Good day, and welcome to the Molson Coors Beverage Company fourth quarter and fiscal year 2021 earnings conference call. You can find the related slides on the investor relations page of the Molson Coors website. Our speakers today are Gavin Hattersley, President and Chief Executive Officer, and Tracey Joubert, Chief Financial Officer. With that, I'll hand it over to Greg Tierney, Vice President of FP&A and Investor Relations.
Thank you, operator, and hello, everyone. Following prepared remarks today from Gavin and Tracey, we will take your questions. To address as many questions as possible, we ask that you limit yourself to one question. If you have more than one question, we will answer your first question and then ask you to re-enter the queue for any additional or follow-ups. If you have technical questions on the quarter, please pick them up with our IR team in the days and weeks to follow. Today's discussion includes forward-looking statements. Actual results or trends could differ materially from our forecasts. For more information, please refer to the risk factors discussed in our most recent filings with the SEC. We assume no obligation to update forward-looking statements. GAAP reconciliations for any non-GAAP measures are included in our news release.
Unless otherwise indicated, all financial results the company discusses are versus the comparable prior year period in U.S. dollars and in constant currency when discussing percentage changes from the prior year period. With that, over to you, Gavin.
Thanks, Greg. 2021 was a turbulent year all around the world for our industry and for our business. The pandemic raged and receded multiple times, but unfortunately, it surged in the last six weeks of the year. With it came government restrictions related to bars and restaurants, most notably in Europe and Canada. That impacted our business, creating a whole host of challenges. Yet through it all, Molson Coors made tremendous progress in each of the pillars of our revitalization. Our two biggest brands, each grew net sales revenue in the U.S., Americas, and globally. An incredible feat, given the fact that over the past few years, many folks have been of the belief that this whole segment was on a path of spiraling declines across the U.S. and Canada.
We finished the calendar year with a larger global above premium portfolio than ever before, with our hard seltzer portfolio growing at the fastest rate of any major beverage company in the United States. Very strong hard seltzer growth in Canada and standout beer innovations in the U.K., as well as in Central and Eastern Europe. We are moving to scale beyond the beer aisle on the back of the fastest-growing energy drink in the United States per IRI, and we continue to invest in our future growth all around the world. Folks, in 2021, Molson Coors grew the top line for the first time in a decade. Top line growth is one of the core goals of our revitalization plan and a result our company has not been able to deliver in a long time.
Yes, we slightly missed our guidance on EBITDA as a result of the impact of the Omicron variant surge in the last six weeks of the quarter. At the same time, we've been very disciplined with cash within the business, improving our leverage ratio faster than we expected, and we chose not to cut the marketing investments that will help ensure the long-term health of our brands and our business. Overall, Molson Coors finished 2021 as a healthier business than we were at the end of 2019. Now, as you'll recall, in our third quarter call, we said that uncertainty as it pertains to potential surges in the coronavirus and/or its variants to varying degrees by market could have an impact on our financial performance. Unfortunately, that is exactly what happened.
The on-premise in much of EMEA experienced increased restrictions beginning in the middle of the fourth quarter as the Omicron variant surged. In the U.K., the Christmas holiday period is one of the most important sales windows of the whole year, and due to government restrictions for pubs and restaurants and more cautious consumer behavior, we fell to below 80% of 2019 net sales revenue in December. U.K. is our third-largest global market by net sales revenue, and the on-premise accounted for 65% of our business there in 2021. As was well established earlier in the pandemic, when that channel is restricted or shut down, it has a meaningful impact on our business, and we felt that in the fourth quarter. We know from experience over the past two years of the pandemic that this has been temporary.
When the on-premise channel has reopened and when consumers are comfortable reentering bars and restaurants, they came right back. I'm proud to announce that we are ranked number one in the U.K. Advantage Group survey. That is an independent industry-wide survey on how the big on-premise national customers across the U.K. view brand owners. The results speak volumes about our hardworking team. Additionally, some of our U.S. suppliers had renewed challenges providing materials like bottle crowns at the tail end of the year, which had knock-on effects on our production. This has certainly eased in the time since. We've taken matters into our own hands by increasing the number of suppliers we work with to limit these kind of issues going forward.
One point I want to make clear, though, is that while pandemic-driven issues with freight availability in the global supply chain continue to challenge us in the fourth quarter, we made significant improvements with our distributor inventory in the U.S. We closed 2021 with about 700,000 more barrels of distributor inventory than we did in 2020. That progress puts us in a far better inventory position heading into 2022. In fact, our out-of-stocks for core brands and packs are at their lowest level since before the pandemic. Today, our top line is growing fast for the first time in 10 years. Our core brands are growing net sales revenue for the first time in years. Our portfolio is premiumizing to levels never before achieved.
We are moving to scale Beyond Beer. Our business is making tangible progress towards achieving the goals of our revitalization plan. We are set up for a strong 2022. Now, I want to dig in a little deeper, starting with our core brands. For the past few years, you've heard us talk about things like segment share and brand health as leading indicators that Coors Light and Miller Lite remain strong foundations of our global business. Today, I'm very happy to tell you that each brand grew net sales revenue in the U.S. in 2021. Coors Light by 4.4% and Miller Lite by 7.6%. We also saw double-digit growth in our on-premise placements for Miller Lite versus last year.
In Canada, Coors Light also reported revenue growth in the fourth quarter, while Miller Lite revenue was up double digits for the full year with acceleration in the fourth quarter. Our portfolio continues to premiumize. Our above premium net sales revenue has grown over 15% in 2021. The biggest driver of that premiumization was our growth in U.S. hard seltzers. Despite ending the year with only one nationally distributed hard seltzer brand, our portfolio grew triple digits over the course of 2021, and we generated the largest growth rate in this space among any of the major beverage suppliers per IRI. Today, we have two of the top 5 hard seltzer brands in the U.S. with Topo Chico Hard Seltzer and Vizzy, and we see more upside ahead.
