Q1 2024 Constellation Brands Inc Earnings Call

Okay.

Operator: Hello, and welcome to the Constellation Brands Q1 fiscal year 2024 earnings call and webcast. [Operator instructions] As a reminder, this conference call is being recorded. 

A question and answer session will follow the formal presentation. Press Star one at any time to be placed in the question queue and we ask that at that time, you limit yourself to one question and return to the queue. As a reminder, this conference call is being recorded.

Press Star one at any time to be placed in the question queue and we ask that at that time, you limit yourself to one question and return to the queue. As a reminder, this conference call is being recorded.

Operator: It's now my pleasure to turn the call over to Joe Suarez, vice president, investor relations. Please go ahead, Joe.

Joseph Suarez: Thank you, Kevin. Good morning all, and welcome again to Constellation Brands' Q1 fiscal '24 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 and any non-GAAP financial measures discussed on this call are included in our news release or otherwise available on the company's website at www.cbrands.com.

A reminder, reconciliations between the most directly comparable GAAP measure and any non-GAAP financial measures discussed on this call are included in our news release or otherwise available on the company's website at www Dot <unk> Dot com.

Joseph Suarez: Please refer to the news release and Constellation's SEC filings for risk factors, which may impact forward-looking statements made on this call. Following the call, we'll once again be making available in the investor section of our company's website a series of slides with key highlights of the prepared remarks shared by Bill and Garth in today's call. Before turning the call over to Bill, in line with prior quarters, I'd like to ask that we limit everyone to one question per person as noted, which will help us end our call on time. Thanks in advance. And now, here is Bill.

Over to Bill in line with prior quarters I'd like to ask that we limit everyone to one question per person as noted which will help US end our call on time, thanks in advance and now here's Bill.

William A. Newlands: Thanks, Joe, and good morning, everyone. We are off to a strong start in fiscal '24 with a solid first quarter. Our beer business delivered net sales growth of 11%, mainly driven by continued strong volume growth, in line with our medium-term algorithm. As anticipated, depletion performance accelerated throughout the quarter, resulting in a 5.5% increase for the period, an acceleration that has continued into June, supported by our beer team's unrelenting push to increase distribution for our high-growth, high-velocity brands; continued incremental investments in marketing focused on the highest return opportunities; and ongoing strong demand for our high-end Mexican beer brands, aligned with consumer-led premiumization trends, particularly in large markets with significant runway for Modelo Especial, like Texas, Florida, Illinois, and North Carolina, with a brand posted double-digit dollar sales growth in Circana tracked channels. And ongoing strong demand for our high end Mexican beer brands aligned with consumer led premium inflation trends, particularly in large markets with significant runway for modelo, especially out like Texas, Florida, Illinois, and North Carolina, where the brand posted double digit dollar sales growth. And yes, also in California, where our share gains actually accelerated and as expected, demand for our portfolio did ramp up after the unseasonably cold weather in early March.

Our beer business delivered net sales growth of 11%, mainly driven by continued strong volume growth in line with our medium term algorithm.

As anticipated, depletion performance accelerated throughout the quarter, resulting in a 5.5% increase for the period, an acceleration that has continued into June, supported by our beer team's unrelenting push to increase distribution for our high-growth, high-velocity brands; continued incremental investments in marketing focused on the highest return opportunities; and ongoing strong demand for our high-end Mexican beer brands, aligned with consumer-led premiumization trends, particularly in large markets with significant runway for Modelo Especial, like Texas, Florida, Illinois, and North Carolina, with a brand posted double-digit dollar sales growth in Circana tracked channels. And ongoing strong demand for our high end Mexican beer brands aligned with consumer led premium inflation trends, particularly in large markets with significant runway for modelo, especially out like Texas, Florida, Illinois, and North Carolina, where the brand posted double digit dollar sales growth.

Continued incremental investments in marketing focused on the highest return opportunities.

And yes, also in California, where our share gains actually accelerated and as expected, demand for our portfolio did ramp up after the unseasonably cold weather in early March.

William A. Newlands: All-in, our beer business delivered strong growth for the quarter while consistently advancing all four areas of our strategic initiatives. First, the business continued to propel its powerful core brands that people love. Modelo Especial remained the No.1 dollar share gainer in the entire beer category, delivered double-digit dollar sales growth in tracked channels, and, as most of you likely already are aware, became the No. 1 beer in America in dollar sales during the first quarter. Both Corona Extra and Pacifico also achieved share gains and delivered dollar sales growth of approximately 4% and 26%, respectively. Second, our beer innovations, which are still centered around the flavor and betterment consumer-led trends, are off to a great start.

The business continued to propel its powerful core brands that people love.

Hello, especially al remains the number one dollar share gainer in the entire beer category delivered double digit dollar sales growth in tracked channels and as most of you likely already are aware became the number one beer in America and dollar sales during the first quarter.

Corona extra and Pacific also achieved share gains and delivered dollar sales growth of approximately 4% and 26% respectively. Second our beer innovations, which are still centered around the flavor and betterment consumer led trends are off to a great start.

Second our beer innovations, which are still centered around the flavor and betterment consumer led trends are off to a great start.

William A. Newlands: Our Modelo Chelada Brands remained a top 10 dollar share gainer, with further support from our variety pack launched last year, the No. 4 new product in Circana channels, and from the launch of new Sandia Picante flavor, the No. 5 new brand. Modelo Oro was also a top 10 share gainer and, incrementally, has actually been slightly above what we saw in initial test markets. And Corona NA was the No. 1 share gainer in the nonalcoholic beer category in tracked channels. Third, the expansions of our beer brewing capacity continued to advance as planned. Our latest modular addition to Obregon successfully ramped up in Q1, and we are on track with the new ABA facility at Nava for Q4 of this fiscal year.

Modelo oral was also a top 10 share gainer and incrementally has actually been slightly above what we saw an initial test markets and.

And Corona NA was the No. 1 share gainer in the nonalcoholic beer category in tracked channels. Third, the expansions of our beer brewing capacity continued to advance as planned. Our latest modular addition to Obregon successfully ramped up in Q1, and we are on track with the new ABA facility at Nava for Q4 of this fiscal year.

Third the expansions of our beer brewing capacity continued to advance as planned our latest modular addition to overdone successfully ramped up in Q1, and we are on track with the new <unk> facility at Nava for Q4 of this fiscal year at.

William A. Newlands: At Veracruz, site development and construction work are underway, and we expect that to build up through this year and next. And fourth, the ESG efforts of our beer business further drove progress on our companywide goals, particularly those on water stewardship. As noted in our last call, we recently surpassed our target of restoring 1.1 billion gallons of withdrawals from local watersheds. The initiatives in our beer business drove most of this achievement, and we plan to announce a new water target later this fiscal year.

And fourth the ESG efforts of our beer business further drove progress on our company wide goals, particularly those on water stewardship. As noted on our last call. We recently surpassed our target of restoring $1 1 billion gallons of withdrawals from local watersheds. The initiatives in our beer business drove most of this achievement and we plan to announce a new water target later this fiscal year.

As noted on our last call. We recently surpassed our target of restoring $1 1 billion gallons of withdrawals from local watersheds. The initiatives in our beer business drove most of this achievement and we plan to announce a new water target later this fiscal year.

The initiatives in our beer business drove most of this achievement and we plan to announce a new water target later this fiscal year.

William A. Newlands: Building on our existing water and emissions targets, we also recently announced two new commitments focused on reducing waste and enhancing our use of circular packaging. In support of that commitment within our beer business, we plan to attain a TRUE Zero Waste to Landfill Certification for our breweries in Mexico and replace hi-cone plastic rings with recyclable paperboard for all applicable four- and six-pack SKUs. Similarly, within our wine and spirits business, we also plan to attain the same certification for our key U.S. operations, as well as reducing our packaging-to-product weight ratio by 10% and ensure that 80% of the business packaging is returnable, recyclable, or renewable.

In support of that commitment within our beer business, we plan to obtain a true zero waste to landfill certification for our breweries in Mexico and replace high cone plastic rings with recyclable paperboard for all applicable four and six pack skus.

Similarly, within our wine and spirits business. We also plan to obtain the same certification for our key U S operations as well as reducing our packaging to product weight ratio by 10% and ensure that 80% of the business packaging is returnable recyclable or renewable.

William A. Newlands: With that, let's turn more fully to our wine and spirits business. As noted previously, over the last few years, the wine and spirits business has strategically shifted its portfolio to a bold, innovative, and higher-end product mix that continues to be driven by consumer-led premiumization. In Q1, the higher-end wine portion of the business gained share in the U.S. wine category and outpaced the dollar sales growth of the corresponding segment in tracked channels.

As noted previously over the last few years, the wine and spirits business has strategically shifted its portfolio to a bold innovative and higher end product mix that continues to be driven by consumer led premium amortization. In Q1, the higher end wind portion of the business gained share in the U S wine category and outpaced the dollar sales growth of the corresponding segment in tracked channels.

In Q1, the higher end wind portion of the business gained share in the U S wine category and outpaced the dollar sales growth of the corresponding segment in tracked channels.

William A. Newlands: Meiomi and Kim Crawford, the portfolio's largest premium wine brands, and The Prisoner Wine Company, the largest fine wine brand group, were main drivers of the strong performance. The innovation efforts across these brands also continued to deliver excellent results with Meiomi Bright, the brand's lower-alcohol, lower-calorie offering aligned with consumer-led betterment trend, capturing the No. 1 new brand spot in the category. In the mainstream wine portion of the business, the reinvention of Woodbridge is underway to address the growth headwinds facing that segment of the category while keeping the brand's core consumers engaged.

Folio is largest premium wine brands and the prisoner wine company the largest fine wine brand group were main drivers of this strong performance. The innovation efforts across these brands also continued to deliver excellent results with Miami bright the brands lower alcohol lower calorie offerings aligned with consumer led betterment trend capturing the number one new brand spot in the category. And the main streamline portion of the business. The reinvention of Woodbridge is underway to to address the growth headwinds facing that segment of the category, while keeping the brands core consumers engaged.

The innovation efforts across these brands also continued to deliver excellent results with Miami bright the brands lower alcohol lower calorie offerings aligned with consumer led betterment trend capturing the number one new brand spot in the category. And the main streamline portion of the business. The reinvention of Woodbridge is underway to to address the growth headwinds facing that segment of the category, while keeping the brands core consumers engaged.

And the main streamline portion of the business. The reinvention of Woodbridge is underway to to address the growth headwinds facing that segment of the category, while keeping the brands core consumers engaged.

William A. Newlands: And while there are certainly more work to be done here, the brand's year-over-year dollar sales decline in U.S. tracked channels improved throughout the quarter. The overall spirits portfolio maintained its share in U.S. track channels with notably strong dollar sales performance across its higher-end tequila and RTD products. In particular, Mi CAMPO tequila and High West ready-to-drink cocktails both delivered significant double-digit dollar sales growth.

The overall spirits portfolio maintained its share in U S track channels with notably strong dollar sales performance across its higher end to Kayla and RTD products in particular, the combo tequila and high west ready to drink cocktails, both delivered significant double digit dollar sales growth.

William A. Newlands: Beyond the evolution of the portfolio over the last few years, the wine and spirits business has also been investing in capabilities to accelerate its performance in key growth channels. This omnichannel focus has provided additional pillars of consumer-led growth, such as international and direct-to-consumer, the latter of which grew the channel's net sales 13% in Q1. And in fact, the e-commerce and customer loyalty portions of our DTC business, pardon me, were up over 40% in Q1.

This omnichannel focus has provided additional pillars of consumer led growth such as international and direct to consumer the latter of which grew the channels net sales, 13% in Q1 and in fact, the e-commerce and customer loyalty portions of our DTC business DTC business pardon me, we're up over 40.

<unk> percent in Q1.

William A. Newlands: From a volume perspective, the wine and spirits business continued to face lower demand, primarily for our mainstream brands, reflecting continued consumer-led premiumization trends noted earlier, which, in turn, affected top-line performance. In the higher-end wine portion of our portfolio, our larger premium and luxury brands faced softer segment demand in April, but we did see solid acceleration in May, and that has continued into June. Meanwhile, in our spirits portfolio, our higher-end craft brands posted very strong depletion growth of 40%.

