Prepared remarks
Good morning, and welcome to the Molson Coors Beverage Company Third Quarter Fiscal Year 2025 Earnings Conference Call. With that, I'll hand it over to Traci Mangini, Vice President, Investor Relations.
Thank you, operator, and hello, everyone. Our discussion today includes forward-looking statements within the meaning of U.S. federal securities laws. For more information, please refer to the forward-looking statements disclosure in our earnings release. In addition, the definitions of reconciliations for any non-U.S. GAAP measures are included in our earnings release. Please note that with the exception of earnings per share, all financial metrics are in constant currency when referencing percentage changes from the prior year period. With me on the call today are Gavin Hattersley, former Chief Executive Officer, who retired October 1, but remains with the company in an advisory capacity until year-end. Rahul Goyal, Chief Executive Officer and Tracey Joubert, Chief Financial Officer. Today, Gavin would like to share some opening remarks before passing to Rahul to provide an initial high-level view of his vision going forward.
Tracey will then wrap up with a brief review of the quarter and our 2025 outlook. A more detailed presentation of our quarterly performance, including financial and operational metrics and drivers, is available in our earnings release and earnings slides, which are made available earlier today on the IR section of our website. Upon the conclusion of our prepared remarks, we will take your questions. And as always, we ask that you limit yourself to one question, and then if needed, return to the queue. With that, I'll pass it to you, Gavin.
Thank you, Traci, and hello, everybody, and thank you for joining the call. I am pleased to be here today for what is my last earnings call with Molson Coors. It has been an incredible journey, and I could not be prouder of this team and the strong foundation that we have built. This includes our iconic brands across the world, our leading capabilities from supply chain to marketing, a dramatically improved balance sheet, and our strong free cash flow generation. And while I'm retiring during a difficult time in the industry, I am confident in the company's ability to return to growth. So with that, it is my great pleasure to introduce Rahul, who took over the role of CEO on October 1. During my six years as CEO, I worked closely with Rahul; his deep strategic insights, institutional knowledge, fresh perspectives, and proven ability to deliver, which are particularly important in these dynamic times, make him, in my view, the right choice for the job. And while he has only been in role for about a month, he has certainly hit the ground running and to share more about this, I'll pass the call to Rahul.
Thank you, Gavin. It has been a true privilege to work with you for so many years, and I look forward to building on our many accomplishments and continuing to support the strong culture you have built that makes Molson Coors so special. Now clearly, these are dynamic times, and we, like many staple companies, have been affected by macro-related factors that have pressured consumption behavior. In the U.S., these macro impacts have had a disproportionate effect on the lower-income than Hispanic consumer. And within there, these consumer segments have driven a reduction in the number of buyers as well as spend per trip, with a continued shift to singles in the third quarter. In Europe, the macro environment has also contributed to continued industry softness, pressuring demand across our regions. But we continue to believe that the incremental softness in the industry this year is cyclical, and we believe that we are well-positioned with a healthy balance sheet, strong free cash flow, and great brands that serve a wide range of consumer occasions and preferences.
This all helps us to navigate these near-term cyclical headwinds while investing in our business to support long-term growth. I know everyone is eager to hear more about my vision for the future, and there will be more details to come. Today, I would like to provide a high-level view of our strategic priorities and how we plan to adapt in these challenging times, improve our commercial performance, capitalize on opportunities, and ultimately return to top and bottom line growth. I want to assure you that we are moving with a sense of urgency and with a clear purpose. In my first 30 days, we have already begun to implement structural changes, both in terms of leadership and operations, to put us on the path to success. At the highest level, it begins by focusing on our portfolio to build strong and scalable brands in both beer and beyond beer. This entails prioritizing our investments to build on the strength of our core and economy beer portfolios and to transform our above premium beer and beyond beer portfolio.
In beer, we already have a strong core portfolio with iconic global brands and regional market leaders. They are the majority of our business. So we intend to continue to put strong commercial pressure behind that. For Miller Lite and Coors Light, this means new campaigns and high-profile sports and music alliances that build on their strong brand health and support our ambition for share growth for each brand. And for Banquet, we intend to capitalize on its impressive success by leaning even more into fueling its strong momentum and to continue to bridge the sizable distribution gap with Coors Light. Recall that Banquet is only in just over half the buying outlets of Coors Light, and not only is Banquet an important growth driver in our U.S. business, but it offers learnings that we believe can be applied more broadly across the portfolio. We also plan to selectively increase our focus on certain economy brands like Miller High Life and Keystone Light, which are big brands with loyal consumer bases.
We firmly believe that all price segments matter. And while as an industry we are not seeing trade down at the brand level in today's environment, more than ever, economy is an important segment. And we continue to see big opportunities in above premium. While we have had strong premiumization success in markets outside the U.S., we are meaningfully under-indexed in above premium in the U.S., and we plan to lean in even harder to change that in both beer and beyond beer. In beer, it's no secret that we think Peroni has great potential. It's only been two quarters since we fully onshore Peroni and activated our commercial plans, and we are already seeing good progress with brand volume up 25% in the third quarter. And with expected increases in media investment next year, including programming for the Olympics, and with only about one-third of the distribution of the other major competitors, we see significant runway ahead.
