Molson Coors Beverage Co (TAP) 2006 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Molson Coors Brewing Company 2006 second quarter earnings conference call. [OPERATOR INSTRUCTIONS] As a reminder this conference call is being recorded. I would now like to introduce your host, Mr. Leo Kiely, President and Chief Executive Officer.

Hello, and welcome everybody. Thanks for joining us today. With me on the call are Tim Wolf; Kevin Boyce from Canada; Frits van Paasschen from Golden; Peter Swinburn from Burton Antrent; Mike Gannon, our Global Treasurer; Marty Miller, our Global Controller; and Dave Dunnewald, our Investor Relations Director. This morning Tim and I will take you through the highlights of the second quarter 2006 for Molson Coors brewing company along with a perspective on the back half of the year, then we'll open it up for questions. Overall we believe our second quarter results demonstrate that we're continuing to make substantial consistent progress strengthening the fundamentals of our company. Let's look at the highlights.

First we're pleased with our top-line trends as we grew sales volume in all three of our businesses led by the strength of our strategic brands. Those are the ones that receive the lion's share of our investment dollars and are our growth engines now and in the future. Specifically, Coors Light continued to achieve mid single-digit percentage growth on a global basis.

Second, our cost savings programs, both merger synergies and other efforts combined with our top-line strength to drive higher operating income and margins. In total, we achieved approximately $27 million of pretax savings from these programs in the second quarter, which allowed us to offset a substantial portion of the cost pressures we're facing globally and especially in our U.S. business. We see these year on year cost increases partly as timing issues and expect some of them to moderate later in the year.

Third, a handful of changes both positive and negative such as corporate income tax rates in Canada continue to cause volatility in our bottom line results. On the whole these reflect efforts to strengthen our business and are positive developments for future earnings, cash flow, and shareholder value. Finally, we have capable leadership teams in each of our businesses driving the change we need to succeed in the face of major challenges in each of our markets.

Reviewing our second quarter progress by segment. In Canada our team grew pretax profitability nearly 21% in local currency in the quarter on the strength of our strategic brands in this key market, in particular Coors Light, Rickard's, and our partner import brands. This business faced heavy competitive and cost pressures and still achieved impressive results including growing Coors Light and other strategic brands at double-digit rates in the quarter. Synergies and other cost reduction initiatives offset about two-thirds of the Canada business cost of goods inflation, while additional reductions were achieved in marketing and G&A expenses.

Our U.S. business performed performed well on the top line with solid volume growth in pricing especially for Coors Light relative to its competitors. The best overall indicator of this strength is the 3% increase our U.S. team achieved in the 50-state sales to retail. This contributes to our best first-half volume performance in over 10 years. Also important, we've seen an improvement in the U.S. pricing environment as the year has progressed.

Additionally, cost reduction initiatives in this business offset a significant portion of the very high inflation pressures that drove the U.S. profit decline in the second quarter. The 8% cost of goods per barrel increase in the U.S. business seems pretty dramatic until you take a look at how the full year sets up. In essence we're dealing with a substantial unprecedented year-over-year run-up in energy and packaging material costs in the second and again in the third quarters this year. Without most of the synergy benefit of closing the Memphis brewery hitting the P&L until the fourth quarter.

We anticipate that the cost pressure in this business will ease significantly after we close Memphis in early September, which by the way is six months ahead of our original schedule. By year end we expect our cost savings initiatives to offset more than half the cost of goods inflation that we face this year. We'll go into this in more detail in a few minutes. In the U.K. despite an extremely difficult business and inflation environment our team achieved strong double-digit earnings growth by growing our market leading brand Carling which accounts for more than three-fourths of our annual Europe volume and cutting costs significantly. Total year-over-year cost savings in the second quarter actually offset more than all of the cost in goods inflation and the substantial margin challenges in Europe.

So with that as a backdrop let's turn to specific financial results for our second quarter. Sales to retail for the total company were up 2.4% versus prior year with increasing sales momentum in the U.S., and good growth in the U.K. with small sales to retail offset in Canada. Our total company -- for our total company consolidated net sales were $1.6 billion for the second quarter 2006. That's up 2.3% from 2005. Cost of goods sold per barrel rose 0.4%, driven by a continuation of significant inflationary cost pressures especially in the U.S., partially offset by solid progress on merger synergies and other cost savings initiatives in all of our operating segments. Marketing, general, administrative expense was also up 0.4% in the quarter, pretax income excluding special items was $182.9 million in the second quarter, increasing 1.7% from a year ago.

Meanwhile after-tax income from continuing operations, excluding special items, which is the measure we use to gauge our bottom line performance following the Brazil Kaiser sale, increased 51.8% in the second quarter to 173.9 million, or $2.01 per share. This product growth was primarily due to a temporary reduction of approximately 30 percentage points of our effective tax rate versus the second quarter last year along with solid sales growth and progress on cost reduction initiatives both of which drove operating income growth in the quarter.

The reduction in the effective tax rate increased earnings approximately $0.60 per share in the second quarter and was caused by permanent reductions in Canadian Federal and provincial corporate income tax rates that were enacted in the second quarter. This profit results includes the negative noncash impact of expensing stock options and other long-term incentive compensation which totaled $9.5 million in pretax or $0.11 per share after tax in the second quarter. In contrast, our 2005 and earlier results did not incorporate expenses related to stock options since the new accounting rules in this area took that effect year. Foreign exchange movements increased our total company results by about $11 million pretax in the quarter. So at this point I will turn it over to Tim to review second quarter segment and corporate highlights and trends, and then we'll provide some perspective on the back half of 2006 for the Company. Timothy.

Thanks, Leo, and hello, everybody. In the segment performance highlights, starting with Canada, pretax income was $143.5 million in the second quarter. That's U.S. A 33.7% increase from prior year. Driven by sales volume growth, sales mix improvement, lower costs, and favorable foreign exchange rates. The Canadian dollar appreciated nearly 10% year-over-year versus the U.S. dollar which increased Canada pretax results by approximately $12 million U.S.

In Canada, our sales to retail, or STRs for the calendar second quarter ended June 30, decreased 0.4 of 1% from a year ago. Continuing strong performance by Coors Light, Rickard's, our partner import brands were offset by the discontinuation of Molson Kick and Marca Bavaria last fall, as well as decline in other premium and discount brands stemming from intense competitive pricing pressure focused primarily in Ontario. Despite this competitive pricing activity Coors Light and Rickard's continued to grow at strong double-digit rates. Total Canadian beer industry sales grew more than 2% in the second quarter driven by increased promotional and pricing activity across most provinces.

