Q4 2021 Constellation Brands Inc Earnings Call
Hello, and welcome to the constellation brands Q4 fiscal year 2021 earnings Conference call.
At this time, all participants have been placed in a listen only mode.
Following the prepared remarks, the call will be opened for your questions instructions will be given at that time.
Now I'll turn the call over to Patty Yahn or a lot senior Vice President of Investor Relations you may begin.
Thanks, Rhonda good morning, and welcome to Constellation's yearend fiscal 'twenty, One conference call I'm here. This morning, with Bill Newlands, our CEO and Garth Hankinson, our CFO as a reminder, reconciliations between the most directly comparable GAAP measure on any non-GAAP financial measures discussed on this call are included in our news release or otherwise available on the Companys.
Website at Www Dot C brands Dotcom, please refer to the news release and constellations SEC filings for risk factors, which may impact forward looking statements. We make on this call before turning the call over to bill similar to prior quarters I would like to ask that we limit everyone to one question per person, which will help us to end our call on time, thanks in advance and now.
It yourself. Thank you Patty good morning, and welcome to our year end call.
It's now been a little more than a year since the onset of the pandemic and for many it's been one of the most challenging years in recent memory.
At this time last year, we outlined our philosophy from managing the business and navigating through this period of uncertainty.
We committed to making decisions that prioritize the physical and economic safety health and wellbeing of our employees.
We are committed to remaining consumer obsessed relentlessly focused on doing all we can to meet consumer needs.
We pledged to continue managing our business with discipline, ensuring appropriate balance between short term needs and positioning constellation for sustainable long term success.
And we pledged continued to continue making decisions aligned with our long term strategic vision there.
This is what best in class companies do and periods of uncertainty and I'm extremely proud to say that is exactly what our team delivered over the course of the fiscal year and then some.
Working together with our distributor and retail partners, we overcame numerous headwinds posed by the pandemic to achieve strong earnings growth and record free cash flow, while significantly reducing debt. This.
This strong performance was led by our beer business, which delivered double digit operating income and organic net sales growth for the fiscal year low.
Looking forward, we not only have an exciting innovation lineup for the coming year, but we expect our core portfolio to generate robust growth well into the foreseeable future and therefore have plans in place to execute our next increment of capacity expansion in Mexico.
Our wine and spirits premium amortization strategy gained significant traction during the fiscal year and the divestiture of several lower end wine brands position this business for enhanced growth and profitability going forward.
In addition to the strong performance of our business units. Our company also stepped up to help industry partners and communities impacted by Covid and natural disasters and to lend our voice and support and combating social in justice and the U S.
This commitment continues through our additional 175 million contribution to the National restaurants associations Education Foundation announced earlier this week to support on premise recovery efforts as well as our recent $10 million contribution to the clear vision Fund design.
To invest and minority owned businesses, primarily those operating in underserved black and Latin X communities.
And through our most recent efforts to address the disturbing trend of violence against people of Asian descent across the country.
In this regard let me once again extend our deepest sympathies to victims of these deplorable acts and our continued support of members of the agent community in this difficult time.
Our our strong business performance, coupled with learnings from the past year and planned investments to enable growth along with our continued commitment to making a positive impact on the world around us physicians constellation for continued success in fiscal 'twenty two and beyond.
Now, let's move to a more detailed discussion of our results and our plans for this year.
Fiscal 'twenty, one marked the 11th consecutive year of growth for our beer business and reinforced our leadership position in the high end of the U S beer market.
We drove exceptional performance across our beer portfolio led by our customer Delta on brand family, including Modelo Especial.
On the Delaware, Negra, Modelo, <unk>, which remains one of the biggest forces in the U S beer industry delivering more than 13 million cases of growth to the beer category last year.
Modelo especial achieved yet another year of double digit growth and now stands as the number three selling beer in the U S and dollar sales with more than 145 million cases sold last year, the only imported beer to ever surpassed 10 million.
Charles and volume.
Modelo Negra continues to be the number one dark beer in the U S category, while modelo, which a lot of once again achieved double digit growth and remains the number one show a lot of brands in IRI channels.
The Modelo brand family is on Swagel, but we're far from done we have a tremendous amount of momentum with Casa Modelo and we continue to have huge growth opportunities in front of us.
Our core Hispanic Brinker remains the foundation of our business representing more than half of our volume yet, we're still growing volume penetration and by rate with them.
We're also making great progress with the non Hispanic consumer where we've grown penetration by 25% over the last two years.
And while we continue to grow simple distribution, our effective distribution levels remain below industry leaders. All of this represents a massive opportunity to continue our momentum and double digit growth for this brand family well into the future.
During fiscal 'twenty, two we will continue to focus on making modelo more top of mind with all consumers as we execute more high profile activations to further engage our drinkers and expand portfolio options to appeal to new consumers and unlock new occasions.
These efforts will be supported by a 50% increase in digital social and E Commerce media.
Hello, once again, an official sponsor of the Gold Cup soccer tournament and will be a major advertiser for the brands throughout the high profile 2021 Summer Olympic games.
We will also be delivering high profile activations through our biggest sponsorship as the official beer of the UFC.
<unk>, increasing popularity is allowing us to reach more young multicultural drinkers than ever.
This past year UFC reached over 41 million viewers on television through.
Through their social following by 70% and became the number two largest sports property on Youtube.
Modelo Shallot has been an extremely successful platform for us as well and in fiscal 'twenty. Two we will take our next step on the path to growth by launching our newest flavor Modelo <unk> ladha opinion per country.
Beyond <unk>, we also have an opportunity to expand into the rapidly growing consumer.
Trend betterment by launching Modelo Kantar retail style cerveza.
Threshing better for you lighter lager made with a hint of real grapefruit Orange on line juice with only 100 calories it delivers lower calorie beer, but with a flavorful and authentic experience as it was inspired by the traditional cancer retail cocktail from holistic on Mexico.
And on and to top it off consumers love. The idea. This is the highest scoring modelo new product concept. We've ever had as you can see modelo is poised for another great year in fiscal 'twenty two.
Moving on to our next powerful brands family.
The Corona brand family is thriving and embracing a new year full of possibilities.
Our flagship Corona extra brands remains the number six U S beer brands growing IRI dollar sales by 11% and surpassing $2 billion in retail sales last year.
In fiscal 'twenty, two youll see a refresh corona, which will be enabled through a master brand strategy, where corona equities unite the entire family and each sub brand delivers unique benefits to play two distinct occasions consumers and motivations, while staying true to corona's DNA.
We have a full year master brand retail initiatives on.
Premise program is ready to go as markets reopen and experiential plans to play to consumers' passion points like music and live sports.
For Corona light our focus is on general market consumers, particularly females, who seek imported taste with fewer calories.
For familiar are our focus is on on our culture right is Hispanics who shop in Hispanic dominant accounts.
To ignite our Corona originals, we will invest in national media spending across digital and social channels as well as national English and Spanish language TV with a significant presence in major live sports properties, such as March Madness, NBA finals Gold Cup soccer and the NFL.