We also remain committed to stabilizing Blue Moon, and to be frank, we haven't seen the success we would like. Recent innovation with non-alc and high ABV brand extensions have been encouraging, while the core Blue Moon Belgian White continues to be challenged. We are going to be looking closely with a fresh commercial perspective at what we can do differently to best ensure that this big and important brand supports our premiumization objectives. Now, while beer is our roots and at the core of our business, you can also expect us to step up our focus on beyond beer because we believe we can win here. Not only does it help to premiumize our business, but it also creates value for our customers by appealing to a wider range of consumer preferences and serving more occasions. In flavored alcohol, we already have big brands, and some have been rechallenged recently. But Topo Chico is a great example of how with the right commercial road, we can improve trends by focusing investments on the markets where the Topo Chico brand most strongly resonates, and through thoughtful innovation, we achieved positive dollar share gain in the third quarter in these regions.
And we recognize we have gaps, including RTV spirits, and we intend to fill those. In non-alc, we are focused on building scale, and we are off to a great start. We believe our partnership with Fever-Tree in the U.S. provides a strong base from which to grow our total non-alc portfolio. In fact, Fever-Tree volume has been performing strongly, and it has been very well received by distributors and retailers, and we are excited by the opportunity to significantly grow the brand in the years to come. And this is just the beginning of our non-alc efforts, as we see opportunities to enter some other interesting areas. So we are making the infrastructure investments in people and systems that help to support the development of this business into something meaningful over time. Now to achieve our commercial ambitions, we are taking a fresh look at our approach to commercial execution and the opportunities to optimize our cost structure to fuel reinvestment in the business.
On the commercial side, creating value for our customers and consumers remains at the forefront of all that we do. But we believe we can be even more effective at this by focusing ownership of this business even closer to the market. And we intend to do this by deploying marketing and G&A investments based on specific market dynamics and portfolio priorities. This should help to increase our speed of decision-making, our agility to execute, and ensure greater accountability and a return-oriented mindset at the local level of our business. On the cost side, as announced last month, we are implementing a corporate restructuring plan of our Americas business unit designed to create a leaner, more agile organization while advancing our ability to reinvest in the business. This entails reducing our Americas salaried headcount by approximately 400 positions or 9% by the end of the year. This includes hundreds of salary positions that were already open due to headcount for our transition efforts earlier this year and those who may be granted voluntary severance as part of this restructuring.
We intend to redeploy some of these savings to step up our investments behind key brands, commercial capabilities, and in supply chain and technology that support ongoing productivity and efficiency. And we will continue to be disciplined stewards of our capital, using a dynamic capital allocation approach, balancing investments in M&A to fill portfolio gaps while continuing to return cash to shareholders. We'll be sharing more on capital allocation in the near future. But today, let me be very clear on two things. First, we seek scalable deals that we expect to be accretive to both top and bottom line and are prudent from a balance sheet perspective. And second, we remain committed to our dividend and to our share repurchase program as we continue to view our stock as a compelling investment. Now there is a lot of work to do, but we see a clear path forward. Results will take some time, but we are moving with a sense of urgency.
We're confident we have the right brands and the plans to be successful. And I look forward to updating you on more of the details of strategy, financials, and operational objectives in the coming months. With that, I will pass it to Tracey, who will talk about our financial performance and outlook.
Thank you, Rahul. Third-quarter consolidated net sales revenue was down 3.3%. Underlying pretax income was down 11.9%, and underlying earnings per share was down 7.2%. On an underlying basis, the key quarterly drivers were largely as expected. The U.S. beer industry was down 4.7% based on our internal estimates. Our U.S. volume share was down 40 basis points based on our internal estimates, including relatively better share performance in the on-premise channel compared to the off-premise. Contract brewing was a 450,000 hectoliter or 3 percentage point headwind to the Americas financial volume. Excluding contract brewing, U.S. STWs outpaced STRs, resulting in a nearly 2 percentage point benefit to Americas financial volume in the quarter. EMEA and APAC volume continue to be pressured across all regions by ongoing soft market demand and a heightened competitive landscape. The Middle East premium remained innovative, which was within the expected price range, although at the higher end.
And marketing was up, while G&A was down largely due to lower incentive compensation as compared to the prior year. While our discussion today, as typical, has been on an underlying basis, we also recorded a noncash partial goodwill impairment charge of $3.6 billion as well as noncash intangible asset impairment charges of $274 million in the quarter, which I'll discuss in detail in today's earnings release and 10-Q. I also wanted to address the execution of our share repurchase spend during the quarter. Restrictions under our policies have prohibited us from executing under the repurchase plan during the open trading window following last quarter's earnings because we were in possession of material nonpublic information regarding our CEO search. We expect our regular quarterly trading window to open tomorrow, and we want to stress that we remain fully committed to our share repurchase plan and continue to strongly believe our stock is a compelling investment.
With that, let's discuss our outlook. We are reaffirming our 2025 guidance, but we now expect to come in at the low end of the prior range as our key metrics. These key metrics and ranges are as follows: Net sales revenue to decline 3% to 4% on a constant currency basis, underlying pretax income to decline 12% to 15% on a constant currency basis, underlying earnings per share to decline 7% to 10%, and underlying free cash flow of $1.3 billion, plus or minus 10%. Now before we get into the details, I remind you that the impact of the global macro environments are multifaceted and difficult to predict. And while we have included in our guidance our best estimate of some of these factors, external drivers that significantly impact our actual results, either up or down. Starting with the top line, we now expect lower year-end U.S. distributor inventory levels. Year-to-date, U.S. STWs largely caught up to STRs in the third quarter.
