Molson Coors Brewing Co  (NYSE: TAP, TAP.A) Q1 2020 Earnings Call Transcript

Molson Coors Brewing Co  (TAP, TAP.A) Q1 2020 earnings call dated Apr. 30, 2020

Corporate Participants:

Greg Tierney — Vice President of FP&A and Investor Relations

Gavin Hattersley — President and Chief Executive Officer

Tracey Joubert — Chief Financial Officer

Analysts:

Andrea Teixeira — J.P. Morgan — Analyst

Dara Mohsenian — Morgan Stanley — Analyst

Kevin Grundy — Jefferies — Analyst

Sean King — UBS — Analyst

Vivien Azer — Cowen — Analyst

Bonnie Herzog — Goldman Sachs — Analyst

Laurent Grandet — Guggenheim — Analyst

Bryan Spillane — Bank of America — Analyst

Bill Kirk — MKM Partners — Analyst

Rob Ottenstein — Evercore — Analyst

Lauren Lieberman — Barclays — Analyst

Presentation:

Operator

Good day and welcome to the Molson Coors Beverage Company First Quarter 2020 Earnings Conference call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Participants can find related slides on the Investor Relations page at Molson Coors website. Our speakers today are Gavin Hattersley, President and Chief Executive Officer and Tracey Joubert, Chief Financial Officer. Please note, today’s event is being recorded.

With that, I will turn the conference over to Greg Tierney, Vice President of FP&A and Investor Relations. Please proceed, sir.

Greg Tierney — Vice President of FP&A and Investor Relations

Thank you Eric, and hello everybody. Following prepared remarks today 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 you can re-enter the queue to follow up. To the extent you of technical questions on the quarter, we will ask that you pick those up with me in the days and weeks that follow.

Today’s discussion includes forward-looking statements within the meaning of applicable securities laws. Important factors that could cause actual results to differ materially from expectations and projections contained in such statements are disclosed in the company’s filings with the SEC. 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.

So with that, I’ll turn it over to you Gavin.

Gavin Hattersley — President and Chief Executive Officer

Thanks Greg. And thanks to everybody for joining us this morning. It’s safe to say that the first quarter of 2020 was unlike any other in our company’s long history. We came out of a significant restructuring in Q4 of 2019 that was designed to free up resources to invest back in our business. In the early parts of Q1, we saw mounting confidence and enthusiasm for our plans and for our brands, internally and externally. But in late February that was interrupted by tragic shooting at our Milwaukee brewery and for the past few months, the entire global economy has been disrupted by the continued spread of coronavirus and the efforts to contain it.

In a few short months, the landscape for all businesses has changed, not only for our industry, but for all of industry. And so necessarily the metrics by which we measure our business have also changed. What you will see today is that in the short term, we are making adjustments and no longer measuring ourselves against the five components of revitalization plan that we outlined for the past two quarters, which was a demonstration of how we were reapplying savings generated by the restructure. Rather we are looking at two overarching yet simple metrics. Firstly, taking the necessary steps to protect our employees and to mitigate the immediate business challenges of the coronavirus. And secondly, positioning our business to succeed in the medium and long-term as we enter a new normal. That’s the context we will discuss today.

I do think it’s important to discuss what we are accomplishing before the pandemic hit in full force. Before the impact of coronavirus became widespread throughout North America and Europe, we were making progress against the revitalization plan. We continue to invest and maintain momentum with our iconic core brands, including continued positive share of segment trends for Miller Lite and Coors Light in January and February. This provides further evidence that our marketing campaign, It’s Miller Time and Made to Chill are resonating with new legal age drinkers. And in Europe, we ended February showing total volume growth and growth in our national champion brands including Carling.

We were also seeing early positive signs around our big innovation bets in the above premium segment. In the US, Blue Moon LightSky and Saint Archer Gold both started the Europe strong. Per Nielsen for the four weeks ended April 11, they are both Top 10 brands in case share for new products launched nationally this year. And we recently launched Vizzy hard seltzer and Movo canned wine spritzers nationally, both of which are generating significant excitement from distributors and retailers. In Europe, we were grow above premium brands in February, with double-digit growth in our craft portfolio. And in Latin America, in February we were growing volume 18% versus the prior year.

We also made progress on our organizational restructure. We recently finalized our European organization, which means our entire organizational structure is now set. We’re now focused on transitioning all work to the in state organization and we have been very successful in starting to generate the expected revitalization planned savings. Though in the short term, we are using these dollars to protect our cash and liquidity position, given the uncertainty in the economy.

Despite the early progress in our revitalization plan, our Q1 results were disproportionately affected by two events. The first was coronavirus, which I’ll talk more about shortly. And the second was the horrific shooting at our Milwaukee brewery. While this may have been a passing tragedy for those outside the company, it impacted every employee in different ways. It changed the employee experience in our company forever and it materially impacted sales to wholesalers in late February and early March. The brewery was shutdown for an entire week and when it reopened it took a few days to get back to full capacity. This downtime effected shipment levels in March and together with the pantry load that took place during the last half of March, resulted in lower than planned distributor inventory at the end of the quarter. This was a major moment in the history of our company. We lost friends and colleagues, people lost the sense of security and the cultural issues that were raised following the shooting must be addressed, and they will be addressed. We’ve already conducted listening sessions with brewery and corporate employees and hired a new Director of Diversity Inclusion to ensure we have a robust D&I strategy that’s anchored in all areas of our business. And we will continue taking meaningful long-term actions to help build our culture and ensure we have a more diverse and inclusive workplace.

The second event that materially affected our Q1 results was coronavirus, a pandemic that has changed the world not just for our business and our industry, but for the entire global economy. Like everyone else. The full impact and what our new normal looks like going forward is still uncertain. The coronavirus has had and will have a material impact on our business. The financial impacts of coronavirus still very uncertain, we recently announced that we have withdrawn our financial outlook for 2020 and beyond. This remains true today, as we will not be providing financial guidance on this call. We will however provide additional data to help you better understand our business and how it could be impacted by coronavirus.

