Good morning, and welcome to the Molson Coors Brewing Company Second Quarter 2019 Earnings Conference Call. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Mark Swartzberg, Vice President of Investor Relations. Please go ahead.

Thank you, Gary, and hello, everyone. Following prepared remarks this morning, we will turn the call over for your questions, as Gary said. [Operator Instructions]. In terms of safe harbor, 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. GAAP reconciliations for any non-U.S. GAAP measures are included in our news release or otherwise available on the company's website at molsoncoors.com. 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, I'll turn the call over to our CEO, Mark Hunter.

Thank you, Mark, and hello and welcome, everybody. With me on the call this morning are Tracey Joubert; the CEOs of our business units; Lee Reichert, our Chief Legal and Corporate Affairs Officer; and Brian Tabolt, our Global Controller. Now before we begin, I'm sure you all saw the press release now earlier this morning announcing my retirement on September 27. It's been a privilege to serve as the Molson Coors CEO for the past 5 years, and I've thoroughly enjoyed engaging with our investors and analysts throughout our journey. This leadership change has been worked through with our Board as part of our ongoing succession planning at the executive level. I'm genuinely excited about the future for Molson Coors and proud of what we've accomplished over the past 5 years. Our goal with the acquisition of MillerCoors and the Miller International business was to create a bigger and better company. In 2015 and 2016, we planned for and executed on the step change and transformed our scale. In 2017 through to today, we've delivered on the integration and the initial deleverage and synergy commitments made at the time of the acquisition despite higher inflation and softer industry demand than anticipated. Along the way, we've also strengthened our culture with the introduction of our First Choice ambition and bolstered the leadership and capabilities of our people through our Commercial Excellence and World Class Supply Chain programs. As we now shift emphasis to greater focus on top line growth while remaining financially disciplined, it's an appropriate time for me to pass the baton on to Gavin to lead the company through our next chapter of continuing to energize, premiumize and modernize our portfolio and to move beyond beer with disruptive thinking. And you are already seeing some of the fruits of…

Thank you, Mark, and hello, everyone. I will speak first to the quarter on a consolidated and regional basis, then to our 2019 outlook, and finally, to our capital allocation plan. So to recap the quarter, our net sales revenue decreased 2.9% in constant currency. Although we delivered strong pricing in each business unit as well as improving global mix, this was more than offset by volume declines. Net sales per hectoliter on a brand volume basis increased 3.7% in constant currency. Our worldwide brand volume decreased 5.6% and financial volume decreased 7%. Our global priority brand volume decreased 4.6%. Underlying COGS per hectoliter increased 6% on a constant currency basis driven by inflation, volume deleverage and increased packaging costs associated with our U.S. bottle furnace rebuild, partially offset by cost savings. Underlying MG&A increased 5.7% on a constant currency basis driven by increased brand investment and cycling of G&A benefits from the prior year. As a result, underlying EBITDA decreased 12.8% on a constant currency basis. Our year-to-date underlying free cash flow was $560.7 million, 15% below the prior year, driven by lower underlying EBITDA and higher cash tax payments, partially offset by lower capital expenditures and lower cash interest payments. Now moving to our business units. In the U.S., overall industry demand was softer year-on-year, and net sales revenue decreased 2.9% driven by 6.7% decline in sales-to-wholesalers, excluding contract brewing, partially offset by net price increases. COGS per hectoliter increased 4.7% driven by inflation, volume deleverage and increased packaging costs associated with our bottle furnace rebuild, partially offset by cost savings. MG&A increased 4.5% reflecting higher marketing investments focused on our above premium and innovation brand as well as cycling lower employee incentive expense in the prior year, partially offset by the incremental cost reductions related to the…