And the higher end line portion of our portfolio, our larger premium and luxury brands faced softer segment demand in April , but we did see solid acceleration in may and that has continued into June . Meanwhile, in our spirits portfolio are higher and craft brands posted very strong depletion growth of 40%.

Meanwhile, in our spirits portfolio are higher and craft brands posted very strong depletion growth of 40%.

William A. Newlands: The wine and spirits business also delivered significant operating margin expansion in Q1, adjusted for the contribution after marketing of the divested brands. This further demonstrates the benefits of the strategic refocusing of the portfolio to higher-end, higher-growth, higher-margin brands and channels.  To sum up, the shift of the wine and spirits business toward driving growth and margin improvement through its pivot to the higher-end brands and broader channels and markets remains well on track.

To sum up, the shift of the wine and spirits business toward driving growth and margin improvement through its pivot to the higher-end brands and broader channels and markets remains well on track.

William A. Newlands: All-in, we are confident in our outlook for the wine and spirits business in fiscal '24 as performance is expected to continue to accelerate throughout the course of the year, in line with seasonality and the business' annual plan, particularly as the share of net sales from our Aspira fine wine and craft spirits portfolio increases over the coming quarter. In closing, I, once more, want to highlight that our solid performance for the first quarter of fiscal '24 was anchored by the consistent execution of the annual plans and strategic initiatives across both businesses. And with that, I would like to turn the call over to Garth, who will review in more detail our financial results for the quarter. [laughter].

Increases over the coming quarter.

In closing I once more want to highlight that our solid performance for the first quarter of fiscal 'twenty four was anchored by the consistent execution of the annual plans and strategic initiatives across both businesses and with that I would like to turn the call over to Garth who will review in more detail our financial results for the quarter.

Garth Hankinson: Thank you, Bill, and good morning, everyone. As Bill noted, fiscal '24 is off to a solid start. We steadily executed against our annual plans, remaining both focused and adaptable, as the economic and consumer backdrop continue to evolve. And we remain on track to deliver against our stated financial performance goals for this fiscal year.

As Bill noted fiscal 'twenty four is off to a solid start with. We steadily executed against our annual plans remaining both focused and adaptable as the economic and consumer backdrop continues to evolve and we remain on track to deliver against our stated financial performance goals for this fiscal year.

We steadily executed against our annual plans remaining both focused and adaptable as the economic and consumer backdrop continues to evolve and we remain on track to deliver against our stated financial performance goals for this fiscal year.

Garth Hankinson: As Bill noted, our beer business achieved double-digit net sales growth and the higher-end segment of our wine and spirits business outperformed the higher end of the wine category. We also continue to execute and deliver against our capital allocation priorities, and we are reiterating our guidance for the year. Now, let's review our Q1 fiscal '24 results in more detail, where I will mainly focus on comparable basis financial results. Starting with the beer business, net sales increased by $200 million, representing an uplift of 11%.

We also continued to execute and deliver against our capital allocation priorities and we are reiterating our guidance for the year. Now, let's review our Q1 fiscal 'twenty four results in more detail, where I will mainly focus on comparable basis financial results. Starting with our beer business net sales increased by $200 million. Representing an uplift of 11%.

Now, let's review our Q1 fiscal 'twenty four results in more detail, where I will mainly focus on comparable basis financial results. Starting with our beer business net sales increased by $200 million. Representing an uplift of 11%.

Starting with our beer business net sales increased by $200 million. Representing an uplift of 11%.

Representing an uplift of 11%.

Garth Hankinson: This was driven primarily by our volume growth of 7.5% as strong demand continued across our industry-leading portfolio. We also benefited from favorable pricing, which contributed $60 million of the overall net sales increase. Staying on the topic of price for just a moment, the incremental pricing we realized this quarter primarily reflects the wraparound impact from the elevated pricing taken in fiscal 2023 that was above our typical 1% to 2% algorithm. As a reminder, we expect pricing to account for 1% to 2% of our net sales increase this fiscal year, which represents the combined uplift from the wraparound impact and the average of any other additional pricing actions to be taken in fiscal '24 on a market-by-market, channel-by-channel, and SKU-by-SKU basis.

We also benefited from favorable pricing, which contributed $60 million of the overall net sales increase. Staying on the topic of price for just a moment the incremental pricing we realized this quarter, primarily reflects the wrap around impact from the elevated pricing taken in fiscal 2023. That was above our typical 1% to 2% algorithm. As a reminder, we expect pricing to account for 1% to 2% of our net sales increase this fiscal year. Which represents the combined uplift from the wraparound impact and the average of any other additional pricing actions to be taken in fiscal 'twenty four on a market by market channel by channel and SKU by SKU basis.

Staying on the topic of price for just a moment the incremental pricing we realized this quarter, primarily reflects the wrap around impact from the elevated pricing taken in fiscal 2023. That was above our typical 1% to 2% algorithm. As a reminder, we expect pricing to account for 1% to 2% of our net sales increase this fiscal year. Which represents the combined uplift from the wraparound impact and the average of any other additional pricing actions to be taken in fiscal 'twenty four on a market by market channel by channel and SKU by SKU basis.

That was above our typical 1% to 2% algorithm. As a reminder, we expect pricing to account for 1% to 2% of our net sales increase this fiscal year. Which represents the combined uplift from the wraparound impact and the average of any other additional pricing actions to be taken in fiscal 'twenty four on a market by market channel by channel and SKU by SKU basis.

As a reminder, we expect pricing to account for 1% to 2% of our net sales increase this fiscal year. Which represents the combined uplift from the wraparound impact and the average of any other additional pricing actions to be taken in fiscal 'twenty four on a market by market channel by channel and SKU by SKU basis.

Which represents the combined uplift from the wraparound impact and the average of any other additional pricing actions to be taken in fiscal 'twenty four on a market by market channel by channel and SKU by SKU basis.

Garth Hankinson: Beer depletion growth for the quarter came in at 5.5%, which reflects a slower start but strong finish in the three-month period between March and May, as growth significantly accelerated through the quarter, driven by the disciplined execution of our distribution and marketing plans, including during the key Cinco de Mayo and Memorial Day holidays, ongoing consumer-led premiumization trends, including solid buy rates for high-end beer, and, as Bill noted, significant growth in several of our top five markets and beyond, as well as improving conditions in California. These results give us confidence as we head into the peak summer selling season. Our largest brands, Modelo Especial and Corona Extra, delivered mid single-digit and low single-digit depletion growth, respectively, while our emerging brands, the Modelo Chelada brands and Pacifico, each delivered double-digit depletion growth. On-premise depletions grew 3.2% and accounted for approximately 12.4% of total volume, reflecting more normalized year-over-year performance, following the distortions caused by the pandemic closures and post-pandemic reopenings.

The disciplined execution of our distribution and marketing plans, including during the key Cinco de Mayo and Memorial day holidays.

Ongoing consumer led premium position trends, including solid buy rates for high end beer. And as Bill noted significant growth in several of our top five markets and beyond as well as improving conditions in California. These results give us confidence as we head into the peak summer selling season. Our largest brands Modelo especial and Corona extra delivered mid single digit and low single digit depletion growth respectively. Our emerging brands, the Modelo <unk> auto brands and Pacific. Each delivered double digit depletion growth. On premise Depletions grew three 2% and accounted for approximately 12, 4% of total volume, reflecting more normalized year over year performance. Following the distortions caused by the pandemic closures and post pandemic reopening.

And as Bill noted significant growth in several of our top five markets and beyond as well as improving conditions in California. These results give us confidence as we head into the peak summer selling season. Our largest brands Modelo especial and Corona extra delivered mid single digit and low single digit depletion growth respectively. Our emerging brands, the Modelo <unk> auto brands and Pacific. Each delivered double digit depletion growth. On premise Depletions grew three 2% and accounted for approximately 12, 4% of total volume, reflecting more normalized year over year performance. Following the distortions caused by the pandemic closures and post pandemic reopening.

These results give us confidence as we head into the peak summer selling season. Our largest brands Modelo especial and Corona extra delivered mid single digit and low single digit depletion growth respectively. Our emerging brands, the Modelo <unk> auto brands and Pacific. Each delivered double digit depletion growth. On premise Depletions grew three 2% and accounted for approximately 12, 4% of total volume, reflecting more normalized year over year performance. Following the distortions caused by the pandemic closures and post pandemic reopening.

Our largest brands Modelo especial and Corona extra delivered mid single digit and low single digit depletion growth respectively. Our emerging brands, the Modelo <unk> auto brands and Pacific. Each delivered double digit depletion growth. On premise Depletions grew three 2% and accounted for approximately 12, 4% of total volume, reflecting more normalized year over year performance. Following the distortions caused by the pandemic closures and post pandemic reopening.

Our emerging brands, the Modelo <unk> auto brands and Pacific. Each delivered double digit depletion growth. On premise Depletions grew three 2% and accounted for approximately 12, 4% of total volume, reflecting more normalized year over year performance. Following the distortions caused by the pandemic closures and post pandemic reopening.

Each delivered double digit depletion growth. On premise Depletions grew three 2% and accounted for approximately 12, 4% of total volume, reflecting more normalized year over year performance. Following the distortions caused by the pandemic closures and post pandemic reopening.

On premise Depletions grew three 2% and accounted for approximately 12, 4% of total volume, reflecting more normalized year over year performance. Following the distortions caused by the pandemic closures and post pandemic reopening.

Garth Hankinson: For the first quarter of fiscal '24, shipment volume ran slightly ahead of the depletion volume on an absolute basis. Shipments were in line with our plan throughout the quarter, and depletions ultimately ramped up over the course of the three months as previously noted. This difference in timing was the primary driver of the variance between shipment and depletion volumes. Additionally, as it has been the case historically, strong shipment volume in the first quarter also reflects inventory preparations with distributors and retailers for the peak busy summer season.

Shipments were in line with our plan throughout the quarter and Depletions ultimately ramped up over the course of the three months as previously noted. This difference in timing was the primary driver of the variance between shipment and depletion volumes. Additionally, as it has been the case historically strong shipment volume in the first quarter also reflects inventory preparations with distributors and retailers for the peak busy summer season.

This difference in timing was the primary driver of the variance between shipment and depletion volumes. Additionally, as it has been the case historically strong shipment volume in the first quarter also reflects inventory preparations with distributors and retailers for the peak busy summer season.

Additionally, as it has been the case historically strong shipment volume in the first quarter also reflects inventory preparations with distributors and retailers for the peak busy summer season.

Garth Hankinson: That said, distributor inventories remain at normal seasonal levels, so we do not expect this variance to generate any further distortion in Q2 and expect both shipment and depletion volume to be aligned for the full fiscal year. Importantly, we are also well equipped with capacity flexibility to meet any incremental demand as we move through the year. In regards to selling days, they were flat year over year for the quarter. Please note that for fiscal '24, there will be one more selling day in Q4.

And expect both shipment and depletion volume to be aligned for the full fiscal year. Importantly, we also. We are also well equipped with capacity. Capacity flexibility to meet any incremental demand as we move through the year. Yeah. In regards to selling days they were flat year over year for the quarter. Please note that for fiscal 'twenty four there will be one more selling day in Q4.

Importantly, we also. We are also well equipped with capacity. Capacity flexibility to meet any incremental demand as we move through the year. Yeah. In regards to selling days they were flat year over year for the quarter. Please note that for fiscal 'twenty four there will be one more selling day in Q4.

We are also well equipped with capacity. Capacity flexibility to meet any incremental demand as we move through the year. Yeah. In regards to selling days they were flat year over year for the quarter. Please note that for fiscal 'twenty four there will be one more selling day in Q4.

Capacity flexibility to meet any incremental demand as we move through the year. Yeah. In regards to selling days they were flat year over year for the quarter. Please note that for fiscal 'twenty four there will be one more selling day in Q4.

