Q2 2024 Constellation Brands Inc Earnings Call

Speaker 1: Greetings. Welcome to the Constellation Brands Fiscal Year 2024 Second Quarter Earnings Call. At this time, all participants are in a listen-only mode. The question and answer session will follow the prepared presentation. If anyone should require operator assistance during the call, please press star zero and your telephone key.

Greetings and welcome to the constellation brands fiscal year 2024 second quarter earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the prepared presentation. If anyone should require operator assistance during the call. Please press star zero on your telephone keypad.

As a reminder, this conference is being recorded at this time I would like to hand, the call over to Joe Suarez, Vice President of Investor Relations. Thank you you may begin.

Speaker 1: As a reminder, this conference is being recorded. At this time, I would like to hand the call over to Joe Suarez, Vice President of Investor Relations. Thank you. You may begin.

Speaker 2: Thank you, Daryl. Good morning, all, and welcome to Constellation Brands Q2 Fiscal 24 Conference.

Thank you Dara good morning, all and welcome to constellation Brands' Q2 fiscal 'twenty four 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 measures and any non-GAAP financial measures discussed on this call.

Speaker 2: I'm here this morning with Bill Newlands, our CEO , and Garth Hankinson, our CFO . As a reminder, reconciliation between the most directly comparable GAAP measures and any non-GAAP financial measures discussed on this call are included in our news relief or otherwise available on the company's website at www.cbrants.com.

Included in our news release or otherwise available on the Companys website at Www Dot <unk> Dot com.

Speaker 2: Please refer to the news release and constellations SEC filings for risk factors, which may impact forward-looking statements made on this call. Following the call, we'll also be making available in the investor section of our company's website, a series of slides, which highlight the prepared remarks shared by Bill and Garth in today's call.

Please refer to the news release and constellations SEC filings for risk factors, which may impact forward looking statements made on this call.

Following the call will also be making available India investor section of our company's website, a series of slides, which highlight the prepared remark chaired by Bill and Garth and today's call before turning the call over to Bill in line with prior quarters I would like to ask that we limit everyone to one question per person, which will help us.

Speaker 2: Thank you for turning the call over to Bill. In line with prior quarters, I would like to ask that we limit everyone to one question per person, which will help us to end our call on time. Thanks in advance. And now here's the end of the webinar. For those viewers who want to check out the calendar through Youtube, this is one of those Improvements for the 2020-2020 fiscal year, including the National Bank fosters the??Manure

To end our call on time, thanks in advance and now here's Bill.

Thank you Joe and good morning, everyone welcome to our Q2 fiscal 'twenty four call.

Speaker 1: Thank you, Joe. And good morning, everyone. Welcome to our Q2 fiscal 24 call.

Speaker 1: In terms of key headlines for the second quarter, I'm pleased to report that our team once again delivered solid overall performance.

In terms of key headlines for the second quarter I am pleased to report that our team once again delivered solid overall performance.

Speaker 1: First of all, our beer business led the charge as the number one share gainer with accelerating shares across the key

First of all our beer business led the charge as the number one share gainer with accelerating shares across the key summer holiday.

Speaker 1: We continue to invest in growth for this business as our team looks to seize opportunities to gain incremental awareness, shelf space, and household penetration for our brands in the back half and beyond.

We continue to invest in growth for this business as our team works to seize opportunities to gain incremental awareness shelf space and household penetration for our brands in the back half and beyond.

Speaker 1: Secondly, our wine and spirits business continues to progress along its journey to realize the full benefits of its transformation.

Secondly, our wine and spirits business continues to progress along this journey to realize the full benefits of its transformation.

Speaker 1: Prioritized investments in our largest wine and spirits higher end brands are yielding outperformance in their respective categories while partially offsetting and helping to reduce headwinds from our mainstream brands as they continue to shift the mixed profile of our portfolio.

Prioritized investments in our largest wine and spirits higher end brands are yielding outperformance in their respective categories, while partially offsetting and helping to reduce headwinds from our mainstream brands as they continue to shift the mix profile of our portfolio.

Speaker 1: And third, our continued discipline around capital allocation priorities contributed to a strong overall performance in the quarter and sets the stage for Fiscal 24 being another solid year of profitable growth and shareholder return.

And third our continued discipline around capital allocation priorities contributed to a strong overall performance in the quarter and sets the stage for fiscal 'twenty four being another solid year of profitable growth and shareholder returns.

Speaker 1: That said, let me provide a little more color around our key performance drivers in the quarter.

That said, let me provide a little more color around our key performance drivers in the quarter as.

Speaker 1: As noted, our Beard team once again delivered remarkable results. Not only did we remain the top share gainer over the entire critical summer season, we also extended our leading position from Cinco de Mayo to become the number one share gainer in track channels during the 4th of July holiday. And although it falls slightly after our second quarter ends, I'm also pleased to report that we further accelerated our share gains during Labor Day.

As noted our beer team once again delivered remarkable results not only did we remain the top share gainer over the entire critical summer season, we also extended our leading position from 5 de Mayo to become the number one share gainer in tracked channels during the fourth of July holiday.

And although it falls slightly after our second quarter and I'm also pleased to report that we further accelerated our share gains during labor day.

Speaker 1: Modelo Especial remained the key driver of our strong performance, achieving double-digit volume growth in track channels and an 8.6% increase in depletions, ultimately strengthening its position as the top brand across the entire U.S. beer market and dollar sales fiscal year to date.

Modelo Especial remained the key driver of our strong performance achieving double digit volume growth in tracked channels and an eight 6% increase in depletions ultimately strengthening its position as the top brand across the entire U S beer market and dollar sales fiscal year to date.

The broader Modelo brand family also delivered phenomenal results, which a lot of achieving 50% volume growth in tracked channels and an increase in depletions of over 40%.

Speaker 1: The Bronner, Medelabra, and family also delivered phenomenal results, with geladas achieving 50% volume growth in tract channels and an increase in depletions of over 40%.

Speaker 1: while Oro continues to build on a solid launch, increasing its share gains in the overall beer category and performing in line with our plans for the fiscal year.

While oral continues to build on a solid launch increasing its share gains and the overall beer category and performing in line with our plans for the fiscal year.

Speaker 1: Beyond Medello, our Corona Extra and Pacifico core beer brands also continue to perform strongly.

Beyond Modelo, our Corona extra and Pacific core beer brands also continued to perform strongly.

Speaker 1: Corona Extra delivered solid low single digit growth in depletions and tracked channel volumes and was the number 6 share gainer in the category. While Pacifico achieved 15% depletion growth, tracked channel volume growth of approximately 27% and was the number 11 top share gainer in tracked channel.

Corona extra delivered solid low single digit growth in Depletions and tracked channel volumes and was the number six share gainer in the category, while Pacific achieved 15% depletion growth tracked channel volume growth of approximately 27%.

The number of web top share gainer in tracked channels.

Speaker 1: Our beer brands continue to resonate strongly with the consumer, driving demand for our brands in the second quarter, which supported double-digit net sales and operating income growth in our beer business.

Our beer brands continue to resonate strongly with the consumer driving demand for our brands in the second quarter, which supported double digit net sales and operating income growth in our beer business.

Speaker 1: This gives us confidence to shift our fiscal 24 net sales and operating income guidance for the beer business to the higher end of our initial ranges. That is 8-9% and 6-7% growth respectively.

This gives us confidence to shift our fiscal 2000 and for net sales and operating income guidance for the Bureau business to the higher end of our initial ranges that is 8% to 9% and 6% to 7% growth respectively.

Speaker 1: That said, it is important to remember that for our beer business, we indicated that only 45% of total volume for the fiscal year will be shipped in the second half, which aligns with the regular seasonality of beer demand in the U.S. and the timing of our brewery maintenance activity.

That said it is important to remember that for our beer business, we indicated that only 45% of total volume for the fiscal year will be shipped in the second half, which aligns with the regular seasonality of beer demand in the U S and the timing of our brewery maintenance activities.

Speaker 1: Beyond Fiscal 24, we continue to see significant opportunities to maintain the growth momentum of our beer business.

Beyond fiscal 'twenty four we continue to see significant opportunities to maintain the growth momentum of our beer business, particularly due to the resilience of key secular trends in the consumer landscape like ongoing consumer led premium position across beverage alcohol and the continued outsized growth.

Speaker 1: particularly due to the resilience of key secular trends in the consumer landscape, like ongoing consumer-led premiumization across beverage alcohol and the continued outsized growth of the Hispanic population in the US. As well as the relentless focus of our beer business on closing the distribution and awareness gaps that still exist across our brands. And on developing and scaling new and exciting products aligned with consumer-led trends.

Of the Hispanic population in the U S as well as the relentless focus of our beer business I am closing the distribution and awareness gaps that still exist across our brands and on developing and scaling new and exciting products aligned with consumer led trends.

Speaker 1: We look forward to sharing more details on this compelling outlook at our upcoming investor day on November 2nd.

We look forward to sharing more details on this compelling outlook at our upcoming Investor day on November 2nd.

Moving on to wine and spirits, our wine and spirits business continues to make headway on its vision to become a bold and innovative higher end market leader.

Speaker 1: Moving on to Wine and Spirits. Our Wine and Spirits business continues to make headway on its vision to become a bold and innovative higher-end market leader.

Speaker 1: In the second quarter, our largest premium wine brands, Naomi and Kim Crawford, outperformed their corresponding category segments in US track channels. They both increased their respective share in the overall wine category.

In the second quarter, our largest premium wine brands may only in Kim Crawford.

Perform their corresponding category segments and U S track channels, they both increased their respective share and the overall wine category.

Speaker 1: Our largest fine wine and craft spirits brands, the Prisoner Wine Company and our Mi Compo Tequila brand, also outperformed their corresponding Luxury Wine and Higher-End Spirits Category 2.

Our largest fine wine and craft spirits brands, the prisoner wine company and our meat combo Tequila brand also outperformed their corresponding luxury wine and higher end spirits category segments.

Speaker 1: Notably, all of the individual brands just referenced also delivered solid depletion growth rates in the second quarter.

Notably all of the individual brands just referenced also delivered solid depletion growth rates in the second quarter.

Speaker 1: Our wine and spirits business also continues to advance the renovation of its mainstream brands to address the headwinds the corresponding category segments have faced over several recent quarters.

Our wine and spirits business also continues to advance the renovation of its mainstream brands to address the headwinds the corresponding category segments have faced over several recent quarters. While there is certainly more work to be done here in the U S track channels the year over year dollar sales declined for Woodbridge and.

Speaker 1: While there is certainly more work to be done here, in U.S. track channels, the year-over-year dollar sales declined for Woodbridge improved relative to the first quarter.

Crude relative to the first quarter.

Speaker 1: and Svetka's overall share remain relatively stable when compared to the first quarter.

In fact, as overall share remained relatively stable when compared to the first quarter.

Speaker 1: All of that said, our wine and spirits business continued to face lower demand primarily for our mainstream brands, reflecting continued consumer-led premiumization trends noted in prior occasions, which in turn affected overall performance in the second quarter. Nevertheless, we are reiterating guidance for the full year and continue to expect fiscal 24 organic net sales to remain relatively stable and operating income growth of 2-4%.

All of that said, our wine and spirits business continued to face lower demand primarily for our mainstream brands, reflecting continued consumer led premium position trends noted in prior occasions, which in turn affected overall performance in the second quarter. Nevertheless, we are reiterating guidance for the full.

Year and continue to expect fiscal 'twenty four organic net sales to remain relatively stable and operating income growth of 2% to 4%.

Speaker 1: As we shared when we provided our outlook for fiscal 24, we see the year as a tale of two halves for the wine and spirits business, with 55% of planned volume is being delivered in the second half, and operating performance projected to accelerate over the rest of the year due to other key factors.

As we shared when we provided our outlook for fiscal 'twenty four we see the year as a tale of two halves for the wine and spirits business with 55% of planned volumes being delivered in the second half an operating performance projected to accelerate over the rest of the year due to other key factors, we expect to benefit.

Speaker 1: We expect to benefit from the more proactive quarterly shipment and depletion rebalancing actions we have undertaken this year versus our single downward shipment adjustment in Q4 of last year.

And the more proactive quarterly shipment and depletion rebalancing actions, we have undertaken this year versus our single downward shipment adjustment in Q4 of last year.

Speaker 1: We also anticipate an uplift in our direct-to-consumer channels and improved mix from incremental Aspira shipments in line with seasonality as well as benefits from recent pricing.

We also anticipate an uplift in our direct to consumer channels and improved mix from incremental spirit shipments in line with seasonality as well as benefits from recent price increases ultra.

Speaker 1: Ultimately, we also expect to see operating margins meaningfully accelerate due to the improved sales trends just described and the resulting positive operating leverage.

Ultimately, we also expect to see operating margins meaningfully accelerate due to the improved sales trends just described and the resulting positive operating leverage.

Speaker 1: Before I conclude, it would be remiss not to highlight our consistent execution against our capital allocation priority.

Before I conclude it would be remiss not to highlight our consistent execution against our capital allocation priorities.

Speaker 1: we continue to make progress towards a reduced net leverage ratio of approximately three times with a 400 basis point reduction since the increase resulting from the financing of our Class B common stock reclassification last November .

We continue to make progress towards a reduced net leverage ratio of approximately three times with a 400 basis point reduction since the increase resulting from the financing of our class B common stock reclassification last November .

Speaker 1: Importantly, our proactive management of the incremental debt from the reclassification now puts us on track to deliver lower interest expense than initially anticipated for fiscal 24. And in turn, we now anticipate higher reported and comparable earnings per share, excluding Canopy in the ranges of 960 to 980 and $12 to 1220 respectively for the full year.

Fortunately, our proactive management of the incremental debt from the reclassification now puts us on track to deliver lower interest expense than initially anticipated for fiscal 'twenty four and in turn we now anticipate higher reported and comparable earnings per share excluding canopy and a range of.

As of $9 60 to 980 and $12 to $12 20, respectively for the full year.

Speaker 1: In terms of cash returns to our shareholders, our dividend payout ratio for the second quarter remained aligned with our 30% target. While we did not conduct any additional share of our purchases in Q2, we have executed $35 million year-to-date in line with our goal to at least offset pollution.