However, given lower 2025 volumes impacted by industry performance, we now anticipate year-end distributor inventory to be lower compared to year-end 2024 on an absolute basis. The year-end days of inventories to remain relatively consistent and at what we view as healthy levels entering the new year. As a result, for the fourth quarter, we expect the U.S. STW trend to trail the U.S. STR trend, excluding contract brewing. All of the top line drivers remain unchanged. We continue to expect U.S. industry volume to be down on average 4% to 6% for the second half of the year, while being mindful of the comparisons versus the year-ago period was somewhat softer earlier in the third quarter before becoming more difficult into year-end. We will cycle 1.9 million hectoliters of contract brewing volume in the Americas in 2025 related to Pabst and Labatt, and will cycle the remaining 300,000 hectoliters in the fourth quarter.
And we continue to expect an annual net price increase of 1% to 2% in North America in line with the average historical range and mix benefits from cycling contracts brewing from 2024, as well as from premiumization in both business units. Moving down the P&L, we expect COGS to be negatively impacted by volume deleverage, including the lower expectations for year-end U.S. distributor inventory. Also, Midwest Premium pricing has continued to increase. Our guidance assumed a price range of $0.60 to $0.75 per pound. This implies for the full year, Midwest Premium costs will exceed the prior year by $40 million to $55 million, with most of the increase occurring in the second half of the year. However, as you can see on Page 18 of our earnings slides, the price trended at the upper end of this range in the third quarter and was slightly above it in October. Therefore, we expect increases to be at the high end of that range.
As for MG&A, we continue to expect it to be down slightly for the year due to lower incentive compensation, which is largely offset by higher non-alc infrastructure costs as well as the Fever-Tree one-time transition and integration fees in the first half of the year. Again, those one-time fees were approximately $50 million and will be recovered through net sales over the next three years, which began in the second quarter of this year. In closing, we remain committed to improving shareholder value and look forward to sharing more about our strategic plans and long-term objectives in the coming months. With that, we will take your questions.
Questions and answers
Our first question today comes from Peter Grom with UBS.
Great. Just two questions for me, one for Rahul and one for Tracey. First, Rahul, you've been in the role for about 30 days at this point, and recognizing you've been with the company for some time. But just as you step into the CEO role, I would love to get your perspective on what you see as the biggest opportunities and challenges ahead? And then, Tracey, I just was hoping to get some color on the implied improvement for the fourth quarter embedded in the top line guidance, just given the commentary on tougher category comps and now expecting to ship behind in Americas. Can you just walk through the building blocks for 4Q as you see them today?
Thanks, Peter. If you look at the last 30 days, my focus and our priority has been, I would say, in two fronts. One is listening to our people and our customers. And if you look at our business, right, I come from the place that we have a strong foundation. We've got great brands and a healthy balance sheet, but we have great opportunities. So if you look at our performance this year, the majority of our share losses have been in a few areas, the economy category or the flavor category, but we've got co-brands that are pretty strong. And so we need to find a way to make them more robust. In above premium, we see great opportunities with the portfolio we have. Peroni is doing really well; we have some more work to do in Blue Moon. Again, in the beyond beer strategy, I believe this year Fever-Tree has been a great add to our business. So if you look at the imbalance, I'm pretty excited about a number of things we have going, but I recognize the challenges we have in some other parts of our portfolio and want to really get behind it.
I think the piece I'll leave you with is we're definitely moving with a sense of urgency and pace. We recognize the volatility in the category this year, but we also recognize the things that we can work on within our team. So looking forward to it, Peter, it's been a quick 30 days, but definitely moving with pace. Tracey, do you want to take the second one?
Thanks, Peter, for the question. So in terms of Q4, look, we are expecting better top line performance in our EMEA, APAC, and Canada business units. And in addition, we are lapping softer comps from contract brewing in the U.S. So that's a big driver. Those two are the big drivers of our top line performance. And then just as that also translates to better bottom line performance as well, we will have lower G&A in the fourth quarter, really driven by the lower incentive compensation.
Our next question comes from Chris Carey with Wells Fargo.
Congratulations, Gavin, on your career and best of luck. And so just from an inventory perspective, I think the message today is that you expect them to be lower in 2025 on an absolute basis, but closer to historical average on a days' inventory basis. And I just wanted to maybe check this. Does that mean if the category improves a little bit next year from the current lows? You would be entering 2025 with low inventory, say, lower than average if the category expansion picks up just a little bit. I'm just conscious beer distributors often use year-end to clean up inventory and perhaps they're feeling a bit more anxious about that even more this year. And so I just want to touch kind of how you would see your inventory position going into next year. And I was listening to the prepared remarks from Rahul, thank you for all that. Is it fair to say that you don't see this massive need to reinvest in the business as is typical when you enter a new leadership position and that with restructuring and sustained commitment to some of the strategies that you've laid out as you evolve into new strategies, you don't see that? Or do you see a business that perhaps is a bit under-invested in this opportunity going into next year on top of the soft year. So thanks on the inventory and the investing piece.
