we saw continued share growth in above premium, and that was led by super premium imports and FMBs with sparkling seltzers, in particular seeing the greatest acceleration in share growth, and that's behind the whole hard seltzer category. Craft share held pretty flat to the second quarter, and as you know, it's been declining for – or its growth has been declining for quite some time. And the industry premium large and economy segments, those losses accelerated compared to the previous quarter. And premium regular remained fairly similar. So from an overall perspective, that's where the industry is, and I think Mark touched quite nicely on the strong offerings which we have got to tackle those challenges. I think the only one you didn't mention, Mark, was Peroni, which is the fastest growing European import at the moment. And we're going to invest meaningfully behind that brand next year with its first national advertising campaign.

The final question on our call today is a follow-up question, and that's from Robert Ottenstein with Evercore ISI. Please go ahead.

Great. Thank you. I was wondering if you could kind of address a little bit here, the strategy on the economy brands. There's been a bit of give and take in terms of what you did with Keystone and then your major competitor came back, and I'm just wondering if kind of in retrospect whether you would have made those moves on Keystone again? It just seems a little bit of – I don't want to say race to the bottom, but I'm not sure how additive it is at the end of the day. So love to get your perspective on economy brand strategy.

Do you want to take that, Mark?

Yeah, so, I mean, Robert, there's a huge role for economy brands. I mean, they've got a tremendously loyal consumer base. The consumers want to see value and we think we've got great brands in this segment. And would we do the Keystone again? Of course, we would. It's been enormously successful for us and we're very pleased with its performance. And, of course, we anticipated and expected our largest competitor to react to that, and they did. And they have gained some market share in the more-recent Nielsen reads, but we're very pleased with Keystone. We're pleased with Miller High Life and our marketing will continue to focus on the quality of that beer and the glass bottle and unique heritage. Hamm's has been around for almost 150 years and that repositioning has worked well and then of course we've got the Steel Reserve Alloy Series, which provides tremendous value for our retailers and for our distributors. And we're growing quite nicely there and have fended off the competitive challenges that have come in that space. So, yes. I think I would do most of it again. Obviously, we made some missteps with Milwaukee's Best and Icehouse and we fixed those during the course of this year and we will see the benefit of that going forward into next year.

And is the – to just kind of to follow up on that, is the price gap between economy and mainstream where it needs to be in your view? And also, vis-à-vis kind of the lower-priced spirits that have taken share in previous years?

Yeah, a few questions there. I mean, obviously, that's a fairly-broad generalization, Robert. So, the answer is yes and no. In many parts of the market, it is; and in some parts of the market, it isn't. We, obviously, evaluate the impacts of our decisions on other segments of the portfolio, and I would tell you we continue to gain segment share in premium light. So, we keep a very close watch on it.

Got it. Thank you very much.

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

Thanks, Chad, and thanks, everybody, for your questions and your interest in our company. I thought it would be useful at this stage just to give you a couple of headlines because we've just hit the second anniversary of the close of the MillerCoors acquisition. So, it's really two years since we almost doubled the size of our company from both an EBITDA and a free cash flow perspective, and I just want to reiterate the commitments we made and the progress we're making against that. So we remain clearly very committed to deleveraging and strengthening our balance sheet, and we're making very good progress against that commitment. We're overdelivering on our synergy and cost savings commitment, and that's against a tougher inflationary environment. We remain committed to our medium-term EBITDA margin guidance, and we're committed to revisit our dividend policy once deleverage is well-underway and we have done this. And in the context of our commercial performance, we're committed to make MCI a meaningful EBITDA contributor, and we're doing this. We're committed to turn MCC, it's our Canadian business, around from a profit performance, and we're starting to see improvement stick. And we're committed to maintain the momentum in our Europe business, and we're doing this. We're also committed to improve the commercial performance of the U.S. business, and this is still work-in progress. We've seen good progress in the value segment, good progress in Miller Lite, encouraging progress with our above premium innovations, but we're still dissatisfied on Coors Light and the pace of premiumization, and I expect to see those things improve and accelerate as we go into 2019. And we also committed through our enterprise growth team to broaden the revenue growth drivers for MCBC and we're doing this through, for example, our cannabis JV with Truss and our entry into brewed beverages with, for example, Clearly Kombucha. The two years on, I'm pleased with progress of our business and I'm excited about the work we still have ahead of us. So, I thought it would be good just to kind of summarize on our second anniversary virtually of that closing the MillerCoors transaction, about the progress within our business, and really appreciate your interest in our company and look forward to the follow ups that Mark and Gavin will pick up with you through the balance of the day. But thanks everybody, and look forward to catching up with you in due course.

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