Yeah. In regards to selling days they were flat year over year for the quarter. Please note that for fiscal 'twenty four there will be one more selling day in Q4.

In regards to selling days they were flat year over year for the quarter. Please note that for fiscal 'twenty four there will be one more selling day in Q4.

Garth Hankinson: Moving on to beer margins, operating margin decreased by 220 basis points to 38%. This decrease was primarily driven by continued inflationary headwinds and our COGS as we faced an overall cost increase of approximately 4% for the quarter. As anticipated in our guidance for the year, we continue to face higher packaging, and raw materials, freight, and overhead costs. In Q1, we experienced low double-digit percent increases in packaging and raw materials as inflationary pressures continued throughout the period, albeit at a declining rate over the three months.

This decrease was primarily driven by continued inflationary headwinds and our Cogs as we faced an overall cost increase of approximately 4% for the quarter. As anticipated in our guidance for the year, we continued to face higher packaging and raw materials freight and overhead costs in Q1, we experienced low double digit percent increases in packaging and raw materials as inflationary pressures continued throughout the period, albeit. At a declining rate over the three months.

As anticipated in our guidance for the year, we continued to face higher packaging and raw materials freight and overhead costs in Q1, we experienced low double digit percent increases in packaging and raw materials as inflationary pressures continued throughout the period, albeit. At a declining rate over the three months.

At a declining rate over the three months.

Garth Hankinson: We also continued to face higher overhead costs related to our brewery expansion as well as increased logistics cost largely related to higher shipment volumes. We also continue to face higher overhead costs related to our brewery expansion, as well as increased logistics cost largely related to higher shipment volumes. As we have previously stated, it is important to note that for fiscal '24 and consistent with recent years, roughly 70% of our COGS are subject to annual pricing adjustments. These are based on trailing indicators, such as producer price indices, and therefore typically reflect inflation from the preceding year. The remaining 30% of COGS are subject to fluctuations throughout the year, and we can manage the volatility for about half of that 30% through our multiyear hedging program.

We also continue to face higher overhead costs related to our brewery expansion, as well as increased logistics cost largely related to higher shipment volumes. As we have previously stated, it is important to note that for fiscal '24 and consistent with recent years, roughly 70% of our COGS are subject to annual pricing adjustments. These are based on trailing indicators, such as producer price indices, and therefore typically reflect inflation from the preceding year. The remaining 30% of COGS are subject to fluctuations throughout the year, and we can manage the volatility for about half of that 30% through our multiyear hedging program.

These are based on trailing indicators, such as producer price indices, and therefore typically reflect inflation from the preceding year. The remaining 30% of Cogs are subject to fluctuations throughout the year and we can manage the volatility for about half of that 30% through our multi year hedging program.

The remaining 30% of Cogs are subject to fluctuations throughout the year and we can manage the volatility for about half of that 30% through our multi year hedging program.

Garth Hankinson: While our full year COGS expectations currently remain unchanged, we are monitoring closely any potential favorability in direct commodity and pass through raw material prices for the approximately 15% nonhedged portion still subject to inter-year adjustments and will provide any relevant updates in future quarters. Additional operating margin headwinds for the beer business were comprised of a 29 million or 17% increase in marketing expense, primarily driven by ongoing media spend to build awareness of our core products, as well as a recent investments to support the new Modelo Oro product launch. And as a result, please note that marketing as a percent of net sales came in at 9.5% for the quarter, a 15 million or 18% increase in SG&A expense, which was primarily the result of increased legal costs, and an $11 million or 16% increase in depreciation, almost entirely associated with our brewery capacity investments. To help offset the increase in costs to our beer business, we are executing on various levers to partially offset the full year high single-digit inflationary headwinds in our overall packaging, raw materials, and logistics costs through productivity initiatives.

We are monitoring closely any potential favorability indirect commodity and pass through raw material prices. Approximately 15% non hedged portion still subject to intra year adjustments and we'll provide any relevant updates in future quarters. Additional operating margin headwinds for the beer business were comprised of. A $29 million or 17% increase in marketing expense, primarily driven by ongoing media spend to build awareness of our core products as well as our recent investments to support the new Modelo oral product launch and as a result, please note that marketing as a percent of net sales came in at nine five. 5% for the quarter. Yeah. A $15 million or 18% increase in SG&A expense, which was primarily the result of increased legal costs. And an $11 million or 16% increase in depreciation almost entirely associated with our brewery capacity investments. To help offset the increase in costs to our beer business. We are executing on various levers to partially offset the full year high single digit inflationary headwinds. And our overall packaging raw materials and logistics costs through productivity initiatives.

Approximately 15% non hedged portion still subject to intra year adjustments and we'll provide any relevant updates in future quarters. Additional operating margin headwinds for the beer business were comprised of. A $29 million or 17% increase in marketing expense, primarily driven by ongoing media spend to build awareness of our core products as well as our recent investments to support the new Modelo oral product launch and as a result, please note that marketing as a percent of net sales came in at nine five. 5% for the quarter. Yeah. A $15 million or 18% increase in SG&A expense, which was primarily the result of increased legal costs. And an $11 million or 16% increase in depreciation almost entirely associated with our brewery capacity investments. To help offset the increase in costs to our beer business. We are executing on various levers to partially offset the full year high single digit inflationary headwinds. And our overall packaging raw materials and logistics costs through productivity initiatives.

Additional operating margin headwinds for the beer business were comprised of. A $29 million or 17% increase in marketing expense, primarily driven by ongoing media spend to build awareness of our core products as well as our recent investments to support the new Modelo oral product launch and as a result, please note that marketing as a percent of net sales came in at nine five. 5% for the quarter. Yeah. A $15 million or 18% increase in SG&A expense, which was primarily the result of increased legal costs. And an $11 million or 16% increase in depreciation almost entirely associated with our brewery capacity investments. To help offset the increase in costs to our beer business. We are executing on various levers to partially offset the full year high single digit inflationary headwinds. And our overall packaging raw materials and logistics costs through productivity initiatives.

A $29 million or 17% increase in marketing expense, primarily driven by ongoing media spend to build awareness of our core products as well as our recent investments to support the new Modelo oral product launch and as a result, please note that marketing as a percent of net sales came in at nine five. 5% for the quarter. Yeah. A $15 million or 18% increase in SG&A expense, which was primarily the result of increased legal costs. And an $11 million or 16% increase in depreciation almost entirely associated with our brewery capacity investments. To help offset the increase in costs to our beer business. We are executing on various levers to partially offset the full year high single digit inflationary headwinds. And our overall packaging raw materials and logistics costs through productivity initiatives.

5% for the quarter. Yeah. A $15 million or 18% increase in SG&A expense, which was primarily the result of increased legal costs. And an $11 million or 16% increase in depreciation almost entirely associated with our brewery capacity investments. To help offset the increase in costs to our beer business. We are executing on various levers to partially offset the full year high single digit inflationary headwinds. And our overall packaging raw materials and logistics costs through productivity initiatives.

Yeah. A $15 million or 18% increase in SG&A expense, which was primarily the result of increased legal costs. And an $11 million or 16% increase in depreciation almost entirely associated with our brewery capacity investments. To help offset the increase in costs to our beer business. We are executing on various levers to partially offset the full year high single digit inflationary headwinds. And our overall packaging raw materials and logistics costs through productivity initiatives.

A $15 million or 18% increase in SG&A expense, which was primarily the result of increased legal costs. And an $11 million or 16% increase in depreciation almost entirely associated with our brewery capacity investments. To help offset the increase in costs to our beer business. We are executing on various levers to partially offset the full year high single digit inflationary headwinds. And our overall packaging raw materials and logistics costs through productivity initiatives.

And an $11 million or 16% increase in depreciation almost entirely associated with our brewery capacity investments. To help offset the increase in costs to our beer business. We are executing on various levers to partially offset the full year high single digit inflationary headwinds. And our overall packaging raw materials and logistics costs through productivity initiatives.

To help offset the increase in costs to our beer business. We are executing on various levers to partially offset the full year high single digit inflationary headwinds. And our overall packaging raw materials and logistics costs through productivity initiatives.

And our overall packaging raw materials and logistics costs through productivity initiatives.

Garth Hankinson: These initiatives have yielded savings of over $30 million for the first quarter of fiscal '24 and are focused on unlocking efficiencies and cost savings across procurement, operations, and supply chain. For fiscal '24, our guidance for the beer business remains unchanged as we continue to target 7% to 9% of net sales growth and operating income growth of 5% to 7%, implying an operating margin of approximately 38%. Now, moving on to the wine and spirits business. As Bill noted, over the last few years, our wine and spirits business has been effectively shifting its portfolio to be more focused on higher-end brands that are better aligned with consumer-led premiumization trends, while broadening sales channels to also expand into higher-growth avenues.

For fiscal 'twenty for our guidance for the beer business remains unchanged as we continue to target, 7%, 9% of net sales growth and operating income growth of 5% to 7%, implying an operating margin of approximately 38%. Now moving on to the wine and spirits business as Bill noted over the last few years, our wine and spirits business has been effectively shifting its portfolio to be more focused on higher end brands that are better aligned with consumer led premium innovation trends, while broadening sales channels to also expand into higher growth. <unk>.

Now moving on to the wine and spirits business as Bill noted over the last few years, our wine and spirits business has been effectively shifting its portfolio to be more focused on higher end brands that are better aligned with consumer led premium innovation trends, while broadening sales channels to also expand into higher growth. <unk>.

<unk>.

Garth Hankinson: To that effect, please recall that we divested a collection of primarily mainstream wine brands from our portfolio during our third quarter in fiscal '23. Accordingly, during today's discussion, I will be referring to the top line of the wine and spirits business on an organic basis, which excludes the contribution from the divested brands. Consistent with the strategic transformation, the wine and spirits business has undertaken the higher-end brands of the wine portfolio and continue to resonate with the consumer and outperformed the corresponding segment of the category in the U.S. tracked channels in Q1.

Accordingly during today's discussion I'll, referring to the top line of the wine and spirits business on an organic basis, which excludes the contribution from the divested brands. Consistent with the strategic transformation. Wine and spirits business has undertaken the higher end brands of the wind portfolio continued to resonate with the consumer and outperformed the corresponding segment of the category in the U S track channels in Q1.

Consistent with the strategic transformation. Wine and spirits business has undertaken the higher end brands of the wind portfolio continued to resonate with the consumer and outperformed the corresponding segment of the category in the U S track channels in Q1.

Wine and spirits business has undertaken the higher end brands of the wind portfolio continued to resonate with the consumer and outperformed the corresponding segment of the category in the U S track channels in Q1.

Garth Hankinson: More recently, we've seen even greater strength in our three largest premium and fine wine brand families with Meiomi, Kim Crawford, and The Prisoner Wine Company, showing dollar sales growth and acceleration in tracked channels. Similarly, we were also pleased to see the overall spirits portfolio deliver strong dollar sales growth in tracked channels led by Mi CAMPO and High West ready-to-drink cocktails. However, wine and spirits organic net sales were down 6%, largely as a result of the continued impact of ongoing consumer-led premiumization affecting the entire category and the lapping of a particularly strong prior-year first quarter for our higher-end brands due to distributor inventory balancing actions. From a channel perspective, we continue to see success through our direct-to-consumer efforts, which delivered 13% net sales growth in our overall DTC channel.

Similarly, we were also pleased to see the overall spirits portfolio deliver strong dollar sales growth in. In tracked channels led by Compo and high west ready to drink cocktails. However, wine and spirits organic net sales were down 6% largely as a result of the continued impact of ongoing consumer led premium position affecting the entire category and the lapping of a particularly strong prior year first quarter for our higher end brands due to distributor. Balancing actions. From a channel perspective, we continue to see success through our direct to consumer efforts, which delivered 13% net sales growth and our overall DTC channel.

In tracked channels led by Compo and high west ready to drink cocktails. However, wine and spirits organic net sales were down 6% largely as a result of the continued impact of ongoing consumer led premium position affecting the entire category and the lapping of a particularly strong prior year first quarter for our higher end brands due to distributor. Balancing actions. From a channel perspective, we continue to see success through our direct to consumer efforts, which delivered 13% net sales growth and our overall DTC channel.

