Q3 2024 Constellation Brands Inc Earnings Call

Okay.

Greetings. Welcome to the Constellation Brand's third quarter fiscal year 2024 earnings call. At this time, all participants are in a listen-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Joseph Suarez, Senior Vice President of Investor Relations. Thank you. You may begin.

Greetings and welcome to the constellation brands third quarter fiscal year 2024 earnings call. At this time, all participants are in a listen only mode.

<unk> and answer session will follow the formal presentation, if anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded I will now turn the conference over to your host Joseph Schwartz Senior Vice President of Investor Relations. Thank you you may begin.

Joseph Swiara: Thank you, Daryl. Good morning, all, and Happy New Year. Welcome to Constellation Brands Q3 Fiscal 24 Conference Call. I'm here this morning with Bill Newlands, our CEO , and Garth Hankinson, our CFO . As a reminder, reconciliations between the most directly comparable GAAP measures and any non-GAAP financial measures discussed on this call are included in our news release or otherwise available on the company's website at www.cbrands.com.

Thank you Darren.

And golf and happy New year, welcome to constellation Brands' Q3 fiscal 'twenty four conference call.

Here this morning, with Bill new once our CEO and Garth Hankinson, our CFO as a reminder, reconciliations between the most directly comparable GAAP measure and any non-GAAP financial measures discussed on this call are included in our news release or otherwise available on the company's website at Www Dot C brands.

Dotcom.

Joseph Swiara: Please refer to the news release and Constellation's SEC filings for risk factors which may impact forward-looking statements made on this call.

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 in the investors section of our company's website a series of slides with key highlights of the prepared remarks shared by Bill and Garth and today's call before turning the call over to Bill.

Joseph Swiara: Following the call, we'll also be making available in the investors section of our company's website a series of slides with key highlights of the prepared remarks shared by Bill and Garth in today's call. Before turning the call over to Bill, in line with prior quarters, I'd like to ask that we limit everyone to one question per person, which will help us to end our call on time. Thanks in advance. And now here's Bill.

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

Bill Newuance: Thank you, Joe, and congratulations on your recent promotion, and good morning, all. Happy New Year to everyone, and welcome to our Q3 Fiscal 24 call. I hope you all had a wonderful holiday season and were able to enjoy some of our great products with your family and friends.

Joe Congratulations on your recent promotion and good morning, all happy new year to everyone and welcome to our Q3 fiscal 'twenty four call I Hope you all had a wonderful holiday season, and we're able to enjoy some of our great products with your family and friends we.

Bill Newuance: We have several topics to address on today's call, so let's start with the key takeaways for this quarter. First, I am pleased to report that our beer business again delivered very strong performance that accelerated throughout Q3.

We have several topics to address on today's call. So let's start with the key takeaways for this quarter first I am pleased to report that our beer business again delivered very strong performance that accelerated throughout Q3.

Bill Newuance: We achieved depletion growth of over 8% for our beer portfolio with a particularly outstanding end to the month of November .

We achieved depletion growth of over 8% for our beer portfolio with a particularly outstanding and to the month of November.

Bill Newuance: We led Thanksgiving beer sales in U.S. track channels and continued to see accelerating momentum in the last week of the month, reflecting both ongoing strong consumer demand and restocking after the earlier Thanksgiving holiday this year.

We let Thanksgiving beer sales and U S track channels and continue to see accelerating momentum in the last week of the month, reflecting both ongoing strong consumer demand and restocking after the earlier Thanksgiving holiday this year.

Bill Newuance: And once again, for another entire quarter, we achieved leading share gains in track channels with more than two-point expansion in the U.S. beer category and a nearly three-point gain in the higher end.

And once again for another entire quarter, we achieved leading share gains in tracked channels with more than two point expansion in the U S beer category and a nearly three point gain in the higher Ed.

Bill Newuance: This marks the 55th consecutive quarter of depletion growth for our beer business and the 10th leading share gain.

This marks the 55th consecutive quarter of depletion growth for our beer business and the 10th leading share gains.

Bill Newuance: Secondly, in line with our consistent, disciplined, and balanced approach to capital allocation, we executed $215 million of share repurchases in Q3, while maintaining our net leverage ratio, excluding canopy equity and earnings, unchanged from last quarter at 3.2 times.

Secondly.

In line with our consistent disciplined and balanced approach to capital allocation, we executed $215 million of share repurchases in Q3, while maintaining our net leverage ratio, excluding canopy equity and earnings unchanged from last quarter at three two times.

Bill Newuance: as well as continuing to deliver cash returns through our dividend and advancing our organic growth investments at our Overgone Brewery and New Brewery site in Veracruz to support additional production capacity for our beer business.

As well as continuing to deliver cash returns through our dividend and advancing our organic growth investments at our overdone brewery and new brewery site in Veracruz to support additional production capacity for our beer business.

Bill Newuance: And thirdly, as noted at our recent investor day, over the past few months our wine and spirits business, much like others across the industry, has seen a broader marketplace deceleration.

And thirdly as noted at our recent Investor day over the past few months, our wine and spirits business much like others across the industry has seen a broader marketplace deceleration in <unk>.

Bill Newuance: In light of these and other near-term headwinds, we are further revising our Fiscal 24 Organic Net Sales Guidance for Wine and Spirits.

Light of these and other near term headwinds we are further revising our fiscal 'twenty four organic net sales guidance for wine and spirits to be down 79% and the operating income guidance for that business. Excluding gross profit less marketing our brands divested last year to be down, 6% to 8%, which I will elaborate.

Bill Newuance: to be down seven to nine percent, and the operating income guidance for that business, excluding gross profit, less marketing of brands divested last year, to be down six to eight percent, which I will elaborate on shortly.

On shortly.

Bill Newuance: Of course, we are not pleased with these revisions, and both our leadership team and our wine and spirits teams remain fully committed to improving the performance of this business and to achieving its medium-term target.

Of course, we are not pleased with these revisions at both our leadership team and our wine and spirits teams remain fully committed to improving the performance of this business and to achieving its medium term targets.

Bill Newuance: In addition, as announced earlier today, Robert Hansen has elected to step down from his role as president of our Wine and Spirits business in a few weeks at the end of the current fiscal year. We have initiated a process to identify a successor for this role, and I will step in to lead the Wine and Spirits business in the interim, while of course retaining my chief executive oversight across both the enterprise and our beer business.

In addition, as announced earlier today, Robert Hanson has elected to step down from his role as president of our wine and spirits business in a few weeks at the end of the current fiscal year, we have initiated a process to identify a successor for this role and I will step in to lead the wine and spirits business in the interim.

While of course, retaining my chief executive oversight across both the enterprise and our beer business.

Bill Newuance: Despite these revisions and leadership changes, as noted at our recent investor day, we continue to believe that over the medium term our wine and spirits business should accelerate its net sales growth to 1-3% and improve operating margins to 25-26%, supported by the significant transformation undertaken over the last few years.

Despite these revisions of leadership changes as noted at our recent Investor Day, we continue to believe that over the medium term, our wine and spirits business should accelerate its net sales growth to 1% to 3% and improve operating margins to 25% to 26% supported by the significant transformation undertaken over.

The last few years to better align our portfolio with broader consumer led premium amortization trends expand our omni channel capabilities and extend into targeted international markets.

Bill Newuance: to better align our portfolio with broader consumer-led premiumization trends, expand our omni-channel capabilities, and extend into targeted international markets.

Bill Newuance: More importantly, in fiscal 24, we still expect our enterprise comparable EPS guidance excluding Canopy to remain within our previously stated range of $12 to $12.20, and over the medium term, we continue to expect low double-digit EPS growth as outlined at our investor day.

More importantly in fiscal 'twenty four we still expect our enterprise comparable EPS guidance, excluding canopy to remain within our previously stated range of $12 $12 20 sets and over the medium term, we continue to expect low double digit.

EPS growth as outlined at our Investor day.

Bill Newuance: Now let's step through these key points for Q3 in more detail. As noted, our Beard team once again delivered remarkable results. Modelo Especial led the charge, achieving a roughly 12% increase in depletions and remained the leading share gaining brand in tracked channel dollar sales.

Now, let's step through these key points for Q3 in more detail as.

As noted our beer team once again delivered remarkable results Modelo especial led the charge achieving a roughly 12% increase in Depletions and remained the leading share gaining brand and track channel dollar sales.

Bill Newuance: strengthening its position as the number one beer brand in the U.S. market, having ultimately achieved that top spot now on a 52-week basis.

Strengthening its position as the number one beer brand in the U S market, having ultimately achieve that top spot now on a 52 week basis.

Bill Newuance: The broader Modelo brand family also delivered phenomenal results. Chilatas achieved an increase in depletions of approximately 22 percent year-over-year in Q3. And on a rolling 12-month basis, the combined set of chilata flavors and pack sizes reached the 20 million case milestone, which is over 350 percent more than that set of brands was doing just five years ago in fiscal 19.

The broader Modelo brand family also delivered phenomenal results <unk> achieved an increase in depletions of approximately 22% year over year in Q3 and on a rolling 12 month basis. The combined set of gelato flavors and pack sizes reached the 20 million case milestone.