Thanks, Tracey. Now as you know, our earn more focus depends upon extraordinary brands, customer excellence and disruptive growth. So looking at our brands. We continue to realize strong pricing across our business units giving us more fuel for brand investment, which is increasing to energize our core brands, premiumize and modernize our portfolio. In terms of our core brands, as I mentioned, within the U.S., we saw strong premium light share growth, and we expect this to accelerate where our new Coors Light advertising has just launched. And more on that in a second. In terms of premiumization, global mix became positive as a result of our performance in Europe and through package mix. And though package mix in the U.S. trending unfavorably, this is partially offset by brand mix, which was positive for the first time in the U.S. since early 2018. Drivers of our premiumization progress included Staropramen and Pravha in Europe, Belgian Moon in Canada; and Cape Line, Blue Moon, Belgian White, Peroni, Henry's Hard Sparkling, Arnold Palmer Spiked Half & Half and the Sol trademark in the U.S. We also expect bolt-on M&A to continue to aid premiumization. And in Europe, we recently completed the purchases of Pardubický Pivovar in the Czech Republic and Hop Stuff Brewery in London. Our global brands benefited from yet more strong performance from Blue Moon and Belgium Moon in Canada, Europe and International, with Staropramen in Europe and Miller Lite in our International and Canada business growing strongly. In terms of reshaping our portfolio, we are demanding more from innovation. In hard seltzer, we're committed to building on the performance Tracey mentioned adding offerings in this segment, reflecting our confidence in the Henry's brand and the hard seltzer segment. And of course, Coors Light is our largest brand. And…

Yes. Thank you, Mark. Just to remind everyone of upcoming events. We do look forward to seeing many of you at the Barclays Global Consumer Staples Conference, where we will also host a webcast at 10:30 a.m. Eastern time on Wednesday, September 4. So with that, Gary, I think we'd like to go to Q&A.

[Operator Instructions]. The first question comes from Amit Sharma with BMO Capital Markets.

Mark, congratulations on -- Gavin, congratulations on your promotion. And Mark, good luck with the next phase. Can you talk about -- can you just talk about, Mark, what drove the timing of the transition at this time? And then for Gavin, as you look to take over, can you highlight some of the strategic initiatives or actions that you are considering.

Okay. Let me pick up both of those. So on the first point, I mean, there's nothing unusual. When I stepped up and took over from Peter Swinburn, we did it at the same time of the year. And it's something that we've been in discussion with our Board because it allows the incoming CEO to really impact the development of our long-range plan, And Gavin will have that opportunity. He'll transition with me over the course of the next couple of months through to end September, and then we have our Board of Directors meeting in September and November when we land our long-range plans. So that to give me the chance to do that when I come in for Peter, and it will give Gavin the chance to do that and now coming in to step up into my role. So it's been an ongoing discussion with our Board, as you can imagine. I formally retired yesterday, but our conversations with the Board have been ongoing, as you would expect for executive succession. So really, that's the timing. And as I mentioned in my prepared remarks, '17, '18 and '19 were very clear in terms of what we wanted to get done, and it felt appropriate to manage the timing to this level and allow Gavin to drive the next chapter. Obviously, he's going to transition and spend time on his thinking in partnership with the executive team and the Board over the next few months. And I know he'll be ready to talk about his thinking later in the year. But Gavin, do you want to offer any kind of quick headlines at this stage?

Yes. Thanks for that, Mark. Thanks, Amit. Look, I mean as Mark says, I'm going to spend the next few months leading the planning for 2020 and beyond. And as, of course, as would any CEO, there will be change. We need to consider all options that we can take to maximize the future potential of our business and to create additional firepower to put behind our brands and in order for us to innovate. And that's what I plan to do. Beyond that, I'm not going to get into any more detail.

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

And Mark, congratulations on the retirement. And Gavin, congratulations to you on the new role. It's been a pleasure working with you, Mark.

Thanks a lot, Bryan.

Gavin, maybe just to follow up on Amit's question. We've seen across our coverage universe. A lot of companies have successfully sort been able to step back profit growth for the short term in order to reinvest and reaccelerate growth, right? You've seen it at Pepsi, at Mondelez, Proctor or Colgate. So I guess as you thinking about a 3-year plan, is there anything -- other than deleveraging and generating cash flow, is there anything that would constrain you as you're thinking about sort of actions that you would take to accelerate top line in terms of doing a reset in that fashion?

Bryan, let me kind of reiterate what I said earlier on, right, and which Mark said as well, is I'm going to take the next few months to flesh out my plan for 2020 and beyond, and I'll take the Board through that at the appropriate time. And in that, we need to consider the options that we've got that we can put enough firepower behind our brands and enable us to innovate. And of course, that will require some change and that's what I plan to do. Beyond that, Bryan, I'm not going to speculate on what that is specifically on this call.

The next question comes from Robert Ottenstein with Evercore.