However, wine and spirits organic net sales were down 6% largely as a result of the continued impact of ongoing consumer led premium position affecting the entire category and the lapping of a particularly strong prior year first quarter for our higher end brands due to distributor. Balancing actions. From a channel perspective, we continue to see success through our direct to consumer efforts, which delivered 13% net sales growth and our overall DTC channel.

Balancing actions. From a channel perspective, we continue to see success through our direct to consumer efforts, which delivered 13% net sales growth and our overall DTC channel.

From a channel perspective, we continue to see success through our direct to consumer efforts, which delivered 13% net sales growth and our overall DTC channel.

Garth Hankinson: While still small compared to the rest of our wine and spirits business, this channel accounted for 4% of total net sales, an increase of 100% versus just a few years ago. Shipments on an organic basis decreased by 9%, and depletions decreased by approximately 6%. As noted earlier, this volume decline was primarily driven by our mainstream brands, Woodbridge and Svedka, as their respective segments of the categories face ongoing growth headwinds driven by consumer-led premiumization. Again, the wine and spirits business continues to diligently work on the reinvention of Woodbridge and Svedka to address these headwinds.

Shipments on an organic basis decreased by 9% and depletion decreased by approximately 6%. As noted earlier this volume decline was primarily driven by our mainstream brands Woodbridge SVEDKA as their respective segments of the categories face ongoing growth headwinds driven by consumer led premium position. Again, the wine and spirits business continues to diligently work on the reinvention of Woodbridge and SVEDKA to address these headwinds.

As noted earlier this volume decline was primarily driven by our mainstream brands Woodbridge SVEDKA as their respective segments of the categories face ongoing growth headwinds driven by consumer led premium position. Again, the wine and spirits business continues to diligently work on the reinvention of Woodbridge and SVEDKA to address these headwinds.

Again, the wine and spirits business continues to diligently work on the reinvention of Woodbridge and SVEDKA to address these headwinds.

Garth Hankinson: In particular Svedka declines have stabilized, and we continue to look at incremental opportunities to revitalize the brand and accelerate improvements. And more broadly, in our spirits portfolio, our craft brands posted nearly 40% depletion growth, driven by Mi CAMPO posting depletion growth of over 80%. Wine and spirits operating income, excluding the gross profit less marketing of the brands that are no longer part of the business following their divestiture, were relatively flat. And operating margin increased 90 basis points to 19%, also reflecting the same exclusion.

And more broadly in our spirits portfolio, our craft brands posted nearly 40% depletion growth driven by new compo posting depletion growth of over 80%. Wine and spirits operating income excluding the gross profit less marketing of the brands that are no longer part of the business. Following the divestiture were relatively flat and operating margin increased 90 basis points to 19%. Also reflecting the same exclusion.

Wine and spirits operating income excluding the gross profit less marketing of the brands that are no longer part of the business. Following the divestiture were relatively flat and operating margin increased 90 basis points to 19%. Also reflecting the same exclusion.

Also reflecting the same exclusion.

Garth Hankinson: The margin improvement was primarily driven by the favorable impact of the pricing actions taken last year that primarily focused on our higher-end brands; lower materials and packaging costs, including grape blend optimization; lapping of higher freight and warehousing costs; and lower marketing expense, as we have streamlined our approach to marketing, focusing on the highest-return areas of our portfolio.

Lower materials and packaging costs, including great blend optimization. Lapping of higher freight and warehousing costs. And lower marketing expense as we have streamlined our approach to marketing focusing on the highest return areas of our portfolio.

Lapping of higher freight and warehousing costs. And lower marketing expense as we have streamlined our approach to marketing focusing on the highest return areas of our portfolio.

And lower marketing expense as we have streamlined our approach to marketing focusing on the highest return areas of our portfolio.

Garth Hankinson: Looking ahead, we expect the performance of the wine and spirits business to accelerate throughout the remainder of the fiscal year through the combination of increased growth contribution from the portfolio's higher-end brands, which are already seeing depletions improve, in line with our sales efforts and seasonal trends; ongoing growth in DTC channels, as well as a return to growth in international markets; lower marketing spend as we shift toward higher growth areas, focusing on the spirit portfolio; and continued work toward the revitalization of Svedka and Woodbridge in the mainstream category. Accordingly, we remain confident in the outlook for wine and spirits for the year. And our guidance for that business for fiscal '24 remains unchanged.

<unk> from the portfolios higher end brands, which are already seeing depletions improve in line with our sales efforts and seasonal trends. Ongoing growth in DTC channels, as well as a return to growth in international markets. Lower marketing spend as we shifted towards higher growth areas focusing on the spirit portfolio. And continued work toward a revitalization of SVEDKA and Woodbridge in the mainstream category. Accordingly, we remain confident in the outlook for wine and spirits for the year and our guidance for that business for fiscal 'twenty four remains unchanged.

Ongoing growth in DTC channels, as well as a return to growth in international markets. Lower marketing spend as we shifted towards higher growth areas focusing on the spirit portfolio. And continued work toward a revitalization of SVEDKA and Woodbridge in the mainstream category. Accordingly, we remain confident in the outlook for wine and spirits for the year and our guidance for that business for fiscal 'twenty four remains unchanged.

Lower marketing spend as we shifted towards higher growth areas focusing on the spirit portfolio. And continued work toward a revitalization of SVEDKA and Woodbridge in the mainstream category. Accordingly, we remain confident in the outlook for wine and spirits for the year and our guidance for that business for fiscal 'twenty four remains unchanged.

And continued work toward a revitalization of SVEDKA and Woodbridge in the mainstream category. Accordingly, we remain confident in the outlook for wine and spirits for the year and our guidance for that business for fiscal 'twenty four remains unchanged.

Accordingly, we remain confident in the outlook for wine and spirits for the year and our guidance for that business for fiscal 'twenty four remains unchanged.

Garth Hankinson: Now, let's proceed with the rest of the P&L starting with corporate expense, which, for the quarter, was approximately $50 million from SG&A an overall corporate expense reduction of 19% when compared to the prior year and $33 million from unconsolidated investments related to Canopy and our Ventures portfolio investments. The overall corporate expense reduction is primarily driven by reduced spend in the second wave of our digital business acceleration program. I want to take a moment to talk briefly about the next wave of our digital business acceleration program.

And overall corporate expense reduction of 19% when compared to the prior year. And $33 million from unconsolidated investments related to canopy and our ventures portfolio investments. The overall corporate expense reduction is primarily driven by reduced spend in the second wave of our digital business acceleration program. I want to take a moment to talk briefly about the next wave of our digital business acceleration program. The overall corporate expense reduction is primarily driven by reduced spend in the second wave of our digital business acceleration program. I want to take a moment to talk briefly about the next wave of our digital business acceleration program.

And $33 million from unconsolidated investments related to canopy and our ventures portfolio investments. The overall corporate expense reduction is primarily driven by reduced spend in the second wave of our digital business acceleration program. I want to take a moment to talk briefly about the next wave of our digital business acceleration program.

The overall corporate expense reduction is primarily driven by reduced spend in the second wave of our digital business acceleration program. I want to take a moment to talk briefly about the next wave of our digital business acceleration program.

I want to take a moment to talk briefly about the next wave of our digital business acceleration program.

Garth Hankinson: For fiscal '24, our DBA program will have three main goals: first, scaling our prior year's focus areas of marketing, procurement, and supply chain across the business; second, introducing a new focus area, logistics, which will center around improving end-to-end visibility and planning, as well as enhancing our network capabilities across the business; and third, reducing third-party consulting fees as we begin to shift the support of our DBA program to in-house, increasing efficiencies and reducing overall cost.

Introducing a new focus area logistics, which will center around improving end to end visibility and planning as well as enhancing our network capabilities across the business. And third reducing third party consulting fees as we begin to shift the support of our DBA program to in house, increasing efficiencies and reducing overall cost.

And third reducing third party consulting fees as we begin to shift the support of our DBA program to in house, increasing efficiencies and reducing overall cost.

Garth Hankinson: Interest expense for the quarter was approximately $118 million. This is a 34% increase from the prior year, driven by higher average borrowings and rising interest rates on approximately 10% of our debt with adjustable rates. We ended the quarter with a net leverage ratio of approximately 3.5 times, excluding Canopy equity and earnings, and expect to continue to make progress toward our approximately three times ratio target throughout the year. Our comparable effective tax rate, excluding canopy equity and earnings for the quarter, was 20.7% versus 20.6% last year.

For the quarter was approximately $118 million. This is a 34% increase from the prior year driven by higher average borrowings and rising interest rates on approximately 10% of our debt with adjustable rates. We ended the quarter with a net leverage ratio of approximately three five times, excluding canopy equity and earnings and expect to continue to make progress towards our approximately three times ratio target throughout the year. Our comparable effective tax rate, excluding canopy equity and earnings for the quarter was 27% versus 26% last year.

We ended the quarter with a net leverage ratio of approximately three five times, excluding canopy equity and earnings and expect to continue to make progress towards our approximately three times ratio target throughout the year. Our comparable effective tax rate, excluding canopy equity and earnings for the quarter was 27% versus 26% last year.

Our comparable effective tax rate, excluding canopy equity and earnings for the quarter was 27% versus 26% last year.

Garth Hankinson: For fiscal '24, we continue to expect the comparable effective tax rate, excluding Canopy equity and earnings, to be approximately 19%. Moving to free cash flow, which we define as net cash provided by operating activities less capex. For the first quarter of fiscal '24, we generated free cash flow of $388 million, a 31% decrease versus prior year, driven by a 41% increase in capex investments, driven primarily by the capacity expansions at our Nava and Obregon facilities and the construction of our new brewery located in Veracruz. Our capacity expansions are underway as planned.

Moving to free cash flow, which we define as net cash provided by operating activities less capex.

For the first quarter of fiscal 'twenty, four we generated free cash flow of $388 million, a 31% decrease versus prior year, driven by a 41% increase in capex investments driven primarily by the capacity expansions at our Nava and <unk> facilities and the construction of our new <unk>. Brewery located in Veracruz. Our capacity expansions are underway as planned.

Brewery located in Veracruz. Our capacity expansions are underway as planned.

Our capacity expansions are underway as planned.

Garth Hankinson: Of the planned additions for this year, we fully ramped up 5 million hectoliters at our Obregon facility in Q1 and are planning on another 5 million hectoliters to support our ABA production to be online at our Nava facility toward the end of fiscal '24. In total, by the end of fiscal '24, we expect to have about 52 million hectoliters of capacity online, which, as you recall, includes nearly 3 million hectoliters of additional capacity from operational efficiency initiatives executed last fiscal year.

In total by the end of fiscal 'twenty four we expect to have about 52 million hectoliter of capacity online. As you recall includes nearly 3 million hectoliter of additional capacity from operational efficiency initiatives executed last fiscal year.

As you recall includes nearly 3 million hectoliter of additional capacity from operational efficiency initiatives executed last fiscal year.

Garth Hankinson: Looking ahead, as we continue to consider incremental operational opportunities for our production facilities, we will seek to ensure that we align our additional modular capacity expansions to the timing that best balances both any further enhancements to our existing production footprint and our expectations for continued strong demand for our brands. Turning to cash flow, we continue to expect fiscal '24 free cash flow to be in the range of $1.2 billion to $1.3 billion, reflective of operating cash flow between $2.4 billion to $2.6 billion and capex of $1.2 billion to $1.3 billion. Reflective of operating cash flow between two four to $2 6 billion and Capex of one two to $1 3 billion.

And for our brands. Turning to cash flow, we continue to expect fiscal 'twenty four free cash flow to be in the range of one two to one 3 billion.

Turning to cash flow, we continue to expect fiscal 'twenty four free cash flow to be in the range of one two to one 3 billion.

