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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good day, and welcome to the Molson Coors Brewing Company First Quarter 2019 Earnings Conference Call. Before we begin, I will paraphrase the Company's Safe Harbor language. Today's discussion includes forward-looking statements within the meaning of applicable securities laws. Important factors that could affect - cause actual results to differ materially from the expectations and projections contained therein in such statements are disclosed in the Company's filings with the SEC.
The Company does not undertake to update forward-looking statements whether as a result of new information, future events or otherwise. Regarding any non-U.S. GAAP measures that may be discussed during the call, please visit the Company's website at www.molsoncoors.com, and click on the Financial Reporting tab of the Investor Relations page for a reconciliation of these measures to actual - to the nearest U.S. GAAP results. Also, unless otherwise stated, all financial results the Company discusses today are versus the comparable prior year period in a U.S. dollars basis.
Our call will span - will open with remarks from Mark Swartzberg, VP of Investor Relations of Molson Coors. Please go ahead, sir.
Yeah. Thank you, Keith, and good morning, everyone. Thank you for joining us this morning. Following prepared remarks this morning, we will open the call over for your questions. Please limit yourself to one question. If you have more than one question, please ask your most pressing question first, and then reenter the queue to follow-up.
With that, I'd like to turn the call over to our CEO, Mark Hunter.
Okay. Thank you, Mark. Hello and welcome everybody. With me on the call this morning are Tracey Joubert, our CFO; the CEOs of our business units; Lee Reichert, our Chief Legal and Corporate Affairs Officer; and Brian Tabolt, our Global Controller. Today, Tracey and I will take you through our plans to drive long-term total shareholder returns, discussing our first quarter results and outlook and as usual related slides can be found on the Investor Relations page of our website.
Our first quarter was solid, delivering on our commitment to improving top-line performance while also protecting the bottom-line. Even with industry volume pressure North America and the shift of Easter from Q1 to Q2, revenue was up on a constant currency basis, driven by strong and disciplined net sales revenue per hectoliter growth across our business, ongoing portfolio premiumization and improving share trends in our largest market.
While only the first and smallest of our quarters, I am encouraged by the meaningful growth of net sales revenue in the U.S., led by the increasingly strong performance of Miller Lite which held total beer industry share and an improved performance of Coors Light in our largest and most profitable market, as well as strong U.S. retailer placements for our upweighted innovation program.
We also saw continuing strong net sales revenue growth in Europe, our second largest business unit. Across Molson Coors, I am pleased with the continuing acceleration of our portfolio premiumization efforts alongside our intensified innovation program, and the growth in our underlying EBITDA, which, despite higher inflation, grew on a constant currency basis.
Now as you know, our first choice strategy has three major components focused on top-line, bottom-line, and use of cash allowing us to improve our long and short-term shareholder returns. And more is focused on improving top-line growth and we're advancing on multiple fronts. We're realizing strong pricing across brands and regions giving us more fuel to invest for growth.
Our two largest brands improve their volume trends and our largest market, resulting in better STRs for U.S. business. Global priority brand were a key driver of our consolidated net revenue increase, a strong net sales per hectoliter gains more than offset volume, softness. Our above premium mix continued to improve with Peroni, Sol, Henry's Hard Sparkling and Arnold Palmer Spiked growing very rapidly in the U.S. Blue Moon growing rapidly outside of the U.S., a startup rum and continuing its strong growth across Europe.
We continued to win at retail with additional placements flowing through Q1 and more significantly in Q2. And we're advancing in upweighted innovation program from accelerating the development of Clearly Kombucha and the full national launch of Cape Line and Sol Chelada in the U.S. the Coors Slice, Aqua-Relle and Bella Amari in Canada and to Brador in the UK, plus multiple rapid incubation initiatives such as an Archer Gold, Black Column [ph], hard coffee, and Hydra [ph].
And the readiness for launch of more disruptive initiatives such as Truss, our Canada focus cannabis beverage JV. Our use last discipline as demonstrated by more than $200 million of expected cost savings in 2019 and our expectation of another $450 million of cost savings over the period 2020 to 2022. Underlying these commitments are several enterprise productivity and capability driving initiatives, namely World Class Supply Chain 2.0, global business services, which has now scaled over 500 people in Romania, IT consolidation and procurement savings from multiple sources.
All remain on track and include development of our two greenfield breweries in Canada, including our British Columbia brewery, which is on plan to begin brewing in the third quarter. And we're investing wisely. We've reduced our debt by more than $2 billion since closing the MillerCoors transaction. And our Board's intention remains to reinstitute a dividend payout ratio in the range of 20% to 25% of annual trailing underlying EBITDA for the second half of 2019 and ongoing thereafter.
And we're taking advantage of opportunities to invest more binder commercial agenda to drive a revenue performance, while also increasing our commitment to attractive returns on every marketing dollar.
So with that context over to you, Tracy.
Thank you, Mark and hello everybody. I will speak through the quarter on a consolidated and regional basis, mention cost savings and 2019 outlook and finally to our capital allocation plan.
As highlighted in our earnings release, net sales revenues increased 0.6% in constant currency, reflecting strong passing in each business unit and improving mix in Europe. Net sales per hectoliter on a brand volume basis increased 3.7% in constant currency.