Great. Just a housekeeping item. Gavin, do you have a replacement lined up yet? And then second, my more substantive question -- and again, also obviously congratulations and good luck to both of you. As you kind of look forward to the Truss joint venture and the opportunity in cannabis and CBD, can you give us a sense of how big this could be for you? How excited you are about the potential? And tied to that, how much capital intensity could be involved in this if it's successful?

Well, perhaps you can take the second part of that question, Mark, and I'll just answer the first. Just reminding you, Robert -- and thanks again, that Mark did say when he was announced to succeed Peter as Chief Executive, we didn't initially name Mark's backfill. So it's consistent with our historical precedent and practice. As I said, I'm going to spend the next few months focusing on planning for the future. And as part of that process, I'll review the company structure and its operating model, which includes the MillerCoor's CEO role. Beyond that, I'm not going to speculate any further. Mark, do you want to take the Truss question?

Yes. Thanks, Robert. So Robert, I mean, I think we've laid out very clearly our intentions to be on the playing field here. We announced that over a year ago, and Canada gives us a great opportunity to really test consumers' appreciation for an appetite for the range of nonalcoholic cannabis-infused beverages that we'll launch. The team that set that -- set up that initiative have continued to monitor opportunities for cannabis in other geographies. We are watching very closely the opportunity in the U.S. particularly around CBDs. Now clearly there's still some legislative complications, but we anticipate being on that playing field and ideally, with our partnership, the -- with a partner that we have in Canada. And we have a team of people who are working on that. So I don't want to get into the details, but I'm giving you the same kind of, I think, indication that we gave ahead of us moving into the Canada market. So more to come on that in due course.

The next question comes from Kaumil Gajrawala with Crédit Suisse.

Congratulations to both of you. The first one, a quick one. I apologize if I missed it. I believe you gave an EBITDA growth guidance figure for International. Did you also provide that for other regions? And I see that you've shared some of the share figures for Coors Light and Miller Lite. Can you provide some details on what volumes did for the two of those combined?

We don't give EBITDA growth guidance beyond the MCI. We did that because we went through some very significant restructuring as we acquired the Miller International business, and we wanted to remove some of the complexity around that. That's why we gave the guidance last year and into this year, and we reiterated that guidance for strong double-digit EBITDA growth on a full year basis for our International business. But with regard to our major brands, again, we don't give specific volume detail. You can pick that up from the Nielsen data in the marketplace. But we're very encouraged in particular, by the Miller Lite performance. I mean just to give you an indication, in the last 4 weeks in particular, and recognizing that July 4 timing is a little bit complex, but Miller Lite in absolute terms is up single digits in absolute volume growth in the U.S. So Miller Lite has got very good momentum behind it. And we're very excited about the opportunity for Coors Light to shift its trend. And again, through July, we're seeing the Coors Light trend improve to kind of low single-digit volumes. So May and June were clearly challenging from an overall industry perspective, but it looks like normal business has been resumed as we've come through July, which is encouraging.

The next question comes from Judy Hong with Goldman Sachs.

So I would also echo my congratulations to both of you. And Gavin, I don't want to focus too much on this topic, but I did want to clarify just one comment that you made about looking at all options and potentially increasing additional firepower, which to me sounds like maybe even some brand or asset sales on the table. So first, I just want to clarify that. And then secondly, to Tracey, just free cash flow guidance for the full year really implies a big step up in the back half of the year. I think by my math, around $300 million improvement in the back half. So can you walk us through the drivers of that improvement in the back half?

Judy, look, I don't want to say anything more beyond what I've already said, right? I'm not going to get into speculation now. But as I said, I'm going to spend the next few months working the plan and I would look at the company's structure and operating model, and we'll take it from there in the months ahead.

Tracey, do you want to pick up free cash flow?

Yes. So look, the first half of this year was very soft, as we said in our earnings release and in our remarks. We certainly expect the second half performance to be better than the first half, so that's one of the drivers of the free cash flow. And in addition, we expect to see continuing working capital improvement and benefits coming out of some of the actions we are taking around working capital. And then finally, as we are paying down our debt, we have lower cash interest payment. And so those are the big drivers towards our continuing commitment to our guidance of $1.4 billion plus or minus 10% for the full year.

The next question comes from Steve Powers with Deutsche Bank.