Which is over 350% more than that set of brands was doing just five years ago in fiscal 19.

Bill Newuance: Additionally, Modelo Cholada Especial, our original flavor, which was recently launched in a 12-pack, 12-ounce format, was a top 15 shared gainer in Cercana in Q3, and we are excited about the opportunities ahead for our new Cholada flavor and pack size additions.

Additionally, modelo gelato, especially out our original flavor, which was recently launched in a 12 pack 12 ounce format was a top 15 share gainer and <unk> in Q3, and we are excited about the opportunities ahead for our new chill out of flavor and pack size additions.

Bill Newuance: Also in the Modelo family, Oral continued its strong first year of going national with a third quarter as a top five shared gainer in the high end.

Also on the Modelo family oral continued its strong first year of going national with a third quarter is a top five share gainer in the high end.

Bill Newuance: We look forward to the growth opportunities ahead for Oro as awareness grows and we introduce new patch sizes next fiscal year.

We look forward to the growth opportunities ahead for Oro as awareness grows and we introduce new patch sizes next fiscal year.

Bill Newuance: Beyond Medela, our Corona Extra and Pacifico core beer brands continued to perform strongly in Q3. Corona Extra maintained depletion growth at about 1%, while Pacifico delivered an outstanding 19% increase.

Beyond middle or Corona extra and Pacific Oh core beer brands continued to perform strongly in Q3.

Corona extra maintained depletion growth at about 1%, while <unk> delivered an outstanding 19% increase.

Bill Newuance: and on a rolling 12 month basis, the Civico also reached the 20 million case milestone, double its buy-in from five years ago.

And on a rolling 12 month basis, but <unk> also reached the 20 million case milestone doubled its volume from five years ago.

Bill Newuance: In addition, both brands remain top 10 share gainers across the entire U.S. beer market and tracked dollar sales.

In addition, both brands remain top 10 share gainers across the entire U S beer market and track dollar sales.

Bill Newuance: Our beer brands clearly continue to resonate strongly with the consumer and I'm incredibly proud of and thankful to our entire beer team for their consistently strong execution.

Our beer brands clearly continue to resonate strongly with the consumer and I'm incredibly proud of and thankful to our entire <unk> team for their consistently strong execution.

Bill Newuance: With that backdrop, we remain confident in our Fiscal 24 net sales growth guidance of 8 to 9 percent. And from an operating income guidance perspective, we now expect our beer business to deliver 7 to 8 percent growth for Fiscal 24, as we realize additional benefits this year from the marketing effectiveness actions discussed during our Investor Day.

With that backdrop, we remain confident in our fiscal 2000 and for net sales growth guidance of 8% to 9% and from an operating income guidance perspective, we now expect our beer business to deliver 70% to 8% growth for fiscal 'twenty four.

As we realize additional benefits this year from the marketing effectiveness actions discussed during our Investor day.

Bill Newuance: Over the medium term, we still see significant opportunities to continue to achieve net sales growth of 7 to 9 percent in our beer business, supported by the fundamental distribution, innovation, and demographic drivers, as well as consumer-led trends also discussed at our recent Investor Day.

Over the medium term, we still see significant opportunities to continue to achieve net sales growth of 7% to 9% and our beer business supported by the fundamental distribution innovation and demographic drivers as well as consumer led trends also discussed at our recent Investor day.

Bill Newuance: as well as to continue to achieve best-in-class operating margins of 39 to 40 percent supported by savings and efficiency initiatives across our cost of goods sold, marketing, and broader SG&A.

As well as to continue to achieve best in class operating margins of 39% to 40%.

Supported by savings and efficiency initiatives across our cost of goods sold marketing and broader SG&A.

Bill Newuance: And last but not least, we continue to support the growth of our beer business through modular investments in brewing capacity and productivity initiatives to unlock further production upsides.

And last but not least we continue to support the growth of our beer business through modular investments in brewing capacity and productivity initiatives to unlock further production upside.

Bill Newuance: Moving on to the wine and spirits business, as noted earlier, our wine and spirits business is operating amid a broader marketplace deceleration.

Moving on to the wine and spirits business as noted earlier, our wine and spirits business is operating amid a broader marketplace deceleration.

Bill Newuance: As we have shared in recent quarters, we are actively working to address mainstream headwinds affecting our two largest volume brands, Woodridge Infecta. However, we anticipate these efforts to extend beyond fiscal 24.

As we have shared in recent quarters, we are actively working to address mainstream headwinds affecting our two largest volume brands Woodbridge and sector. However, we anticipate these efforts to extend beyond fiscal 'twenty four.

Bill Newuance: More broadly, while we are maintaining a disciplined approach to taking price across our portfolio, the competitive environment is now adding pressure with more aggressive discounting and price points beyond mainstream.

More broadly while we are maintaining a disciplined approach to taking price across our portfolio. The competitive environment is now getting pressure with more aggressive discounting and price points beyond mainstream.

Bill Newuance: Again, we believe the broader decelerization in these higher end categories to be temporary and have continued to execute strategic pricing actions instead of implementing reductions like certain competitors.

Again, we believe the broader deceleration in these higher end categories to be temporary and have continued to execute strategic pricing actions instead of implementing reductions like certain competitors.

Bill Newuance: In addition, we have made the decision to adjust some aspects of our U.S. wholesale distributor agreements focused on improving mix, inventory, and state and channel-level sales execution.

In addition, we have made the decision to adjust some aspects of our U S. Wholesale distributor agreements focused on improving mix inventory and state and channel level sales execution.

Bill Newuance: We are actively engaged with our largest distributor partner to ensure that our portfolio continues to make progress against our vision of leading the higher end, as well as on the revitalization of our mainstream brand.

We are actively engaged with our largest distributor partner to ensure that our portfolio continues to make progress against our vision of leading the higher end as well as on the revitalization of our mainstream brands.

Bill Newuance: From an international perspective, while we experienced a decline in the quarter driven by previously noted weakness in our more mature markets, inventory levels in Canada, our largest export market, seem to now be normalizing following the destocking from recent changes to inventory regulations. So we anticipate more balanced supply and demand dynamics for this market going forward.

From an international perspective, while we experienced a decline in the quarter driven by previously noted weakness in our more mature markets inventory levels in Canada, our largest export market seem to now be normalized following the destocking from recent changes to inventory regulations. So we anticipate more balanced supply.

Demand dynamics for this market going forward.

[laughter].

Bill Newuance: Importantly, despite the impact of these near-term headwinds on organic net sales, our prudent pricing and cost efficiency efforts enabled margin improvement for wine and spirits in Q3.

Importantly, despite the impact of these near term headwinds on organic net sales are prudent pricing and cost efficiency efforts enabled margin improvement for wine and spirits in Q3.

Bill Newuance: Beyond these near-term challenges, our focus remains on driving growth across our higher-end brands.

Beyond these near term challenges our focus remains on driving growth across our higher end brands.

Bill Newuance: As shared during Investor Day, over the last few years our wine and spirits business has established a stronger foundation to advance toward these targets.

As shared during Investor day over the last few years, our wine and spirits business has established a stronger foundation to advance toward these targets since fiscal 19, we have doubled the number of fine wine and craft spirits brands in our portfolio and we have invested and expanded our footprint in higher growth DTC channel.

Bill Newuance: Since fiscal 19, we have doubled the number of fine wine and craft spirits brands in our portfolio, and we have invested and expanded our footprint in higher growth DTC channels and targeted international markets.

<unk> and targeted international markets.

Bill Newuance: With our structural transformation securely in place, I want to thank Robert Hansen for his contributions over many years, including initially as a non-executive member of the board. We wish Robert well and all the best in his future endeavors and look forward to announcing the appointment of our next Wine and Spirits business president in the near future.

With our structural transformation securely in place I want to thank Robert Hanson for his contributions over many years, including initially as a nonexecutive member of the board, we wish Robert well and all the best in his future endeavors and look forward to announcing the appointment of our next wine and spirits business president in the near future.

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Bill Newuance: Lastly, I'd like to emphasize again our unwavering commitment to our consistent, balanced, and disciplined approach to capital allocation.

Lastly, I would like to emphasize a gap our unwavering commitment to our consistent balanced and disciplined approach to capital allocation.

Bill Newuance: As noted at our Investor Day event, we continue to target a strong balance sheet that supports our investment grade rating, and we are working toward a net leverage ratio of three times, which we expect to achieve within fiscal 25.

As noted at our Investor Day event, we continue to target a strong balance sheet that supports our investment grade rating and we are working toward a net leverage ratio of three times, which we expect to achieve within fiscal 'twenty five.

We expect to maintain a dividend payout ratio of approximately 30% supporting continued growth of our dividend per share in line with our earnings expectations.

Bill Newuance: We plan to invest approximately $5 billion in growth and maintenance capex from fiscal 24 to fiscal 28, primarily focused on brewing capacity expansions for our beer business.

We plan to invest approximately $5 billion and growth and maintenance Capex from fiscal 'twenty four to fiscal 'twenty eight primarily focused on growing capacity expansions for our beer business.