Our worldwide brand volume decreased 4.7% and financial volume decreased 3.4%. Our global priority brand volume decreased 3.6%. Underlying cost per hectoliter increased 5.3% on a constant currency basis driven by commodity inflation, transportation costs, increased packaging costs associated with our U.S. bottle furnace rebuild and volume deleverage, partially offset by cost savings.
Underlying MG&A decreased 1.5% on a constant currency basis driven by lower G&A. As a result, underlying EBITDA increased 0.2% on a constant currency basis. Underlying free cash flow was a use of $270.1 million, an increase in cash use of $75 million from the prior year's third quarter, primarily due to unfavorable timing of working capital, partially offset by lower cash paid for interest and capital expenditures.
Moving to our business units, in the U.S. net sales revenue increase 0.7% driven by price increases partially offset by 2.7% decline in sales to wholesalers excluding contract volume. Our cost per hectoliter increased 5.9% driven by higher commodity and transportation costs, increased packaging costs associated with our U.S. bottle furnace rebuild and volume deleverage, partially offset by cost savings.
MG&A decreased 4.5% reflecting lower employee related costs and quarterly timing of innovations being partially offset by higher marketing investment behind our premiumized brands. As a result, underlying EBITDA increased 3.4%.
Brand volume sales improved versus last quarter and last year declining 3.8% on a trading day adjusted basis, which is an improvement versus both the fourth quarter and last year. We've a large share of industry and increased share of premiumized for the 18th consecutive quarter according to Nielsen.
Coors Light volume trends improved while holding share of segment. As the Company's top priority, Coors Light continue to progress following its rollout of new creatives late in Q4 with new on-premise contingent partnerships. We posted significant growth in a number of brands within the advanced premium segments, including Henry's Hard Sparkling, Peroni, Sol and on premise brands and we are confident we can scale the segment more rapidly going forward.
In Europe, net sales revenue increased 4.4% on a constant currency basis, driven by price increases and favorable mix, partially offset by 2.3% brand volume decline. COGS per hectoliter increased 3.7% in constant currency driven by commodity inflation.
MG&A increased 9.5% in constant currency, replacing a higher investment on our national champion brands and premiumization initiative. As a result, underlying EBITDA increased 2% in constant currency.
Continued momentum in 2019 was evidenced by top line growth driven by an 8.2% increase in each sale per hectoliter on a constant currency basis, more than offsetting the volume which was impacted by plane decline in our low margin value brands as we increase our focus on our national champion brands, and the vast premium portfolio.
In Canada net sales revenue decreased 3.4% in constant currencies, driven by a 6% decline in brand volume due to soft Canadian industry volume, which we estimate at the time approximately 5%, partially offset by price increases. COGS per hectoliter increased 6.3% in constant currency driven by volume deleverage, increased distribution costs and costs inflation, partially offset by cost savings.
MG&A decreased 1.1% in constant currency driven by timing of employee related expenses, partially offset by higher investment to support the rebranding of our Molson brand and cash related cost. As a result underlying EBITDA decreased 22.4% in constant currency. Volume was impacted by industry weakness, in terms of brands strong growth from Bergenbier and Miller High Life partially offset softness in our core brands.
The quality [ph] of the Molson trademark also improved during the quarter following initiation of the brand re-launch. Also note we estimate cash related start-up cost of CAD10 million to CAD50 million in 2019.
In international, net sales revenue decreased 14.4% on a constant currency basis, driven by 6.7% decline in brand's volume and favorable geographic mix and the shift of local production in Mexico, partially offset by price increases. Cost per hectoliter increased 2% in constant currency driven by geographic mix and inflation. MG&A increased 11.9% in constant currency driven by parsing the $2 million of settlement proceeds related to our Columbia business in the first quarter of last year partially offset by lower marketing investment. As a result underlying EBITDA decreased to $2.7 million.
Brand volume declined as a result of balancing higher passing with lower volume in Mexico. [indiscernible] Q2 and starting of a strong post [indiscernible] results in Puerto Rico and this was partially offset by growth in several of our exclusive markets such as Chile, Paraguay and Honduras.
Current life [ph] volume was down principally because of the ongoing expense on brand equity growth versus promotional volume growth in Mexico partially offset by strong double-digit increase for Miller Life.
Now moving to outlook, our earnings release details our guidance. The EBITDA margin expansion guidance we communicated in June is unchanged. We expect 2019 consolidated underlying cost per hectoliter to increase at a mid-single-digit rate on a constant currency basis.
In terms of cost savings, we continue to expect total of $700 million of savings for the three years ending 2019 and planned and added $450 million for the period 2020 through 2022. We expect procurement and supply chain including brewer optimization to constitute the majority of these new savings with RC and global business divisions also contributing to the $450 million.
We expect these savings to be spread evenly over the period 2020 through 2022. We outlined our internal engagement plans the cost of achieving the savings and offset input inflation. We expect our international business to deliver underlying EBITDA growth of strong double-digit in constant currency for the full year 2019 compared to 2018. We estimate underlying free cash flow of $1.4 billion plus or minus at the end of this year.
