TAP-A earnings call transcript, November 5, 2026

Thank you operator. Our earnings release and presentation materials are available on the investor relations section of our website. Today's discussion includes forward-looking statements within the meaning of U.S. federal securities laws. Please refer to our earnings release and our most recent SEC filings for important information regarding these statements, including risk factors as well. as definitions of and reconciliations to any non-GAAP measures. Actual results may differ materially from our expectations, and we undertake no obligation to update forward-looking statements, except as required by applicable law. Today, we'll focus our prepared remarks on our performance and outlook before opening the line for Q&A. To allow as many participants as possible to ask a question, we ask that you limit yourself to one question. Any technical questions can be addressed with our investor relations team following the call. Unless otherwise indicated, all financial results are comparable prior year period. and are in U.S. dollars. With the exception of earnings per share, all financial metrics are in constant currency when referencing percentage changes from the prior year period. Also, shared data references are sourced from CERCANA in the U.S. unless otherwise indicated. Our remarks today will also reference underlying pre-tax income, which equates to underlying income before income tax.

And underlying earnings per share, which equates to underlying diluted earnings per share, as defined in our earnings release. And with that, I will hand it over to Raul.

Thank you, Barb. And good morning, everyone. Since launching Horizon 2.0, earlier this year, we've been laying important groundwork for long-term success. We are building the portfolio, the capabilities, the routines, and the operating discipline to perform more consistently across the business. We've taken decisive actions intended to strengthen our share trend, accelerate our portfolio transformation, simplify our cost structure, and return cash to shareholders. In the U.S., Corbeer's share trend... ...improved from Q2 levels as share losses narrowed. We're seeing growth emerge across several important parts of the portfolio where we have been intentional in our activation and investments. And we're seeing encouraging signs... ...that our new operational approach is helping us compete more effectively across our regions. Our strategy is only in its first year and these signs give us confidence that it's working well. ...even as the operating environment remains challenging. Through the first half of this year, U.S. industry trends were tracking better than 2025 and our own performance has largely been tracking in line with our previously... ...announced 2026 guidance range. However, some external headwinds intensified as we moved into the third quarter and we are continuing to experience category softness in the U.S., increased... ...promotional activity in the U.K., and elevated freight and fuel costs in the U.S. As a result, we are lowering our full year 2026 guidance ranges for NSR, underlying pre-tax, income, underlying...

...our financial performance and provide the details of our outlook.

In the third quarter, our results reflected a more challenging category and cost environment than we anticipated at the start of the year. What... Pricing, mix and cost savings actions continue to support our plan. Industry softness, freight tightening and commodity-driven input cost pressures intensified as the year progressed. We expect these factors to persist in the near term. With that context in mind, let's review our three key metrics. For Q3 on a year-over-year basis, consolidated net sales revenue of $2.9 billion declined 1.2%. Underlying pre- tax income of $349 million was down 17.4% and underlying earnings per share of $1.46 decreased 12.6%. Let's first walk through the drivers of the quarter, which will help frame our revised guidance for fiscal 2026. Starting with the top line. Lower financial volumes in the Americas and the UK were partially offset by positive net pricing in the Americas and favorable sales mix. The US beer industry declined more than 4% based on our internal estimates. Our US volume share trend improved by almost 20 basis points from Q2 2026. Financial volume declined by 3% while brand volumes declined by 4.9%. Net pricing and positive sales mix drove positive 2% NSR per hectare growth in the Americas with favorable mix mainly driven by Monaco. EMEA APAC delivered a positive 1.1% NSR per hectare growth in the quarter mainly driven by favorable sales mix while the promotional environment in the UK remained competitive.

Underlying COGS per hectare increased 8.1% mainly driven by continued higher midwest premium and aluminum costs, freight market tightening and fuel prices. The midwest premium alone. drove approximately $30 million of year-on-year cost increase in the third quarter, representing roughly 40% of the year-over-year profit decline. As expected, MG&A was down 7.4%, largely due to... ...to targeted cost reductions in marketing and cost savings initiatives offset by higher technology expenses. Turning to our balance sheet, our net debt to underlying EBITDA ratio was 2.53 times at the end of the quarter. Modestly above our below 2.5 times target. Over the last several years, we've worked deliberately to strengthen the balance sheet and improve our financial flexibility. That work is particularly important in an environment like this. While we expect commodity and freight costs to remain elevated in the near term, our balance sheet remains strong, which we believe gives us capacity to manage near-term volatility while continuing to invest behind our losses. Long-term priorities. That flexibility is also reflected in our capital allocation approach. We continue to prioritize investments that will strengthen the long-term performance of our business while also returning capital to shareholders. Through a durable dividend and our shared repurchase program. We continue to generate strong cash flow and year to date we have returned to shareholders $273 million through dividends.