In terms of cash returns to our shareholders our dividend payout ratio for the second quarter remained aligned with our 30% target and while we did not conduct any additional share repurchases in Q2, we have executed $35 million year to date in line with our goal to at least offset dilution.

Speaker 1: Lastly, our brewery expansions are progressing as planned, including Veracruz, and we continue to develop and bring these online with the flexibility enabled by our modular approach.

Lastly, our brewery expansions are progressing as planned, including Veracruz, and we continued to develop and bring these online with the flexibility enabled by our modular approach.

Speaker 1: Before I conclude, I also want to again take an opportunity during our second quarter call to highlight the upcoming release of our annual ESG Impact Report in a few weeks.

Before I conclude I also want to again take an opportunity during our second quarter call to highlight the upcoming release of our annual ESG impact report in a few weeks.

Speaker 1: This report seeks to provide a comprehensive review of our strategy, initiatives, targets, and performance to address pressing environmental and societal needs that are important to our business, consumers, communities, employees, and broader stakeholders.

Reported <unk> seeks to provide a comprehensive review of our strategy initiatives targets and performance to address pressing environmental and societal needs that are important to our business consumers communities employees and broader stakeholders in particular as noted in our last two calls we have already.

Speaker 1: In particular, as noted in our last two calls, we have already surpassed our target of restoring 1.1 billion gallons of withdrawals from local watersheds and are looking forward to showcasing the initiatives in our beer business that drove most of this achievement and to share more details on our new target in our upcoming ESG impact report.

We're past our target of restoring one 1 billion gallons of withdrawals from local water shifts and are looking forward to showcasing the initiatives in our beer business that drove most of this achievement antigen to share more details on our new target at our upcoming ESG impact report.

Speaker 1: I invite all of you to spend some time reviewing this report when it is released, which will be available through our company website.

I invite all of you to spend some time reviewing this report when it is released which will be available through our company website.

In closing I'd like to leave you with four main takeaways from this quarter.

Speaker 1: In closing, I'd like to leave you with four main takeaways from this quarter. First, our beer business continues to outperform the industry and the acceleration of its performance since the beginning of the year has given us confidence to shift our outlook for Fiscal 24 to the higher end of our initial net sales and operating income growth expectations.

Our beer business continues to outperform the industry and the acceleration of its performance since the beginning of the year has given us confidence to shift our outlook for fiscal 'twenty four to the higher end of our initial net sales and operating income growth expectations and Justice <unk>.

Speaker 1: And just as critical, we remain equally confident about the long-term runway for our higher-end brand portfolio.

We remain equally confident about the long term runway for our higher end brand portfolio.

Speaker 1: Number two, the benefits of our wine and spirits strategy continue to take hold. We expect the net sales growth and operating income growth of that business to ramp up through the remainder of fiscal 24. And as we look to the coming years, we anticipate our wine and spirits business to further gain momentum and achieve stronger results.

Number two the benefits of our wine and spirits strategy continued to take hold we expect net sales growth and operating income growth of that business to ramp up through the remainder of fiscal 'twenty four and as we look to the coming years, we anticipate our wine and spirits business to further gain momentum and achieve.

<unk> strong results.

Speaker 1: Number three, we are persistently delivering on our capital allocation priorities, maintaining discipline and balance to yield value and returns, and we remain committed to building on the consistent track record. We've established with these priorities over the past few years.

Number three we are persistently delivering on our capital allocation priorities, maintaining discipline and balance to yield value and returns and we remain committed to building on our consistent track record. We've established with these priorities over the past few years.

Speaker 1: And finally, number four, we're excited to be sharing more of these important topics with you at our upcoming investor day in four weeks' time. And with that, I'd now like to turn the call over to Garf, who will review our financial results for Q2 and more detail. Garf?

And finally number four we are excited to be sharing more of these important topics with you at our upcoming Investor day in four weeks' time and with that I'd now like to turn the call over to Garth who will review our financial results for Q2 in more detail.

Speaker 1: Thank you, Bill. Good morning, everyone. Our second corner results reflect the ongoing, disciplined execution of our strategic initiatives and our relentless focus on continuing to deliver growth while enhancing our performance.

Thank you Bill and good morning, everyone.

Our second quarter results reflect the ongoing disciplined execution of our strategic initiatives and a relentless focus on continuing to deliver growth while enhancing our performance.

Speaker 1: As Bill noted, we achieved yet another strong quarter with double digit net sales and operating income growth in our beer business. While our wine and spirits business delivered solid performance across its largest premium, fine wine, and craft spirits brands, which partially offset the category headwinds affecting our mainstream brands.

As Bill noted, we achieved yet another strong quarter with double digit net sales and operating income growth in our beer business, while our wine and spirits business delivered solid performance across its largest premium fine wine and craft spirits brands, which partially offset the category headwinds affecting our mainstream brands.

Speaker 1: We also continue to generate strong cash flow results, and execute against our consistent, and balanced capital allocation priority.

We also continued to generate strong cash flow results and execute against our consistent and balanced capital allocation priorities.

Now, let's review our Q2 fiscal 'twenty four results in more detail, where I will mainly focus on comparable basis financial results.

Speaker 1: To begin, our beer business increased net sales by 12%, representing an uplift of $253 million.

To begin our beer business increased net sales by 12%, representing an uplift of $253 million.

This was driven primarily by.

Volume growth of eight 7% as demand for our beer brands accelerated through the first half of the fiscal year.

This growth also benefited from favorable pricing, which contributed $59 million of the overall net sales increase.

As a reminder, we continue to expect pricing to account for 1% to 2% of our net sales increase this fiscal year from the combination of the wraparound impact from the significant pricing actions taken in Q3 of fiscal 'twenty three and targeted pricing actions, we are taking in fiscal 'twenty four.

Speaker 3: For the second quarter of fiscal 24, beer shipment volume and depletions were generally in line with one another and I'm pleased to report that our inventories are at healthy levels to support the ongoing growth of our brand.

For the second quarter of fiscal 'twenty, four beer shipment volume and Depletions were generally in line with one another and I'm pleased to report that our inventories are at healthy levels to support the ongoing growth of our brands.

Beer depletion growth for the quarter came in at seven 9%, reflecting a successful summer selling season, driven by ongoing consumer demand across our industry, leading beer portfolio as evidenced by our share gain acceleration.

Speaker 3: Beer depletion growth for the quarter came in at 7.9%, reflecting a successful summer selling season. Driven by ongoing consumer demand across our industry-leading beer portfolio, is evidenced by our shared gain acceleration.

Execution of our distribution and marketing strategies, including extending our category leadership across the key summer season, and continued positive results from our shopper first shelf initiative.

Speaker 3: Execution of our distribution and marketing strategies, including extending our category leadership across the key summer season and continued positive results from our shopper for shelf initiatives.

Speaker 3: And lastly, the accelerated growth in share games across our core and emerging markets.

And lastly, the accelerated growth and share gains across our core and emerging markets.

Before moving to on premise performance I'd like to take a moment to explain a notable recent development in off premise channel observation.

Speaker 3: Before moving to on premise performance, I'd like to take a moment to explain a notable recent development in off-premise channel observation.

Speaker 3: As many of you are aware, Cercana tract channel volume growth has historically been above depletion growth by a low single digit variant.

As many of you are aware <unk> channel volume growth has historically been above depletion growth by a low single digit variance. However, more recently that variance is expanded to the mid single digit range as independent retailers not captured by <unk> data have lagged in reversing the additional pricing.

Speaker 3: However, more recently, that variance had expanded to the mid-single budget range as independent retailers, not captured by Serkana data, have lagged in reversing the additional pricing they took beyond our October fiscal 23 pricing action.

Chuck beyond our October fiscal 'twenty three pricing actions. We believe this has led certain consumers to shift from these independent retailers to chain retailers offering more competitive consumer pricing.

Speaker 3: We believe this has led certain consumers to shift from these independent retailers to chain retailers offering more competitive consumer price.

Speaker 3: Well, the shift in these variances has no impact on the overall demand of our brands. We continue to monitor channel performance and plan to provide further updates or insights needed to reconcile tracked channel data with our overall performance as warrant.

The shift in these variances has no impact on the overall demand of our brands. We continue to monitor channel performance and plan to provide further updates or insights needed to reconcile tracked channel data with our overall performance as warranted.

As a reminder, so kind of captured approximately 50% of our total beer volumes.

Speaker 3: As a reminder, Sircana captures approximately 50% of our total fear volume.

Speaker 3: Shifting back to the on-premise channel, depletions were essentially flat year over year and accounted for approximately 10.3% of our total beer volume.

Shifting back to the on premise channel Depletions were essentially flat year over year and accounted for approximately 10, 3% of our total beer volume.

Speaker 3: Please note that while we did have some minor disruptions in our supply of kegs during the second quarter, this Q1 to Q2 step down largely reflects a normal seasonal pattern that we have seen in previous years.

Please note that while we did have some minor disruptions in our supply of kegs during the second quarter. This Q1 to Q2 step down largely reflects the normal seasonal pattern that we've seen in previous years.

Speaker 3: Importantly, while there is some disruption in the near term, we are currently producing and shipping takes and fully expected to offset the impact of the disruptions as swiftly as possible.

Importantly, while there is some disruption in the near term we are currently producing and shipping tags and fully expect to offset the impact of the disruptions as swiftly as possible.

Operator: Greetings. Welcome to the Constellation Brands fiscal year 2024, second quarter earnings call. At this time, all participants are in a listed only mode.

Looking forward to the second half of the year as Bill noted approximately 45% of our volumes will ship in the second half of the year as a result of it being our lower volume period.

Speaker 3: Looking forward to the second half of the year, as Bill noted, approximately 45% of our volumes will ship in the second half of the year as a result of it being our lower volume period.

Operator: The question and answer session will follow the prepared presentation. If anyone should require operator assistance during the call, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.

In addition, our Q3 shipment volumes are also normally more subdued due to routine maintenance activities.

Speaker 3: In addition, our Q3 shipment volumes are also normally more subdued due to routine maintenance activity.

Joseph Suarez: At this time, I would like to hand the call over to Joe Suarez, Vice President of Investor Relations. Thank you. You may begin. Thank you, Darryl.

Speaker 3: Lastly, from a pricing perspective, we will start to overlap the uplift we saw from significant incremental pricing actions taken in October of fiscal 23.

Lastly from a pricing perspective, we will start to overlap the uplift we saw from significant incremental pricing actions taken in October of fiscal 'twenty three.

Joseph Suarez: Good morning, all. And welcome to Constellation Brands, Q2, fiscal 24 conference call. I'm here this morning with Bill Nguyen Sarcio and Garth Hankinson, our CFO. As a reminder, reconcilations between the most directly comparable gap measures and any non-gap financial measures discussed on this call are included in our news release or otherwise available on the company's website at www.cbrands.com. Please refer to the news release and consultations SEC filings. For risk factors, which may impact forward-looking statements made on this call.

Nonetheless, as we have previously previously stated we fully expect our full year shipments and depletions to be largely in line, both on an absolute and a year over year growth basis by fiscal year end.

Speaker 3: Nonetheless, as we have previously stated, we fully expect our full year shipments and depletions to be largely in line, both on an absolute and a year over your growth basis by fiscal year end.

Speaker 3: In regards to selling days, they were flat year over year for the quarter. Please note, for the remainder of fiscal 24, Q3 sell days will be flat year over year, and 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 for the remainder of fiscal 'twenty four Q3 sell days will be flat year over year, and there will be one more selling day in Q4.

Joseph Suarez: Following the call, we'll also be making available in the investor section of our company's website, a series of slides which highlight the prepared remarks shared by Bill and Garth in today's call. We've returning the call over to Bill in line with prior quarters.

Now, let me review beer margins for.

Speaker 3: For Q2, operating margin decreased by 60 basis points to 39.9%

For Q2 operating margin decreased by 60 basis points to 39, 9%.

Speaker 3: This decrease was driven mostly by the ongoing inflationary pressures in our cogs as we faced an overall cost increase of approximately 17%.

This decrease was driven mostly by the ongoing inflationary pressures in our Cogs as we faced an overall cost increase of approximately 17%.

Joseph Suarez: I'd like to ask that we limit everyone to one question per person, which will help us to end our call on time.

Joseph Suarez: Thanks in advance, and now here's Bill.

Speaker 3: The largest drivers of these costs increases came from packaging and raw materials. Incremental costs related to a voluntary product recall of selected tags for quality assurance.

The largest drivers of these cost increases came from packaging and raw materials, Inc.

Bill Newlands: Thank you, Joe, and good morning, everyone. Welcome to our Q2, fiscal 24 call. In terms of key headlines for the second quarter, I'm pleased to report that our team once again delivered solid overall performance. First of all, our beer business led the charge as the number one share gainer with accelerating shares across the key summer holiday. We continue to invest in broke for this business as our team looks to seize opportunities to gain incremental awareness, shelf space, and household penetration for our brands in the back half and beyond.

Incremental costs related to a voluntary product recall of select tags for quality assurance.

Speaker 3: and higher depreciation that amounted to $12 million or 24%.

And higher depreciation that amounted to $12 million or 24% increase.

Speaker 3: To mitigate the inflationary and depreciation pressures, we continue to work across the business, and cost efficiency, and operational productivity programs that yielded meaningful and sustainable benefits.

To mitigate the inflationary and depreciation pressures, we continue to work across the business on cost efficiency and operational productivity programs yielded meaningful and sustainable benefits.

Speaker 3: building on the $30 million of net savings delivered by these initiatives in the first quarter. We realized an approximately $20 million in incremental net savings in the second.

Building on the $30 million of net savings delivered by these initiatives in the first quarter, we realized an approximately $20 million in incremental net savings in the second quarter.

Bill Newlands: Secondly, our wine and spirits business continues to progress along its journey to realize the full benefits of its transformation. Prioritized investments in our largest wine and spirits higher-end brands are yielding outperformance in their respective categories while partially offsetting and helping to reduce headwinds from our mainstream brands that they continue to shift the mixed profile of our portfolio. And third, our continued discipline around capital allocation priorities contributed to a strong overall performance in the quarter and sets the stage for fiscal 24 being another solid year of profitable growth and shareholder returns.

Speaker 3: In addition to our cost-saving initiatives, we incurred margin benefits from the following.

In addition to our cost saving initiatives, we incurred margin benefits from the following <unk>.