Price discounting directly affected our volume share performance in the quarter. During the quarter Molson Canada management made the strategic decision to emphasize profitability over the pursuit of lower margin volume. As a result of this decision, and the discontinuation of Kick and Bavaria, our market share in the second quarter was about 1 percentage point lower than a year ago. Realizing nearly half of this decline was due to the discontinued brands.

Our Canadian team will continue to balance the priorities of volume and profitability while remaining competitive in the marketplace. Sales volume in Canada totaled 2.3 million barrels for the fiscal second quarter ended June 25, which is up 1.6% from a year ago. The trend difference between sales volume and STRs was driven by a particularly strong March STR close, the benefit of which flowed to second quarter sales volume. This represents a reversal of the sales volume versus STRs dynamic that we saw in the first quarter when the last week of March benefited STR growth. Net sales per barrel increased about 1% in local currency due to improved sales mix resulting from higher superpremium import and lower discount brand volume.

Net pricing was essential unchanged in the quarter as the flow-through of selective frontline price increases during the past year was offset by more widespread price discounting in the second quarter. Cost of goods sold per barrel decreased 4% in local currency versus the second quarter of 2005, driven by three primary factors. First, inflationary cost increases across nearly all inputs, primarily related to commodities and energy, drove about 3 percentage points of increase. Second, about two-thirds of this inflation was offset by the results of our synergy, procurement, and other cost savings initiatives. Three, the remaining 5 percentage points decline in cost of goods per barrel attributed largely to lower employee-related expenses this year along with year-over-year timing differences in quarterly manufacturing overhead costs which you may recall increased our cost in the first quarter of this year. We don't expect the same degree of benefit from the timing differences in the balance of this year. Marketing, general administrative expense decreased about 5% in local currency due to reduction in brand investment, mainly as a result of cycling the Molson Kick brand launch last year and spending behind Marca Bavaria, both of which have been discontinued, as I mentioned.

Turning now to our U.S. business. Second quarter pretax income excluding special items was $70.5 million, 20.6% lower than a year ago. This decrease was driven by higher transportation, packaging material, energy, and labor costs, partially offset by the benefit of sales volume growth, higher net pricing, and additional progress on synergies and operation cost initiatives. Let's look at the U.S. highlights.

Sales to retail in the U.S. increased 2.3% in the second quarter. This was driven by low single-digit growth for Coors Light in the quarter, strong double-digit growth of Blue Moon and high single-digit growth of Keystone Light. Excluding our Caribbean business, which suffered from a local government shut down in Puerto Rico during the second quarter our 50 states volume grew 3.0% from a year ago. We are especially pleased with the broad-based strength of our U.S. performance as 28 of our 30 largest states showed sales to retail growth for our total portfolio in the second quarter.

Equally important, our U.S. team got off to a good start on peak season this year with solid execution and volume performance around the key Memorial Day and July 4, holidays and took share from our two largest U.S. competitors. U.S. volume to wholesalers grew 1.5% driven by sales to retail growth partially offset by a modest reduction in distributor inventories toward the end of the second quarter this year as distributor sales to retail accelerated in the past -- the last six weeks of the quarter. U.S. net sales per barrel increased 1.3% in the second quarter due to higher frontline pricing and more sales of import brands through company-owned distributorship partially offset by increased price discounting, but only slightly.

Our U.S. net pricing has held up well leading into the key summer sales periods especially for Coors Light, relative to its largest competitors. U.S. cost of goods per barrel increased 8.1% in the quarter as a result of four factors. Cost inflation, innovative promotional packaging, and investments designed to yield cost reductions in the future, and expenses related to making our brewery network more efficient which were partially offset by results from our cost reduction initiatives. Let's review these in order.

First, about 6 percentage points of the increase in cost of goods per barrel was due to inflationary cost increases that spanned nearly all our inputs to our operations including cans, bottles, paper, plastic, utilities, freight rates, fuel, and various components of labor and labor related costs. About three-quarters of our U.S. inflation hit in the quarter is attributed to commodities with the balance being driven by rate and labor related increases. Transportation and fuel costs which are particularly volatile inputs for us, accounted for about 40% of quarterly U.S. cost inflation.

Second, another 2percentage points were related to the cost of innovative packaging initiatives that are allowing consumers to taste the cold this summer. These include our plastic bottle cooler box, cold wrap bottle, frost brew liner can -- can liner, all designed to drive Coors Light brand equities around cold refreshment this year.

Third, about 2 percentage points were for investments this summer that will yield lower cost in future quarters. These include costs for temporary process changes and new co-packing and freight arrangements related to preparing to shut down our Memphis brewery, all of which will be more than offset by Memphis-related savings starting in the fourth quarter.

Lastly, savings from our operations cost initiatives and merger synergies reduced cost of goods per barrel approximately 2 percentage points which offset about 30% of the total inflationary cost increases in the quarter. However, we divide the inflation pressures into commodity inflation, and all other other types of cost inflation over which we clearly have more control, the U.S. cost savings programs offset more than all of the non commodity inflation in the U.S. business in the second quarter. This is an important consideration, and we think accomplishment given the extreme volatility of commodity prices this year. Our cost programs are particularly important because they offer long term benefits to shareholders that we expect to outlast large swings in the commodity markets.

U.S. marketing, general administrative expense was essentially unchanged from a year ago because of the increase in labor related costs including our new stock based long-term incentive program, was offset by lower expense due to timing of sales and marketing expense between quarters last year. We continue to anticipate that sales and marketing spending will increase at a low single-digit rate for the full year. Our total Europe business reported second quarter pretax income of 37.0 million excluding special items, up more than 36% from a year ago. This profit improvement was driven by volume growth by our own brands, results from cost saving initiatives, and a $5.5 million gain on the sale of real estate partially offset by continuing industry pricing pressures and negative trends in sales mix.

Now let's examine our Europe business performance in more detail. Our Europe-owned brand volumes were up 5.1% versus the same period last year driven by our industry leading Carling brand. Carling sales in the quarter benefited from the 2006 World Cup soccer tournament, the year-over-year shift in the timing of Easter holiday, and distribution gains with retail pub chains. Europe net revenue per barrel in local currency declined about 14% in the second quarter driven by two factors.