Of the current 10 hard seltzer franchises, Vizzy is the only one that has existed for multiple years and has never lost hard seltzer share in a quarter. In 2022, that success is continuing with Vizzy growing both industry and hard seltzer share. While it's still early, we are very optimistic about the national launch of Topo Chico Hard Seltzer. Topo Chico Hard Seltzer has jumped to the sixth fastest-turning hard seltzer nationally, and we believe it can become a top three hard seltzer in the U.S. Per IRI, Topo Chico Hard Seltzer has improved industry share each week since its national launch. Even in markets where the Topo Chico mineral water is less known, we are seeing strong results. Per IRI, Topo Chico Hard Seltzer alone has already reached a five share of hard seltzer in seven new markets since launch.
We're bringing new packs to the brand with bottles, margarita hard seltzer, and ranch water that is already driving results. Our 12-pack of Topo Chico Ranch Water is not only the fastest-turning ranch water in Texas, it's the fastest-turning in the United States. Our hard seltzer progress extends to Canada, where we achieved a 9% share in hard seltzers in less than nine months. That was driven by both Vizzy and Coors Seltzer, with both brands finishing the year in the top 10 hard seltzer brands in Canada. Above premium beer continues to be a growth driver for us as well. In the U.S., Blue Moon Belgian White grew net sales revenue by high single digits in 2021 and saw double-digit growth in the fourth quarter. Peroni earned double-digit growth in 2021, and our U.S. regional craft portfolio once again outpaced the category.
We are gaining total share of the craft segment in Canada as well, led by the strong performance of Brasseur de Montréal and Fruit Diabolo. We also continued to premiumize our EMEA and APAC business. Madrí Excepcional has continued to accelerate as the world's beer category grows in the U.K. and in Ireland. As of today, it's now delivering the fourth highest rate of sale of all draft world lagers per CGA, and in 2021, Pravha became the fastest-growing premium 4% lager per CGA. We are also bringing an exciting new innovation to market in the U.S. through an expanded agreement with The Coca-Cola Company. Simply Spiked lemonade will be a full-flavor alcoholic beverage inspired by the number one overall juice brand, a growing billion-dollar brand, and the second-largest brand in Coke's portfolio.
Simply can already be found in one out of every two American households, and the brand continues to grow. We are very excited about this opportunity to shake up the full-flavor alcoholic beverage space as more legal age consumers look for bolder flavor. In 2021, we put teeth behind our talk of becoming a total beverage company. Our Beyond Beer products are performing very well and helping to fuel our emerging growth business, which contributed approximately $800 million to 2021 net sales revenue, taking us ahead of our $1 billion annual revenue target by 2023. ZOA has already proven to be a success with a lot of opportunity still ahead as we continue to expand distribution.
In less than 10 months, it has gone from nonexistent to the fastest-growing energy drink in the U.S. per IRI, and it is number two in health energy drink sales in the c-store channel. Latin America closed out 2021 with stellar performance, generating double-digit growth across this part of the business and record sales in many of the markets in which we operate. We're backing it all up by investing in our capabilities. There are the physical investments, which are, of course, foundational. New hard seltzer production capabilities will be coming online in the U.S. We will soon turn on a new hard seltzer and spirits production line in Toronto. Our new state-of-the-art brewery is online in Montreal, and we're adding new canning and production capabilities in the U.K. Then there are the investments we are making behind our brands.
We increased marketing behind our core brands and key innovations, and we've become much more effective with those dollars as we accelerated our digital marketing capabilities. Folks, over the past two years, we have laid the foundation for sound, sustainable long-term top and bottom line growth at Molson Coors. Today, our core power brands are growing dollar sales. Today, more of our portfolio is in the above premium space than ever before. Today, we are moving to scale beyond the beer aisle. Today, we have stronger capabilities to drive future growth. Because of all of that, because of the foundation we have laid over the past two years, against great odds and in a historically challenging environment, we can give guidance that in 2022, Molson Coors expects to deliver highest top and bottom line growth in over a decade.
We will continue to invest in our business to drive towards sustainable long-term top and bottom line growth. Now, to give you greater details on that, I'd like to hand it over to our Chief Financial Officer, Tracey Joubert. Trace.
Thank you, Gavin, and hello, everyone. As Gavin highlighted, 2021 was a year of tremendous progress against our revitalization plan. Despite the challenges that we and so many other companies faced, we achieved our top line guidance of mid-single-digit growth for the year, delivered strong free cash flow, enabling us to further reduce our leverage ratio and return cash to shareholders. We continued to execute our revitalization plan, building a strong foundation for future growth, and we issued fiscal 2022 guidance that underscores that progress. Before I take you through our quarterly, our full-year performance and our outlook, I would like to update you on a couple of naming convention changes in our business unit reporting. This does not change our reported results for these segments and was done so the names better reflect the geographies within the segment.
As of December 31st, 2021, our reporting segments are the Americas, formerly called North America, and EMEA and APAC, formerly called Europe. Now let's discuss the fourth quarter. We delivered strong top line and EBITDA performance. While we benefited from cycling significant on-premise restrictions in the prior year, we were still impacted by the rapid emergence of the Omicron variant in mid-November, which resulted in overall on-premise softness compared to the third quarter. In December, the U.S. on-premise net sales revenue was approximately 86% of December 2019 net sales revenue, down from third quarter levels of approximately 88%.
