Good day, and welcome to the Molson Coors Beverage Company’s Second Quarter 2020 Earnings Conference Call. All participants will be in a listen-only mode. Participants can find related slides on the Investor Relations page of the Molson Coors’ website. Our speakers today are Gavin Hattersley, President and Chief Executive Officer; and Tracey Joubert, Chief Financial Officer. Please also note today’s event is being recorded. With that, I will turn today’s call over to Greg Tierney, Vice President of FP&A and Investor Relations. Please go ahead.

Thank you, Jamie, and hello, everybody. Following prepared remarks from Gavin and Tracey, we’ll take your questions. Please limit yourself to one question and if you have more than one question, please ask your most pressing question first and then reenter the queue to follow-up. To the extent you have technical questions on the quarter, we’ll ask that you pick those up with me in the days and weeks that follow. And today’s discussion includes forward-looking statements within the meanings of applicable securities laws. Important factors that could cause actual results to differ materially from the expectations and projections contained in such statements are disclosed in the company’s filings with the SEC. The company does not undertake to update forward-looking statements, whether as a result of new information, future events, or otherwise. GAAP reconciliations for any non-US GAAP measures are included in our news release or otherwise available on the company’s website at www.molsoncoors.com. And also, unless otherwise indicated, all financial results the company discusses are versus the comparable prior-year period and in US dollars. With that, over to you, Gavin.

Thanks, Greg. Good morning and thank you everybody for joining us today. We had a strong second quarter, as is evidenced by the results we released this morning, executing well against our two main objectives as the world continues to adjust to the ongoing coronavirus pandemic. But before we talk about our second quarter performance, I would like to address the challenge of systemic racism. Racism is not a new issue. And I'm not naive enough to believe that our business alone can solve a problem that has plagued the United States and many parts of the world for so long. But I do believe we have the opportunity and the responsibility to try and be part of the solution. And that is why we have been unequivocal that we believe Black Lives Matter, and that's why we are backing up our words with action. We developed a new action plan designed to build a more inclusive culture and increase diversity within Molson Coors. Our intent is to conduct a culture assessment of our practices and policies to guide further future improvement across all of our business units, increase the representation of people of color in our US operation by 25% by the end of 2023 across the country, among salaried employees and also in leadership positions, improve our hiring practices and leadership development programs to bring in highly skilled diverse talent and develop our future leaders, and much more. We’ve already committed to donate $1.5 million to 23 local and national organizations dedicated to equality, empowerment, justice, and community building, engaging our own employee resource groups in the process of selecting which groups to support. This is only a start. It cannot be a moment in time that passes by seemingly forgotten. We are committed to meaningful long-term change inside and outside our business. Our efforts to leave a positive imprint continue. Two weeks ago, we released our annual sustainability report, in which we announced progress against our 2025 sustainability goals. Highlights from the report include further reductions in emissions, with more than 99% of our packaging now considered reusable, recyclable, or compostable, and an increase in the number of zero waste to landfill facilities. Addressing racism and protecting the environment are not societal issues to be addressed by someone else; we ask to help build a better future, and doing so is good for our business and the communities in which we operate. It is very clear that fostering a more diverse and inclusive environment, and exhibiting social responsibility increases employee engagement, which leads to more discretionary effort and stronger performance, resulting in better business outcomes. The actions we are taking will help us compete and win in the future while building on the progress we are making today, as evidenced by our strong second quarter results. Last quarter we told you the overarching focus, as the world deals with the coronavirus pandemic, was centered around two objectives: navigating the short-term to protect our employees, and to mitigate the short-term business challenges presented by the coronavirus, and secondly positioning our business for long-term success. That’s exactly what we've done. With sound management and incredible work by our teams, we had a strong second quarter executing well against these two objectives and beating expectations for both top and bottom line performance in Q2. We did it while delivering an improved cash position and preserving our marketing budgets that can be ramped up in the second half of the year, when we expect it will be most effective. We have also benefited from the fact that our business is not as exposed to challenging markets as many of our competitors, especially given the continued problems facing suppliers with much larger operations in places like South Africa and Mexico. At the end of Q2, the benefits of our work to navigate the short-term impacts of the coronavirus are clear. Coors Light achieved its highest segment share ever in the United States. Let me repeat that: Coors Light achieved its highest segment share ever in the US. Blue Moon LightSky became the top-selling beer of 2020 per Nielsen and is now ranked amongst the top three growth brands in the entire cross segment, also per Nielsen, behind premium Belgian White. Vizzy has already made a name for itself in an increasingly crowded US hard seltzer market. Despite not launching nationally until April, it is already the number three seltzer in a number of markets, and is beating Bud Light Seltzer in repeat purchase rates. Our cross-Canada joint ventures shipped its first products and we are very encouraged by the consumer reception. And in the US, our new joint venture Trust USA is already piloting opportunities for non-alcohol hemp-derived CBD beverages in Colorado. We have driven progress in Canada through growth in craft and in the off-premise, leveraging the North American innovation, Belgian Moon LightSky, as well as growth in local craft brands in Canada, such as Creemore and DDM. Our Canadian innovation portfolio is also off to a strong start with a line of vodka-based canned drinks, Arizona Hard Green Tea, and Vine, a non-alcoholic hop water. We became an early entrant in the European hard seltzer space by signing an exclusive agreement with British hard seltzer maker Bodega Bay. And we're extending beyond our beer portfolio after signing with Miami Cocktail companies to distribute their growing brands in the United Kingdom and Ireland. Last but certainly not least, we strengthened our financial position. We renegotiated our bank covenants to help ease potential short-term liquidity constraints and we suspended our dividend payable for the remainder of the 2020 fiscal year, a decision that we believe will put us in a stronger cash and leverage position during the pandemic. In light of these steps, we were pleased that Moody's affirmed our credit rating and kept our outlook stable. Don't get me wrong, it wasn't easy, but we were able to deliver strong quarter despite the challenges facing our world and our industry today. Tourism in Europe has dropped dramatically, and pubs in the U.K. were closed through the end of Q2 as a result of the pandemic. Some of our Latin American markets were shut down completely or partially for much of the quarter, and while a number of establishments began to reopen, some quickly closed down again in the United States. Consumer demand has shifted in ways no one could have foreseen six months ago. When bars and restaurants were shuttered in the early parts of Q2, demand for kegs in the U.S. went to zero while demand for cans went through the roof. Every company that makes anything in the 12-ounce can has been challenged to some degree by the global can shortage. For example, Coke and Pepsi have acknowledged challenges, and another major corporation announced new plans to increase production capacity on cans. At Molson Coors, we have been producing and shipping canned beer at significantly higher rates than in recent years, though it hasn't been enough to meet the historically high orders we are seeing. To put a finer point on the level of demand we're experiencing, we eclipsed July 4th week shipment days in the United States four times already this year. That's unheard of. You may recall that on our Q1 call, I mentioned constraints related to cans and paperboard would be a challenge this summer in North America. All along, we've been working with our distributors in North America to try to manage that situation. We’ve been getting as many cans as possible from our suppliers, who have been tremendous partners for us, and we've worked to source additional cans from countries around the world. At this point, we remain tight on the tall can side but are seeing the situation begin to improve with respect to 12-ounce industry standard cans. We're also making progress in securing more paperboard as our supplies recently added to products and caught up on some SKUs. Despite these obstacles, we continue to navigate the coronavirus effectively today while simultaneously working on long-term strategies. There is no better example than our new investment, which aims to quintuple our U.S. hard seltzer production capacity. Riding on the strength of our business launch and the upcoming launch of seltzer, we announced a multi-million dollar project at our Fort Worth, Texas brewery to include the installation of a new canning line completed earlier this year and a state-of-the-art filtration system expected to be finished later this fall. As I mentioned before, our brands will have additional marketing support in the months ahead. We preserved our marketing firepower for a time when we expect it will have the most impact. Bars and restaurants are starting to come back, admittedly in fits and starts, and we expect to increase investment. We completed our acquisition of Atwater Brewing, a craft brewer that gives us a foothold in the eastern parts of the Midwest and produces craft seltzers and beverages that extend beyond beer. We're excited about our new partner and their offerings. Speaking of partnerships, we recently announced we will be an official partner of the new Las Vegas Raiders football team as the official domestic beer, the official craft beer, and the official hard seltzer. This is one way that we continue to invest behind our brands, even in some challenging times. For those of you that are excited that baseball season is underway, I'd remind you that we entered 2020 with partnerships with 50% of all MLB teams. We are pleased with how we have managed the short-term and are confident in our plans to position the business for the long-term. Even amid the uncertainty brought on by the pandemic, based on what we have seen and what we have accomplished, we intend to maintain the strength of our iconic brands, grow our above-premium business, and expand beyond beer. Now, I’ll pass it over to Tracey for the financial highlights.