I guess first and foremost, thank you for your contributions, Mark, and congrats to Gavin. I'm not sure who of you will want to take this one, but I'd just love it if you could expand a bit more on something you've talked about in the past just in terms of what's changing with the hiring of Michelle on the marketing side, both in terms of how creative is being reshaped and reprioritized but also any changes in terms of how you may be sizing and reprioritizing marketing investments across different initiatives in dollar terms. I guess if you have anything to share on this front as well. I'd just love any -- if you've noticed any increased engagement with distributors as you travel around and discuss some of the new go-forward plans with them.

Okay. So Steve, let me split that into two. And I mean Gavin can talk specifically about Michelle's leadership impact in the business. And the reaction we're seeing from our distributors is the second part. On the first part, to be fair, over the course of the last, I would say, 24 to 36 months, we've been driving our Commercial Excellence approach very rigorously across our business. And that has set a very clear expectation about improved capability, more pace, more breakthrough ideas right across our organization. And I'm very encouraged by what I'm seeing across our broader marketing leadership group in Europe, International and our Canada business. Both Gavin and I were not happy with our performance with our marketing in the U.S., and that's why we made the decision in the middle of 2019 to make a change. Clearly, it took us a little bit longer than anticipated, but I would say that the wait was well worth it with Michelle's addition to the team. And Gavin, do you just want to just talk about what you've seen really since February and how you're looking at the focus on our marketing in the U.S. business unit?

Yes, Mark, thanks. And thanks, Steve. Look, I mean there's a number of things I can say. Firstly, I think you can see an increased pace with how we are doing our marketing. You're going to see us target investment behind brands and ideas where we see the greatest returns, particularly in a world where consumer retention is in all-time high, and we need to have the right ideas. And when we have them, we'll put money behind them. And a fine example of that is the work that we've done on one of our newer brand launches, which is Cape Line, and we've grown our innovation pipeline quite heavily to attract these new consumers. We are shifting a greater percentage of our investment to the above premium segment with big increases on brands, such as Blue Moon and Peroni. And we're going to continue to invest strongly in Coors Light and Miller Lite. And I'm very excited about our new Coors Light creative, and we have very strong messaging behind Miller Lite. Michelle has also continued to shift spend to digital and nontraditional media to reach those groups of consumers who now spend their time away from more traditional channels. As far as Coors Light is concerned specifically, gained a little bit of share of segment in Q2 of 2019, which is the first time we've done that for quite some time. And obviously, we're not where we want to be at this point in time. We know that focusing back on cold refreshment was the right thing to do, and shifting that message to cold refreshment has improved trends, but it's obviously not enough. And Michelle has worked and moved very quickly to launch this big, new campaign. It feels very distinctive. It feels fresh, and it's unlike anything else you've seen in beer. I hope you've all had a chance to see it. The "Made to Chill" platform focus on the language which resonates with young people, and it builds on occasions that we believe is only going to grow into the future. It launched yesterday and, quite frankly, I don't know that I've experienced this much excitement from the distributor network since 2005 around this. But you note, it's day 3, and we're -- whilst we're excited about it, now we need to execute against it. But the level of excitement I've felt was -- is very strong. So to summarize, we're changing where we're marketing. We're changing who we're marketing to, and we're changing the pace at which we're getting things done. And I think if you talk to our distributor network, they will concur with that as far as marketing is concerned.

Thanks, Gavin. Steve, just to kind of put a full stop on this. I mean if you look across our business and look at the range and pace of initiatives that we now have in marketplace, it stepped up dramatically in the last 24 months, and I've covered many of them in the script. But if you just look within the U.S. and take Cape Line, Arnold Palmer Spiked, Henry's Hard Sparkling and the Sol family of brands, just over 24 months ago, none of those existed in our portfolio. By the end of this year, they will be millions and millions of cases of volume. So take that as, I think, indicative of what has been emerging and what will continue to emerge in our business as we further ramp up with innovation and the pace of premiumization right across all of our business units.

The next question comes from Andrea Teixeira with JPMorgan.

And congrats and best of luck to both of you, Mark and Gavin, in this new chapter. So my main question is on the U.S. volume trends. So I was hoping to get more details on Tracey's comments about the timing of STRs and STWs. So if you're effectively calling for about mid-single-digit decline in the third quarter, because obviously, you had a bigger shipment decline in the second? And can you also let us know if the go live in the two other plants that you're planning in the third quarter and the back hand of the year could impact the shipment in the quarters?