The hotline, we will return to support our sports programs with Kenny Smith, and Tony Romo covering the lines.
Last year Corona's, new La Vita Myasthenia campaign was a smashing success and brought Corona back to the centre of cultural conversation with its snoek and bad Bunny content generating an impressive 1 billion impressions across TV digital and social.
Snoop and bad Bunny will be back this year to share their fine life wisdom, along with new friends.
This brings us to Corona Premier and Corona is answer to capturing growth and the exploding betterment segment.
In fiscal 'twenty, one Corona Premier grew depletions volume, almost 20% and increased its penetration at a faster rate than its major competitor and other domestic lights, demonstrating we are successfully trading up consumers.
Our golf and active lifestyle platforms for this brand will be supported by a retail program continued strong media investments in key tournaments and our distinguished sponsorship of the U S. Open at Torrey Pines in June.
Moving on to refresh GAAP, which is corona is answer for flavors seekers.
Because of refresh this unique flavor experience it has been incremental to constellation and the category, bringing in a different consumer from beer and hard seltzer with a Hispanic index of 205 versus the F&B category.
So we are happy to be able to bring the corona repressed a variety pack back in fiscal 'twenty two after a hiatus last year during the pandemic.
We will also build on the initial success of our preska by extending the brand into the growing high ABV F&B space with the launch of <unk> 24 ounce single serve cans with 8% ABV and mango citrus flavor.
And this brings us to constellation's, most successful innovation, yet Corona hard seltzer.
With only one SKU the Corona hard Seltzer became the number four brand family in a very short period of time.
While consumer supply to this category Corona is iconic image multicultural consumer base and reputation as the number one most refreshing beer has allowed corona hard seltzer to recruit new drinkers and expand this segment.
In fact, Corona hard Seltzer is year, one volume delivered approximately 90% incremental to our portfolio and continues to be the second fastest moving hard seltzer for brands with significant distribution.
With no signs of slowing down the Corona brand family expects <unk> to be a significant component and its future growth by expanding its base seltzer proposition and launching incremental innovation.
We will continue to focus on growing distribution on variety pack number one while introducing new skus to satisfy different taste occasions and channels.
Our second variety pack is now in market with pineapple, Strawberry Raspberry and passion fruit flavors, we tested a variety of flavors and consumers told us they wanted familiar great tasting flavors to pair well with a line from Corona.
In keeping with this theme of authenticity amplified flavor and natural betterment attributes, we're excited to announce Corona hard Seltzer Lima.
Which is launching in June and a 12 pack variety packs and will be line price with Corona hard Seltzer and.
Inspired by traditional Mexican recipes Lee Manada will break the mold by delivering authentic flavor with a splash of real lemon and lime from Mexico juice and only 100 calories.
To support the expansion of all Corona hard seltzer, including lean Manada, we plan to invest approximately $60 million across all marketing touch points to maintain the number one share of voice and selzer's. During the critical summer months and will include investment in premium sports properties.
Like March madness, and the NBA.
The plan also includes significant levels of Spanish language support to lean into Corona strength with Hispanics last year, nearly 20% of Corona hard Seltzer volume came from Hispanics and index of 136 vs. The Seltzer category.
While we're on the topic, let me address the recent lawsuit filed by one of our competitors in opposition to our use of the Corona trademark for Corona hard Seltzer.
Earlier this week, we filed a motion to dismiss this lawsuit as we find these claims to be completely without merit, a blatant attempt to restrain a strong and well established competitor in a high growth segment of the U S beer market.
We have fully complied with the terms of our sublicense agreement and we will vigorously defend our rights under our sub license agreement and applicable law.
We expect it will take several months for a court ruling on our motion to dismiss in the meantime, we continue to operate business as usual as we expect our plans and the Ava in hard Seltzer space.
Where we fully expect to further build on our momentum for many years to come.
Bottom line the Corona family growth roadmap is focused on three strategic priorities in fiscal 'twenty two.
First we will reignite the core with a refreshed corona complete with new packaging best in class advertising leadership levels of media and marketing investment and culturally relevant activations.
Number two.
We will execute breakthrough innovation, which includes accelerating growth and betterment beer and.
And third we will establish a beachhead in the Eva category.
But let's not forget specific though let me repeat that let's not forget Pacific <unk>, which is the fastest growing major Mexican import beer brand in the U S. On a dollar sales basis and is on its way to becoming the next scalable national beer brand in the constellation portfolio.
<unk>.
We're doing things differently this year with specific though with a focus on gen Z consumers, whose attitudes over index with Pacific those independent spirit.
Action sports and cause initiatives resonates strongly with their passions and values.
For the first time will have national coverage on major Gen Z relevant digital and social platforms, including Hulu, Instagram Snapchat, Twitter and Twitch.
This will be here for our Pacific on being the official beer of the X games, both summer and winter.
121 is also on Olympic trials here and we will continue our strong partnership with the U S ski and snowboard teams with activations of competitions across the U S and robust media support on NBC.
I'm also excited to introduce specific goes first ever innovation created for Gen Z consumers with a first for new flavors <unk>.
<unk> citrus agave lager is baja inspired and made with a hint of agave sea salt and line flavor.
We're launching this month in two test markets, San Diego and Dallas with three Skus, we look forward to sharing these results and showing how innovation can growth the entire Pacific Gulf portfolio.
From an operational perspective, I am pleased to announce that we recently completed the 5 million hectoliter expansion of our overdone facility, which when added to our existing capacity provides incremental flexibility as is typical it will take some months to fully optimize this operations over the coming months.
Because our beer business continues to significantly outperform the U S beer market driven by ongoing robust consumer demand. We are absolutely committed to satisfying this growing consumer demand for our iconic brands, including Corona Modelo specific go in Victoria.
As such we have developed plans to invest in the next increment of capacity in Mexico that will provide long term flexibility to equip us with the necessary production to capture the continued momentum and growth opportunities. We see in the high end segment of the U S beer market.
Which has consistently grown and mid to high single digit range and is expected to continue to grow at these levels into the foreseeable future.
It will also provide incremental flexible capacity that will allow our breweries to operate a sensible utilization rates and deal unplanned challenges from things like weather related issues that impacted the business during our recent fiscal year end.
These have been key things from the pandemic.
Our investments will not only support the expected future growth of our core portfolio, but for the emerging HBA or alternative beverage alcohol space and hard seltzer.
Meanwhile, in addition to these initiatives we continue to engage in constructive conversations with the Mexican government as it relates to our long term plans for production in Mexico.
Together with government officials were exploring options that include finding an alternative location in the southeast of Mexico that has adequate water supply and a skilled workforce.
<unk> will provide additional financial details in just a few minutes.
To sum it up.
The U S beer category is healthy and exhibiting strong growth led by the high end segment.
Last year off premise channels within the beer category grew 15% with a high and growing more than 25%.
The velocity of our portfolio as well as the growth and margin profile of our high end beer business is best in class.
Our deliberate about our innovation efforts to ensure they're focused and disciplined and we are well positioned against where the consumer is going and the future of this industry.