Thank you, Gavin, and hello, everyone. I will first cover the quarter on a consolidated and regional basis, then move to our outlook. With the continued uncertainty in the current environment, we have determined not to reinstate guidance at this time. However, we will be providing additional forward visibility on trends and offering perspective on how we believe we will be impacted by the coronavirus in the future. We do not expect to continue to give this visibility once conditions have stabilized or we resume guidance. To recap this quarter, net sales revenue decreased 14.3% in constant currency, largely due to brand volume declines, principally in the on-premise channel, which remained extensively closed during the quarter, along with negative mix implications across all major markets. Additionally, our under-shipments position in the U.S. continued during Q2, mostly due to constrained supplies of 12-ounce cans, as well as paperboard that Gavin just mentioned. These impacts were partially offset by higher net pricing in the U.S. and Canada. Net sales per hectoliter on a brand volume basis increased 0.3% in constant currency, reflecting positive net pricing in the U.S. and Canada, which more than offset negative mix effects globally due to various market dynamics and consumer shifts caused by the coronavirus. Specifically, the shutdown of the on-premise locations, as well as the timing of the gradual reopening of on-premise locations had an adverse impact on geographic mix in Europe, notably as many of our higher-end products skew towards the on-premise, the closure of these establishments adversely impacted our brand and channel mix. Worldwide brand volume decreased 11.6%, while financial volume decreased 12.5% reflecting unfavorable shipments timing in the U.S., and lower contract brewing volume. Underlying cost per hectoliter increased 0.4% on a constant currency basis, driven by volume deleverage, partially offset by cost savings and a favorable resolution of our property tax appeal for our Golden Colorado Brewery. Underlying marketing, general, and administrative expenses decreased 50.8% on a constant-currency basis, driven by the suspension of on-premise activation and elimination and reduction of spending areas that have been significantly impacted by the coronavirus, for example, sponsorship events. We also adjusted the timing of marketing investments behind brands and projects where we experienced platform strength. In addition, our general and administrative spending was lower as we delivered against our cost savings and revitalization plan. As a result, underlying EBITDA increased 2.2% on a constant currency basis. Underlying free cash flow of $796.4 million for the six months ended June 30, 2020 was $235.7 million favorable to prior year, driven by favorable working capital and lower cash paid for taxes, as well as lower cash paid for interest, partially offset by lower underlying EBITDA and higher cash paid for capital expenditures. Working capital and cash tax favorability was driven by the deferral of more than $500 million in tax payments from various government relief programs in response to the coronavirus pandemic, of which a significant portion is expected to be paid in the second half of the year with the remaining amount to be paid in 2021. In North America, net sales revenue decreased 7.9% in constant currency. This decline was driven by brand volume declines and unfavorable shipment timing in the U.S. and lower contract brewing volumes. North American brand volumes decreased 7.8% as the on-premise closures during the quarter more than offset continued strains, particularly in the U.S. off-premise. In the U.S., brand volume decreased 5.2% compared to a domestic shipment decline of 6.5% in the quarter. Net sales per hectoliter on a brand volume basis increased 0.9% in constant currency, driven by favorable geographic mix, favorable package mix, and net pricing increases in the U.S. and Canada, partially offset by negative brand and channel mix attributed to the shift of volume from the on-premise to the off-premise. In the U.S., net sales per hectoliter on a brand volume basis increased 1%, driven by positive mix with favorable package mix more than offsetting negative brand mix in addition to the net pricing increase. In Canada, negative mix more than offset the net pricing increases, while in Latin America, net sales per hectoliter on a brand volume basis declined. Underlying EBITDA increased 13.8% in constant currency as marketing, general, and administrative reductions more than offset the unfavorable impacts to gross profit from lower volume. The MD&A reductions were driven by cost mitigation actions taken, the shifting of certain marketing spend and reduced discretionary spending, limited new hiring, and travel restrictions. Additionally, we continue to deliver cost savings related to the revitalization plan. Turning to Europe, which is more heavily skewed towards the on-premise, net sales on a reported basis decreased 42.4% in constant currency due to lower volumes and lower net sales per hectoliter, reflecting the impact from the coronavirus. Net sales per hectoliter on a brand volume basis declined 12.7% in constant currency, driven by unfavorable channel and geographic mix, particularly the more significant impact on our high-margin U.K. business, as well as slightly unfavorable net pricing. Financial volume decreased 24.8%, and brand volume decreased 21.4%, with only partial on-premise openings seen during Q2 in some of our smaller European markets. Europe's underlying EBITDA of $31 million decreased 66.9% on a constant currency basis from the prior year, driven by gross margin impacts of volume declines and cost inflation, partially offset by lower MD&A expenses as a result of cost mitigation actions in response to the coronavirus pandemic, as well as lower incentive compensation. In Europe, brand volumes were down 21.4% in Q2, driven by closures of on-premise accounts, restoring the full force at the beginning of the quarter and began to lift only in