Now as we contemplate full year 2019, keep in mind that we recently rescheduled our organized brewing system implementation from Q1 proceed selling season which will impact ECW savings. We expect increased packaging cost associated with our U.S. bottle furnace rebuild and moderate supply and we intend to incrementally support our brand building initiative for the rest of the year.
At this point I'll turn it back over to Mark.
Thanks Tracy. Our revenue focus are more as one of the three platforms by which we drive total shareholder returns and this depends upon extraordinary brands, customer excellence and disruptive growth. Looking at our brands, our commitment to energizing our core brands is paying off. As I mentioned in our largest market Coors Light trends improved with a brand's regaining positive segment share momentum and Miller Lite continues taking segment share while also holding share of the total U.S. beer market but also further intensifying our focus on premiumization.
Highlights of the quarter include strong double-digit or even stronger brand volume growth for Arnold Palmer Spiked for Old Henry's Heart Sparkling and Prone in the U.S. and upper single digit growth for Coors Light in the UK all these drive the National rollout products from star requirement and our global brands remain our priority. Miller Genuine Draft, Miller Lite, Coors Light, Coors Banquet, Blue Moon and Staropramen each of the household name in its market and each can become bigger, thanks to multinational reach.
Miller Lite, Staropramen and Blue Moon are great examples. Brand volume of Miller Lite grew strong double-digits in our international business in the quarter. Our premium brand volume grew 15.8% including growth in the Czech Republic. And Blue Moon in Belgium in brand volume grew strong double digits in each of international, Europe and Canada in the quarter.
Continuous development of our customer excellence capability also remains a focus and is evident across our business. We continued to be a leader in category management in the US as evidenced by a first place result overall in most recent annual Advantage Survey and the first place on premise result in the most recent Annual CM Profit Group survey. Retailers trust us, the group size and value of our beer category and we consistently outperform our competition in this area.
In Europe, customers relate us with our leader net promoter score of 60+, in the majority of the countries in which operate. And our UK business was again ranked number 1 by on premise chain accounts. In Canada we continued to help customers drive category growth. For example, a major retailer has seen improving beer category growth in scores for the reset beer shelves, enjoying brewer retailer teams are applying our success to other major chains.
We are also improving our intensity buying innovation and disruptive growth. Our step up innovation approach is demonstrated by the introduction of [indiscernible] and Archer Gold and Sol Chelada in the US, contributing to more than 180,000 expected placements for our new and year-two products in 2019.
In Canada, Coors Slice, Aqua-Relle [indiscernible] and Bella Amari are ruling out and Truss remains on track to be of course mover in Canada in these beverages are planned to be legalized in October this year.
In international, our portfolio is benefitting not only from Miller Lite's brand, but also from continued expansion of Blue Moon, which is now available in 20 international markets. And finally we are delivering new services and revenue streams through upgrading our digital and ecommerce capabilities in Europe and beyond.
Concluding impact in driving shareholder value, we plan to increase cash returns through an increased evident later this year. We remain committed to our investment grade status and a balanced approach to capital allocation and look forward to intensifying our topline revenue opportunities in front of us. We are first choice for consumer and customer agenda.
Thanks for your time and attention. And with that I will turn it back to Mark.
Yeah. Thank you, Mark. We look forward to meeting with many of you over the course of year. In terms of upcoming events, I want to highlight several; Barclays will be hosting a meeting in Milwaukee with Tracy and Gavin and other members of our leadership team next week.
Later in the month, on May 22, we will hold our Annual Meeting of Stockholders in Montreal followed by Investor Meeting hosted by BMO with Mark and Tracy and our Canada leadership team. And in June, Evercore ISI will be hosting investor meetings in New York with Mark, Tracy and our Global Treasurer Mike Rumley followed by investor meetings in [indiscernible] at Deutsche Conference with Tracy.
So with that, Keith, I think we will go to Q&A.
Yes. Thank you. We will now begin the question and answer session. [Operator Instructions] And this morning's first question comes from Lauren Lieberman with Barclays.
Great. Thanks. Good morning.
Hi, Lauren.
Hey. So first, I was just curious about just for the shape of the P&L this quarter, MG&A still down year over year, but I think not as much as people will probably broadly expecting and then you called out a higher marketing expense and premium lights in the quarter. So I was just wondering if it's very keen to your reinvestment philosophy. And whether you think the brand need more support on an absolute dollar basis, rather than just per hectoliter approach you have been taking and all since you step up that might be required as you push harder on the high ends? Thanks.
Thanks Lauren. Let me try and take that an enterprise level. So I mean if you look across our MG&A expense, clearly, you saw a step up in Europe and as we intimated even in the prepared remarks, the increase our spend volume Coors Light and Miller Lite and don't forget, we have got a significant decrease in terms of the G&A component of our MG&A following the restructuring work we did through that Q3 and Q4 of last year, particularly in the US.
So we remain very committed to driving the breadth and depth and strength of our portfolio and really ensuring that we have equal focus on progress on the revenue line while we continue to manage our deleverage program. And clearly as we go into 2020 we start of more flexibility as we continue with the paydown of our debt.
So it's very important for us as we come through this year, we see progress on our revenue and encouraged by the fact that our two biggest business units in the first quarter with the US up almost 1% in revenue and Europe up over 4%. I think that's symptomatic of what we're trying to drive across our business.