Speaker 3: a $4 million or 2% decrease in marketing expense primarily driven by the divestiture of our craft beer business.

The $4 million or 2% decrease in marketing expense, primarily driven by the divestiture of our craft beer business.

Speaker 3: Marketing as a percent sales came in at 7.1% for the quarter.

Marketing as a percent sales came in at seven 1% for the quarter.

Speaker 3: and a $3 million, or 3% decrease in SG&A expense, which was primarily the result of favorable foreign currency impact.

And a $3 million or 3% decrease in SG&A expense, which was primarily the result of favorable foreign currency impacts.

Speaker 3: Regarding Q2, our marketing spend as a percent of net sales was outside of our previously stated algorithm of 9 to 10 percent.

Regarding Q2, our marketing spend as a percent of net sales was outside of our previously stated algorithm of 9% to 10%.

Bill Newlands: That said, let me provide a little more color around our key performance drivers in the quarter. As noted, our beer team once again delivered remarkable results. Not only did we remain the top share gainer over the entire critical summer season, we also extended our leading position from Cinco de Mayo to become the number one share gainer and track channels during the Fourth of July holiday. And although it falls slightly after our second quarter end, I'm also pleased to report that we further accelerated our share gains during Labor Day.

Speaker 3: As usual, part of this relatively lower percentage in Q2 is a reflection of the strong volume and therefore net sales performance of the business due to category seasonality.

As usual part of this relatively lower percentage in Q2 is a reflection of the strong volume and therefore, our net sales performance of the business due to category seasonality.

Speaker 3: However, the impact of the reduction in marketing due to the previously noted exit from craft beer has further lowered that percentage.

However, the impact of the reduction in marketing due to the previously noted exit from craft beer is further lowered that percentage.

Speaker 3: For the full year, we now expect to be closer to the lower end of our stated range of 9-10% of net sales due to the craft beer divestitures, and our continued focus on ensuring our large marketing investments are prioritized to the highest return areas in our portfolio.

For the full year, we now expect it to be closer to the lower end of our stated range of 9% to 10% of net sales due to the craft beer divestitures and our continued focus on ensuring our large marketing investments are prioritized to the highest return areas in our portfolio.

Bill Newlands: Modelo Especial, remained the key driver of our strong performance, achieving double-digit biome growth and track channels, and an 8.6% increase in depletions. Ultimately strengthening its position as the top brand across the entire US beer market and dollar sales fiscal year to date. The broader Modelo brand family also delivered phenomenal results, which a lot of us achieving 50% biome growth and track channels, and an increase in depletions of over 40%. While oral continues to build on a solid launch, increasing its share gains in the overall beer category and performing in line with our plans for the fiscal year.

As a result of the acceleration in the growth of beer business since the beginning of the year, we are shifting our expectations for fiscal 'twenty four to the higher end of our initial rages, resulting in an 8% to 9% expected increase in net sales growth and a 6% to 7%.

Speaker 3: As a result of the acceleration in the growth of beer business since the beginning of the year, we are shifting our expectations for fiscal 24 to the higher end of our initial rages, resulting in an 8-9% expected increase in net sales growth and a 6-7% expected increase in operating income growth.

Expected increase in operating income growth.

Now moving onto our wine and spirits business.

Speaker 3: In line with the reshaping of our Wine and Spirits business to a higher-end portfolio of offers.

In line with the reshaping of our wine and spirits business to a higher end portfolio of offerings. We continued to benefit from the solid performance of our largest premium wine fine wine and craft spirits brands May Omi, Kim Crawford, the prisoner wine company and meet Coppell, which as Bill noted outperformed.

Speaker 3: We continue to benefit from the solid performance of our largest premium wine, fine wine, and craft spirit's brand.

Bill Newlands: Beyond Modelo, our Corona extra and Pacifico core beer brands also continued to perform strongly. Corona extra delivered solid, low single-digit growth and depletions and track channel volumes, and was the number six share gain in the category. While Pacifico achieved 15% depletion growth, track channel volume growth of approximately 27% and was the number 11 top share gainer and track channels. Our beer brands continued to resonate strongly with the consumer, driving demand for our brands in the second quarter, which supported double-digit net sales and operating income growth in our beer business.

Speaker 3: Naomi Kim Crawford, the prisoner of wine company, and me compo, which is Bill noted, outperformed the corresponding categories in track channels and delivered solid depletion.

The corresponding categories in tracked channels and delivered solid depletion growth.

Speaker 3: While we are pleased with the results with these leading higher-end brands, our overall Wine and Spirit's organic net sales were down 11%, driven primarily by the category headwinds we can continue to face from the performance of our volumetrically larger mainstream brands, Woodbridge Inspect.

While we are pleased with the results with these leading higher end brands, our overall wine and spirits organic net sales were down 11% driven primarily by the category headwinds. We can continue to face from the performance of our volumetric Lee larger mainstream brands Woodbridge and spectrum.

Bill Newlands: This gives us confidence to shift our fiscal 24 net sales and operating income guidance for the beer business to the higher end of our initial ranges, that is, a 9% and a 67% growth respectively. That said, it is important to remember that for our beer business, we indicated that only 45% of total buying for the fiscal year will be shipped in the second half, which aligns with the regular seasonality of beer demand in the US and the timing of our brewery maintenance activities.

Speaker 3: Our plans to renovate Woodbridge and Svetka are underway and our wine and spirits leadership team is looking forward to sharing updates on this progress at our upcoming investor day.

Our plans to renovate Woodbridge and <unk> are underway and our wine and spirits leadership team is looking forward to sharing updates on this progress at our upcoming Investor day.

Shipments on an organic basis decreased by 15% and depletions decreased by approximately 8%.

Speaker 3: Shipments on an organic basis decreased by 15% and depletions decreased by approximately 8%.

Speaker 3: As a reminder, approximately 55% of the Wine and Spirit's sales are anticipated to occur in the second half of the year, where we also expect to see consumer-led premiumization mixed shift towards the higher end to continue, supporting what we believe will be a notable acceleration in the growth trajectory of the business for the remainder of the year.

As a reminder, approximately 55% of the wine and spirits sales are anticipated to occur in the second half of the year, where we also expect to see consumer led premium position mixed shift towards the higher end to continue supporting what we believe will be a notable acceleration in the growth trajectory.

Factory of the business for the remainder of the year.

Bill Newlands: Beyond fiscal 24, we continue to see significant opportunities to maintain the growth momentum of our beer business, particularly due to the resilience of key secular trends in the consumer landscape, like ongoing consumer-led prematization across private jungle hall and the continued outsized growth of the Hispanic population in the US, as well as the relentless focus of our beer business on closing the distribution and awareness gaps that still exist across our brands and on developing and scaling new and exciting products aligned with consumer-led trends.

Speaker 3: 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, was down 12% and operating margin decreased 10 basis points to 18.2%. Also reflecting...

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 was down 12% and operating margin decreased 10 basis points to 18, 2%.

So reflecting the same exclusion.

Speaker 3: The margin decline was primarily driven by the volume declines of our mainstream brands and partially offset by lower material costs primarily from sustainable packaging projects.

The margin decline was primarily driven by the volume declines of our mainstream brands and partially offset by lower material costs, primarily from sustainable packaging.

Projects supply.

Speaker 3: supply chain savings, and lower marketing spend as we continue to focus on higher return areas of our portfolio.

Supply chain savings and lower marketing spend as we continue to focus on higher return areas of our portfolio.

Bill Newlands: We look forward to sharing more details on this compelling outlook at our upcoming investor day on November 2nd.

Speaker 3: As we look forward, we continue to expect the wine and spirits business to significantly improve its net sales growth trajectory for the remainder of the fiscal year through a combination of increased contributions from our higher end portfolio, as well as incremental pricing.

As we look forward, we continue to expect the wine and spirits business to significantly improve its net sales growth trajectory for the remainder of the fiscal year through a combination of increased contributions from our higher end portfolio as well as incremental pricing actions.

Bill Newlands: Moving on to wine and spirits. Our wine and spirits business continues to make headway on its decision to become a bold and innovative higher end market leader. In the second quarter, our largest premium wine brands, Naomi and Kim Crawford, outperform their corresponding category seconds in US track channels. They both increase their respective share in the overall wine category. Our largest fine wine and craft spirits brands, the prisoner wine company and our meat combo to Kiela Brand, also outperform their corresponding luxury wine and higher end spirits category seconds.

We expect this acceleration in net sales growth combined with our continued cost reductions and marketing efficiency initiatives to also support our operating income growth targets. As a result, 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.

Speaker 3: We expect this acceleration in net sales growth, combined with our continued cost reductions and marketing efficiency initiatives to also support our operating income growth target.

Speaker 3: As a result, 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>.

Now let's proceed with the rest of the P&L.

Speaker 3: Corporate expense was approximately $67 million, an overall reduction of 19% when compared to the prior year, primarily driven by reduced spend in the second wave of our digital business acceleration program, lower headcount-related costs, lower headcount-related

Corporate expense was approximately $67 million and.

Bill Newlands: Notably, all of the individual brands just referenced, also delivered solid depletion growth rates in the second quarter. Our Wyne & Spirits business also continues to advance the renovation of its mainstream brands to address the headwinds the corresponding category segments have faced over several recent quarters. While there was certainly more work to be done here, in U.S, track channels, the year-over-year dollar sales declined for Woodbridge improved relative to the first quarter, and Spectra's overall share remained relatively stable when compared to the first quarter.

An overall reduction of 19% when compared to the prior year, primarily driven by reduced spend in the second wave of our digital business acceleration program lower head count related costs.

Bill Newlands: All of that said, our Wyne & Spirits business continued to face lower demand primarily for our mainstream brands, reflecting continued consumer-led premiumization trends noted in prior occasions which in turn affected overall performance in the second quarter.

Speaker 3: and lower compensation and benefits post a reclassification transaction.

And lower compensation and benefits post our reclassification transaction.

Interest expense for the quarter was approximately $111 million, a 17% increase from the prior year driven by higher weighted average interest rates on a portion of our debt with adjustable rates, which is approximately 5% of our debt obligations.

Speaker 3: Interest expense for the quarter was approximately $111 million, a 17% increase from the prior year driven by higher weighted average interest rates on the portion of our debt with adjustable rates, which is approximately 5% of our debt obligation.

Speaker 3: and higher average borrowings due to the financing of the share of reclassification.

And higher average borrowings due to the financing of the share reclassification.

Speaker 3: However, we now expect interest expense for the full year to be approximately $460 million, roughly $40 million lower than our prior guidance due to refinancing actions for some of our higher interest debt and faster than expected deleveraging throughout the year.

However, we now expect interest expense for the full year to be approximately $460 million roughly $40 million lower than our prior guidance due to refinancing actions for some of our higher interest debt and faster than expected deleveraging throughout the year.

Bill Newlands: Nevertheless, we are reiterating guidance for the fourth quarter. We will continue to expect fiscal 24 organic net sales to remain relatively stable and operating income growth of 2-4%. As we shared when we provided our outlook for fiscal 24, we see the year as a tale of two halves for the Wyne & Spirits business, with 55% of planned volumes being delivered in the second half, and operating performance projected to accelerate over the rest of the year due to other key factors.

Speaker 3: We ended the quarter with a net leverage ratio of approximately 3.2 times, excluding Canopy equity earnings, and expect to continue to make progress towards our 3x ratio target over the coming quarters.

We ended the quarter with a net leverage ratio of approximately three two times, excluding canopy equity earnings and expect to continue to make progress towards our three times ratio target over the coming quarters.

Speaker 3: are comparable effective tax rate excluding Canopy, Equity and Earnings for the quarter with 17.8% versus 20.3% last year.

Our comparable effective tax rate, excluding canopy equity and earnings for the quarter was 17, 8% versus 23% last year.

Speaker 3: For fiscal 24, we continue to expect the comparable effective tax rate excluding canopy equity and earnings to be approximately 19%.

Bill Newlands: We expect the benefit from the more proactive quarterly shipment and depletion re-balancing actions we have undertaken this year versus our single downward shipment adjustment in Q4 of last year. We also anticipate an uplift in our direct-to-consumer channels and improve mix from incremental Spirits shipments in line with seasonality, as well as benefits from recent price increases. Ultimately, we also expect to see operating margins, meaningfully accelerate due to the improved sales trends just described and the resulting positive operating leverage.

For fiscal 'twenty four 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.

Speaker 3: Moving to free cash flow, which we define as net cash provided by operating activities less cat-backed.

Speaker 3: For the second quarter, year today of fiscal 24.

For the second quarter year to date of fiscal 'twenty four.

Speaker 3: We generated free cash flow of $1.1 billion, a 15% decrease versus prior year, during by a 34% increase in cat-backed investments, attributable to the capacity expansions at our NOVA and Obergot facilities, and the construction of our new brewery located in Veracruz.

We generated free cash flow of one point of.

$1 billion, a 15% decrease versus prior year, driven by a 34% increase in capex investments attributable to the capacity.

Expansions at our novel and <unk> facilities and the construction of our new brewery located in Veracruz.

Bill Newlands: Before I conclude, it would be remiss not to highlight our consistent execution against our capital allocation priorities. We continue to make progress towards our reduced net leverage ratio of approximately three times, with a 400 basis point reduction, since the increase resulting from the financing of our Class B Common Stock Requestification last November. Importantly, our proactive management of the incremental debt from the Requestification now puts us on track to deliver lower interest expense than initially anticipated for fiscal 24.

Speaker 3: As of Q2, we have fully commissioned our latest additional brewing capacity project at our Obergaun facility and now have approximately 47 million hectiliters of capacity across our two breweries.

As of Q2, we are fully commissioned our latest additional brewing capacity project at our <unk> facility and now have approximately 47 million hectoliter of capacity across our two breweries.

Looking ahead, we remain on track to bring our E. B a facility online at Nava towards the end of this fiscal year.

Speaker 3: Looking ahead, we remain on track to bring our ABA facility online at NAWVA towards the end of this fiscal year.

Speaker 3: and the development of our additional expansion at Obregon and our third brewery site at Veracruz are advancing as we move forward.

And the development of our additional expansion at <unk> and our third brewery site at Veracruz are advancing as planned.