And $250 million through share repurchases. Since the plan was announced in October 2023, we have repurchased 16% of our Class B shares outstanding and we have $2.3 billion remaining under our authorization. With that, let's discuss the drivers of our updated 2026 guidance. We now expect net sales revenue to decline minus 1 to minus 2% on a constant currency basis. Our previously guided range of flat plus or minus 1%. While the U.S. industry continues to track modestly better than 2025 on a year-to-date basis, that improvement largely reflects the strongest start to the year. More recent trends have been softer. Our revised top-line guidance assumes that soft industry volume trends in both the U.S. and EMEA-APAC and promotional pressure in the U.K. will persist through the remainder of 2020. We continue to expect an annual net price increase of 1-2% in North America, in line with the average historical range, and our assumptions for nine months of NSR contribution from Monaco remain unchanged. Year-to-date, we've seen quarterly variability in financial versus brand volume trends that has mainly been driven by shipment timing. We still anticipate the convergence of financial volumes toward brand volumes in the balance of the year. On the assumption that U.S. financial and brand volume trends will largely align. Moving down the P&L, we now expect underlying pre-tax income to decline minus 21 to minus 24 percent, which equates to approximately...

...$18 million at the midpoint on a constant currency basis as compared to our previously guided range of minus 15 to minus 18 percent. As Rahul mentioned earlier, we're expecting lower profitability for the balance of the year. ... than our year-to-date performance would imply. This is largely due to the impact of higher commodity and logistics costs. For the full year, we continue to expect Midwest premium costs to exceed the prior year by approximately... ...$113 million. To put that into perspective, the year-over-year increase in this surcharge alone equates to roughly 10 percentage points of underlying pre-tax income impact, or more than 50 cents of underlying earnings per share at the midpoint of our 2026 guidance. We now expect underlying earnings per share to decline minus 16 to minus 19... ...as compared to our previously guided range of minus 11 to minus 15%. We have also updated our underlying free cash flow guidance range to $1 billion plus or minus 10% versus our previously... ...guided range of $1.1 billion plus or minus 10%. This was mainly driven by the reduction in our previously guided underlying pre-tax income range. All other guidance drivers remain unchanged. Looking at... ...ahead, we currently expect several of these inflationary pressures to continue into 2027. On the Midwest premium specifically, we do have hedge coverage in place for 2027. However, as we have previously discussed...

...Midwest premium remains difficult and expensive to hedge, and our exposure is never fully hedged. We expect market conditions for commodities to remain dynamic into 2027. On the productivity side, the previously announced restructuring actions... ...are now producing benefits that will extend into 2027 and beyond. Separately, certain brand owners have sought to terminate their distribution agreements with Queer's distributing company, our wholly owned distributor in Colorado. CDC is pursuing... ...legal actions to enforce its rights under those agreements. We don't expect this to have a material impact on our fiscal 2026 results, and the impact on 2027 will depend on the outcome of these legal actions. We will provide an update... ...as the situation develops. We'll provide our formal 2027 outlook on our fourth quarter call as is normal practice. In the meantime, we remain focused on the factors within our control. Productivity, disciplined revenue management... ...investing in our brands and prudent capital allocation. We recognize that any individual year, 2026 included, can be significantly affected by the external costs and category environment. That does not change our commitment to our growth objectives... ...or the actions we are taking to strengthen the business. And we remain committed to our medium term growth objectives. In closing, this has been a challenging operating environment, but at the same time we are seeing tangible benefits from our...

actions. We continue to benefit from a portfolio of enduring brands, a productivity program that creates both savings and reinvestment capacity, and a disciplined capital allocation approach. Together, we believe... ...these attributes give us the financial resilience and flexibility to navigate near-term pressures while continuing to invest in the long-term evolution of the business. With that, we will take your questions.

Thank you. We will now begin the questions. Please limit yourself to one question. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one. Again, we ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A.

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