We continue to Opportunistically buy back shares with $215 million repurchased in Q3, which leaves us with an additional $2 $6 billion still within our existing share repurchase authorization and.

Bill Newuance: And finally, we continue to look at tuck-in gap-filling M&A opportunities with a highly rigorous transaction criteria. So to close, let's go back to the key takeaways for the quarter. First, we have a beer portfolio and team that consistently delivers industry-leading performance, and we see significant opportunities, as outlined in our investor day, to continue to drive similarly strong growth over the medium term.

And finally, we continue to look at tuck in gap filling M&A opportunities with a highly rigorous transaction criteria.

So to close let's go back to the key takeaways for the quarter first we have a beer portfolio and team that consistently delivers industry, leading performance and we see significant opportunities as outlined in our investor day to continue to drive similarly strong growth over the medium term.

Bill Newuance: Second, we remain committed to delivering value to our shareholders through consistent execution of our balanced and disciplined capital allocation priorities.

Second we remain committed to delivering value to our shareholders through consistent execution of our balanced and disciplined capital allocation priorities and third our wine and spirits business is focused on realizing net sales growth and improved operating margins by leveraging its reshaped higher and leaning poor.

Bill Newuance: And third, Aligned Spirits Business is focused on realizing net sales growth and improved operating margins by leveraging its reshaped higher-end leaning portfolio, as well as our enhanced DTC channel and international market footprints and capability. And lastly, and importantly,

Folio as well as our enhanced DTC channel and international market footprints and capability and lastly, and importantly, we continue to expect our enterprise comparable EPS guidance in fiscal 'twenty four excluding canopy to remain within our previously stated range.

Bill Newuance: we continue to expect our Enterprise Comparable EPS Guidance and Fiscal 24 Excluding Canopy to remain within our previously stated range of $12 to $12.20. And over the medium term, we continue to expect low double-digit EPS growth as we outlined at our Investor Day. And with that, I will now turn the call over to Garth, who will review our financial results in greater detail. Garth?

<unk> of $12 to $12 20, and over the medium term, we continue to expect low double digit EPS growth as we outlined at our Investor day, and with that I will now turn the call over to Garth who will review our financial results in greater detail.

Garth: Thank you, Bill, and good morning, everyone. As usual, my discussion on our financial performance will mainly focus on comparable basis results and stepping through our P&L.

Thank you Bill and good morning, everyone as usual my discussion on our financial performance will mainly focus on comparable basis results in stepping through our P&L.

Garth: However, as of this quarter, we will discuss enterprise results followed by business segment detail to better address our performance against the outlook shared at our investor day at these different levels.

However, as of this quarter, we will discuss enterprise results followed by business segment detail to better address our performance against the outlook shared at our Investor day at these different levels.

Garth: Beginning with net sales, we achieved enterprise-wide top line growth of 1% for the quarter. This was the result of solid beer net sales growth of 4%, partially offset by the Wine and Spirits net sale decline of 8%.

Beginning with net sales, we achieved enterprise wide topline growth of 1% for the quarter. This was the result of solid beer net sales growth of 4%, partially offset by the wine and spirits net sales decline of 8%.

Garth: One of the spirit's net sales decline was 7% on an organic basis.

While spirits net sales decline was 7% on an organic basis.

Garth: As Bill noted, beer business depletions for the quarter were above 8% as the year-over-year growth momentum from summer continued through the fall, supported by ongoing strong consumer demand of our portfolio.

As Bill noted beer business Depletions for the quarter were above 8% as the year over year growth momentum from summer continued through the fall supported by ongoing strong consumer demand of our portfolio.

Garth: Again, we saw particular acceleration in depletion volumes at the end of November as we extended our leadership across key holidays with outstanding performance during U.S. Thanksgiving.

Again, we saw particular acceleration in depletion volumes at the end of November as we extended our leadership across key holidays with outstanding performance during U S. Thanksgiving.

Garth: Our on-premise channel realized modest growth and depletions of about 1% for Q3 and accounted for approximately 11% of our total volume.

Our on premise channel realized modest growth in Depletions of about 1% for Q3 and accounted for approximately 11% of our total volumes.

Garth: as we've been able to replenish inventories following the keg disruption over the summer and began to advance growth and draft performance in the on-premise.

As we've been able to replenish inventories following the cake disruption over the summer and began to advance growth and drive performance in the on premise.

Garth: Shipping volumes for beer business grew 3.4% and we achieved favorable pricing slightly above 1% as we began to lap the elevated pricing increases from last fall.

Shipment volumes for beer business grew three 4% and we achieved favorable pricing slightly above 1% as we began to lap the elevated pricing increases from last fall.

Garth: These volume and pricing uplifts were partially offset by a shift in packaging.

These volume and pricing uplifts were partially offset by a shift in packaging mix.

Garth: Altogether, the year-over-year shipment pricing and mixed changes drove the 4% or approximately $77 million increase in beer net sales for the quarter.

Altogether these year over year shipment pricing and mix changes drove the 4% or approximately $77 million increase in beer net sales for the quarter.

Garth: For our wine and spirits business, organic net sales declined 7 percent, driven by lower shipment volumes due to the previously referenced category headwinds and the change in our process aimed at aligning shipments and depletion.

For our wine and spirits business organic net sales declined 7% driven by lower shipment volumes due to the previously referenced category headwinds and the change in our process aimed at aligning shipments and depletions.

Garth: As a reminder, per prior calls this year, we now make quarterly shipment adjustments to align with the politians versus our former practice of only doing one annual adjustment in the fourth fiscal quarter.

As a reminder per prior calls this year, we now make quarterly shipment adjustments to align with depletions versus our former practice of only doing one annual adjustment in the fourth fiscal quarter.

Garth: We believe this process change has partially driven less favorable comparisons for the first three quarters of fiscal 2024. Now shifting to operating margin.

We believe this process change is partially driven less favorable comparisons for the first three quarters of fiscal 2024.

Now shifting to operating margins for Q3 enterprise wide operating income increased 7% and operating margin increased 170 basis points to 32, 3%.

Garth: For Q3, enterprise-wide operating income increased 7 percent and operating margin increased 170 basis points to 32.3 percent.

Garth: This was primarily a result of an increase in operating income of 7% for our beer business which also drove a 100 basis point increase in beer business operating margin to 38.5%.

This was primarily a result of an increase in operating income of 7% for our beer business, which also drove a 100 basis point increase in beer business operating margin to 38, 5%.

Garth: Enterprise-wide operating margins also benefited from a 13% reduction in corporate expense.

Enterprise wide operating margins also benefited from a 13% reduction in corporate expense.

Garth: These beer business and corporate expense tailwinds were partially offset by a 5% decrease in our Wine and Spirits business operating income, which still yielded a 60 basis point increase in operating margin to 25.4% for the Wine and Spirits business.

These beer business and corporate expense <unk> were partially offset by 5% decrease in our wine and spirits business operating income would still yielded a 60 basis point increase in operating margin to 25, 4% for the wine and spirits business.

Garth: Excluding the gross profit less marketing of the brands that are no longer part of the business following their divestiture operating income and operating margin for the wine and spirits business decreased by 4% and increased by 80 basis points respectively.

Excluding the gross profit less marketing of the brands that are no longer part of the business. Following their divestiture operating income and operating margin for the wine and spirits business decreased by 4% and increased by 80 basis points respectively.

Garth: Stepping through these drivers in more detail, starting with beer, the increase in operating income and margin were a result of benefits and cost of products sold as we continue to build cost efficiency and productivity savings. For the quarter, total cost savings were approximately $55 million.

Stepping through these drivers in more detail starting with beer.

The increase in operating income and margin were result of benefits and cost of product sold as we continue to build cost efficiency and productivity savings for the quarter total cost savings were approximately $55 million.

Garth: an $11 million or a 6% decrease in marketing costs as a result of shifts in timing of spend.

And $11 million or a 6% decrease in marketing costs as a result of shifts in timing of spend.

Garth: Note that marketing as a percent of net sales was 8.7% for the quarter.

Note that marketing as a percent of net sales was eight 7% for the quarter.

Garth: a $4 million decrease in SG&A expense primarily driven by lower legal fees, partially offset by higher compensation and benefit expenses.

A $4 million decrease in SG&A expense, primarily driven by lower legal fees, partially offset by higher compensation and benefit expenses.

Garth: and $6 million of favorability from the divestiture of our craft beer.

And $6 million of favorability from the divestiture of our craft beer business.

Garth: These benefits were partially offset by a $12 million unfavorable foreign currency impact, as we still realized a higher Mexican peso rate year over year, inclusive of our multi-year hedging positions.

These benefits were partially offset by a $12 million unfavorable foreign currency impact as we still realized a higher Mexico peso Mexican peso rate year over year inclusive of our multiyear hedging positions.

Garth: Additionally, in line with our full year expectations and guidance, we are still facing higher costs in our packaging and raw materials, which resulted in a $17 million headwind for the quarter.

Additionally in line with our full year expectations and guidance, we are still facing higher costs in our packaging and raw materials, which resulted in a $17 million headwind for the quarter.