First, about half of the decline was the result of a change last year you may recall in our invoicing arrangements with one of our largest factored brand customers. Recall that factored brands are nonowned beverage brands that we deliver to retail in the U.K. This invoicing change resulted in one-time decline of about $21.2 million in both net sales and cost of goods in the second quarter but with no net impacts on gross profit. Second, the other half of the decline in revenue per barrel was due largely to unfavorable owned brand net pricing and sales mix. Both customer mix and pricing were negatively impacted by ongoing industry trends which include the continued industry shift from independent to chain on-premise accounts and from on premise to off premise, ongoing volume declines in the highly profitable flavored alcohol beverages, and pricing pressures from large retail accounts in both major channels and from aggressive competition in the more profitable independent on-premise.

Profit of goods sold per barrel decreased approximately 15% in the quarter in local currency partly due to the change in factored brand invoice as I mentioned, and declining factored brand volume. Excluding the impact of factored brands, cost of goods per barrel for our own brands was down about 10% from the prior year in local currency driven by lower distribution costs, cost savings from our supply chain restructuring program, and increased fixed cost leverage as a result of higher beer volume. These cost and cost initiatives our U.K. team started last year improved Europe results about $4.7 million U.S. in the second quarter.

Marketing, general, and administrative expense costs in Europe decreased about 12% in local currency in the second quarter driven by lower overhead and labor related costs resulting from our restructuring and other cost reduction efforts that began in the second half of 2005 and continue well into 2006. When combined with the supply chain savings I just mentioned, our Europe team more than offset the margin compression this business sustained in the quarter, a substantial accomplishment in a difficult operating environment. Europe other income improved more than $5 million in the second quarter as a result of our $5.5 million gain on the sale of surplus property near our brewery. This sale is part of our ongoing effort to convert noncore assets into cash to improve returns to shareholders. Our Europe pretax income in the second quarter was reduced only slightly by 2% year-over-year depreciation of the British pound against the U.S. dollar.

Now, continuing with our second quarter P&L review corporate, general and administrative expense in the quarter was $28.3 million up 11.7 million in the second quarter of 2005. This increase is the result of five factors. First, $4.7 million related to our stock-based long-term incentive plan including the effect of adopting FAS 123R accounting treatment this year for expensing equity-based compensation. Second, about $3 million of the increase is related to nonrecurring expenses such as severance costs and one-time legal fees. We do not expect these expenses to recur later in the year.

Third, approximately $1 million of the increase is for investments in carefully developed projects designed to help deliver our next phase of cost reductions enterprise wide. Fourth, about $2 million of the increase is due to classification differences between years and the allocation of various costs of the corporate center much of which are directed in support of the units. Fifth, finally, approximately $1 million of the increase in corporate D&A is related to new and ongoing costs of the strong corporate center capabilities which include Sarbanes-Oxley compliance, corporate governance, tax, legal, commercial development, and human resources. Total company interest expense excluding U.K. trade loan interest income was $39.8 million in the second quarter, which is $8.7 million higher than a year ago due to three factors.

First, $4.6 million of expense related to adjusting the Ontario beer store swaps to market value. Second, the higher cost of long-term debt structure that we now have versus the low rate short term bridge loa that we had a year ago. And third, higher market interest rates this year. These increased costs were offset partially by the benefit of lower special dividend and commercial paper debt levels this year. Excluding the mark-to-market adjustment on the beer store swaps our corporate and interest expense was only slightly higher than in the first quarter.

It's important to note that we have restructured the Ontario beer store swaps so that they now qualify for hedge accounting. This means that beginning if the current quarter any mark-to-market adjustments to their value will be made on our balance sheet without the significant P&L impacts that we have seen during the past year. Our effective tax rate for earnings from continuing operations was a negative 3%, including special items in the second quarter and a positive 3% excluding special items, down from 27% and 33% respectively a year ago. Our tax rate declined primarily because of the nonrecurring benefit of a 2 percentage point reduction in the Canadian corporate income tax rate as well as minor changes in two provincial income tax rates. These tax rate changes which will be implemented during the next four years had the effect of reducing our deferred tax liability on the balance sheet and our second quarter tax provision by about $52 million U.S. This lowered our quarterly effective tax rate by about 30 percentage points. These are discrete tax items so they will affect only our second quarter and annual book rates in 2006 with no impact on cash taxes this year. I'll discuss our tax rate outlook in detail in few a moments, including the future benefit to cash from these rate changes, and there are some.

Cash flow available for debt pay down the first half of this year totaled $32 million, and that includes $64 million in net proceeds from the sale of the controlling interest in the Kaiser Brazil business. Adding another month of peak season cash generation our year to date cash available for debt repayment on July 28, was approximately $170 million. We are making excellent progress toward one of our key goals for 2006 and that is to generate more than $300 million of free cash flow available for debt pay down. Net debt at the end of the second quarter was $2.39 billion net of about $80 million of cash. In early July, we paid off the last of the debt related to the merger special dividend so that substantially all of our debt is now equal credit standing.

We achieved the goal of paying down the special dividend debt more than seven months ahead of our original target. During the past 17 months, we have used available cash flow to repay $525 million U.S. of special dividend principal and $11 million U.S. of its related interest. Special charges totaled $25.8 million pretax or $0.19 per share after tax. In our business segment the special charges were as follows.

U.S. results included a 26.4 million pretax special charge related primarily to the planned closure of the Memphis brewery in early September. These charges include accelerated depreciation of Memphis assets and limited restructuring and project expenses. In Europe the $1.9 million U.S. special credit is due primarily to a $5.3 million benefit related to a reduction in the liabilities recorded for the U.K. pension plan. Recognition of this benefit in the second quarter was triggered by cost reduction initiatives that have reduced U.K. staffing levels nearly 10% versus a year ago. This benefit was offset partially by additional restructuring costs in supply chain and other areas. This restructuring work is now substantially complete with a payback period of approximately one year. The corporate special charge of $1.3 million is due to the quarterly adjustment to the cost of providing a floor price under the options for the Coors executives who left under the change of control immediately following the merger last year.

Finally, as you probably know we sold a controlling interest in the Brazil Kaiser business on January 13, 2006. Under cost method accounting used for our remaining interest it in the Kaiser business Brazil operating results are no longer reflected in the Molson Coors financial statements. Still, adjustments to the remaining Kaiser-related assets and liabilities on our balance sheet are reported as discontinued operations in one line near the bottom of our consolidated income statement. In the second quarter this year we recorded an after tax loss of $1.4 million for discontinued operations. This loss reflects the net impact of foreign exchange and other adjustments to our Kaiser related indemnity, guarantees, and other assets and liabilities.