Garth Hankinson: Comparable EPS for the quarter, excluding Canopy equity and earnings, was $3.04 with an announced dividend of $0.89, bringing our dividend payout ratio to approximately 30% for the quarter. Our fiscal '24 EPS comparable guidance of $11.70 to $12 remains unchanged. In closing, we believe that this solid start to fiscal '24 sets us up for a great year ahead. We delivered net sales and volume growth in our beer business while implementing cost savings and efficiencies to help counteract the continued inflationary headwinds we face.

With an announced dividend of 89. Bringing our dividend payout ratio to approximately 30% for the quarter. Our fiscal 2004, EPS comparable guidance of $11 70 to $12 remains unchanged. In closing, we believe that this solid start to fiscal 'twenty four sets us up for a great year ahead. We delivered net sales and volume growth in our beer business, while implementing cost savings and efficiencies to help counteract the continued inflationary headwinds we face are.

Bringing our dividend payout ratio to approximately 30% for the quarter. Our fiscal 2004, EPS comparable guidance of $11 70 to $12 remains unchanged. In closing, we believe that this solid start to fiscal 'twenty four sets us up for a great year ahead. We delivered net sales and volume growth in our beer business, while implementing cost savings and efficiencies to help counteract the continued inflationary headwinds we face are.

Our fiscal 2004, EPS comparable guidance of $11 70 to $12 remains unchanged. In closing, we believe that this solid start to fiscal 'twenty four sets us up for a great year ahead. We delivered net sales and volume growth in our beer business, while implementing cost savings and efficiencies to help counteract the continued inflationary headwinds we face are.

In closing, we believe that this solid start to fiscal 'twenty four sets us up for a great year ahead. We delivered net sales and volume growth in our beer business, while implementing cost savings and efficiencies to help counteract the continued inflationary headwinds we face are.

We delivered net sales and volume growth in our beer business, while implementing cost savings and efficiencies to help counteract the continued inflationary headwinds we face are.

Garth Hankinson: Our wine and spirits business is honing in on becoming a multichannel global competitor, primarily focused on the higher end segment. The growth in our core businesses and execution against our strategies makes us enthusiastic about what the rest of the year will bring and the shareholder value we will be able to create. With that, Bill and I are happy to take your questions.

The growth in our core businesses and execution against our strategies makes us enthusiastic about what the rest of the year will bring and the shareholder value, we will be able to create. With that Bill and I are happy to take your questions.

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

Operator: Thank you. We'll now be conducting a question and answer session. As a reminder, we ask you please ask one question that return to the queue. If you'd like to be placed in the question queue, please press star one at this time. One moment please while we poll for questions.

Operator: Our first question today is coming from Dara Mohsenian from Morgan Stanley. Your line is now live.

Dara Mohsenian: Hey, guys.

William A. Newlands: Hey, Dara.

Dara Mohsenian: So, you sounded pretty bullish about beard depletions toward the end of fiscal Q1 in May and June so far. Was just hoping for a little more detail there. And more specifically, if you can sort of juxtapose that versus the slowdown we had seen in the November to April timeframe. It does seem like a fairly sizable inflection the other way, so more detail there would be helpful and just if these factors driving the better May and June look more extendable and how you think about that. And if I can slip in a second part that I'll pretend is related to the first part, just if industry pricing worsens going forward, given there's obviously a lot of potential changes on the ABI side. How do you think about domestic beer pricing as sort of the risk factor to your volume trends as you look going forward if, in fact, there's any change from an industry backdrop standpoint? Thanks.

Sort of juxtapose that versus the slowdown we had seen in the November to April timeframe. It does seem like a fairly sizable inflection the other way so.

More detail there would be helpful and just if these factors driving the better may and June look more extendable and how you think about that and if I can slip in a second part that I'll pretend as related to the first part.

Industry pricing worsens going forward, given there's obviously a lot of potential changes on the API side. How do you think about domestic beer pricing is sort of a risk factor to your volume trends as you look going forward. If in fact, there is any change for the industry backdrop standpoint.

Thanks.

William A. Newlands: Sure, Dara. Let me cover that one. As we have told you before, March was a particularly challenging month. But as we've also noted, there was great acceleration. I think the easiest way to look at it is to look at Circana data. The 12-week is better than the 26-week. The four-week is better than the 12-week. And as I noted this morning, the acceleration that we saw coming out of the first quarter is continuing into the second quarter, which I think it's very positive. To give you some other perspective that I think would be important and I think people often ask, if you think about Modelo Especial, we had 24 states in the first quarter growing double digits.

As we have told you before March was a particularly challenging month. But as we've also noted that was great acceleration I think the easiest way to look at it is to look at sort of kind of data. The 12 week is better than the 26 week to four week is better than the 12 week. And as I noted this morning, the acceleration that we saw coming out of the first quarter. Is continuing into the second quarter, which I think is very positive to give you. Some other perspective that I think would be important and I think people often ask if you'd think about modelo, especially out. <unk> had 24 states in the first quarter growing double digits.

But as we've also noted that was great acceleration I think the easiest way to look at it is to look at sort of kind of data. The 12 week is better than the 26 week to four week is better than the 12 week. And as I noted this morning, the acceleration that we saw coming out of the first quarter. Is continuing into the second quarter, which I think is very positive to give you. Some other perspective that I think would be important and I think people often ask if you'd think about modelo, especially out. <unk> had 24 states in the first quarter growing double digits.

The 12 week is better than the 26 week to four week is better than the 12 week. And as I noted this morning, the acceleration that we saw coming out of the first quarter. Is continuing into the second quarter, which I think is very positive to give you. Some other perspective that I think would be important and I think people often ask if you'd think about modelo, especially out. <unk> had 24 states in the first quarter growing double digits.

And as I noted this morning, the acceleration that we saw coming out of the first quarter. Is continuing into the second quarter, which I think is very positive to give you. Some other perspective that I think would be important and I think people often ask if you'd think about modelo, especially out. <unk> had 24 states in the first quarter growing double digits.

Is continuing into the second quarter, which I think is very positive to give you. Some other perspective that I think would be important and I think people often ask if you'd think about modelo, especially out. <unk> had 24 states in the first quarter growing double digits.

<unk> had 24 states in the first quarter growing double digits.

William A. Newlands: And in our Chelada business, we had 47 states grow double or triple digits during the first quarter. And as we've already noted, those things were accelerating coming out of the quarter. So, I think we're quite comfortable that the largely challenging issues that we faced in sort of that winter time period are now behind us, and we're looking forward to a very strong summer period.

That. Winter time period are now behind Us and we're looking forward to a very strong summer period.

Winter time period are now behind Us and we're looking forward to a very strong summer period.

William A. Newlands: Relative to your question about pricing, we haven't seen any particular challenges around pricing. In fact, as we run our normal drivers and drags, the effect of pricing has actually decreased in our business as we've gone through the early part of this year. As we've noted other times, we have not seen much trade-down at all away from our business and believe that trend is likely to continue, given the strong consumer engagement with all of our brands. Okay.

We haven't seen any particular challenges around pricing. In fact, as we run our normal drivers and drags the effective pricing has actually decreased. In our business as we've gone through the early part of this year. As we've noted other times, we have not seen much trade down at all away from our business and believe that trend is likely to continue given the strong <unk>. Sumer engagement with all of our brands.

In fact, as we run our normal drivers and drags the effective pricing has actually decreased. In our business as we've gone through the early part of this year. As we've noted other times, we have not seen much trade down at all away from our business and believe that trend is likely to continue given the strong <unk>. Sumer engagement with all of our brands.

In our business as we've gone through the early part of this year. As we've noted other times, we have not seen much trade down at all away from our business and believe that trend is likely to continue given the strong <unk>. Sumer engagement with all of our brands.

As we've noted other times, we have not seen much trade down at all away from our business and believe that trend is likely to continue given the strong <unk>. Sumer engagement with all of our brands.

Sumer engagement with all of our brands.

Operator: Thank you. Next question today is coming from Lauren Lieberman from Barclays. Your line is now live.

Lauren Rae Lieberman: Great, thanks. I'm just curious if you could talk a little bit about on-premise trends. The depletion call out of 3%, I think this is deceleration versus Q1. Could you just talk specifically to what you've been seeing in terms of on-premise trends, you know, later in the quarter? Maybe you can through that acceleration in, excuse me, in Circana data, if that also applies to the onset. Thanks.

I'm just curious if you could talk a little bit about China.

Brian .

<unk> added 3%.

Okay. Deceleration versus Q1.

Deceleration versus Q1.

Yes, I think to what you've been seeing in terms of.

And later in the quarter and if you can talk to me that the acceleration is.

And Neil in excuse me in some kind of data that also applies.

Yes.

William A. Newlands: Lauren, on-premise is still not quite back to where we saw pre-pandemic. You know, as we've said before, it was roughly 15% of our business pre-pandemic, and it's still in that 12% to 13% range as we have come out of the pandemic. And it's probably been a little more volatile, hit and miss, compared to what you see in tracked channels. We believe it's going to continue to do well, and it's going to continue to improve over the course of the summer as we put the final touches, hopefully, on the pandemic behind us. But it's admittedly not back to quite where it was ahead of time. The thing that we've often been very pleased about is we've seen many accounts in the on-premise get much more focused on well-known, recognized brands. And, obviously, whenever that happens, it's to our advantage because of the strength of those brands.

As we've said before it was roughly 15% of our business pre.

Pre pandemic and it's still in that 12% to 13% range as we have come out.

The pandemic and it's probably been a little more volatile hit and Miss.

Compared to what you see in tracked channels.

We believe it is going to continue to do well and it's going to continue to improve over the course of the summer as we put the final touches hopefully on the pandemic behind us, but it's admittedly not back to quite where it was.

Ahead of ahead of time the thing that we've often been very pleased about is we've seen many accounts in the on premise get much more focused on well known recognized brands and obviously whenever that happens it's to our advantage. Because of the strength of those brands.

Because of the strength of those brands.

Operator: Thank you. Next question is coming from Peter Grom from UBS. Your line is now live. 

Peter Grom: Thanks, operator, and good morning, everyone. So, I kind of wanted to ask about beer margins, maybe two parts. Maybe, first, I think marketing was up, you know, almost 17% this quarter. And I think the expectation, you know, in the initial guidance was for a low single-digit increase for marketing for the year. So, I guess how should we think about the phasing of marketing spend moving forward? And I guess, has the outlook changed at all, given the high teens increase in 1Q? And then, just, you know, related, you mentioned that you're monitoring some favorability across some of your key inputs and will provide an update later. But I guess, conceptually, should there be any favorability in those inputs? Would you anticipate those benefits dropping to the bottom line, or would you look to take up marketing further? Thanks.

Maybe two parts here, maybe first I think marketing almost 17% this quarter and I think the expectation.

In the initial guidance was for a low single digit increase for marketing for the year. So I guess, how should we think about the phasing of marketing spend moving forward and I guess has the outlook changed at all given the high teens, increasing once you and then just related you mentioned that youre monitoring some favorability across some of your key inputs and we'll provide an update later on. I guess conceptually should there be any CAGR. Would you anticipate those. Benefits dropping to the bottom line or would you look to take out marketing further thanks.

I guess conceptually should there be any CAGR. Would you anticipate those. Benefits dropping to the bottom line or would you look to take out marketing further thanks.

Would you anticipate those. Benefits dropping to the bottom line or would you look to take out marketing further thanks.

Benefits dropping to the bottom line or would you look to take out marketing further thanks.

Garth Hankinson: Well, thanks for the question. I mean, as we noted in our prepared remarks, the increase in Q1 marketing spend was largely supportive of the momentum behind our existing products, as well as support of the launch behind Modelo Oro. So, marketing as a percent of net sales for the quarter came in at 9.5%. The outlook for the full year is unchanged. We will continue to spend in our normal algorithm, you know, that 9% to 10% of net sales on a full year basis. And so, again, nothing changed in that regard.

The outlook for the full year is unchanged, we will continue to spend in our normal algorithm that 9%, 10% of net sales on a full year basis, and so again nothing changed in that regard.

Garth Hankinson: As it relates to some of the improvement that we're seeing, obviously, we're seeing -- we're off of some of the highs from a commodity perspective, you know, with the exception of one or two things that have continued to be a little bit -- you know, they haven't quite come off their highs just yet. So, we do think that there could be some favorability as we move through the year on the commodity side.