Bill Newlands: And in turn, we now anticipate higher reported and comparable earnings per share excluding canopy in the ranges of $9.60 to $9.80 and $12.20 respectively for the full year. In terms of cash returns to our shareholders, our given-and-pay-out ratio for the second quarter remained aligned with our 30% target, allowing we did not conduct any additional share with purchases in Q2. We have executed 35 million year-to-date in line with our goal to at least offset the solution. Lastly, our brewery expansions are progressing as planned, including Faracruz, and we continue to develop and bring these online with the flexibility enabled by our modular approach.

We continue to expect fiscal 'twenty four free cash flow to be in the range of $1 two to $1 3 billion.

Speaker 3: We continue to expect fiscal 24 free cash flow to be in the range of $1.2 to $1.3 billion.

Speaker 3: reflective operating cash flow between 2.4 and 2.6 billion and cap acts of 1.2 to 1.3 billion.

Reflective of operating cash flow between two four and $2 6 billion and Capex of one two to $1 3 billion.

Speaker 3: Our comparable EPS for the quarter, excluding Canopy, Equity, and Earnings, was $3.80.

Our comparable EPS for the quarter, excluding canopy equity and earnings was $3 80.

As a result of the continued profitable and disciplined growth. We have seen this year, we are raising fiscal 'twenty four reported EPS guidance to between $9 60, and $9 80.

Speaker 3: As a result of the continued profitable and disciplined growth we have seen this year, we are raising fiscal 24 reported EPS guidance to between $9.60 and $9.80 and comparable EPS guidance excluding Canopy, Equity and Earnings to be between $12 and $12.20.

And comparable EPS guidance, excluding canopy equity and earnings to be between $12 and $12 20.

Bill Newlands: Before I conclude, I also want to again take an opportunity during our second quarter call to highlight the upcoming release of our annual ESG Impact Report in a few weeks. This report seeks to provide a comprehensive review of our strategy, initiatives, targets, and performance to address pressing environmental and societal needs that are important to our business, consumers, communities, employees, and broader stakeholders. In particular, as noted in our last two calls, we have already surpassed our target of restoring 1.1 billion gallons of withdrawals from local watersheds and are looking forward to showcasing the initiatives in our beer business that drove most of this achievement and to share more details on our new target at our upcoming ESG Impact Report. I invite all of you to spend some time reviewing this report when it is released, which will be available through our company website.

Speaker 3: And finally, our announced dividend of 89 cents a share will result in approximately $163 million returned to shareholders for the quarter.

And finally, our announced dividend of <unk> 89 cents a share will result in approximately $163 million returned to shareholders for the quarter.

In closing.

Speaker 3: I'd like to say that our entire team continues to execute and deliver against our strategic priority.

I'd like to say that our entire team continues to execute and deliver against our strategic priorities.

Speaker 3: We demonstrated solid execution in the first half of Fiscal 24, and as we enter the back half of the year, we plan to remain disciplined as we seek to drive long-term profitable growth and enhance shareholder value.

We demonstrated solid execution in the first half of fiscal 'twenty, four and as we enter the back half of the year. We plan to remain disciplined as we seek to drive long term profitable growth and enhanced enhanced shareholder value.

Speaker 3: Our management team is excited to meet with many of you this coming November as we lay out our medium and long-term ambitions and vision for Constellation Brands at our investor day. With that, Bill and I...

Our management team is excited to meet with many of you. This coming November as we lay out our medium and long term ambitions and vision for constellation brands at our Investor Day.

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

Speaker 3: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad.

Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.

Speaker 1: A confirmation tone will indicate your line as in the question queue. You may press star 2 if you would like to.

A confirmation tone will indicate your line that's in the question queue you.

Bill Newlands: In closing, I'd like to leave you with four main takeaways from this quarter. First, our beer business continues to outperform the industry and the acceleration of its performance since the beginning of the year has given us confidence to shift our outlook for fiscal 24 to the higher end of our initial net sales. And just as critical, we remain equally confident about the long-term runway for our higher end brand portfolio. Number two, the benefits of our wine spirit strategy continue to take hold.

You May press Star two if you would like to remove your question from the queue.

Speaker 1: for participants using speaker equipment and may be necessary to pick up your handset before pressing the star key. As a reminder, we ask that you please limit yourself to one question.

Participants using speaker equipment, it may be necessary to pick up your handset before pressing the starkey.

As a reminder, we ask that you. Please limit yourself to one question one moment. Please while we poll for your questions.

Yeah.

Speaker 4: Our first question comes from the line of Vivian Azer with Cowan and Company. Please proceed with your question.

Our first question comes from the line of Vivien <unk> with Cowen and company. Please proceed with your question.

Hi, Thank you good morning.

You bet.

No.

Speaker 5: So, obviously, very strong one-half results in beer. I've been getting a lot of questions on why the positive revision to guidance wasn't a little bit more robust. And obviously, Bill, you laid out some of the factors to contemplate from a shipment perspective, as well as from the lapping of pricing that Garth called out as well. But is there anything incremental that you can offer in terms of your outlook for the category in the back half that might have informed a little bit more caution as well? Thanks.

Obviously very strong one half, resulting beer I've been getting a lot of questions on why the positive ROI based on type of items it wasn't a little better.

Bill Newlands: We expect the net sales growth and operating income growth of that business to ramp up through the remainder of fiscal 24. And as we look to the coming years, we anticipate our wine and spirits business to further gain momentum and achieve stronger results. Number three, we are persistently delivering on our capital allocation priorities, maintaining discipline and balance to yield value and returns. And we remain committed to building on the consistent track record we've established with these priorities over the past few years.

And obviously you laid out some of the factors to contemplate premise perspective as well.

So apple a python that got called out as well, but is there anything incremental that you can offer in terms of your outlook for the category in the back half.

It's warmed up a little bit more caution as well thanks.

No we remain very positive about that.

Speaker 1: No, we remain very positive about the back half of the year. The critical things that are important relative to our back half is normal seasonality. We only do 45% in the back half. We do our maintenance in Q3, which always limits Q3 somewhat. We're going against pricing from last year that won't largely be repeated, combined with the normal sales build-up ahead of pricing.

Back half of the year the critical things that.

There are important relative to our back half is normal seasonality, we only do 45% in the back half we do our maintenance in Q3, which always limited Q3 somewhat.

Bill Newlands: And finally, number four, we are excited to be sharing more of these important topics with you at our upcoming investor day in four weeks' time.

And we are going against pricing from last year that will largely be repeated <unk>.

Garth Hankinson: And with that, I'd now like to turn the call over to Garb, who will review our financial results for Q2 and more detail. Garb, thank you, Bill. Good morning, everyone. Our second quarter results reflect the ongoing, disciplined execution of our strategic initiatives and our relentless focus on continuing to deliver growth while enhancing our performance. As Bill noted, we achieved yet another strong quarter with double digit net sales and operating income growth in our beer business.

Combined with the normal sales buildup ahead of price increases that occurred again in Q3 last year, but let's just keep in mind. When you look at the takeout data you see in tracked channels.

Speaker 1: that occurred again in Q3 last year. But let's just keep in mind, when you look at the takeout data you see in track channels, our four week numbers are very consistent with the 52 week numbers. This is an ongoing growth story that we have a lot of confidence in, which is why we raised our expectations for the year in beer. We expect to have a very strong second half.

Our four week numbers are very consistent with the 52 week numbers. This is an ongoing growth story that we have a lot of confidence in which is why we.

Raised our expectations for the year in beer, we expect to have a very strong second half.

Garth Hankinson: Well, our wine and spirits business delivered solid performance across its largest premium fine wine and craft spirits brands, which partially offset the category headwinds affecting our mainstream brands. We also continue to generate strong cash flow results and execute against our consistent and balanced capital allocation priorities.

Speaker 4: Thank you. Our next question comes from the line of Andrea Tichera with JP Morgan. Please proceed with your question.

Thank you. Our next question comes from the line of Andre out to Sharon with J P. Morgan. Please proceed with your question.

Speaker 6: Thank you. Good morning. I was hoping to see if you can comment a bit on the shelf resets and the category at large, how you're seeing consumers. I understand the CAG situation and the on-premise consumption.

Good morning, I was hoping to see if you can comment a bit on.

The shelf resets in the category of large how youre seeing.

Chris Somers.

Understand the cash situation and <unk>.

Garth Hankinson: Now let's review our Q2 fiscal 24 results in more detail, where I will mainly focus on comparable basis financial results. To begin, our beer business increased net sales by 12% representing an uplift of 253 million dollars. This was driven primarily by, volume growth of 8.7% is demand for our beer brands accelerated to the first half of the fiscal year. This growth also benefited from favorable pricing, which contributed 59 million dollars of the overall net sales increase.

The on premise consumption.

Just hearing obviously that the shifts in market share and you you were a beneficiary and you have been doing a lot of work for a long long time and the shelf resets.

Speaker 6: hearing obviously the shift in market share and you were a beneficiary and you have been doing a lot of work for a long, long time in the shelf resets. And so if you can comment on that, how you're looking at as you go into the spring resets in the large boxes as well as what's happening in the on-premise. Thank you.

And so if you can comment on that how you're looking at as you go into the spring with had seen in the large in the large boxes as well as what's happening in the on premise. Thank you.

Speaker 1: Certainly. We certainly expect to see a strong reset period. There are some limited resets that occur here in the fall. Most of those occur in the spring. Our confidence around that drive—

Certainly.

We certainly expect to see a strong reset period. There is some limited resets that occurred here in the fall most of those occur in the spring our confidence around that drives drives primarily from the sheer velocities that we have within our key brands know our portfolio is second to none in terms of delivery.

Garth Hankinson: As a reminder, we continue to expect pricing to account for 1 to 2% of our net sales increase this fiscal year from the combination of the wraparound impacts from the significant pricing actions taken in Q3 of fiscal 23 and targeted pricing actions we are taking in fiscal 24. For the second quarter of fiscal 24, beer shipment volume and depletions were generally in line with one another and I'm pleased to report that our inventories are at healthy levels to support the ongoing growth of our brands.

Speaker 1: drives primarily from the sheer velocities that we have within our key brands.

Speaker 1: No, we are portfolio is second to none in terms of delivering against velocities and those have been consistent year-on-year which gives us a lot of confidence in our ability to continue to see a shelf set gains. You know, retailers are very smart about this and they recognize where the growth and velocity is coming from and that will work strongly to our advantage as those resets occur.

Against philosophies and those have been consistent year on year, which gives us a lot of confidence in our ability to continue to see shelf set gains and our retailers are very smart about this and they recognize where the growth in velocity is coming from and that will work strongly to our.

Garth Hankinson: Beer depletion growth for the quarter came in at 7.9% reflecting a successful summer selling season driven by ongoing consumer demand across our industry leading beer portfolio is evidenced by our share gain acceleration. Execution of our distribution and marketing strategies including extending our category leadership across the key summer season and continued positive results from our shopper first shelf initiatives. And lastly, the accelerated growth in share gains across our core and emerging markets.

Advantages those resets occur.

Speaker 4: Thank you. Our next question comes from the line of Nick Modi with RBC Capital Markets. Please proceed with your question.

Thank you. Our next question comes from the line of Nik Modi with RBC capital markets. Please proceed with your question.

Yes, Thank you and good morning, everyone.

Speaker 7: Yeah, thank you. Good morning, everyone. Bill, I was hoping you can just comment on systems and supply chain volume. I ask this question because...

I was hoping you hey, how are you I was hoping you can just comment on you know systems.

Systems and supply chain volume and I ask this question because.

Speaker 7: A lot of your growth is coming in areas that we're not really driving your growth, let's call it five to ten years ago. Getting the right volume in the right place at the right time requires some adjustment and probably some systems overhaul. I was wondering if A, if that is a valid point to be making and B, if it is, what you're doing internally to make sure that you can actually have the most optimized supply chain.

A lot of your growth is coming in areas that were.

We're not really driving your growth, let's call it five to 10 years ago.

Garth Hankinson: Before moving to on-premise performance, I'd like to take a moment to explain a notable recent development in off-premise channel observation. As many of you are aware, Serkana track channel wine growth has historically been above depletion growth by a low single digit variance. However, more recently, that variance has expanded to the mid single digit range as independent retailers not captured by Serkana data have lagged in reversing the additional pricing they took beyond our October fiscal 23 pricing actions.

The right volume and the right place at the right time.

Requires some adjustment and probably some systems overhaul. So I guess I was wondering if a that is a valid point to be making and b. If it is.

What youre doing internally to make sure that you can you can actually have the most optimized supply chain.

Certainly.

Speaker 1: Certainly. A couple of things stand out, Nick, around this. As you know, a few years ago we literally had no redundancy in the system.

Things standout Nick around this as you know a few years ago, we literally had no redundancy in the system.

Speaker 1: we now do and that certainly provides much greater flexibility in terms of our operations footprint to do a number of things. One is to make sure we are able to keep up with our increasing demand that we consistently see in our business.

We now do and that certainly provides much greater flexibility in terms of our operations footprint to do a number of things one is to make sure we're able to keep up with our increasing demand that we consistently see on our business.

Garth Hankinson: We believe this has led certain consumers to ship from these independent retailers to chain retailers offering more competitive consumer pricing. Well, the shift in these variances has no impact on the overall demand of our brands. We continue to monitor channel performance and plan to provide further updates or insights needed to reconcile track channel data with our overall performance as warrant. As a reminder, Serkana captures approximately 50% of our total beer vibes.

Speaker 1: And in a scenario where something is accelerating at a greater pace than what we had anticipated We can react to that. I think a that's very strong Secondly as you know we made some significant investments in our digital business.

And in a scenario, where something is accelerating at a greater pace than what we had anticipated we can react to that I think that's very strong secondly, as you know we made some significant investments in our digital business.

Speaker 1: efforts and those are really paying dividends in terms of our supply chain capability as well. That has significantly refined our ability to make sure we have the right supply chain capabilities all the way through the supply chain. So I'd say both of those things have been critically important.

Efforts and those are really paying dividends in terms of our supply chain capability as well.

That has significantly refined our ability to make make sure we have the right supply chain capabilities for all the way through the supply chain. So I'd say both of those things have been critically important in fact.

Garth Hankinson: Shifting back to the on-premise channel, depletions were essentially flat, you or beer, and accounted for approximately 10.3% of our total beer volume. Please note that while we did have some minor disruptions in our supply of tags during the second quarter, this Q1 to Q2 step down largely reflects a normal seasonal pattern that we have seen in previous years. Importantly, while there is some disruption in the near term, we are currently producing and shipping tags in fully expected to offset the impact of the disruptions as swiftly as possible.