We have significant distribution runway for our healthy core portfolio we.
We will continue to capitalize on the growth of the Hispanic population and the premium position of the U S middle markets.
And we are focused on Eva growth leveraging our core brand equities, because we see this as a significant growth opportunity as well.
As a reminder, our fiscal year started March one and our first quarter runs through the end of May.
As most of you know last year. This coincided with the beginning of the pandemic when we experienced robust consumer demand for our products that led to record trends in off premise tracked channels as consumers were in the pantry loading phase of the pandemic.
In addition, during the spring of 2020, we slowed production in Mexico, due to Covid, which led to some out of stocks in the U S marketplace during summer months.
As a result should expect to see muted IRI and Nielsen trends early in our fiscal year due to the year over year unfavorable overlap until we start to overcome last year's out of stock issue. When we expect our scanner data to improve significantly.
However, recent four week IRI trends show the constellation's beer business is significantly outpacing the total U S beer industry and is outperforming the high end of the beer market.
Let's now move on to results of our wine and spirits business.
21 was a year of significant progress for our wine and spirits business.
The Gallo deal on related divestitures allowed us to sell several lower end brands, we established category, meaning digital capabilities, we optimized our route to market to accelerate performance and built a robust innovation pipeline, while driving solid results in the face of a very challenging.
External environment.
In fact, our retained wine and spirits portfolio, excluding divested brands delivered net sales growth of 5% for the year driven by double digit volume growth from a omi, Kim Crawford and the prisoner brand family.
These same brands also achieved double digit distribution gains in off premise channels last year.
Impactful innovations were also a driving force for growth and included May Omi, Cabernet Sauvignon, Kim Crawford illuminate and the prisoner unshackled, which became the number one high end new brands in IRI channels and fiscal 'twenty one.
The wine and spirits business is well positioned to consistently grow net sales low to mid single digits and produce operating income growth ahead of net sales to achieve a 30% operating margin over the medium term.
This will be achieved by the business delivering a margin accretive mix implementing disciplined pricing actions, taking out stranded costs and executing other cost and efficiency improvements.
In the near term, we expect fiscal 'twenty, two organic net sales growth in the 2% to 4% range and what gives us confidence in these goals, we have solid plans in place to assure that our wine and spirits transformation focused on premium position continues to gain traction.
Our high end brands are well positioned to drive mix and margin expansion and we plan to continue to take price on select products within select markets throughout the year.
We will leverage the strong equity of these key core brands, while building momentum through fully integrated marketing campaigns and partnerships to drive distinctive and consistent messaging that creates demand for these brands, including Kim May on me.
Woodbridge Ruffino, the prisoner high west and spec debt.
We remain committed to driving mix and margin accretive scalable innovation by successfully addressing consumer trends, including the convenience RTD and betterment categories. We.
We have a strong innovation pipeline planned for the coming year that includes the introduction of Woodbridge wine Seltzer the expansion of spec Rtd's. After a successful first year launch and new prisoner family innovation that includes the launch of the prisoner Pinot noir sell though red blend.
And unshackle solving on block.
We also plan to benefit in year two from this past year successful innovation launches of Mayo in cab, Kim Crawford illuminate and the prisoner Chardonnay and Cabernet Sauvignon.
Our wine and spirits brands continued to outpace the e-commerce category fueled by our outstanding performance and instant card grizzly and Amazon and our wind PTC growth continues to outpace the market by close to two weeks in fact SVEDKA has become the number one mainstream.
On Amazon, while Kim Crawford Shoving on block <unk>, Pinot noir claim number one positions in their respective categories on Drizzly, one of the largest online marketplaces for beverage alcohol.
The early investments we made in this space has given us a key first mover advantage and we will continue to invest in DTC and e-commerce initiatives as consumer shifts where and how they purchase beverage alcohol.
The evolution of our wine and spirits strategy includes a critical next step to build category, leading dedicated fine wine and craft spirits business, which will strengthen our portfolio and capabilities in this space to meaningfully inflect our business towards the high end.
We believe the dedicating the proper focus and attention to our fine wine and craft spirits business will complement our leadership and our mainstream and premium businesses and we will accelerate our goal to drive incremental profitable sales growth.
As we pursue industry, leading growth for our wine and spirits portfolio, we're constantly assessing our route to market strategies to ensure we stay ahead of consumer trends and maximize our growth opportunities our distributor partners play a significant role in achieving our goals and creating value for the market.
To that end, we recently announced the evolution of our wine and spirits wholesale structure, whereby southern glazers wine and spirits assumed distribution responsibilities across approximately 70% of our U S wine and spirits brand portfolio effective April one.
Southern is a proven brand builder with advanced capabilities and growing consumer segments, including digital commerce, fine wine and craft spirits and ready to drink and they have category, leading sales capabilities across on and off premise channels.
We plan to leverage their strength in these areas to help accelerate our category leadership. We are confident they are the best partner to help us achieve our strategic ambitions and we believe this move best positions us for long term success and accelerated growth.
Moving on briefly to canopy growth over the past year canopy has made significant progress in strengthening their position in core markets and taking steps to prepare for the inevitable legalization of cannabis in the U S cash.
Cannot be successful.
Rollout of cannabis beverages as well as other ret point to point out products has helped the company gained momentum.
Currently cannot be has the top three beverages in the Canadian recreational market and they recently introduced their popular cuatro CBD beverages in the U S.
Over the coming year, we look forward to benefiting from canopies continued march toward profitability the Roe.
<unk> out of canopy branded products in the U S through canopies arrangement with acreage and the improving legal landscape for cannabis in the U S.
In closing, let me reiterate how proud I am of the performance delivered by our constellation team along with our distributor and retail partners during a tumultuous year.
Because of their grit passion and determination, we are operating from a position of strength as we head into the new fiscal year, and we're poised to deliver a solid year of performance again in fiscal 'twenty two.
We will continue to invest aggressively to accelerate growth for our strong portfolio of industry, leading brands, we have exciting innovation in store for the coming year, and we're building capabilities and emerging channels, such as three tier e-commerce, while adding production capacity to fuel our.
Growth over the long term.
Make no mistake, we have bold ambitions for the future and look forward to delivering on our long term vision, which includes generating industry, leading returns for our shareholders over that timeframe and with that I would like now to turn the call over to Garth who will review our financial results for fiscal 'twenty, one and our financial focus.
For fiscal 'twenty two.
Thank you Bill and Hello, everyone.
Despite a volatile environment and various headwinds experienced throughout the year due to COVID-19 fiscal 'twenty. One marked another great year for constellation brands demonstrated by our robust financial results and solid business performance.
Pretty strong beer operating performance and cash flow results, while our wine and spirits <unk> strategy continues to gain momentum and is well positioned to execute growth now that the Gallo transaction is finally closed.
Specifically in fiscal 'twenty, one we achieved strong EPS growth and delivered comparable basis EPS, excluding canopy growth of $10 44.