Now I will preface the outlook session as usual by paraphrasing our Safe Harbor language. Some of what we discuss now in the Q&A may constitute forward-looking statements. Actual results could differ materially from what we project today so please refer to our most recent 10-K, 10-Q and proxy filings for a more complete description of factors that could affect our projections. We do not undertake to publicly update forward-looking statements whether as a result of new information, future events, or otherwise. Regarding any non-U.S. GAAP measures that we may discuss during the call, please visit our website which is www.molsoncoors.com for a reconciliation of these measures to the nearest U.S. GAAP results.

Looking forward we estimate that total company interest expense in the second half of 2006 will be approximately 31 to $33 million per quarter. Note that this outlook assumes constant second quarter foreign exchange rates and excludes as usual U.K. trade loan interest income. Including long-term incentive costs and new corporate center capabilities we expect corporate, general, and administrative expense for all of 2006 to be in the range of 110 to $120 million. This expectation is about $15 million higher than the full year range we provided last quarter due to higher expense for long-term incentive programs, severance and other employee costs, audit fees, investments and substantial cost savings initiatives that we plan to kick off later this year.

Compared to 2005 pro forma corporate G&A expense of $87 million this 2006 range represents an increase of 23 to $33 million driven by the following factors. About $10 million related to our new stock based long-term incentive plan, $9 million is attributed to new cost for strong corporate center capabilities, about $5 million will be the result of investments in projects and initiatives designed to deliver the next generation of cost reductions. $3 million related -- relates to the expense transfers from business units to the corporate center this year. Finally, we expect about $2 million of the year-over-year increase to be driven by nonrecurring costs primarily severance and other restructuring related expenses.

Overall, we do believe that there's solid opportunities to reduce this annual amount by 10 to 20% for next year and this will be a key cost reduction objective for us for 2007. We currently anticipate that our full-year 2006 effective tax rate will be in the range of 16% to 20%. In the absence of additional tax law changes we anticipate that our tax rate in the third and fourth quarters this year will be close to the top of our long-term range of 25% to 30%. In future years we expect our tax rate to be near the bottom of this range or somewhat lower, depending on the timing of changes in tax laws and our company tax structure.

One important factor in our outlook is the relatively positive economic and tax environment in Canada. The Canadian Federal Government tax change enacted in the second quarter is particularly important beginning in 2008 when we expect to begin to reduce our cash taxes by about 5 to $7 million annually with the yearly benefit increasing to about 7 to $10 million as the change is fully phased in by 2010. This reduces our long-term expected tax rate approximately 2 full percentage points. At this point I'll turn it back over to Leo for a synergies update and a look ahead to the back half of 2006. Thanks, Leo.

Thanks, Tim. I'll start with an update on merger related cost synergies and then review some of the key business drivers we're focused on for the balance of the year. In the first half of this year we captured an incremental $28 million of pretax cost synergies and w are more confident than ever of reaching our goal to deliver $50 million or more of cost synergies in '06. Looking out to 2007 we fully expect to capture the balance of our 175 million merger synergies commitment. As we've mentioned in all of our recent updates we're actively developing the next generation of cost initiatives. Some of these efforts are well underway, others are in a formative stage and we plan to update you on the formative substance of these efforts around the end of the year. As we look forward to the balance of 2006 our energy and focus is squarely on growing volume and reducing costs.

Turning first to Canada, on volume, the start of the summer season is evidence that our focus brand brand portfolio is healthier than it was a year ago as we continue to strengthen and build a consumer preferred portfolio. Our investment focus remains on key brands, strategically investing for growth behind Coors Light, positioning our premium brands for recovery and modest growth, Coors Light and our above premium domestic brands and world-class partner import brand portfolio are benefiting from strong focus and investment and have consistently achieved very positive sales growth.

In the second quarter the marketplace in Canada saw increased price and promotion activity, which had a disproportionate impact on our premium and discount brand groups. During this time we continued to focus on our brand strength which will be the foundation for our long-term growth. We remain committed to building our strategic premium brand equities for the long term but we'll also ensure that our portfolio remains competitive on a market by market, week by week basis.

In the first three weeks of July our Canadian sales to retail decreased at a high single-digit rate. This is due to the continuation of competitive price promotion and recent industry softness driven by the cooler weather this year when compared to an unusually warm summer last year. Keep in mind that three weeks is only a small portion of the quarter and these trends are probably not indicative of full quarter results.

On costs, we continue to aggressively pursue merger synergies and other cost savings in the areas of packaging material, waste reduction, plant productivity, and distribution. These initiatives successfully offset about two-thirds of this quarter's cost inflations and delivering our attack cost strategic platform. Constant attention to our cost savings efforts is required to offset expected inflationary pressure in material costs, freight, and utilities. Our goal is to hold Canada packaged goods per barrel to a low single-digit percentage increase for all of 2006 in local currency.

At the midway point of the year the Canada team has built significantly stronger financial position than the year ago while faced with increasing competitive price and promotional pressure. Balance of the year challenges will be centered on remaining focused on brand equity building, and sustainable bottom line growth while addressing the immediate short term competitive promotion activity.

Moving to the U.S. business and focusing on volume first, the U.S. team will focus on continuing its top-line momentum by building the most compelling and relevant beer brands. We have achieved strong volume trends and brand equities in the past few quarters particularly in Coors Light, Keystone, and the Blue Moon brand. Drivers of these results include strong on premise and key account performance, innovation and execution around the Cold Rocky Mountain refreshment theme, ethnic consumer outreach, and category management. A variety of leading indicators and important metrics point towards a strengthening of our top line in the U.S.

In the second quarter our draft sales outpaced cans and bottles for the first time in several years. With recent on-premise growth running about double the growth of our overall U.S. business. Can packaging is also experiencing strong trends with the summer's latest packaging innovations. Meanwhile, Coors Light's Hispanic volume growth is more than four times its overall growth trend. Our U.S. team earned the number one supplier award from Wal-Mart during the second quarter for their efforts with this really important account earlier this year.

More broadly our wholesaler network is playing back to us more positive feedback directly and via the annual Tamron Distributor survey on our relationship with them and our execution in their markets. Taken together, we believe that we're off to a strong start this summer driven by hard hitting Coors Light features in both the on and off-premise channels.