Okay. So Tracey, do you want to just kind of reiterate the comments you made through the script? Then Gavin, if there's any additional detail on the back of that?

Yes. So at a high level, we are expecting our STRs and STWs to really converge on a full year basis. And then the comments around Q3 and Q4, so if you remember we had a very strong STW quarter in Q3 of last year. And as we ramped up the inventory for our go live at our Trenton Brewery and our Fort Worth brewery, and that resulted in very hard days of inventory at the end of September, which then lead to a very soft shipment quarter in Q4 of last year as the inventory level came down. And then this year, we do have two remaining go lives in Albany and Irwindale. But the bulk will be limited to distributors only within those brewery orbits. So it's not really as widespread across our distributor network as the Trenton and Fort Worth breweries were. So Gavin, I don't know if you want to add to that?

No, Tracey. That was perfect.

The next question comes from Sean King with UBS.

I guess with respect to the MG&A increase, how much of that was brand building spend? And should we expect the 2Q pace of MD&A growth to continue in the back half? And I guess any -- was any of that brand building spend weighted to Q2 for campaigns that go live into Q3?

Yes. So we don't break out our specific marketing spend, Sean, but I think I indicated in our Q1 call that we expected to step up particularly in Q2 and Q3 the weight of our spend because they are the critical 2 quarters in the year. So we've delivered on that promise in the second quarter. And we anticipate that continuing to step up our spend in the third quarter of this year. And confidence is growing in terms of the quality of the work that we have and the premiumization of the portfolio. So expect those to continue to really deliver on the commitments we've made, and you should see that as you've seen in the second quarter and the third quarter as well.

The next question comes from Laurent Grandet with Guggenheim.

And Mark, I wish you all the best for your next chapter. And Gavin, congrats on the new role. My question is about Europe. So first, it was the U.S. then the U.S. and Canada and now Europe is even down. So I appreciate the World Cup did impact negatively this year numbers but assuming, let's say, I mean 200 to 300 basis points of impact. And correct me if I'm wrong, this still leave us with about 3% volume drop in Europe. So could you please give us more color here? And how we should think about Europe going forward? And also, I mean, how do you see the recent change of Premier League sponsorship away from Carling to Budweiser impacting your commercialization in the U.K.?

So let me ask Simon to pick up. Simon's traveling internationally at the moment, but I think he's on the line. So if this works then, Simon, do you want to pick up that question?

Yes, Mark. Thank you very much. Although we've been on a consistent run for a while now in Europe in terms of our growth. And we've tried to do that through a balance of gender, of volume, pricing and mix. That hasn't worked this quarter because ultimately, the volume line has been disappointing. I think we'd be the first to admit that. But the volume line is really fully impacted by wet and cold weather in May and June versus actually very dry and warm weather this time last year. And as you said, we also had the World Cup to lap. If you look at our pricing and our mix component, it remains consistently good as we've had for many quarters now. So all of the top line miss is very much driven by volume, and the volume is very, very heavily impacted by the weather, which is actually a much bigger driver in our estimation than the World Cup lapping. So I actually remain very, very confident that our underlying momentum is very much in line with our previous quarters. And that this quarter was an aberration due to what was effectively market demand. And I would also point to the fact that we haven't changed our share trajectory. So if you look at our last few courses of growth, they've been consistent. They've been driven by a mix of volume and price and mix whereas in this quarter, we have just seen some very, very soft volumes. So I remain confident that the underlying strategy is working, the investment behind our brand is working. Our premiumization agenda is working very nicely, as evidenced by the mix. And to turn to your question about the future. If volume demand comes back into more normal and throughout our group of markets, that is a sort of flattish market outlook, then I will be very confident that we will continue to post those net sales revenue growth trends. And in July, it looks like the market will be back to its normal sort of overall performance. And in July, we will continue to grow our revenues. So in summary, I would regard it as an aberration, and I think we'll get back on track for the balance of the year, providing that the market volume stabilize, and there's every reason to believe they will.

And Simon, any comments around the Premier League reshuffle, second part of his question?