In addition, we generated record operating cash flow and free cash and free cash flow of $2 8 billion and $1 9 billion respectively.
Which enabled significant debt reduction of $1 7 billion and reduction of our net leverage excluding canopy equity earnings as we ended the year at three one times.
And lastly, we returned seven $575 million of cash to shareholders in dividends.
Now, let's review full year fiscal 'twenty, one performance in more detail, where I'll generally focus on comparable basis financial results.
Starting with beer net sales increased 8% on shipment volume growth of approximately 7%.
Excluding the impact of the balance point divestiture organic net sales increased 10% driven by organic shipment volume growth of 8% and favorable price and mix.
Our full year full year organic net sales slightly outperformed our previously communicated expectations, primarily due to incremental shipments made during the fourth quarter in order to return to normal levels of distributor inventory at fiscal year end.
Depletion volume growth for the year came in above 7% driven by the continued strength of the Modelo and Corona brand families as throughout the year strong performance continued in the off premise channel and more than offset the impact of the 51% year over year reduction in the on premise channel due to COVID-19.
19.
When adjusting for one less selling day in the year, the beer business generated seven 5% depletion volume growth.
Moving on to beer margins.
Operating margin increased 110 basis points versus prior year to 41, 1%.
Benefits from marketing and SG&A as a percent of net sales pricing the balance point divestiture and foreign currency more than offset unfavorable operational and logistic costs and mix.
The increase in operational cost was driven primarily by higher material costs and brewery compensation and benefits for the increased logistics costs predominantly resulted from strategic actions taken to expedite beer shipments in order to accelerate inventory replenishment across the network.
These headwinds were partially offset by favorable fixed cost absorption related to increased production in fiscal 'twenty one.
While marketing as a percent of net sales decreased three points to nine seven versus prior year. This was up landed above our previous guidance in the 9% to nine 5% range driven by incremental strategic investments made during the fourth quarter to provide continued momentum as we head into fiscal 'twenty two and the.
Spring selling season.
Moving to wine and spirits net.
Net sales declined 7% on shipment volume down 16%, while our retained portfolio for the year achieved net sales growth of 5% driven by double digit volume growth and robust mixed benefits from Omi, Kim Crawford the prisoner brand family as well as pricing benefits from Woodbridge SVEDKA.
Full year net sales results outperformed our previous expectations, primarily due to stronger mix benefits and some incremental shipments of our retained brands in the fourth quarter.
Depletion volume declined approximately 3%, mainly driven by the brands recently divested while depletion volume for our retained portfolio declined approximately 1%.
A slight decline in our retained portfolio depletion volume was largely driven by strong fiscal 'twenty Woodbridge volume buying ahead of the price increases that went into effect on March one of 2020 as well as their strategic efforts made throughout the year to right size inventory on hand at seven.
Chain retailers in key states.
While this resulted in a negative impact of depletion trends for the fiscal year. This will allow for better inventory management going forward.
Moving on to wine and spirits margins operating margin decreased 150 basis points to 24, 5% as benefits from price and mix were more than offset by higher Cogs wine and spirits divestitures and increased marketing and SG&A spend.
Cogs was mostly driven by unfavorable fixed cost absorption of approximately $29 million <unk>.
Resulting from decreased production levels as the result of the wildfires.
Now let's proceed with the rest of the P&L.
Corporate expenses came in slightly better than our previous guidance, finishing at approximately $229 million.
Up 2% versus last fiscal year, the increase was primarily driven by higher compensation and benefits unfavorable foreign currency losses, and an increase in charitable contributions primarily driven by COVID-19 support.
All of which were partially offset by a decrease in insurance related costs and reduced <unk> spend.
Comparable basis interest expense for the year decreased 10% by approximately two.
To approximately $386 million pri.
Primarily due to lower average borrowings as we continue to decrease our leverage ratio.
Our comparable basis effective tax rate, excluding canopy equity earnings impact came in at 18, 2% versus 16, 1% last year, primarily driven by a lower level of stock based compensation benefit and higher effective tax rates on our foreign businesses.
Stock based compensation and benefits came in slightly better than expected. During Q4. In addition, we realized some small miscellaneous benefits.
As a result, this drove tax rate favorability versus our previous guidance.
Moving to canopy in fiscal 'twenty, one we recognized an $802 million increase in the fair value of our canopy investments of which $270 million was recognized in Q4.
These were excluded from comparable basis results.
The total pretax net gain recognized since our initial canopy investment in November of 2017 is $1 1 billion, which increased significantly during the fiscal year driven by canopies robust share price movement.
Now, let's briefly review Q4 results.
Beer net sales increased 16%, primarily due to shipment volume growth of nearly 16% excluding the impact of the ballast point divestiture organic net sales increased 18% driven by organic shipment volume growth of approximately 70% and favorable mix.
Depletion volume growth for the quarter came in above 6%. However, when adjusting for one less selling day in the quarter. The beer business generated seven 5% depletion volume growth, which is in line with full year trends and our medium term growth algorithm.
As you are all aware inclement weather affected to south predominantly Texas. During the last few weeks of February. These abnormal in severe conditions did have a slight impact to our Q4 depletion trends as we are estimating that we lost approximately 50 to 100 basis points of depletion volume growth in the quarter.
As previously guided shipment volume continued to significantly outpace depletion volume during the quarter and as mentioned earlier. This resulted in distributor inventories returning to more normal levels at fiscal year end.
As expected beer operating margin decreased 250 basis points to 36, 8% as higher marketing spend and increased Cogs were partially offset by benefits from favorable SG&A as a percent of net sales the ballast point divestiture and foreign currency.
Marketing as a percent of net sales was 12, 5% or 380 basis points higher than Q4 last year driven by the shift of spend from the first half the second half of the fiscal year and incremental marketing investments.
Wine and spirits net sales were down 19% for the quarter, while shipment volume was down approximately 33%, reflecting the brands divested during the quarter.
Our retained portfolio net sales were up 7% driven by strong shipment mix benefits as discussed earlier.
Operating margin decreased 900 basis points to 19, 9%, primarily reflecting the negative impact of the wildfires on Cogs increased marketing and SG&A spend.
In wine and spirits divestitures, partially offset by benefits from favorable mix.
Keep in mind that for approximately two thirds of the quarter, we had a smaller business posted divestitures that was burdened by the full impact of stranded costs on that smaller business.
During the quarter. We also recognized a net loss of approximately $46 million in connection with smoke damage sustained during the wildfires, which was excluded from our comparable basis results.
Moving to fiscal 'twenty, one free cash flow, which we define as net cash provided by operating activities less capex.
We generated a record $1 9 billion of free cash flow, which reflects strong operating cash flow.
Capex totaled $865 million and was in line with our most recent guidance. This included approximately $700 million of Capex for our Mexico beer operations expansion, primarily to support the <unk> 5 million hectoliter expansion.
Moving to our full year fiscal 'twenty to P&L and cash flow targets.
For fiscal 'twenty, two we expect comparable basis diluted EPS to be in the range of $9 95 to.
To $10 25.