Thank you, Chris. Looking at distributor inventories, we believe we are in a healthy position. Considering the changes in our category this year, we expect our inventory levels to be good as we move into next year. We are confident in our ability to adapt and ensure we have the right supply for Q1, thanks to our brewery network and infrastructure. Additionally, reflecting on previous challenges like the Fort Worth strike earlier this year, we feel optimistic about finishing this year strong and equipping our distributors with the right inventory for next year. Regarding reinvestment, I can share that I am dedicated to building our brands. Our category needs support, and we want to ensure it remains healthy alongside others in the industry. We plan to support our core and above-premium brands appropriately while being disciplined in our economic portfolio investments. Moreover, we are focused on our balance sheet and cash flow, committed to returning cash to shareholders while also seeking ways to deploy capital to address gaps in our portfolio and drive growth. Our strategy will therefore involve a blend of supporting our brands effectively while using our balance sheet wisely to promote growth and return cash to shareholders.
Our next question comes from Bonnie Herzog with Goldman Sachs.
I was hoping you could give us a little more color on the pressures you're facing that are facing the beer category. And I guess why you believe it's cyclical versus structural? And then what is your expectation for category growth this year? And do you expect the category to recover next year? And if so, what do you think will be the drivers of this? I guess, ultimately, where do you see the biggest areas of opportunity and, I guess, risk next year?
Thank you, Bonnie, and good morning. I will break your question into a few parts. In considering the pressures on the category leading up to 2025, for the past few years, we've seen a decline in the range of about 3%. This year, we've experienced a decline of 4% to 6%, which we noted at the end of Q2. We expect to stay within that range as the year progresses, with our internal estimates indicating a decline of around 4.7% for category health. This year is different due to structural issues we've discussed, such as health and wellness trends and generational shifts, along with various macroeconomic factors like economic impacts, tariffs, and immigration. We believe that this year and the next are cyclical, and once we address these macro factors, we should return to pre-2025 levels. Looking at our portfolio, there is significant opportunity to enhance our business. While we've made progress in premiumization outside the U.S., we have much ground to cover within the U.S. market. Our share losses this year primarily stem from flavors and economic factors, which is why I focus on these gaps that need to be addressed. I hope this provides clarity on category performance and our outlook for both the short and long term.
Our next question comes from Andrea Teixeira with JPMorgan. Please go ahead.
This is Drew Levine on behalf of Andrea. Rahul, you mentioned the expectation that the industry could return to levels seen before 2025. You also indicated in your prepared remarks that it will take some time to see results. Could you provide more context on whether you believe the company could achieve low single-digit organic sales growth if the industry remains around that 3% range? Additionally, you mentioned being open to using the balance sheet and cash flow to address portfolio gaps. Given the current state of the industry, should we be watching for anything potentially more substantial?
Yes, thank you. Just a couple of comments, I think, on your few questions. So with the industry being where it is, I think we still see the pathway for delivering growth both on top and bottom line. If you look at this year, what's impacted is obviously the category, but also on the COG side, there's been so much volatility around inflation with best premium, I know we've spoken about. So those are the, I would say, the headwinds we're dealing with this year. If you again go back to the pathway to get back to top line, I mean, in the U.S., I'd break down our portfolio into four buckets, strengthening core and economy becomes important. These are big parts of our portfolio. And frankly, they are big parts of our distributor portfolio. So making sure these parts of the portfolio are strong and healthy is important. I would say we've done a decent job on share with our co-brands. Our core brands are still having a higher share than 2022, but we have work to do on the economy.
The runway we have in above premium is substantial in beer and beyond beer, right? In beer, we are under indexed. I called out in my comments that we have work to do on Belgian White, Blue Moon, but Peroni is growing. Flavor is something that is volatile. We had some good success with our brands. But this year, we have some challenges with Simply; Topo is starting to get much stronger, and then the non-alc piece, right. Fever-Tree was a great add. It's an exciting brand for us. It's an exciting brand for our network. So between the combination of that and along with our Canadian and Euro business, we can get our business back in low single-digit growth. And then obviously deploying capital. So your question of M&A. We want to make sure we deploy capital for brands that fill gaps in our portfolio. So I think that's important. Two, we want to be disciplined about it being accretive to both top and bottom line, right?
So we're not going to chase top line just for the sake of it. And then third, we want to do it in a way that is prudent from a balance sheet perspective and utilizing our balance sheet. So we stay committed to our investment-grade rating, we stay committed to a 2.5x leverage ratio, and returning cash to shareholders, but we can deploy capital to really augment the portfolio and make sure we're making some meaningful changes to our total enterprise. So probably I can't give you a specific number or size, but definitely want to lean in the right way to enable total enterprise growth.
Our next question comes from Peter Galbo with Bank of America.
Good morning, Gavin, Rahul, and Tracey, thank you for the question. I also have two questions regarding the balance sheet. Molson Coors has improved its preparation of the balance sheet to better withstand potential downturns or structural cyclical challenges. First, Tracey, this quarter you faced a significant bond maturity coming up in the next 12 months. How should we approach that, especially as we consider 2026? Secondly, regarding the impairment, it has been a considerable impact on the balance sheet. Rahul, I understand you need to conduct impairment testing. However, in terms of cyclical versus structural issues, I would believe this situation leans more towards a structural perspective. Could you clarify the impairment charge in relation to your views on the overall industry?
Thanks, Peter. So yes, we do have some debt coming due in 2026. And as with all our debt, we will review that as we get closer to the due dates. I think the important thing is that we remain focused on maintaining our leverage ratio, as Rahul said, in alignment with the target of being below 2.5x. We are currently in that range. And we will make sure that going forward, we are below 2.5x. So closer to the time, we'll assess what we do with the debt. Thanks, Peter.