In terms of the requirement of any step up again, we continue to focus on a couple of things. One is improving the productivity of the dollars that we have within our business and Miller Lite is a great example and where we haven't made dramatic shifts to Miller Lite but because of the quality and consistency of the marketing activity, we've seen just consistent improvements in the trajectory of that brand where it's actually now holding share of the total US beer market.
Clearly as we get more confident and a number of initiatives we will look to fuel growth as synergies and we will keep you tuned to that. But we're not going to make any statement about step up in marketing and speculate on what that might look like, we will do this in a very thoughtful and considered way.
But we are equally focused on the revenue improvement performance in our business as we are continuing deleverage of our business and that's the balance of the executive team are really trying to drive again.
Thank you. And our next question comes from Bryan Spillane with Bank of America.
So I guess just maybe a very more high-level question. The stocks reaction today I think is just kind of reflective of what the results were versus where consensus was. And so I guess what I - and I guess it may also serve explains or suggests that there is a risk to the year. So I guess how did this quarter unfold relative to what your own internal expectations are and is there - what's the risk or the probability of achieving your full year results now versus maybe what they were when you originally gave your guidance in February?
Thanks, Bryan. So let me offer a couple of quick comments around that. So I mean we're not going to get in a habit of continually commenting on consensus, but let me make a comment this quarter that look at the consensus in the marketplace. So on a full year basis the consensus looks to be with an acceptable limits, it's kind of in the ballpark, but my perspective is that H1 and Q2 are too optimistic and the second half is too pessimistic.
And some of that to do with phasing and timing in our business the shift of the Albany go live from the first half to the second and continuing focus on building momentum behind our brand portfolio and our revenue growth.
On a full year basis the consensus looks as I say pretty much to be in the ballpark.
Relative to the first quarter, the first quarter came in pretty much in line with our expectations and the guidance that we've given for the year remains unchanged. Now if you look at our track record, Bryan, over the last three or four years. We deliver on the commitments into the marketplace, we've done in cost savings, we've done it in the free cash flow, we've done that on a margin expansion. So we remain committed to the guidance that we should quarter ago and we're off to a solid start this year.
But I do think some of you need to just reflect on the phasing as you look at the buildup of our P&L.
Thank you. And the next question comes from Judy Hong with Goldman Sachs.
So I guess I wanted to just get a little bit more colors as on your top line performance in the quarter. In the quarter that more broadly kind of thinking about the balance of the year, on the positive side your price mix realization was strongest. And I think in quarter while so maybe tax, sort of much more price with the mix and how we see that playing out?
And then on the volume side, I mean the FPR I guess got a little bit better sequentially, but down 3.8% seems like its full on the performing the inventories. So how do you think that that - how does that come in relative to your expectation? And I guess when you think about the concusses underway you called out to Bryan's question is that maybe as sort of the expectation that volume does get out of the balance of the year, so perhaps you give us some more color just in terms of your confidence level on that front. Thank you.
So Judy, I think three is three or four parts to your questionnaire. So, Gave, if you get ready and I will pass across you in a second. I think, Judy, on your price mix question, as you look across our business, one of the things I've talked to you very consistently over the last 24 to 36 months is we focus on our business on building our pricing and revenue management capability and making sure that we're managing in a very thoughtful way as the balance between price mix and volume.
And we know that in our big developed markets, industry volume is under pressure. It's not new news. And we're really building the muscle around the price and mix element of that. And I think you've seen that demonstrated both in the U.S. and very consistently in our European business with a very strong performance from the European team through the first quarter.
So just take that as a context with of one of the capabilities and focus areas that you'll continue to see us come back to. And we're really driving our teams very hard in terms of our total revenue performance. That's something we've now introduced into our long-term incentive plan as well. So even more focused in our business on a nail tip basis around our revenue performance.
So that's just a little bit of context. Gav, do you want to talk about, really the first quarter and your thoughts on the full year from a U.S. point of view.
Sure, Mark. Good morning, Judy. So yeah, first quarter pricing was strong. We were pleased with that. Mix, to answer your question specifically was negative 30 basis points that's the best performance that we've had since 2017. And even more pleasing was the pack the brand mix side of it was actually flat which is an illustration of our above premium extorting to come through most of the negativity on mix was related to package.
You know that the full benefits of our mix shift really owning and start taking it in Q2 as lot of our innovation comes through and increased same behind brands like Blue Moon where we're nearly doubling our media spend.
As far as the outlook's concerned, look, it's too early to tell the impact of the springs yet, but I can certainly tell you there haven't been as widespread or as impactful as have been speculated in some of the industry newsletters.
From a volume perspective, Judy, it was a slight improvement over 2018, but it was a substantial improvement over our fourth quarter trend. And Easter timing, obviously didn't help, but move from Q1 into Q3. I mean, it wasn't a meaningful driver, but it wasn't helpful. And a lot of our activities I said, is directed to start in the second quarter our new innovation Cape Line, for example, a strong push behind Peroni, which is - its performances has doubled since - its growth rate has doubled since last year into the strong double digits.
So, yeah, I think that covers it, Mark.
Thanks, Gavin.
Thank you. And the next question comes from Robert Ottenstein, Evercore ISI.