The first four weeks of the third quarter our overall U.S. sales to retail increased a little over 3% while Coors Light grew nearly that much versus year-ago as well. On cost we can't look at the second quarter in isolation because of the substantial volatility and the drivers of U.S. cost of goods this year. Recall the first quarter was aided by the accelerating benefit of some commodity hedging activity which improved COGS per barrel by about 2 percentage points to up only 0.7%. In the second quarter the 8% increase was described earlier by Tim. The third quarter drivers will be similar to the second quarter except the comparisons with 2005 will be easier since the big fuel and packaging increases last year didn't hit us until the third quarter. Besides more favorable comparisons with last year the fourth quarter this year will benefit from several positive factors including lower spending for packaging innovations and 6 to $7 million of all-in cost savings closing -- closing the Memphis brewery in early September.

As we've said previously the annualized cost savings from closing Memphis will be approximately $32 million. These savings will begin to accrue fully to our U.S. business starting early next month. We are well into the Memphis closure currently migrating product supply from that facility to other breweries.

The sum of this quarterly cadence leads us to a full year cost of goods increase in the range of 3 to 5% per barrel taking into account the current view of commodity prices and our full range of synergy and other cost initiatives. As I said earlier, we anticipate that our cost programs will offset more than half the cost of inflation that we anticipate this year. Equally important, these cost initiatives that are designed to provide benefits long after the recent increases in the commodity markets have reversed.

More broadly, if aluminum and diesel fuel remains -- continues to remain at today's historically high levels, our U.S. business would require net price realization closer to the average of the past several years to maintain profitable, favorable profit momentum in 2007. The U.S. beer price environment so far this summer has been more positive than last summer but not as strong as two years ago, primarily because we're able to take only limited price increases last fall. As we cycle widespread promotional discounting and coupon activity in the third and fourth quarters of last year we anticipate relatively favorable net pricing comparisons in the second half of the year.

Turning to Europe, we continue to executing against the growth and cost strategies we launched in late 2005. On volume we continue to invest strongly behind our strategic plans in the U.K. Both in hard-hitting marketing programs and retail innovations. We're planning higher front end spending for the full year off a solid base. At retail we continue to roll our new cold dispense technologies and distinctive above bar fronts. This roll-out extends beyond Carling and establishes a cold platform for a broad group of suitable brands within our existing portfolio. Five years after our industry leading introduction of extra cold beer the industry is rapidly moving to this standard. Our aim is to maintain our leadership in this space to drive sales with current stock lifts along with increased distribution. A big benefit of our equipment design is the flexibility to deliver different brands with clearly differentiated branding but using common font base that's unique to our business.

Results of the recent consumer research have been very favorable with consumers indicating a preference for our new above-bar equipment over selected competitors. To help drive sales with our biggest brand we have recently appointed new advertising agency for Carling and we expect this new team to help us create a campaign for Carling that will build on what's already a very successful brand story. In the first five weeks of the third quarter our Europe to sales to retail have decreased at a midsingle digit rate from a year ago due to retail and consumer inventory drawdown following the World Cup. On Europe segment costs, our cost reduction program has been very successful to date while we have substantially completed the program we began last year, we'll benefit during the balance of this year from the flow-through of initiatives already completed. This is an outstanding accomplishment by our U.K. team in a very tough industry and competitive environment.

The area of pricing is the source of extreme margin pressure in the U.K. beer industry. Especially given the price discounting we have seen in the off-premise and because of the continued growth and consolidation of large multiple outlet retailers in both the off-premise and on-premise channels. Our focus is on balancing volume growth against margin as the market continues to shift to areas of our strength, example, cold mainstream lager, we expect an increased ability to resist market destructive pricing.

To summarize our discussion today, as I mentioned at the top of the call our second quarter results were encouraging in terms of how they indicate the significant and steady progress that we're making strengthening the fundamentals of our business across each of our operating segments. Despite the competitive and cost challenges we face in each business we'll stay the course, positioning our company for growth and long-term success. Specifically this means enterprise wide our teams will remain focused on building our base with the strategies we have outlined previously and are committed to executing and they are being great brand builders, continuing to strengthen our financial foundation, building our global competitive capabilities, and, of course, building a winning and inspired culture from within.

So two housekeeping notes, then we'll go to questions. Number one is our prepared remarks will be available on the website for your reference within a couple of hours. Also at 3:00 p.m. Eastern time today our investor relations team led by Dave Dunnewald will host a follow-up conference call for -- essentially a working session for analysts and investors who have additional questions regarding the quarterly results. This call will also be available for you to hear via webcast and recorded replay on the website. And we look forward to seeing many of you in Boston on September 6, for our presentation to the Prudential back to school conference which will also be webcast for those of you who can't attend in person. So at this point, Matt, I think we're ready to open it up for questions.

Thank you. [OPERATOR INSTRUCTIONS] Our first question comes from Caroline Levy from UBS.

Hi, Caroline.

Hi. Sorry. There we go. Picking up the handset. Hi, guys. I just want to ask you specifically to talk a little bit more about the start to the quarter in Canada. The volume there, did you say high single-digit decline?

Kevin, take them.

We did say high single-digit decline. That's the first three weeks. It's a combination of primarily two factors. The first is weather related although the weather has been pretty good, certainly compared to a year ago if you take the Ontario market, and Quebec would be similar, we've had about half the number of days that went above 30 degrees as a year ago. So there is some weather impact and you are seeing that in the industry numbers. That also happened over the long weekend. There's been a fair bit of discounting primarily by our major competitor extending through the World Cup where they had a large promotion around that. They had Budweiser on sale for five weeks and that clearly did affect volume at the beginning of the quarter. That is settling down, however.

What did Molson Canadian do? What did your Molson brand do in the quarter?

In the quarter we were down slightly and year to date we're still experiencing growth.

As you look to the balance of the year do you expect both Molson -- do you expect Molson to grow for the year?

Molson Canadian?

Yes.

Yes, at this point in time, the first quarter was very strong, obviously some pricing in the second quarter has affected its performance a little bit in Ontario, it remains very strong out west so we think with some adjustments and continuing to stay the course we will be in pretty good shape for the back half. If you look at our focus brands, our focus brands grew in the quarter 5% so we need to get the balance of the brands that we're not supporting because they are declining and obviously affecting our growth to a degree, but the brands that we're supporting and focusing on are doing very well. Canadian is obviously key to that.

If you look at the profit growth in the quarter, which was very good, is that sustainable for the year even with the kind of start you saw to the third quarter?

Sustainable at that level?

Not necessarily at that level, but growth, because I guess you do have the synergies and the cost cutting and so on.