certain smaller markets in Central and Eastern Europe towards the end of the quarter. The U.K. did not reopen until July 4. Our relative share position in Europe is significantly higher in the on-premise channel than in the off-premise, so we expect to be disproportionately impacted by the closures in this channel and expect share losses during the shutdown period. In the off-premise, we were initially unable to meet the full demand following the abrupt channel shift due to our level of capacity and, particularly, the safety of our people. Demand has increased significantly during the quarter as we have taken measures to increase capacity without compromising the safety of our people. Based on 2019 results, our on-premise business in Europe comprised approximately 50% to 55% of net sales revenue, and a higher portion of our gross margin. In the second quarter, nearly all of our sales in Europe came from off-premise. We are taking significant steps in reducing spending for both capital investments and expenditure and have taken steps around cash collections to minimize collection risk. As actions prolong, closures or limited reopening of the on-premise business will continue to have a meaningful impact on our European and total company gross margin and profitability, which brings me to our financial outlook. On March 27th, we withdrew our guidance due to uncertainty driven by the coronavirus pandemic. With the continued spread of the virus and the release of certain on-premise reopening, that uncertainty remains, and as a result, we have determined not to reinstate guidance at this time. The pandemic continues to impact our business due to on-premise losses across all our geographies and disproportionately in Europe. We take negative trends in volume, net sales revenue, mix, and unfavorable fixed cost absorption in COGS will continue for the foreseeable future. The strength of demand in the off-premise has been unprecedented, but it has not fully offset the on-premise losses. While the current on-premise trends continue, we do not expect that any increase in total off-premise volumes due to channel shifting will be sufficient to offset the on-premise losses. Also, we expect the industry-wide supply constraints on cans will remain an issue for us in Q3. However, due to our proactive measures, we expect domestic shipment trends in the U.S. to be higher than brand volume trends as we build inventories for the balance of the year. As it pertains to marketing, general, and administrative expenses, we expect our marketing investment to increase in the second half of the year in North America to support our core brands as well as innovations like Vizzy and the August launch of Coors seltzer. Some of these decisions will depend on a number of factors, including the anticipated return of live sports. Finally, we also want to call out some unfavorable general and administrative means comparison as we will be starting lower incentive compensation, particularly long-term incentive compensation from the prior year in both the third and fourth quarters, as well as non-recurring vendor benefits in the U.S. in the fourth quarter of last year. Notwithstanding the current environment, our continued desire is to maintain our investment-grade rating, and we have taken a number of steps to ensure we protect our balance sheet and put ourselves in the best position to navigate the coronavirus pandemic. As it pertains to our borrowing capability, we repaid the full $1 billion that was outstanding on our $1.5 billion revolving credit facility in the second quarter. As a result, we had no borrowings outstanding on our RCF at the end of Q2. We had approximately $200 million of commercial paper outstanding as of June 30th, 2020, resulting in available capacity under RCF at the 30th of June of $1.3 billion. Additionally, in May 2020, we established a £300 million commercial paper facility for our U.K. business. We did not issue commercial paper under this facility in the second quarter and therefore had no balance outstanding at quarter-end. Unlike the U.S. commercial paper facility, this U.K. facility does not impact the capacity of the RCF, but provides an incremental £300 million borrowing capacity for our business. In June 2020, we entered into the main RCF which favorably revised the leverage ratios under the financial maintenance covenants for the next six fiscal quarters starting with June 30, 2020. Our near-term liquidity position was further improved by the Board's decision in May to suspend quarterly dividends for the remainder of the 2020 fiscal year, as well as the benefits of the CapEx and cost reductions discussed on our first quarter call. During the first quarter, we announced a reduction in 2020 capital expenditures by approximately $200 million, and these reductions remain on target without sacrificing our ability to invest in necessary safety and maintenance projects or in capital investments that deliver cost savings and high-return growth initiatives, such as significant investments in hard seltzer in our Fort Worth brewery. Amidst the backdrop of this global pandemic, we are very pleased with our Q2 financial performance, our progress in improving liquidity, and efforts to advance our long-term goals for the business. While we are confident in our ability to achieve long-term success, we are mindful of the challenges and continued uncertainty that lie ahead. During this time of great uncertainty, our management and board will continue to take prudent and proactive actions that are in the best interests of the company, our employees, consumers, customers, and our stockholders. Our decisions will be guided by, and consistent with the company’s overall financial discipline, ensuring adequate liquidity and our continued desire to maintain our investment-grade rating. Our actions remain focused on doing what is best not only in the near term, but for positioning the business for medium and long-term success. With that, thank you for your time and attention, and I'll turn it back to Jamie for Q&A.