Hi, it's Eric Serotta for Robert. In terms of - wondering whether Mark or Gavin give some commentary on the U.S. pricing environment. If you're saying that mix was negative 30 bps for the quarter it implies roughly 4% pricing before some of the spring industry pricing goes in place. Any additional color you could go on as to what's going on there, because that seems like a tremendous acceleration? And related to that, are you seeing any pre buying from distributors ahead of the spring pricing initiative?
Eric, I think Gavin touched on that in his answer to Judy, but, Gavin, any further thoughts or any more color that you would offer or any restatement of what you just said.
I mean, not much more to add Mark. I mean, we did have strong pricing performance in Q1 and that followed the healthy increases, which we talked about in the fall of last years. So I mean, we already started to see acceleration of pricing in the fourth quarter. As far as the spring price increases are concerned, I wouldn't say there's been much pre-buying or in certainly nothing material to call out, Eric.
Yeah. Eric, I mean, the headline that we all read of by in terms of this potential spring, price increase seems to be much more patchy and sporadic than maybe industry commentators had speculated on. So I mean, we are running our own playbook in terms of how we're managing our portfolio and how we're focused on our revenue line. And Q4 demonstrated some good improvement and Q1 has continued that.
Thank you. And the next question comes from Amit Sharma with BMO Capital Markets.
Hi, good morning, everyone.
Good morning,
Mark, just a clarification. So should we expect this level of price and perhaps better mix to continue for the rest of the year? I mean, if you think [indiscernible] in the U.S.? And that's one. And the second one is a broader question like, it's very clear that you're talking about revenue management, and you want us to focus on the dollars versus the volume. And I think most investable thing that's desirable and so the companies that have obviously done that successfully.
My question is, like, how do we deal with the volume deleverage in the meantime, right? Is there any way for you to dilute the impact of deleverage or overcome it so that margins don't continue to come down as you lose volume, especially on the economy end?
Okay. A couple of questions there. So on price mix, I mean, we just want to give guidance in that area. I think the best thing to do is look at our historical track record, particularly over the course over the last four to six quarters, you've seen very consistent progress, particularly in our European business.
And as Gavin and I intimated, Q4 saw an improving trend, Q1 has continued that. And as I mentioned in my earlier comments, we're really focused on managing the balance across price mix and volume. All three of those are important. So at the end of the day in aggregate, we are focused on driving the revenue performance of our business.
So we're not either overemphasizing any of those three components or giving up in any one of those three components. Clearly, if there is a volume deleverage challenge in our business, then we'll continue to manage your cost base appropriately and effectively. And I think we've demonstrated that on a multiyear basis our ability to do that.
And clearly we're, looking to invest more heavily buying our brand portfolio as well. So I really ensure that, volume remains an important part of that revenue equation. So I think you're - as I mentioned earlier, the focus for the management team is to ensure that we've got improving revenue performance while we continue to manage our P&L and to drive, the deleverage commitments and retain our investment grade status.
And that becomes - as we get into 2020, that balance shifts, probably a bit more finally towards revenue, because we'll have delivered on, very fundamental deleverage commitments through 2017 to 2019. And you're starting to see the repurposed focus on revenue as we come into 2019. And that will be a continuing theme from us as a management team.
And, Mark, if you don't mind if I just add, I mean, some of the things that we spoke to before in terms of margin and cost, the reminder that cost savings Gav answered as well as some of the initiatives like I will start Supply Chain 2.0 which is focused on capability building as well as efficiency in our breweries. And then some of that other ongoing cost savings in our key and our global business services in Bucharest. So cost savings and cost continue to get the strong focus that's most improved has always had. And these are the some of the initiatives that will continue to drive costs down and margin up.
Thank you. And the next question comes from Andrea Teixeira with JPMorgan.
Hi. Yes, so thank you. Good morning. So can you update us on the brewers systems rollout? And I understand Tracy had a call out the delay Indigo life for Alberni into after the big season. So I was wondering if that there is any impact on that from the other brewers that went live recently. And if you can update us on the most recent category trends in the second quarter outlets? I think you call out that, the second quarter obviously has some downside risk to consensus on. But I'm wondering if it's more an investment, or if it's also top line. Thank you.
Okay. So Gavin, do you want to talk more broadly about the BPNS rollout, including, just the progress that unit team have made over the last 12 months and oversee the balance of this year?
Sure, Mark. Good morning, Andrea. Look, I mean, as you know, we are converting all our legacy breweries to the integrated systems platform and it is going to get our entire network onto a single tool for ordering for claims done in return and so on. And, frankly, whenever you have a systems implementation of this magnitude challenges are expected. The rollout has continued since Golden, we've done Trenton, we've done Fort Worth and we've most recently done Milwaukee.
The last three rollouts have all been meaningfully better than our Golden rollout. It's not to say we haven't had some challenges, because you do with a system rollout of this extent and all the change management that comes with it. But the Milwaukee issues that we've had are very limited to the Milwaukee brewery orbit, and unlike last year with Golden where they were fairly national. And on top of that our stock trends are in a much better place than they were a year ago. We are right back where we historically operate from an out of stock point.
To address your question on Albany specifically, we recently rescheduled the Albany brewery go after the peak selling summer season, because we just wanted to make sure that our products completely available for the summer. Given our learnings from Golden, we decided to exercise an abundance of portion with Albany and that we disrupt the network given the transition. So we're on track Albany will go live in the after summer and Albany all of that will follow soon after that, and we should be done this year.