Caroline, we're not in the business of forecasting the profit line, but we feel very confident about the Canadian business as we look at the back half of the year. Fundamentals are really in good shape.

Okay. And again, in Europe, if could you just comment on how concerned you are about -- is it the first three weeks or six weeks that you gave us in terms of the volume?

Peter?

I think it's the first four weeks you had the volume there, Caroline.

And that sounds like a carry-over from the second quarter. Do you see anything else?

You're right, it is a carry-over from the second quarter. The last week's figures show some improvements on that performance, but we'll have to really wait until we've got the last four weeks of the last quarter and the first four to five weeks of this quarter before we see exactly what's happened with the actual pipeline.

I also notice if I look at revenue per barrel in the Europe area, it started declining much more rapidly in the third and fourth quarters of last year. So in other words you have an easier comparison on this change in invoicing. Is that correct? The declines should moderate as you go forward?

There is two elements, Caroline. The one that you may be referring to is the change in factored brands, invoicing, that will moderate in the second half of the year, yes. The actual pricing environment -- we'll have to wait and see, I think.

Okay. Then finally I just wanted to ask about Puerto Rico. It sounds like your volume growth, I don't know if this was true of shipments as well as STRs would have been measurably higher without Puerto Rico. Can you quantify what that did to your profitability in the U.S. market?

I don't think we've broke out the number for the actual profitability impact. It wasn't huge because it wasn't a big part of the overall year, but we saw a substantial decline during the time period that the government was shut down.

Has that business come back now?

It's coming back, but the market still appears pretty weak for us.

It's a very weak economy down there, Caroline. It's pretty volatile.

Caroline, there was not a significant difference between STRs and volume impact from the Puerto Rico government shutdown overall.

I was just trying to get at when it had any impact on profit. You would say small?

It had a small impact in Q2.

Thanks very much.

Thanks Caroline.

Thank you. Our next question comes is from Mark Swartzberg from Stifel Nicolaus.

Tim, I was hoping to try to understand the M component of MG&A, especially for Canada, and U.K., either year to date or in the quarter. I'm trying to take out some of the noise from discontinued brands, and really try to understand, is the M number on a per barrel basis up year to date, flat year to date, down year to date? And how do you think it compares relative to your share position for your core brands in each of those two markets?

Mark, two things. Let me have Kevin and Peter respond for their respective businesses, but one thing I will say is, I think in all our businesses, I believe in all our businesses, we have done -- Peter and Kevin and Frits have just done Yeomans duty in really really focusing brand spending and increased brand spending on the brands that really matter and I think that that's why it's really important to get into exactly what you're asking, because -- just because you see a decline, and obviously Kevin had one with the discontinuation of two brands, doesn't mean that we're not supporting key brands, doesn't mean that we're not supporting key brands more. That is the game that we want to play. We want to make sure we're investing heavily behind those brands. So with that, let me ask Kevin to respond first.

If you -- I think, Mark, you said if you discount the discontinued brands out of that?

Yes.

Our spending would have -- there's a slight shift between marketing and temporary price reductions, but our planned spending would have been down a touch versus a year ago if you take away the discontinued brands.

And that's a 2Q or year to date?

In the second quarter.

How would you characterize year to date?

Kevin, this is Dave Dunnewald, to add to that would you describe that slightly lower primarily driven by -- in the second quarter, primarily driven by a lot of activity around the relaunch of brand Canadian a year ago?

Yes, we -- if you go back to 2005 late in March we came out with our new advertising campaign and we had very heavy weights through the whole second quarter so we're cycling that. So it would be natural for us to be somewhat lower than that.

Okay. And do you have a year to date view?

Slightly lower than a year ago, excluding these discontinued brands, so slightly lower on a year-to-date basis and on the second quarter basis.

Great. And how do you feel, if I could here, how do you feel, Kevin, when you think about this tension you're dealing with about competing against the promotional pricing and as you noted, having put more behind your biggest brand there a year ago, how do you feel about taking a three-year view about the level of support you have behind your largest brand?

We've made some shifts over the last couple of years to -- certainly last year, last 12 months, about accelerating the growth of Coors Light, and we have clearly put a lot of money behind that and we are seeing tremendous growth out of Coors Light. We're putting more behind our partner brands. We had put more in a relaunch here behind Canadian that we needed to settle down slightly to get back to a more normal level of spending. So I think what you're seeing is, we're confident in our investment levels in the long-term, we'll rebuild and build strong brands. Pricing in the short term is a bit of an issue. Obviously we're going to have to be competitive. There's no doubt that if you just take the Ontario market our major competitor discounted -- they sold 50% more volume on discount than we did in the second quarter. So that kind of indicates what's happening out there.

Yes. Okay. That's helpful. Thank you.

Thank you. Our next question comes from Karim Salamatian from BMO Capital.

First question I guess is really an extension of what Mark was just asking you, and it's directed at you, Leo. In Tim's prepared comments he talked about the Canadian market, and how there was a conscious decision to focus on profitable growth, and in the quarter market share declined 100% and that kind of reminds me of the old Molson and my thinking about what you wanted to do at Molson in Canada was invest behind the brands and really get that market share growing, something that we haven't seen at Molson for a long, long time. So how does -- how should we look at this and think about it? Because it kind of sounds like what you guys are saying today somewhat contradicts what the story was a year and a half ago.

Any time you take a look at a point in time and compare strategies between two head to head competitors you are going to have some distortions. But our goal clearly in Canada is to gain market share. The game plan continues to be to take our lead brands which -- our package of lead brands, which is Coors Light for growth, our import brands for growth, our domestic super premium for growth, to build that off a solid base of our leading Canadian brands, and gain share.

We had a little housekeeping to do in the quarter. We were overlapping some big volume from a kick intro a year ago and A Marca Bavaria clean up, and you've got your promotional game that goes on quarter to quarter. I would say that the promotional volume is probably as much out of whack as we'd expect it to be in any quarter. We obviously were playing a different game than our lead competitor was. So I don't think philosophically we've changed at all. We want to build the top line, build it the right way. Very excited about the momentum of those key brands right now.

When you saw what we did last year with the investment ramp-up in the Canadian business to get back to a very competitive level, right?

Yes. Does that address your question?

Yes, it does. So I guess would it be fair to say that in this environment where there's all this promotional activity and discounting and your competitor is doing things significantly different from you, that market share gains for the balance of the year might not happen? Or do you think you can grow share in this type of environment without copy catting what your competitor is doing?