Operator Instructions. Our first question today comes from Kevin Grundy from Jefferies. Please go ahead with your question.

Hey, good morning everyone. And I hope that you're doing well. Gavin, I wanted to pick up on the company's hard seltzer strategy. Maybe we could talk a little bit about the U.S. and then you mentioned international as well. So on the U.S. side, probably just the State of the Union; I have a number of questions with respect to Vizzy and where you believe that sourcing share and your early impressions there and market share potential for that brand? And then, as you rollout Coors Seltzer, what have been sort of the learnings here with Vizzy's launch? How do you intend to keep your distributors focused on both brands to hopefully ensure that both of them are successful? And then just qualitatively, I wouldn't expect you to talk about how much you intend to spend behind it but just qualitatively, maybe you can share with folks how big a priority it is for Molson Coors to be successful in this category? And then just a brief follow-up on Europe. Thanks.

Thanks, Kevin. Good morning. And yep, we're all well here, and the same applies to the team. Look, we've got a very clear strategy for hard seltzers. We're being pretty smart about how we execute these two new entrants of ours. Obviously, first and foremost, we're focusing on Vizzy, which we launched in April, and then Coors Seltzer, Kevin. It’s not Coors Light seltzer; it’s Coors Seltzer and that launches in August. I think it's clear that the hard seltzer segment is going to be a huge segment, and there's room for multiple brands and multiple solutions. From our perspective, we're making sure that we've got very clear points of difference with our two entrants. Vizzy, obviously, has a very clear point of difference with its acerola cherry, which is high in antioxidants and vitamin C, and based on what we're seeing from consumers and the demand for this product, we're actually very confident that the proposition is resonating well and will continue to resonate well. To that end, we kicked off a TV and video online campaign this week, so you know the early signs are very promising. Coors Seltzer comes in August. People are during this coronavirus pandemic turning to known and trusted brands, and the Coors brand is best fit to play in this space based on our testing, particularly with its Rocky Mountain freshness and water heritage. Additionally, it has a clear point of difference. It’s the first hard seltzer with a social mission, as we're partnering with Change, of Course. On top of that, it is a great-tasting product just like Vizzy is. As far as sourcing is concerned, it is coming from everywhere, obviously, but the majority of hard seltzer sourcing is coming from outside of beer, which is very positive for the beer category. From within the beer category, we are seeing craft and flavored malt beverages as being significant sources. From a shelf space point of view, it should come from, ideally, underperforming items, which right now would include craft and certain slower-moving flavored malt beverages. It shouldn't be coming at the expense of the faster-moving economy and premium brands. As far as our spend is concerned, as Tracey noted in her opening remarks, we are expecting to increase our marketing spend in the second half of the year versus the second half of last year, and you can assume that a decent chunk of that will be going behind our Vizzy and Coors Seltzer launches. And then you said you had a follow-up on Europe?