Yes, thanks, Tracey. Peter, you're absolutely right. We recorded an impairment charge to goodwill of approximately $3.6 billion in the third quarter. Several factors influenced this decision, including our performance this year and the outlook for our business. Additionally, considerations such as discount rates, risk premium, and the valuation multiple played a role. I believe we can achieve growth in both revenue and profitability. Currently, we are undervalued compared to our market capitalization. We need to focus on these areas and show consistent improvement each quarter. It’s essential to evaluate our performance regularly to ensure we are managing the business responsibly, and the impairment and the segment analysis reflect that.
Our next question comes from Bill Kirk with ROTH Capital Partners.
Rahul, I was hoping to get a little bit more on your vision for the business. You mentioned portfolio gaps a couple of times. Do you think the gaps are more related to regions, are the gaps more categories related, or are the gaps brand specific? And then maybe backing up even further, should the company's focus become more narrow? Or should the focus broaden and introduce new regions and categories?
Yes, thank you, Bill. I'm definitely looking forward to sharing a lot more about the plans and how to think about that. But let me break it down in three different ways. So one is about the portfolio. As you said, we have a pretty broad portfolio in the U.S. We have a great product portfolio in Canada, and even in Europe. And generally, we do believe all segments matter. So we need to work within that. Now how we work with specific parts of the portfolio, I think that's where you see me highlighting some of the areas of opportunity we have. Now in some parts, we do have gaps, right? So I talked about the flavor part of our portfolio. We have some gaps that we need to fill. We fill some gaps in beyond beer non-alc, right? So there is an element of both fixing some of the portfolio plays we have and filling some gaps. So that's, I would say, part one of the broad plan. The second part is execution.
All of you know while beer is a global business and a national business, it is a very local business. So us executing as closely as possible to customers, distributors, and retailers is going to be super important. And that's not just in terms of just the sales function. It is about how we deploy our people resources, how we deploy our marketing resources, has to be as close as possible to our consumers and customers. So there is definitely a difference in how we execute and take that to our brands to market. The third element to your question is capabilities. We have a strong foundation in our infrastructure, whether it's breweries or supply chain, but it is an area that we need to make sure we are keeping up with either on the commercial side, whether it's on the technology side, optimizing our brewery footprint in the best possible way, thus meeting some of the needs of our new capabilities.
You're definitely going to see us leaning into that. And then capital deployment, driving our capital allocation approach, Tracey mentioned us wanting to be disciplined about that. So I would say those are the broad areas. Your question about being broader or narrow, we love the markets we are in. I mean we are in some of the best profit pools in the world, and we just got to win in those. So that's how you're going to see us lean in on winning in the markets where we have a very strong foundation.
Our next question comes from Filippo Falorni with Citi.
Rahul, so I wanted to ask about your experience working with and building the partnership with Coca-Cola, Fever-Tree, and some of the non-alc initiatives like ZOA. Should we expect more initiatives like that from also causing in the future, to your point, as a way to fill some gaps in a capital-efficient way? Or do you see still the opportunity for maybe more traditional acquisitions going forward? And then on the restructuring that you've announced recently, you indicated most of the charges, $35 million to $50 million, will be in Q4. Can you provide some sense of the savings on a run rate basis going forward? And when should we expect those savings to flow through?
Thank you, Filippo. Let me talk about the portfolio and the partnership comments. If you look at our portfolio, Filippo, I mean we're definitely going to be focused on beer. I just want to make sure that's our roots and it's a big part and foundation of our business. So beer is always going to be super important and definitely leaning into that space. In terms of partnerships and acquisitions, if you look at what we have done with both Coca-Cola and Fever-Tree, I think we've figured out a way of working with partners to leverage our platform, leverage our infrastructure to scale brands. I would say both of those partnerships have worked really well for our business. But in terms of deploying capital, I do think we continue to look at areas and opportunities to deploy capital to augment our portfolio. So your question of whether we're going to do more partnerships versus more acquisitions, I think that is a function of how these opportunities come up.
But what you will see us lean into spaces where we have gaps in the portfolio to fill. Three or four years ago, we didn't have the capital to deploy, but right now I think our balance sheet is in a strong way that we can do it in a disciplined way. So continued focus on beer, continued focus on some of the above-premium agenda. But in the beyond beer space, we probably need to be both creative and deploy capital to fill some gaps. And Tracey, do you want to...
Yes. Thanks, Filippo. So in terms of cost savings, look, we haven't provided specific cost savings target as we're still finalizing the details around this restructuring. What we have said, though, you correctly say, we expect charges to be in the range of $35 million to $50 million, and these are expected to be future cash expenditures over the next 12 months. Substantially, all of the charges are expected to be related to severance payments and post-employment benefits. But one thing in terms of the cost savings, look, a meaningful amount of the headcount reductions was from the elimination of open positions in 2025. So we wouldn't expect to get full benefits in 2026 because we did have the open headcount as we prioritized our costs in 2025. So that's from a cost savings point of view. But we do intend to redeploy some of the savings to invest behind our brands, to invest behind our commercial capabilities as Rahul has said, both in commercial and in supply chain, and in technology to support the ongoing productivity and efficiencies around our business.
Our next question comes from Steve Powers with Deutsche Bank.