Okay. Thanks Gavin. I think it's fair to say with that shift as well. Clearly what that does is it moves some of the STW phasing in our business from H1 into H2. So that's just something to bear in mind, as you think through the balance of the year.
In terms of the second part of your question, certainly as we come through the second quarter, I think one of the things as I look at some of the consensus numbers, I think COGS is understated relative to our guidance. So I would - I should take a look at that, as you look at the Q3 number in particular.
And clearly, we're ramping up our innovation pipeline as we've come out of Q1 into Q2. So I expect us to be investing as we go into the peak selling season, because we want to continue to drive the momentum from a top-line perspective. None of that undermines in any way, our feel your guidance that we gave you a quarter ago and restated again today.
Thank you. And the next question comes from Laurent Grandet with Guggenheim.
Yes. Good morning, Mark and Tracey.
Good morning.
I would like to focus on Canada. Last quarter, you mentioned we're seeing improving commercial trends in Canada, seems like it didn't materialize this quarter. So could you please give us some more color here and how we should think about Canada going forward?
And also as a potential positive catalyst here, could you please update us on your Truss cannabis JV? Would you be ready to launch or test you price, I mean Q4 this year when it becomes legal in Canada for beverages. And what are your expectations as your scale in Canada could be an advantage versus some of your competitors?
Okay. So, Fred, you want to pick up the - why don't you take both parts of that question just in terms of our underlying performance in Canada relative industry and then just a preparedness for our Truss launch.
Sure. So starting with the volume part of your question. We obviously have soft volumes in our first quarter this year. And despite the fact that the small quarter, I mean, it's a big percentage. Now, the main driver and 80% of that volume softness is explained by industry. And just to be clear, we don't expect the industry to be down 5% for the remainder of the year, like it was in Q1.
Obviously, Easter timing is a big driver of that. But as industry performance comes back to a normal trend, I think what we should focus on is our shared trends and actually that's where we've got stability for the last three, four quarters. We've got a stable share trend, it's not good enough, but we're actively working on further improving it.
So the stability of the trend is driven by our performance in the economy segment where we're continuing to grow share. We've got some significant initiatives in place to continue to improve the trends on our premium brands. And especially in the above premium craft space in the beyond beer space. We've got some big initiatives that have been launched in the past few weeks. And that should help us significantly changing the trends in the quarters going forward.
So those initiatives includes RTDs, but also include Coors Slice in the premium segments. And that's one of those initiatives that should contribute to a meaningful change of trend there. So from a commercial performance, I think the underlying behind the softness of Q1, I think there's still a high level of confidence that we're continuing a good trajectory from a share performance perspective.
The second part of the question on Truss. Absolutely, still on track to be ready on day one of legalization. So as you know, legalization of cannabis infused beverages is expected to happen on the 17th of October 2019. I can confirm what I said last quarter, which is we're going to be ready to be one of the first movers. We're making great progress in terms of product developments. We're making great progress in terms of implementation of the supply chain components. So, yeah, confirming what I said before we're going to be ready.
And Fred, just add to that, as we indicated in the script, obviously we are - we have set up our business. We've got a great team of people in place working with the team at HEXO. So clearly there's additional readiness and startup costs through this year. Assuming the timing goes ahead, as indicated by the authorities in Canada, then we'll start to get a little bit of revenue coming through right at the end of this year. And then it becomes part of our overall revenue performance really from 2020 going forward. So again, just bear that in mind as you think about phasing of cost than our business in particular Canadian business through this year.
Thank you. And our next question comes from Steve Powers with Deutsche Back.
Hey, guys, thanks.
Hi.
So as you said, you stand committed to the deleveraging in dividend step up commitments that you set last year which is very validating. But given where you finished the first quarter in terms of net debt and trailing EBITDA and then now, Mark, earlier your second quarter comments. It seems like you've got a good ways to go in order to hit that 3.75 net debt to EBITDA level, if my math is right.
And I know that historically, second quarter has been a really strong cast generation quarter and perhaps more so this year if the working capital headwinds that we saw in the first quarter reverse out. But is that the right way to think about achievement of the deleveraging target by mid-year, or other reasons to believe in stronger EBITDA growth?
Your second quarter comments would seem to rule that out. But I just want to confirm if I'm hearing you, right, relative to the phasing of EBITDA versus cash generation and net debt reduction.
Okay, thanks, Steve. Yeah, I mean, the way the Board are looking at this is, where are we going to be at the year-end and are we on our deleverage flight path. The mid-years staging post, but they're looking for us to give confidence around our full year performance. And, we're - we remain very committed both internally and externally to the gains we've given. There is, I think, a little bit more volatility than we have originally anticipated in terms of H1 versus H2, some of that had to do with the shift in Albany.
But Tracy, Do you want to just give a little bit more color around that and some of the phasing differentials, none of which affect our full year commitments?
So thanks Mark and happy, yeah. Our full year end guidance that we've given, remain. And in terms of the shift from H1 to H2, as we mentioned, the Albany shift, obviously, that would have an HTW impact and going from half 1 to half 2 which also impacts our free cash flow. And also, in the stated topic I said increased investment behind innovation and premiumization as we go into two periods that Mark spoke about it.