Yeah. You just mentioned that the company is pursuing the hard seltzer category in Europe as well. So White Claw has announced that they're investing in Western Europe; Truly seems to be domestically focused. Just perhaps comment on the opportunity, relative to the U.S. market and how big of an investment the company plans to make behind the category there?

Well, in Europe, we have recently signed a deal with Miami Cocktail and have partnered with Bodega Bay, which are one of the early entrants into the seltzer market there. I’m going to keep a little bit closer to my chest regarding some of our other plans around seltzer because we haven't gone public about it in Europe, Kevin. But you can assume that we will be showing up there, beyond just with Bodega Bay.

Very good. Thank you, guys. Good luck.

Thank you.

Our next question comes from Laurent Grandet from Guggenheim. Please go ahead with your question.

Hey, good morning, Gavin and Tracey. So two questions from me. The first one, regarding the UK, as the size of the UK entrants' recovery is significant for your sales but online. Could you please give us an update on how Europe reopening is happening? I know it started reopening since July 4? And what’s the typical right level of inventory in that channel?

Thanks. So, as far as the on-premise in Europe is concerned, you can divide it up into Central Europe and Western Europe. Central Europe started to open up in the second quarter. We quite quickly got above the sort of 50% level of pubs and restaurants that were opening, but obviously they were at reduced capacity. We've seen that sort of level off in the 70% to 80% range of pubs and restaurants reopening. The volume impact is obviously greater than that because of lower capacity and social distancing procedures they've got in place. Obviously, tourism has been very hard hit in Central Europe, particularly in countries where we operate such as the Czech Republic and Croatia. From a U.K. point of view, the on-premise was pretty much non-existent for most of the second quarter. It started opening up on July 4th weekend, and again same scenario—we have seen a decent proportion of on-premise outlets reopen, but again at lower capacities and lower volume levels. As far as inventory is concerned in both the U.K. and Central Europe, our on-premise supply for kegs is not an issue at this point in time. Our constraint is more in the off-premise, which has seen a similar surge as we’ve seen in the North American business.

Thanks. And my second question is really about the U.S. and the economy and Lite beer segment. As we're entering into a recession, we could expect consumers and, actually, some of your wholesalers are saying this, that we trade down to more affordable brands. Is this something that you can confirm? And do you have experience from past recessions that you could share with us?

No, we haven't actually seen that this time around yet. Our support for our premium lines, particularly premium light, has been strong, and we haven't seen much in terms of trade down into the economy segment. Now that might still come, given some of the actions which national governments have taken regarding support for unemployed individuals, but we haven't seen that to date. In prior recessions, we've actually seen ongoing support for premium and above-premium brands, but at the same time, there are some focuses that have traded down. As of now, we are not seeing that.

Okay. Thank you very much. Good luck, guys.

Thank you.

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

Great, thanks, good morning. The first thing I was hoping to get some color on was the COGS per hectoliter in the quarter and how to think about that going forward. I know Tracey mentioned that you had a one-time benefit from the favorable property tax situation. But, by my math that was not quite half but a good portion of the upside to earnings in the quarter. So as we think forward and think about marketing going up to support all the innovation you're doing, I just wanted some perspective on how to think about COGS per hectoliter. Thanks.

Hi, Lauren. Yes, we’ve seen underlying COGS per hectoliter in constant currency increase by 0.4%. We had volume deleverage, which would account for around 250 basis points. We also had the benefit from our pay for a portion of that on the COGS line. Then offsetting that, the favorable resolution to the property tax appeal was just under 100 basis points. Obviously, we had favorability coming from cost savings as well. So hopefully, that is helpful for you. Just to note, yes, the 100 basis points for the property tax appeal is sitting in an unusual category, and that’s why we called it out.

So the cost savings then were very, very strong, and the platform, so could you maybe just give us a little bit more color on your new productivity initiatives or things that were going on there that may be part of the longer-term restructuring plans? But, again, even if I exclude that tax benefit, the costs have actually come through much better than most people had modeled. With the amount of volume deleverage there is, how much of that cost savings can prove sticky? Because that would give a lot of support to the P&L and EBITDA growth looking ahead.

Lauren, maybe I'll just give a couple of toplines and then Trace can add color to it. We're very pleased with how our revitalization plan is going, notwithstanding the circumstances in which we are operating. I'm enormously proud of how all of our employees, particularly those in supply chain and procurement operations, are functioning during what is clearly a very difficult time. Our breweries are operating as efficiently as I can remember, and I’ve been here for quite some time now. So, that is certainly helping COGS. Our revitalization plan, particularly regarding costs, is on track.

Yes. I mean, we’ve mentioned cost savings around $600 million for the next three years, and as Gavin said, we’re well on track to hit that target.

Okay. That's great. And then, if I could just ask a second question. I mean, clearly, as you’ve said, you're making great progress with the transformation plan; we're seeing it in the COGS that we just talked about. But when we think about the balance sheet, and I know that you guys have--there’s been quite a bit in the media around, I quote, 'strategic review.' There’s been debate about Europe. I’m just wondering if there are other assets you have that may not be strategic and could give you more flexibility from a balance sheet standpoint. For example, I believe you still have, I guess, one distribution business, which may be a bit of a legacy position. I'm just curious if you're kind of thinking about non-core assets within the context of this transformation plan is, it may give you some more flexibility on the balance sheet.