Speaker 1: In fact, and I know you'll be there, you'll get a chance to hear about this in some depth during our investor meeting on November 2nd. We think this is a critical factor that's been important to our investors.

And I know you'll be there you'll get a chance to hear about this in some depth during our investor meeting on November 2nd. We think this is a critical factor that's been important to our continuing ability to maintain and meet the significant increase in demand that we've seen and we will go into that in a fair amount of detail.

Speaker 1: continuing ability to make maintain and meet the significant increase in demand that we've seen and We'll go into that and a fair amount of detail on November 2nd.

On November 2nd.

Garth Hankinson: Looking forward to the second half of the year, as Bill noted, approximately 45% of our volumes will ship in the second half of the year as a result of it being our lower volume period. Inc. In addition, our Q3 ship advice are also normally more subdued due to routine maintenance activities. Lastly, from a pricing perspective, we will start to overlap the uplift we saw from significant incremental pricing actions taken in October of fiscal 23.

Speaker 4: Thank you. Our next question comes from the line of Dara Moseen with Morgan Stanley . Please proceed with your question.

Thank you. Our next question comes from the line of Dara <unk> with Morgan Stanley . Please proceed with your question.

Hey, good morning, guys.

Hey, Dara.

Speaker 8: So just two quick clarity questions. The mid-single-digit gap versus CERKANA data that you saw in this quarter in terms of depletion.

So just two quick clarity questions. The mid single that did your gap versus Circon of data that you saw in this quarter in terms of Depletions.

Speaker 8: Do you think that lingers? Might that close back towards the low single-digit gap going forward? Just conceptually, how do you think about that? And in your answer to Andrea's question around shelf space.

Do you think that lingers might that close back towards the low single digit cap going forward just conceptually how do you think about that.

Garth Hankinson: Nonetheless, as we have previously stated, we fully expect our full year shipments and depletions to be largely in line both on an absolute and a year over your growth basis by fiscal year end. In regards to selling days, they were flat year over year for the quarter. Please note, for the remainder of fiscal 24, Q3 sell days will be flat year over year, and there will be one more selling day in Q4.

And in your answer to Andrea's question around shelf space is there more opportunity this year than a typical year just given avid's business has obviously fallen off unexpectedly after the spring resets. So do you think about the shelf space opportunity is greater than typical.

Speaker 8: Is there more opportunity this year than a typical year just given ABI's business is obviously falling off unexpectedly after the spring reset? So do you think about the shelf space opportunity is greater than typical? Just given those dynamics and there may be greater shifts, even if your business doesn't compete as much directly head to head versus them.

Just given those dynamics and there may be greater shifts even if your business doesn't compete as much directly.

Garth Hankinson: Now let me review beer margins. For Q2, operating margin decreased by 60 basis points to 39.9%. This decrease was driven mostly by the ongoing inflationary pressures in our cogs as we faced an overall cost increase of approximately 17%. The largest drivers of these costs increases came from packaging and raw materials, incremental costs related to a voluntary product recall of select tags for quality assurance, and higher depreciation that amounted to $12 million or 24% increase.

Head to head versus them.

Speaker 1: Yes, sure, Dara. On the first point, the question of whether or not the sort of mid-single digit continues I think remains to be seen. Certainly, as Garth noted at Barclays and we said during our prepared remarks, it's more than it has usually been. So whether or not it refers to the norm of what we usually see, which is sort of lower single digit remains to be seen, and obviously one that we watch carefully.

Yes sure.

Your first point.

And whether or not the sort of mid single digit continues I think remains to be seen.

Certainly.

As Bart noted at Barclays and we said during our prepared remarks, it's more than it has usually been.

So whether or not it reverts to the norm of what we usually see which is sort of lower single digit remains to be seen and obviously one that we watch carefully.

Speaker 1: Relative to the shelf sets, yes, we think this is going to be a great opportunity for us for all the reasons I answered earlier, which is our velocities are second to none and we fully expect that we're going to be able to expand our presence.

Relative to the shelf sets, yes, we think this is going to be a great opportunity for us for all the reasons I answered earlier, which is our velocities are second to none and we fully expect that we're going to be able to expand our presence that also impacts.

Garth Hankinson: To mitigate the inflationary and depreciation pressures, we continue to work across the business, on cost efficiency, and operational productivity programs that yielded meaningful and sustainable benefits. Building on the $30 million of net savings delivered by these initiatives in the first quarter, we realized an approximately $20 million in incremental net savings in the second quarter. In addition to our cost saving initiatives, we incurred margin benefits from the following, a $4 million or 2% decrease in marketing expense primarily driven by the divestiture of our craft beer business, marketing as a percent sales came in at 7.1% for the quarter.

Speaker 1: That also impacts some of our new product development. If you think about Oro, I mean Oro is off to an excellent start, much in line with what our expectations were. And that also gives us a chance to expand our shelf presence because we expect that that particular brand, using that example, is going to get more shelf space. The last thing I would say, and I got to call out Chelatas because Chelatas has just been absolutely on fire.

Some of our new product development, and if you think about Oro.

It's off to an excellent start much in line with what our expectations were and that also gives us a chance to expand our shelf presence because.

We expect that that that particular brand using that example.

<unk> is going to get more shelf space. The last thing I would say and I got a call out to allowed us because <unk> has just been absolutely on fire.

Speaker 1: And, you know, our addition of additional sizes and variety pack in that particular category again gives us chance outside of the core beer.

And our addition of additional sizes and variety pack.

Garth Hankinson: And a $3 million or 3% decrease in SG&A expense, which was primarily the result of favorable foreign currency impacts. Regarding Q2, our marketing spent as a percent of net sales was outside of our previously stated algorithm of 9 to 10%. As usual, part of this relatively lower percentage in Q2 is a reflection of the strong volume and therefore net sales performance of the business due to category seasonality. However, the impact of the reduction in marketing due to the previously noted exit from craft beer has further lowered that percentage.

In that particular category again gives us chance outside of the core beer set to also gain more shelf space. So we need to think about this very broadly because we expect to gain both of them what I would call the core beer shelf as well as the ancillary beer shelf as well with things like July .

Speaker 1: also gain more shelf space. So we need to think about this very broadly because we expect to gain both of what I would call the core beer shelf as well as the ancillary beer shelf as well with things like gelato.

Speaker 4: Thank you. Our next question comes from the line of Gerald Pascarelli with Wedbush Securities. Please proceed with your question.

Thank you. Our next question comes from the line of Gerald Pascarelli with Wedbush Securities. Please proceed with your question.

Speaker 9: Great, thanks very much. It's a macro related question. Bill, one of the questions we get a lot is on student loan repayments. They're gonna resume this month after a three year pause. So just how are you thinking about the impact from that? Maybe the potential for down trading just obviously.

Great. Thanks, very much it's a macro related question Bill one of the one of the questions. We get a lot is on student loan repayments there.

Garth Hankinson: For the full year, we now expect to be closer to the lower end of our stated range of 9 to 10% of net sales due to the craft beer divestitures and our continued focus on ensuring our large marketing investments are prioritized to the highest return areas in our portfolio.

Theyre going to resume this month after a three year pause. So just how are you thinking about the impact from that maybe the potential for down trading just obviously given some of the premium price points at your beer products any color there would be great. Thank you.

Speaker 9: some of the premium price points on your beer products. Any color there would be great. Thank you.

Yeah.

Speaker 1: Yeah, you know that again is one of those things that I think remains to be seen. One of the important things that we see with our brands is the consumer loyalty that is attached to those brands. Taking Modelo as the example, we over index with the Hispanic community and the Hispanic community has tremendous brand loyalty to Modelo.

Again, it's one of those things that I think remains to be seen.

Garth Hankinson: As a result of the acceleration in the growth of beer business since the beginning of the year, we are shifting our expectations for fiscal 24 to the higher end of our initial ranges, resulting in an 8 to 9% expected increase in net sales growth and a 6 to 7%, and expected increase in operating income growth.

One of the important things that we see with our brands is the consumer loyalty that is attached to those brands.

Taking modelo as the example, we over index with the Hispanic community in the Hispanic community has tremendous brand loyalty.

Joe Mondello.

Speaker 1: Also with corona, corona is a much broader based demographic, but you know that we continue to say it's the most loved beer because it is. I think that's critically important. You know people make choices.

Also with Corona Corona is much broader based demographic, but that we continue to say, it's the most loved beer because it is I.

Garth Hankinson: Now moving on to our wine and spirits business. In line with the reshaping of our wine and spirits business to a higher and portfolio of offerings, we continued to benefit from the solid performance of our largest premium wine, fine wine, and craft spirits brands. Mayomi, Kim Crawford, the prisoner wine company, and Meetoppo, which is Bill noted, outperformed the corresponding categories in track channels and delivered solid depletion growth.

I think thats critically important people make choices all the time about where theyre going to spend their discretionary income and brand strength is critically important about how people make those judgments. So specifically to your question it remains to be seen but we feel very confident.

Speaker 1: all the time about where they're going to spend their discretionary income. And brand strength is critically important about how people make those judgments.

Speaker 1: So specifically your question, it remains to be seen, but we feel very confident in our ability to see our brands continue to gain traction simply because there's so much brand loyalty attached.

And our ability to see our brands continue to gain traction simply because theres, so much brand loyalty attached to them.

Garth Hankinson: What we are pleased with the results with these leading higher end brands, our overall wine and spirits organic net sales were down 11% driven primarily by the category headwinds. We can continue to face from the performance of our biometrically larger mainstream brands, Woodbridge and Svetka. Our plans to renovate Woodbridge and Svetka are underway and our wine and spirits leadership team is looking forward to sharing updates on this progress at our upcoming investor day.

Thank you. Our next question comes from the line of Nadine <unk> with Bernstein. Please proceed with your question.

Speaker 4: Thank you. Our next question comes from the line of Nadine Sarwat with Bernstein. Please proceed with your question.

Speaker 10: Hi, two questions for me, please coming back to my Della or could you share some any updated data points that you have, especially when it comes to cannibalization and how would you characterize that incremental consumer? And then just one final question on that voluntary product recall. Can you quantify the impact that this has had in the quarter both on top line and on the margins? Thank you.

Hi, two questions for me, please coming back to Modelo Ora could you share some any updated data points that you have.

Especially when it comes to cannibalization and how would you characterize that incremental consumer and then just one final question on that voluntary product recall can you quantify the impact that this has had in the quarter both on top line and on the margins. Thank you.

Garth Hankinson: Shipments on an organic basis decreased by 15% and depletions decreased by approximately 8%. As a reminder, approximately 55% of the wine and spirits sales are anticipated to occur in the second half of the year, where we also expect to see consumer lead premiumization mixed shift towards the higher end to continue. Supporting what we believe will be a notable acceleration in the growth trajectory of the business for the remainder of the year.

Speaker 1: Sure, as I noted earlier, we only had a couple of skews in oral, but it's off to a really good start and the cannibalization rates were less than we had anticipated and frankly less than they were in the three test markets that we had originally run.

Sure as I can.

Noted earlier, we only had a couple of Skus in Oro.

It's off to a really good start and the cannibalization rates were less than we had anticipated and frankly less than they were in the three test markets that we had originally run.

Speaker 1: So we're very positive about that. One place where we're seeing disproportionate pickup on that particular sub-brand of Oro is in the Hispanic community. We've been very pleased by the takeaway in critical large Hispanic market.

So we're very positive about that one place, where we're seeing disproportionate pickup.

On that particular sub brand of oral <unk> is in the Hispanic community.

Garth Hankinson: 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, was down 12%, and operating margin decreased 10 basis points to 18.2%, also reflecting the same exclusion. The margin decline was primarily driven by the volume declines of our mainstream brands and partially offset by lower material costs, primarily from sustainable packaging projects, supply chain savings and lower marketing spend as we continue to focus on higher return areas of our portfolio.

Been very pleased by the takeaway and critical large Hispanic markets.

Speaker 1: how oral has done. And you know, as we continue to build that out, you'll see additional skews coming next year, which we believe will help to continue to accelerate that branch growth. And if the cannibalization rates stay where they have been it's going to be better than we had initially anticipated.

How oro has done.

And as we continue to build that out youll see additional skus coming next year, which we believe will help to continue to accelerate that branch growth and if the cannibalization rates stay where they have been it is going to be better than we had initially anticipated.

Speaker 3: Garth, you want to handle a second one? Yeah, just on the KEGG recall, the impact was entirely in the cost of goods as related to shipping and destruction of product as well as the initial cost to produce the product. It wasn't a material movement for us for the quarter. There will be a little bit more detail in the 10Q on that and you can find it there.

Curt do you want to handle the second one just on the on the cake recall.

Pack was entirely in the cost of goods as it related to shipping a destruction of product as well as the initial cost to produce the product.

Garth Hankinson: As we look forward, we continue to expect the wine and spirits business to significantly improve its net sales growth trajectory for the remainder of the fiscal year through a combination of increased contributions from our higher end portfolio, as well as incremental pricing actions. We expect this acceleration in net sales growth combined with our continued cost reductions and marketing efficiency initiatives to also support our operating income growth targets. As a result, we remain confident in the outlook for wine and spirits for the year and our guidance for that business for fiscal 24 remains unchanged.

It is.

Uh huh.

It wasn't a material movement for us.

For the quarter there'll be a little bit more detail in the 10-Q on that.

You can find it there.

Thank you. Our next question comes from the line of Bryan Spillane with Bank of America. Please proceed with your question. Thanks.

Speaker 4: Thank you. Our next question comes from the line of Brian Spillane with Bank of America. Please proceed with your...

Speaker 4: Thanks operator. Good morning everyone. Morning. So I guess a little bit of perspective maybe on on and this may be a little bit of a follow up from one of the earlier questions, but just, you know, we're getting a lot of questions about demand elasticity, you know, consumer tolerance of inflation. So can you just give us a little bit of perspective for both your beer business and also in wine and spirits just

Thanks, operator, and good morning, everyone.

Good morning.

So I guess.

A little bit of perspective, maybe on and this may be a little bit of a follow up from one of the earlier questions. But just you know we're getting a lot of questions about.