Looking at free cash flow, the bigger driver in Q1 and is that timing of working capital. Obviously, working capital is a leader that we look at. And we would pull for the back half of the year to replace that timing. And then the other things I would add is our cost savings initiatives and which really impacts both P&L and free cash flow. So, we've spoken about the $205 million of cost saving to achieve this year.
So that will obviously hit the P&L and free cash flow for the balance of the year. And, the final thing I would say is, if you just refer back to our history of hitting out the cash flow targets, the past two years, we've delivered about $3 billion of free cash flow, and we have a record of delivering or over delivering on all of our commitments across both our P&L and our free cash flow.
Thanks, Tracy.
Thank you. And our next question comes from Kevin Grundy with Jeffries.
Hey, good morning everyone.
Yeah.
A clean up question from me on Canada, just given the weakness in the quarter with SDRs down 6% I think the comment was 80% was owed to the industry and some of the weakness there and I think Easter timing was called out, but one thing that was not mentioned was cannabis. And I know it's still very early days, but how much work have you done on that what do you think the impact has been so far from it? It's obviously very topical with implications going forward. So any thoughts you have there would be helpful. Thanks.
Okay. Thanks a lot. Fred back to you, you want to build on your earlier comments?
Yeah. Absolutely so given on that question we're obviously monitoring the situation and the potential correlation of beer sales and cannabis sales since the legalization back in October 2018 and I think at this point in time it's really fair to say we see absolutely no correlation between the sales of cannabis and the sales of beer across the industry or from also in Canada specifically. So we're going to continue to monitor that, but there's no evidence, no data that show us based on the last five months of cannabis sales that show us an impact there.
And Kevin, the only thing I would add to that is I mean we're seeing a similar picture in the U.S. where we monitor the states I mean there is - if you look at beer industry volume trends in states where cannabis has been legalized, some states are slightly better some states are slightly worse, there's not been any kind of major discontinuity in underlying beer volume trend. So we're watching in both markets. Can't point to any real connection between cannabis legalization and performance of the beer industry at this stage.
Thank you. And the next question comes from Tristan van Strien with Redburn Partners.
Hi good morning guys. Just I've got a question on Europe, but before I just want to clarify I understand correctly from Gavin. So basically in Q1 you got 4% frontline pricing. I just want to confirm that because that seems to be the best performance since Q3 2009. And in fact I don't see it in any of the IRI or AC Neilson data, so I just want to confirm that number.
And then my question really was to Simon Cox, he seems a bit lonely here. Just also just that performance seems remarkable on price mix if you can just break that down how is that working also in terms of country mix and how the UK is doing? And what have been the drivers behind that very strong performance? Thank you.
Yeah. Thanks Tristan. Gavin do you want to pick up firstly on the U.S. pricing question?
Yes, Tristan, I can confirm that our front line pricing for Q1 was 4% and the negative mix was 30 basis points and native 3 point sale. And I'll just remind you that a lot of things go into the pricing, right, things like the FET tax law, retail operations, festivals top sells all of those things are factoring, but you're correct 4% is our base performance in quite some time.
And I think, Gavin, just building on that if you track that through some of the IRR - IRI or Neilson data, clearly our retailers themselves chose to invest in price activities. So what we're realizing in price doesn't necessarily then get reflected in terms of what showing up to the retail data. So just bear that in mind Tristan and as you're trying to connect the two. And then Simon do you want to give a broader picture on how we've been managing the revenue performance in Europe?
Yeah. Thanks Mark. Thanks, Tristan. So yeah we've consistently tried to ensure that we've got good underlying momentum on our top line growth and we've managed to do that quite consistently now for a good few quarters.
We try and focus on volume price and mix as Mark mentioned earlier these are equally important drivers. And we don't expect that to be the same every quarter, but we do expect across those really for that to grow our top line. And as it manifested in quarter one, we grew our top line by 4.4% and on this quarter that was mostly driven by - was driven by pricing and mix; pricing was up about 4.8% and mix up about 3.4%.
And that's the manifestation of very deliberate focus on insuring national champion brands will invest in across all their markets and that we continue to premiumize the portfolio. And so again we've put our marketing efforts into our mainstream national champion brands and into a premium portfolio. And we believe that continues to work well for us and we think that works and results.
We don't tend to break out country mix. But UK is still our number one revenue and profit business so there's no way that we will be able to post that type of strong top line growth unless the UK were participating in it as well. And again, it's the same structure in the UK. We want to make sure that calling [ph] is well invested.
We have a new campaign for the made local campaign which we're putting significant money behind and is off to a good start. And the UK is fully participating in the premiumization push so again Staropramen doing well, Blue Moon doing well, our craft beer a portfolio seems to be in good shape and our cider portfolio continues to premiumize.
So same strategy in the UK as the rest of the business units. We won't break it out specifically, but a very pleasing quarter when it comes to our overall revenue growth.
Thanks, Simon. Good summary.
Thank you. And the next question comes from Brett Cooper with Consumer Edge Research.
Good morning everyone. Just a quick question. I mean, as you think about Molson Coors in three to five years, and you highlighted the soft beer industry, a number of your larger markets, can you your management team, the Board get to where you want to be, by being a brewer only?