Hey, look, I think Kevin said it just right. We've got to stay competitive in the day-to-day business. That's just a fact of life. You build off of that. We're happy with the momentum of our strategic brands. They will continue, I think, to gain momentum for us. We've got some tactical things to do with some of our -- maybe you call them more the tail brands, and that life and the team is working hard on that. Our goal still is to drive share gains.

Kevin, maybe you can talk a bit about any brand innovation in the pipeline, what's going on with, whether it's in the mainstream or premium and super premium.

We've -- in the quarter we launched in Quebec Rickard's Light, which is a wheat ale and we've put it in a limited test market in Montreal area. It's doing really well, so we look to learn from that and extend as appropriate. We're also looking at taking the cream of our brands and extending that outside the province of Ontario. There's still we think some pretty good growth opportunities for it in Ontario to begin with, but we also want to begin experimenting outside Ontario. So I think you'll see a couple of those. And then the ongoing promotional type of innovation packaging type of stuff but if you're looking at branded in the short term those are the two initiatives that we have underway.

Terrific. Thank you.

You're welcome.

Thank you. Our next question comes from Michael van Aelst from TD Newcrest.

I had a couple of questions. Most have been answered, but just following up on Canada first. Can you talk a little bit about the promotional environment heading into Q3 and how that's changing? I guess maybe talk about the two major markets in Quebec and Ontario.

If you start with Quebec, through Q2 there was, in the first two months of the quarter, it was a little bit less than a year ago, and as you got into the last month of the quarter it accelerated a little bit, so we'll see what happened perhaps. There may be a little bit of chasing in volume depending on what happens with weather, so weather over the next few months is going to be pretty important. In Ontario what we've seen is coming out of the long weekend in July there was a continued push because of the World Cup by a couple of brands, and we're seeing some discounting obviously regular -- type of discounting as historically happened on the long weekend, I think it's -- we were on sale last week and we're on sale again this week in Ontario. We'll adjust, and as Leo said in his comments, go week by week and do what's necessary to be competitive and to build brands for the long-term.

When we see price discounts on a weekly basis in some chains, and in particular chain in Quebec, is that -- how much of that are you guys funding at the end of the day?

That's always a difficult question to answer in any business I've ever been in is how much we contribute, how much they contribute, but there's no doubt in Quebec there's some retailers that are trying to grow their business for the long term and using beer as a way to attract people into their stores.

Moving over to the U.S. side, can you just explain a little bit more the cost inflation range you gave? I think it was 3 to 5%, despite some pretty good cost containment efforts it seems like you guys are going to have higher inflation costs than Bud.

Yes. So we saw a few things that kicked in, in the second quarter, mostly related to the overall inflation rate which obviously you saw across the general market, and then related to some one-time cost increases associated with some of the changes we're making particularly around closing Memphis, then finally some of the innovative packages that contributed as well. I think we broke those percentages out for you, 6, 2, and 2. So those are the main drivers. As we look in the back half of the year I think the range we gave you is 3 to 5%. If you look at the year to date number, which I think is a little bit more indicative than Q2, we grew year to date at about 4.8%, so that 5% range at the high end of what Leo talked about would imply that we have the same rate going for the rest of the year. I think going to our advantages, those one time costs in the second and third quarters turn into savings in the fourth quarter, the effect of the innovative packages is greatly reduced as you get into the back half of the year. So the 5% I think would really be at the high end of what you might expect and as we start to kick in some of the expense savings we get closer to the 3% which is as I said close to the bottom end of that range.

All right. Perfect. Thank you.

Thank you. Our next question comes from Robert van Brugge, Sanford Bernstein.

Leo,you mentioned that you would be to take pricing given more to level of the last several years, which I think to be about plus 3% or so, in order to offset the commodity and aluminum costs next year. Could you maybe expand a little bit more on that, in particular just how exposed are you to market prices for aluminum next year, and are there any ways to mitigate that?

I'll let Tim cover that for you. I think -- what I was trying to call out is the costs are moving in the business and the price has not moving sort of in the same intellectual pattern, obviously. You would expect to see more pricing in the U.S. business given the cost inflation impacting the fundamental of our category, right. Tim, why don't you talk a little bit about how we deal with our commodities.

Yes, Robert, thanks. On aluminum, we have seen and we'll continue to see inflation hit us. We basically have a six-month look-back sort of mechanism, and that's the way we do it with our partners, and that's probably about as much in detail in terms of sharing how it works. But we're taking a number of steps to try to offset that. But it is an element that our U.S. team is looking to confront next year. We think it's manageable, but it's not insignificant.

The dynamics worldwide, which is what hits us, and what is causing this inflation is we have a huge demand, and so many sources of capacity are either about to or being planned to come on, on-line, it's really had a significant impact. Obviously there's a lot of energy that goes into processing alumini into aluminium, and that's increasing our costs. And we're looking certainly in the first half of next year we're looking at more of same.

I'll just jump in on this one, too. As you look across is the business the last two or three years, you see COGS s inflation in the range of 4 to 6%. Pick your year, pick your number. And then on the operating overhead side, healthcare costs increasing probably double-digit rates, whereas front-line price increases for the beer business, that's something shy of 2 percent. So obviously for all of us in the industry that puts a lot of pressure on continuing cost reductions and efficiency improvements.

I think Leo's comment was more to the point. For long-term sustainable growth and profitability in the beer category at some point frontline price in creases have to get a little bit more in line with where we are and that's certainly why we're driving our strategy so far behind building brand strength and really growing through making our brands more attractive to consumers so we that can pass some of that price on through.

The other element that you didn't touch on, but it's part of the same dynamic, Robert, is the fact that today we send our product in U.S. about eight times -- eight to nine times farther than our competition. So transportation, fuel, diesel, related costs, is going to hurt us, affect us, more than our competition, which just bears out even more the logic was good a couple years ago, the logic today is spectacular of building out our Shenandoah brewery, and we are obviously going to get the benefit from that.

Thanks. If I can just follow-up on corporate expenses. You raised your guidance again for this line item, it seems like every quarter it's moving up even further. I'm just trying to understand better. I mean, are these kind of conscious decisions to kind of further increases because you see what they have down the road, or are these things that you feel are not in your control at this point?