As I mentioned earlier, the savings we continue to generate from our revitalization plan are being used to protect our cash and liquidity position. We expect a significant negative impact to revenue and profit, due to the closing of on-premise account around the world. In many instances the on-premise has been reduced to zero. To help give you a sense of how we’ve been impacted, based on 2019 numbers, approximately 17% of our North American NSR comes from the on-premise. Pantry loading did create a significant surge in off-premise sales in North America during the latter part of March across a number of our brands, benefiting our STR performance at the end of March. However, this pantry load is not continued into April, and while off-premise sales continue to perform well. We do not expect them to fully offset the loss of the on-premise volume.

In Europe, based on 2019 numbers, the on-premise channel accounts for approximately 50% to 55% of NSR and it’s even higher in the United Kingdom, our most profitable European market where approximately 70% to 75% of NSR comes from the on-premise channel. While we are benefiting from some pantry loading and the shift of consumption to the off-premise, we expect the continued closure of the on-premise trade will have major implications for the performance of our European business in the second quarter in particular.

As I outlined earlier in the call, we are looking at two overarching yet simple metrics as we manage the impact from coronavirus. Firstly, taking the necessary steps to protect our employees and mitigate the immediate business challenges of the coronavirus and secondly, positioning our business to succeed in the medium and long-term as we enter a new normal. That is how we have approached decision making during the pandemic, and these two metrics will continue to guide our decision-making moving forward.

So when the crisis started, we took immediate steps to protect our employees, support our communities and ensure the continuity of our business. We implemented our crisis management and business continuity plans to guide decision making and our teams have led us through the series of steps we have already taken. We’ve implemented additional health and safety measures in our breweries and distribution centers, ensuring these federally and provincially designated essential operations can continue operating and we can protect our employees. We have stepped up cleaning and sanitization and hygiene and changed business practices to encourage social distancing. We instituted temperature screenings, provided cloth face masks and made hand sanitizer widely available for all employees who are continuing to work on the site.

In North America, we created a new paid leave policy, adding up to 80 hours of paid leave to anyone who contracts the coronavirus or is forced to self quarantine can do so without losing pay or being forced to use their normally allotted sick leave. We are thanking our essential North American brewery employees with a pay incentive of $5 per hour for hourly employees and $200 per week for salaried employees who are continuing to work on site. And we created a voluntary paid leave program in North America, so any employee deemed by federal health authorities to be at high risk can receive paid leave of 60% of their regular wages. And we instituted an unpaid leave program for any employee who doesn’t feel safe coming to work.

We are also supporting our communities most impacted by coronavirus across North America and Europe. We are using marketing plans, charitable efforts and industry trade associations to support service professionals in on-premise locations. We are helping truck drivers across North America and homeless shelters in our communities, we’re providing them with fresh water. We’re also producing hand sanitizer to provide to our frontline employees and first responders in our local communities.

Consumer buying habits have changed significantly during the pandemic. And so, we’ve also taken steps across North America and Europe to shift how we are marketing our brands. We have prioritized and shifted media to platforms where we expect higher viewership like gaming, online video, and social media, while suspending on-premise activation and reducing or eliminating other platforms that have been impacted. We have also focused investments against our best-known brands to stay top of mind.

With significant economic uncertainty, consumers are turning to big brands they trust. In fact since pantry loading began in mid-March in the United States, we are seeing industry share trends improved for both Coors Light and Miller Lite per Nielsen. Both brands are seeing better share trends in mid-March and both are growing segment share at an increasing rate. We will continue to meaningfully support these brands and look for ways to make them culturally relevant like we did with Miller Lite Virtual Tip Jar to support hospitality workers and Coors Light social activation with Olive, the 93-year-old Pennsylvania grandmother which generated over 2 billion pure impressions.

We also have a diverse portfolio of products, including a strong economy segment. In the US, our economy segment, STRs and in particular the Keystone family of brands are performing well. We’ve always said that all segments matter and that has never been truer than today, as consumers see value in these difficult times.

Clearly, this is a less than ideal time to launch new products and that is why we have delayed some of our new innovations and test and learn launches for the time being to ensure they are best positioned to succeed when they do hit shelves. However, we remain very optimistic about the brands that have launched recently in Vizzy hard seltzer, Blue Moon Light Sky, Saint Archer Gold and Movo canned wine spritzers. All of these brands have clear points of differentiation and are generating excitement from distributors and consumers.

Beyond the products we have in the market, we are also adapting the way we get them to consumers by accelerating our e-commerce, if it’s subject to government regulations. We are partnering with a number of alcohol delivery platforms and other click and mortar retail sites to merchandise and make it easier to find our beers online. We are launching new e-commerce tools like a product locator for online purchases.

We have also taken a number of financial actions to protect our balance sheet and put ourselves in the best position to weather the storm. We are reducing 2020 capital expenditures by approximately $200 million. We’re substantially reducing discretionary spending, limiting new hiring and have furloughed certain employees within Europe and our North American hospitality businesses. And we’re taking a hard look at all of our marketing investments and eliminating anything that will not deliver value in the current environment. We will continue to take additional financial actions if necessary and our desire is to maintain our investment grade rating.

It may be cliche, but these are uncertain times for all industries. We will continue to navigate this challenging time by mitigating the short term risks and ensuring that we position the business to compete and win in the medium and long-term. So while we will continue to evaluate the situation and take all prudent and proactive actions that are in the best interest of the company in the medium and long term, we will not take actions that could have unintended consequences to our future success.

Now I’ll turn it over to Tracey for our Q1 financial results. Trace?

Tracey Joubert — Chief Financial Officer

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 uncertainty in the current environment, we will be giving additional forward visibility, including some April volume results and offering a perspective on how we believe we will be impacted by the coronavirus as we move forward. The April results are just one data points and represent only a portion of the second quarter, but do give some visibility to the impact that we’re seeing on our business now. We do not expect to continue to give this visibility on future calls.