Which excludes canopy equity earnings impact.
For our beer business in fiscal 'twenty, two we're targeting net sales growth of 7% to 9%, which includes 1% to two points of pricing within our Mexican product portfolio and.
And operating income growth of 3% to 5%.
This implies operating margin migrating to the low to middle end of our range of 39% to 40% driven by several cost headwinds, we expect to encounter in fiscal 'twenty two due to the following.
First we are estimating a significant step up in depreciation expense driven by primarily by the incremental 5 million hectoliter at <unk> that was recently completed for fiscal 'twenty. Two we're targeting total beer segment depreciation expense to approximate $260 million or an increase of approximately.
<unk> $65 million.
Second similar to previous years, we're expecting substantial inflation headwinds in the low to mid single digit increase range largely related to glass and other packaging materials raw materials transportation and labor cost in Mexico.
Third as the growth of hard Seltzer and alternative beverage alcohol categories continue to rapidly expand we expect to continue to experience unfavorable mix impacts as their margins are dilutive from a gross profit perspective, due to the incremental packaging cost and flavor additives.
Furthermore, we also anticipate a negative mix impact driven by incremental cake volume versus prior year, driven by the continued reopening and return of business to the on premise channel.
And lastly, we expect margin headwinds related to the brewery expansion cost which include increased head count and training expenses.
To help partially offset these headwinds we expect to execute against our aggressive cost savings agenda and as stated earlier expect pricing benefits in the 1% to 2% range.
As a result of staggering our fiscal 'twenty, one fall price increases throughout the back half of fiscal 'twenty, one and in some instances into fiscal 'twenty. Two we expect to shift to more pricing from the fall to the spring in fiscal 'twenty two.
Lastly, as it relates to beer marketing spend for fiscal 'twenty, two we expect marketing as a percent of net sales to be in the 9% to 10% range.
Keeping in mind that marketing spent during the first half of fiscal 'twenty, one was significantly muted, resulting from COVID-19 related sporting and sponsorship event cancellations and postponements.
For fiscal 'twenty, two we expect to return to our typical spending cadence, which is weighted more heavily towards the first half of the fiscal year.
Moving to wine and spirits for.
For fiscal 'twenty to the wine and spirits business is targeting net sales and operating income to declined 22% to 24% and 23% to 25% respectively.
This implies operating margins to approximate 24%, which is flattish to prior year on a reported basis, which shows significant margin expansion on an on it on.
On an organic basis.
Excluding the impact of the wine and spirits divestitures organic net sales is expected to grow in the 2% to 4% range.
The transformation of our wine and spirits business is underway and over the next few fiscal years were committed to removing stranded costs and executing against other cost savings mix and price and efficiency improvements and we expect to continue to achieve margin expansion as we migrate to operating margins of approximately 30%.
Yes.
Other fiscal 'twenty two guidance assumptions include interest expense in the range of $350 million to $360 million corporate expenses to approximate $235 million comparable tax rate, excluding canopy equity and earnings of approximately 19%.
Non controlling interest is expected to be approximately $40 million and weighted average diluted shares outstanding are targeted at approximately $196 million. This assumes no share repurchases for fiscal 'twenty two.
We expect fiscal 'twenty, two free cash flow to be in the range of one four to $1 5 billion, which reflects operating cash flow in the range of two four to $2 $6 billion and Capex of one to $1 1 billion.
Which includes approximately $900 million target from Mexico beer operations expansion.
I think this is a good spot to elaborate on our capital expansion initiatives for our beer business that bill touched on earlier.
As bill outlined our beer business continues to significantly outperform the U S beer industry, driven by robust consumer demand as such it is essential that we invest appropriately in order to support this growth for for our core beer portfolio as well as the emerging HBA or alternative beverage alcohol space.
These investments include a 5 million hectoliter expansion at Nava dedicated to <unk>, including hard Seltzer is expected to be completed in early fiscal 'twenty three.
And we are in the process of expanding <unk> to 19 million hectoliter to be completed by the end of fiscal 'twenty five.
As a result, you should expect our annual Capex spend for the beer business to be in the $700 million to $900 million range to support this 15 million hectoliter capacity expansion during fiscal year 'twenty three.
Year 'twenty five.
These projects are expected to generate solid returns as our beer business has a high operating ROIC and a best in class margin profile.
The incremental depreciation expected from our Capex investments.
Even with the capital expenditures associated with these initiatives, our strong projected earnings and operating cash flow growth allow us to remain focused on operating below our targeted leverage range, which provides us with the flexibility to execute our $5 billion cash return commitment over the next two years.
Our brewery operations and novel and <unk> have long been part of the fabric of these communities.
As part of our expansion efforts and commitment to making a positive impact on the communities, where we operate we will continue working with local authorities and community based organizations on sustainability initiatives that benefit local residents.
For instance over the past several years constellation has helped support local infrastructure investments and <unk>.
That have enhanced water efficiency in the region more than offsetting our water use at this facility.
This is in addition to other benefits, we provide including local job creation and fueling economic development. We are working with local partners in Nava on similar initiatives.
Lastly, given the current state of activities and Mexicali, we will be unable to use or repurpose. This site for future use. Therefore, we expect to take an impairment of approximately $650 million to $680 million in Q1 of fiscal 'twenty, two which will exclude.
From comparable basis results.
However, as Bill mentioned, we actively continue to work with government officials in Mexico to pursue various forms of recovery for the costs, we've incurred in constructing the brewery and determine next steps in mexicali.
In closing I want to reiterate our expectation to continue to have significant capital allocation flexibility as we head into fiscal 'twenty, two which will enable ongoing progress in returning cash to shareholders, while making strategic investments to support long term growth initiatives.
Fiscal 'twenty, one was a challenging year on that provided key learnings, resulting from operating in a volatile environment due to the pandemic.
First and foremost the growth and margin profile of our high end beer business is best in class and we expect it to remain as such well into the future.
In order to maintain this momentum we are committed to an exciting innovation agenda, which includes capitalizing on the robust growth in the <unk>.
Space, while continuing to support the strong growth momentum of our core beer business.
This requires us to expand and optimize our production footprint, which not only sets us up for long term growth, but provides us with contingent capacity to operated sensible utilization rates, while providing us with much needed flexibility. We believe this is the right strategy in order to support our beer business that continues to outperform the <unk>.
<unk> driven by robust consumer demand and we are absolutely committed to satisfying these demands with that bill and I are happy to take your questions.
Yes.
Ladies and gentlemen to ask a question you will need to press Star then one on your telephone.
So withdraw your question press the pound key.
Again, Thats star one to ask a question.
Our first question comes from the line of Lauren Lieberman with Barclays. Your line is open.
That to see if you're on.
Mute.
Lauren Your line is open.
I don't think we have on here.
Yes.
Our next question comes from the line of Dora.
Dan with Morgan Stanley Your line is open.
Hey, guys can you hear me.
Yes, yes, okay.
No.
On the beer demand side, I guess short term, we've now cycled Covid, maybe you could just give us an update on March depletion trends and what Youre seeing in April so far.