Well, these are very much in our control. That's exactly why I made the comment I I did that one of our objectives for next year will be to reduce this amount by 10 to 20%. A number of these costs are related absolutely positively to paving the way for the next generation or two of really, really significant cost reductions, and we're funding those efforts from the corporate center, and a number are nonrecurring. We have had a couple of continued change of control costs. We have had continued -- but nonrecurring legal expenses and then we will have a few more of these nonrecurring things occur in the next quarter or two, and then we think we'll be done. But absolutely, this is within our control, and we are going to, as I say, the objective will be to reduce it 10 to 20% next year.

Okay, thanks.

Thanks, Robert.

Thank you. Our next question comes from Bryan Spillane of Banc of America Securities.

Tim, a question for you, and then I guess for Leo as well. Just on cash flow, is there a change in your cash taxes for 2006 based on the lower tax rates? Will you see some cash flow benefit there? Just as a follow-up, as you're nearing your, or at your debt reduction target, just your thoughts on uses of free cash flow, are we closer to a share buyback here? Are acquisitions more important? Just some thoughts on that would be helpful.

Sure. A couple of things. First of all, I think we are in a very good place with meeting or exceeding slightly our free cash flow for debt reduction goal, $300 million. I pegged that plus or minus $10 million, maybe plus or minus $15 million at this point, but we're really nicely on track there. To your cash tax point, this tax, as I mentioned, this reduction in this quarter of our tax rate does not cash tax reduction produce in '06, in the outer years, as I mentioned, '08, it's 5 to $7 million. Beyond there, it's more in the 7 to 10 million. So it's a real cash tax saver in the out years but not particularly in this one, and, yes, we're feeling pretty good about the pace of debt pay-down.

We have, as of about three weeks ago, paid down, two and a half weeks ago, paid down the last of the special dividend debt. That's about seven months early, and our bias, Bryan, and you know this, is to put cash into the business. And you've heard from Peter and Frits and Kevin. We've got obviously great ideas on packaging, great ideas on the front end of our business, and those require cash. Buying back stock at the margin any point in time, if you think your stock is undervalued, not an awful way to spend cash, and we're not insensitive to the interests and demands of certain investors on this point specifically, but I think at the end of the day, what's best for shareholder value is to be growing and participating in a competitive beer world, not to just be buying stock back.

So we'll continue to look at it. When we've got something tangible, of course we'll share that with you. But we want to pay off the last of our shorter term debt. We think we'll do that the bulk of the balance of this year, first quarter or so next year, the first quarter is obviously working capital use quarter, and then take a look at it. But our real bias is to put the cash back into solid returning business building priorities.

And you still have enough shorter term debt to pay off over the next couple of quarters that you won't be in a position over the next few quarters where there's no other place to put the free cash flow?

Correct. As we turn the corner to next year, and after we get out of first quarter, because first quarter is always a cash use quarter, it's something we'll contend with exactly.

Just quickly, capital spending, your CapEx expectations for this year?

Yes, our CapEx spending this year is circa $400 million, again, plus or minus 5%, so that range is tightening. I'd say probably 400 million plus or minus 10%. The U.K. has pared back on its capital program. The U.S. is incurring a bit of inflation on our Shenandoah buildout as are many many projects because of the Katrina effect, and just some of the things we're talking about in terms of fuel and commodities. Our CapEx spending will be very much in that $400 million range.

Great. Thank you very much.

Thank you, Bryan.

[OPERATOR INSTRUCTIONS] Our next question comes from Anthony Bacula from Bear Stearns.

Good afternoon. This is Carlos Laboy. Can you comment on Virginia, please? What's your targeted date for the first beer shipment out of Virginia? How long will it take to fully ramp up, and are there any unexpected positive or negative surprises that have come up in terms of either cost or timing issues for Virginia?

Yes, so our current plans are to have some production up and running early next calendar year, then to be fully on speed for the peak season going into summer 2007. We have -- as Tim just alluded to we have experienced some decrease, or I should say capital expense of, and related to the buildout of that facility which is almost entirely and directly related to cost increases around other things that we're buying to build or in getting labor available to build the facility. We built enough slack into our deadlines meaning because we think we'll be ready well before we need to for the peak season. We've been able to offset that a little bit by being a little bit more careful about the timing so we can spend more judiciously around getting the buildup done.

You don't have an actual date for first shipment out of there?

We don't have one right now, and primarily because really the main thing is to be fully on stream as we get into the summer.

And could Peter speak to STR progression in the U.K. for April, May, June, and how he might think about the the effect of World Cup on his total quarterly volumes?

Yes, sure, Carlos. Really it's -- you've got a number of factors. You obviously have Easter week, coming into April this year compared to last year, so that confused April. May weather was atrocious in the UK. It was very, very cold, so that didn't help. June, you had the buildup to the World Cup, and that's actually extraordinary warm weather for the UK. So trying to decipher all of that the sort of general feeling is that the World Cup definitely helped the off trade, and I think you've got the numbers in front of you in terms of how we performed in the off-premise. To some extent it helped the on trade, but not to a great extent. The feedback we're getting, from our major customers and from what we saw, the match days benefited obviously, but the rest of the week didn't necessarily benefit that greatly. And what benefit we did see in the on trade we're actually putting down to the warmer weather rather than the World Cup overall.

Thank you.

One more question.

We can do one more, or if that's it, we can finish up, given the time.

Our final question comes from Cheryl Gedvila from Prudential.

Good afternoon. I just wanted to get the -- once again, the FX impact on your Canadian net sales in the quarter and if you could talk a little bit about the rate and mix difference there and then also what the FX impact was on your consolidated net sales performance?

Yes, this is Tim. I'll let Kevin talk to the mix impact, but total total company, very, very slight impact from the depreciation of the pound. But all in, and this is net, because we pay a little bit more in interest because of the stronger Canadian dollar, because you will recall that we -- our bond issue is primarily in Canadian dollars to hedge that cash flow, but all in, about $11 million U.S. benefit for the quarter.

But on the top line?

About 9.8% of the Canadian business. That's depreciation -- that's appreciation of the Canadian dollar.

So to fill in then, because you asked about the mix, if you look at a combination of our super premium portfolio and slight shifting out of our value, our mix went up about just under 1%.

Okay. Then the rate impact then?

Rate impact?

Essentially flat, Cheryl. We said earlier.

Okay. Great. Thank you.

Thank you.

Okay. Thanks for being with us today, everybody. We really appreciate your interest in Molson Coors Brewing Company. We look forward to continuing our momentum on the back half of the summer here and be back to talk to you in a couple of months. And Tim and I will be at the Prudential show in Boston what date is that, Tim?

September 6t.

So we'll see several of you there. Thanks. Have a nice week, everybody.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Have a great day.