So to recap the quarter. Net sales revenue decreased 8.2% in constant currency. This decline was largely driven by our undershipment position in North America, coupled with the impact of the coronavirus across the entire business. These impacts include volume declines, estimated net sales returns and reimbursements of $31.5 million resulting mainly from the return of kegs related to the on-premise channel as well as unfavorable mix. These impacts were partially offset by higher global net pricing.

Net sales per hectoliter on a brand volume basis decreased 1.6% in constant currency, reflecting the impact of estimated net sales returns and reimbursements related to the on-premise impacts of the coronavirus as well as unfavorable mix, partially offset by positive pricing. While we continue to deliver positive pricing in the quarter, our mix was unfavorably impacted by the various market dynamics and consumer shift caused by the coronavirus. Specifically, the shutdown of on-premise locations as well as timing of when stay at home orders went into place across our various markets, had an adverse impact on geographic mix. And notably as many of our higher end products are skewed towards the on-premise, the closure of these establishments had an unfavorable impact on our brand mix.

Worldwide brand volume decreased 1.8%, driven by declines in Europe, while financial volume decreased 8.3% reflecting unfavorable shipment timing in the US and lower contract brewing volumes. Underlying COGS per hectoliter increased 3.3%, on a constant currency basis, driven by volume deleverage and inflation, partially offset by cost savings. Underlying MG&A decreased 2.2% on a constant currency basis, driven by cost savings and targeted spend reductions, partially offset by slight increase in marketing spend.

As a result, underlying EBITDA decreased 15.8% on constant currency basis. Underlying free cash flow, reflects the cash use of $216.6 million, which is $53.5 million favorable to prior year. Driven by favorable changes in working capital and lower interest payments, partially offset by lower underlying EBITDA and higher capital expenditures.

In North America, net sales revenue decreased 7.2% in constant currency. This decline was driven by unfavorable shipment timing in the US, including brewery downtime associated with the Milwaukee tragedy and lower contract brewing volume coupled with estimated net sales returns and reimbursement of $19 million, driven by our keg return program. We anticipate that the US undershipment position will largely reverse over the full year and expect the US shipment to outperform US brand volume trends in the second quarter.

North American brand volume increased 0.4% benefiting from the timing of trading days this year as well as the March pantry loading in the US. Net sales per hectoliter on a brand volume basis decreased 1.3% in constant currency, driven by the on-premise sales returns and reimbursement as well as unfavorable geographic mix driven by increased license volume in Mexico, partially offset by net pricing growth. Underlying EBITDA decreased 11.9% in constant currency, due to lower financial volume and favorable mix and COGS inflation, partially offset by lower MG&A, cost savings in COGS and net pricing growth. The MG&A reduction was driven by cost savings related to the revitalization plan as well as cycling higher project costs in the prior year related to brewery systems implementations, partly offset by a slight increase in marketing spend around our new innovations that occurred early in the quarter, such as Blue Moon LightSky and Saint Archer Gold. This trend was in line with our initial plans for 2020 prior to actions taken to mitigate the impacts associated with the coronavirus.

In North America and particularly in the US, we benefited from pantry loading at the end of March that positively impacted our brand volume as sales to retailers in the US finished the quarter, reflecting improved trends from earlier in the quarter. In the four weeks ended April 24, 2020 in the US, STRs were down 14.1% driven by lower premium and above premium brand trends with the economy brand performance down 4.1% in the four weeks. We continue to see strong STR trends in off-premise, but these trends are not fully offsetting the virtual elimination of the on-premise sales. We expect the negative on-premise trends to continue, while social isolation continues to be practiced and expect that any increase in total off-premise volumes due to channel shifting will not be sufficient to offset the losses experienced in the on-premise. We estimate that this will result in negative trends in volume. NSR and mix versus our prior estimates and expect those trends to continue at least through the end of the year and in particular in the second quarter.

Turning to Europe, net sales on a reported basis decreased 13.4% in constant currency, due to lower volume, lower net sales per hectoliter, and sales returns related to the on-premise impacts resulting from the coronavirus. Net sales per hectoliter on a brand volume basis declined 5.2% in constant currency, driven by unfavorable geographic mix particularly due to the impact of the higher margin UK business, partially offset by net positive pricing. Financial volume decreased 10% and brand volumes decreased 8.5% as a result of the pandemic. Europe’s underlying EBITDA reflects a loss of $4.1 million compared to income of $13.5 million in the prior year, driven by gross margin impacts of volume declines and cost inflation, partially offset by lower MG&A expenses as a result of cost mitigation actions taken in response to the coronavirus pandemic.

In Europe, brand volumes were down more than 20% in March, driven by closures of on-premise accounts which began roughly a third of the way through the month. In the most recent four weeks, brand volumes are down approximately 40%. 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 virtual shutdown of this channel and expect share losses during the shutdown period. In the off-premise, our capacity and staffing constraints will result in us not being able to meet the full demand of short-term channel shift. Based on 2019 results, on-premise business comprised approximately 50% to 55% of NSR. We are taking significant steps in reducing spending for both capital and expense and have taken steps around cash collections to minimize collection risks. Despite these actions a prolonged shutdown of the on-premise business, due to the coronavirus will have a meaningful impact on European and total company gross margin and profitability.

This takes me to our financial outlook. On March 27, we withdrew our guidance due to uncertainty, driven by the coronavirus pandemic. The pandemic is impacting our business due to on-premise losses across the entire business and disproportionately in Europe. We expect an outcome of lower volume, negative mix and unfavorable fixed cost absorption in COGS, while the on-premise channel remain shutdown and slowly reopen, but the magnitude and duration of these impacts are still uncertain.