Canada was approximately 60% of December 2019 net sales revenue, down from third quarter levels of approximately 80%, and the U.K. was below 80% after being thirteen point seven percent, driven by EMEA and APAC growth of 56.5%. In America, revenue growth was driven by higher financial volume, positive global net pricing, and favorable brand and channel mix due to premiumization and fewer on-premise restrictions versus the prior year. In fact, consolidated net sales revenue increased 4.3% compared to 2019. Consolidated financial volume increased 7.4% as we rebuilt U.S. domestic inventories and group brand volumes 2.3%, driven by EMEA and APAC, Canada and Latin America. This was partially offset by lower U.S. economy brand volumes as a result of our economy SKU and rationalization program.
In the U.S., we grew net sales revenue 6.3% with domestic shipments up 3.3%, reflecting our efforts to build distributor inventories with the supply disruptions in 2021. U.S. brand volumes declined 3.8%, but this was driven entirely by the economy portfolio, which was down double digits. While our premium portfolio grew low single digits and the above premium portfolio was at double digits for the quarter. In Canada, our net sales revenue increased 9.9% on strong brand volume growth of 6%, while Latin America net sales revenue increased 15.9% on brand volume growth of 12.4%. In EMEA and APAC, net sales revenue grew 56.5%, driven largely by Western Europe, but also growth in Central and Eastern Europe.
Strength in our core brands and new innovations like Madrí led to double-digit growth in above premium and premium volume, partially offset by double-digit declines in economy. Net sales per hectoliter on a brand volume basis increased 3.8%, driven by global net pricing growth and positive brand and channel mix, with premiumization delivered across both business units. Underlying cost per hectoliter increased 5.2%, driven by cost inflation, including higher input and transportation costs and mixed impact from premiumization. We benefited from volume leverage due to higher production volumes and continued progress on our cost savings program. Underlying MG&A in the quarter increased 2.4% as we continue to invest behind our core brands and innovations across both business units while G&A was flat.
As planned, we increased marketing investments in the quarter to levels above the fourth quarters in both 2020 and 2019, providing strong commercial support behind our brands as of 2022. As a result of these factors, underlying EBITDA increased 21.9%. Now recapping the full year, consolidated net sales revenue increased 4.7%, with Americas up 2% and EMEA and APAC up 19.6%. Top-line growth was driven by global net pricing, favorable brand and channel mix from premiumization and fewer on-premise restrictions, and EMEA and APAC volume growth. This was partially offset by lower financial volumes in Americas. Consolidated financial volumes declined 0.5%, while brand volumes declined 1.7%.
Americas brand volumes declined 3.2% as a result of the economy SKU deprioritization, which began in the second quarter of 2021, and rationalization program, which was announced last July. EMEA and APAC brand volumes were up 3%. Net sales per hectoliter on a brand volume basis grew 3.8% due to global net pricing growth and favorable sales mix. In the U.S., net sales per hectoliter on a brand volume basis was up 4.4% for the year, driven by net pricing growth and the success in above premium products, including Vizzy, Topo Chico Hard Seltzer, the Blue Moon family and Peroni. Underlying costs per hectoliter increased 6.9%, driven by cost inflation, including higher input and transportation costs, mixed impacts from premiumization and volume deleverage.
However, with the benefit of our robust hedging and cost savings programs, we were able to mitigate some of the inflationary pressure. Underlying MG&A increased 2.9%, largely due to higher marketing investments versus 2020. In the second half of 2021, we began to progressively increase marketing spend with the resumption of more sports and live events. MG&A increases were also driven by lacking harvested cost mitigation actions in 2020 due to the coronavirus pandemic and were partially offset by our cost savings program. In 2021, we delivered approximately $220 million across MG&A and cost of goods sold in our three-year $600 million cost savings program.
Over the 2020 through 2021 period, we have delivered an aggregate $490 million, placing us well on track to meet our $600 million target in total growth savings by the end of 2022. As a result of these factors, underlying EBITDA decreased 3.5%. This was slightly below guidance of approximately flat and was driven by the on-premise softness as a result of the Omicron variant. However, underlying net income before income taxes was approximately flat for the year as a result of lower interest and depreciation. 5.6% underlying EPS growth compared to the prior year. Underlying free cash flow was $1.1 billion for the year, a decrease of $183 million from the prior year.
This decline can be wholly attributed to the repayment of approximately $100 million of taxes related to various government-sponsored deferral programs related to the pandemic, which benefited the prior year free cash flow by $100 million, creating a negative swing factor of about $250 million on our 2021 free cash flow. Excluding these changes, net working capital movements were favorable to the prior year. Capital expenditures paid were $523 million down from $575 million in 2020 and focused on expanding our production capacity and capability programs such as the previously announced Golden Brewery modernization project, our new Montreal brewery, which opened during the fourth quarter, and expanding our hard seltzer capacity in Canada and the U.K. We have continued to make great progress strengthening the balance sheet and improving our financial flexibility.
We reduced our net debt by nearly $1 billion in 2021 and our trailing twelve months net debt to underlying EBITDA ratio to 3.14x , better than our guidance of approximately 3.25x and down from 3.5x as of the end of December 2020 and down substantially from 4.8x in 2016 at the time of the MillerCoors acquisition. We ended the year with strong borrowing capacity with no borrowings outstanding on our $1.5 billion U.S. revolving credit facility. That takes me to our outlook, which calls for both top and bottom line growth in 2022 for the first time in over a decade. Before we go through the guidance, I want you to note that year-over-year growth rates are on constant currency basis.