Garth: We have also faced an $11 million increase in depreciation as a result of our capacity expansion.

We have also faced an $11 million increase in depreciation as a result of our capacity expansions.

Garth: The reduction in our corporate expense, which for the quarter was $10 million, was primarily driven by the reduction in third-party services, particularly in our digital business acceleration investments, partially offset by increased compensation and benefits.

The reduction in our corporate expense, which for the quarter was $10 million was primarily driven by the reduction in third party services, particularly in our digital business acceleration investments, partially offset by increased compensation and benefits.

Garth: Our wine and spirits operating income margin, excluding the gross profit, less marketing of the brands that are no longer part of the business following last year's divestiture, had a year-over-year improvement as the volume declines and unfavorable mix were more than offset by reduced logistics and warehousing costs, favorable SG&A costs due to reduced third-party consulting expenses, and lower compensation and benefits.

Our wine and spirits operating income margin, excluding the gross profit less marketing of the brands that are no longer part of the business. Following last year's divestiture had a year over year improvement is the volume declines and unfavorable mix were more than offset by reduced logistics and warehousing costs favorable SG&A.

<unk> cost due to reduced third party consulting expenses and lower compensation and benefits.

Garth: more favorable material costs driven by our cost savings initiatives, and reduce marketing expense as we continue to shift our marketing focus towards more efficient, higher return efforts.

More favorable material cost driven by our cost savings initiatives and reduced marketing expense as we continued to shift our marketing focus towards more efficient high return efforts.

Garth: Interest expense for the quarter was approximately $104 million, driven by higher average borrowings and higher weighted average interest rate.

Interest expense for the quarter was approximately $104 million driven by higher average borrowings and higher weighted average interest rates as a reminder, approximately 5% of our debt obligations are subject to adjustable rates.

Garth: As a reminder, approximately 5% of our debt obligations are subject to adjustable rates.

Garth: As Bill noted, we ended the quarter with a net leverage ratio of approximately 3.2 times, excluding canopy equity and earnings, and remain on track to reach our target goal of three times within fiscal 2025.

As Bill noted we ended the quarter with a net leverage ratio of approximately three two times, excluding canopy equity and earnings and remain on track to reach our target goal of three times within fiscal 2025.

Garth: Our comparable effective tax rate, excluding capital canopy equity and earnings for the quarter, was 18% versus 18.8% last year.

Our comparable effective tax rate, excluding canopy equity and earnings for the quarter was 18% versus 18, 8% last year.

Garth: Our comparable EPS for the quarter, excluding canopy, equity, and earnings, was $3.24, reflecting the consistent growth of our business and representing an 8% increase.

Our comparable EPS for the quarter, excluding canopy equity and earnings was $3 24.

Reflecting the consistent growth of our business and representing an 8% increase.

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

We generated free cash flow of $1 4 billion.

The first three quarters of fiscal 2020 for a 10% decrease driven by a 33% increase in capex investments attributable to the expansions at our existing <unk> facility and the construction of our new brewery located in Veracruz.

Garth: As we look towards the end of fiscal 24, our guidance for enterprise comparable EPS, excluding canopy equity and earnings, remains unchanged at $12 to $12.20, underpinned by the following expectations.

As we look towards the end of fiscal 'twenty for our guidance for enterprise comparable EPS, excluding canopy equity and earnings remains unchanged at $12 to $12 20.

Underpinned by the following expectations.

Garth: First, an unchanged 8% to 9% net sales growth outlook, but a higher 7% to 8% operating income growth expectation for our beer business.

<unk>.

<unk> unchanged, 8% to 9% net sales growth outlook, but a higher 7% to 8% operating income growth expectation for our beer business.

Garth: As stated in our prior calls this year and at our recent Investor Day event, for our beer net sales, we continue to expect pricing to be between 1 to 2 percent and mid to high single-digit volume growth in fiscal 24.

As stated in our prior calls this year and at our recent Investor day event for our beer net sales, we continue to expect pricing to be between 1% to 2% and mid to high single digit volume growth in fiscal 'twenty four.

Garth: And we still anticipate shipment volumes for the second half to account for approximately 45% of the full year total.

And we still anticipate shipment volumes for the second half to account for approximately 45% of the full year total bill.

Speaker Change: Bill already addressed the drivers of the uplift in our beer operating income growth guidance, but it's also important to note that we still expect beer operating margin to be approximately 38% for the full year.

Bill already addressed the drivers of the uplift in our beer operating income growth guidance, but it is also important to note that we still expect beer operating margin to be approximately 38% for the full year.

Speaker Change: Second, for our wine and spirits business, we now expect a decline of 7% to 9% in organic net sales and a decline of 6% to 8% in operating income, excluding the impact of the divested wine brands that are no longer part of our results. Bill also already addressed the drivers for these revisions.

Second for our wine and spirits business, we now expect a decline of 7% to 9% organic net sales and a decline of 6% to 8% and operating income excluding the impact of the divested wine brands that are no longer part of our results Bill also already addressed the drivers for these revisions.

Speaker Change: Third, from a corporate expense perspective, we now expect that to be approximately $260 to $270 million for the full year, which includes a slightly lower end to the range versus our prior expectation, and similarly, our interest expense expectations are now slightly lower at approximately $450 million.

Third from a corporate expense perspective, we now expect that to be approximately $260 million to $270 million for the full year, which includes a slightly lower end to the range versus our prior expectation and similarly, our interest expense expectations are now slightly lower at approximately 400.

And $50 million.

Speaker Change: And last, but not least, we continue to expect our comparable effective tax rate, excluding canopy, to be approximately 19%.

And last but not least we continue to expect our comparable effective tax rate, excluding canopy to be approximately 19%.

Speaker Change: and despite the additional $215 million of shareware purchases executed in the third quarter, we also continue to anticipate weighted average diluted shares outstanding to be approximately $184 million.

And despite the additional $215 million of share repurchases executed in the third quarter. We also continue to anticipate weighted average diluted shares outstanding to be approximately a $184 million.

Okay.

Speaker Change: Beyond the P&L for free cash flow, we expect to be in the range of $1.4 to $1.5 billion for fiscal 24 reflective of $2.6 to $2.8 billion in operating cash flow and $1.2 to $1.3 billion of catbacks.

Beyond the P&L for free cash flow, we expect to be in the range of one four to $1 5 billion for fiscal 'twenty four reflective of two six to $2 8 billion in operating cash flow and one two to $1 $3 billion of Capex.

Speaker Change: In closing, we continue to deliver industry-leading results in our beer business and remain confident in our ability to achieve our stated EPS targets for this fiscal year, despite incremental category henwits affecting our wine and spirits.

In closing, we continue to deliver industry, leading results in our beer business and remain confident in our ability to achieve our stated EPS targets for this fiscal year, despite incremental category headwinds affecting our wine and spirits business.

Speaker Change: As we look further ahead, we remain excited about continuing opportunities to build shareholder value over the medium term, which we hope to achieve by capturing the substantial growth opportunities that exist for our beer business.

As we look further ahead, we remain excited about continuing opportunities to build shareholder value over the medium term, which we hope to achieve by capturing the substantial growth opportunities that exist for our beer business.

Speaker Change: executing against our consistent, disciplined, and balanced capital allocation priorities, and delivering enhanced performance in wine and spirits, supported by the significant transformation that business has undergone and the actions that we are taking to improve this business.

Executing against our consistent disciplined and balanced capital allocation priorities and delivering enhanced performance in wine and spirits supported by the significant transformation that business has undergone and the actions that we're taking to improve this business.

Speaker Change: We encourage existing and prospective shareholders who have not yet had an opportunity to review our recent Investor Day presentations to access those through our Investor Relations website, ir.cbrands.com, to gain further insights into our medium-term perspective on these topics. And with that, Bill and I are happy to take your questions.

We encourage existing and prospective shareholders, who have not yet had an opportunity to review our recent investor day presentations to access those through our Investor Relations website, IR Dot C brands Dot com to gain further insights into our medium term perspective on these topics and with that Bill and I are happy to take your.

Yes.

Speaker Change: 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. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for your question.

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 are.

A confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.

Please while we poll for your questions.

Speaker Change: Our first question comes from the line of Nick Mody with RBC Capital Markets. Please proceed with your question. Thank you. Good morning, everyone, and Happy New Year.

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

Thank you good morning, everyone and happy new year.

Okay.

Same to you.

Okay.

Nick Modi: Phil, maybe you can provide some context. Obviously, you provided a few interquarter updates, one at the Analyst Day and one at the Morgan Stanley Conference, just regarding both the beer and the one in spirits business. And obviously things came out a little bit differently. So I was hoping you can just kind of give us perspective on.

So maybe.

Maybe you can provide some context, obviously provided a few inter quarter updates one at the analyst day and one of them at the Morgan Stanley Conference just regarding both the beer and wine and spirits business and obviously things came out a little bit differently. So I was hoping you can just kind of give us some perspective on <unk>.

Nick Modi: what, you know, exactly happened to cause some of the delta and if.

What exactly happened.

Some of the Delta.