Uh huh.

Demand elasticity consumer tolerance of inflation.

Garth Hankinson: Now let's proceed with the rest of the P&O. Corporate expense was approximately $67 million and overall reduction of 19% when compared to the prior year, primarily driven by reduced spend in the second wave of our digital business acceleration program, lower headcount related costs, and lower compensation and benefits post our reclassification transaction. Interest expense for the quarter was approximately $111 million, a 17% increase from the prior year driven by higher weighted average interest rates on the portion of our debt with adjustable rates, which is approximately 5% of our debt obligations, and higher average borrowings due to the financing of the share of reclassification.

So can you just give us a little bit of perspective for both your beer business and also in wine and spirits.

Speaker 4: You know, what kind of economizing behavior might you be seeing? You know, again, is it like, you know, buying more in chain convenience versus independence or?

You know what kind of economizing behavior might you be seeing again is it like buying more in chain convenience versus independents or <unk>.

Speaker 4: choices people are making on packaging, just you know, as you're kind of looking forward, you know, just kind of where we are on economizing behavior and how you might, you know, have to adapt or adjust to that. All right.

Choices people are making on packaging just as you're kind of looking forward.

Just kind of where we are on economizing behavior, and how you might have to adapt.

To adjust to that.

Yes so.

Speaker 1: So I think this points out to where our judicious approach to pricing has been spot on. We have said consistently, in fact we got questioned about that on prior calls at times about why we weren't taking more price. You know our view has consistently been 1 to 2% annually, we were a little more than that the last couple of years, but 1 to 2% is the consistent way that we look at it and we look at it market by market, skew by skew.

I think this points out to where our judicious approach to pricing has been spot on and we've said consistently in fact, we got questions about that on prior calls at times about why we werent, taking more price our.

Our view has consistently been 1% to 2% annually, we were a little more than that the last couple of years, but 1% to 2% is the consistent way that we look at it and we look at it market by market skew by skew the rationale for that is quite simple it's much easier to keep your consumer than to have to go get them again, if you have lost them.

Garth Hankinson: However, we now expect interest expense for the full year. It is expected to be approximately $460 million, roughly $40 million lower than our prior guides due to refinancing actions for some of our higher interest debt, and faster than expected, de-leveraging throughout the year. We ended the quarter with a net leverage ratio of approximately 3.2 times, excluding canopy equity earnings, and expect to continue to make progress towards our three times ratio target over the coming quarters.

Speaker 1: The rationale for that is quite simple. It's much easier to keep your consumer than to have to go get them again if you have lost them.

Speaker 1: I think in this particular instance, as you point out, people are careful. We're seeing less work trips.

In this particular instance, as you point out people are careful where.

We're seeing.

Less more trips, but somewhat less purchasing per trip.

Speaker 1: But somewhat less purchasing per trip than we used to see. Which simply means people are being a little more careful about what they do, given the inflationary environment that exists. I think the important part for us is the fact that, even though there are more trips, they're making more trips to purchase more of our brands.

Then we used to see which simply means people are being a little more careful about what they do.

Garth Hankinson: Our comparable effective tax rate excluding canopy equity earnings for the quarter was 17.8% versus 20.3% last year. For fiscal 24, we continue to expect the comparable effective tax rate excluding canopy equity earnings to be approximately 19%.

Given the inflationary environment that exist I think the important part for US is the fact that even though there are more trips they are making more trips to purchase more of our brands, even if they might spend a little less on any particular trip.

Speaker 1: even if they might spend a little less on any particular trip.

Speaker 1: Again, that speaks to what I just replied to on the prior question, which is about our brand loyalty and about the consistent...

Again that speaks to what I just replied to on the prior question, which is about our brand loyalty in about the consistent.

Garth Hankinson: Moving to free cash flow, which we define as net cash provided by operating activities less cap-backs. For the second quarter year-to-date of fiscal 24, we generated free cash flow of $1 billion, a 15% decrease versus prior year, during by a 34% increase in cap-backs investments, attributable to the capacity expansions at our NOVA and overgun facilities, and the construction of our new brewery located in Veracruz. As of Q2, we have fully commissioned our latest additional brewing capacity project at our overgun facility, and now have approximately 47 million hectiliters of capacity across our two breweries.

Speaker 1: consumer dynamic that really works to our advantage over the long run. So again, I think the critical element to that is our judicious pricing approach over time is one that's going to do us very well when you're in a consumer environment that people are a little bit more concerned or a little bit more nervous about the inflationary environment. And I think that's going to work to our advantage as we go.

Consumer dynamic that really works to our advantage over the long run. So again I think the critical element to that is our judicious pricing approach over time is one that's going to do us very well when you are in a.

Consumer environment that people are a little bit more concerned or a little bit more nervous about the inflationary environment and I think thats going to work to our advantage as we go forward.

Speaker 4: Thank you. Our next question comes from the line of Chris Carrey with Wells Fargo Securities. Please proceed with your question.

Thank you. Our next question comes from the line of Chris Carey with Wells Fargo Securities. Please proceed with your questions.

Speaker 11: Hi everyone, Garth, can you just comment on

Hi, everyone.

Can you just comment on how inflation is coming in relative to your expectations entering the year puts and takes.

Speaker 11: how inflation is coming in relative to your expectations during the year.

Garth Hankinson: Looking ahead, we remain on track to bring our ABA facility online at NOVA towards the end of this fiscal year. And the development of our additional expansion at overgun and our third brewery site at Veracruz are advancing as planned. We continue to expect fiscal 24 free cash flow to be in the range of 1.2 to 1.3 billion, reflective of operating cash flow between 2.4 and 2.6 billion, and cap-backs of 1.2 to 1.3 billion.

Speaker 11: I asked this in the context of your comments around marketing coming in at the low end of the historical range for the full year. I would just be curious on how you view gross margin delivery in the quarter relative to expectations with any context on the back half of the year. So anyway, high level, just trying to get some context around how costs are running relative to what you were thinking go in and maybe you could frame how this delivery is coming in relative to your...

I asked this in the context of your comments around marketing coming again.

The low end of the historical range for the full year.

And I would just be curious on how you view gross margin delivery in the quarter relative to expectations with any context on the back half of the year, but so anyway ha high level, just trying to get some context around how cost of running relative to what you were thinking would go with that maybe you could frame how this delivery is coming in.

Garth Hankinson: Our comparable EPS for the quarter excluding canopy equity and earnings was $3.80, as a result of the continued profitable and disciplined growth we have seen this year. We are raising fiscal 24 reported EPS guidance to between $9.60 and $9.80, and comparable EPS guidance excluding canopy equity and earnings to be between $12 and $12.20. And finally, our announced dividend of $0.89 to share will result in approximately $163 million returned to shareholders for the quarter.

You know again relative to your going in expectations. Thanks.

Speaker 3: Yes, thanks Chris. Like, look, as a reminder, we expect our beer operating margin for this fiscal year to be around 38%.

Thanks, Chris.

As a reminder.

We expect that our beer operating margin for this fiscal year to be around 38%.

Speaker 3: that that remains unchanged. As it relates specifically to Q2, Q2 is historically traditionally our highest margin quarter given the volume associated with Q2.

That remains unchanged.

As it relates specifically to Q2 Q2 is historically traditionally are higher our highest.

March quarter, given the given the volume associated with Q2.

Speaker 3: And so, you know, in the second half of the year, obviously, we're going to continue to face inflationary pressures that we've had all year long. We are seeing some easing in inflation as expected as we've gone through the year. You know, unfortunately, well, we've seen some improvement in inflation. We've also seen a strengthening peso kind of hold up. And so any improvement that we had due to inflation has been really offset by the strength of the peso.

And so in the second half of the year, obviously, we're going to continue to face inflationary pressures that we've had all year long we are seeing some easing in inflation as.

Garth Hankinson: In closing, I'd like to say that our entire team continues to execute and deliver against our strategic priorities. We demonstrate solid execution in the first half of fiscal 24, and as we enter the back half of the year, we plan to remain disciplined as we seek to drive long-term, profitable growth and enhance, enhance, shareholder value. Our management team is excited to meet with many of you this coming November, as we lay out our meeting in long-term ambitions, and vision for Constellation Brands at our investor day.

As expected as we've gone through the year.

Unfortunately, while we have seen some some improvement inflation. We've also seen a strengthening peso kind of hold up and so any improvement that we had due to inflation has been been really offset by the by the strength of the peso and then again in the second half of the year.

Speaker 3: And then again in the second half of the year, because of the historically lower volume that we have in that half, there will be an impact obviously to fixed cost absorption as well as COGS and marketing. And additionally, incremental depreciation as we brought on, you know, over and gone partway through the year. And then as Bill noted in his remarks.

Cause of the historically lower volume that we have.

In that half there will be an impact obviously to fixed cost absorption.

As well as our.

As Cogs in marketing.

And additionally, incremental depreciation as we brought on Oprah gone partway through the year and then as Bill noted in his remarks.

Operator: With that, Bill and I are happy to take your questions. Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on New Telephone Keypad. A confirmation tone will indicate your line as in the question cue. You may press star two if you would like to remove your question from the cue. For participants using speaker equipment, it may be necessary to pick up your hands up before pressing the star key. As a reminder, we ask that you please limit yourself to one question. One moment please while we pull for your question.

Speaker 3: You can schedule maintenance that we traditionally do in the second half of the year as well as the overlapping of the pricing benefits last year. So all in, those are the factors that we'll...

You've just scheduled maintenance in the week.

Traditionally do in the second half of the year as well as the overlapping of the pricing benefits last year. So.

All all all in those those are the sort of the factors that will.

Speaker 3: that will contribute to the 38% margin for the full year.

It will contribute to.

The 38% margin for the full year.

Speaker 12: Thank you. Our next question comes from the line of Lauren Lieberman with Barclays. Please proceed with your question.

Thank you. Our next question comes from the line of Lauren Lieberman with Barclays. Please proceed with your question.

Vivien Azer: Our first question comes from the line of Vivian Azer with Cowan and Company. Please proceed with your question. Hi. Thank you. Good morning. You bet. Obviously, very strong one-half results in deer. I've been getting a lot of questions on why the positive revision to guidance wasn't a little bit more robust and obviously so you laid out some of the factors to contemplate from a shipment perspective, as well as from the lapping of pricing that Garth called out as well. Is there anything incremental that you can offer in terms of your outlook for the category in the back half that might have informed a little bit more caution as well? Thanks.

Yeah.

Laura are yourself muted Hello Lauren.

Okay.

Laura and Unfortunately, we can't hear you are you muted.

Speaker 4: I will move on and Lauren will come back to learn. You got it.

I will move and Lauren compatible arent you.

Got it.

Our next question comes from the line of Rob <unk> with Evercore. Please proceed with your question.

Speaker 4: Our next question comes from the line of Rob Otenstein with Evercore. Please proceed with your question.

Speaker 8: Great, thank you very much. I was wondering if you could give us a little bit more detail on your productivity programs, you know, the specific buckets that you've addressed, that you're targeting, and, you know, is this something that is, you know, potentially a multi-year process of system optimization?

Great. Thank you very much.

Wondering if you could give us a little bit more detail on your productivity programs.

Bill Newlands: No, we remain very positive about the back half of the year. The critical things that are important relative to our back half is normal seasonality. We only do 45% in the back half. We do our maintenance in Q3, which always limits Q3 somewhat, and we're going against pricing from last year that won't largely be repeated, combined with the normal sales build-up ahead of pricing races that occurred again in Q3 last year.

You know the specific buckets that you've addressed that you're targeting.

And is this something that is potentially a multi year process.

Of system optimization.

Speaker 3: Thanks, Robert. Yeah, I would say that our cost savings and efficiency initiatives certainly are multi-year in nature. Obviously, we communicated earlier this year in Q1. We had taken $30 million out, and then this year an incremental $20 million, or this quarter I should say an incremental $20 million. We're always looking at ways to sort of improve productivity, create efficiencies in the business, whether that's through supply chain and procurement or operations.

Thanks, Robert Yeah, I would say that our cost savings and efficiency initiatives certainly are multiyear in nature. Obviously, we communicated earlier this year in Q1, we we have taken a $30 million out and then this year, an incremental $20 million for this quarter I should say an incremental $20 million.

Bill Newlands: But let's just keep in mind, when you look at the takeout data you see in track channels, our four week numbers are very consistent with the 52 week numbers. This is an ongoing growth story that we have a lot of confidence in, which is why we raised our expectations for the year in beer. We expect to have a very strong second half.

He is looking at ways to sort of prove productivity.

Operator: Thank you.

Create efficiencies in the business, whether that's through supply chain and procurement or operations.

Speaker 3: Examples of that over time have been things like double stacking rail cars and the use of plastic pallets.

Examples of that over time have been things like.

Double stacking railcars and the use of plastic pallets.

Andrea Teixeira: Our next question comes from the line of Andrea to share with JP Morgan. Please proceed with your question. Thank you.

Speaker 3: optimizing the location of inventory as Bill referenced in response to a question earlier, improve purchasing in terms of raw materials through better contract management and negotiations.

Optimizing the location of inventory as bill referenced in response to a question earlier.

Bill Newlands: Good morning. I was hoping to see if you can comment a bit on on the shelf we said in the category, a large how you're seeing consumers. I understand the CAC situation and the on-premise consumption. Just hearing obviously the shifts in market share and you were beneficiary and you have been doing a lot of work for a long, long time in the shelf reset. And so if you can comment on that, how are you looking at as you go into the spring resets in the large boxes as well as what's happening in the on-premise. Thank you.

<unk> purchasing in terms of raw materials through better contract management and negotiations as well as more effective and efficient use of our marketing expense. So it's absolutely something that the FDA.

Speaker 3: as well as more effective and efficient use of our marketing spend. So this is absolutely something that the organization is focused on on a year-on-year basis. And certainly we will share a lot more detail on our cost savings initiatives for both our beer and wine and spirits businesses at our upcoming investor day.

The organization is focused on in the year on year basis, and certainly we will we'll share a lot more detail.

On our cost savings initiatives for both our beer and our wine and spirits businesses at our upcoming Investor day.

Thank you. Our next question comes from the line of Filippo for learning with Citi. Please proceed with your question.

Speaker 4: Thank you. Our next question comes from the line of Filippo Filorni with Citi. Please proceed with your question.