We are adjusting the metrics provided to best align with the goals of our revitalization plan. Consistent with our historical commentary, uncertainty as it pertains to the coronavirus and its variants remains to varying degrees by market. If on-premise restrictions are increased and/or reinstated in some of our larger markets, this could have a significant impact on our financial performance during that period. For 2022, we expect to deliver mid-single-digit net sales revenue growth. We expect to deliver high single-digit underlying income before income taxes growth and underlying free cash flow of $1 billion ±10%. This guidance implies that we will ship to consumption in the U.S. for the year. In terms of phasing, recall that we will start letting the economies do deprioritization and rationalization in the second quarter of 2022.
In addition, we expect to face continued inflationary pressure, including transportation and material costs. While we have levers to offset inflation, including pricing, mix from premiumization and our cost savings and hedging programs, these headwinds are expected to continue to pressure gross margin, but have been built into our guidance. We expect to continue to invest behind our core brands and key innovations, which entails increasing the level of marketing investment from the prior year. Given the on-premise restrictions in the first half of 2021, we expect greater year-over-year increases in marketing spend in the first half of 2022. We also intend to invest behind our capabilities with cash capital expenditures anticipated to return to more normal pre-pandemic levels.
Other guidance metrics include underlying depreciation and amortization of approximately $750 million ±5% reported, net interest expense of $265 million ±5%, and an underlying effective tax rate in the range of 22%-24%. Turning to capital allocation, our priorities remain to invest in our business to drive top line growth and efficiencies, reduce net debt, and to return cash to shareholders. We are maintaining our target net debt to underlying EBITDA ratio of below 3x by the end of 2022, as we have a strong desire to maintain and in time upgrade our investment grade rating.
On February 22nd, 2022, the board declared a dividend of $0.58 per share, an increase, and a program authorizing the company to purchase up to an aggregate of $200 million of our company's Class B common stock through March 31st, 2026, with repurchases primarily intended to offset annual employee equity award grants. In closing, 2021 was a volatile year, but it did not deter us from executing our plan. The progress we have made has laid a strong foundation to achieve our goals of sustainable long-term top and bottom line growth, and our 2022 guidance demonstrates our confidence we are on the right path. With that, we look forward to answering your questions. Operator?
We will now begin the Q&A portion of the call. If you would like to ask a question during this time, simply press star followed by one on your telephone keypad. If you would like to withdraw your question, press star followed by two. In consideration of others and to allow more of you to participate in this call, we ask that you limit yourself to one question. If you have additional questions or follow-ups, please rejoin the queue. We will now pause to compile the Q&A roster. Our first question goes to Kevin Grundy with Jefferies. Kevin, your line is open. You can go ahead.
Great. Thanks. Good morning, everyone, and congratulations on the continued progress, particularly in the difficult environment. I want to start with the sales guidance for the year. Tracey, this may be for you. Maybe just spend a moment on how you expect that to break down between volume and net sales per hectoliter. Within net sales per hectoliter, maybe just comment broadly on the contribution you're hoping for between price and mix, you know, particularly from a pricing perspective, given the difficult input cost environment. Then, Gavin, maybe just at a high level coming off of what's been a strong year.
Thanks, Kevin, and good morning. Let me start, then Tracy can take you through some of the guidance around cost of goods sold and so on for 2022. From a pricing point of view, obviously we're experiencing, you know, inflationary pressures. We expect them to continue well into this year. While we have historically taken price increases in the spring of every year, this year, we actually announced price increases a little earlier than that. We went with a price increase of between 3% and 5%. You know, that took place mostly in January and the early part of February. Obviously the amount and the timing of pricing increases does vary by market.
We do have more levers than just pricing, of course, right? We have the mix shift, which is fundamentally part of our revitalization plan to shift our mix into the above premium and emerging growth. Emerging growth is almost entirely above premium. You know, I spoke about that in my opening remarks. Tracey, why don't you talk about hedging, the hedging program, maybe, and then I'll circle back on the brand?
Okay. Yeah. I mean, you know, we've spoken before about our robust hedging program, and 2022 and 2023, you know, we're really comfortable with our hedge positions and, you know, that hedging program is gonna play a part in mitigating some of the inflation that we've seen.
Thanks, Tracey. You know, Kevin, look, I mean, our business at the end of 2021 is fundamentally more sound than it was at the beginning of the revitalization plan, particularly with our brands. You referenced Quiznos. You know, we ended the year with both of those brands growing the top line, which we haven't done for quite some time. Coors Light, you know, the Made to Chill campaign continues to work hard for us both regionally, nationally, and at a local level. It's resonating and attracting 21 to 29-year-old consumers.
You know, Miller Lite has, you know, despite some of the inventory challenges and some of the tough comps we had to overcome, have just sequentially improved over the year. You know, they continue to focus on a true beer through, you know, all sorts of different brand exploration into the metaverse. You know, we feel like those two brands are really well-placed heading into 2022. You know, looking beyond that, above-premium Blue Moon has bounced back very strongly. Our emerging growth division, as I said, is ahead of our plan to get to $1 billion. Canada is growing. Coors Light has grown share. It is as healthy as it has been for a while.
Europe is bouncing back now that we're heading through the Omicron variant and restrictions have been lifted, and we've got strong Above Premium innovation, which is a very strong on-premise bias. Yeah, I think hopefully that answers your question, Kevin.
Yeah, that's very thorough. Thank you very much. I have a number of questions I'll take offline with Greg and Tracy, but continued success. Thank you.
Thank you.
Thank you, Kevin. Our next question goes to Robert Ottenstein with Evercore. Rob, your line is open. You can go ahead.