Nick Modi: Some of the clarity or perspective you gave us around the gaps between scanner data and your actual results.

Some of the clarity or perspective, you gave us around the gaps between scanner data and your actual results.

Speaker Change: You know, how we should think about that because I'm sure that's going to be something we're all going to have to start thinking about, you know, over the next couple of weeks. Sure. Thanks, Nick.

Or we should think about that because I'm sure that's going to be something we're all going to have to start thinking about over the next couple of weeks.

Sure, Thanks, Nick and again happy new year to you.

Speaker Change: You know, as we said in our prepared remarks, we're obviously very pleased with our beer business in Q3, and we were particularly happy with the strong acceleration and the momentum that sort of came out of November . Interestingly enough, the delta between Cercana and our numbers sort of changed about the minute Garth stopped speaking at the conference in November , so that was always interesting how that works.

As we said in our prepared remarks, we're obviously very pleased with our beer business in Q3, and we were particularly happy with the strong acceleration in the momentum that sort of came out of November <unk>.

Interestingly enough the delta between Sir.

And our number has sort of changed about the minute guard stopped speaking at the conference in November So that was always interesting how that works.

Speaker Change: You know, as we've noted, we expect about 45% of our beer business volumes will be achieved in H2, which is in line with the normal seasonality of that business.

As we've noted we expect about 45% of our beer business volumes.

We will be achieved in <unk>, two which is in line with the normal seasonality of that business.

Speaker Change: And for Q4 specifically, where you expect those shipments and depletes, will end up being about 20 to 21 percent of our total fiscal year volume.

And for Q4, specifically, we expect those shipments and depletes will end up being about 20% to 21% of our total fiscal year volumes.

Speaker Change: But we also expect that we're going to continue to drive mid to high single-digit volume growth annually, which is consistent with the depletion performance that we've now achieved for over a decade. And again, that's consistent with what we've also said, 1 to 2 percent annual average pricing increases, which supports the 7 to 9 percent annual net sales algorithm that we've said we will do in the medium term.

But we also expect that we're going to continue to drive mid to high single digit volume growth annually, which is consistent with the depletion performance that we've now achieved for over a decade.

And again, that's consistent with what we've also said, 1% to 2% annual average pricing increases which supports the 7% to 9% annual net sales algorithm that we've said we will do in the medium term.

Speaker Change: On the one in spirit side, obviously we're further revising our guidance down was not a decision we took lightly, and we're certainly not happy about it. We examined numerous scenarios and ultimately determined the adjustment was really needed to reflect the number of things. The broader category deceleration

On the wine and spirits side, obviously or further revising our guidance down was not a decision we took lightly.

We're certainly not happy about it we.

We examine numerous scenarios and ultimately determined the adjustment was really needed to reflect a number of things the broader category deceleration and other factors that affected our performance including gaps.

Speaker Change: and other factors that affected our performance, including gaps from our prior US wholesale expectations that were actively addressing with our distributor partners, and importantly, while making sure we maintain an appropriate inventory level for the remainder of this year, setting ourselves in good position to see sequential improvement in fiscal 25.

From our prior U S wholesale expectations that were actively addressing with our distributor partners and importantly, while making sure we maintain an appropriate inventory level for the remainder of this year setting ourselves in good position to see sequential improvement in fiscal 'twenty five.

Speaker Change: Of course, as I said, we're not pleased with these revisions and neither is our leadership team nor our wine and spirits team, but we're certainly committed to improving that performance in the medium term and expect that our net sales and operating margin targets will be consistent with what we said at Investor Day.

Of course as I said, we're not pleased with these revisions and neither has our leadership team and our wine and spirits team, but we're certainly committed to improving that performance in the medium term and expect that our net sales and operating margin targets will be consistent with what we said at Investor day as you've also seen I'm going to be temporarily <unk>.

Speaker Change: As you've also seen, I'm going to be temporarily taking over that business, and I will be spending a fair amount of time with the Wine and Spirits Division as we work through the process of appointing a new leader, which we have already started, considering both internal and external candidates. As you probably know better than many, I spent several years of my career within the Wine and Spirits categories, and I look forward to working more closely with that team in the interim, particularly as that business turns its focus.

Over that business and I will be spending a fair amount of time with the wine and spirits Division as we worked through the process of appointing a new leader.

We have already started considering both internal and external candidates as you probably know better than many I spent several years of my career within the wine and spirits categories and I look forward to working more closely with that team in the interim, particularly as that business turns its focus toward enhancing operational effectiveness and market.

Speaker Change: toward enhancing operational effectiveness and marketplace execution.

Place execution to bolt on the reconstituted higher end portfolio and organizational structure that we put in place over the last few years, but ultimately I would like to Nick reiterate this one more time in fiscal 'twenty four we still expect our enterprise EPS guidance to remain within our previously stated.

Speaker Change: to build on the reconstituted higher-end portfolio and organizational structure that we've put in place over the last few years.

Speaker Change: But ultimately, and I'd like to, Nick, reiterate this one more time, in fiscal 24, we still expect our enterprise EPS guidance to remain within our previously stated range of 12 to 1220, and over the medium term, we also continue to expect low-digit EPS growth, as outlined at Investor Day. Hopefully, that gives you some good perspective on those elements you asked about.

<unk> range of 12% to 12, 'twenty and over the medium term. We also continue to expect low digit EPS growth as outlined at Investor day, hopefully that gives you. Some good perspective on those elements you asked about.

Speaker Change: Thank you. Our next question comes from the line of Bonnie Herzog with Goldman Sachs. Please proceed with your question.

Thank you. Our next question comes from the line of Bonnie Herzog with Goldman Sachs. Please proceed with your question Alright.

Bonnie Herzod: All right. Thank you. Good morning and Happy New Year, everyone. I wanted to drill down a bit more on your beer margin.

Alright, Thank you good morning, and happy new year everyone.

Thanks.

To drill down a bit more on your margins.

Bonnie Herzod: You know, Bill and Garth, you raised your fiscal year beer operating income growth guide, but this.

Bill and Darcy you raised your fiscal year beer operating income growth guidance.

Bonnie Herzod: that still imply very low margins in Q4. So I guess I'd like to better understand the drivers of this. And really, how much visibility you have in terms of whether it's your marketing sense or commodities, hedges, et cetera, for the rest of this fiscal year. And then,

That's still imply very low op margins in Q4, so I guess I'd like to better understand the drivers of this and really know how.

How much visibility you have in terms of whether it's your marketing spends or commodity hedges et cetera for the rest of them.

You know this fiscal year and then.

Bonnie Herzod: know possibly any color on how margins you know should be phasing next fiscal year would be helpful. Thanks.

Possibly any color on how margins should be facing next fiscal year would be helpful. Thanks.

Bonnie Herzod: Yeah, well, Bonnie, just to start on the question for next fiscal year, obviously we'll give guidance on next fiscal year at our next conference call in April . But as it relates to margins this year, I mean, obviously margins are progressing in line with what our expectations are. And what you saw in the third quarter, this is the first time from a year-over-year perspective where we had margin improvement, which again is what we expected at the outset of the year.

Yes, just to start on the question for next fiscal year, Obviously, we'll give probably we will give guidance on next fiscal year at our next conference call in April but as it relates to margins. This year I mean, obviously margins are progressing in line with what our expectations are and what you saw in the third quarter with this is the first time up from a year over year perspective, where we had.

Margin improvement, which again is what we expected at the outset of the year.

Bonnie Herzod: What we've always said about margins is, and this ties back to what we've said about volumes and shipments and depletions, is that 55% of our activity will occur in the first half of the year, 45% in the second half of the year.

Well, we've always said about margins and this ties back to what we've said about <unk>.

Volumes and shipments and Depletions is at 55% of our activity will occur in the first half of the year 45 in the second half of the year.

Bonnie Herzod: And Q4, specific to your question on Q4, it's always typically one of our lower shipping quarters, and so therefore margins are lower just by virtue of reduced throughput through our...

Q4 specific to your question on Q4 that it's always typically one of our lower shipping quarters and so therefore margins are lower just by virtue of reduced throughput through.

Through it through our facilities.

Bonnie Herzod: You know, on top of that, you know, we continue to have increasing depreciation costs that we referenced during our prepared remarks. But, you know, as I say, I mean, we do expect that Q4 margins of this year will be better than they were of last year, continuing the trend of year-over-year improvement, and which obviously we feel confident about our ability to get back into our 39 to 40 percent range as we went into very, very good detail at our investor day.

On top of that we continue to have increasing depreciation cost.

With that we referenced during our prepared remarks.

But as I say, we do expect that Q4 margins. This year will be better than they were last year, continuing the trend of year over year improvement.

And which obviously, we feel confident about our ability to get back into our 30% to 40% range as we went into very very good detail at our Investor day.

Okay.

Speaker Change: Thank you. Our next question comes from the line of Kawamo Gajrawala with Jefferies. Please proceed with your question.

Thank you. Our next question comes from the line of Camo Gosh, We're Waller with Jefferies. Please proceed with your question.