Lauren, let me take that one. I'm just not going to engage in all the rumors, hypotheticals, or speculation that goes on outside of our organization. The decisions that we're making right now to navigate the coronavirus and the global economic downturn have and will continue to be guided by the two principles I've spoken about first: putting our people first and mitigating the short-term business risks. Secondly, ensuring that the actions we take today during this pandemic position our business to succeed in the long term. As it regards our distribution company, we love our distribution company in Denver. It provides great learning experiences for us to help our sales teams and our operational teams understand what it's like on the other side of the desk. We believe it makes us significantly better partners to our other distributors throughout the country.

Thanks a lot. I really appreciate it.

Sure.

Our next question comes from Andrea Teixeira from JPMorgan. Please go ahead with your question.

Thank you. And I hope all is well. My question is on the performance in states or markets that you have been seeing a resurgence in cases. Are you seeing the same level of off-premise uptick versus what you saw in March and April? And just a clarification on a point I made about marketing spending in the second half. Should we expect marketing to go back to the second half of 2019 levels — so in other words flat year-over-year or even higher, due to the launches, especially as the seltzers launch? Should we see part of the sales in the first half flow through or, in other words, it doesn’t make sense to increase promotions now that at-home consumption is so strong? Thank you.

Thanks, Andrea. So I'll take your second question first. At the beginning of the pandemic, we obviously took quick action with our marketing spend in three ways: we right-sized the overall spend, we delayed some spending on new products, and we shifted media to consumer-relevant channels with consumer-relevant messaging. We made sure that we prioritized our spending behind our big trusted core brands like Blue Moon, Miller Lite, and Coors Light. We also chose to delay some significant spending behind certain products due to changes in consumer behavior in stores. We shifted our media to channels like Twitch, YouTube, Reddit, and Hulu, where our consumers were migrating. In fact, we created a significant number of new programming at short notice, such as the Miller Lite virtual tip jar and the Coors Light 'America Could Use a Beer' campaign, which both connected extremely well with consumers. Our focus has been to maintain top-of-mind awareness for our key brands. As for the remainder of the year, our marketing spend in the second half of this year is expected to be higher compared to the second half of last year. So to answer your question directly, we expect that the remaining six months of this year will be higher than the comparable period in 2019. We're going to ensure strong pressure behind major trusted brands like Miller Lite and Coors Light while also drawing awareness behind our new innovations, such as Vizzy and Coors Seltzer and Blue Moon LightSky. However, as demonstrated in Q2, we will monitor how things progress and pivot our marketing strategy as appropriate. Regarding your first question, it's challenging to give a definitive answer. We haven't seen a huge spike, but the continued off-premise trends in some states that have begun reopening and then closing on-premise outlets have persisted.

And just to – this is super helpful, Gavin. Just to clarify, when you say the second half, like MD&A as in total or just marketing will be up; should we say that your cost savings that you just discussed in the prior question will kind of fund these increases? Or in other words, should we say margins will be under more pressure, or actually not so much pressure in the second half?

A couple of ways to respond: we are definitely going to—based on what we know now—we're going to increase our marketing spend in the second half. Our revitalization cost savings will continue to flow through, but as Tracey mentioned, there are some one-off items that were beneficial to us in the second half of last year that won't be applicable this year. So, we're not giving a specific guidance on that, but that is broadly how you should look at it.

That's helpful. I'll pass it on. Thank you.

Our next question comes from Vivien Azer from Cowen. Please go ahead with your question.

Hi, good morning. Thank you. Gavin, I was hoping to follow-up on a comment that you made earlier in regards to where you think hard seltzer shelf space should be coming from; you correctly stated that craft should be a share donor.

Good morning, Vivien. Yes, craft should be—underperforming craft brands should be a share donor. My comment relates really to the word 'underperforming.' There are a number of underperforming craft brands that exist out in various channels that should be a share donor. The same would apply to slow-moving underperforming flavored malt beverages.

Okay. That makes sense. Do you think that below-premium should be a share donor as well? Because it seems to be the leading laggard, if you will, on a sub-category basis? Thanks.

Not to the extent of the faster-turning sub-premium economy brands, Vivien. We've always said all segments matter, and they do. To an earlier question, we haven't seen an impact from trade trading down, and one can assume that will happen if consumer spending and unemployment remain particularly challenged in the back half of this year and into next.

That's helpful. Thank you so much.

And our next question comes from Steve Powers from Deutsche Bank. Please go ahead with your question.

Yeah, thanks. Hey, guys. You talked about this to a degree in the prepared remarks, but is there a way you could give us a little more color on the supply constraints that you're facing throughout the value chain as we stand here today? Maybe a bit more perspective on just how thin the shell inventories are as we enter August? And then ultimately your line of sight to be able to more fully catch up on that. Clearly, you want to ship above consumption in the back half, but I'm just trying to get a little more sense of where we are today and what the magnitude of that might be as we progress through the next couple of quarters.