Great. Thank you very much. Gavin, I was wondering if you could talk a little bit about how business is starting off this year. I mean, we all see the public information. January was a very tough start for the whole industry. You know, how much of that do you think is the, you know, maybe sticker shock from price increases, Omicron, the weather, maybe people had a lot of, you know, a lot of beer in their pantries, you know, given that, you know, a lot of holiday parties may have gotten canceled. I'm just trying to get a little bit of a more of a sense of what the beer industry and your business looks like, and maybe what you're seeing in February to give you confidence to underscore your guidance. Thank you.
Thanks, Rob. Look, I'm not gonna repeat what I said to Kevin as far as our overall brands are concerned, but if you look to January, I mean, the data that's publicly available will say that the whole industry, you know, it wasn't the easiest of months. I don't think pricing's got anything to do with it because the pricing increases came in the month and even into February to impact January trends. I don't think it's got anything to do with it. Frankly, the price increases, as I just said, you know, for us 3%-5%, you know, well lower than the inflation rates which are sticking in the consumer's minds.
I'd point a finger squarely at the second point you raised there, which is Omicron, right? You know, consumers were resistant to going out into the on-premise December and into January. As we've got further into January and now into February, we've seen the consumers come back to the on-premise, particularly in our European businesses where restrictions have been largely lifted, but also in the United States and to a lesser degree in Canada. You know, I'm gonna point the finger squarely at Omicron, Rob.
In the way of demand elasticity on the price increases, maybe less than historical?
We always understand pricing elasticity in a normal world, right? I think we're operating in somewhat of unknown territory. You know, I think it's a little too soon to tell exactly what the various price increases that have gone into the market what impact that'll have from a volume perspective, Rob. I think you know, as we head into spring and summer, we shall see.
Terrific. Thank you very much.
Sure thing.
Thank you, Rob. Our next question goes to Andrea Teixeira with JP Morgan. Andrea, your line is open. You can go ahead.
Thank you. Good morning. My question is the assumption of the G&A savings 'cause your earnings guidance embeds faster growth, if I understood correctly, on the bottom line. I understand from Tracy's comments that gross margin will be pressured this year in spite of, you know, the timing of the hedges, which I'm assuming are gonna be better in the first half of the year and then give back some in the second half. Are you embedding your EBITDA margin expansion in 2022 to reach your profit guidance? Then related to that, I think the investors that I spoke to this morning were asking about what drove the EBITDA miss in the quarter and also the year.
The reason to refrain from giving guidance on an EBITDA basis for 2022 and use earnings before tax. Just a clarification there. Thank you.
Thanks, Andrea. I think,
Yes.
Why don't you take all those?
Okay. First of all, I think you asked about the margin expansion. At our, you know, mid-single digit top line and high single digits income before tax line, there's a couple of things that need to be considered. First of all, you're right. I mean, we are seeing. The freight markets remain tight. That will create a COGS headwind. But to mitigate that, we have a very robust, as you mentioned, you know, we typically hedge the first year, somewhere between one and three years, depending on the commodity and the liquidity of that commodity. In the first year, our hedges are obviously, you know, higher than the outer years which are typically lower.
Program, as we look now into 2022 and 2023, we are very comfortable with our hedge positions. In addition to that, we've got the cost save $600 million program, you know, delivered $490 million of that. We've got new state-of-the-art, more efficient breweries in Canada that we spoke about that have come online. That's certainly gonna help from a cost point of view. We've got the continued premiumization of our portfolio, which you know is really all about what the revitalization plan is driving. You know, we obviously have spoken a little bit about the full year of contribution of our equity income from our Yuengling joint venture. You know, we've got a couple of those items that'll play out in 2020.
We're gonna continue to invest in our business in Q4 of 2021. In terms of EBITDA, the Q4, so we did reaffirm our guidance at the end of October based on the plans that we had in place and more importantly, what we were seeing in terms of very strong on-premise performance. We stated on the call at that time that if restrictions were reinstated in some of our larger markets, it would have a significant impact on our financial performance over the next few months. We saw that with the Omicron reemergence in mid-November. We saw a return to both government-imposed restrictions as well as changes to consumer behavior. That impacts what a big part of our business, the on-premise, is.
Having said that, we still hit our mid-single digits in our brands. That was important to us. We did not pull back on the investment which set up 2022. That was really the Q4. And then, you know, the guidance in terms of EBITDA. What we have done is we have given metrics which we believe best align with our revitalization plan goals of driving both top and bottom line growth. We've added, in addition to the net income before tax, which we normally give. We've given net interest, and we've given the effective tax rate as well as a free cash flow and leverage target ratio. You know, if you add those back, you will get back to the EBITDA range.
We just believe that this is, you know, better guidance in terms of our revitalization plan.
Thanks, Tracy.
Thank you.
Thank you, Andrea. Our next question goes to Bill Kirk with MKM Partners. Bill, your line is open. You can go ahead.
Thank you. Good morning, everybody. Tracey, plus with some 1Q phasing items, I think you have about 2 million hectoliters shifting back into the first quarter, you know, related to the Texas freeze and the cybersecurity events. But I guess, what about prior year cost comparisons? Are they easier in some ways since the prior year had those disruptions and maybe made servicing the wholesalers more expensive?
Yeah. Give quarter by quarter guidance, but maybe some of the things just to think about is, you know, from a marketing point of view, you know, marketing will be higher in 2022 than 2021, but really, more so in the first half. You know, in terms of other COGS, you know, obviously we're still gonna be impacted by inflation as one of the other things to consider is, you know, assuming that we don't see levels of on-premise restrictions. We'll expect to see some benefit from volume leverage, particularly in our EMEA and APAC business. We'll also expect to see both channel and geographic mix benefits as we cycle the first half restrictions in EMEA and APAC, which you know, have a lower overall cost per hectoliter, COGS per hectoliter.