Despite this risk, our continued desire is to maintain our investment grade rating and as Gavin mentioned, we are taking steps to ensure we protect our balance sheet and put ourselves in the best position to weather the storm. Given the uncertainty volatility and likely continued impact of the coronavirus, we continue to monitor and take proactive steps to ensure proper business continuity and adequate liquidity for our company. Therefore, we borrowed $750 million effective March 13 and another $250 million effective March 25 on our $1.5 billion revolving credit facility for an aggregate draw of $1 billion as of the end of March 2020. As of April 30, we had paid back $400 million on the RCF, leading us with — leaving us with an aggregate draw of $600 million and therefore an additional $900 million of capacity to draw. As we discussed earlier, we already have implemented a number of steps, including reducing our 2020 capital expenditures by approximately $200 million, substantially reducing discretionary spend, limiting new hiring, furloughing certain employees and significantly reducing marketing investments.

In addition, we and our Board are actively evaluating various capital allocation options, including a suspension, reduction, or temporary elimination of our dividend. Obviously this is a very fluid situation as governments and companies evaluate the impacts of coronavirus and prepare for the reopening of the economy. Our management and our Board will continue to take prudent and proactive actions, which are in the best interest of the company, our employees, consumers, customers, and our stockholders as things become clearer in the rapidly evolving situation. Our decision will be guided by and consistent with the company’s overall financial discipline, ensuring adequate liquidity and our desire to maintain our investment grade rating.

As we contemplate taking additional actions to navigate this unprecedented environment, we remain mindful of not taking any actions that would have unintended negative ramifications to our business or that would jeopardize our medium or long-term success.

So with that, thank you for your time and attention. And I’ll turn it back to Greg for Q&A. Eric?

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question today will come from Andrea Teixeira of J.P. Morgan. Please proceed with your question.

Andrea Teixeira — J.P. Morgan — Analyst

Thank you very much. I was just trying to get and I hope, sorry, I hope all is well. I wanted to get a sense of the shipments to STRs for on-premises against at home? Obviously, we’ve got the number for total and I was just wondering if you have capacity and you have potential for improvement there in the at home. Thank you.

Gavin Hattersley — President and Chief Executive Officer

Thanks Andrea and good morning to you. I hope all as well with you as well. From an STR point of view, obviously the on-premise is virtually shut across almost all of our markets and we’ve had some significant skew shifts into the — into the off-premise. I think similar to other beverage companies, our pack mix has shifted quite fundamentally because of the different shopping habits and so capacity has been I would say strained mostly in the area of 12-ounce cans and folding carton. It’s not an issue that’s unique to our business, it’s across the whole beverage segment. So we are working with our packaging suppliers to prioritize SKUs. We are looking at quite a fine alternative supply locations to help out with that. I would say that we’ve had minimal out of stocks in our North American markets because of this, but we’re running from an off-premise large pack point of view pretty much flat out in North America.

In Europe, we have had some capacity constraints, particularly in the United Kingdom, given that market has been substantially more on-premise focused with less focus on off-premise. So we have had some out of stocks in the off-premise in Europe because we haven’t been able to meet fully the demand. I hope that answers your question.

Andrea Teixeira — J.P. Morgan — Analyst

It does. And then — thank you very much. The other question would be on the marketing spend, I understand that you’ve shifted and some of the discretionary spending may not be — may not be realized. So I wonder if you can kind of weave that comment with your cost savings and how we’re looking because perhaps you had excess expenses now for keeping your employees safe and obviously unfortunate for the tragedy and my sentiment and condolences to everyone impacted. So if we should be thinking that the impacts will be lower as we progress in the year or unfortunately that some of the things are you can change given the timing and some of them are fixed. So just to understand your fixed cost and expense ratio going forward. Thank you.

Gavin Hattersley — President and Chief Executive Officer

So we got a lot of questions in there. I think, Andrea. So let me try and — try and address them and if I don’t, you can come back again. But obviously, there is no doubt that this is really a challenging time for us, not just for our business, but for everybody in our industry. And our focus, as I said, right now is mitigating the short-term business challenges and positioning our business to succeed in the long-term. From a sales to wholesalers point of view, the impact of the Milwaukee brewery tragedy as Tracey I think said was from a shipments point of view in February and early March and because of that our inventory levels at the end of March were lower than we would have liked. Subsequent to that our supply chain folks have done a tremendous job building our inventories back up again and I would say that they are pretty much where we would like them to be with the exception of shortages on some of our large pack sizes, where we have some supply constraints from packaging point of view. So we would expect shipments to wholesalers to migrate closer to sales to retailers in the second quarter.

From a marketing standpoint, consumers are still drinking lots of beer. In the US 80% of our beer is consumed in the on-premise and so it’s really important that we keep our biggest most recognized brands top of mind when they — when they are shopping. So from a marketing standpoint, we’re taking five clear steps to meet the consumer needs and consumer habits which have developed right now. We’re focusing our investment against our biggest most recognizable brands like Miller Lite, Coors Light and Blue Moon. We reevaluated all of our creative that was going to market and we’ve adjusted it make sure that it’s more culturally relevant. For example we pulled the highly anticipated March Madness [Indecipherable] Coors Light, before it was launched for obvious reasons. We’ve shifted our immediate plans towards key platforms where we expect viewership to be higher like social, gaming, podcasts, online video, over the top versus system out-of-home, which is where we might have been before. We’ve enabled a large percentage of our creative to link to e-commerce beer purchases that consumers can buy their favorite beers from the comfort and safety of their homes.

And finally, we’ve identified opportunities where our brands could meaningfully and authentically provide value. For example for Miller Lite, we created the virtual tip jar in the first week of isolation. And in Canada, Molson has launched the Raise One For Your Local to support Canadian buyers through gift cards by encouraging more virtual happy hours. We will be eliminating marketing spend that doesn’t add any value at the point of — at this point in time if it’s focused on the on-premise or if it’s focused immediate channels where our consumers happen to be. So as we were expecting a large increase in marketing spend in 2020, I don’t think we can expect that right now.

Operator

Thank you. Our next question will come from the Dara Mohsenian of Morgan Stanley. Please proceed.