Thanks, Steve. Good morning. Look, as I mentioned in my opening remarks and as you referenced, we're producing and shipping canned beer at significantly higher rates than in recent years. The demand for 12-ounce cans is just unprecedented, and our competitors in both the alcoholic and non-alcoholic space are experiencing it as well. For us, this has been more pronounced for the 12-ounce tall slim can, and the strong success of Vizzy and Blue Moon LightSky has also added to the pressure. We've addressed this in a number of ways. One is we have suspended production of slower-moving products packaged in 12-ounce cans to fulfill our faster-moving packs. We’ve had to adjust orders from wholesalers for some packages to balance supply levels across the country. We are seeing the situation begin to improve with respect to the 12-ounce industry standard can, so some of the slower-moving products will start to turn those back on in the weeks ahead. But we still remain tight on the tall can side, and that will probably continue impacting us through summer. Of course, it is dependent upon on-premise closures or reopenings. We also did have some packaging supply constraints, specifically for paperboard, but our suppliers are making progress.

Okay. That's helpful. If I could--I mean maybe a little interesting, but just given where your balance sheets have stayed in current leverage levels and your desire to remain investment grade, which is clear. Do you see any constraints at all on your ability to invest more aggressively than planned? If optimistically you get the sense of conditions unexpectedly improving. I’m just trying to get at whether or not there's a risk that you may have to be a bit more patient versus some of your more under-leveraged competitors, which could place much under pressure if we encounter such a point of demand inflection.

I’d say it in a couple of ways. Tracey can comment on the EBITDA ratios concerning the end of Q2 on a 12-month trailing basis and where we are. But, it certainly hasn't constrained us from investing behind what we think will be very successful entrants. Consider our Fort Worth expansion for both a canning line and a filtration system—neither of those were necessarily planned into this year and we have full board support to invest significant amounts of money behind our portfolio. You can draw the same conclusion from our intention to increase our marketing spend in the back half of the year based on current circumstances. My point is we are willing and able to invest where we believe we need to be successful for the long-term. That really aligns with my point about doing things in the short-term without jeopardizing our long-term goals. Tracey, do you want to comment on our ratio?

Yeah. I agree. We’ve been making obviously really good progress. Our net debt-to-EBITDA ratio at the end of June, on a trailing 12-month basis, was around 3.4 times, which is an improvement from the end of last year. We’ll continue to focus on debt and maintaining a favorable leverage ratio as it is our desire to maintain our investment-grade rating.

Great. That's all. Thank you very much.

And our next question comes from Bryan Spillane from Bank of America. Please go ahead with your question.

Thank you, operator, and good morning, Gavin and Tracey.

Good morning.

Hi. So my question is just related to the marketing spend in the back half of the year, and I guess there's kind of two components to it. One is there are a lot of companies across our food and beverage coverage universe who are also planning to shift their marketing spend to the second half of the year. So I’m curious if there’s a lot of demand for advertising channels, and if that is creating any kind of inflation or competition for airtime, and maybe does it cost more? And the second would be, even if you’re not going to be spending a lot more in the back half of the year, just curious how you’re thinking about the effectiveness of that spend, given it being focused in a short period of time. Just how do you sort of think about the return on investment or how you're planning to spend given that it's kind of unusual to have such a back catalog plan?

Thanks, Bryan. To answer your first question, no, we haven’t seen that. I think, as many marketers are upping their spend in the second half because it makes sense, there are some industries where it still doesn’t make sense. For example, the on-premise national trends. So the brief answer is no; we haven’t seen any impact from that perspective. The second part is the effectiveness of the spend. In fact, last week or earlier this week, we received results showing that the marketing effectiveness of some of our programs in the second quarter was as high as we’ve seen in quite a while. And I am referring to campaigns such as the Miller Lite virtual tip jar and Coors Light 'America Could Use a Beer.' So marketing effectiveness and ROI is improving, and I would expect that trend to continue in the second half due to the programs we've got coming.

Thanks. If I can just follow up on one more: how much of the spending plans in the back half of the year are dependent on live sports coming back to a fuller schedule? If the NFL ended up with a shorter season, or there’s no NFL for some reason in the back half, would that affect your spending plan?

Yes, it would. It would probably affect both how much we spend and where we would spend. Our marketing team has been very nimble in Q2 and adjusted on the fly, given that we weren’t expecting a pandemic. Right now, we’re expecting a full NFL season, and we have Major League Baseball underway, plus hockey and the NBA starting. Should those plans change, I’m absolutely confident our marketing team can pivot as necessary, based on effectiveness.

Thanks, Gavin.

And our next question comes from Rob Ottenstein from Evercore. Please go ahead with your question.

Great. Thank you very much. I just want to kind of go back to a couple of big topics: the can situation and hard seltzer. So on the can side, have you quantified or can you give me a ballpark estimate of what you think your lost sales were in the quarter due to out-of-stocks? And maybe remind us what percentage of your business last year was in cans, and what percentage it is this year? I'm assuming that movement to cans is driving that positive mix.

Thanks, Rob. Look, from a lost sales point of view, I'm not going to quantify that. Obviously, we have lost some sales. There are two methods of determining out-of-stocks: at the wholesaler and on the shelf. The former tends to be higher than the latter because of the way the whole system works. I'm sure that we have lost some retail sales, but consumers have been shifting between package types when their preferred package type is not available. I’d also point out that we are shipping more canned beer than we have in many years, Rob. As far as the mix is concerned, I think I can refer you to historic numbers in our 10-K. I won’t go into those details now as I feel it might be a bit competitively sensitive. Just assume that cans were pretty low in Q2 in the European market and came off significantly in the North American business. The bottles for the same reason have also come down, due to the on-premise component. We are excited to share that our top ten fastest-growing SKUs at the moment are canned.