Speaker 13: Hey, good morning everyone. Bill, you mentioned that the last four week trend has been very strong and consistent with the last 52 weeks.

Hey, good morning, everyone.

Bill you mentioned that the last four week trends as being very strong and consistent with the last 52 weeks can you give a little bit maybe more color on the performance of your business in September .

Bill Newlands: Certainly. We certainly expect to see a strong reset period. There are some limited resets that occur here in the fall. Most of those occur in the spring. Our confidence around that drives primarily from the sheer velocities that we have within our key brands. Our portfolio was second to none in terms of delivering against velocities. And those have been consistent year on year, which gives us a lot of confidence in our ability to continue to see shelves that gains. You know, retailers are very smart about this and they recognize where the growth and velocity is coming from. And that will work strongly to our advantages. Those resets occur. Thank you.

Speaker 13: Can you give a little bit maybe more color on the performance of your business in September ? And then at the industry level, one of your competitors, the investor, they mentioned that September for the industry is particularly sluggish, particularly the last couple of weeks as you cycle the shipments ahead of the price increases in the last year. So maybe some color on the timing of shipments into September into Q3 will be helpful. Thank you.

Then at the industry level, one of your competitor at the Investor Day mentioned that September for the industry.

It is particularly sluggish, particularly the last couple of weeks as you cycled. The shipments ahead of the price increases in the last year. So maybe.

Some color on the timing of shipments into September and into Q3. It would be helpful. Thank you.

Speaker 1: Sure. When I look at the most recent Sircana data for four weeks,

Sure when I look at the most recent <unk> data for four weeks. Our total beer business is up 13, 7%, which is very consistent with what the 52 weeks. That's what I was alluding to in my prior comments around that.

Speaker 1: Our total beer business is up 13.7%, which is very consistent with what the 52 weeks, that's what I was alluding to in my prior comments around that.

Speaker 1: Certainly, as we also noted, we expected that we would see some element of tightness during the course of the beginning of this quarter that we are in purely because we are lapping the October price increases that occurred last year and some of the pre-build that people do, that retailers do, ahead of any price increase.

Nik Modi: Our next question comes from the line of Nick Modi with RBC Capital Markets. Please proceed with your question. Yeah, thank you.

Certainly as we also noted.

We expected that we would see.

Some element of tightness during the course of the beginning of this quarter that we're in purely because we are lapping the October price increases that occurred last year and some of the pre build that people do the retailers do ahead of any price increases.

Bill Newlands: Good morning, everyone. I was hoping you can, hey, I was hoping you can just comment on, you know, systems and supply chain volume. And I asked this question because a lot of your growth is coming in areas that, you know, we're not really driving your growth. I was, let's call it five to 10 years ago, the getting the right volume in the right place at the right time, you know, requires some adjustment and probably some systems overhaul.

Speaker 1: that existed. All of that is consistent with what we've expected and we expect as we've said the reason we raised our guidance expectation around beer is because we expect to have a very strong back half of the year despite a couple of these headwinds that certainly exist.

That existed.

All of that's consistent with what with what we've expected and we would expect as we've said.

The reason we raised our.

Bill Newlands: So I just, I was wondering if A, if that is a valid point to be making and B, if it is, you know, what what you're doing internally to to make sure that you can, you can actually have the most optimized supply chain. Certainly, a couple of things stand out Nick around this. As you know, a few years ago, we literally had no redundancy in the system. We now do. And that certainly provides much greater flexibility in terms of our operations footprint to do a number of things.

Our guidance expectation around beer is because we expect to have a very strong back half of the year. Despite a couple of these headwinds that certainly exists.

Speaker 4: Thank you. Our next question comes from the line of Andrew Strowzick with BMO Capital Markets. Please proceed with your question.

Thank you. Our next question comes from the line of Andrew <unk> with BMO capital markets. Please proceed with your question.

Speaker 9: Hey, good morning. Thanks for taking the question. My question's on capital allocation and in particular around buybacks. And I think you noted, no buybacks during the quarter, but being on track for your target to offset delusion a year to date. I guess my question though is, what's the appetite for buybacks and excess of that, particularly given the momentum in the business, strong cash flow generation? How are you thinking about that now versus where you were at the beginning part of the year and moving forward?

Hey, good morning, Thanks for taking the question. My question is on capital allocation and in particular around buybacks and I think you noted.

No buybacks during the quarter, but being on track for your target to offset dilution our year to date I guess my question, though is what's the appetite for.

Bill Newlands: One is to make sure we're able to keep up with our increasing demand that we consistently see on our business. And in a scenario where something is accelerating at a greater pace than what we had anticipated, we can react to that. I think a, that's very strong. Secondly, as you know, we made some significant investments in our digital business efforts. And those are really paying dividends in terms of our supply chain capability as well.

Are buybacks in excess of that particularly given the momentum in the business the strong cash flow generation.

How are you thinking about that now versus where you were at the beginning part of the year and moving forward.

Yes, so capital allocation is obviously something that we're going to discuss in greater detail at our upcoming Investor day, but just broadly speaking I would say for this fiscal year as we as we noted when we entered this year.

Speaker 3: Yeah, so capital allocation is obviously something that we're going to discuss in greater detail at our upcoming investor day. But just broadly speaking, I would say for this fiscal year, as we noted when we entered this year, we were going to at least buy back the dilution that occurred throughout the year. But this year we were also prioritizing getting our leverage ratio back to our target of 3.0 versus where it was at an elevated state as a result of the reclassification.

Bill Newlands: That has significantly refined our ability to make, make sure we have the right supply chain capabilities for all the way through the supply chain. So I'd say both of those things have been critically important. In fact, and I know you'll be there. You'll get a chance to hear about this in some depth during our investor meeting on November second. We think this is a critical factor that's been important to our continuing ability to maintain and meet the significant increase in demand that we've seen. And we'll go into that and affirm on a detail on November 2nd. Thank you.

We were going to at least buy back the dilution that occurred throughout the year, but this year. We're also prioritizing.

Our leverage ratio back to our target of 3.0 versus where it was at an elevated state as a result of the.

The reclassification.

Speaker 3: That that said we're always looking to be flexible and agile as conditions allow for so something we continually

That said, we're always looking to be to be flexible and agile as conditions allow for it so something we continually continue.

Speaker 3: continue to look at. And just as a reminder, we do have $800 million remaining under our current board authorization. So in the event that we decide we want to be a bit more active, we have the ability to do so.

Continue to look continue to look at and just as a reminder, we.

We do have.

$800 million remaining under our current board authorization. So in the event that we decide we want to be a bit more active we have the ability to do so.

Bill Newlands: Our next question comes from the line of Darra Mosin with Morgan Stanley. Please proceed with your question. Good morning, guys. So just two quick clarity questions that the mid-single that digit gap versus Serkana data that you saw in this quarter in terms of depletion. Do you think that lingers? Might that close? Back towards the low single-digit gap going forward? Just conceptually, how do you think about that? And in your answer to Andrea's question around shelf space, is there more opportunity this year than a typical year just given ABI's businesses obviously fallen off unexpectedly after the spring reset? So do you think about the shelf space opportunity is greater than typical? Just given those dynamics? And there may be greater shifts even if your business doesn't compete as much directly, you know, head-to-head versus map?

Thank you. Our next question comes from the line of Lauren Lieberman with Barclays. Please proceed with your question.

Speaker 4: Thank you. Our next question comes from the line of Lauren Lieberman with Barclays. Please proceed with your question.

Hi can you hear me.

Speaker 14: We do. Okay. Okay. Okay. Cool. Sorry about that. I don't know what happened, but just quickly I was going to ask about. Okay.

We do want to I don't have all of them.

Okay.

Sorry about that it all happened, but just quickly I was going to ask about why why maintenance shrink wrap.

Speaker 14: of somewhat of a

I'm Jess.

Speaker 14: against the backdrop of your comments on, Woodbridge, Flash, Fedga, obviously not wine. And then the higher and brands performance. But just as you think about the past forward, not just second half, but into next year and so on, how do you think about wine industry growth, wine versus beer versus spirits? I'm guessing we'll get into this a bit more the investor day, but I was just curious if you could preview a bit your view on kind of that long-term growth and wine. Thanks.

Against the backdrop of your comments on that.

<unk> last call.

Got it.

And then the higher end brands performance, but just as you think about the path forward not just second half but into next year and so on how do you think about wind industry growth.

Wine versus being reversed in Sperry guest.

I'm guessing it will go down a bit more at the Investor day, but I was just curious if you could preview of that your view on kind of that long term growth in wine.

Yes, certainly mark.

Speaker 1: Yeah, certainly Mark. It's really the tail of two cities. The lower end piece of the business, what we refer to as mainstream, has been very challenged. It's down, mid to high single digits, which obviously is somewhat challenging for us because we do have significant involvement with that category still, even though we have to bested a number of brands that played in that category.

It's really the tale of two cities.

Bill Newlands: Yes, sure, Dara. On the first point, the question of whether or not the sort of mid-single-digit continues, I think, remains to be seen. Certainly, as Garth noted, at Barclays, and we said during our prepared remarks, it's more than it has usually been. So whether or not it reverts to the norm of what we usually see, which is sort of lower single-digit remains to be seen, and obviously one that we watch carefully.

Our lower end piece of the business, what we refer to as mainstream has been very challenged it's down mid to high single digits, which which obviously is somewhat challenging for us because we do have.

Significant involvement with that category is still even though we have divested a number of brands that they played in that category. So.

Speaker 1: That certainly is a very different answer than what I would say to you about the higher-end portion of the business.

That certainly is a very different answer than what I would say to you about the higher end portion of the business, where brands like <unk> and Kim Crawford and high West.

Bill Newlands: Relative to the shelf sets, yes, we think this is going to be a great opportunity for us. For all the reasons I answered earlier, which is, you know, our velocities are second to none, and we fully expect that we're going to be able to expand our presence. That also impacts some of our new product development. If you think about Oro, I mean, Oro's off to an excellent start, much in line with what our expectations were.

Speaker 1: We're brands like Naomi and Kim Crawford and I West.

Speaker 1: and booker and things of that nature are all significantly outperforming our plants and expectations and gaining share. You're right, we'll talk about that at investor day. The other thing I keep in mind, unlike beer, which is about 45% of the second half, it's directly the flip when it comes to wine. That's 55% of the second half. And as we do in a disproportionate amount of our business comes from a spirit.

Booker and things of that nature are all significantly outperforming our plans and expectations and gaining share.

Bill Newlands: And that also gives us a chance to expand our shelf presence because, you know, we expect that that particular brand using that example is going to get more shelf space. The last thing I would say, and I got to call out Chaladas because Chaladas has just been absolutely on fire. And, you know, our addition of additional sizes and variety pack in those, in that particular category, again, gives us a chance outside of the core beer set to also gain more shelf space. So we need to think about this very broadly because we expect to gain both of what I would call the core beer shelf as well as the ancillary beer shelf as well with things like Chalada.

You are right, we won't talk about that at Investor day. The other thing I'd keep in mind, Unlike beer, which is about 45% in the second half it's directly the flip when it comes to Y that's 55% in the second half and as we do.

Operator: Thank you.

Proportionate amount of our business comes from our spira and which much far relates to vintage releases those all tend to occur in the second half.

Speaker 1: and which much more relates to vintage releases, those all tend to occur in the second half, which again,

Which again.

Speaker 1: Weights are business toward the back half of the year versus the first half of the year. And the other one I would just point out, which I think is important to recognize. We made the choices we set early this year that we were going to balance our ships and deplete.

<unk>, our business towards the back half of the year versus.

The first half of the year and the other one I would just point out which I think is important to recognize we made the choices. We said early this year that we were going to balance our ships and depletes all year long as opposed to doing it once in the fourth quarter, which is what we did last year that creates a bit of a challenge in the early part of.

Speaker 1: all year long as opposed to doing it once in the fourth quarter, which is what we did last year.

Speaker 1: That creates a bit of a challenge in the early part of our fiscal year, but gives us a significant improvement proposition.

Our fiscal year.

It gives us a significant improvement proposition in the back half of the year as that wont occur as it did last year, creating a disproportionate shipment number in the fourth quarter last year, which won't be the case.

Speaker 1: In the back half the year as that won't occur as it did last year creating a disproportionate shipment number in the fourth quarter last year which won't be the case and we will be going against a much better proposition this year.

Gerald Pascarelli: Our next question comes from the line of Gerald Pascarelli with wet bush securities. Please forgive your question. Great. Thanks very much.

We will be going against some much better proposition. This year. So all in I think the wind business certainly has seen some challenges, but much like we see in the higher end of the Bureau business. The higher end portion of the of the category is much stronger and certainly our business in that sector is performing very nice.

Bill Newlands: This is a macro related question. Bill, one of the questions we get a lot is on student loan repayments. They're going to resume this month after a three year pause. So just how are you thinking about the impact from that? Maybe the potential for down trading just, but obviously given some of the premium price points on your beer products. Any color there would be great. Thank you. Yeah, you know, that room again is one of those things that I think remains to be seen.

Speaker 1: So, all in I think the wine business certainly has seen some challenges, but much like we see in the higher end of the beer business, the higher end portion of the category is much stronger, and certainly our business in that sector is performing very nicely against category norms.

<unk> against category norms.

Speaker 1: And you're right, we will go into all of that in much more depth.

And you're right, we will go into all of that in much more depth.

Speaker 1: during our investor discussion on November .

During our Investor discussion on November 2nd.

Bill Newlands: One of the important things that we see with our brands is the consumer loyalty that is attached to those brands. You know, taking Madello as the example we over index it with the Hispanic community and the Hispanic community has tremendous brand loyalty to Madello. You know, also with Corona Corona is a much broader based demographic, but you know that we continue to say it's the most love beer because it is. I think that's critically important.

Speaker 4: Thank you. We have reached the end of our question and answer session. I would now like to turn the floor back over to Bill Newlands for any closing.

Thank you we have reached the end of our question and answer session I would now like to turn the floor back over to Bill Newlands for any closing comments.

Speaker 1: Thank you and thank you all again for joining our call today. We're very pleased with our performance in the first half of fiscal 24. As anticipated, our beer business further accelerated during its seasonally strongest period of the year to deliver excellent results.