Dara Mohsenian — Morgan Stanley — Analyst

Hey guys, I hope you’re all well. I wanted to delve into the US STR result you gave for the first week of April a bit more, obviously on-premise is driving the overall weakness, but it’s still worse than I would have expected even with that on-premise weakness. So just trying to better understand that performance in terms of what you’re seeing by channel in the off-premise in the US in April to help decompose that a bit? And then second, you highlighted the economy portfolio declines where lot less severe than the premium brands in the neutral to-date number, is that more just due to channel mix shift away from on-premise or are you seeing trade down within your portfolio in the off-premise channel already and any forward thoughts on the potential trade down both within your portfolio and for beer category perspective? That would be helpful. Thanks.

Gavin Hattersley — President and Chief Executive Officer

Thanks Dara. I’m not sure I’m going to get all of your questions. So if I missed something just come back at me. I think the first point is the retail sales which Tracey gave in the US was for the four weeks, not the first week. I think you said first week, but it’s actually the first four weeks of April. Obviously, the on-premise has reduced to virtually zero. In the off-premise, we’re seeing a meaningful shift into large pack sizes and into brands that consumers know and trust like Miller Lite and Coors Light. Miller Lite and Coors Lite performance has — has been particularly good as we — as we’ve headed into April. We’ve seen a — we saw an acceleration behind Coors Light and Miller Lite behind our marketing initiatives in 2019 Made to Chill with Coors Light, the brand has seen sequential improvement in three straight quarters and Q1 was actually the best share performance in three years and April has continued on that — on that trend. And Miller Lite continues to do really well. We’ve said about a 22 quarters now of segment share growth and is actually growing dollar sales share in the latest 52 weeks. So a big known and trusted brands we’re very pleased with.

The second part was your — our economy portfolio performance. And yes, we have seen an improvement in our economy portfolio whether that’s Keystone Light, whether that’s Miller High Life and Steel Reserve are for all brands, which are doing relatively much better in the first part of April than they were doing before. Did that answer all your questions Dara, or did I miss something?

Dara Mohsenian — Morgan Stanley — Analyst

It does. And then just one clarification, within off-premise, can you talk a little bit about the channel performance in the first four weeks off-premise and the divergence you’re seeing from a channel perspective and then also consumer trade down just wanted a bit of a forward look on your thoughts there. And if that is likely to be significant in the industry?

Gavin Hattersley — President and Chief Executive Officer

Thanks. While we’ve seen a strong growth in grocery — in the grocery channel. Particularly in large format. We have seen — so the first part of the coronavirus, the C-store channel did not do as well as the larger format, it has had somewhat of a recovery. Since then, but are still not performing as well as large format, which frankly is not surprising given the impulsive nature of many of the C-store purchases. Our online sales channel has certainly seen a meaningful surge, as you would expect and hence we’re focusing a lot of marketing activity in that direction and partnering with various online delivery platforms to make sure that our consumer see our brands and that they are top of mind and we’ve also launched a product locator to help our consumers find out where our — where our brands are. I hope that answers your questions. Thanks.

Operator

Our next question will come from Kevin Grundy of Jefferies. Please proceed with your question.

Kevin Grundy — Jefferies — Analyst

Thanks, good morning everyone. I wanted to wish you well as you navigate through a clearly difficult environment. My question relates to debt leverage and to the dividend. So, first your debt covenants four times net debt to EBITDA on a trailing basis. You mentioned some of the proactive steps the company is taking around cost and spending, however based on where we sit today, I was hoping you could comment on your level of comfort with the covenant in what will undoubtedly be a challenging year? And then relatedly with respect to the dividend, maybe you can put some guardrails around potential cuts or suspension to the dividend? Thanks.

Gavin Hattersley — President and Chief Executive Officer

Thanks, Kevin. And thanks for — thanks for the thoughts. I’ll ask Tracey to handle those questions, if you don’t mind.

Tracey Joubert — Chief Financial Officer

Yes. Hi, Kevin. So look we were aware of all of the current obligations and our credit agreement. And we are in compliance with them. As we said, we are taking a number of actions, which will help us navigate the short-term impact to our business and ensure that we have adequate liquidity. So we — just to reiterate, reducing capital spend by about $200 million we are substantially reducing discretionary spend, we’ve limited new hiring, we’re furloughing some employees, especially in Europe and some of our North American hospitality areas and we’re also reducing marketing spend as Gavin just mentioned. Ensuring that all our marketing basins are delivering value in our current environment, but we are still supporting our big brands as Gavin mentioned and supporting our innovations. So this is a very fluid situation and again we are monitoring it. We’re having discussions with our Board and evaluating our capital allocation decisions, which as we said in our remarks does include a suspension of reduction or simply elimination of the dividend and we will of course communicate in due course any key capital allocation measures and decisions as they are made.

Gavin Hattersley — President and Chief Executive Officer

Kevin, just one point I’d make. As you mentioned the four times debt covenant ratio, that’s at the moment is actually less than that. I’ll just refer you, sorry, higher than that. It’s 4.5 times. I think if you look at our SEC financial filings, you’ll see it laid out there as to the part.

Kevin Grundy — Jefferies — Analyst

Okay, fair enough. I’ll pass it on. Thank you, guys.

Gavin Hattersley — President and Chief Executive Officer

Thanks, Kevin.

Operator

Our next question will come from Sean King of UBS. Please proceed with your question.

Sean King — UBS — Analyst

Hey guys, thanks for the question. Sorry, if I missed this, but you refer to estimated kegs returns in Q1. Does that account for, I guess all shipments expected to be — all shipments that are expected to be returned. I mean is there any way to quantify what continuing overhang there would be in Q2?