Then again, you know, I just do wanna mention our robust hedging program where we cover all commodities and we're really comfortable with, you know, where we're sitting. Obviously we've also got our costs. I'd say those are some of the things to consider for at least the first half of this year.
The only other thing I'd add to that, Bill, is in the other side of some of that positive, which you mentioned, which is the Texas storm and the cybersecurity attack, is obviously our economy SKU reduction and rationalization, right? We'll still have the headwind of that, particularly in the first quarter and then for a chunk of the second quarter. That'll be a negative from a volume perspective. But if you look beyond economy, as premium lights grew, as did above premium, as well. Of course, we came into the year with out of stocks.
I think as I said in my opening remarks, we are lower than pre-pandemic at the moment, which obviously we're very pleased about. I'm sure our distributors are too.
Thank you, Gavin. As a follow-up there, I think you mentioned Topo Chico, the hard seltzer, was the number two trending hard seltzer. Retailers are finishing up their spring shelf resets right now. Did they respond the way you wanted to with Topo Chico here with their resets given those velocity stats?
Yes, they did. Our national rollout of Topo Chico has been very well received by both big and small retailers.
Thank you, Bill.
Hey, thank you very much. I guess mostly for Tracey, we've covered before. On the, I guess, are you able to be any more specific? You know, you think your COGS, I guess, what your outlook is for the coming year, but, you know, before any productivity offsets. I just think the spot market would indicate, you know, magnitude and how much inflation may be deferred into 2023. That's question number one. Then two, I know I'm supposed to only have one, but if you can humor me. On the second one on EBITDA, just the move away from explicit EBITDA guidance.
I think all the piece parts that you gave us, you know, do allow us to back into EBITDA, but I don't think it results in a wider range than you might typically, you know. Are you intentionally leaving a little bit wide?
That's right.
Let me try this. Steve, look, we didn't give COGS per liter guidance, but it is, so, you know, the high single digits net income or income before tax guidance that is built in there. Some of the things maybe that can just help put a bit of color around our COGS outlook is, you know, as I said previously, we'll continue to be impacted by inflation on our commodities and our packaging materials in particular. We do expect the freight market to remain tight. In Q4, we actually saw some noticeable impact in APAC business, and we expect to see that continue into 2022. Inflation is just one component of our COGS charge. Maybe a couple of additional items just to consider to add some color.
Assuming we don't see the similar levels of on-premise restrictions as we saw in the first half of 2021, we do expect to see some benefits, particularly in EMEA and APAC business around volume leverage. I also mentioned earlier that we expect to see channel and geographic mix benefits again in EMEA APAC, which has a lower overall COGS per liter cost. I have mentioned our hedging program. You know, we don't get into specific details around that other than, you know, saying that we typically hedge anywhere between one and three years, depending on commodities, depending on liquidity, depending on our outlook of the commodities. Again, at this point, we are comfortable with our hedge positions as we look forward over the next couple of years.
Maybe just one more item to consider around COGS is, we also are expecting some depreciation benefits as we. You know, other than that, we've got enough and other levers that we can pull to deliver our top and bottom line. The COGS outlook is built into our bottom guidance. Just in terms of EBITDA, I mean, really the intention is to more closely align the metrics, guidance metrics with our revitalization plan goals. You know, that's all about driving both top line. Other than that, we just wanna more closely align with, you know, how we run the business. Again, we have added the other metric, you know, specific numbers. Yeah, that's Steve.
Thanks, Tracey.
Thanks, Steve.
Thank you.
Thank you, Steve. Our next question goes to Nadine Sarwat with-
Hi, guys. Thanks for taking my question. I wanna push a little bit more on gross margins. Tracey, I know you mentioned and provided some helpful color on all of the moving parts. In your prepared remarks, you did say that gross margins were gonna continue to be pressured. Pushing in a little bit more on that, can you give more precise expectations as to gross margins for this year? What I'm trying to understand is do you expect to be able to take enough price plus that positive mix compression on a year on year basis? Thanks.
You know, maybe I can start on that one, Trace. I mean, you've given all the components of it, right? I mean, if you look at our P&L, obviously, we have a strong push in our revitalization plan to change the shape of our portfolio, and I think we've been pretty successful at that. You know, Coors Light, Miller Lite, our core brands have grown very nicely. So you've got on the top line. You've got the pricing which I referenced. I gave you the U.S. pricing, but obviously there's pricing in Europe and Canada coming through as well. We've got strong positive mix across the economy portfolio.
In the first and second quarter will drive positivity from an overall margin point of view. We do have the emerging growth, which is all operating in the above premium, and we're gonna continue to invest in our business. We're gonna continue to put money into marketing. Tracey made the point. We were very choiceful in December once we realized that Omicron was gonna impact us. We very choicefully chose not to pull the marketing lever because we could, and we wanted to set ourselves up for a strong 2022, and so that was choice. We are gonna increase all of our.
I'm not gonna repeat everything Tracey said about the cost of goods sold line and all the levers that go in there. You know, we've got some positive momentum in the top line. Thanks, Nadine.
Thank you.
Thank you, Nadine. Our next question goes to Christopher Carey with Wells Fargo. Chris, your line is open. You can go ahead.
Hey, everyone. Thanks for the question. So Gavin, I'm trying to you know just understand a little bit on the you know it is a question on the is it just FY 2022. You did say that you know that the EBITDA would have been you know kinda like in line if Omicron had not you know created the volatility at the end of the quarter. Sales came in line, which I suppose implies you know margin impact and specifically channel mix with the on-premise. If I just run that math on the difference between the full year guide and what kinda came through, maybe it's like a $70 million difference or a few hundred basis points on margin.