Ko gazrouwala: Hi, guys. Good morning. You're depleting right now. You had a run rate of about 8% or I guess you did 8% for the quarter. There's expectations for some pretty good sales base gain in April . Could you give some context on what that might mean for a tick up in depletion?

Hi, guys good morning.

Depleting right now you had a run rate of about 8% or I guess the data for the quarter.

There is expectation could be pretty good gain in April.

Can you give some context on.

What that might mean for a pickup in depletions.

Speaker Change: Well, here's what I'd say about that. As we said earlier, we were very pleased with the 8.2% that we got in the quarter, and we finished November very, very strong. And certainly, we're off as you would have expected. That strong performance in late November continued into December . So we're very excited about our ability to continue to see exceptional depletions as we move into this calendar year and soon into the new fiscal year.

Well, here's what I'd say about that as we as we said earlier, we were very pleased with the eight 2% that we got in the quarter and we finished November very very strong and certainly were up as you would've expected that strong performance in late November continued into December so we're very.

Excited about our ability to continue to see exceptional depletions as as we move into this calendar year and soon into the new fiscal year.

Speaker Change: The important thing to me is we continue to gain share. Our two share point gains that you saw in the overall category, nearly three, in the high end, continue to be industry leading and are frankly an acceleration.

The important thing to me is we continue to gain share or to Sharepoint gains you saw in the overall category nearly three and the high end continue to be industry, leading and our Frac frankly, an acceleration of our share gains had been earlier in the year. So we're very comfortable again.

Speaker Change: of what our share gains had been earlier in the year. So we're very comfortable again. Seven and nine percent top line.

<unk>, 7% to 9% top line.

Speaker Change: driven by mid-plus single-digit growth profile, which, you know, we've said we see the runway on that for a long time to come.

Driven by mid plus single digit growth profile.

We've said, we see the runway on that for a long time to come.

Speaker Change: And certainly this quarter and certainly our expectations for the rest of the year are consistent with that.

And certainly this quarter and certainly our expectations for the rest of the year consistent with that.

Okay.

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

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

Brian's Bain: Thanks, operator. Good morning, everyone. I wanted to go back, Bill, and just ask a bit about the management transition in Wine and Spirits. And I guess, A, what are you looking for? Like, what are the attributes or the?

Thanks, operator, and good morning, everyone.

I wanted to go back Bill and just ask a bit about.

The management transition in wine and spirits and I guess.

What are what are you looking for like what are the attributes or the.

Brian's Bain: you know, the skill set that you think is needed and then if you could just maybe separate how much of the focus online or how much of the improvement path is going to be dependent on uncontrollable so just the category improving and how much of it is you think things that are controllable, things that execution elements or things that the constellation can do to improve.

The skill set that you think is needed and then if you could just maybe separate how much of the focus on wine or how much of the improvement path is going to be dependent on uncontrollable. So just.

The category, improving and how much of it is you think things that are controllable things that execution elements are things that that constellation can do to.

To improve.

Speaker Change: Sure. Thanks for the question, Brian . I'd say this. Our transformation of that business is largely complete. As we've said now a number of times, it's a very different business than what it was several years ago, even though we still have a fair amount of business in the lower end of the business.

Sure. Thanks for the question Brian.

I'd say this.

Our transformation of that business is largely complete.

As we've said now a number of times, it's a very different business than what it was several years ago, even though we still have a fair amount of business in the in the <unk>.

In the lower end of the business, but I would say is this.

Speaker Change: What I would say is this, we will be focused on an individual who can bring great operating efficiencies and execution in the marketplace. We think it's critically important that we improve our wholesale performance in the United States, and we think there's going to be continuing opportunities for us to perform very well in DTC and international channels as we have developed that business over the last couple of years.

We will be focused on an individual who can bring great operating efficiencies and execution in the marketplace. We think it's critically important that we improve our wholesale performance in the United States.

And we think theres going to be continuing opportunities for us to perform very well in DTC and international channels as we have developed that business over the last couple of years.

Speaker Change: All of those things, I would argue, are well within our control.

All of those things I would argue are well within our control a lot of work is being done on the mainstream portion of the business.

Speaker Change: A lot of work is being done on the mainstream portion of the business, particularly on Svedka and Woodbridge, to enhance the performance of those businesses. I think that you will start to see that play out in the new fiscal year. And we believe some of the softening that's occurred in the overall business is transitory and will come back our way, given the real strength that we've seen in our higher-end business like Naomi and Kim Crawford and the Prisoner and Mecompo and things of that nature.

Particularly on Spectre in Woodbridge to enhance the performance of those businesses.

I think that will you will start to see that play out in the new fiscal year and.

We believe that some we believe some of the softening that occurred in the overall business is transitory and will will come back our way given the real strength that we've seen in our in our higher end business like <unk> and Kim Crawford and the prisoner, Amit capo and things of that nature. So.

Speaker Change: You know, I'm always of the belief that a significant portion of your results are really within your control, and we're going to focus on those critical factors that improve our business performance as we head into the new fiscal year.

Im always of the belief that a significant portion of your results are really within your control and we're going to focus on those critical factors that improve our business performance as we head into the new fiscal year.

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

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

Nadine Sarah: Hi, everybody, thank you for taking my questions and a 2 partner for me 1st, you know, you obviously have posted really good beer depletions this quarter, but looking at 2023 for the overall.

Hi, everybody. Thank you for taking my question and a two parter for me first obviously you posted really good beer Depletions this quarter.

Looking at 2023 for the overall industry USTR has been.

Nadine Sarah: US Bureau has been weaker than the historical plus or minus 1% that we've seen over the last decade. I'd love to hear your thoughts and your experience why you think that is.

Weaker than the historical plus or minus 1% that we've seen over the last decade I'd love to hear your thoughts and your experience why do you think that AIDS any key takeaways to share on the health of the consumer and what would you expect to see for the industry as a whole in 'twenty four and then finally just to come back to wine and spirits again good to hear.

Nadine Sarah: Any key takeaways to share on the health of the consumer and what would you expect to see for the industry as a whole in 24 and then finally, you know, just to come back to wine and spirits again, you know, good to hear you reiterating that medium term growth algorithm. You disclosed that the investor day, but would it be possible for you to share more details as to how.

Are you reiterating that medium term growth algorithm you disclosed at the Investor day.

But would it be possible for you to share more details as to how.

Nadine Sarah: you know, where that conviction and achieving that is given the guidance kept today, you know, any building blocks.

Where does that conviction in achieving that is given the guidance today any building blocks.

Speaker Change: I appreciate the initiatives you mentioned, but clearly the gap between the guidance for this fiscal year and that medium growth algo is quite big now, so any color would be appreciated. Thank you. Sure. So, let's start with the overall beer market.

Appreciate the initiatives you mentioned clearly the gap between the guidance for this fiscal year and that medium growth algo is quite big so any color would be appreciated. Thank you sure. So let's start with the overall beer market.

Speaker Change: You know, one of the things that we've seen and it's accelerated a bit is the separation between the low end and the high end in the beer market.

One of the things that we've seen.

It's accelerated a bit.

The separation between the low end and the high end in the beer market. The high end continues to be where the strength is and we continue to be the leader in the high end gaining almost three share points in the most recent period.

Speaker Change: The high end continues to be where the strength is and we continue to be the leader in the high end gaining almost three share points in the most recent career.

Speaker Change: Part of that is driven, I think, by a couple of things.

Part of that is driven I think by a couple of things.

Speaker Change: One is, we have such a strong base with the Hispanic consumer where beer remains a critical part of their consumption pattern. Our brands have great brand loyalty and again, that's very valuable to us as time goes forward.

One is we have such a strong base with the Hispanic consumer where beer remains a critical part of their consumption pattern. Our brands have great brand loyalty and again, that's very valuable to us as time goes forward.

Speaker Change: But one of the things that we also noted, let's take the light beer category. While there's been a lot of movement within that category within brands, the overall sector is not overly healthy.

But one of the things that we also noted.

Let's take the light beer category, while there's been a lot of movement within that category within brands. The overall sector is not overly healthy it's down.

Speaker Change: And we've noted that continuously. So I think the important part as you think about the overall beer sector is to look at it bifurcated. The low end has not been successful and has been challenged on a volumetric basis, but the high end continues to perform well, and we're fortunate that we are leading at the high end.

And we've noted that continuously so I think the important part as you think about the overall beer sector is to look at it bifurcated. The low end has not been successful and has been challenged on a volumetric basis, but the high end continues to perform well and we're fortunate that we are leading at the high end as it relates to the wind.

Speaker Change: As it relates to the Wine and Spirits, what I'd like to do on that particular point, given I'm about to do a major deep dive into that business, is we'll come back to you with more details on where we see our progress going to occur in that particular business when we do our next earnings call at the beginning of the new fiscal year. What I would say is this, we're going to be focused...

On spirits, what I'd like to do on that particular point, given I'm about to do a major deep dive into that business as we will come back to you with more details on where we see our progress going to occur in that particular business. When we do our next earnings call at the beginning of the new fiscal year, what I would say is this.

We're going to be focused.

Speaker Change: very, very focused on execution and working closely with our distribution partners to make sure that we are outperforming the categories in which we play through our distributor network. That's going to be an important part of our ongoing success.