Gavin Hattersley — President and Chief Executive Officer

Yeah, thanks, Sean. Good morning. Look, I mean the estimate that we’ve made would cover all of the keg returns that we would be expected to take back. So the $50 million in aggregate between the impact to net sales revenue and cost of goods sold is our best estimate right now. And then, obviously, we’ll adjust that as the actual numbers come through. But when you are say an overhang, I would say we’ve tried to get as close to 100% of what we expect our liability to be based on what we know.

Sean King — UBS — Analyst

Great. Thank you.

Operator

Our next question will come from Vivien Azer of Cowen. Please proceed with your question.

Vivien Azer — Cowen — Analyst

Hi, thanks for the question. Hope everyone as well. Gavin, given your experience in the beer industry, I was hoping that you could offer some historical context as we think about how to anticipate shift in consumer purchase behavior when the consumer is under pressure? So just thinking back maybe to the financial crisis, if you view that as a helpful analog, just remind us the category dynamics that you saw between beer, wine and spirits? And then specifically within beer, how meaningful was the downtrading? Thanks.

Gavin Hattersley — President and Chief Executive Officer

Thanks Vivien. And good morning to you as well. Yeah, look it is certainly an unprecedented time and we’ve been through recessions before. I don’t think we’ve been through something quite like this before, but certainly, ultimately, the question is what this will do for consumer behavior. It’s — it’s not about whether or not drinkers will continue to consume because they will, but it’s about how, where, or what they will consume. And the early results and what we’re seeing at the moment, show the consumers are continuing to purchase beer particularly pantry load, during pantry loading phase of this, of this pandemic, we’re seeing a lot more purchases of large pack and we’re seeing more on premium and economy versus above premium. I would say craft in particular has been disproportionately negatively impacted. We have got a very diverse portfolio of products, pack types and price points, which are going to help us capture the volume regardless of where the consumer trends actually take us. We’re well positioned because we play in all segments. We — it’s clear that the whole industry is impacted. We believe that we’ve got — we’ve got the segments and the brands. And we’ve got the right approach. Ultimately, we are confident to take — that we’ve taken the right steps to mitigate the short-term risks and position the company to compete in the long term. We also believe we are still tracking towards the vision laid out and the revitalization plan, despite the current environment and we’ll pivot as necessary in the short term depending on where the consumer trends take us.

Vivien Azer — Cowen — Analyst

That’s really helpful. Thank you so much.

Gavin Hattersley — President and Chief Executive Officer

Sure.

Operator

Our next question will come from Bonnie Herzog of Goldman Sachs. Please proceed with your question.

Bonnie Herzog — Goldman Sachs — Analyst

All right, thank you. Good morning Gavin, hope you’re doing well?

Gavin Hattersley — President and Chief Executive Officer

Thank you.

Bonnie Herzog — Goldman Sachs — Analyst

I wanted to touch briefly on Vizzy. So it sounds like the brand is doing well based on your comments, but that said we are hearing from a lot of our contacts about the tough environment right now for newer brands. This is just in general. So we’d love to hear your take on how the launch has been potentially impacted by COVID and then maybe what you’ve done can mitigate some of the unforeseen impacts you’ve likely had maybe around distribution and marketing of this brand? Thanks.

Gavin Hattersley — President and Chief Executive Officer

Thanks Bonnie. And I hope you are doing well to. Yeah, look, I mean obviously it’s not the ideal product to — time to launch new products in the marketplace. I’m sure you don’t need me to tell you — to tell you that. And as a result of coronavirus. We have made some adjustments to our original innovation plan, which we had. We delayed some innovations and we’re using those savings to protect our cash and liquidity positions, but as far as the seltzer market is concerned, we — we’ve got a very clear strategy in hard seltzers and we’ve been — we think we’re being smart in how we execute our first two launches. We first focusing on Vizzy as the big bet and then we’re rolling into Coor seltzer in the fall. This is a huge segment and it’s got plenty of room for multiple brands and solutions.

Our approach with Vizzy is making sure that we covered with a real point of difference, not just another seltzers. To call that a meaningful space for ourselves in what is an increasingly crowded category and that point of difference for us is the first hard seltzer made with Acerola Cherry, which is the super fruit, which is high in the antioxidant vitamin C and we are confident that this proposition is going to resonate very well with consumers.

We’re not going to share specifics on what our media investments going to be, but we’re in the midst of rolling out a pretty robust campaign, which will include national TV in the right spots, digital and social, retail tools and a sampling effort. It’s our biggest play yet in the hard seltzer market Bonnie, and whilst it’s still only a few weeks into the launch, we’re actually very pleased with the early reads and we believe that the clear point of difference and the clear point of difference from a visual identity point of view is going to set us apart as a preferred — as a preferred seltzer.

As far as Coors Light seltzer is concerned, we’ve got that coming towards the back end of the year. We believe that at this time in particular, people are turning to known and trusted brands and there is a big opportunity for popular beer brands to enter into this space and we believe we’ve got the best proposition with Coors for a number of reasons. It best fits to play in the space. We’ve tested the Coors seltzer proposition head to head with other beer brand itself and Coors won across the board on multiple levels, whether it was purchase intent, whether it was differentiation, distinctiveness and so on. Its history of Rocky Mountain freshness and order credentials are a perfect fit for hard seltzers. And we’ve got a clear point of difference, which is also very important. It is the first hard seltzer with a social mission and it’s one of the Top 3 drivers of lacking for consumers. And finally, we’ve got a great tasting product. So we’re particularly excited about that launch as well and our distributors have done a tremendous job in a very difficult and challenging environment getting busy onto the — onto the floor and into the — into the [Indecipherable] and you know as I said, we just a few weeks in, but we’re very pleased with what we’re seeing.

Bonnie Herzog — Goldman Sachs — Analyst

That was really helpful. Thank you so much for all of that.

Gavin Hattersley — President and Chief Executive Officer

Sure.