Great. I have two follow-up questions based on what you just discussed. Regarding the restructuring, you mentioned it will make the Americas organization faster, more nimble, and more agile. I'm curious about how the restructuring will specifically increase that speed. Secondly, Rahul, you've discussed the portfolio in terms of beer versus beyond beer. I'm having difficulty understanding the balance of those investments in your perspective. Clearly, both areas are important, and while beer is the larger business with investments aimed at premiumization, do you see beyond beer as the more significant growth driver moving forward? I'm trying to understand how that impacts your investment priorities and overall capital allocation.
Thank you, Steve. So maybe address both the different questions. One is about restructuring and portfolio. If you think about going back to what I said about customer and consumer focus, we wanted to make sure that the leaders driving that agenda had the seats around the table, right? Whether it's U.S. sales, whether it's our marketing leadership, whether it's the Canadian leadership. We needed to make sure that in a land where the category is challenged, we talked about minus 3 to minus 4 to minus 6. We need to be getting much closer to how we execute in the front end of our business. It starts from that thesis of making sure we can bring these leaders around the table, really make sure we're executing with speed. We're pivoting where we need to, and we're being regionally focused where we need to. And it’s also about shifting our resources, both people and marketing dollars, where we see the opportunities, right?
That requires us to be a lot quicker, a lot more nimble, and it starts with leaders having the ability to drive that. The other part I obviously talked about briefly was around making sure we can enable our teams who are closest to the markets to make those decisions, right? And so how do we drive both decision-making and accountability as close to the markets as possible? So I think those are the two few principles that we've used, and that's what we're trying to drive in terms of the restructure changes both in the U.S. and Canada in making sure we can execute faster. In terms of portfolio, I'd break it up into two different ways. One is around marketing dollars, investment, and then about balance sheet deployment of capital. You're going to see us continue making sure we have the right pressure against our big brands. So whether that's Coors Light, Miller Lite, Banquet, things like Peroni, Blue Moon.
Those are important brands that we believe have so much potential, and making sure we are winning in the beer landscape. You're going to see us continue being super focused on those and making sure we have the right marketing pressure on them. In terms of beyond beer, we want to make it big enough that it starts having an impact on our total enterprise. I would say we are still early in that journey. And that's where I would say the balance sheet comes in to help us a little bit on making sure we have the right portfolio. In terms of what the right balance is between beer and beyond beer, Steve, I think more to come on that piece. But the way I would think about investment is making sure we have the right marketing pressure on our big brands while making sure we can use the balance sheet to augment our portfolio, truly add some scale to brands that we can use as a foundation in the beyond beer space.
Our next question comes from Michael Lavery with Piper Sandler.
Congratulations, Gavin and Rahul. I want to revisit a couple of points. You mentioned the need to succeed in the economy during your opening remarks. I would like to delve deeper into High Life and Keystone. Can you elaborate on why you believe you may not have been performing well in those areas? Is it an innovation problem, a pricing issue, or perhaps insufficient marketing? What can we expect moving forward? Additionally, regarding goodwill, you noted that it is influenced by this past year's results and has a somewhat retrospective view, but it also seems to consider future expectations. How do you balance those aspects, and to what extent does it rely more on past performance versus future projections?
Thank you, Michael. I want to discuss the economy portfolio and add some comments, and Tracey, feel free to chime in as well. When thinking about the economy portfolio, it's important to consider it from a consumer perspective. The consumer landscape is unique, and we need a portfolio that can cater to consumers in various locations. In the beer category, we're not seeing customers shifting away from their preferred brands; they remain loyal to products they love, such as High Life, Keystone, and Pilsner in Canada. This broad economy portfolio is significant for us in terms of scale and volume and plays a crucial role for our customers. It's essential to take the right actions to keep this portfolio as healthy as possible. The aspects you mentioned are very relevant, including the appropriate levels of marketing, innovation, and pricing within this segment. It's also worth noting the regional nature of our portfolio.
We must succeed in a very localized approach, which is somewhat different from how we handle larger national brands like Coors Light, Miller Lite, and Banquet. Focusing on economy brands serves a distinct purpose. Regarding goodwill, it reflects both this year's performance and is influenced by discount rates and multiples, but it also gives some perspective on the outlook. This year's strong performance has shaped our views moving forward. Though various factors, including discount rates and multiples, significantly impact these considerations. Tracey, do you have anything to add?
No, I think you've basically covered it, Rahul. Just maybe an added thing in terms of the current outlook is the cost, particularly driven by the Midwest premium. Where we have seen that now in October being the highest level ever with potential more increases coming. So that was also a part of the outlook for our costs. But having said that, look, we remain confident in the resilience of the beer industry. And also, as Rahul has said, our ability to return to both top and bottom line growth.
Our next question comes from Rob Ottenstein with Evercore.
Great. Congratulations to you, Rahul, and to Gavin, and best of luck. So I guess the question I'd like to try to approach, Rahul, is to get a sense of your mandate from the Board and how much freedom the board is giving you to the sense that if you wanted to make significant changes, is kind of everything on the table, no sacred cows and that kind of approach, so something that may be a departure from the past? Or is the mandate from the Board more like just kind of stay the course, tweak things around the edges, improve execution here and there, but basically, let's weather the storm and keep kind of plugging forward? So just really trying to get a sense of kind of how those discussions went and what range of freedom you feel that you have to create shareholder value here?