Very very focused on execution and working closely with our distribution partners to make sure that we are outperforming the categories in which we play through our distributor network, that's going to be an important part of our ongoing success.

Speaker Change: going forward and it'll be a critical part of where I'm spending my time.

Going forward and it will be a critical part of where I'm spending my time.

Yeah.

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

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

Yes.

Hi, good morning.

Good morning, Hi, Chris.

Chris Carerry: Garth, the beer saving number that you called out, which I believe was $55 million.

Garth.

The beer savings number that you called out, which I believe was $55 million.

Chris Carerry: is a big number certainly in the context of the savings targets through fiscal 28 that you laid out at investor day. And so

Is a big number certainly in the context of.

The savings targets through fiscal 'twenty eight that you laid out at Investor day and so.

Chris Carerry: I guess, are you pulling forward savings into fiscal 24 from other years, or are you perhaps just getting better at the ability to drive savings in the near term, and perhaps we should be thinking about overdelivery or maybe just building more confidence in your ability to hit those targets over time? So, again, I'm just trying to get some context for your self-help capacity and the beer growth margin.

I guess are you.

Pulling forward savings.

Into fiscal 'twenty four from other years or are you, perhaps just getting better at the ability to drive savings in the near term and perhaps we should be thinking about.

Over delivery or maybe just building more confidence in your ability to hit those targets.

Over time, so again I'm, just trying to get some context for yourself pulp capacity in the beer gross margin, which was quite strong this quarter.

Speaker Change: Chris, you know, thanks for the question. And I guess the short answer to our question is, no, we're not pulling anything forward from future years in FY 24.

Chris.

Thanks for the question and I guess the short answer. Your question is no. We're not pulling anything forward from future years in FY 'twenty four I do think that what youre seeing this year is a continuation of a couple of things one of which we detailed at Investor day, which is the shift from us for being builders of breweries to operators.

Speaker Change: I do think that what you're seeing this year is a continuation of a couple of things. One in which we detailed it yesterday, which is the shift from us from being

Speaker Change: builders of breweries to operators of breweries.

Speaker Change: And so we're getting more efficient, we're doing a better job from an end-to-end supply chain.

Breweries and so we're getting more efficient where we're doing a better job.

From an end to end supply chain and that's what gave us the confidence not just in this year, but in the cost savings.

Speaker Change: And that's what gave us the confidence, not just in this year, but...

Speaker Change: and the cost savings targets that we laid out at Investor Day. Another thing where we're seeing benefits from is out of our digital business acceleration.

Targets that we laid out at Investor day, another thing to where we're seeing benefits from us out of our digital business acceleration active.

Speaker Change: activities, which have been coupled with the discipline that we're creating on an end-to-end supply chain, and it's driven significant savings in a whole host of areas as it relates to procurement. So, again, it is somewhat new muscle that we're building, really more an extension of existing muscle as we, again, migrate from being builders to operators.

Activities, which have.

When coupled with the discipline that we're creating on an end to end supply chain and has driven significant savings.

And a whole host of areas as it relates to procurement.

So again.

It is somewhat new muscle that we're building.

It really more of an extension of existing muscle as we again migrate from being builder set to operators.

Speaker Change: Thank you. Our next question comes from the line of Gara most sending it 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.

Speaker Change: Hey guys, just to follow-ups, probably the next question.

Hey, guys.

Just two follow ups, probably a mix question just first on beer just to understand the strength in depletions at the end of the quarter is.

Speaker Change: Just first on beer just to understand the strength and depletions at the end of the quarter.

Speaker Change: Is that more underlying strength? Was there anything timing related there? Is it continuing in December ? Should we look at sort of the 8% result in the quarter is sort of a true underlying gauge of the business, at least short term, understanding that's not the guidance, but how should we think about that? And I know it's tough to talk about the gap versus scanner data, obviously it bounces around.

Is that more underlying strength was there anything timing related there is a continual December should we look at sort of the 8% result in the quarter as sort of a true underlying gauge of the business at least short term understanding that it's not the guidance, but how should we think about that.

I know, it's tough to talk about the gap versus scanner data, obviously it bounces around.

Speaker Change: but just any specific thoughts on what that could be going forward. And then I also have a wine question if I can pull up on that.

But just any specific thoughts on what that could be going forward and then I also have a one question if I could follow up on that.

Speaker Change: daughter wants to do that right away because usually once you ask a question that you don't have further access. What's your line question?

Don't want to do that right away because usually once you ask your question.

Further access what's your one question okay.

Speaker Change: I mean, just look, the comments on the revision were helpful and the longer-term portfolio transformation, but at the risk of being blunt, it's been sort of years of disappointment on that business. It's a pretty large negative revision after analysts say in a short period of time.

I mean, just look the comments on the revision were helpful. In the longer term portfolio transformation, but the risk of being blunt, it's been sort of years of disappointment on that business. It's a pretty large negative revision after analyst day in a short period of time. So I just wanted to hear a little more about the response bill.

Speaker Change: So I just wanted to hear a little more about the response, Bill, and, you know, how you might manage that business differently from a strategic lens, longer term, perhaps a greater focus on productivity or whatever the changes are. But, you know, how do you sort of think about managing the business differently and maybe how it fits in the portfolio, just juxtaposition versus what's a very attractive beer business, as we saw again this morning from a growth and margin standpoint.

And how you might manage that business differently from a strategic lens longer term, perhaps a greater focus on productivity or whatever the changes are but you know.

How do you sort of think about managing the business differently and maybe how it fits in the portfolio just juxtaposition versus what's very attractive beer business. As we saw again this morning from a growth and margin standpoint.

Speaker Change: Sure, so let's cover the first one initially about the depletions coming out of the quarter. Obviously, there's always a little bit of benefit when you have an early Thanksgiving because you give retailers a chance to restock after Thanksgiving. But let's make no mistake, the takeout that we had around the Thanksgiving holiday was exceptional, which you wouldn't get the great restocking if you didn't have an exceptional takeout period. And obviously, we're very pleased to see without going into specifics.

Sure.

So, let's let's cover the first one initially about the depletions coming out of the quarter, obviously, there's always a little bit of benefit when you have an early Thanksgiving because you give retailers a chance to restock after.

After Thanksgiving, but let's make no mistake that take out that we had around the Thanksgiving holiday was exceptional which you wouldn't get the great restocking. If you didn't have an exceptional take out period.

And obviously, we're very pleased to see without going into specifics that the strong November is playing into December as we expected it would because the underlying trends for our business remain very strong and as I stated on an earlier question our actual share gains.

Speaker Change: that the strong November is playing into December as we expected it would because the underlying trends for our business remain very strong and as I stated at an earlier question our actual share

Speaker Change: have accelerated during the course of the year which I think is very positive as well relative to our continuing success in that business. As it relates to wine.

Accelerated during the course of the year, which I think is very positive as well relative to our continuing success in that business.

As it relates to wine.

Speaker Change: You know, as I said before, the thing that we were most concerned about coming out of.

As I said before the thing that we were most concerned about coming out of this particular quarter is that we end our year at an appropriate inventory position and that we are preparing ourselves to work closely with our wholesale distributor partners to accelerate that business going forward.

Speaker Change: this particular quarter, is that we end our year in an appropriate inventory position and that we are preparing ourselves to work closely with our wholesale distributor partners to accelerate that business going forward so that we are winning in the categories and channels in which we participate.

So that we are winning in the categories and channels in which we participate.

Speaker Change: We've got a lot of work to do there, but we continue to believe the strategy work that's been done over the past few years to reposition our portfolio much more to the higher end. He's going to pay dividends and that

We've got a lot of work to do there.

But we continue to believe the strategy work that's been done over the past few years to reposition our our portfolio much more to the higher end.

It's going to pay dividends.

And that.

Speaker Change: And again, as I said, I think to Nadine a moment ago, I'll come back with some more specific thinking. We're going to do, as you can understand, a fairly deep dive into that business.

And again as I said, I think to Nadine a moment ago I'll come back with some more specific thinking.

We're going to do as you can understand a fairly deep dive into that business.

Speaker Change: And I'll have some more thoughts on that as we get to our next call.

And I'll have some more thoughts on that as we get to our next call.

Speaker Change: And Darius, it relates to, you know, the gaps in circana versus depletions. And as you mentioned in your question, you know, it can be a bit difficult to draw parallels between the two. Look, you know, for at least the balance of the year going forward, you know, we'll give updates on this as we see fit, but I think you still have to think about that gap being in the mid-single digits.

And Dara as it relates to that.

The gaps and second versus Depletions and as you mentioned in your question you know it can be a bit difficult to draw parallels between the two.

Look for the balance of the year for at least the balance of the year going forward, we will give updates on this as we see fit but I think you still have to think about that gap being in the mid single digits.

Speaker Change: That being said, I'll kind of remind everybody of the comments we made at your conference last month, which is we think that looking at the syndicated consumer take away data is really best to gauge long-term trends as well as relative performance.

That being said ill kind of remind everybody of the comments we made at your conference last month, which is.