With the exception of one or two things that have continued to be a little bit. A little bit. Good. They haven't quite come off their highs just yet. So we do think that there could be some favorability as we move through the year on the commodity side.

A little bit. Good. They haven't quite come off their highs just yet. So we do think that there could be some favorability as we move through the year on the commodity side.

Good. They haven't quite come off their highs just yet. So we do think that there could be some favorability as we move through the year on the commodity side.

Good. They haven't quite come off their highs just yet. So we do think that there could be some favorability as we move through the year on the commodity side.

They haven't quite come off their highs just yet. So we do think that there could be some favorability as we move through the year on the commodity side.

So we do think that there could be some favorability as we move through the year on the commodity side.

Garth Hankinson: However, some of that favorability could be offset with the strength of the peso. If we look at the outlook right now, the favorability we're seeing on some commodities is being somewhat or completely offset by the strength of the peso. So, you know, right now, we're not seeing necessarily -- when you take into account the peso and the improving commodity market, we're not necessarily seeing a big change for the balance of the year. 

If we look at the outlook right now the favorability were seeing on some commodities as being somewhat. Completely offset by the strength of the peso so. Now, we're not seeing necessarily when you take into account that the peso and the. The improving commodity market, but we're not necessarily seeing a. Big change for the balance of the year.

Completely offset by the strength of the peso so. Now, we're not seeing necessarily when you take into account that the peso and the. The improving commodity market, but we're not necessarily seeing a. Big change for the balance of the year.

Now, we're not seeing necessarily when you take into account that the peso and the. The improving commodity market, but we're not necessarily seeing a. Big change for the balance of the year.

The improving commodity market, but we're not necessarily seeing a. Big change for the balance of the year.

Big change for the balance of the year.

Operator: Thank you. Next question today is coming from Bryan Spillane from Bank of America. Your line is now live.

Bryan Spillane: Hey, thanks, operator. Good morning, everyone. Just one quick one for me, Garth. I think back on the 4Q call, when you talked about cadence, I think it was 55% of beer volume first half and 55% of wine and spirits in the back half. So, just wanted to see if that was still directionally kind of where we should be thinking as we're, you know, beginning to kind of restack our models for the balance of the year.

Just one quick one for me Garth I think back. On the <unk> call when you talked about cadence. I think it was 55% of beer volume first half and 55% of wine and spirits in the back half so. Just wanted to see if that was still directionally kind of where we should be thinking as we're beginning to kind of re re re stack our models for the balance of the year.

On the <unk> call when you talked about cadence. I think it was 55% of beer volume first half and 55% of wine and spirits in the back half so. Just wanted to see if that was still directionally kind of where we should be thinking as we're beginning to kind of re re re stack our models for the balance of the year.

I think it was 55% of beer volume first half and 55% of wine and spirits in the back half so. Just wanted to see if that was still directionally kind of where we should be thinking as we're beginning to kind of re re re stack our models for the balance of the year.

Just wanted to see if that was still directionally kind of where we should be thinking as we're beginning to kind of re re re stack our models for the balance of the year.

Garth Hankinson: Yeah, Brian, absolutely, no changes in that. And, you know, obviously, that's one of the reason why we think why we'll continue to improve through the year. And again, no change. The beer business is pretty seasonal and tried-and-true, so that's absolutely what the outlook is for the beer business.

And again. Again, no change to that. Your business is pretty seasonal and tried true so thats absolutely what the outlook is for the beer business.

Again, no change to that. Your business is pretty seasonal and tried true so thats absolutely what the outlook is for the beer business.

Your business is pretty seasonal and tried true so thats absolutely what the outlook is for the beer business.

Operator: Thank you. Next question is coming from Bonnie Herzog from Goldman Sachs. Your line is now live.

Bonnie Herzong: All right. Thank you. Good morning, everyone. I guess I had a question about the Bud Light issue and, you know, how it may be impacting your business, as well as your distributors. And, you know, any changes you might be making there? And then, also, in light of this, wondering if there might be an opportunity for you to possibly secure more tap handles from Modelo, just thinking about the on-prem business. And then, just finally, any changes that you might be making to your marketing strategy or possibly spend levels in light of all of this? Thanks.

I had a question about the Bud light issue and how it may be impacting your business as well as your distributors and any changes you might be making there and then also in light of this wondering if there might be an opportunity. For you to possibly secure more cap panels from Modelo, just thinking about the on Prem business. And then just finally any changes that you might be making to your marketing strategy or possibly spend levels in light of all of that thanks.

For you to possibly secure more cap panels from Modelo, just thinking about the on Prem business. And then just finally any changes that you might be making to your marketing strategy or possibly spend levels in light of all of that thanks.

And then just finally any changes that you might be making to your marketing strategy or possibly spend levels in light of all of that thanks.

William A. Newlands: Well, obviously, the single biggest change that we've seen, Bonnie, has been that Modelo has taken over as the No. 1 beer by dollars in the U.S. Jim Sabia has often said that that was going to happen in the next few years, but, obviously, it happened a little sooner than we had anticipated. I think that you're likely to see if some of that challenge continues is when we look at shelf sets in the back half of the year.

Jim Sabia has often said that that was going to happen in the next few years, but obviously it happened a little sooner than we had anticipated. I think one of the things that you're likely to see if some of that challenge continues as when we look at shelf sets in the back half of the year.

I think one of the things that you're likely to see if some of that challenge continues as when we look at shelf sets in the back half of the year.

William A. Newlands: You know, many retailers look at velocities as they are doing their reshelf setting, which, again, often happens in the fall. And that always works to our advantage. I think when you -- you know, the retailing environment has gotten very, very sophisticated about seeing where the growth profiles are and the velocities against those. You know, we're particularly excited in our beer business, the fact that the buy rate, both on our core, as well as high-end beer, including the Hispanic consumer, went up year on year during the first quarter. I think that's going to continue to be positive for us. And I think it's going to help us accelerate expansion of shelf. And, again, some of that is coming because of the growth and velocities that you're seeing on our brands, but also the decrease that you've seen, as you note, from some of our competitors.

As they are doing their reach shelf, setting, which which again often happens in the fall and that always works to our advantage I think when you. The retailing environment has gotten very very sophisticated about seeing where the growth profiles are and the velocities against those we're particularly. We're excited.

We're excited.

In our beer business and the fact that the buy rate both on core our core as well as our as high end beer, including the Hispanic consumer went up year on year. During the first quarter I think thats going to continue to be positive for us and I think it's going to help us accelerate expansion. <unk> of shelf and again some of that is coming because of the the growth in velocities that youre seeing on our brands, but also the decrease that you've seen as you note from from some of our competitors.

<unk> of shelf and again some of that is coming because of the the growth in velocities that youre seeing on our brands, but also the decrease that you've seen as you note from from some of our competitors.

Operator: Thank you. Next question is coming from Nadine Sarwat from Bernstein. Your line is now live.

Nadine Sarwat: Hi. Thank you for taking my question. You mentioned some commentary at the start on Oro. I'd be keen to get a little bit more color there in terms of either repeat rates, cannibalizations, and, you know, feedback from consumers now that it's been out in the market for a while. Thank you. <unk>.

Some commentary at the start. I'd be keen to get a little bit more color there in terms of either repeat rates cannibalization feedback. Feedback from consumers now that it's been out in the market for a while thank you.

I'd be keen to get a little bit more color there in terms of either repeat rates cannibalization feedback. Feedback from consumers now that it's been out in the market for a while thank you.

Feedback from consumers now that it's been out in the market for a while thank you.

William A. Newlands: You bet, Nadine. It is -- the incrementality on the actual markets has been better, a slight bit better, than what we had anticipated coming out of our test markets. And, you know, we were quite pleased with it in the test markets. So, we're getting very good response on that.

On on the actual markets has been better a slight bit better than what we had anticipated coming out of our test markets.

We are quite pleased with it in the test markets.

We're getting very good response on that.

William A. Newlands: It is already a top 10 share gainer, as I noted in my prepared remarks. And again, we've done this with, I would say, a careful approach. We only have two SKUs in that particular product at this point in time, recognizing, as Garth pointed out in his remarks, should that continue to show the positive signs that it has to date, we do have the capacity now to more aggressively go after that as the year continues, which I think, again, is very, very positive and speaks to the success that we've had in our operations in Mexico of creating some ability to go beyond what our initial plans are when those opportunities present themselves. But, you know, it's early days. I don't like to get too far over my skis too soon on any new product introduction. But so far, this is going at least according to plan, if not better. And we're very pleased with the incrementality that we're seeing. As I said, it's slightly better than we saw in our test markets. So, all thumbs up for us at this point on that product.

And again, we've done this with I would say a careful approach we only have two skus in that in that particular product at this point in time, recognizing as Glen pointed out in his remarks. Should that continue to show positive signs that it has to date, we do have the capacity now to more aggressively go after that as the year continues which I think again is very very positive and speaks to the success that we've had in our operations in Mexico of creating. Some ability to go beyond what our initial plans are when those opportunities present themselves but. It's early days I don't like to get too far over my skis too soon on any new product introduction, but. But so far this is going at least according to plan if not better and we're very pleased with the instrumentality that we're seeing as I said, it's slightly better than we saw in our test markets. So all thumbs up for us at this point on that product.

Should that continue to show positive signs that it has to date, we do have the capacity now to more aggressively go after that as the year continues which I think again is very very positive and speaks to the success that we've had in our operations in Mexico of creating. Some ability to go beyond what our initial plans are when those opportunities present themselves but. It's early days I don't like to get too far over my skis too soon on any new product introduction, but. But so far this is going at least according to plan if not better and we're very pleased with the instrumentality that we're seeing as I said, it's slightly better than we saw in our test markets. So all thumbs up for us at this point on that product.

Some ability to go beyond what our initial plans are when those opportunities present themselves but. It's early days I don't like to get too far over my skis too soon on any new product introduction, but. But so far this is going at least according to plan if not better and we're very pleased with the instrumentality that we're seeing as I said, it's slightly better than we saw in our test markets. So all thumbs up for us at this point on that product.

It's early days I don't like to get too far over my skis too soon on any new product introduction, but. But so far this is going at least according to plan if not better and we're very pleased with the instrumentality that we're seeing as I said, it's slightly better than we saw in our test markets. So all thumbs up for us at this point on that product.

But so far this is going at least according to plan if not better and we're very pleased with the instrumentality that we're seeing as I said, it's slightly better than we saw in our test markets. So all thumbs up for us at this point on that product.

Nadine Sarwat: Thank you.

Operator: Thank you. The next question is coming in from Andrea Teixeira from JPMorgan. Your line is now live.

Andrea F. Teixeira: Thank you. Good morning, everyone. So, I wanted to go back to the marketing spend. I think you've mentioned for the year the 7% to 9% of the top line. You started well with 9%, so I was just hoping to reconcile. Because you also said you expect it to be up to little single. I'm not questioning, I think it is probably a great thing to start well, especially now with these commentary about obviously what's happening with Bud Light. And then, related to -- just a clarification on a bit of the gross margin side, and I think, Garth, you mentioned that, obviously, you've got 30 million of cost benefits for savings. You also have some benefits from packaging. Is that -- I believe we, all in this call, we're pleased to see margins the way they came through for beer. So, can you comment on a little bit about the leg room? Do you feel even more confident with your guide being conservative as the way I see it? Thank you.

You mentioned for the year.

The 7% to 9% on the top line. We started well with 9%. So I was just hoping to reconcile because you also said you expect it to be up low single question I think it's probably. Great. Thank you just well, especially now as these columns. Commentary about obviously, what's happening with I believe Bud light. And then related to just a clarification on. On the gross margin side, and I think you mentioned that. Obviously, you've got 30 million of cost. Cost benefit for savings you also have some benefits from packaging is that I believe we all in this call. We're pleased to see margins the way they came through. So can you comment on that a little bit towards the leg room do you feel even more confident with you guys being conservative. Thank you.