Thanks for the question. I would say our Board is always focused on what's best for all shareholders. There's definitely no sacred cow. They've given me the freedom to ensure we have a plan that drives the most shareholder value, and that's my focus. There are no constraints, and I think everyone on this call understands the challenges in the category. A lot has been written about our portfolio, and that's a real context we must work within. The direction from the Board is about maximizing shareholder value in the best possible way, so I don't feel constrained and definitely don’t see any sacred cows. The tricky part is that the category is going through a difficult time this year. However, we are in strong geographies with significant profit pools, even if the category health looks different. These are all realities, but they don’t diminish the opportunities we have with our portfolio. That's why I also talk about the balance sheet—while we're committed to returning cash to shareholders, we will seek the right ideas to deploy capital to achieve both top and bottom line growth. I understand your question, but there are no constraints from the Board or anyone else.
Our next question comes from Eric Serotta with Morgan Stanley.
And congratulations again to Gavin and Rahul. Rahul, I was hoping you can talk a little bit more about the overall level of investment and capabilities, your comfort with the current level. I know you talked about having the right marketing pressure behind the brands. But if you look a little bit more broadly, investment, obviously, is broader than marketing support. As you look at the organization, it's come a long way in terms of capabilities since 2019 and the revitalization plan. Are there areas either that need increased investment or where you need further build-out capabilities either from an OpEx or CapEx standpoint from here?
Thank you, Eric. I would break out the capabilities in broadly maybe three buckets. One is the supply chain, wanting to make sure that we have the right level of CapEx that drives the right ROI, but also builds capabilities in our infrastructure. For example, we have spoken about things like variety packing and having the ability to do flavors in our breweries. These things were never possible maybe five years ago. This is an investment we've made to change these capabilities in our infrastructure. Making sure we have the right level of CapEx, which is important. So I think that's one thing we're going to continue to look at. Supply chain continues to be an area of making sure we have strong capabilities. Again, outside of CapEx in supply chain, some of the new tools and technology can enable us to optimize logistics and transportation costs. The other one is commercial capabilities. If you think about our market share in the United States, our category captaincy is significantly higher than the market share we have.
That means we are taking a role in driving that capability with our retailers. That goes back to examples of capabilities. The last part is technology. Both in terms of baseline technology needs with some of the new capability around AI and how we leverage that with our infrastructure. So we're going to continue focusing on these areas. I think your question around what's the right level of investment: I think more to come as we think about our total business, but the lens we usually have on this is what drives our business, right? Is it productivity? Is it efficiency? Is it enabling the top line? We need to be very clear on the KPIs or metrics that we use to ensure that these investments are returning something to the business. While we focus on capabilities, it is from a lens of productivity, efficiency, or to enable top and bottom line.
Our next question comes from Kevin Grundy with BNP Paribas.
Great, Rahul, I have two questions that pull together some of the themes we've discussed. First, what is your assessment of the company's overall cost structure, particularly regarding supply chain and brewery optimization? The company has made some tough choices at the corporate level, but with the outlook for volume becoming more challenging, do you think the company's fixed cost structure is well-suited to the new realities? Secondly, considering an earlier question about investment levels, do you see incremental productivity as a way to support higher investment levels, or could additional investment be a short-term burden on margins?
Thank you, Kevin. Let me first address your question about the brewery. Regarding our brewery infrastructure, we are constantly looking for ways to improve the efficiency of our brewery network. You may have noticed some of the actions we’ve taken previously. A couple of points to highlight as we evaluate our brewery infrastructure include transportation costs, where we want to analyze our infrastructure considering transportation, and the seasonality of our business, particularly in summer. In broad terms, yes, we will definitely consider all aspects of our fixed cost structure. At this moment, I do not think we need to close any breweries. Instead, we should be strategic about managing production lines at specific breweries, the products we produce, and how we enhance our operational efficiency regarding brand distribution. This approach addresses your question about volume outlook and its implications.
Cost control will always be a priority for us, whether focusing on fixed costs or general and administrative expenses. That focus will remain constant. Regarding your question about investments for productivity, I don’t believe we need to make significant increases in investments to enhance productivity. Instead, we should assess our capital expenditures properly to ensure we're achieving the right return on investment. It's essential that our investments in personnel and technology yield the desired results. However, I don’t foresee a substantial uptick in investment necessary to boost productivity at this time. I also want to make sure our marketing efforts are effective and that we are achieving appropriate returns from them. Hopefully, I’ve addressed your questions about fixed costs and our investment strategy.
Our next question comes from Kaumil Gajrawala with Jefferies.
Hey, everybody. Congratulations all around. Also, I think congratulations to Eric Serotta who might have been the first analyst to pronounce your name correctly. You'll find name pronunciation to be a thing on many of these calls. You're getting the same question, I guess, repeatedly around the restructuring and investment levels. A lot of that is because in many instances when the industry is struggling and has struggled for over a decade, we see bigger restructurings, bigger savings at the time of management change. What's been announced so far seems small. So just curious, is this just the first step, and there's bigger restructuring to come? Or is it sort of everything is in place now, and it's time to go?
Thank you for the question. I'm eager to discuss our overall plan and look forward to sharing more details in the coming months. It's crucial for us to carefully consider our cost structure in light of long-term trends. We are examining all aspects of our business. Recently, we took steps to better position ourselves in the Americas for 2026. I anticipate providing additional information as we consider all components of the plan. Cost and efficiency will be key focuses, and we're working quickly to prepare for our objectives in the Americas for 2026.
