Operator: We now have Bryan Spillane of Bank of America.
Bryan Spillane : So Tracey, I guess I had just a question — two questions around cash flow. One is I know we took the pretax profit or the — I’m sorry, the profit after tax guide up, but you left the free cash flow range. So I guess it’s just why not, I guess, a higher conversion on free cash flow and then — or on cash flow? And then second to that, just again, you’ve got some cash hanging around and the stocks performed the way it has. So just any thought — any way we should be thinking about whether or not you put some of that cash to work to buy back shares?
Tracey Joubert : Yes. Thanks, Bryan. So look, the free cash flow range that we gave was already quite wide. So we’re comfortable just leaving it where it is. In terms of capital allocation, look, our priorities haven’t changed. It’s those 3 buckets that we speak about. It is investing in our business to drive the sustainable long-term top and bottom line growth. And that could be investment in our breweries or from an M&A point of view, the sort of spring uphill’s approach. We will continue to reduce net debt with a desire to improve our investment-grade rating. And as I remarked, we did get an upgrade from S&P and then returning cash to shareholders. So we did announce the $2 billion — up to $2 billion share repurchase plan over the next 5 years.
And we’ll consider all of those things. I think the good thing is that with our strong free cash flow delivery, we do have optionality as to how we can balance the allocation of capital behind these priorities. But as always, we’ll run all of the ideas through our models and make sure that we’re investing where we are driving the higher return for our shareholders.
Operator: We now have Andrea Teixeira of JPMorgan.
Andrea Teixeira : I was just going to talk about a little bit of the share of voice. And I think you in the Analyst Day, you obviously discussed that against the incremental spend this year. Is there any KPIs you can talk about as you’re tracking the development of the incremental spend? And if there is anything — I know most of that $90 million, I believe, incremental spend for — I’m not mistaken in the quarter, it’s mostly compensation. But wondering if it’s going to reaccelerate even further in the fourth quarter, so it sets you up for 2024? And on that, I was just trying to get — Gavin, you mentioned that your market share continues to be solid. I think one of your main competitors talking about light recovering a bit.
I know, obviously, from a variable base, anything you would be expecting to see and I understand, obviously, you may not count on that being — that share gain being structurally 100%, but most of it could be. So I was wondering if you can comment a little bit more on the market share performance that is baked in your outlook next year.
Gavin Hattersley : Thanks, Andrea. Look, from a marketing point of view, we’re focused on the quality and effectiveness of our marketing spend versus the sort of level of spend that drive the best returns. And we certainly try and make sure that every single dollar counts. We’ve got great tools that we’ve had for a number of years, which evolve and they’re designed to make sure that we get the required marketing effectiveness. We know which creative assets are working hardest and which channels are working hardest for that. So we’re going to continue to put the right commercial pressure behind our brands to support the momentum. I just want to maybe correct on one thing, right? So the extra $90 million in the fourth quarter, there’s about $50 million of that is the marketing.
And that’s part of the $100 million we said we’re going to spend on extra marketing in the second half of the year. So we spent half of that in the third quarter behind really big bid drinking occasions like football, which we’ll do again in the fourth quarter. And then obviously, a large component of what’s left is, as Tracey said, the employee-related costs. Look, as far as share gains are concerned, our share position has been stable for the last 25 weeks. It’s a structural share change to the industry that we believe is going to stick. And yes, I know there’s been a lot of noise about trends changing and whether these results are sticking. So let me just share the facts and these aren’t our facts, these are Circana and the fact is total share for Coors Light and Miller Lite has stuck over the past 7 months through the latest 4 weeks of track channel data on a dollar change basis, Coors Light and Miller Lite both continue to put up double-digit growth.
And at the same time, Bud Light has lost just under 3 share points. The overall portfolio for our biggest competitors lost under $5 share points. And that’s consistent if you look at the 4-week data, the 13-week data and the 26-week data. In fact, bud light’s actually getting worse. The brand’s dollar share loss over the last 4 weeks was more than any 4-week period this year. And as I said, these aren’t — I mean this isn’t a pole or a possibility, right? This is the fact as laid out in Circana, and we believe that the strength is going to continue into 2024, and we’re very confident in the position of our core brands in both the U.S. and obviously, in Canada. We’ve got a very clear plan on keep these share gains. We presented it to our distributors at our 4 national distributor convention.
We showed our plans. And honestly, the energy around our plans is something I have not seen, not only for Miller Lite and Coors Light, but for everything. We had a 95% positive score from our distributors. That has never happened. And we laid out a clear acceleration plan at our Strategy Day on how we’re going to retain the share gains. So yes, we believe we can retain the share that has proven to be extremely sticky on every measure that we look at.
Operator: We now have Peter Grom of UBS.
Peter Grom : So I was hoping to get some thoughts on just kind of the underlying COGS per hectoliter, which was kind of the lowest year-on-year increase in quite some time. Maybe just first, can you just help us understand what’s embedded in the guidance for the fourth quarter? I think you mentioned an increase in underlying COGS due to high inflation in EMEA and APAC. Is that just an increase year-on-year? Or is that an increase sequentially versus what we just saw in 3Q? And I know we’re going to get more details on ’24 in February. But maybe you can just give us some insight in terms of how you’re thinking about some of the key cost buckets based on what we can see today.
Tracey Joubert : I’ll take that. So yes, look, we did say that we expect inflation to continue to be a headwind for us in the back half of the year, but to moderate. Now as it relates to Q4, we do expect our COGS per hectoliter to be a headwind. And this is because of the continued inflationary pressure in EMEA and APAC region, where we’ve seen continued inflation in the double-digit range. But the other drivers of our Q4 COGS per hectoliter would be a lower volume leverage in Q4 lower than Q3 and Q2. For those reasons that we spoke about coming out of Q3 and into Q4 and then also expecting our brand volume to outpace the financial volume growth. And also, we’ve got higher planned maintenance costs in the fourth quarter. So those would be the big drivers of COGS per hectoliter in Q4.