Then longer term can you touch on the growth opportunity from here on the Delaware.
It seems to be defying the growth slowdown that happens to a lot of other brands as they get much larger so it'd just be helpful to take a look forward at the key drivers from here in terms of incremental distribution expansion.
<unk> contribution demographics et cetera, some of the key drivers that happened in fiscal 'twenty one.
Your thought process going forward in terms of the growth drivers that Brian. Thanks.
Absolutely. We're very pleased to say that March has gotten off to an excellent start in March was certainly ahead of what our trend line was coming in so we're very pleased for the start of the new year paper.
April obviously is a little early to judge.
Relative to Modelo.
There's really no end in sight for its double digit growth profile at <unk>.
<unk> to grow with the Hispanic community and obviously it is a nice tailwind because of the growth on the Hispanic community, but we still have great distribution opportunities.
We continued to grow our velocities on that brand and when you think about the penetration increasing in the non Hispanic community, 25% over the last couple of years, we're barely scratching the surface as you probably know we were really only started to advertise outside the Hispanic community over the last few years, so the upside with.
Then that community. We think is tremendous and as you also know we nearly never done any innovation in that other than launching the gelato language of course has quickly become the number one July so.
We think there's just a tremendous opportunity for modelo to continue to grow for a long time to come.
Number three at this point, there's plenty of room still to go up.
Thank you.
Our next question comes from the line of Cold Mill.
Ralph <unk> with credit Suisse your.
Your line is open.
If I may.
Ask about buybacks.
You reiterated your $5 billion commitment, but it wasn't included in the release I guess in terms of what buybacks, we're going to be for fiscal 'twenty. Two can you just talk about how youre thinking about that.
Sure. Thanks Cole.
So.
We're absolutely committed to.
Meeting our $5 billion commitment over the course of the next two years and as you know that includes a significant amount of share repurchases to $5 billion for the share repurchases as we as we entered this year. We said we were going to have.
Two.
Two real commitments as it relates to capital allocation, one was paying down debt and then second was making significant progress on net return of capital throughout the year. As we noted we did pay down debt quite a bit we started the year at about 392 times and we ended at about $3 one.
And we paid down debt the Gallo transaction closed in early January we didn't pay down the last tranche of debt to $5 million redemption in early <unk>.
February and at that point.
We had some.
Some things that we're doing that we had to clear up most notably final I guess finalizing our analysis on on Mexicali and then subsequent further investment.
And capacity so that's why we didn't make any progress in.
Fiscal 'twenty, one, but we fully expect to make.
Meaningful progress.
This year.
Thank you.
Our next question comes from the line of Bonnie Herzog with Goldman Sachs. Your line is open.
Thank you hi, everyone.
Hey, Brian.
Hi, I had a question on your guidance.
I understand the headwinds you guys called assets.
Theyre going to pressure your operating income next year, but I guess I'm trying to think through some of the levers you might have to offset these pressures beer pricing for one comes to mind as you called out your pricing.
Factor last year, it was under 1% for the fiscal year, which is below your typical 1% to 2% range. So.
Should we think about your willing willingness to take more pricing this fiscal year to offset some of these incremental cost pressures would you be willing to go above your typical range and then finally, how much visibility do you have with some of the commodity and transportation headwinds that you're facing.
Curious are you fully hedged for instance on some of these commodities.
Sure Bonnie one on I take the first half of that.
We believe the 1% to 2% pricing actions that we take pretty much on on annual basis is the smart way to approach. It the balance is the opportunity to get improved revenue scenarios with the recognition that you do have some price sensitivity within certain consumer groups that consume our brands. So you always work that delicate balance.
Or where you go in our view is 1% to 2% is a good amount that allows us to continue to maintain the strong momentum.
Within within our business that we have as you know we continue also to.
To aggressively increase on our spend overall against our our marketing platforms and that will only be expanded when you think about some of the innovation agenda. So we're very optimistic about the whole platform but.
Getting much beyond that I think in any one year is probably not the best way.
To approach that question regards you might answer her second sure.
Sure just on on the opportunities on the hedging Bonnie.
So first of all every year.
Our ops teams and our production teams are looking for ways to take cost out of the business still continue to look for those as we go through the year. So those are possible levers as we move forward, but quite candidly those cost savings get harder and harder as time goes on.
As it relates to our hedging position.
You know we have a fairly.
Robust and sophisticated hedging policy that allows us to layer in hedges on both commodities and on currencies over the course of many years to take advantage of favorable rates.
So we've done that in order to mitigate what otherwise may have been higher inflation. This year that being said we are not fully hedged.
Any one thing, whether that's currency or commodities and so to the extent that there are any improvements as rates, we could benefit from those as well.
Thank you.
Our next question comes from the line of Brian Spillane with Bank of America. Your line is open.
Hey, good afternoon, everyone.
Brian.
Question for you just related to Mexicali and I guess.
How to think through.
I guess roughly $800 million that we spent there.
In terms of just cash back.
What are the sort of opportunities to maybe recapture some of that cash whether it's repurposing the equipment.
Selling land.
Also was there any day.
Any cash.
Cash benefit.
Basically that off with the law and then Theres a <unk>.
Cash tax benefit just trying to understand how much of that cash we could think about you recouping over over the net over the next year or two.
So obviously, Brian we continue to work to mitigate that impairment, but obviously, we felt it was time to take that impairment.
We have repurposed net.
Number of.
A number of the equipment things that we have there into other facilities as part of our expansion of the other facilities and we're going to we're continuing discussions with the government as well relative to mitigating the impairment.
For the future as well.
But I do think it's important to note one thing though.
We're not going to let this setback and admittedly we're not happy about it we're not going to let this get on the way of focusing on our growth and meeting the growth in high demand that we have for our brands over the long term.
The reason, we're doing the capacity expansion that <unk> talked about previously is because our demand continues to be aggressive on our core business and b, we're going to get after the NBA Slash Seltzer space and then EBIT more aggressive way than we have up to this point. So we're not going on let this get in the way of Us meeting.
Demand for our brands in the future or do you want to comment on that one.
Yes, just as it relates into further further recovery. So first of all the impairment kind of is net of what we think we've recovered to date right. So we have been moving equipment.
Out of out of Mexicali and over to <unk> in support of a 5 million hectoliter is that just went live we continue to do that to support further expansion at <unk> and really taken the impairment is in.
In making the decision to move on as the first step in further.
Evaluating what our next options are which as you indicated could include things like selling selling the land.
And then just further as it relates to any.
The negotiation of the conversations I should say that bill referenced.
We do expect that there will be some additional recovery in net recovery could come in many different forms it could come in cash payments. It could come in tax credits that could come in and infrastructure credits things of that nature. So we're certainly not done as it relates to.
Trying to recover any loss cost.
Thank you.
Our next question comes from the line of Vivien <unk> with Cowen Your line is open.
Hi, Thanks very much.
Let's move on your beer margins understanding that there are some very clear structural headwinds that you are contending within human to offset with cost savings I am a little bit surprised that your E&P guidance.