We started well with 9%. So I was just hoping to reconcile because you also said you expect it to be up low single question I think it's probably. Great. Thank you just well, especially now as these columns. Commentary about obviously, what's happening with I believe Bud light. And then related to just a clarification on. On the gross margin side, and I think you mentioned that. Obviously, you've got 30 million of cost. Cost benefit for savings you also have some benefits from packaging is that I believe we all in this call. We're pleased to see margins the way they came through. So can you comment on that a little bit towards the leg room do you feel even more confident with you guys being conservative. Thank you.

Great. Thank you just well, especially now as these columns. Commentary about obviously, what's happening with I believe Bud light. And then related to just a clarification on. On the gross margin side, and I think you mentioned that. Obviously, you've got 30 million of cost. Cost benefit for savings you also have some benefits from packaging is that I believe we all in this call. We're pleased to see margins the way they came through. So can you comment on that a little bit towards the leg room do you feel even more confident with you guys being conservative. Thank you.

Commentary about obviously, what's happening with I believe Bud light. And then related to just a clarification on. On the gross margin side, and I think you mentioned that. Obviously, you've got 30 million of cost. Cost benefit for savings you also have some benefits from packaging is that I believe we all in this call. We're pleased to see margins the way they came through. So can you comment on that a little bit towards the leg room do you feel even more confident with you guys being conservative. Thank you.

And then related to just a clarification on. On the gross margin side, and I think you mentioned that. Obviously, you've got 30 million of cost. Cost benefit for savings you also have some benefits from packaging is that I believe we all in this call. We're pleased to see margins the way they came through. So can you comment on that a little bit towards the leg room do you feel even more confident with you guys being conservative. Thank you.

On the gross margin side, and I think you mentioned that. Obviously, you've got 30 million of cost. Cost benefit for savings you also have some benefits from packaging is that I believe we all in this call. We're pleased to see margins the way they came through. So can you comment on that a little bit towards the leg room do you feel even more confident with you guys being conservative. Thank you.

Obviously, you've got 30 million of cost. Cost benefit for savings you also have some benefits from packaging is that I believe we all in this call. We're pleased to see margins the way they came through. So can you comment on that a little bit towards the leg room do you feel even more confident with you guys being conservative. Thank you.

Cost benefit for savings you also have some benefits from packaging is that I believe we all in this call. We're pleased to see margins the way they came through. So can you comment on that a little bit towards the leg room do you feel even more confident with you guys being conservative. Thank you.

So can you comment on that a little bit towards the leg room do you feel even more confident with you guys being conservative. Thank you.

Thank you.

Multiple: [Bill Newlands] So, let me take the first half, and I'll let Garth take the second half of that. You know, our marketing approach has been consistent for years. That's one of the things that we think has been tremendous for our brands of why they continue to accelerate the market. We believe in spending against our brands we have refined it some. We're getting much more capable in the digital arena than what we were just a few years ago, and I think that's very positive. But, you know, we have the No. 1 share of voice in the market, and we expect to continue to be -- to have that continue going forward. And we believe in it. It's shown tremendous success for our brands as we've gotten to this point, and we believe it's going to be an important part of our continued success moving forward. Garth, I'll let you answer the other, if you would. [Garth Hankinson] Yeah, on the margin front, look, I mean, the 38% for the quarter was roughly in line, maybe slightly better than what our expectations were as we enter the year.  We certainly feel confident of our ability to deliver the margin profile that we laid out at the beginning of the year. You know, as I said in my prepared remarks and as we reminded everyone last quarter, you know, roughly 70% of our total COGS are subject to annual adjustments. They are backward-looking, and only 30% have any fluctuation or are exposed to fluctuation throughout the year. And so, again, you know, we feel really good about the position that we're in right now and in our ability to deliver the margin profile that's consistent with our earnings guidance. Yeah.

Our marketing approach has been consistent for years, that's one of the things that we think has been tremendous. For our brands and why they continue to accelerate in the market. Believe in spending against our brands. We have refined it some we're getting much more capable in the digital arena than what we were just a few years ago and I think that's very positive, but we have the number one share of voice in the market and we expect to continue to be. To have that continue going forward and we believe in it it's shown tremendous success. For our brands as we've gotten to this point and we believe it's going to be an important part of our continued success moving forward got it I'll, let you answer the other a few words on the margin front look I mean, the 38% for the quarter was roughly in line, maybe slightly better than what our expectations were as far as we entered the year. We're certainly.

For our brands and why they continue to accelerate in the market. Believe in spending against our brands. We have refined it some we're getting much more capable in the digital arena than what we were just a few years ago and I think that's very positive, but we have the number one share of voice in the market and we expect to continue to be. To have that continue going forward and we believe in it it's shown tremendous success. For our brands as we've gotten to this point and we believe it's going to be an important part of our continued success moving forward got it I'll, let you answer the other a few words on the margin front look I mean, the 38% for the quarter was roughly in line, maybe slightly better than what our expectations were as far as we entered the year. We're certainly.

Believe in spending against our brands. We have refined it some we're getting much more capable in the digital arena than what we were just a few years ago and I think that's very positive, but we have the number one share of voice in the market and we expect to continue to be. To have that continue going forward and we believe in it it's shown tremendous success. For our brands as we've gotten to this point and we believe it's going to be an important part of our continued success moving forward got it I'll, let you answer the other a few words on the margin front look I mean, the 38% for the quarter was roughly in line, maybe slightly better than what our expectations were as far as we entered the year. We're certainly.

We have refined it some we're getting much more capable in the digital arena than what we were just a few years ago and I think that's very positive, but we have the number one share of voice in the market and we expect to continue to be. To have that continue going forward and we believe in it it's shown tremendous success. For our brands as we've gotten to this point and we believe it's going to be an important part of our continued success moving forward got it I'll, let you answer the other a few words on the margin front look I mean, the 38% for the quarter was roughly in line, maybe slightly better than what our expectations were as far as we entered the year. We're certainly.

To have that continue going forward and we believe in it it's shown tremendous success. For our brands as we've gotten to this point and we believe it's going to be an important part of our continued success moving forward got it I'll, let you answer the other a few words on the margin front look I mean, the 38% for the quarter was roughly in line, maybe slightly better than what our expectations were as far as we entered the year. We're certainly.

For our brands as we've gotten to this point and we believe it's going to be an important part of our continued success moving forward got it I'll, let you answer the other a few words on the margin front look I mean, the 38% for the quarter was roughly in line, maybe slightly better than what our expectations were as far as we entered the year. We're certainly.

We certainly feel confident of our ability to deliver the margin profile that we laid out at the beginning of the year. You know, as I said in my prepared remarks and as we reminded everyone last quarter, you know, roughly 70% of our total COGS are subject to annual adjustments. They are backward-looking, and only 30% have any fluctuation or are exposed to fluctuation throughout the year. And so, again, you know, we feel really good about the position that we're in right now and in our ability to deliver the margin profile that's consistent with our earnings guidance.

Our subject to annual adjustments that are backward looking and only 30% have any fluctuation are exposed to fluctuations throughout the year and. And so again, we feel really good about the position we're in right now and our ability to deliver the margin profile, that's consistent with the with our earnings guidance.

And so again, we feel really good about the position we're in right now and our ability to deliver the margin profile, that's consistent with the with our earnings guidance.

Operator: Thank you. Next question is coming from Chris Carey from Wells Fargo Securities. Your line is now live.

Christopher Michael Carey: Hi, good morning. Just one clarification and then a question on wine and spirits. Just the clarification, Garth, you said that you didn't expect any distortions in shipments versus depletion going forward after Q1. And I think you were clear in response to Bryan's question about the mix of cases, front half versus back half. But should the rate of growth of shipments be below the rate of growth of depletion in Q2 or any quarter go forward? And basically, what I'm trying to clarify here is the absolute cases versus the rate of change. So, that would just be the clarification. Then, the question on wine and spirits would be, you know, can you just perhaps juxtapose the premiumization efforts with the margin delivery in the quarter and perhaps just, you know, reaffirm confidence in a way on the margin trajectory of the wine and spirits business going forward here. Thank you.

Okay.

Just one clarification and then a.

A question on wine and spirits.

Just a clarification.

Said that you didn't expect any distortion.

Shipments versus Depletions going forward after Q1.

And I think you were clear in response to Brian's question about the mix of cases front half versus back half. But should the rate of growth of shipment. Below the rate of growth of Depletions in Q2 or any quarter go forward and basically what I'm trying to clarify here. Absolute cases versus the rate of change, but I would just need a clarification then. The question on wine and spirits would be. Can you just perhaps. Suppose the premium is eastern efforts with the. Margin delivery in the quarter end. Perhaps just. Reaffirm our confidence in a way on the margin trajectory of the wine and spirits business go forward here. Thank you.

But should the rate of growth of shipment. Below the rate of growth of Depletions in Q2 or any quarter go forward and basically what I'm trying to clarify here. Absolute cases versus the rate of change, but I would just need a clarification then. The question on wine and spirits would be. Can you just perhaps. Suppose the premium is eastern efforts with the. Margin delivery in the quarter end. Perhaps just. Reaffirm our confidence in a way on the margin trajectory of the wine and spirits business go forward here. Thank you.

Below the rate of growth of Depletions in Q2 or any quarter go forward and basically what I'm trying to clarify here. Absolute cases versus the rate of change, but I would just need a clarification then. The question on wine and spirits would be. Can you just perhaps. Suppose the premium is eastern efforts with the. Margin delivery in the quarter end. Perhaps just. Reaffirm our confidence in a way on the margin trajectory of the wine and spirits business go forward here. Thank you.

Absolute cases versus the rate of change, but I would just need a clarification then. The question on wine and spirits would be. Can you just perhaps. Suppose the premium is eastern efforts with the. Margin delivery in the quarter end. Perhaps just. Reaffirm our confidence in a way on the margin trajectory of the wine and spirits business go forward here. Thank you.

The question on wine and spirits would be. Can you just perhaps. Suppose the premium is eastern efforts with the. Margin delivery in the quarter end. Perhaps just. Reaffirm our confidence in a way on the margin trajectory of the wine and spirits business go forward here. Thank you.

Can you just perhaps. Suppose the premium is eastern efforts with the. Margin delivery in the quarter end. Perhaps just. Reaffirm our confidence in a way on the margin trajectory of the wine and spirits business go forward here. Thank you.

Suppose the premium is eastern efforts with the. Margin delivery in the quarter end. Perhaps just. Reaffirm our confidence in a way on the margin trajectory of the wine and spirits business go forward here. Thank you.

Margin delivery in the quarter end. Perhaps just. Reaffirm our confidence in a way on the margin trajectory of the wine and spirits business go forward here. Thank you.

Perhaps just. Reaffirm our confidence in a way on the margin trajectory of the wine and spirits business go forward here. Thank you.

Reaffirm our confidence in a way on the margin trajectory of the wine and spirits business go forward here. Thank you.

Garth Hankinson: Yes, so on the shipments and Depletions. So look as we said, we expected shipments and depletions to be on a nominal basis to be largely in line with one another on a full year basis I think if you look and you go back. The years that are that are unaffected by the pandemic are weather related operational. Difficulties youll see that there is some there is some seasonal differences between. Depletions and shipments Q1, as we noted we typically do have. Some some outpacing of shipments relative to depletions on a nominal basis as you're building for the summer season. So and Youre getting. Distributors and retailers and a position that there. To meet the demand of that key summer selling season.

The years that are that are unaffected by the pandemic are weather related operational. Difficulties youll see that there is some there is some seasonal differences between. Depletions and shipments Q1, as we noted we typically do have. Some some outpacing of shipments relative to depletions on a nominal basis as you're building for the summer season. So and Youre getting. Distributors and retailers and a position that there. To meet the demand of that key summer selling season.

Difficulties youll see that there is some there is some seasonal differences between. Depletions and shipments Q1, as we noted we typically do have. Some some outpacing of shipments relative to depletions on a nominal basis as you're building for the summer season. So and Youre getting. Distributors and retailers and a position that there. To meet the demand of that key summer selling season.