Is that how we should be thinking about, you know, just the potential benefit of channel mix going into next year as a tailwind to the business just because of, you know, different packaging mix? And you're gonna get some volume leverage. I mean, clearly we're all trying to figure out how the cost per hectoliter versus MG&A dynamic, you know, plays out. And if you could just maybe offer some perspective on, you know, what you think the channel mix did to EBITDA in the quarter and I guess, you know, really how we should be thinking about, you know, potential tailwind of the business on a, you know, profit-
Right. Chris, yeah, a lot going on in that question. Let me see if I can help. Look, I mean, it's safe to say we were expecting our revenues to be higher than what we actually ended up with. Although we met the guidance of mid-single digits, our expectation was that was gonna be higher. Obviously it wasn't because of the Omicron impact. But there's a range there, right, of I think mid-single digit guidance is 3.6%-7.4% roughly, right? We were expecting that number to be higher. From our point of view, obviously very positive for us. It's, you know, we're extremely good. In the U.S., the margins are also good in the on-premise for us, mostly because we...
Premium portfolio than we do, Blue Moon, Peroni, Pilsner Urquell in the U.S. are all higher margin, higher revenue brands. So when the on-premise is open, we benefit from that. You know, Miller Lite and Coors Light are also disproportionately over indexed in the on-premise. You have the same impact in Canada, and you have the same impact in Europe. When the on-premise runs into some challenges that's mixed negative for us everywhere, but particularly in Europe. As we head into this, the sort of 2022, some tailwinds behind us. I mean, the first quarter, we had the well-publicized challenges of the Texas storms and the cybersecurity attack.
You know, in Europe, as I recall, in the first quarter last year, we were pretty much shut down in the on-premise for the whole first quarter, which obviously we don't have. Well, we did have a little bit in January, but certainly completely, which will obviously be positive for us. We've got some positive tailwinds behind us from that perspective, and they happen to be positive tailwinds from a channel point of view because we make more margin there. Of course, we've got the negative headwind of cycling the economy portfolio change, which we've got, I don't know, four or five months left of starting in the first of.
Yes. Thanks, Gavin.
Thank you, Chris. Our next question goes to Lauren. Your line is open. You can go ahead.
Thank you, and thanks for squeezing me in. Two questions actually on the top part of your assumption. I would like to understand as hard seltzer category you are planning to achieve, thanks to Topo Chico and Vizzy, and how well first for Simply. I know it's not a hard seltzer, but a different one. Finally, if you can help me try to figure out how much ZOA contribute to the growth of your emerging growth division. Thank you.
Thanks, Laurent. On Simply, look, I mean, obviously we haven't even launched it into the market yet. All I can think to it and, you know, they reacted extraordinarily positively to it amazingly well for us. The reaction to Simply has been even stronger than that. You know, the number of them in the, well, very well-known brands. If we just go by reaction from distributors and from consumers, we're gonna get more than our fair share of shelf space in a sort of above, you know, more flavorful area which is probably where we've lagged a little bit this year. We're tapping into a new. If you look at emerging growth, you know, it's got three big components to it. The solid base business, right?
We've got our distribution business, our craft business in 10th and Blake, and then our Latin American business. Latin America contributed, as I said in our opening remarks, really strongly, but you know, non-alc, which comprises ZOA and La Colombe, to all intents and purposes, we're coming off a zero base of revenue coming into 2021. You know, a good chunk of the growth that we've experienced in emerging growth has come from non-alc, which is ZOA and La Colombe, Laurent.
I'm not gonna break out by brand what that is, but you can assume that, you know, big contributors to that growth were Latin America and EMEA the two biggest drivers of us being ahead of plan. Thanks, Laurent.
Regarding hard, if you can tell us specifically what's your assumption for the category growth and what you're baking in.
Well, look, I mean, from a hard seltzer's point of view, Lauren, I mean, obviously it was growing very strongly. It came off a lot, but you know, it still grew low teens in 2021. We've got the two fastest growing seltzers of any major beverage company. They're differentiated. We've got a lot of momentum behind them, and we think we can do really big things with those two brands heading into 2022. I mean, we've got two of the top five seltzer brands. So we think we're well positioned to take share and grow. It's a big segment, Lauren.
I'm not gonna put a number as to what we assess that it's gonna grow, but, you know, frankly, it doesn't. We can gain a lot of share in this space, whether the seltzer category grows or doesn't grow because of the two brands and offerings that we have. Thanks, Lauren.
Thanks. I appreciate it. Thanks.
Thank you, Laurent. Our next question goes to Lauren Lieberman with Barclays. Lauren, your line is open. You can go ahead.
Just knowing again, rightfully so on elasticity.
Uncertainty and really just sort of not knowing. But if I back into kind of the comments you've made on pricing, mix still being, you know, positive, I would assume given the above-premium growth. Sounds like you're planning for volume to be flattish, I'm guessing. And specifically with spirits and seltzers and thinking about the category backdrop, the degree to which if that flattish volume thought process is right, that implies continued market share gain across the portfolio, or if that's more of a kinda inline performance as you're thinking about how things may well play out next year. Thanks.
Well, Lauren, look, I'm not gonna give volume guidance. What I can say to you is in the fourth quarter, obviously the entirety of our loss was driven by the rationalization of our economy portfolio. Above premium grew and our premium lights grew in some of our premium light brands. You know, our drive into above premium is reaping a benefit. You know, honestly, we came within a whisker of being positive from a volume point of view for the whole year for Miller Lite and Coors Light. In fact, I would hazard a guess that if we might well have got there if we hadn't had the curtailment in the on-premise.