Not a little bit higher.
Given the substantial amount of new product activity. So I was hoping you.
You could just elaborate on kind of what informs the range and order of magnitude how youre thinking about prioritizing that strength. Thanks.
Thanks.
So I'm sorry, maybe I was trying to.
To understand the question. So I think what I heard you say is you're asking the question around what's driving the <unk>.
Or trying to.
Just to get a sense for the scale of what's driving.
The margin dilution so as we said about a third of.
The <unk>.
The dilution is driven by the inflation, which we discussed about a third of that is coming from the increase in depreciation and then a third of that.
From the debt.
Impact moving towards <unk> and avs.
And then on from there.
Advertising on here.
Average well.
Advertising is going to be consistent.
Going forward with what our historical trends have been in that sort of mid <unk> range.
We're obviously in a growth business like ours that is still a significant increase year on year on what the total spend is because it's coming off a very a much higher top line than it was in the prior year. So we're actually spending a lot more in our in our marketing spend than we had in prior years.
Thank you.
Our next question comes from the line of Kevin Grundy with Jefferies. Your line is open.
Great. Thanks, good afternoon, everyone.
I wanted to drill down on your views for the hard Seltzer category if I can.
Could.
Three part question. So one has the category slowdown that we're seeing in the Nielsen data in the first quarter is that in line with your expectations, obviously very difficult year over year comparisons, but that being said, it's still moderating to what are you forecasting for the seltzer category. This year, what's embedded in your outlook and then the last piece just maybe touch on your level of satisfaction with.
Your market share at this point understandable youre leaning and now you talked about the $60 million AD campaign that being said as we look at the Nielsen data on your market share is hovering in the 3% area. How is that relative to your expectations, where do you expect that to go here over the next 12 months. Thank you.
Sure up two or three of those things, we'll try to get them all.
Not unexpected in a category thats continuing to bring in new consumers that you have some seasonality effect, we certainly saw greater seasonality effect over this recent period, then we saw a year ago. As an example, our view is that's likely because you have a significant higher percentage of either early or less.
Consistent user so it wasn't really a surprise it still remains a growth sector within the beer the beer industry.
Our forecast is going to continue to grow on continuing to be a very important part which is why we are more than doubling our capabilities.
Against hard Seltzer for this particular year coming that we're just starting we believe this is going to be an important part and it also provides an interesting entree for people into the overall beer category relative to the market share as you know as we expanded our capabilities that allowed us to do.
Additional skus, we did almost 10 million cases, this past year with one SKU, which is.
Kind of outstanding launch if you will.
But the expansion that we are that we are putting in place is going to allow us to more than double that we've already introduced.
SKU number two and number two variety pack and we Havent monodic coming online here. This coming June so our expectations as Youll see a significant increase in our share proposition in part because we'll have more available to the consumer and we will have more shelf space on the warm shelf and more cold box space in the call Bob.
<unk> as well so we're very optimistic about what our profile will look like as the year goes on.
Yes, Kevin just to follow up on that really quickly so that the growth that youre seeing so far is fairly well in line with what we're expecting we're expecting growth in the category this year to be in that 40% to 50% range.
Thank you. Our next question comes from the line of Sean King with UBS. Your line is open.
Great. Thanks for the question.
I guess with that.
Your fiscal year ending since then it seems like the market is opened up quite a bit I guess.
You know a bit more about what youre seeing on the on premise.
And also within that <unk> seen any change in distributor inventory levels at more markets reopen.
You are starting to see differences on obviously it varies by state. So for instance, it got a little tighter in California in the early part of this calendar year net.
Than we had anticipated, but overall, we're starting to see.
Some increase in the on premise as you would expect recalling that startup it's going against the time last year when it was off more than 50%. So.
We certainly would expect some of that I think the open question on it's very difficult to predict quite frankly is where the all the whole channel mix ends up going.
It's an open question as you know we are somewhat less susceptible to the on premise channel than some of our competitors because our overall profile skews more to the off premise anyway.
But but certainly.
We're optimistic and as more of the U S population get vaccinated, we're hopeful that in the summer months. It begins to look a little bit more like what a typical year would be but it's still a little early to make that call.
Thank you. Our next question comes from the line of Rob on <unk> with Evercore. Your line is open.
Great.
Thank you very much just two follow ups one for each of you.
Bill can you talk a little bit more about Pacific co on every call you get progressively more excited about it.
Which is great can you talk maybe sort of the reasons to believe.
That it's going to be a major national brand.
And then maybe touch on.
How youre thinking about the mix between share buybacks and dividends. It seems evident from the release, just a 1% dividend increase.
Why so little and is that just the way youre looking at things is that you'd much rather prefer share buybacks.
Particularly at the depressed valuation of the equity thank you.
Well, Robert Patty always warns me about being too giddy, but I must say, it's tough not to be getting when you look at some of the results around specific.
Consistently you're seeing four week trends in IRI that are up in the 35% range.
On the core business in Southern California continues to do extremely well and it's developing across the country again, we really just scratching the surface of a building out with this brand could be but my old friend Bill Hackett always said Pacific I was starting to look a lot like modelo looked about 15% to 20 years ago.
In terms of the development and how it really started out in the California base. As you know Modelo is now the number one brand in the state of California, I am not making a prediction that Pacific all will be the number one brands on it wouldn't be the worst thing that ever happened. So.
Certainly theres just a lot to be excited about if any of them that we're starting to do.
Some some innovation and some innovation testing in that brand with Gen Z consumers.
This brand very much over index with Gen Z consumers. So we're bringing in a somewhat different audience than what we have with some of our other franchises. So again, it's early days, but there's just so much to be excited about what specific out we really think this could easily be the next day franchise.
Our overall portfolio.
Sure.
And on the sort of capital allocation.
Question regarding share buybacks and dividends I mean, let's look at in the construct of everything we're trying to do from a capital allocation standpoint is we want to make sure that we maintain investment grade we want to make sure that we returned to shareholders. What we previously said, we would return to shareholders, which was about $2 5 billion of.
Share buybacks into an ethane as a dividend and we want to make sure we have the flexibility to invest in our business as we talked about investing significantly in Mexico to support the robust growth of our of our of our portfolio. So all of that goes into the mix when we're trying to decide where to spend the money and so.
And as it relates specifically to dividends versus share buybacks.
Feel pretty good about where we are in terms of our payout ratio. We're right in the target of what we've set for ourselves. So that's why we did increase it more and by keeping it where we are we're able to do all those other things that I said return significant amount of money and share repurchases invest behind the brands maintain our investment grade rating.
Thank you. Our next question comes from the line of Chris Carey with Wells Fargo Securities. Your line is open.
Hi, I just wanted to follow up on a couple of the prior answered I guess, just one I'm trying to understand what's embedded from an off premise on on premise standpoint for next year. It seems like even if you get half of the on premise back Youre looking for only low to mid single digit in the off premise and if on premise.
Comes back in full off premise made fleet is implied to not grow next year and I guess, what I'm trying to understand it.