Our next question comes from Lauren Lieberman with Barclays.
I wanted to revisit something you mentioned in your prepared remarks, Rahul, regarding the commercial changes. In response to Steve's question, you touched on the organizational structure and also the deployment of marketing aligned with market dynamics and portfolio priorities. I’m curious about what the previous approach was, because that sounds like it should already be in place. Could you elaborate on how this differs from the past and what specifically needs to change?
Yes. Thank you, Lauren. That's an absolutely fair question. I think the way I would think about this is how do we react faster to the external market dynamics, right? I mean if you look at our brands, while we have big national brands, they play different roles regionally. They operate in terms of the market share we have in each state or region. We need to find ways to be deploying our internal resources more strongly. The added part — and some of this we were doing, right? But again, the pieces I would say is different, or will be different, is in the context of accountability. How do we make sure our decision-making is as close to those markets as possible? How do we ensure we can shift both people and dollar resources closest to that decision-making? Those changes will feel different for our teams, how we operate, how we engage with our distributor network, Lauren. Those are the big highlights I would call out to your question.
Our next question comes from Nadine Sarwat with Bernstein.
I'd like to come back to some of the cyclical pressures that you called out in the prepared remarks. In particular, what are you seeing in terms of consumer sentiment for your consumers in Q3? And to the extent that you can comment on this in October, I appreciate the prepared remarks you made, but are there any internal surveys or analytics that you're able to share about what's driving consumer behavior today? And how does that help you be more confident in your statement that the incremental pressure we're seeing today is firmly cyclical as opposed to structural?
Yes, Nadine, again, I understand the question. But so if I address it in maybe a few added points to give you some context or at least how we're seeing it. I mean if you go again back to pre-2025, this year, some of these trends have been with us as the beer category for a long time, right? Whether it's health and wellness, whether it's generational change, whether it's people making choices around alcohol, I think that some of those have been — we and everybody in the industry have known about those. If you look at the category historically used to be in the minus 1, 2 and the last few years, it has been in the minus 3-ish range. This year, I would say there's been definitely added pressure. You see that across staples and beer haven't been immune to that. Whether that is the impact of tariffs on consumer sentiment, whether it is the focus on the Hispanic community; any of those elements. We believe that has had a different type of an impact on the beer category this year. That's where once we've got through these macro issues, we need to get back to those baseline levels of how we think about the category and then making sure we're winning in that category.
Our next question comes from Robert Moskow with TD Cowen.
I'm trying to summarize the commentary regarding regional execution compared to the national marketing of your brands. I want to confirm whether you think the marketing of Coors Light and Miller Lite, your two biggest brands, has been effective at a national level, considering there have been multiyear share losses for them. One of your competitors has made significant gains in the Light category, likely at your expense. Do you believe that the national marketing for those brands is satisfactory, and that improving regional execution is the key to stabilizing the situation?
No, thank you for that question. We definitely think there's opportunities for us as we think about how these brands show up. If you think about the work we're doing on Miller Lite with the 50-year campaign. If you look at share losses for Coors Light in Q3 versus Q2. We feel strongly that we need to be ensuring both the national campaigns for our big brands and how do we lean into it differently, and how we think about it going forward. I just want to point you to Coors Banquet, right? A brand that has really met a consumer need has resonated with consumers. We've executed well in the context of distribution gains. We're absolutely focused on making sure we have campaigns for Coors Light and Miller Lite. I think you'll see some of that play out with live sports in the coming months.
Our final question today comes from Gerald Pascarelli with Needham & Co.
Rahul, I guess just going back to some of the prior commentary on this call and to summarize, is it fair to assume or expect that bolt-on M&A or a more aggressive push into beyond beer ultimately becomes a more important part or a larger part of the capital allocation strategy looking forward? And then for Tracey, just going back to the Midwest premium, it's obviously been increasing $0.81 per pound. I know there's less than two months left in the year. But if the premium continues to spike, is there a spot price threshold for us to be mindful of that could potentially put your PBT guidance at risk for the year? Any color there would be great.
Yes, thank you, Jeff, for that. If you look at M&A and deployment of capital, we have a pretty strong beer portfolio across the world, right? I mean, we continue to fill some gaps in that, but where we need to fill gaps are probably in the beyond beer. In terms of deploying capital, you will see us probably lean in a lot more on the beyond beer space than the beer space. But if there are ideas that make sense that augment our business and drive top and bottom line growth, we're going to look at that. Broadly speaking, I think your assessment of deploying M&A dollars in beyond beer is probably the right way to think about it.
Yes. So look, we've spoken about the Midwest premium a lot. As you rightly say, it just continues to increase; it hit an all-time high in October, potentially going much higher. We do have an extensive hedging program that operates. There's a blend between structured as well as where we use opportunistic depending on the market. We're able to hedge out multiple years. The objective is to smooth out the impacts of any unfavorable swings in commodities and in ForEx. But specifically, as it relates to the Midwest premium, we do have coverage, and we do follow the guardrails in our program. As I've said before, it's a very difficult and very expensive commodity to hedge. Its pricing does not follow conventional market ebbs and flows, and liquidity is limited. It continues to be a headwind for us. We try to eliminate volatility through hedging. At the levels that it is, there's no reason for that. So we'll just continue to track it and do what we can in terms of trying to mitigate the volatility we do see in that commodity.
Thank you. That concludes our question-and-answer period. You may now disconnect.