Operator

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

Laurent Grandet — Guggenheim — Analyst

Yes. Good morning, Gavin and Tracey. I hope this find you in a healthy shape. Got a question on the, on all the extra costs. I mean you mentioned all the actions you took to protect your employees, increased social distancing and rate pay amongst others. Could you please give us at least directionally, the total financial impact it has in the quarter by segment on Europe and the US and if those actions are just one-off nature and we should think those extra costs will just be lifted once we reach out to some kind of normality during the second half of the year. Thank you.

Gavin Hattersley — President and Chief Executive Officer

Thanks, Laurent. And thanks for the questions. Obviously as I said, one of our top priority is protecting our employees and ensuring that they are safe. So in many respects most of those costs will, as life gets back to a new normal disappear. We’ve — the thank you pay bonus for example will be, will be removed at a point in time when we believe it is, it is appropriate. We took steps in Europe and in North America to ensure that our employees that were higher risk of a certain age or who had pre-existing conditions were given the opportunity to stay away from work and not be disproportionately financially impacted. In the United Kingdom, there was actually a program where 80% of their pay is reimbursed by their by the governments. So the impact in the United Kingdom for the folks that have stayed at home is not as impactful as for example in the United States. So I rambled a little bit there. I think the answer to your question is no. There won’t be permanent negatives forever, there will only be there for as long as we believe it’s necessary. Our number one value that we launched — we launched new values in January, our number one value is people first and that’s how we are making all of our, all of our decisions.

I think obviously our social distancing practices will remain in place for quite some time, but the cost of that is relatively, relatively low. Our breweries are big, there is a lot of space in our breweries and you know, I think the fact that we put in all these policies fairly early on in the process has certainly gone a long way to make sure that we’ve that — we’ve mitigated any impact from a supply chain point of view.

Laurent Grandet — Guggenheim — Analyst

Thank you. I will pass it on. Thank you.

Operator

Our next question will come from Bryan Spillane of Bank of America. Please proceed with your question.

Bryan Spillane — Bank of America — Analyst

Excuse me, good morning Gavin, Tracey, hope you all well. Just one of the follow-up I guess on Kevin Grundy’s question about the balance sheet and the dividend. And Tracey, I think if we’re thinking about liquidity and cash need, believe you’ve got a maturity, the September maturity right coming due, which is I think $500 million later this year. So I guess we’re thinking about that maturity. The liquidity you have now right. you still have about $900 million in the credit facility that you could draw. Is the decision on whether or not you touched the dividend really predicated on maintaining investment grade and terms around refinancing avoiding things like step and other things or would touching the dividend, really be just a function of it’s a bad year and you’re going to need the extra cash. Just trying to understand what the decision tree would be on the need to touch the dividend and then again how your — how — your comfort level around that September maturity?

Gavin Hattersley — President and Chief Executive Officer

Okay, Bryan good morning. Thanks. I’ll ask Tracey to answer that question. But just create one quick point is, it’s not $500 million, its CAD500 million. So it’s somewhat less than that in US dollars.

Tracey Joubert — Chief Financial Officer

So roughly, sort of $357 million US equivalent. So you know as we mentioned in our prepared remarks Bryan, we will continue to monitor and take steps to ensure proper business continuity and adequate liquidity for the company and we are actively evaluating our capital allocation decisions with our Board. So as it relates to that CAD500 million notes that comes due this year, that’s a capital structure decision that we will make in in consultation with our Board as we get closer to the maturity of this date. And then sort of make further decisions. The conversations that we are having with our Board around capital allocation does include that what we mentioned around the dividend. And again, I just want to say that we’ll communicate that in due course as soon as any decision is made.

To the final point, I mean we are aware of all the current obligations under our credit agreement as I said and we are in compliance with them and we will continue to take the actions needed because we do have a continued desire to maintain our investment grade rating.

Bryan Spillane — Bank of America — Analyst

Thanks Tracey. Thanks Kevin.

Gavin Hattersley — President and Chief Executive Officer

Thanks Bryan.

Operator

Our next question will come from Bill Kirk of MKM Partners. Please proceed with your question.

Bill Kirk — MKM Partners — Analyst

Hey, thanks everyone. So I think Coors seltzer was originally set to launch in July. So I guess the question is if COVID pressures some out ease or begin to ease, would there be a willingness to pull what is a delayed launch forward again and do it again in July? Or is it now definitely in the fall?

Gavin Hattersley — President and Chief Executive Officer

Yeah, hi, Bill. Thanks. Look based on what we’re seeing in the marketplace, I think you can safely assume that it will be in the fall. In other words we — I would say based on what we know right now, we will not be bringing forward the launch, we will keep it as to where we’ve moved it to now.

Bill Kirk — MKM Partners — Analyst

Okay, thank you.

Operator

Our next question will come from Rob Ottenstein of Evercore. Please proceed with your question.

Rob Ottenstein — Evercore — Analyst

Great. Thank you very much. I’d like to kind of first circle back to the US and just make sure I didn’t miss anything here. You gave us some April numbers in terms of down volumes. I think 14% I believe, can you disaggregate, how much of the impact of pantry loading is or D loading at this point hit the April numbers. So to give us a little bit better sense of what the ongoing rate is in April? And then you — obviously there is a negative mix impact, can you maybe perhaps touch on what the pricing environment is today? Is there — the industry had really good pricing discipline for the last number of years, is that — is that staying in there? And then just kind of circling — kind of finishing off with the US if you could then contrast Canada, which hasn’t really come up on the call or in the press release, is Canada looking kind of better or worse than the US? Thank you.

Gavin Hattersley — President and Chief Executive Officer

Thanks, Robert. Good morning to you. So several — let me unpack what you said there. So from a — from a mix point of view, obviously on-premise to off-premise has a negative mix implications for us. In terms of Canada and how they’re performing relative to the US in the first part of April, pretty similar quite frankly Robert. Not a number that’s terribly dissimilar to the 14%, which Tracey mentioned. Canada actually had their share of performance in the first quarter in quite some time. We launched Molson Ultra nationally in Q1 and it’s producing a much better result than the brand which it replaced, which was Molson Canadian 67. Miller Lite continues to grow strongly in Canada, strong double-digits, with the functional message of carbs and calories. And Belgian Moon is growing is growing strongly. So Canada actually had a reasonably good, one of the better first quarters that we’ve had for some time.