Yes, sorry. Realized that was a two-part question. Yes, look, the Premier League sponsorship worked very well for us. We are very highly associated with football with Carling, but we made the decision to come out of that and reinvest behind a broader-based Carling marketing campaign, which we think actually will have even more appeal. So of course, we have to transition plan and plan that carefully. And Carling's been taking share in the mainstream lager segment for a long time now over a sustained period. We are very keen and determined that we continue to do so. And we've launched a new marketing campaign this year, which is early days, but I can be confident that we can transition to the more broad appeal rather than just a football-based appeal.

The next question comes from Vivien Azer with Cowen and Company.

And my congratulations to you both. So Gavin, this is something we've discussed off and on over the years, but as I look at longer-term U.S. beer industry volume trends, I fully appreciate the commentary about bad weather in May and June. And I heard you guys that July is more normalized. But if I look at the data that your largest competitor offers for the U.S. industry, it looks like 2015, down 30 basis points, than down 100 basis points, than 130 basis points, then 180 basis points. And it seems to me that there is some vigorous structural challenge in the industry. And so what I want to hear from you is that as you think about kind of establishing this next 3-year plan, are you assuming that this industry is steady state. Or is it better to assume that there's going to continue to be more structural degradation for the beer category? And any other thoughts just around the health of the category and how you can operate against that backdrop would be helpful.

Well, thanks, Vivien. Look, I mean I think it's safe to say that competition for consumers' attention is really at a high level in the United States. And obviously, the beer category, the beer industry needs to evolve quickly. And it needs to keep pace with consumer preferences, which are rapidly changing. I would point to the seltzers, alcoholic seltzers is a more recent example of that. A large part of seltzer's growth is coming from outside of the beer category, specifically wine and spirits. And so for us, that means that we need to keep focused on that evolving space. And as was said, it means two things for us: It means a much faster-paced innovation pipeline. And it means recruiting and focusing on drinkers, new drinkers with our core brands. And so you'll see our plan, both here in the United States and globally, embracing these new categories and focusing in on the above premium. And as Mark said, we've been very successful with Arnold Palmer Spiked and Henry's and Cape Line, all of which will be delivering millions of cases to the beer category by the end of the year from outside of the beer industry. So I think innovation is essential. Above premium is essential. And catering to consumers' different needs is essential. And we're going to focus on all of those as we go forward.

Vivien, it's Mark here. I mean the only thing I would add to that is just making sure that we continue to keep the balance and focus between both volume and the -- really the value growth of the U.S. beer industry. Consumers are clearly changing taste, and most of the demand in the marketplace is emerging in higher-priced above premium space. So actually, the total revenue for beer in the U.S. has continued to grow despite some of the volume challenges, and that's why it's important for the Molson Coors business, across all of our business units, but particularly in the U.S. to accelerate the pace of premiumization and why you've seen -- and what you have seen emerge and why you'll see more of that going forward as we look to reshape our portfolio. So stabilizing and energizing our core brands by accelerating the pace of premiumization. And that is our agenda. That's an agenda which is on the tracks, and I know that Gavin will look to accelerate that over the coming months and years ahead.

The next question comes from Kevin Grundy with Jefferies.

I was going to stick with the topic of spiked seltzer, but also more broadly on innovation and disruptive thinking. Some of these topics have been touched on earlier. But specifically with spiked seltzer, how do you plan to complete in the category? It's obviously growing rapidly, albeit with little product differentiation. What's sort of the strategy there? And how are we defining success at this point? Or how is the company defining success? And then more broadly -- and Gavin, maybe you can pick up on this as you sort of assume leadership here of the company. What do you think the company needs to do better as an organization to become faster and more in tune with changing consumer taste when you look at the companies and the brands that are leading in seltzer right now, as an example, much smaller than Molson Coors? So what do you think needs to be done here so that the company can become quicker and more responsive to changing consumer taste?

Okay. Thanks, Kevin. Do you want to pick those up, Gavin? They're kind of opposite sides of the same coin.