Thank you and thank you all again for joining our call today, we're very pleased with our performance in the first half of fiscal 'twenty four as anticipated our beer business further accelerated during its seasonally strongest period of the year to deliver excellent results and our wine and spirits portfolio, our higher end brands continued to outperform.

Speaker 1: And our wine and spirits portfolio are higher end brands, continued to outperform and track channels, and we're looking forward to an acceleration in the growth of that business over the second half. All told, we remain competent in our outlook for the full year, and have tightened the expectations for growth in our beer business at the higher end of the initial range, while increasing our overall EPS outlook as we drove interest expense lower due to our proactive debt management.

In tracked channels and we're looking forward to an acceleration in the growth of that business over the second half all told we remain confident in our outlook for the full year and have tightened the expectations for growth in our beer business at the higher end of the initial range, while increasing our overall EPS outlook as we drove into.

Bill Newlands: You know, people make choices all the time about where they're going to spend their discretionary income and, you know, brand strength is critically important about how people make those judgments. So specifically your question that remains to be seen, but we feel very confident in our ability to see our brands continue to gain traction simply because there's so much brand loyalty attached to them. Thank you.

<unk> expense lower due our proactive debt management in closing I would like to encourage you to tune in for our upcoming Investor Day on November 2nd we will be where we will be sharing our latest perspectives on the medium term outlook for our business you will find further details on how to access this event through our <unk>.

Speaker 1: I would like to encourage you to tune in for our upcoming investor day on November 2nd. We will be where we will be sharing our latest perspectives on the medium-term outlook for our business. You will find further details on how to access this event through our investor relations website at ir.cbrands.com. Thank you again for joining us today and we look forward to seeing most of you if that all of you, November 2nd.

Nadine Sarwat: Our next question comes from the line of Nadine Sarwat with Bernstein. Please proceed with your question. Hi two questions for me.

Bill Newlands: Please coming back to Madela Oro. Could you share some updated data points that you have, especially when it comes to cannibalization and how would you characterize that incremental consumer? And then just one final question on that voluntary care product recall. Can you quantify the impact that this has had in the quarter, both on top line and on the margins? Thank you. Sure as I noted earlier, we only had a couple of skews in Oro, but it's off to a really good start and the cannibalization rates were less than we had anticipated and frankly less than they were in the three test markets that we had originally run.

Investor Relations website at IR Dot C brands Dot com. Thank you again for joining us today, and we look forward to seeing most of you if not all of you November 2nd.

Speaker 4: Thank you. This does include today's teleconference. We appreciate your participation. You may disconnect at this time.

Thank you. This does conclude today's teleconference. We appreciate your participation you may disconnect at this time enjoy the rest of your day.

[music].

Speaker 12: The.

Bill Newlands: So we're very positive about that. One place where we're seeing disproportionate pickup on that particular sub-brand of Oro is in the Hispanic community. We've been very pleased by the takeaway in critical large Hispanic markets how Oro has done. And as we continue to build that out, you'll see additional skews coming next year, which we believe will help to continue to accelerate that brand's growth. And if the cannibalization rates stay where they have been, it's going to be better than we had initially anticipated.

Bill Newlands: Eric, do you want to hand on the signal? Yeah, and just on the on the cake recall, you know, the impact was entirely in the cost of goods that's related to, you know, shipping and destruction of product as well as the initial cost to produce the product. It's, you know, it wasn't a material movement, you know, for us for the for the quarter, it'll be a little bit more detail and 10Q on that. And you can find it there. Thank you.

Bryan Spillane: Our next question comes from the line of Brian Spillane with Bank of America. Please proceed with your question. Thanks, operator.

Bill Newlands: Good morning, everyone. So I guess a little bit of processive maybe on, and this may be a little bit of a follow up from one of the earlier questions. But just, you know, we're getting a lot of questions about demand elasticity, you know, consumer tolerance of inflation. So can you just give us a little bit of perspective for both your beer business and also in wine and spirits just, you know, what kind of economizing behavior might you be seeing, you know, again, is it like, you know, buying more in chain convenience versus independence or choices, people are making on packaging, just, you know, as you're kind of looking forward, you know, just kind of where we are on economizing behavior and how you might, you know, have to adapt or adjust to that.

Bill Newlands: Yeah. So I think this points out to where our judicious approach to pricing has been spot on. We've said consistently, in fact, we got questioned about that on on prior calls at times about why we weren't taking more price. You know, our view has consistently been one to two percent annually. We were a little more than that the last couple of years, but one to two percent is the consistent way that we look at it and we look at it market by market skew by skew.

Bill Newlands: The rationale for that is quite simple. It's much easier to keep your consumer than to have to go get them again if you have lost them. I think in this particular instance, as you point out, people are careful. We're seeing less more trips, but somewhat less purchasing per trip than we used to see, which simply means people are being a little more careful about what they do, given the inflationary environment that exists.

Bill Newlands: I think the important part for us is the fact that even though there are more trips, they're making more trips to purchase more of our brands. Even if they might spend a little less on any particular trip. Again, that speaks to what I just replied to on the prior question, which is about our brand loyalty and about the consistent consumer dynamic that really works to our advantage over the long run. Again, I think the critical element to that is our judicious pricing approach over time is one that's going to do us very well when you're in a consumer environment that people are a little bit more concerned or a little bit more nervous about the inflationary environment. I think that's going to work to our advantage as we go forward.

Bill Newlands: Thank you.

Chris Carey: Our next question comes from the line of Chris Carey with Wells Fargo Securities. Please proceed with your questions. Hi, everyone.

Garth Hankinson: Garth, can you just comment on how inflation is is coming in relative to your expectations entering the year, put some takes? I asked this in the context of your comments around marketing, coming in at the low end of the historical range for the full year and I would just be curious on how you view growth margin delivery in the quarter relative expectations with any context on the back half of the year.

Garth Hankinson: But anyway, high level, just trying to get some context around how how cost of running relative to what you were thinking go in and maybe you can frame how this delivery is coming in. You know, again, relative to your going expectations. Thanks. Yeah, yeah, thanks. Thanks, Chris. Like, look, you know, good. As a reminder, you know, we expect our beer operating margin for this fiscal year to be around 38%. You know, that that remains unchanged as as it relates specifically to Q2 Q2 is historically, you know, traditionally, our higher, our highest margin quarter, you know, given the given the volume associated with Q2.

Garth Hankinson: And so, you know, in the second half of the year, obviously, we're going to continue to face inflationary pressures that we've had all year long. We are seeing some easing in inflation as expected as we've gone through the year. You know, unfortunately, well, we've seen some some improvement in inflation. We've also seen a strengthening peso kind of hold up. And so any improvement that we add due to inflation has been been really offset by the by the strength of the peso.

Garth Hankinson: And then again, in the second half of the year, because of the historically lower volume that we have in that half, there will be an impact, obviously, to a fixed cost absorption as well as cogs and marketing. And additionally, incremental depreciation, as we brought on, you know, over a gone partway through the year. And then it's bill noted in his remarks. You've scheduled maintenance and that we traditionally doing the second half of the year as well as the overlapping and the pricing benefits last year. So, you know, all all all in. I mean, those are the sort of the factors that will contribute to the 38% margin for the full year. Thank you.

Operator: Our next question comes from the line of Lauren Lieberman with Barclays. Please proceed with your question. Lauren, are you self muted? Lauren, unfortunately, we can't hear you. Are you muted?

Operator: Yeah, I will move on, Lauren. You got it.

Robert Ottenstein: Okay, our next question comes from the line of Rob on stage with Evercourt. Please proceed with your question. Great. Thank you very much. I was wondering if you could give us a little bit more detail on your productivity programs. You know, the specific buckets that you've addressed that you're targeting. And, you know, is this something that is, you know, potentially a multi-year process, of System Optimization. Thank you. Thanks, Robert.

Garth Hankinson: Yeah, I would say that our cost savings and efficiency initiatives are certainly our multi-year year in nature. Obviously, we communicated earlier this year in Q1. We had taken 30 million dollars out and then this year an incremental 20 million, or this quarter I should say an incremental 20 million. We're always looking at ways to sort of prove productivity, you know, create efficiencies in the business, whether that's through supply chain and procurement or operations.

Garth Hankinson: Examples of that over time have been things like double stacking rail cars and the use of plastic pallets, optimizing the location of inventory as Bill referenced in response to a question earlier, improved purchasing in terms of raw materials through better contract management and negotiations, as well as more effective and efficient use of our marketing spend.

Garth Hankinson: So this is absolutely something that the organization is focused on in a year-on-year basis and certainly we will share a lot more detail on our cost savings initiatives for both our beer and our wine and spirits businesses at a rep coming investor day. Thank you.

Bill Newlands: Our next question comes from the law and if we leave both for Lorne with city, please first give it your question. Hey, good morning everyone. Bill, you mentioned that the last four-week trends have been very strong and consistent with the last 52 weeks. Can you give a little bit maybe more color on the performance of your business in September? And then at the industry level, one of your competitors, the investor day mentioned that September for the industry is particularly slugged, particularly in the last couple of weeks as you cycle the shipments ahead of the price increases in the last year.

Bill Newlands: So maybe some color on the timing of shipments into September into Q3 will be helpful. Thank you. Sure. When I look at the most recent circumna data for four weeks, our total beer business is up 13.7%, which is very consistent with what the 52 weeks. That's what I was alluding to in my prior comments around that. Certainly, as we also noted, we expected that we would see some element of tightness during the course of the beginning of this quarter that we are in, purely because we are lapping the October price increases that occurred last year and some of the pre-build that people do, the retailers do ahead of any price increases that existed.

Bill Newlands: All that's consistent with what we've expected. And we expect, as we've said, the reason we raised our guidance expectation around beer is because we expect to have a very strong back half of the year to find a couple of these headwinds that certainly exist. Thank you.

Andrew Strelzik: Our next question comes from the line of Andrew Strovic with BMO capital markets. Please proceed with your question.

Garth Hankinson: Good morning. Thanks for taking the question. My question is on capital allocation and in particular around buybacks. And I think you noted no buybacks during the quarter, but being on track for your target to offset delusion a year to date. I guess my question, though, is what's the appetite for buybacks and excess of that, particularly given the momentum in the business, strong cash flow generation? How are you thinking about that now versus where you were at the beginning part of the year and moving forward?

Garth Hankinson: Thanks. Yeah, so, you know, capital allocation is obviously something that we're going to discuss in greater detail at our upcoming investor day, which is broadly speaking I would say for this fifth year, as we noted when we entered this year, we were going to at least buy back the dilution that occurred throughout the year, but this year we were also prioritizing, you know, getting our leverage ratio back to our target of 3.0 versus where it was at an elevated state as a result of the reclassification.

Garth Hankinson: That said, we're always looking to be flexible and agile as conditions allow for. So, something we continually, continually, continue to look at. And just as a reminder, we do have, you know, $800 million remaining under our current board authorization. So, in the event that we decide we want to be a bit more active, we have the ability to do so.

Operator: Thank you.

Lauren Lieberman: Our next question comes from the line of Lauren Lieberman with Barclays, please proceed with your question. Hi, can you hear me? We do. Okay, cool. Sorry about that. I don't know what happened, but just quickly I was going to ask about wine in wine industry growth. And just, you know, against the backdrop of your comments on, you know, woodbridge slash said, obviously not wine. And then the higher and brands performance, but just as you think about the path forward, not just second half, but, you know, into next year and so on.

Lauren Lieberman: How do you think about wine industry growth, you know, wine versus beer versus spirits? I'm guessing we'll get into this a bit more the investor day, but I was just curious if you could preview a bit your view on kind of that long term growth and wine. Thanks.

Bill Newlands: Yeah, certainly learn. It's really the tale of two cities, the lower end piece of the business, what we refer to as mainstream has been very challenged. It's down mid to high single digits, which, which obviously is somewhat challenging for us because we do have significant involvement with that category still, even though we have divested a number of brands that played in that category. So if that, that certainly is a very different answer than what I would say to you about the higher end portion of the business, where brands like Naomi and Kim Crawford and I West and Booker and things of that nature are all significantly outperforming our plants and expectations and gaining share.

Bill Newlands: You're right, we'll talk about that at investor day. The other thing I keep in mind, unlike beer, which is about 45% of the second half, it's directly the flip when it comes to wine. That's 55% of the second half. And as we do in a disproportionate amount of our business comes from a spirit and which much more relates to vintage releases, those all tend to occur in the second half, which again, waste our business toward the back half of the year versus the first half of the year.

Bill Newlands: And the other one I would just point out, which I think is important to recognize. We made the choices we set early this year that we were going to balance our ships into police all year long as opposed to doing it once in the fourth quarter, which is what we did last year. That creates a bit of a challenge in the early part of our fiscal year, but gives us a significant improvement proposition in the back half of the year as that won't occur as it did last year creating a disproportionate shipment number in the fourth quarter last year, which won't be the case.

Bill Newlands: And we will be going against a much better proposition this year. So all in, I think the wine business certainly has seen some challenges, but much like we see in the higher end of the beer business, the higher end portion of the category is much stronger. And certainly our business in that sector is performing very nicely against category norms. And you're right, we will go into all of that in much more depth during our investor discussion on November. Thank you.

Bill Newlands: We have reached the end of our question and answer session.

Bill Newlands: I would now like to turn the floor back over to Bill Newlands for any closing comments. Thank you and thank you all again for joining our call today. We're very pleased with our performance in the first half of fiscal 24. As anticipated, our beer business further accelerated during its seasonally strongest period of the year to deliver excellent results. And our wine and spirits portfolio are higher end brands. Continue to outperform and track channels and we're looking forward to an acceleration in the growth of that business over the second half.

Bill Newlands: All told, we remain competent in our outlook for the full year and have tightened the expectations for growth in our beer business at the higher end of the initial range, while increasing our overall EPS outlook as we drove interest expense lower due our proactive debt management and closing.

Operator: I would like to encourage you to tune in for our upcoming investor day on November 2nd, where we will be sharing our latest perspectives on the medium term outlook for our business. You will find further details on how to access this event through our investor relations website at ir.cbrand.com. Thank you again for joining us today and we look forward to seeing most of you. If not all of you, November 2nd. Thank you. This does include today's teleconference. We appreciate your participation.

Operator: You may disconnect at this time. Enjoy the rest of your day.

Operator: Thank you.