From a pricing point of view. Pricing in the first quarter in the US was pretty similar to what it’s been for the last three quarters. So, it’s holding up. Mix was relatively flat, and we do have some negative in NSR per hectoliter in the United States in freight and fuel as we passed substantial savings across back to our distributors in line with our — with our freight and fuel program, which took the freight and fuel per hectoliter number down by about 50 basis points in the US. Obviously, we’ve got the keg return negative hit in the US, which is impacting our NSR per hectoliter. That’s about 110 basis points for unusuals in total. Canada pricing has held up well from a frontline point of view, frontline is about 260 basis points.

I think the final part of your question was the impact of pantry loading in March versus what’s happened in April. Obviously we had the timing shift of Easter. So the numbers, got a little bit difficult to compare between March and April, and even within April. I would say to you that strong — the strong performance in the off-premise, I mean it still continues, but it’s just not enough to offset the loss of 100% of the of the on-premise business. Hope that helps Robert.

Rob Ottenstein — Evercore — Analyst

Certainly. No, I understand that. Would you think that if you maybe took out the pantry D loading instead of being down 14% maybe you were down kind of mid single-digit, does that sound about right?

Gavin Hattersley — President and Chief Executive Officer

Robert, look I’m not going to try and, on this call, unpack to that to that level of detail. All I can say to you is that in March with the initial pantry load, we had 4th of July kind of week performance and obviously that has not continued and we don’t expect it to continue, but the performance is still being — has still been good in the off-premise.

Rob Ottenstein — Evercore — Analyst

Great. And just — I actually just got — a well we’re on a question from a large shareholder asking me to ask you what, what’s going on with promotions? In a lot of industries, the promotions have been reduced significantly, is that happening in the beer industry as well?

Gavin Hattersley — President and Chief Executive Officer

Well as it regards to the large packs. I mean we’re not promoting large packs, because we are — as I said earlier not in the call, we’re actually, we’ve got — we are a little bit hand to mouth from an input material, packaging material basis. So you know from our perspective, we’re not, we’re not promoting large packs. I can’t speak for our competitors, but from our perspective, we’re not.

Rob Ottenstein — Evercore — Analyst

Great, thank you very much.

Operator

Our final question will come from Lauren Lieberman of Barclays. Please proceed with your question.

Lauren Lieberman — Barclays — Analyst

Great, thank you. I just want to know if we — if you could help us at all, when we think about COGS per hectoliter anything that you can offer us on kegs versus variable cost. I know we’ll have to sort of manually play with some assumptions in terms of mix dynamics, which is anything that you could offer helps on fixed versus variable cost in the COGS line?

Gavin Hattersley — President and Chief Executive Officer

Right, I’ll ask obviously Tracey to answer the cost of goods sold question. Obviously, there are some impacts within cost of goods sold, which are somewhat unusual in nature. We’re not treating them as unusual, but there are one-off nature, which is all the — all the extra steps that we’ve taken to protect our employees. But Tracey, do you want to get into COGS in more detail.

Tracey Joubert — Chief Financial Officer

Yes, So I mean a couple of drivers. We did mention that our COGS was up 3.3% in constant currency on a consolidated basis. I mean the big drivers were around the volume deleverage, which was around 200 basis points of that. And then in addition, this quarter we did have the keg returns and the on-premise reimbursement program as well as some finished goods obsolescence, which drove higher COGS. That was roughly around 90 basis points. And then, and we did see some inflation and that was partly offset by some of the cost savings.

I do want to just remind you from an inflation point of view, we do have a robust hedging program and it’s a multi-year program. We were fairly well hedged coming into this year. So when we see commodity prices being reduced, we will obviously participate in that, but only to the extent that we have an unhedged portion for those commodities.

Lauren Lieberman — Barclays — Analyst

Okay, all right. That’s really helpful. And then I wanted to just ask, actually first also on COGS, there had been no mention of it, but any issues in terms of CO2. Just the news headlines that have been out there. I just wanted to check in on your CO2 position?

Tracey Joubert — Chief Financial Officer

Yeah, so look Lauren obviously with the drop in the price of ethanol about a month ago. Many of the ethanol producers have stopped producing. And since ethanol is used by our CO2 suppliers they are expecting shortages in the markets and we are monitoring this very closely. And however, we do have secondary sources in test [Phonetic] and as yet, we have not had any disruptions to our supplier. And we also are collecting as much CO2 at our breweries as possible. So that we can be self sufficient. But at this point, no disruptions.

Lauren Lieberman — Barclays — Analyst

Okay, great. And the final piece, I was — just in the release, there was a mention on tax in the possible $100 million to $200 million tax expense in the second quarter. So anything you could elaborate on there or a sense yet of cash component of that, whether it’s in the second quarter or through the year?

Tracey Joubert — Chief Financial Officer

Yeah, we are still doing a full technical and legal analysis of the tax rates and to really understand the full impact and the indications for cash taxes, as well as the timing. And so the $100 million to $200 million that we mentioned in the release is a P&L impact and it relates to the period from 1st January 2018, right up until March 31, 2020. So that is what considers a full range of impacts, but again we’re still doing some of the legal and technical analysis and we’ll be able to give more in Q2.

Lauren Lieberman — Barclays — Analyst

Okay, all right. Thanks so much.

Operator

Thank you. That will conclude our question and answer session. I would like to hand it to Gavin Hattersley for closing remarks.

Gavin Hattersley — President and Chief Executive Officer

Thanks, Eric. And look, I know there may be some questions we weren’t able to answer today. So please follow up with Greg, if you have them directly. And then Tracey and I, look forward to talking with many of you as the year progresses. So stay safe and healthy everybody and thank you for participating in this morning’s call.

Operator

[Operator Closing Remarks]