Yes. Sure, Mark. Thanks. Look, I mean there's no doubt, Kevin, that seltzers are big, and they're here to stay. And we think that the reason for that though is they're tapped into two big consumer trends which have evolved. One is better for you trends, and the other is consumers looking for an alternative taste for beer. And whilst Henry's is performing well, I mean, it's growing at triple digits, it's off a small base. And therefore, we bought a deep innovation funnel that we're looking at. Some of this focus is on consumer white spaces against those consumer trends, and Cape Line would be a fine example of that. It's the first better-for-you option with a stronger flavor base. And from Cape Line point of view, I'd like to point out that same stage as the evolution of White Claw. And truly, several years ago, Cape Line is actually performing meaningfully better than those two brands who were at the same stage. Again, it's only -- we've only had it in for a few months, but the early signs are very good. And on top of that, we need to more squarely go after the seltzer space with new and unique points of differences in the marketplace. And obviously, for competitive reasons, I'm not going to get into exactly what we plan to do from that aspect, but watch this space. As far as the innovation pipeline is concerned, I think you used the right word, right, which is pace and speed, and I think everything that we've done over the last 4 or 5 months since our marketing leadership change has demonstrated that we can do that. We're capable of doing it, and we are doing it. And there's multiple examples, which we talked about in the past. We also have with 2 of -- I mean, we've had the #1 new FMB in both 2018 and 2019 with Arnold Palmer Spiked and this year in Cape Line. We're moving quicker. We're taking smarter risks, and you're quite right. In this fast-changing environment, we can't afford to let others pass us by. So I think you will see us move with pace going forward. And from competitive point of view, I'm not going to get into specifics of that other than what we've public, which is Movo, which is line of wine spritzers, hard coffee beverages and our test market on Saint Archer Gold, which has shown great potential in its 4 test markets.

And I mean just to add to that, Gavin and Kevin, if you look more broadly, I mean Coors Slice is the #1 new item across major retailers in Canada this year. Pravha has been a remarkable success in the U.K. marketplace. So I think there's demonstration in terms of what we've already taken to market and what's in our pipeline. The organization is already, let's call it, through integration and well on track for picking up the pace and driving a significant step change in the number of initiatives that we have from an innovation and premiumization perspective across all of our business units. And you'll see more of that to come.

Your next question is from Priya Ohri-Gupta with Barclays.

First off, Mark and Gavin, congrats to you both. Tracey, just as we think about your leverage trajectory, should we still be thinking about 3.75x on a net basis by year-end? And where should that ultimately settle out sort of in 2020 and '21? And then specific to getting to the year-end target, given the cadence of your debt maturities, should we just expect your cash to build on the balance sheet? Or would you look for incremental debt paydown opportunities given that you don't have anything maturing over the rest of the year?

Yes. So just in terms of the optimal leverage ratio, we haven't given that. I mean the -- our focus is maintaining our investment-grade rating. And then in terms of what we're expecting for the end of this year, so we expect to be below 4x by year-end. And we will continue to focus on deleverage into the future within our capital allocation strategy. At this point, we are not looking to pay down any additional debt beyond what our debt program is. So there's no sort of pre-payable that we will be making. But that would mean that towards the end of the year, we probably will have a higher level of cash on our balance sheet getting ready for the next debt that we need to pay down.

The next question is a follow-up from Amit Sharma with BMO Capital Markets.

Gavin, just a quick question on pricing in the U.S. We already talked about or confirmed pricing in April. Can you talk about how you view that? Is there any plan to maybe take advantage of that to push through another off-cycle pricing for you guys?

Nice try, Amit. I'm not going to give forward pricing guidance. I can talk about what happened in the second quarter, which is that we grew net sales per hectoliter 3.6%, with frontline of 3.9% and brand mix -- not brand mix, total mix was negative by about 30 basis points. But our brand mix was actually positive for the quarter. And that is reflective of our premium efforts. Beyond that, Amit, I'm not going to get into future pricing strategy. I can't do that.

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

Thanks, Gary, and thanks, everybody, for joining us. Today, obviously, we had some unexpected news for you, which we've chatted though, and Gavin and I will forward to catching up with you over the course of the next couple of months. Just as a sign off from me, as I mentioned earlier, it's been absolute privilege to serve as the Molson Coors CEO, and I've thoroughly enjoyed engaging with our investors and our analysts over the course of the last 5 years. I will see many of you up in Boston, and you're likely to ask me questions as well as Gavin questions when we get together in a month or so time. But thanks for your time and attention today, and we look forward to connecting with you over the course of the next few weeks and months. Thanks, everybody.

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