As opposed to what Brett? I mean, if you look at what we're doing in our business, let me characterize how we're trying to build out our portfolio, I mean our center of gravity is clearly today and will continue to be as a brewer focused on our beer brands and the premiumization and modernization of our beer portfolio. We're then continuing to accelerate the development into what we described as adjacencies whether that's cider or RTD.
Beyond that, we're moving into brewed beverages more broadly and you've seen a number of our initiatives whether that's non-alc businesses, like Clearly Kombucha testing like along hard coffee, but that's an area and a territory, which we believe we can develop further from a revenue perspective. And that also includes our non-alc beers as well. If you look at our law and non-alc business overall, we have well over, I think 1.2 million hectoliters litters of low and non-alc beer and that revenue continued to grow positively through 2018 and has grown positively again in the first quarter of this year.
And then if you go even further, clearly, we're into some new frontier areas in our Truss and our cannabis JV in that area. So we're already developing our portfolio to have more stretch and breadth. And what we talk about in our business is energizing our core brands, our national champions, premiumizing the portfolio, modernizing our offering and then really disrupting.
And those are the four drivers and then alongside that will continue to look for infill M&A opportunities. And I think we've used those kind of opportunities very effectively, the most recent one being, the Aspall Cyder acquisition in the UK. And we remain open to and alert to further opportunities to really broaden our portfolio and generate new sources of revenue. So you will see us do more of that over the course of the next three to five years.
I've avoided trying to get ahead of ourselves on this because I think it's really important that we deliver proof points to you as opposed to just speculate what we're trying to do. And I think those proof points are now starting to emerge in our business and you'll see more focus on that in the coming quarters.
Thank you. And the next question is a follow-up from Lauren Lieberman with Barclays.
Thank you. I didn't expect to sneak back in. So I just wanted to ask one more question. You have mentioned about flexibility building as you go into 2020. And I - by our math also that does include free cash. So as you think about cash returns and I was just curious to what degree you've even gotten this far with the Board and talking about shareholder returns beyond the dividend increases? Share repurchases seem like something that would be on the table as we move towards that timeframe, or is that that discussion still a bit further out? Thanks.
It's probably more of the latter Lauren. I mean, we've been very consistent about our capital allocation framework, which is really focused on continuing to deliver our business, returning cash to shareholders and that can be dividends and/or share buybacks. And importantly, continuing to strengthen our business and use of cash to pursue other brand-led growth opportunities. So that's the framework that we have used, are using and will continue to use.
Clearly the current commitment and users around our expectation on the dividend going through the second half and beyond. And I think it's premature at the stage to speculate beyond that, but we will be applying that same framework in our ongoing discussions with the finance committee and our board.
Thank you. And next is a follow-up from Amit Sharma with BMO Capital Markets.
Hi, thank you so much for the follow up. Gavin, just wanted to ask you about Blue Moon in the US. You talked about double premium brands but didn't hear much about Blue Moon. Obviously, you were looking to invest a little bit more. Can you talk about where we are in that cycle?
Gav, do you want to take that up?
Sure, yeah. Sorry about that, Amit. Blue Moon is already the number one cross-brewery in United States. That is what people are looking for, which is a great brand. It's great session of a beer. And we're going to be increasing our activation support across the business in what we started towards the back end of Q1, but the real push comes in Q2 and Q3. We've got a goal of becoming the number one tap handle in America. We recently secured a really good win with Red Lobster, which I think is one of the last major on premise athletes not to carry Blue Moon.
This weekend we've got the Kentucky Derby where we the official sponsor, and we're activating that across the country as well, Amit. And we're also going to do activation around the 50th anniversary of the of the Moon Landing, you know, 12 pack bottles and 15 pack cans are a big opportunity for this brand. And we're going to nearly double the media spin behind it. So, you know, a lot of activity behind Blue Moon this year and looking forward to seeing the results.
Thank you. And that's all the time we have right now for questions. So I would like to return the call to Mark Hunter for any closing comments.
Okay, thank you. And thanks everybody for their time and attention. Just a couple of headlines to finish with. Obviously I've offered some perspective around consensus. So hopefully, that's been useful and helpful as you think about Q2 and the full year. And on the back of the first quarter, I'm encouraged by a number of things across the Molson Coors business. And our two biggest business units, we saw both revenue growth and EBITDA growth.
We've seen the strengthening of Miller Lite and improvement in Coors Light. I'm encouraged by the ongoing premiumization progress we're making and there will be more to come on that front. And the innovation initiatives have been very positively received. And you can see us ramping up, know the intensity of our incubate and test initiatives. As we mentioned, we are ready for the launch of cannabis infused non-alc beverages in Canada and our Truss JV is firing on all cylinders, ready for that go live date.
And importantly, we remain fully committed to our full year guidance metrics, albeit as we've mentioned, there's a little bit more phasing volatility than originally planned and I think we've explained why. So that's why I've described the first quarter as a solid start to the year. And we look forward to catching up with many of you at the forthcoming events that Mark outlined.
But in the meantime, really appreciate your time and attention and the quality of the questions and look forward to catching up on a face to face basis. So thank you, everybody.
Thank you. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines.