Q3 2020 Earnings Call

You're welcome.

Luckily constellation brands third quarter fiscal year 2020 earnings conference call. At this time, all participants have been placed on the listen only mode.

Following the prepared remarks, well they called the opened for your questions instructions will be given at that time.

I'll now turn the call if it does paddy on <unk> Senior Vice President of Investor Relations. Please go ahead.

Hi, good morning, and welcome to constellation third quarter 2020 conference call I'm pretty good morning to tell me around our yeah, it's either Kleiner, yes I'll.

As a reminder, reconciliations between now and I think comparable GAAP measures any non-GAAP financial measures [laughter], Evan Calio, maybe and I mean, it's really or other Latin available on the company's website at www Dot tea brand that huh.

Please also refer to the news release incorporation E filing for Big factors, which may impact already but can you make on this call.

Before turning the collagen Adele similar to prior quarter I'd like to accurately limit everyone. Just one question per person, which will help at all on time, thanks in advance and ask yourself.

Thank you Patrick good morning, and happy new year to everyone. I certainly hope you enjoy the holidays and have the opportunity to include some of our awesome constellation products in your celebrations with your family of brands.

The other brokers beer as a time are a reflection for me this year. It was no exception.

Hi reflect on 2019, I'm reminded that were not all the ending I started with fiscal year, but I'd dynamic decade constellation brands.

Since 2010 constellation has been on an incredible journey marked by strong financial performance and notable business milestones.

Over the last 10 years, we've significantly increased the value of our stock and produced double digit growth and sales operating income and operating cash flow as a matter of fact, the closing price and Scott constellation stock on December 31, 2009 was just more than 50.

In dollars.

Forward to December 31, 2019, we closed at almost 190.

That's incredible increase more than a thousand percent over the last 10 years made constellation the best performing stock and the S&P 500 consumer Staples index during this timeframe.

One of the biggest drivers of our success with the game changing beer acquisition that was executed almost halfway through the last decade in.

That enable constellation to buy the Grupo Modelo brands in the United States, where we successfully built these brands for many years, while positioning ourselves for this transformational opportunity.

At that time this deal allowed us to double the sales of our company diversify our profit stream significantly enhance our margin earnings and free cash flow, while providing new avenues for growth.

Since then our beer business has made significant contributions to the overall sales profit and cash flow results for our business and continues to be a powerhouse for growth as the number one brewer and seller of imported beer in the U.S. market.

Calendar 2019 marked the 10th consecutive year of volume growth for constellations beer business and solidified our position as the leader and the high end of the U.S. beer business.

These trends were driven by Corona extra the Delaware speciality explosive growth and our successful innovation initiatives.

In 2010, the Modelo Especial brand depleted approximately 35 million cases, and then went on to achieve double digit growth in every single year of the past decade, finishing 2019 at more than 140 million cases.

And there's more to come.

And our most recent third quarter. This powerhouse brands posted depletion growth of almost 15% with double digit growth and 46 of the 50 state law solidifying its position as the number for beer brands in the U.S. market.

Corona extra which is the number seven beer ran in the U.S. beer category grew from approximately 90 million cases in 2010 to more than 110 billion cases in 2019 and there is one of the few top selling brands in the U.S. to grow this past decade.

From a quarterly perspective, the Corona brand family grew nearly 7% in IR right channels, driven by the continued strength of arc to run a premier and Corona refresh the innovations as well as the renewed growth of Corona extra.

Corona Premier continues to gain distribution, especially in the on premise and delivered double digit depletion growth in 35 of the 50 states during the quarter.

Corona over a fresco was a top 10 growth contributor to the year to the U.S. high end beer category during third quarter.

And finally, let's not forget specific go which achieved double digit depletion growth of nearly 16% and remain a top share gainer within the U.S. import segment.

We're excited also about our plans for the launch of Corona Heart Seltzer, This spring, which will help to further strengthen our position as the leader in the high end of the U.S. beer segment.

Our launch strategy includes the largest ever single brand investment for our portfolio of more than 100, excuse me more than 40 million in marketing to support this intro.

We've already started to take orders from distributors and have received incredibly positive feedback from retailers, who are excited about the prospects of chronic shelter and have already incorporated our newest portfolio addition into their shelf set programming plans for the spring selling season.

As we've discussed.

We'll be with you momentarily.

We'll be introduced in four flavors.

The Spanish and total.

Population drinkers.

Aged 21 to 54.

The.

Thats why we decided to put the Corona brand name on her new selzer and of course.

The refreshment characteristics of Selzer's perfectly matches with Kratos refreshment DNA.

Thanks.

Debate about the seltzer trend and where selzer's are sourcing their growth.

Okay.

Then the total beverage alcohol category.

Did you pick louder.

Chose that seltzer is taking share across the board.

Hello.

Beer wine and spirits.

Hello.

Hi, good amount of this growth is sourced from the beer category.

If you're going.

Primarily coming from domestic premiums.

I'd like to attend Tom.

Lease with minimal.

Interaction of soldier consumption.

Hello.

Where's brands.

In addition, we're seeing increased.

Uh huh.

Overall consumption from those Seltzer drinkers.

Doug.

Consumers, who are entering the TV a space through their interaction.

With Selzer's.

Some response.

As an aside the trends that you've seen for constellations beer business and this week's four week IR data covering the month of December are related to our recent annual price increase specifically in the California market, which briefly decreases features and promotions.

If I could these price increases our normal and quickly short term picture overall, we closed out the month of December with depletion growth for our.

Ordinator will be with you momentarily.

Hi, Thanks single digit rank.

Moving now to wine and spirits.

Correct.

I'm pleased that we've been able to execute a revised agreement with Gal, which paves the way for accelerated growth in margin performance.

For our wine spirits business going forward.

In addition, we believe it addresses the FCC concerns by excluding the sparkling wine brandy dessert lines and concentrate categories from the original transaction.

We're already actively pursuing other opportunities to divest most if not all brands in these categories as will ease as we believe this is the best path to optimize our portfolio going forward.

To be clear the FCC needs to provide final approval of our revised agreement with Gallo once we have finalized all transactions, including the proposed divestitures, which we expect to occur by our fiscal yearend.

We have also entered into a separate but related agreement with Gallo to divest our novel wine brands.

This fits with gallas portfolio strategy and allows them to expand into New Zealand mind category without affecting our long term goals and strategy or our opportunity in the New Zealand wine category in the us as a greater than $11 price point.

This transaction is expected to close in the first half of fiscal 21.

Despite the delay and timing and revisions to the transaction I'd like to remind everyone that we have benefited from almost an entire year of additional cash flow from a divested brands are the time the transaction closes which has contributed to our debt reduction and share buyback activities.

During the last decade, our team has created significant value by transforming and simplifying our wine and spirits portfolio through the rationalization and divestiture of assets in an effort to premiumize the business, which has the right strategy to enhance our wine and spirit growth and financial pro.

File going forward.

This premiumization strategy is taking hold in the marketplace as our power brands continue to outpace our competitors and take market share at the price points that matter in the higher end.

In fact, our power brands at the greater than $11 retail price point grew nearly 9% in IR right channels during the third quarter, including brands like me Army, which has more than doubled its volume with a CAGR of nearly 30% since its acquisition in 2015.

Kim Crawford, which has an other gem within our power brand portfolio, what's the number one selling wine unwind dotcom. This past year and has consistently outperformed its competitors posting a 20% volume cagar and IR right channels over the last decade.

As we progress through fiscal 20, we continued to show steady upward progression in revenue trends for our power brands and expect mid single digit sales growth, but this collection of brands in the fourth quarter.

Innovation and new product development are also critical to our success for the remainder of the year can we feel we are well positioned to drive these initiatives to the finish line.

We've already had great success with the launch of Robert Mondavi, Private selection Buttery, Chardan night, and Woodbridge ready to drink packs, which while gaining traction across all channels is doing especially well in the convenience channel a channel growing at two times the rate of the total us line.

Okay.

Both Woodbridge and Robert Mondavi, private selection, which represent the most significant volume within the Robert Mondavi brand franchise are outperforming in their respective price segments, driven by marketing investments that we recently made.

We recently extended our highly successful barrel waste program with the introduction of our NPS right barrel, aged red plant.

As a reminder, we've sold more than 1 million cases, a barrel aged products since the inception of this program nearly two years ago, which helped to revive the Robert Mondavi private selection brand, while also becoming the foundation for some of our other successful barrel, aged innovations like Cooper and feet.

We're also building on success of wind in the camp, where consumers are seeking products that are convenient ready to drink and sold and environmentally friendly packaging.

These trends have helped to fuel the growth of Crafters Union, which is the number one growth driver in canned wine over the last 12 weeks.

We plan to build on the momentum of this brand with the launch of Crafters Union bundles during the fourth quarter.

Later this month, we will be releasing the prisoner unshackled. The newest addition to the prisoner collection of brands in Cabernet Red blend and rose eight.

We expect these brands to strengthen our ability to compete at a fast growing 25 dollar retail price point.

On the spirits front spectrum vodka continues to significantly outpaced the budget category and I are right channels driven by increased distribution within the core portfolio as well as the more recent introduction of the rose a flavor.

During the quarter one of our most successful venture investments Nelson's Green Briar launch launched its first Tennessee whiskey product.

This Tennessee Whiskey is based on Charles Nelson's original recipe dating back to 18 60, and it's the first time, it's been Bob since prohibition shutdown, the distillery and 19.9.

This is another milestone for Nelson's Green Briar as they continue to innovate and leverage the success they've already achieved.

Overall, our us wine and spirits business has executed changes that have resulted in a sharpened focus on consumer preferred trends related to Premiumization innovation and brand building.

As a result, we have benefited from ongoing consumer trade up trends.

Positive mix and great consumer response to our new product introductions in the marketplace.

Before moving onto cannot be growth I'd like to remind everyone that the core business activities. I just highlighted are driving an increase in our EPS guidance for fiscal 2000.

Now a few comments about our investment in cannot be growth, which continues to have the leading market share in Canada and Judy the leader in global Canada sales.

We remain bullish on the Canadian cannabis market as the conversion of the illicit market to the legal market continues to strengthen.

Per statistics, Canada in 2018, 23% of cannabis consumers obtain cannabis from the legal market, while in 2019 that number significantly improved to almost 50%.

In addition, retail store sales have increased significantly in every problems during the last 12 months.

We expect further retail sales increases as products like Veight edibles and beverages flow through the retail stores in Canada now the rest 2.0 products have been released.

We couldn't be more excited to see these products in the marketplace as canopy now we'll have the ability to showcase their best in class brands and intellectual property.

We're also excited to see the progress the Ontario government has made to satisfy the demand of consumers by agreeing to allow more retail store openings beginning in early March.

During cannot be second quarter, they established leading recreational market share across Canada, including a noteworthy share of over 35% in Alberta, Canada is most developed provincial recreational market.

In the U.S. in early December the canopy team introduced first and free a line of branded hemp derived CBD products.

These products are offered in a variety of formats, including soft gels well drops in creams and are currently available for sale via E Commerce on the first and free website.

Overall, we're pleased with the progress that cannot be team and what they've accomplished in the last few months.

As most of you know and less than a week my colleague David Cline, well assumed the role of CEO . It cannot be growth, where I believe he will bring more focus and discipline to that business in executing our strategic priorities.

We have also pointed towards hankinson as constellations, new CFO , who will help lead our company through its next phase of growth.

David has been a significant contributor to our organization. During his time here is accomplishments and constellation are numerous and I wish him great success, it cannot be where I will continue to collaborate with him through our cannot be board interactions.

During this time constellation David built in incredibly talented finance organization, which is why we're expecting a seamless transition to garner as he assumes his new role.

Got it brings a wealth of experience to this critical leadership position. Most recently, serving a senior vice president for our corporate development activities, where he's led the company's efforts can financial planning reporting and analysis as well as mergers acquisitions and our venture initiatives.

Many of you will have the opportunity to meet Garth and the coming weeks and I would like to publicly congratulate him and welcome him to our executive management team.

In closing we've accomplished a great deal on this exciting journey through the last decade.

But I'm equally excited and optimistic about the net 10 years as well we have a great product portfolio and a terrific industry. We have the right strategy and an energized management team in place to execute our vision for the future.

I'd like to reiterate reiterate two key takeaways from today's discussion.

Over one.

With every step we take.

We are positioning constellation for sustained long term success as we continue to premiumize the portfolio strategy, which has paid huge dividends over the years.

I'm confident in the continuation of strong results for our beer business and the excellent prospects for our wine and spirits business going forward.

Number two.

Our powerful cash generation capability and our desire to quickly de lever and returned 4.5 billion in cash to shareholders makes constellation a compelling investment for the future.

We remain steadfast in this commitment and I believe our significant debt reduction to date, coupled with our second quarter share repurchases are a testament to this commitment.

We have a relentless consumer obsessed focus on brands and categories that are high growth high margin and we're working continuously to build a solid and sustainable foundation of operational excellence financial strength and innovation.

We plan to execute in these areas throughout the remainder of the year and well into the coming decade.

With that I'd like to turn the call over to my colleague, David who will review the financial results of our third quarter sales.

Good morning, everyone and thank you Bill it's truly butter pleasure working with you and all of the wonderful people at constellation My time as CFO has been exciting as well as personally and professionally fulfilling.

I'm, leaving the company in good hands with Garth fits the new CFO throughout his 18 years of constellation guard to spend a significant contributor to our premiumization and growth efforts, while developing an in depth understanding of the company's business operations and finance activities.

Going forward, we'll we'll continue to collaborate on key initiatives as they relate to constellations investment in Tennessee growth.

I will certainly Miss my interactions with our investors in the sell side analysts who cover constellation over the years I value do or ideas suggestions and feedback and I. Thank you for your ongoing support I look forward to continuing to interact with many of you in my new role at canopy growth.

Now moving to the financials in Q3, we continued to produce strong beer operating performance and cash flow results, our wine and spirits power brand strategy is gaining momentum as marketplace performance for these brands continues to outpace the overall category.

We also recently closed the black Velvet transaction revised the original wine and spirits deal with Gallo, including a separate but related agreement to divest the novela wine brands.

And signed an agreement with King is in convicts brewing to divest ballast point.

Before we jump into the financial results I'd like to provide an update on guidance.

We have increased and narrowed our full year comparable basis diluted EPS range to $9.45 to $9 in 55 cents.

Our increased guidance range, primarily reflects the updated gallo transactions and related timing as well as strong beer operating performance.

This range excludes cannot be equity earnings, which better reflects the underlying performance of our core business.

We strongly urge investors to focus on this metric as the canopy equity earnings impact is non cash.

Our increased at White 20 guidance now assumes the revised wine and spirits transactions and the ballast point transaction closed by the end of fiscal 2000.

We expect the novel load transactions close in the first half of fiscal 21.

As Bill mentioned, we believe efforts to divest remaining brands from the original transaction along with incremental cash flow generated from the delay and timing of the transaction well guess relatively close to the value outlined in our original divestiture agreement with Gallup.

This assumes we realize the full value of the earn out.

After completing these transformation activities, we believe the wine and spirits business will be positioned to produce mid single digit topline growth well migrating to an operating margin of 30% over time.

Now, let's review Q3 performance and our full year outlook in more detail world generally focus on comparable basis financial results.

Starting with beer.

Net sales increased 8% on shipment volume growth of nearly 7%.

Reversal of the year end fiscal 2019 over shipment with minimal in Q3 and came in lower than previously anticipated.

We expect the remainder of the shipment timing benefit from fiscal 19 to reverse in Q4.

Depletion volume growth for import portfolio showed continued strength growing nearly 8%.

As Bill mentioned this was mostly driven by continued strong performance of Modelo Especial Seattle.

When including an unfavorable impact from ballast point total beer depletions were up 7.3%.

In Q4, we pick up the additional selling data that we lost in Q2, which will help us achieve high single digit depletion growth in Q4.

Beer operating margins increased 200 basis points to 39.3%.

Benefits from pricing in Cogs were partially offset by higher marketing and ask DNA.

Cost benefits were largely driven by FX, a one time contract contractor cost reimbursement and an inventory build ahead of our S&P S. Four Han implementation.

The contractor cost recovery and the inventory build health that outperform our margin expectations for the quarter.

I'm pleased to report that the first phase of our safety X 400 implementation Port our beer operations in Mexico was completed ahead of schedule and with excellent execution by the team.

This is an important milestone after more than a year of planning designing in training for this important this initiative.

We will continue to update you on upcoming milestones of our S. Four Honda implementation.

Marketing as a percent of net sales increased 30 basis points to 11% marketing spend for the quarter was slightly below expectations. We expect fiscal 20 marketing as a percent of net sales to be in the 9.5% to 10% range.

For fiscal 2000, we now expect net sales growth of 7% to 8%. This includes 1% to 2% of pricing within our Mexican portfolio.

As a result is the plan reversal of fiscal 19 shipment timing benefit we expect full year fiscal 2000 depletion volume growth to land about one percentage point ahead of shipment volume growth.

We also expect fiscal 2000, <unk> operating income growth of 8% to 9% and our full year operating margin to be in the range for 39.5% to 40%, which isn't improvement compared to the previous year in prior alkali 20 guidance of 39.3%.

As we move toward next year, we're excited about our plans to launch Corona hard seltzer at the beginning in fiscal 2001.

There will be some investment in production costs as we ramp up production for this major innovation. In addition to the significant marketing investment Bill mentioned earlier.

Moving to wine and spirits.

Net sales declined 10% on shipments that were down 14%.

Depletions declined 6%.

Q3 results outperformed our previously communicated expectations, primarily due to a shipment timing benefit.

Our third quarter wine and spirits result were somewhat impacted by a shift in Thanksgiving holiday timing with retailers and distributor replenishment shifting to the fourth quarter.

Last year, there was one full week post Thanksgiving to fully replenish.

In addition to the shift of the Thanksgiving holiday, we continue to be impacted by transition activities with distributors and lap some lower quality sales incentives and pricing activities that we've decided not to refi in order to better align with our strategy for the business going forward.

Wine and spirits operating margin decreased 80 basis points to 26.2% as mix benefits were more than offset by higher Cogs and higher SGN as a percent of net sales.

Higher Cox, mostly reflect great cost headwinds.

The higher SGN as a percent of net sales included marketing investments driven by the continued supported the power brands, including new product development initiatives and may only advertising in the quarter.

We now expect fiscal 2000 wine and spirits net sales and operating income to decline 8% to 10%.

Our updated guidance reflects the revised transaction close assumptions discussed earlier.

As part of the wine and spirits transactions, we remain committed to our $130 million stranded cost reduction plan, which we now expect to the realized over this over the fiscal 21 for fiscal 2002 timeframe.

I remain confident cut the wine and spirits transformation strategy is working.

Our brand performance continues to benefit from our increased focus and marketing investments.

In fiscal 2008, we're running a bit short of our mid single digit power brand depletion growth target largely due to the activities I mentioned earlier.

However, power brands are driving mix benefits and gaining share in IRA channels and you should expect to see a sequential improvement in depletion trends in Q4.

When you include these mix benefits, we believe our portfolio post divestitures is on track to achieve our longer term targets, including mid single digit net sales growth will migrate into an operating margin of 30%.

Fiscal year to date corporate expenses came in at a 149 million up slightly versus Q3 year to date last year. We now expect full year corporate expenses to approximate $230 million, reflecting an increase for insurance related costs.

Higher incentive compensation and to ramp that IP spend which includes our S 400 implementation and other digital enablement activities.

We expect our SG and they look to decrease by the end of fiscal 22, once our digital enablement activities are fully implemented.

When we can eliminate redundant IP costs and realize the benefits of the new platform.

In Q3 comparable basis interest expense increased 11%. This primarily reflects additional interest expense related to the funding of our incremental cannot be growth investment in fiscal in November of 2018.

Fiscal 2000 interest expense is now expected to to approximate $430 million.

Our Q3 comparable basis effective tax rate, excluding canopy equity earnings came in at 17.5% versus 14.1% last year.

This increase primarily reflects lower stock based compensation benefits.

We now expect our full year fiscal 2000 comparable effective tax rate, excluding canopy equity earnings to approximate 18%.

The one percentage point rate increase versus our guidance is primarily due to the impact of lower stock based compensation benefits and higher expense for miscellaneous tax items than we previously forecasted.

I'd like to note that we expect our full year cash tax rate to be in the mid to high single digit range.

Let's move to free cash flow, which we defined as net cash provided by operating activities less capex, we generated free cash flow of $1.5 billion for the first nine months of fiscal 2000.

This represents an impressive 14% increase.

Free cash flow improvement, primarily reflects strong operating cash flow in lower capex.

We now expect full year capex spend of $7 million to $800 million versus our original guidance of eight to 900 million.

This includes approximately $560 million of Capex for our Mexico fear operations expansion, including investments in the over gone in Mexicali brewery as well as the fifth glass furnace at the Nava glass plant.

We expect fiscal 20 operating cash flow to be in the range at 2.2 billion to 2.4 billion and free cash flow to be in the range of $1.5 billion to $1.6 billion.

Now, let's discuss several impacts that were excluded from Q3 comparable basis results.

Last quarter, we noted that we expected to recognize the locks in Q3 on the write down of assets held for sale related to our transaction with Gallo the actual write down of $340 million was largely driven by the $250 million of contingent consideration associated with it.

Revised transaction price.

Accounting rules governing our election to record the contingent consideration when it's determined to be realizable.

We also recognized $547 million of net income tax benefit, resulting from the re measurement of our deferred tax assets in connection with tax reform in Switzerland.

Moving to canopy. The total pretax net gain recognized since our initial can equity investment in November 2017 is $223 million in Q3, we recognize the 534 million dollar decrease in the fair value of the canopy investment.

As a reminder, constellations original warrants with canopy have an exercise price of $12, a 98 cents Canadian per share and will expire on may one 2020 and represent less than $200 million in consideration.

In addition, the tranche eight warrants expire on November one of 2023, the company will evaluate exercise of each of these warrants immediately prior to expiration and does not plans to make additional cash contributions to canopy beyond the potential exercise of these warrants.

I'd like to close with some comments on capital allocation.

First and foremost as Bill mentioned constellation remains committed to its goal of returning four and a half billion dollars to shareholders in dividends and share repurchases over the fiscal 2000 into fiscal 2002 timeframe.

Im pleased to report that in Q3, we return to our targeted leverage ratio range. This was at the early end of the 12 to 18 month timeframe, we committed to when we closed on the canopy investments.

Excludes noncash cannot be related equity earnings.

Continued de leveraging driven by the company's strong cash flow generation capabilities should provide the flexibility to be opportunistic and increased share repurchases as we move into fiscal 21 in 22.

As I reflect on my time as CFO constellation I'm proud to have been in this role during a time a significant value creation.

I remain bullish about constellations prospects and believe the company has the right strategy in place to produce top tier performance for many years to come.

Look forward to creating value for Kathy shareholders, including constellation in my new role it cannot be growth.

With that Bill and I are happy to take your questions.

Ladies and gentlemen, you asked a question you will need to press Star then one on your telephone keypad.

Certainly your question press the pound Keith.

Please standby, we compiled acuity roster.

Our first question comes from the line up coming back a lot with credit Suisse. Your line is now open.

Hey, good afternoon, everybody David Congratulations.

Question on.

Quick question on cell, Sir it's obviously going to be an incredibly competitive category for calendar 2020.

What's going to make sure you're you're proposition different and how are you thinking about about marketing spend and investment given that.

It seems like it's really building up to be a pretty significantly competitive category. This summer.

And then second separately.

Your de leverage comments are you happy to keep.

The levels at where they are now at everything incremental from here is a buy back to manage to those levels or should we be thinking about it differently.

Thank you.

Sure Road outfit the first half of that.

We're very excited about.

Corona hard seltzer in part just because of the refreshment DNA that's attached to the Corona brand.

We obviously have done a lot of product testing a lot of product research to make sure that we have a product that meets or exceeds the other key players in the marketplace. So we're quite comfortable with the the share quality of the product that we're going to bring to the table and as usual our cracked marketing department will bring outstanding consumer.

Communications as they always do around our critical brands. The last thing I would say is.

We still believe that there's a lots of upside in the total size of the Seltzer business. It was roughly 60 million cases in 2019, and we believe there could be a two to three time two to three X opportunity going forward and we expect to take a significant share of that opportunity.

Dave again coming on the buybacks.

Our targeted range is three to four times, our preference would be at the midpoint of the range.

But now that we're now that we're back in the range will definitely look to be opportunistic as we move forward.

Our next question comes from the line up making money with RBC capital markets. Your line is now open.

Thanks, Good morning, everyone, David Let me a second be congratulations on your you opportunity.

So that's the question is really around maybe if I can go back to capital allocations.

It will obviously a lot of indexes for years have been concerned about constellation capital allocation decision and the last few months have been pump right ballast point with canopy value decline.

Maybe just kinda give us in union from your perspective kind of what you've learned noting a decent from bowel clean particular, and how you think about the capital deployment outside of obviously the buyback stuff that you guys I'm committed to it to get people tend to kind of how you're thinking about philosophically. How do you kind of go to your accused of being feel just company.

Sure I think I think one of the things and David just pointed it out we remain as committed as we always have to getting ourselves into the range and on as he said we're pleased that we have gotten into the top end of our range earlier than we had anticipated.

We have a tremendous amount of opportunity with our core existing franchises.

You will have seen and we will continue to see a relentless focus on the critical categories and brands that we see as high margin high growth opportunities and we will invest to take significant share within those.

Where we see issues and problems much like you point out of the ballast point or the low end of our wine business. We're prepared to take action to make sure we're focused on where the consumers going rather than where they have been and those are two examples with that I think what that will do well that will allow us to continue to focus all of our attention.

On the Premiumization play both in the beer business and the wine and spirits business. So that we continued to be the leader and when someone said some of this chaired 10 years from now there will be able to tell the same story that I, just told which is a great decade of tremendous growth for our company and for our shareholders.

Our next question comes minor didion, either with Cowen Your line is open.

Hi, Good morning, and also Echo my congrats to you David I really look forward to working with he'll sort of my separatist canopy and so bill I just wanted to follow up on your commentary around dislocation that you take heart smelters training based on the consumer insights you offered on.

But if you think it's kind of broad based and it's under indexing imported beer. How are you think not asking for guidance on for fiscal 21 thing that are you expecting that dynamic to shift on given the introduction of I'm kind of hard smelter and perhaps put it more specifically how might you cannibalization.

When might you guys be expecting in terms of interaction between your core credit offerings and that hard seltzer proposition. Thank you.

Well the thing that are excited about the about the Cronto Seltzer introduction is that first of all the category appears to have continued to have real strength and that there's a lot of growth potential in it as I said, a moment ago I think there's probably two to three X where it sits today, which creates tremendous opportunity for those of US we're going to.

Playing a category I think.

Our expectation would be than we would have a similar type of cannibalization profile that we saw around premier which as you might recall was in the 70% to 75% range incremental. So this we think this is a great opportunity for us, but I would also urge all of you.

On the call to keep in mind as big as exciting as this launch will be modelo, especially out likely to beat our single biggest grower next year. This continues to be a brand that is absolutely on fire. It grew 15% and the most recent period and it had 30 plus.

And second of years of double digit growth. This is a brand that explained to be and remain a significant foundational play for this company for many many years to comp.

Our next question comes from the line of Kevin Grundy with Jefferies. Your line is now open.

Hey, good morning, everyone and David I wanted to extend my congratulations as well I want to pick up on the bigger guidance. So bill you sounded pretty positive. Despite some of the slowing that we saw in the Nielsen data I think you attributed to pricing, but yes as I look at the midpoint. If my math is right. It implies about 7% organic sales growth.

The year over year comp is easier if you do get an additional selling day can you talk about maybe what you're seeing in the business you know the corona looks a little bit like premier looks like its decelerated a bit is there anything that gives you caused.

A bit of pause here with the base portfolio in terms of some deceleration and then you know given that it as we look at the 7% to 9% longer term growth that you've expressed confidence in over the intermediate term and the fact that we had to tweak it modestly lower this year should that be it all concerning for investors looking out to next year.

Thank you.

Sure No I think you should be very positive about our expectations around our core business. We were particularly excited that the corona extra business returned and renewed in growth in a in the third quarter.

As I stated certainly the price increases that we talked particularly in the state of California gave us a very brief a factor that you saw in the most recent IRI data, but we do not expect that to have any impact on our our longer term trends into taxes, Hey, I alluded to earlier.

Our December depletion growth profile overall was in the high single digit range, which is ahead of our year to date trends. So we remain very very bullish and when you think about things like middle on Pacific go and the addition of our Selzer business I think you're going to see a continue strong.

Delivery against our business in the range that we had said we would do.

And with that we will deliver for this year.

Our next question comes from the line up Dara Mohsenian with Morgan Stanley . Your line is now open.

Hey, Good morning, guys I also want to extend my congrats to David.

Just two quick clarification. So the beer business Bill you mentioned that high single digit depletion growth in December I think that included an extra day those so ex the extra day, what what type of rate are you trending at.

And then David you mentioned that contract or an inventory timing benefited margins in the quarter can you give us a sense of how much that was.

And those are more clarification. So forgive me the benefit of additional question.

You guys did comment on that the Fabulous track record of beer volume growth over the last decade, and kudos for that obviously, an amazing track record, but if you do look at the year to date depletion growth of 7%, it's below that 9% to 10% piece from the prior few years I know, it's close to what you guys originally expected, but just at a high.

Level, taking a step back just curious for your perspective on if the slowdown this fiscal year. That's just more of a natural maturation as you move to larger case volumes. If we should expect sort of a gradual slowdown in depletion overtime, a larger numbers or if there were more discrete issues driving the sequential slowdown this year.

Sure.

And this is not sort of the start of a moderation trend as you look out longer term. Thanks.

So relative to the depletion trends for the fourth quarter.

Rick we expect fully expected our depletion trends for the fourth quarter are going to be in a high single digit range.

Much like December presented itself.

Look we remain extremely bullish about the long range prospects for our beer business, we are significantly significantly outperforming the overall category as well as the high end up the category as well and that's before we introduced a art seltzer product, which will compete in an area that admittedly a has gotten very big.

They really fast so this will provide us with I think renewed opportunity for growth and we're very excited about the prospects for that going into the new fiscal year. Obviously as a reminder, we will get fiscal guidance. During our next call as total refrain from doing that at this point in time, but certainly.

We're very excited not only about fourth quarter and finishing our year very strongly.

But for next year as well and they are on the on the contractor.

Settlement and you know even though in the a at 400 kind of production build that we did in a in Q3 that gave us a benefit.

No. These are all.

A few to several million dollars each and if you think about last year. It rewind to last year I think in Q3, we we had an issue with a glass production in the quarter.

So we get these are these impacts every single quarter that our call it $3 million to $7 million, each and sometimes they kind of aggregate in our favor sometimes they they go against us, but if you look at our.

Total operating margins in say equity 18 were at 39.5% appoint 19 were 39.3% and this year, we're saying we're going to be between 39 and a half to 40 I paid by the time you get to the ended the year. All these little timing next go away and you know we end up in a pretty consistent margin range in this business, which oh.

We now maybe for the last time is by far best in class in North American broker.

Thank you.

Do you come back and say that no matter what do you want.

Okay.

Our next question comes from Atlanta, I'm in Sharma with BMO capital markets. Your line is now open.

Hi, good morning, everyone.

Hi, good morning.

Yeah.

Just a couple of questions one on one on banner.

Bill talked about the long term out log and looks like it's still continental high single digit can you talk about <unk> down low input declare lie.

Growing double digit, but some people not little bit concerned about the detailed I'd be saw recently can you talk about what is in the pipeline from a download perspective as you look to continue this momentum and then line.

David Good to have 20% operating margin outlook still intact, what that business.

Can you talk about the timeline I'm just trying to cost as they come out post the Divesture also dollar price trends. Thanks.

Sure I I'd say and I've said this many times I think muddled remains the single largest opportunity for this company.

It is just beginning to crack into the general market. It has had a very very strong run with its core Hispanic base and continues to grow without audience and as many of you know.

We do have a great tailwind with the growth of the Hispanic consumer.

In the United States, which will continue to give us a tailwind upper a fair amount of time, but as you know our advertising in our marketing activities around the Dell has been expanded to a broader audience and the growth profile within the non Hispanic consumer is tremendous so we see oh.

The remaining tremendous upside in the Dell going to your question then about what else.

We will be introducing the most alito.

Product so a different sites, we have size opportunity and as you. All know we have done nothing truly to innovate around the Dell outside of the Chelada business, which has done extremely well for us. So we think muddled is going to continue to be a job or not a well into the next debt.

Okay, and will likely be the single largest growth product and brand for us going forward.

And on the on the topic of stranded costs is it's a bit of the story, we told at the beginning of this year almost on a one year delay. We're we're saying, it's a 130 million dollar stranded costs.

Without without getting into specifics that will be included when we provide guidance next quarter, you can assume that a quarter to a third of those costs come out enough why 21. The rest in acquired 22, because we have Ah you know that flow through.

Through Cogs.

Hit before it hits RPL, so like halfway 23 will be the first real clean year, where we can take a look at that.

Seeing all the stranded costs coming up or have being out.

Our next question comes the line of Lauren Lieberman with Barclays. Your line is now open.

Great. Thanks, and good morning so.

Little bit about that.

Marketing spend on Corona, because last quarter, you took the opportunity to say look better profitability coming in a bit ahead of plan what puts an extra money behind Corona included had been some reaction to the same kind of marketing spend on beer came in a little bit late plan. So if you could just give us some color on wide spend with little bit later.

Looking forward and one in that marketing mix is particularly I've had a particularly attractive return would be interesting. Thanks.

Sure, Yes, well I'll comment on a on the kind of timing of spending it really is a it's a timing issue. We expect that we will finished the year as I said in the nine and a half the 10% range of net sales.

At the same time, we expect that.

We will see an uptick in our marketing spend in Q4 this year versus Q4 last year, some about having to do with incremental investment behind our core brands, but also some of it having to do with.

Basically production costs around around the Seltzer marketing campaign that bill outlined earlier, so I think for marketing for US. It really is just a function of timing as we still are focused on that I have to 10% range.

Our next question comes from the line up Robert Ottenstein with Evercore ISI. Your line is now open great. Thank you very much a couple of just kind of follow up clarifications first.

It looks to us that the the price mix was about 1.6% can you.

You know give us a sense of what that would have been without ballast point, a and then second I'm following up on on some of the comments on krona Seltzer.

You you made some comments that you know, it's being well received by retailers can you give us a sense of how you see the shelf sets coming out.

Next year, a where krona seltzer is gonna be positioned on the shelf.

Versus beer versus other you know why claw and then they you know if you look the white Claude trends they they've been unbelievable right. I mean, you they and they are actually increasing share I think the latest share it's something like 67% up from 60.

What.

Gives you the confidence that this is actually a hard seltzer segment as opposed to white Clos segment and that there's room for a lot of new competitors. Thank you.

Sure. So let's talk about the the sets and where we expect to see seltzer.

Seltzer is in all likelihood not going to take space from our core beer franchise.

The consumer views into something different the retailers billion or something different whether it's on the shelf or into cold box. So we think there will be a distinct differentiation of product location versus just cannibalizing existing shelf space.

That's the way it's been so far we believe that will continue.

This the answer to your question regarding whether this is a category or a brand I think.

We solve that answer for ourselves with research.

Our consumer and the Seltzer consumer is very interested and the idea of Corona hard Seltzer I'm part because of what I said earlier, which is the whole refreshment DNA around the core Corona brand or you know the strength the strength of Corona in that whole refreshment relaxed.

Patient Beach.

Experience is perfect for this as we said earlier that the the selzer consumer is has generally been increasing their overall consumption of the total alcoholic beverage category, which I think speaks well for the overall category of Seltzer is going forward and the strength of the kroner.

Banding together with the investment that we're going to make against that we're quite bullish on it.

And Robert on the on the price mix question.

You know it might be a if we were just looking at imports. It might be you know 10, 10, 15 basis points, but not the additional to that but not not much.

Our next question comes the line of Steve Powers. That's what you think your line is though.

Thanks, and congratulations from me too David.

Coming at the beer out look from a another direction do you know just coming back and coming into COVID-19, that's a beer event in Chicago, you guys are pretty adamant that beer margins would would trend flattish more or less aligned with where you finished last year call. It 39 half as he said.

But you know were three quarters in the to fiscal 20 beer margins have exceeded expectations three cores in a row raising the full year outlook Inarguably fourq would seem to have potential upside of embedded in that as well acknowledging some of the three key benefits that the could reverse.

I guess as you step back does any of that change your go forward thinking as to where where beer margins could ultimately aspire to especially without the recent drag from ballast.

I mean it is is there yeah I guess is there a structural upside to your prior outlook or or do you attribute the recent the recent strength just to some of those timing that's that you'd mentioned earlier David.

So I'll start with that David can add as he would like during that discussion one other things we were quite clear about relative to our guidance is there will be some years, where things go our way cost or better FX is better certain things just simply are favorable to what we would do you as the.

The long term proposition around our margin structure. This year has been one of those and we're certainly happy to take it up but but it's also realistic realistic to recognize that those things can go either way of as I said this year. It has gone in our favor.

And we continue to work as you would expect are on our operational footprint to make sure. We are extracting every ounce of opportunity.

As it relates to cost, but this year when our way and we're quite pleased that it had David on the Yeah. You know Steve I would say that you know we are pleased I'm convinced we have some of the best operations people on the planet in order to produce the results that we do on a consistent basis.

Oh, no to caution though is that.

I think we've been clear about this is that when we are in the launch here from adults are standpoint, we know that we're going to be driving towards the high end of our of our.

Marketing spend as a percent of best DNA range. We also know as I've said in my script that there are going to be some drag on on a gross margins.

As we come out of the gate on Selzer's. However, we've also said that we believe overtime selzer's don't have to be a dragging we don't expect them to be a drag overtime right. So I think you're gonna see puts and takes a in our business as bill outlined but you know I'm actually.

Pretty pleased with the consistency of margins in that.

You know, it's as I said, you know 39, and a half a percent range for three years in a row.

I would just be it on to David's comments that much like our beer margin structure is best of class I think you would expect that our seltzer margin structure as we get to critical mass will also be best of class versus the competition.

<unk>.

Question comes from the line of Andrea Teixeira with JP Morgan Your line is now okay.

Hi, Good morning Ah David Congratulations also on your promotion and thank you for your work as a CFO constellation.

So my question is a follow up on the comment about increasing batsmen on the seltzer marketing should we budget how do they had a rating the fourth quarter and also increasing notably for scoring Cisco 2021, because I understand the launch in early fiscal year any markets, where do you mind, so relative to the typical launches.

It is or the typical innovation that happens around Cinco de Mayo cannot codification, it's a wheel in shifting gears, a good bit for wine and spirits. So [laughter] <unk> fourth quarter wine and spirits profit guidance its down so fight sound, a 13% year to date.

So the full years down eight to 10, which implies that didn't happen I need to performance in the fourth quarter things you can elaborate on that as well. Thank you.

Yes, so on a.

On marketing spend yeah, we expect that a that our spend will be.

Up on a year over year basis in Q4, and that's that's that.

You can talk it got to calculate back to get into that 9.5% to 10% range as I said, that's most likely to be.

Seltzer.

Production.

Marketing production costs.

And then we think that the spend will be a little bit weighted to the first quarter and certainly the first half of the year while we're.

Just getting the products on the shelf will want to make sure that we're driving a lot of consumer activity.

Point in time.

Our next question comes from lineup they'll Kirk with MKM partners. Your line is now open.

Thank you. So I had a quick question on cannabis, obviously, you worked with canopy on the beverage launch up in Canada.

And as I understand it acreage can bring can hide he technology, including that beverage technology to the U.S.

I guess my question would you want acreage in the U.S. to start making the products that you've developed with with canopy.

Yeah, I think you know that the best thing that so so it's not our decision. Let me just be clear about that it's acreages decision, but you know to the extent that we've developed outstanding.

Oh products for use in the Canadian market.

It's a acreage can bring nose to the U.S. in there they're comfortable to do so we think that that's a home run all around like throughout our candidates ecosystem. If you will that's a benefit to canopy, that's a benefit or two acreage and you know some of our constellation team has been.

Helpful in making sure that a that that's a products are a meeting the expectations of the consumer in the marketplace.

Our next question comes might have shown came with yes. Your line is open.

Hi, Thanks, you called out refresh guy that growth driver, but still it's pretty small in the track channels, where do you stand in terms of I guess, a national rollout strategy and how do you expect a seltzer to interact with refresh Scott I guess on the shelf.

Yes, we're very pleased with refresh get it has outperformed what our expectations work and we're going to continue to invest behind it to make sure. It continues to grow as I said, a little earlier, we don't expect.

The shelf interaction to get in the way between our seltzer and our and our refresh the businesses. We think they serve different needs. Although admittedly there is some interaction between a good FNB consumer and its culture consumer, but we think there's room for both of those products in the market and we're looking.

Forward to seeing continued acceleration of both the Rhopressa franchise.

As well as the as well as art Seltzer out when it comes out.

Our next question comes in light of Bill Chappell Suntrust. Your line is helping.

Thank you so much and David congratulations.

Two quick ones or any kind of guidance on what.

The peso versus the dollar impacted a beer margins this quarter or is that more to come in future quarters. And then also in terms of kind of what you talked about marketing spend in falling under his question is.

Is this similar when we look at the first quarter of 2021 to what we saw 18 months ago with the rollout of Premier in terms of kind of pulling forward marketing more spending very front end loaded or is it more balanced throughout the year.

Yeah, so on on FX and again, we get some volatility in FX and the our team I think does a nice job of of trying to lock in bumps in the peso, which which gives us a little tailwind.

Especially given the volatility between the U.S.T. and the pay so over the last couple of years right. So we think that in the quarter I was about 60 basis points of impact on margins and then.

Yeah, I think you can think about it a lot like premier so so kind of the spread throughout the quarters of the years should look a should look just like the premier lunch.

Our next question comes from lineup is not good day with Guggenheim. Your line is now open.

Yes, good morning being in David.

Like two to have a question on corn in the Permian some year, specifically I mean, we're getting flaminio when looking at the Nielsen data over the last Hugh tell you. Its we are seeing your mix or 80 different decline so easy deliberate choice and it seems you mentioned you need some now youre inquiry correlation to refreshments space.

That's some young may know teach a two to put my personal space for from a little too out to grow.

Then on current approached me Cruces is plateauing it seems like it's getting to the size of Cowen night. So you are there any any any sense you can revamp that that brand spend weeks to read the gross or are you satisfied with the current im not high performance so far grown that premium so those two just.

Thank you.

So relative to a familiar from New York continues to do very well, particularly in the core Hispanic community.

Which is where it was originally targeted so we continue to think that familiar is gonna be an important part, particularly with the Hispanic consumer and very specific demographics and very specific geographic regional opportunities relative to Premier Premier continues.

To do very nicely. We're excited about it obviously there has been some impact the cannibalization that has occurred has been impacting a light as you would expect to some degree but premier also opens up a bunch of new consumers to our franchise as well who are looking more for that low carb.

Decisioning Ah that's premier present, so we remain very bullish on the future for Premier and we're going to continue to invest against that franchise going forward and again. It goes right back to we are always pleased when more and more consumers spend more and more dollars against the overall.

All Corona franchise people people, believing this in this franchise. It has been number one as I said before number one most trusted brand with both Hispanic and non Hispanic consumers 21 to 54 and that gives us the chance to continue to leverage.

New introductions like refresh got Premier and hard Seltzer, which is obviously coming in this coming fiscal year. So Oh, we remain very bullish on the overall Corona franchise and I think the fact that that franchise was one of the few girls' brand franchises over the course of on my last decade shows the real long Jeff.

But he for that brand.

I'm showing no further questions in queue at this time I'd like to turn the call back to the limits for closing remarks.

Well, thanks, very much and I guess I'd be remiss, David if I Didnt say, but all the congratulations you just received are well deserved we're certainly going to mission on decide but we'll be happy to get our 37% value going forward.

Thank you everyone for joining our call today before closing I'd like to reiterate what a powerful decade. This is Dan for constellation our results over the past 10 years are a testament to the dynamic strategic efforts made by our strong management team.

Through our current initiatives and priorities. We're positioning this company for sustained long term success and therefore, we are just as excited and honored and optimistic that the next 10 years will continue the momentum into the fourth quarter as well as a strong finish to this fiscal year.

As a reminder, during our next quarterly call as I said earlier, we will be providing guidance for the upcoming fiscal year. So thanks again, everyone for joining the call I wish you, all I say happy and prosperous new year and new decade, thanks very much.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

Welcome to the constellation brands third quarter fiscal year 2020 earnings conference call.

If I'm all participants are in place Oh listen only mode.

Following the prepared remarks, we will all be opened for your questions instructions will be given at that time.

I will now turn the call it <unk> senior Vice President of Investor Relations. Please go ahead.

Hi, good morning, and welcome to constellation third quarter 2020 conference call I heard this morning until new land CEO at the decline our CFO .

A reminder, reconciliations between now and I think comparable GAAP measure of any non-GAAP financial measures.

Evan Calio, but they're not going it's really or otherwise available on the company's website at www Dot tea brand Scott.

Please also refer to the news release and corporation that could be filing from accessories, which may impact already.

We make on this call.

We're trying to collagen Adele similar to acquire border I'd like we limit everyone and one question per person, which will help.

Hi, Thanks in advance and ask yourself.

Thank you Patrick good morning, and happy new year to everyone.

Okay, I tried to holidays have the opportunity.

So our awesome consolation products in your celebrations with your family of friends.

The anniversary here at the time or watching for me. This year is no exception.

As I reflect on 29 team I'm reminded that were not all the ending circuit, that's for sure, but I'd say NAMIC decade constellation brands.

It's 20 consolation has been on an incredible journey marked by strong financial performance a notable milestones.

Over the last 10 years, we significantly increased the value our stock and produced double digit growth and sales operating income and operating cash flow.

Matter of fact, the closing price, it's Scott consolation stock on December 31, 2000, and I was just more than $15.

I've worked at December 31, 2019, we closed at almost one night.

That's incredible increased more than 1008% over the last 10 years made constellation.

Performing side.

S&P 500, consumer Staples index during this timeframe.

One of the biggest drivers of our success with the game changing Bureau acquisition that was executed almost halfway through the last decade.

And enabled constellation combined with Grupo Modelo brands and the United States, where we successfully built these brands for many years, while positioning ourselves for this transformational opportunity.

Hi, this deal allowed us to double the sale of our company.

Our supply on profit stream significantly enhance our margin earnings and free cash flow, while providing new avenues for growth.

Since then our beer business has made significant contributions to the overall sales profit and cash flow results for our business and continues to be a powerhouse for growth as the number one grower and seller of imported beer in the U.S. market.

Calendar 2019 marked the 10th consecutive year of volume growth for constellations beer business has solidified our position as the leader and the high end of the U.S. their business.

These trends were driven by Corona extra the Delaware speciality explosive growth and our successful innovation initiatives.

In 2010, the Modelo, especially all brands depleted approximately 35 million cases, and then went on to achieve double digit growth and every single year of the past decade, finishing 2019 at more than 140 million cases.

And there's more to come.

And our most recent third quarter. This powerhouse brand posted depletion growth of almost 15% with double digit growth and 46 of the 50 state law solidifying its position as the number for beer brands in the us market.

Corona extra which is the number seven beer ran in the U.S. Your category grew approximately 90 million cases in 2010 to more than 110 million cases in 2019 and is one of the PEO top selling brands in the us grow this past decade.

From a quarterly perspective, the Parana brand family grew nearly 7% and I are right channels driven by the continued strength of our broader premier and Corona Refracs innovations as well as the revenue growth of Corona extra.

Rob Premier continues to gain distribution, especially in the on premise and delivered double digit depletion growth and 35 of the 50 states during the quarter.

Corona refresh what a top 10 growth contributor to the year to the US high end beer category during the third quarter.

And finally, let's not forget pacifica, which achieved double digit depletion growth of nearly 16% and remain a top share gainer within the us important segment.

We're excited also about our plans for the launch of Corona Park Seltzer, This brand, which will help to further strengthen our position as the leader in the high end of the U.S. beer segment.

Our launch strategy includes the largest ever single brand investment for our portfolio of more than 100, excuse me more than 40 million in marketing to support the Sandro.

We've already started to take orders from distributors and have received incredibly positive feedback for retailers. We're excited about the prospects of chronic filter and have already incorporated our newest portfolio addition into their shelves that programming plans for the spring selling season.

As we've discussed Corona ourselves or will be introduced and four flavors, including top line mango Jerry Blackberry line.

Chronic Kerry unbelievably strong brand equity as a number one most loved brands among both Hispanic and total population drinkers age 21 to 54 and Thats why Weve decided to put the Corona brand name on our new Seltzer and of course, the refreshment characteristics of health.

Perfectly matches with corona's refreshment DNA.

There's been a lot of debate about the seltzer trend and where cells are sourcing their growth within the total beverage alcohol category.

Research shows that Seltzer is taking share across the board from beer wine and spirits.

A significant amount of this growth is sourced from the beer category is primarily coming from domestic premiums kras and fnbs with minimal interaction of soldier consumption with import brands.

In addition, we're seeing increased overall consumption from those seltzer drinkers and new consumers, who are entering that GBA space through their interaction with selzer's.

As an aside the trends that you've seen for constellations beer business and this week's four week IRI data covering the month of December are related to our recent annual price increase specifically in the California market, which briefly decreases features and promotions.

Yes.

These price increases our normal and quickly short term and Asia overall, we closed out the month of December with depletion growth for our third.

Hi, Thanks single digit rank of our year to date Trust.

Moving now to wine and spirits I'm pleased that we've been able to execute a revised agreement with Gal, which paves the way for accelerated growth and margin performance for our wine and spirits business going forward.

In addition, we believe that addresses the FCC concerns by excluding the sparkling wine brandy dessert lines and concentrate categories from the original transaction.

We're already actively pursuing other opportunities to divest most if not all brands in these categories as well as we believe this is the best path to optimize our portfolio going forward.

To be clear the FCC needs to provide a final approval of our revised from Raymond Gallo once we have finalized all transactions, including the proposed divestitures, which we expect to occur by our fiscal yearend.

We have also entered into a separate but related agreement with Gallo to divest our novel wine brands.

This fits with gallas portfolio strategy and allows them to expand into New Zealand wine category without affecting our long term goals and strategy or our opportunity in the New Zealand wine category in the us as a greater than 11 dollar price point.

This transaction is expected to close in the first half of fiscal 21.

Despite the delay and timing and revisions to the transaction I'd like to remind everyone that we have benefited from almost an entire year of additional cash flow from a domestic brands by the time the transaction closes.

Which has contributed to our debt reduction and share buyback activities.

During the last decade, our team has created significant value by transforming and simplify our wine and spirits portfolio through the rationalization and divestiture of assets in an effort to premiumize the business, which is the right strategy to enhance our wymans for growth and financial profile.

Going forward.

Theres Premiumization strategy is taking hold in the marketplace as our power brands continue to outpace our competitors and take market share at the price points that matter in the higher Ed.

In fact, our power brands at the greater than $11 retail price point grew nearly 9% in IRI channels during the third quarter, including brands like May only which is more than doubled its volume with a CAGR of nearly 30% since its acquisition in 2015.

Kim Crawford, which is another GM within our power brand portfolio, what's the number one selling wine unwind dotcom. This past year and that is consistently outperform its competitors posting a 20% volume cagar and ion channels over the last decade.

As we progressed through fiscal 20, we continue to show steady upward progression in revenue trends for our power brands and expect mid single digit sales growth. This collection of brands in the fourth quarter.

Innovation and new product development are also critical to our success for the remainder of the year and we feel we are well positioned to drive these initiatives to the finish line.

We've already had great success with the launch of Robert Mondavi, private selection, buttery shark tank and Woodrich ready to drink packs, which while gaining traction across all channels is doing especially well in the convenience channel channel growing at two times the rate of the total us line Mark.

Yes.

Both Woodbridge by Robert Mondavi private selection.

Which represent the most significant volume within the Robert Mondavi brand franchise are outperforming in their respective price segments, driven by marketing investments that we recently made.

We recently extended our highly successful barrel waste program with the introduction, our NPS ride barrel, aged red flat.

As a reminder, we've sold more than 1 million cases, a barrel aged products since the inception of this program nearly two years ago, which helped to revive that Robert Mondavi private selection brand, while also becoming the foundation for some of our other successful early action innovations like Cooper and paid.

We're also going on success of wind in the camp, where consumers are seeking products that are convenient ready to drink and saw environmentally friendly packaging.

These trends have helped to fuel the growth of Crafters Union, which is the number one growth driver can line over the last 12 weeks.

We plan to build on the momentum of this ramp with the launch of Crafters Union bottles during the fourth quarter.

Later this month, we will be releasing the prisoner unshackled. The newest addition to the prisoner collection of brands in Cabernet Red Glenn and Rozek.

We expect these brands to strengthen our ability to compete at a fast growing 25 dollar retail price point.

On the spirit front sector bypass continues to significantly outpaced the project category and I are right channels, driven by increased distribution within our core portfolio as well as the more recent introduction of the rose a flavor.

During the quarter one of our most successful venture investments Nelson's Green Briar Juan launched its first Tennessee whiskey product.

Tennessee Whiskey is based on Charles Nelson's original recipe dating back to 18 60, and if the first time has been Bob since prohibitions shutdown, the distillery and 19 overnight.

This is another milestone or Nelson's green Briar as they continue to innovate and leverage the success they've already achieved.

Overall, our us wine and spirits business has executed changes that have resulted in the sharpened focus on consumer preferred trends related to Premiumization innovation and brand building.

As a result, we have benefited from ongoing consumer trade up trends positive mix and great consumer response to our new product introductions in the marketplace.

Before moving on to cannot be growth I'd like to remind everyone that the core business activities. I just highlighted are driving an increase in our EPS guidance for fiscal 2000.

Now a few comments about our investment and cannot be growth, which continues to have a leading market share in Canada answer Dave a leader in global Canada sales.

We remain bullish on the Canadian Canada's market as the conversion of the elicit market to the legal market continues to strengthen.

Per statistics, Canada in 2018, 23% of Canada's consumers obtain Canada from the legal market, while in 2019 that number significantly improved to almost 50%.

In addition, retail store sales have increased significantly in every products during the last 12 months.

We expect further retail sales increases as products like veight edible and beverages flow through the retail stores in Canada now that Rep 2.0 products have been release.

We couldn't be more excited to see these products in the marketplace as Canada. We now have the ability to showcase their best in class brands and intellectual property.

We're also excited to see the progress the Ontario government has made to satisfy the demand of consumers by agreeing to allow more retail store openings beginning in early March.

During cannot be second quarter, they established leading recreational market share across Canada, including a noteworthy share of over 35% in Alberta.

It is most develop provincial recreational market.

In the us in early December the canopy team introduce first and free a line of branded have derived CBD products.

These products are offered in a variety of formats, including soft gel oil drops in cranes and are currently available for sale via E. Commerce on the first and free website.

Overall, we're pleased with the progress that mechanically team and what they've accomplished in the last few months.

As most of you know and less than a week my colleague David Climie will assume the role of CEO . It cannot be growth, where I believe you will bring more focus and discipline to that business in executing our strategic priorities.

We have also appointed hankinson as constellations, New CFO , who will help lead our company through its next phase of growth.

David is that a significant contributor to our organization. During this time here his accomplishments at constellation are numerous and I wish in greater success, it cannot be where I will continue to collaborate with him through our cannot be board interactions.

During this time constellation David both in incredibly talented finance organization, which is why we're expecting a seamless transition garner as he assumes his new role.

Got it brings a wealth of experience to this critical leadership position. Most recently, serving as senior Vice President for our corporate development activities, where he's led the company is efforts and financial planning reporting and analysis as well as mergers acquisitions and our venture initiatives.

Many of you will have the opportunity to meet guard in the coming weeks and I'd like to publicly congratulate him and welcome him to our executive management team.

In closing we've accomplished a great deal on this exciting journey through the last decade.

But I'm equally excited and optimistic about the net 10 years as well we have a great product portfolio in a terrific industry. We have the right strategy and an energized management team in place to execute our vision for the future.

I'd like to reiterate two key takeaways from today's discussion.

For one.

With every step we take.

We are positioning constellation for sustained long term success as we continue to premiumize the portfolio strategy, which has paid huge dividends over the years.

I'm confident in the continuation of strong results for our beer business and the excellent prospects for our wine and spirits business going forward.

Number two.

Our powerful cash generation capability and our desire to quickly de lever and returned 4.5 billion in cash to shareholders makes constellation a compelling investment for the future.

We remain steadfast in this commitment and I believe our significant debt reduction to date, coupled with our second quarter share repurchases are a testament to this commitment.

We have a relentless consumer obsessive focus on brands and categories that are high growth high margin and we're working continuously to build a solid and sustainable foundation operational excellence financial strength and innovation.

We plan to execute in these areas throughout the remainder of the year and well into the coming decade.

With that I'd like to turn the call over to my colleague, David who will review the financial results of our third quarter.

Good morning, everyone and thank you Bill it's truly butter pleasure working with you and all of the wonderful people at constellation My time as CFO has been exciting as well as personally and professionally and fulfilling.

I'm, leaving the company in good hands with our new CFO throughout his 18 years of constellation Guards, it's been a significant contributor to our premiumization and growth efforts, while developing an in depth understanding of the company's business operations and finance activities.

Going forward, we'll we'll continue to collaborate on key initiatives as they relate to constellations investment in Canada Europe .

I will certainly Miss my interactions with our investors in the sell side analysts who cover constellation over the years I value your ideas suggestions and feedback and I. Thank you for your ongoing support I look forward to continuing to interact with many of you in my new role it cannot be growth.

Now moving to the financials in Q3, we continued to produce strong beer operating performance and cash flow results, our wine and spirits power brand strategy is gaining momentum as marketplace performance for these brand continues to outpace the overall category.

We also recently closed the black Velvet transaction revive the original wine and spirits deal with Gallo, including a separate but related agreements to divest the novel align brand.

Add signed an agreement with King is in convicts brewing to divest ballast point.

Before we jump into the financial results I'd like to provide an update on guidance.

We have increased and narrowed our full year comparable basis diluted EPS range to $9 in 45 cents to $9 at 55 cents.

Our increased guidance range, primarily reflects the updated gallo transactions and related timing as well as strong beer operating performance.

This range excludes cannot be equity earnings, which better reflects the underlying performance of our core business.

We strongly urge investors to focus on this metric as the canopy equity earnings impact is non cash.

Our increased at White 20 guidance now assumes the revised wine and spirits transaction.

And the ballast point transaction closed by the end of fiscal 2000.

We expect the Novela transactions close in the first half of fiscal 21.

As Bill mentioned, we believe efforts to divest remaining brands from the original transaction along with incremental cash flow generated from the delay in timing of the transaction well guess relatively close to the value outlined in our original divestiture agreement with Gallup.

This assumes we realized the full value of the earn out.

After completing these transformation activities, we believe the wine and spirits business will be positioned to produce mid single digit topline growth well migrating to an operating margin of 30% over time.

Now, let's review Q3 performance and our full year outlook in more detail world generally focused on comparable basis financial results.

Starting with year.

Net sales increased 8% on shipment volume growth of nearly 7%.

Reversal of the year end fiscal 2019 over shipment with minimal in Q3 and came in lower than previously anticipated.

We expect the remainder of the shipment timing benefit from fiscal 19 to reverse in Q4.

Good leasing volume growth for import portfolio showed continued strength growing nearly 8%.

As Bill mentioned this was mostly driven by continued strong performance of Modelo especial.

When including an unfavorable impact from ballast point total beer depletions were up 7.3%.

Q4, we pick up the additional selling day that we lost in Q2, which will help us achieve high single digits depletion growth in Q4.

We are operating margins increased 200 basis points to 39.3%.

Benefits from a pricing in Cogs were partially offset by higher marketing and ask DNA.

Cost benefits were largely driven by FX.

One time contract contractor cost reimbursement and an inventory build ahead of our S&P S. Four high implementation.

The contractor cost recovery and the inventory build helped us outperform our margin expectations for the quarter.

I'm pleased to report that the first phase of our asset VX 400 implementation for our beer operations in Mexico was completed ahead of schedule and with excellent execution by the team.

This is an important milestone after more than a year of planning designing and training for this important initiative.

We'll continue to update you on upcoming milestones of our Esfour hundred implementation.

Marketing as a percent of net sales increased 30 basis points to 11%.

Marketing spend for the quarter were slightly below expectations, we expect fiscal 2000 marketing as a percent of net sales to be in the 9.5% to 10% range.

For fiscal 2000, we now expect net sales growth of 7% to 8%. This includes 1% to 2% of pricing within our Mexican portfolio.

As a result is the plan reversal of fiscal 19 shipment timing benefit we expect full year fiscal 2000 depletion volume growth to land about one percentage point ahead of shipment volume growth.

We also expect fiscal 2000, <unk> operating income growth of 8% to 9% and our full year operating margin to be in the range of 39.5% to 40%, which isn't improvement compared to the previous year and prior ask why 20 guidance of 39.3%.

As we move toward next year, we're excited about our plans to launch Corona ourselves or at the beginning of fiscal 2001.

There will be some investment in production costs as we ramp up production for this major innovation. In addition to the significant marketing investment Bill mentioned earlier.

Moving to wine and spirits.

Net sales declined 10% on shipments that were down 14%.

Placement declined 6%.

Q3 results outperformed our previously communicated expectations, primarily due to a shipment timing benefit.

Our third quarter wine and spirits result were somewhat impacted by a shift in Thanksgiving holiday timing with retailer and distributor replenishment shifting to the fourth quarter.

Last year, there was one full week post Thanksgiving to fully replenish.

In addition to the shift of the Thanksgiving holiday, we continued to be impacted by.

Transition activities with distributors and lap some lower quality sales incentives and pricing activities that we've decided not to refi in order to better align with our strategy for the business going forward.

Wine and spirits operating margin decreased 80 basis points to 26.2% as mix benefits were more than offset by higher Cogs and higher SGN as a percent of net sales.

Higher Cox, mostly reflecting grape cost headwinds.

The higher ESG and as a percent of net sales included marketing investments driven by the continued support of the power brands, including new product development initiatives and may only advertising in the quarter.

We now expect fiscal 2000 wine and spirit net sales and operating income to decline 8% to 10%.

Our updated guidance reflects the revised transaction close assumptions discussed earlier.

As part of the wine and spirits transactions, we remain committed to our $130 million stranded cost reduction plan, which we now expect to be realized over this over the fiscal 21 for fiscal 2002 timeframe.

I remain confident cut the wine and spirits transformation strategy is working.

Power brand performance continues to benefit from our increased focus and marketing investments.

In fiscal 2000, and we're running a bit short of our mid single digit power brands depletion growth target largely due to the activities I mentioned earlier.

However, power brands are driving mix benefits and gaining share and IRA channels and you should expect to see a sequential improvement in depletion trends in Q4.

When you include these mix benefits, we believe our portfolio post divestitures is on track to achieve our longer term targets, including mid single digit net sales growth, while migrating to an operating margin of 30%.

Fiscal year to date corporate expenses came in at a 149 million up slightly versus Q3 year to date last year. We now expect full year corporate expenses to approximate $230 million, reflecting an increase for insurance related costs.

Higher incentive compensation and a ramp to IP spend which includes our apps for Honda implementation and other digital enablement activities.

We expect our ESG and able to decrease by the end of fiscal 2002, once our digital enablement activities are fully implemented.

When we can eliminate redundant IP costs and realize the benefits of the new platform.

In Q3 comparable basis interest expense increased 11%. This primarily reflects additional interest expense related to the funding of our incremental cannot be growth investment in fiscal in November of 2018.

Fiscal 2000 interest expense is now expected to to approximate $430 million.

Our Q3 comparable basis effective tax rate, excluding cannot be equity earnings came in at 17.5% versus 14.1% last year.

This increase primarily reflects lower stock based compensation benefits.

We now expect our full year fiscal 2000 comparable effective tax rate, excluding cannot be equity earnings to approximate 18%.

The one percentage point rate increase versus our guidance is primarily due to the impact of lower stock based compensation benefits and higher expense for miscellaneous tax items than we previously forecasted.

I'd like to note that we expect our full year cash tax rate to be in the mid to high single digit range.

Let's move to free cash flow, which we defined as net cash provided by operating activities less capex, we generated free cash flow of $1.5 billion for the first nine months in fiscal 2000.

This represents an impressive 14% increase.

Free cash flow improvement, primarily reflects strong operating cash flow and lower capex.

We now expect full year capex spend of $7 million to $800 million versus our original guidance of eight to 900 million.

This includes approximately $560 million of Capex for our Mexico beer operations expansion, including investments in the overblown and Mexicali brewery as well as the fifth glass furnace at the Nava glass plant.

We expect fiscal 2008 operating cash flow to be in the range in 2.2 billion to 2.4 billion and free cash flow to be in the range of $1.5 billion to $1.6 billion.

Now, let's discuss several impacts that were excluded from Q3 comparable basis results.

Last quarter, we noted that we expected to recognize the loss in Q3 on the write down of asset held for sale related to our transaction with Gallo the actual write down of $340 million was largely driven by the $250 million of contingent consideration associated with it.

Revised transaction price.

Accounting rules governing our election to record the contingent consideration when it's determined to be realizable.

We also recognized $547 million net income tax benefit, resulting from the re measurement of our deferred tax assets in connection with tax reform in Switzerland.

Moving to canopy. The total pretax net gain recognized since our initial cannot be investment in November 2017 is $223 million in Q3, we recognize the 534 million dollar decrease in the fair value of Academy investment.

As a reminder, constellations original borrowings with cannot be havent exercise price of $12, a 98 cents Canadian per share and will expire on may one 2020 and represent less than $200 million in consideration.

In addition, the transfer eight warrants expire on November one of 2023, the company will evaluate exercise of each of these warrants immediately prior to expiration and does not plans to make additional cash contributions to cannot be beyond the potential exercise of these warrants.

I'd.

At this time, all participants have been placed on the listen only mode.

Following the prepared remarks, we will all be opened for your questions instructions will be given at that time.

I'll now turn the call over to Patti Yon, Urlaub Senior Vice President of Investor Relations. Please go ahead.

Thanks.

Good morning, and welcome to constellation third quarter 2020 conference call.

Good morning to feel Newman, our CEO and need to Klein, our CFO as a reminder, reconciliations between developed directly comparable GAAP measure in any non-GAAP financial measures.

Evan call on TV, and I mean, it's really or otherwise available on the company's website at www Dot tea brand dotcom.

Please also refer to the news release and constellations FTC filing for risk factors, which may impact forward looking we make on call.

Before turning the call over to build a similar to prior borders I would like to accurately limit everyone. In one question per person with Robert and or call on time. Thanks in advance and ask yourself. Thank you Patrick good morning, and happy new year to everyone. I certainly hope you enjoy the holidays and had the opportunity to include some of our awesome constellation products in your celebrate.

Actions with your family and friends.

The anniversary here as a time are a reflection for me and this year is no exception.

Hi reflect on 29 team I'm reminded that were not only ending a certain fiscal year, but I'd dynamic decade constellation brands.

Since 2010 constellation has been on an incredible journey marked by strong financial performance and notable business milestones.

Over the last 10 years, we significantly increased the value of our stock and produced double digit growth and sales operating income and operating cash flow as a matter of fat the closing price and Scott constellation stock on December 31, 2009 was just more than 15.

In dollars.

Forward to December 30, 129 team, we closed at almost 190.

That's incredible increase more than 1000% over the last 10 years made constellation the best performing stock and the S&P 500 consumer Staples index during this timeframe.

One of the biggest drivers of our success with the game changing beer acquisition that was executed almost halfway through the last decade.

It enabled constellation to buy the Grupo Modelo brands in the United States, where we successfully built these brands for many years, while positioning ourselves for this transformational opportunity.

At that time this deal allowed us to double the sales of our company diversify our profit stream significantly enhance our margin earnings and free cash flow, while providing new avenues for growth.

Since then our beer business has made significant contribution to the overall sales profit and cash flow results for our business and continues to be a powerhouse for growth as the number one brewer and seller of imported beer in the U.S. market.

Calendar 2019 marked the 10th consecutive year of volume growth for constellation beer business and solidified our position as the leader in the high end of the U.S. beer business.

These trends were driven by Corona extra the Delaware speciality explosive growth and our successful innovation initiatives.

In 2010, the Modelo Especial brand depleted approximately 35 million cases, and then went on to achieve double digit growth in every single year of the past decade, finishing 2019 at more than 140 million cases.

And there's more to come.

And our most recent third quarter. This powerhouse brand posted depletion growth of almost 15% with double digit growth in 46 of the 50 state law solidifying its position as the number for beer brands in the U.S market.

Corona extra which is the number seven beer brands in the U.S. beer category grew from approximately 90 million cases in 2010 to more than 110 million cases in 2019 and is one of the few top selling brands in the U.S. to grow this past decade.

From a quarterly perspective, the Corona brand family grew nearly 7% in IR right channels, driven by the continued strength of our Corona Premier and Corona refresh the innovations as well as the renewed growth across the extra.

Corona Premier continues to gain distribution, especially in the on premise and delivered double digit depletion growth in 35 of the 50 states during the quarter.

Corona refresh ago was a top 10 growth contributor to the year to the US high end beer category during third quarter.

And finally, let's not forget Pacific go, which achieved double digit depletion growth of nearly 16% and remain a top share gainer within the us import segment.

We're excited also about our plans for the launch of Corona Heart Seltzer, This spring, which will help to further strengthen our position as the leader in the high end of the US beer segment.

Our launch strategy includes the largest ever single brand investment for our portfolio of more than 100, excuse me more than 40 million in marketing to support this intro.

We've already started to take orders from distributors and have received incredibly positive feedback from retailers, who are excited about the prospects of chronic seltzer and have already incorporated our newest portfolio addition into their shelf set programming plans for the spring selling season.

As we've discussed Corona hard seltzer will be introduced in four flavors, including tropical lime mango Sherry and Blackberry line.

Corona Kerry unbelievably strong brand equity as the number one most loved brand among both Hispanic and total population drinkers, aged 21 to 54 and Thats why Weve decided to put the Corona brand name on our new Seltzer and of course, the refreshment characteristics of cells.

Others perfectly matches with corona's refreshment DNA.

There's been a lot of debate about the seltzer trend and where cells are sourcing their growth within the total beverage alcohol category.

Our research shows that Seltzer is taking share across the board from beer wine and spirits.

It was significant amount of this growth is sourced from the beer category. It is primarily coming from domestic premiums kras and fnbs with minimal interaction of seltzer consumption with import brands.

In addition, we're seeing increased overall consumption from those seltzer drinkers and new consumers, who are entering the TV a space through their interaction with selzer's.

As an aside the trends that you've seen for constellations beer business and this week's four week IRA data covering the month of December are related to our recent annual price increase specifically in the California market, which briefly decreases features and promotions.

The answer.

At the these price increases our normal and quickly short term and Asia overall, we closed out the month of December with depletion growth for our Durbin.

Hi, Thanks single digit rank of our year to date trends.

Moving now to wine and spirits I'm pleased that we've been able to execute a revised agreement with Gallo, which paves the way for accelerated growth and margin performance for our wine spirits business going forward.

In addition, we believe it addresses the FCC concerns by excluding the sparkling wine brandy dessert lines and concentrate categories from the original transaction.

We're already actively pursuing other opportunities to divest most if not all brands in these categories as will ease as we believe this is the best path to optimize our portfolio going forward.

To be clear the FCC needs to provide final approval of our revised agreement with Gallo once we have finalized all transactions, including the proposed divestitures, which we expect to occur by our fiscal yearend.

We have also entered into a separate but related agreement with Gallo to divest our novel wind brand.

This fits with gallas portfolio strategy and allows them to expand into New Zealand mind category without affecting our long term goals and strategy or opportunity in the New Zealand wine category in the us at the greater than $11 price point.

This transaction is expected to close in the first half of fiscal 21.

Despite the delay and timing and revisions to the transaction I'd like to remind everyone that we have benefited from almost an entire year of additional cash flow from a divested brands are the time, the transaction closes which contributed to our debt reduction and share buyback activities.

During the last decade, our team has created significant value by transforming and simplifying our wine and spirits portfolio through the rationalization and divestiture of assets in an effort to premiumize the business, which has the right strategy to enhance our wine and spirit growth and financial pro.

File going forward.

This premiumization strategy is taking hold in the marketplace as our power brands continue to outpace our competitors and take market share at the price points that matter in the higher end.

In fact, our power brands as a greater than $11 retail price point grew nearly 9% in IR right channels during the third quarter, including brands like May only which has more than doubled its volume with a CAGR of nearly 30% since its acquisition in 2015.

Kim Crawford, which has an other gem within our power brand portfolio was the number one selling wine unwind dotcom. This past year and has consistently outperformed its competitors posting a 20% volume cagar and III channels over the last decade.

As we progress through fiscal 20, we continued to show steady upward progression and revenue trends for our power brands and expect mid single digit sales growth for this collection of brands in the fourth quarter.

Innovation and new product development are also critical to our success for the remainder of the year and we feel we're well positioned to drive these initiatives to the finish line.

We've already had great success with the launch of Robert Mondavi, private selection, buttery, charbonnet, and Woodbridge ready to drink packs, which while gaining traction across all channels is doing especially well in the convenience channel a channel growing at two times the rate of the total us line.

Market.

Both Woodbridge and Robert Mondavi, private selection, which represent the most significant volume within the Robert Mondavi brand franchise are outperforming in their respective price segments, driven by marketing investments that we recently made.

We recently extended our highly successful barrel aged program with the introduction of our NPS right barrel, aged red plant.

As a reminder, we've sold more than 1 million cases, a barrel aged products since the inception of this program nearly two years ago, which helped to revive the Robert Mondavi private selection brand, while also becoming the foundation for some of our other successful barrel, aged innovations like Cooper and feet.

We're also building on success of wind in the camp, where consumers are seeking products that are convenient ready to drink and sold in environmentally friendly packaging.

These trends have helped to fuel the growth of Crafters Union, which is the number one growth driver in can line over the last 12 weeks.

We plan to build on the momentum of this brand with the launch of Crafters Union models during the fourth quarter.

Later this month, we will be releasing the prisoner unshackled. The newest addition to the prisoner collection of brands in Cabernet Red blend and rosacea.

We expect these brands to strengthen our ability to compete at a fast growing 25 dollar retail price point.

On the spirits front spectrum vodka continues to significantly outpaced the budget category and I are right channels driven by increased distribution within the core portfolio as well as the more recent introduction of the rose a flavor.

During the quarter one of our most successful venture investments Nelson's Green Briar launch launched its first Tennessee whiskey product.

This Tennessee Whiskey is based on Charles Nelson's original recipe dating back to 18 60, and if the first time, it's been bottle since prohibitions shutdown the distillery in 19 Onein.

This is another milestone for Nelson's Green Briar as they continue to innovate and leverage the success they've already achieved.

Overall, our us wine and spirits business has executed changes that have resulted in a sharpened focus on consumer preferred trends related to Premiumization innovation and brand building.

As a result, we have benefited from ongoing consumer trade up trends positive mix in great consumer response to our new product introductions in the marketplace.

Before moving on to cannot be growth I'd like to remind everyone that the core business activities. I just highlighted are driving an increase in our EPS guidance for fiscal 2000.

Now a few comments about our investment in cannot be growth, which continues to have the leading market share in Canada and to be the leader in global Canada sales.

We remain bullish on the Canadian canvas market as the conversion of the illicit market to the legal market continues to strengthen.

Per statistics, Canada in 2018, 23% of Canada's consumers obtain cannabis from the legal market, while in 2019 that number significantly improved to almost 50%.

In addition, retail store sales have increased significantly in every province during the last 12 months.

We expect further retail sales increases as products like Veight edibles and beverages flow through the retail stores in Canada now that rest 2.0 products have been released.

We couldn't be more excited to see these products in the marketplace as cannot be now we'll have the ability to showcase their best in class brands and intellectual property.

We're also excited to see the progress the Ontario government has made to satisfy the demand of consumers by agreeing to allow more retail store openings beginning in early March.

During cannot be second quarter, they established leading recreational market share across Canada, including a noteworthy share of over 35% in Alberta, Canada is most developed provincial recreational market.

In the U.S. in early December the canopy team introduced first and free a line of branded hemp derived CVD products.

These products are offered in a variety of format, including soft gels well drops in creams and are currently available for sale via E Commerce on the first and free website.

Overall, we're pleased with the progress that cannot be team and what they've accomplished in the last few months.

As most of you know in less than a week my colleague David Cline, well assumed the role of CEO it cannot be growth, where I believe he will bring more focus and discipline to that business in executing our strategic priorities.

We have also appointed card Hankinson has constellations, new CFO , who will help lead our company through its next phase of growth.

David has been a significant contributor to our organization. During his time here is accomplishments at constellation are numerous and I wish in great success at canopy, where I will continue to collaborate with him through our cannot be board interactions.

During the time constellation, David Gold and incredibly talented finance organization, which is why we're expecting a seamless transition to garner as he assumes his new role.

Got it brings a wealth of experience to this critical leadership position. Most recently, serving as senior Vice President for our corporate development activities, where he's led the company's efforts and financial planning reporting and analysis as well as mergers acquisitions and our venture initiatives.

Many of you will have the opportunity to meet guarded in the coming weeks and I'd like to publicly congratulate him and welcome him to our executive management team.

In closing we've accomplished a great deal on this exciting journey through the last decade.

But I'm equally excited and optimistic about the net 10 years as well we have a great product portfolio in a terrific industry. We have the right strategy and an energized management team in place to execute our vision for the future.

I'd like to reiterate reiterate two key takeaways from today's discussion.

Number one.

With every step we take.

We are positioning constellation for sustained long term success as we continue to premiumize the portfolio strategy, which has paid huge dividends over the years.

I'm confident in the continuation of strong results for our beer business and the excellent prospects for our wine and spirits business going forward.

Number two.

Our powerful cash generation capability and our desire to quickly de lever and returned 4.5 billion in cash to shareholders makes constellation a compelling investment for the future.

We remain steadfast in this commitment and I believe our significant debt reduction to date, coupled with our second quarter share repurchases are a testament to this commitment.

We have a relentless consumer obsessive focus on brands and categories that are high growth high margin and we're working continuously to build a solid and sustainable foundation of operational excellence financial strength and innovation.

We plan to execute in these areas throughout the remainder of the year and well into the coming decade.

With that I'd like to turn the call over to my colleague, David who will review the financial results of our third quarter sales.

Good morning, everyone and thank you Bill it's truly been a pleasure working with you and all of the wonderful people at constellation My time as CFO has been exciting as well as personally and professionally fulfilling.

I'm, leaving the company in good hands with GARP as the new CFO throughout his 18 years of constellation guard to spend a significant contributor to our premium amortization and growth efforts, while developing an in depth understanding of the company's business operations and finance activities.

Going forward, we'll continue to collaborate on key initiatives as they relate to constellations investment in Canada and growth.

I will certainly Miss my interactions with our investors in the sell side analysts who cover constellation over the years I value or ideas suggestions and feedback and I. Thank you for your ongoing support I look forward to continuing to interact with many of you in my new role at canopy growth.

Now moving to the financials in Q3, we continued to produce strong beer operating performance and cash flow results, our wine and spirits power brand strategy is gaining momentum as marketplace performance for these brands continues to outpace the overall category.

We also recently closed the black Velvet transaction revive the original wine and spirits deal with Gallo, including a separate but related agreements to divest the novel align brand.

And signed an agreement with Kings and convicts brewing to divest ballast point.

Before we jump into the financial results I'd like to provide an update on guidance.

We have increased in narrowed our full year comparable basis diluted EPS range to $9.45 to $9.55.

Our increased guidance range, primarily reflects the updated gallo transactions and related timing as well as strong beer operating performance.

This range excludes cannot be equity earnings, which better reflects the underlying performance of our core business.

We strongly urge investors to focus on this metric as the cannot be equity earnings impact is non cash.

Our increased at White 20 guidance now assumes the revised wine and spirits transaction and the ballast point transaction closed by the end of fiscal 20.

We expect a novel load transaction to close in the first half of fiscal 21.

As Bill mentioned, we believe efforts to divest remaining brands from the original transaction along with incremental cash flow generated from the delay and timing of the transaction will get us relatively close to the value outlined in our original divestiture agreement with Gallo.

Vince assumes we realize the full value of the earn out.

After completing these transformation activities, we believe the wine and spirits business will be positioned to produce mid single digit topline growth, while migrating to an operating margin of 30% overtime.

Now, let's review Q3 performance and our full year outlook in more detail, where all generally focus on comparable basis financial results.

Starting with beer.

Net sales increased 8% on shipment volume growth of nearly 7%.

The reversal of the year end fiscal 2019 over shipment was minimal in Q3 and came in lower than previously anticipated.

We expect the remainder of the shipment timing benefit from fiscal 19 to reverse in Q4.

Depletion volume growth for import portfolio showed continued strength growing nearly 8%.

As Bill mentioned this was mostly driven by continued strong performance of Modelo Especial CLL.

In including an unfavorable impact from ballast point total beer depletions were up 7.3%.

In Q4, we pick up the additional selling day that we lost in Q2, which will help us achieve high single digit depletion growth in Q4.

Beer operating margins increased 200 basis points to 39.3%.

Benefits from pricing in Cogs were partially offset by higher marketing and ask DNA.

Cogs benefits were largely driven by FX, a one time contract contractor cost reimbursement and in inventory build ahead of our S&P S. Four Han implementation.

The contractor cost recovery and the inventory build helped us outperform our margin expectations for the quarter.

I'm pleased to report that the first phase of our safety X 400 implementation for our beer operations in Mexico was completed ahead of schedule and with excellent execution by the team.

This is an important milestone after more than a year of planning designing and training for this important initiative.

We will continue to update you on upcoming milestones of our Esfour hundred implementation.

Marketing as a percent of net sales increased 30 basis points to 11%.

Getting spend for the quarter was slightly below expectations, we expect fiscal 2000 marketing as a percent of net sales to be in the 9.5% to 10% range.

For fiscal 20, we now expect net sales growth of 7% to 8%. This includes 1% to 2% of pricing within our Mexican portfolio.

As a result at the plan reversal of fiscal 19 shipment timing benefit we expect full year fiscal 2000 depletion volume growth to land about one percentage point I had a shipment volume growth.

We also expect fiscal 2000, <unk> operating income growth of 8% to 9% and our full year operating margin to be in the range of 39.5% to 40%, which isn't improvement compared to the previous year and prior applewhite 20 guidance of 39.3%.

As we move toward next year, we're excited about our plans to launch Corona hard seltzer at the beginning of fiscal 2001.

There will be some investment in production costs as we ramp up production for this major innovation. In addition to the significant marketing investment Bill mentioned earlier.

Moving to wine and spirits.

Net sales declined 10% on shipments that were down 14%.

Depletions declined 6%.

Q3 results outperformed our previously communicated expectations, primarily due to a shipment timing benefit.

Our third quarter wine and spirits results were somewhat impacted by a shift in.