Just in terms of dealing with the can situation, how much of a price increase do you think you’re going to have to see in the second half of the year or in the next year, given the extreme shortage of cans?

Yeah, Rob, we don't talk about pricing related to products. Our partners have been tremendous partners with us from a supplier perspective. There’s also been an uptick in input costs to source cans from South Africa, and from Africa or the Middle East. Aluminium prices are also a bit of an offset to that. Our partners have been superb from this perspective.

Great. And then just one follow-up on Coors Seltzer; a tough time of the year to bring in a new product. Can you talk about where retailers are in terms of their shelf sets? I’m getting mixed messages on that front; some suppliers saying it’s not even going to happen this year, others say they expect something in the fall. I would love to hear from you on that, and then based on that, what is your sense of the kind of shelf space commitments that you're hearing from your top retail partners?

Yeah. It’s not the easiest time to launch a new innovation, Rob, but Vizzy and Coors are off to a strong start, notwithstanding that. The reactions we’ve received from our retailers, particularly chain customers regarding the Coors Seltzer sell-throughs, have been very strong. I’m very pleased with the chain placements we've secured. If the initial orders from our distributor are any indication of success, we’re going to get off to a robust start.

Terrific. Thank you very much.

And our next question comes from Bonnie Herzog of Goldman Sachs. Please proceed with your question.

Hi. Thank you. Good morning, everyone. I actually want to circle back on your marketing spend and just ask a few questions, but maybe ask it a little differently. First, you've pulled back a lot in the quarter. So I guess I wanted to understand from you if you see a potential risk of having a disproportionate negative impact on your top line in Q3 or maybe even Q4, since typically there is a lag effect in spending? Do you see any signs of this so far? Maybe some color on your trends in July would be helpful to hear.

Thanks, Bonnie. When I refer to the MG&A cut, it's both in North America and Europe, and we’ve indeed pulled back. However, the team in Europe has done a tremendous job prioritizing spending and pulling back expenditure based on the fact that we are out-indexed to the on-premise in Europe, which was nonexistent in the U.K. for three months of the year. As for our brands? No, in fact, I have the opposite data; I think I mentioned in response to an earlier question that the marketing effectiveness behind our corporate brands in North America has actually been very positive. When you look at it, Coors Light achieved its highest segment share ever in the second quarter, and Miller High Life delivered the 23rd consecutive segment share growth. So we are not seeing negative impacts; quite the opposite, in fact.

Gavin, can you share how your trends have been in July just to give us a sense of how the business has been trending as maybe we’re seeing some openings in the last few weeks? Granted things are shutting down again. So just curious to hear how your business has been performing?

Yeah, Bonnie. We moved away from giving short-term sales trends many years ago. We provided that last quarter because we thought it was helpful, given the circumstances of the pandemic. But we don’t believe that short-term trends are particularly helpful to the market, so we don’t plan to give that going forward.

Okay. And if just one final quick question, if I may—kind of circling back on the canned shortage situation. I'm just curious because you have a joint venture with Ball Corp, so it’d be helpful if you could provide some more color on that relationship and if, in fact, it might be giving you a bit of an advantage during this challenging period for the entire industry. It's obviously an industry-wide issue, so I'm just wondering how that may or may not be beneficial, again, considering your relationship with Ball Corp?

Yeah, Ball has been a tremendous partner of ours during this pandemic. Just like us, they face constraints, and they’ve helped us look for cans around the globe. I can't express how positive our partnership has been during this time. As far as our joint venture is concerned, they primarily produce cans for our brands across the board, and we’re operating that plant to the fullest extent we can. It would be giving us an advantage at this point in time, but it is still very constrained due to the massive demand we’ve had for certain larger packs.

All right. Thank you.

And our next question comes from Bill Kirk from MKM Partners. Please go ahead with your question.

Hi, thanks everyone. I know you won't give the July trends and that's fine, but maybe just help me with my math inter-quarter for the reported period. If U.S. brand volumes started in April at minus 14 and ended at minus five, does that imply May and June were roughly minus one year-over-year? Is that kind of the exit rate that you ended the quarter with for brand volumes in the U.S.?

Look, I think we can say that our global brand volumes did sequentially improve. Given that the first few weeks of April were down 14, we ended up at five. You can do the math as you've clearly done before, but we're not going to provide a month-to-month retail sales number.

Okay. Thank you.

I’m sorry, April, the down 14 was April.

And ladies and gentlemen, with that, we’ll conclude today's question and answer session. I'd like to turn the conference call back over to management for any closing remarks.

Sure. Thanks, everybody, for joining us today. Again, wanted to remind everyone to check our 10-K, which is available and provides all pertinent details on our segment reporting, including both U.S. GAAP and non-GAAP measures. Please reach out to us if you have any questions. We look forward to speaking to you soon. Thanks again.

Ladies and gentlemen, with that will conclude today's conference call. We do thank you for attending. You may now disconnect your lines.