Depletions and shipments Q1, as we noted we typically do have. Some some outpacing of shipments relative to depletions on a nominal basis as you're building for the summer season. So and Youre getting. Distributors and retailers and a position that there. To meet the demand of that key summer selling season.

Some some outpacing of shipments relative to depletions on a nominal basis as you're building for the summer season. So and Youre getting. Distributors and retailers and a position that there. To meet the demand of that key summer selling season.

So and Youre getting. Distributors and retailers and a position that there. To meet the demand of that key summer selling season.

Distributors and retailers and a position that there. To meet the demand of that key summer selling season.

To meet the demand of that key summer selling season.

Garth Hankinson: So, that's fairly typical. So, I would just ask you to go back and look at some prior periods again pre-pandemic. As it relates to our wine and spirits business, again, as we said on the call, we do expect to see continued improvement through the year on the margin front as we continue to see premium portfolio. Again, we're seeing good growth out of brands like Meiomi and Kim Crawford and The Prisoner Wine Company.

Just ask you to go back and look at some some prior periods again pre pandemic. As it relates to our wine and spirits business. Again, as we said on the call. We do expect to see continued improvement through the year on the margin front as we continue to see. Increased traction with our with our premium portfolio. Again, we're seeing good growth out of brands like <unk>, and Kim Crawford and the prisoner wine company.

As it relates to our wine and spirits business. Again, as we said on the call. We do expect to see continued improvement through the year on the margin front as we continue to see. Increased traction with our with our premium portfolio. Again, we're seeing good growth out of brands like <unk>, and Kim Crawford and the prisoner wine company.

Again, as we said on the call. We do expect to see continued improvement through the year on the margin front as we continue to see. Increased traction with our with our premium portfolio. Again, we're seeing good growth out of brands like <unk>, and Kim Crawford and the prisoner wine company.

Increased traction with our with our premium portfolio. Again, we're seeing good growth out of brands like <unk>, and Kim Crawford and the prisoner wine company.

Again, we're seeing good growth out of brands like <unk>, and Kim Crawford and the prisoner wine company.

Garth Hankinson: We continue to get the benefit of pricing on those. And there are a number of cost initiatives underway in our wine business, as well as seeing improvements there, as we said, on both logistics and on grape input costs. So, again, that's a business also that, as Bryan noted, we've guided. The volume there is about 55 back and loaded. So, for all of those reasons, you know, we're confident that we can deliver the year and deliver the margin profile that we previously guided to.

That's a business also that. As Brian . Notice we've. We've guided will. Volume there is about 55 backend loaded so so for all those reasons, we're confident that we can deliver the year and delivered a margin profile that we previously guided to.

As Brian . Notice we've. We've guided will. Volume there is about 55 backend loaded so so for all those reasons, we're confident that we can deliver the year and delivered a margin profile that we previously guided to.

Notice we've. We've guided will. Volume there is about 55 backend loaded so so for all those reasons, we're confident that we can deliver the year and delivered a margin profile that we previously guided to.

We've guided will. Volume there is about 55 backend loaded so so for all those reasons, we're confident that we can deliver the year and delivered a margin profile that we previously guided to.

Volume there is about 55 backend loaded so so for all those reasons, we're confident that we can deliver the year and delivered a margin profile that we previously guided to.

Operator: Thank you. Next question is coming from Filippo Falorni from Citi. Your line is now live.

Filippo Falorni: Hey, good morning, everyone. Quick question on the health of the U.S. consumer, particularly if you look about your core Hispanic consumer base. Any change that you're seeing in terms of purchasing behaviors, in terms of package size, you know, trade-down or any signs of that? And clearly, your business has improved as the weather improved in California, but any signs there also in terms of changing consumer behaviors, particularly, again, in the Hispanic consumer base in the States? Thank you.

Quick question on <unk>. Health of the U S consumer, particularly. If you look about your core Hispanic consumer base. Any changes that you're seeing in terms of purchasing behaviors in Panama package size. Trade down or any signs of that and clearly your business has improved as the weather improved in California, but any signs there also in terms of changing consumer behaviors, particularly again in the Hispanic consumer base. Thank you.

Health of the U S consumer, particularly. If you look about your core Hispanic consumer base. Any changes that you're seeing in terms of purchasing behaviors in Panama package size. Trade down or any signs of that and clearly your business has improved as the weather improved in California, but any signs there also in terms of changing consumer behaviors, particularly again in the Hispanic consumer base. Thank you.

If you look about your core Hispanic consumer base. Any changes that you're seeing in terms of purchasing behaviors in Panama package size. Trade down or any signs of that and clearly your business has improved as the weather improved in California, but any signs there also in terms of changing consumer behaviors, particularly again in the Hispanic consumer base. Thank you.

Any changes that you're seeing in terms of purchasing behaviors in Panama package size. Trade down or any signs of that and clearly your business has improved as the weather improved in California, but any signs there also in terms of changing consumer behaviors, particularly again in the Hispanic consumer base. Thank you.

Trade down or any signs of that and clearly your business has improved as the weather improved in California, but any signs there also in terms of changing consumer behaviors, particularly again in the Hispanic consumer base. Thank you.

William A. Newlands: Yeah, as you can imagine, that's something that we track very carefully as well. And we're pleased to report that the buy rate, which again is trips times the spend for high-end beer, and this includes the Hispanic consumer, was up year on year in the first quarter. It's one we track very carefully. It's an important element to us. And it's one that we are very pleased to see in a positive vein. As you point out, we have continued to see acceleration of our share in California, which is an important market during the course of the first quarter as well. And in that particular market, as you would expect, the Hispanic consumer base is very important to us. It's also very important, for instance, in the state of Texas, which saw a double-digit growth profile in the first quarter as well. So, we're pretty comfortable that the consumer side of our business remains very strong. And as I noted on the prior call from -- the prior question, excuse me, we are continuing to invest heavily against our marketing approach to make sure that we continue to maintain that same consumer demand that we've enjoyed. Okay.

And we're pleased to report that the buy rate, which again is trips times the spend.

For high end beer and this includes the Hispanic consumer was up year on year in the first quarter. It's one we track very carefully it's an important element to us.

It's one we track very carefully it's an important element to us.

And it's one that we are very pleased to see in a positive vein. As you point out, we have continued to see acceleration of our share in California, which is an important market during the course of the first quarter as well. And in that particular market, as you would expect, the Hispanic consumer base is very important to us. It's also very important, for instance, in the state of Texas, which saw a double-digit growth profile in the first quarter as well. So, we're pretty comfortable that the consumer side of our business remains very strong. And as I noted on the prior call from -- the prior question, excuse me, we are continuing to invest heavily against our marketing approach to make sure that we continue to maintain that same consumer demand that we've enjoyed.

As you pointed out we have continued to see acceleration of our share in California, which is an important market. During the course of the first quarter as well. And in that particular market as you would expect. The Hispanic consumer base is very important to us. It's also very important for instance in the state of Texas, which saw double digit growth profile in the first quarter as well so we're pretty comfortable.

During the course of the first quarter as well. And in that particular market as you would expect. The Hispanic consumer base is very important to us. It's also very important for instance in the state of Texas, which saw double digit growth profile in the first quarter as well so we're pretty comfortable.

And in that particular market as you would expect. The Hispanic consumer base is very important to us. It's also very important for instance in the state of Texas, which saw double digit growth profile in the first quarter as well so we're pretty comfortable.

The Hispanic consumer base is very important to us. It's also very important for instance in the state of Texas, which saw double digit growth profile in the first quarter as well so we're pretty comfortable.

That the consumer side of our business.

<unk> is very strong and as I noted on. The prior call from. The prior question excuse me that we are continuing to invest heavily against our marketing approach to make sure that we continue to maintain that same consumer demand that we've enjoyed.

The prior call from. The prior question excuse me that we are continuing to invest heavily against our marketing approach to make sure that we continue to maintain that same consumer demand that we've enjoyed.

The prior question excuse me that we are continuing to invest heavily against our marketing approach to make sure that we continue to maintain that same consumer demand that we've enjoyed.

Operator: Thank you. Next question is coming from Andrew Strelzik from BMO Capital Markets. Your line is now live.

Andrew Strelzik: Great. Thank you. Thanks for taking the question. My question is around opportunities around price pack architecture as a beer volume growth driver. And I guess what I'm hoping is you can help us understand exactly where you are in that process. Is that something that, over the medium term, we should expect to accelerate as a contributor and maybe over the next 12 months versus over the medium term, where the focus is within that strategy? Thanks.

My question is around opportunities around price pack architecture, as a beer volume growth driver.

Yes.

Maybe if you can help us understand exactly where you are in that process is that something that over the medium term we should expect.

To accelerate as a contributor and maybe the.

The next 12 months versus over the medium term, where the focus is within that strategy.

William A. Newlands: Yeah, you're entirely right, Andrew. That's something that our beer leadership team is working on aggressively day in and day out. And frankly, we think we can learn a lot from some other players in the beverage arena, particularly in the soda area where, you know, pretty much, if you tell me what you've got to spend, there's a pack size or a pack appropriate for a particular price point. So, a lot of things we are looking at, things like Modelito, we're looking at different quantities, ounce quantities against some of our packaging. So, all of these things are critically important. Part of the reason you're seeing the massive acceleration in the high-40 percentile in the Chelada business is what used to be only a 24-ounce can is now available in both multipack and 12-ounce opportunities. So, again, we think -- and that's been part of the big acceleration in the Chelada area. So, this is an area that we're spending a lot of time on ourselves to make sure that whatever the consumer has available to spend against our brand, that we have something available to them within our portfolio to make sure that they can take our products home with them when they leave a store.

And frankly, we think we can learn a lot from some other players in the beverage arena, particularly in the soda area where pretty.

Pretty much a few tell me what you've got to spend Theres, a pack size or a pack of appropriate for a particular price point. So a lot of things we are looking at things like <unk>.

We're looking at different.

Quantities ounce quantities against some of our packaging. So all of these things are critically important part of the reason youre seeing the massive acceleration in the high 40% tile and <unk> Gelato business is what used to be only a 24 ounce can is now available in both multi pack and 12.

Bounce opportunities. So again, we think and that's been part of the big acceleration. The gelato area. So this is an area that we're spending a lot of time on. Ourselves to make sure that whatever the consumer has available to spend against our brand that we have something available to them within our portfolio. <unk> two to. To make sure that they can take our products home with them when they leave the store.

The gelato area. So this is an area that we're spending a lot of time on. Ourselves to make sure that whatever the consumer has available to spend against our brand that we have something available to them within our portfolio. <unk> two to. To make sure that they can take our products home with them when they leave the store.

Ourselves to make sure that whatever the consumer has available to spend against our brand that we have something available to them within our portfolio. <unk> two to. To make sure that they can take our products home with them when they leave the store.

<unk> two to. To make sure that they can take our products home with them when they leave the store.

To make sure that they can take our products home with them when they leave the store.

Operator: Thank you. We've reached the end of our question-and-answer session. I'd like to turn the floor back over to Bill for any further closing comments. Yeah.

William A. Newlands: Thank you, Kevin, and thank you all for joining today's call. We're off to an excellent start in fiscal '24. Our beer business delivered strong growth for the quarter with performance accelerating since the beginning of the year and into Q2. The higher-end brands of our wine and spirits portfolio continue to outperform in tracked channels and to drive margin improvement. We remain confident in our outlook for the full year and are building great momentum as we head into the key summer selling season for our beer business and the seasonally stronger second half for the wine and spirits business. In closing, I want to wish you all a happy 4th of July for those of you celebrating that, and hope you choose to enjoy your celebrations with some of our great products. Thanks again, everyone, and have a great summer.

The higher end brands of our wine and spirits portfolio continued to outperform in tracked channels and to drive margin improvement we remain confident in our outlook for the full year and are building great momentum as we head into the key summer selling season for our beer business and the seasonally stronger second half for the wine and spirits business.

In closing I want to wish you all a happy fourth of July for those of you celebrating that and hope you choose to enjoy your celebrations with some of our great products. Thanks, again, everyone and have a great summer.

Operator: Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.