You know, I don't wanna repeat myself from earlier comments, Lauren, but we own it. It's a very deliberate decision. We think it's the right decision. It allows focus for us. Allows us to focus on reducing complexity from our supply chain, which has really helped us to rebuild our inventory levels to levels that we haven't seen for a while to our distributors on the brands that really matter, which is Miller Lite, Coors Light, and our above-premium portfolio. You know, absent another variant in 2022, we think we're well-placed from an overall portfolio point of view.
Okay.
Thanks, Lauren.
Thanks so much.
Thank you, Lauren. Our next question goes to Bryan Spillane with Bank of America. Bryan, your line is open. You can go ahead.
All right, thank you. Good morning, Gavin. Good morning, Tracey. Just one question. Tracey, you touched on this a little bit, I think in the prepared remarks. Just can you give us an update on where we stand now in terms of the progress on the investments that you've made in the brewing, you know, in your brewing facilities? You know, I think you referenced Montreal. There's an upgrade going on in Golden. There's the seltzer capacity. Just kind of where we stand on those projects and maybe the contribution that we're getting from, you know, cost savings related to that.
If you could just, you know, give us a perspective on, you know, what it implies for capital spending for 2022, and then maybe just are we in the right range, you know, in this mid-500s as an ongoing CapEx?
I think that was for you, Tracey.
Let me start, and then Gavin, you just jump in here. I mean, if we just start with our Canadian brewery, our new Montreal brewery, you know, state-of-the-art brewery that we're building just outside of Montreal, that actually came online at the end of last year. We still have some IT projects around bringing, you know, the Canadian business onto our U.S. ERP system. You know, that's gonna continue at least into this year, maybe a little bit more into the early part of next year. We've got the transformation and the modernization of our Golden brewery. That's a multi-year project. You know, that's still ongoing. The investment in our hard seltzer capability.
We're putting in capabilities in Canada and the U.K. You know, that'll be this year and next year. That's big projects. Then also our packaging upgrade projects that you know, relate to sustainability of our packaging, et cetera, you know, that's ongoing. I'd say those are the three big projects. Now we haven't given specific CapEx guidance, but what we do expect is our CapEx to return to more historical levels. If you have a look at, you know, around 2019 type of spend, you know, you can expect that for this year.
Okay. That's really helpful. Just Tracey, if you could just, I guess if you could give us a sense of just how much incremental savings or productivity efficiencies, just like how much more we could expect incremental from here.
Yeah, I mean, I'll just refer you to our cost savings program. You know, right at the beginning of revitalization, we spoke about $450 million of cost savings primarily related to the COGS line. That would include, you know, the Montreal brewery, you know, some of those types of efficiencies that we put in place. Then $150 million dollar of the revitalization program was primarily around, you know, the G&A areas. You know, we've $490 million of that $600 million. You know, the balance will be delivered this year and again related to the COGS line, so you know, the more efficient breweries and the lower cost breweries.
You know, I'm not sure that I can say much more than that other than, you know, it is included in that cost savings number.
The only other thing I'd add to that, Bryan, is obviously we have been pretty clear, open about the fact that as we bring seltzers into our own facilities, so the margin impact is very positive for us, right? We started bringing Vizzy in last year into Fort Worth, and we'll bring Topo Chico in 2022 and in Canada, we'll bring those in-house and we'll do the same in the U.K. That's very positive from a margin point of view. Then obviously Tracey mentioned Montreal replaced this with a state-of-the-art brewery, and it has meaningful
That's really helpful. Yes. Thank you. Thanks both.
Thank you, Bryan. Our next question goes to Dara. Dara, your line is open. You can go ahead.
Good morning. First, I want to circle back on with shelf space, seemingly potentially a lot of shelf space up for grabs if the trimming happens. Just thinking about that in terms of opportunities from what you're looking at in terms of shelf space position, who do you think, you know, other than Topo Chico is picking up? You know, in the broader context of, you know, spirits having one of its best years last year and being, you know, particularly hot, you know, what kind of risk do you see for some of the core brands and retailers that are able to hold, carry spirits and RTDs?
Thanks, Eric. Yes, you're right. Of the comprehensive change that takes place, that's when, you know, most of the large innovations are actually launched. You know, our team are selling our Purpose Drives Purchase category management strategy where we believe that all decisions start with occasions, and therefore all segments matter. Getting the call right for retailers in those segments is really behind our Coors Light, Coors Banquet, Miller Lite, Blue Moon Belgian White, and Leinenkugel's, particularly Summer Shandy.
At the same time, they're selling, you know, what I think is one of the most focused and exciting innovation pipelines that we've had in years with Topo Chico Hard Seltzer and Vizzy Mimosa and Topo Chico Margarita and Simply Spiked and Blue Moon LightSky Tropical Wheat. You know, that it's really focused and exciting. You know, with that strong performance in our core, which we're experiencing as well as the innovation we bring, we're expecting to see expanded shelf space for our business in the spring, and that's what we're striving towards. Thanks, Eric.
Great. Thank you.
I will turn the conference back over to the management team for any closing remarks.
Thank you, Greg.
All right. Thank you very much, everyone, for joining us today. Thanks, Gavin and Tracey. And we appreciate all of those who were able to ask questions. Tracey Mangini and I are very happy to follow up on any additional questions that you may have over the next couple of days. With that, thanks, everybody, and have a great day.
That concludes today's call. Thank you for your participation. You can now disconnect your line.