Just.
Constructive.
Difficult comps in the off premise.
Or is there something else at play because clearly commentary from the trade seems positive.
On scanner looks good even on Covid comps.
On innovation coming through.
So I'm just trying to understand that and if I could sneak one in just on distributor inventory you mentioned that inventories feedback too.
Back at the levels, where you want it but at the same time the trade would suggest that you're still trying to catch up. So can you just add a little bit more perspective around that thank you.
Sure.
Let's start with the inventory our inventory levels came out of last year, roughly a normal level.
And we expect that.
We'll stay roughly within that range, we have no major change in expectations about change in inventory relative to on premise.
Remember today, it's only 6% of our business as it currently stands because of the significant decrease that's occurred based on Covid. So our expectation is we're still going to see very robust growth in the off premise.
During this fiscal year and as you've seen.
We're consistent with our long term growth algorithm.
Debt, we've seen already stated March is off to an excellent start so we're very optimistic about that algorithm, but.
With that said.
We.
It's also going to be difficult to exactly predict what will happen with the on premise because we've already seen as markets have opened and then <unk>.
Those a little bit and then reopened.
Just a lot of variability that's hard to predict.
Again.
While there is an over expression in the in the off premise.
That isn't the worst thing for us on our businesses over skewed into that area and we continue to expect robust growth.
Within the off premise channel for this for this fiscal year.
Thank you. Our next question comes from the line of Andrea Teixeira with Jpmorgan. Your line is open.
Yes. Thank you Susan good afternoon.
Since we covered a lot on a lot of ground on beer.
A bit on on the line and spirit, what are you seeing with the reopening.
Also anything in terms of.
On the switch between your home and on premises anything about promos and how are you going to position your focus Brian. Thank you.
Well the biggest switching that we've seen is a significant increase in <unk> commerce as we said in my prepared remarks, we were quite pleased the fact that we got way ahead of that we were already investing against that capability.
And we've accelerated that investment, which really in our view gives us a first mover advantage in this particular area.
And you are seeing that change I'm sure just as a as a shopper we've all seen in.
Store, a significant increase of instant card click and collect in some of those on.
All of our net ways that people buying considering how they used to buy.
Direct to consumer is also we're pleased that we are performing at more than two X that the the growth profile of DTC and we've also invested in that area. You'll recall earlier last fiscal year, we bought empathy in part to radically improve our capabilities in the direct to consumer and we are now leveraging that across many of.
Our other brands. So we're very excited about about those opportunities.
And that being an increasingly important part of the future of the wine and spirits business.
Thank you. Our next question comes from the line of Steve Powers with UBS. Your line is open.
Hey, Thanks, and good afternoon everybody.
Maybe just Rob.
That will build on the capacity expansion discussions started earlier with Brian If I think.
Beyond the fiscal 'twenty three to 'twenty five.
Planned at Nava and <unk> is it fair to assume that additional expansion would take shape outside those two facilities are or is there more room to expand at those locations.
I guess in terms of those new locations Bill I think you mentioned exploration of.
Future sites in the southeastern part of Mexico, which.
I think it's consistent with preferences that have been expressed by the Mexican government, but just can you elaborate on your considerations there because.
If that does play out you would be shipping on a long distances to get from southern border.
States and just thinking just wanted to think through how you are.
You were thinking about overcoming those dynamics just to preserve overall efficiency.
Well, let's put a little bow on the on the whole scenario about building out our capabilities one of the things that we've been quite good at over the last several years is running our plants at hyper efficiency, but I think one thing is learning from the pandemic and I think any good business should have a element of.
Learning when something hits you in the face and.
And the pandemic certainly did that across many many many industries one of the things. We learned is while our efficiency was tremendous we didn't have a lot of flexibility in the event that something didn't go well and so one of the pieces that we are doing with this expansion is not only to meet the hyper growth that we have within our business, but also to create.
On increasing flexibility and some redundancy within our business. So wondering if you have weather challenges or God forbid we add another pandemic, but if you had weather challenges or some other curve balls that occurred.
Have minimal to no impact on our on our ongoing supply. So so that was very important relative to the southeast.
We are considering that it's critically important to have water supply.
A lot of shipping capabilities from some of the areas that we are looking into so we're pretty confident that that that could very well be a future location for a brewery for us.
Admittedly that's that's.
As a bit out it takes two to four years to even get that process going on underway, but we're certainly evaluating it because we think it could be a long term very viable solution from our business.
Thank you. Our next question comes from the line of low rate blended from Guggenheim. Your line is open.
Yes, hi, good afternoon, everyone and thanks Paul.
So I'd like to actually put up on kevins question on on the sensor category. So we're not tier when you launched I mean from that sensor you said.
You would have spent about $40 million.
The brands. So a year later go on that says there is about two 5% of market share in the last four weeks Nielsen and STB is down 60% so what.
Thank you believe debt.
Two newest skews one being launched late in the season, just in June and spending about $50 million, which by the way we'd be happy of show growth of last year.
You would be most successful.
And actually what success would look like for you on this fiscal year 'twenty between sensor. Thank you.
Sure well, let's keep in mind that $60 million that will be the number one share of voice from the seltzer category. During the critical season. So our view is that that's a very important and allowed.
Effort against that particular that particular sector.
And again, you've got to keep in mind, we produced everything we could possibly produce at the last year and we sold it it was probably the most successful introduction of the company's ever had.
With the Corona hard Seltzer. So we were very pleased with our position what we did see as there remains a lot of opportunity it remains a growing.
A growing sector in the beer business.
We only had one SKU expanding our footprint to meet more consumer needs and occasions and flavor profiles I was going to be very important and it also gives us the chance.
To get expanded reach and velocity at both at the warm shelf and on the call back. So we think having the number one share of voice on this particular category coupled with our new introductions that are coming this year. We're very excited about what our share profile will look like as the year goes on.
Thank you.
I'm showing no further questions at this time I would now like to turn the call back over to Mr. Bill Newlands for closing remarks.
Thanks, very much and thank you all for joining the call today I know it was a bit longer than some of them.
As a result of our continued robust performance and financial discipline. This past year constellation brands achieved strong earnings growth generated record cash flow and significantly reduced our debt providing solid momentum as we head into fiscal 'twenty two.
Our beer business has an exciting innovation lineup for the coming year, and we expect our core portfolio to continue to generate robust growth as well as we've talked earlier today in order to satisfy.
This robust consumer demand, we have plans in place to execute our next increment of capacity expansion and we are pleased to be in a position to continue investing in Mexico, and enhancing our operational platform, our wine and spirits premium position strategy gained significant traction during this past fiscal year and the divestiture of <unk>.
Several lower end wine brands positions this business for enhanced growth and profitability going forward. We look forward to speaking with all of you again in late June when we will share the results of our first quarter of our new fiscal year. Before then we hope you'll choose some of our fine products for your spring celebrations, including Cinco de Mayo.
And Memorial day, and let us all hope they are a bit more normal thanks, again and have a great day.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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