We think that looking at that syndicated consumer.

Consumer takeaway data.

It's really best to gauge long term trends as well as relative performance just as a reminder for our own business.

Speaker Change: Just as a reminder, for our own business, Sir Connelly picks up 50% of our total volume.

<unk> picks up 50% of our total volumes and there are certainly gaps between the volume growth of different tracked channel data providers.

Speaker Change: And there are certainly gaps between the volume growth of different tracked channel data providers. And, you know, importantly, you don't see things picked up per se as it relates to differences in time periods, meaning there can be shifts between key weekends or holidays between period to period that make it hard to tie depletions with the CERCANA data. So again...

And importantly.

You don't see things pick up per se as it relates to differences in time periods, meaning there can be shifts between key weekends or holidays between period to period.

Make it hard to tie dips.

Depletions are with this or kind of data so again.

Speaker Change: This is not, you know, we don't use the syndicated consumer takeaway data the way that you do and that's why we say it's not necessarily the best way to gauge our business.

This is not we don't use the syndicated consumer takeaway data.

Way that you do and that's why we say, it's not necessarily the best way to gauge our business.

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

Thank you. Our next question comes from the line of Andre <unk> with J P. Morgan. Please proceed with your question.

Andrea: Thank you, operator. Good morning, everyone. So with your comments just now on the cadence of the quarter, aiming to the fourth quarter. I wonder why you haven't raised guidance for being the fourth quarter in terms of top line. And the second part of your question, looking ahead into the string.

Thank you operator, and good morning, everyone. So with your comments just now on the cadence of the quarter and thanks for the fourth quarter.

Wonder why you Havent raised guidance for <unk>.

In terms of top line and the <unk>.

Second part of your question looking ahead into the spring.

Andrea: How much you would expect that, you know, that the share we said on the back of the strands will come, will, will structure for that type of seven to nine percent algorithm. Thank you.

How much it would expect that email that shall we say that the shop with that on the.

The backup business trends will come we'll start to for that type of seven 9%.

Thank you.

Speaker Change: Well, let's start with the second question first. You know, we were quite pleased with the more limited changes that occurred on the shelf set in the back half of last calendar year, but we're expecting some giving and gains greater than our growth profile here as we get to the spring resets. You would notice that we

Well, let's start with the second question first.

We were quite pleased with the more limited changes that occurred on the shelf set in the back half of last calendar year, but were expecting some giving gains greater than our than our growth profile here as we get to the spring resets.

Yes.

Notice that.

We fully expect that we're going to finish our year in a very strong performance you will note that we raised the bottom.

Speaker Change: that we're going to finish our year in a very strong performance. You will note that we raised the

Of our guidance.

As Garth noted and I think I noted in my remarks as well so we actually have raised our expectations around the income side.

Speaker Change: around the income side, and of course that translates through into better cash and various other things, as Garth noted. So I think you should take away what I – hopefully we were trying to portray, which is our business continues to deliver exactly what we've told you we would deliver on the bear side, 7 to 9 percent top-line growth and strong bottom operating growth to match. And certainly I think our depletion rate coming out of Q3 reflects that strength.

And of course that translates through into better cash and various other things as Kirk noted. So I think you should take away what I hopefully we were trying to portray which is our business continues to deliver exactly what we've told you we would deliver on the beer side, 7% to 9% topline growth.

Speaker Change: and strong bottom operating growth to match. And certainly I think our depletion rate coming out of Q3 reflects that strength.

And strong bottom operating growth to match.

Certainly I think our depletion rates coming out of Q3 reflects that strength.

Okay.

Yeah.

Speaker Change: Thank you. Our next question comes from the line of Rob Altinstein with Evercore. Please repeat with your question.

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

Robenstein: Great. Thank you. Two questions. First, I was wondering if you could talk a little bit about pricing. I know that you're talking about one to two. It was one here. So, kind of two parts to this. One, you know, what is the kind of the general environment for pricing in the beer industry now? You know, the sense that you get?

Great. Thank you two questions first so I'm wondering if you could talk a little bit about pricing.

I know that you are talking about one to two it was one here so kind of two parts to this one what is what is the kind of the general environment for pricing in the beer industry now the sense that you get and second I know that you do kind of a sporadic pricing. So it's a lot of the country.

Robenstein: And second, I know that you do kind of a sporadic pricing, so it's...

Robenstein: you know a lot of the country zero and then certain parts is is maybe

Zero and then certain parts as maybe four 5% and so then it averages out one to two can you talk a little bit about kind of the timing of your price increases my understanding that.

Robenstein: four or five percent and so then it averages out one to two. Can you talk a little bit about kind of the timing?

Robenstein: of your your price increases my understanding that uh your your major competitors are pricing at the at the end of uh the end of January in the beginning of February so how does how does your pricing fit into that so that's question number one

Your major competitors, who are pricing at the end of the end of January and the beginning of February. So how does how does your pricing fit into that so that's question number one and then question number two is kind of hearing a little bit reading about an innovation Corona Sun Brew I think some Bruce citrus.

Robenstein: And then question number two is kind of hearing a little bit, reading about an innovation, Corona Sunbrew, I think Sunbrew.

Robenstein: uh... citrus that's uh... off to a good start is one if you talk a little bit more about that

It's off to a good start just wondering if you could talk a little bit more about that thank you.

Speaker Change: Sure. Obviously, I'm not going to comment on competitor pricing, but what I would say, Robert, is

Sure, obviously, I'm not going to comment on competitor pricing, but what I would say Robert is.

Speaker Change: Look, we said early on, and in fact, some of you will probably question Garth and I on occasion about it, that we believe that one to 2% was the right approach. We've done that historically over the long run. We were a little bit higher than that during the really high inflationary timeframe around COVID, which we fully acknowledge and recognize. But I go back to what we've always said, which is we really want to keep our consumer.

Look we said early on and in fact, some of you probably question Garth on eye on occasion about it that we believe that 1% to 2% was the right approach we've done that historically over the long run we were a little bit higher than that during the really high inflationary timeframe.

Round, Covid, which we fully acknowledged and recognized but I go back to what we've always said, which is we really wanted to keep our consumer it's a whole lot more expensive. If you chase them off and have to go re acquire a consumer than it is to never lose them in the first place and the 1% to 2% algorithm has proven very solid for.

Speaker Change: It's a whole lot more expensive if you chase them off and have to go reacquire a consumer than it is to never lose them in the first place. And the 1 to 2 percent algorithm has proven very solid for us over the long term, and it's one that we're going to continue. I think certainly you see in other categories people being careful about pricing, and I think that reflects just an understanding of where the consumer may or may not be in various categories. Thank you.

US over the long term and it's one that we're going to continue I think certainly.

Do you see in other categories people being careful about pricing.

And I think that reflects just an understanding of where the consumer may or may not be in various categories.

Speaker Change: As it relates to innovation, Sunbrew is coming.

As it relates to innovation Sun Brew is coming.

Speaker Change: We plan to talk mainly about that at our introduction for that, which will occur the beginning of March.

Plan to talk mainly about that at our at our introduction for that which will occur at the beginning of March so I'm not going to spill the beans on it but we're we're particularly excited about that we think it's going to be again, another very interesting.

Speaker Change: So I'm not gonna spill all the beans on it, but we're particularly excited about that. We think it's going to be, again, another very interesting.

Speaker Change: a new product launch for our company on the heels of very successful oral launch and very successful aguas frescas launch that has occurred in modelo which as you know is also expanding here in the coming year so please stay tuned on that one but i think we're we're very optimistic that that provides some great opportunity in the corona franchise

New product launch for our company on the heels of very successful oral launch and very successful Agua Fresca as launch that has occurred in modelo, which as you know is also expanding here in the coming years. So please stay tuned on that one.

But I think we're.

We're very optimistic that that provides some great opportunity.

And the Corona franchise.

Yes.

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

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

Speaker Change: Great, thanks. Good morning. I know we've covered a lot of ground, but I was hoping you could just touch on the improved cashflow outlook for the year because it's a pretty material change and exciting. So just wondering if you could talk a little bit about the key drivers on that that uptick an outlook. Thanks.

Great. Thanks, Good morning, I know, we've covered a lot of ground, but I was hoping you could just touch on the improved cash flow outlook for the year. This is a pretty material change in exciting. So I'm. Just wondering if you could talk a little bit about the key drivers on that that uptick and outlook. Thanks.

Speaker Change: Yeah, thanks. Thanks, Lauren, like, so there are obviously a few drivers of the of the change in cash flow, you know, and obviously, I think that seeing the increase in cash flow just goes to to further evidence that the very disciplined approach we take to managing the cash of the company.

Yeah. Thanks, Thanks Laurent.

Mike.

So there are obviously a few drivers of the change in cash flow and obviously.

Think that seem to be increasing cash flow just goes to.

Further evidence.

<unk>.

Very disciplined approach, we take to managing the cash of the company.

Speaker Change: Obviously, some of the drivers there will include things like the increase in beer margin or I should say beer operating income that Bill referenced in his remarks.

Obviously some of the drivers there will include things like.

The increase in beer margin or I should say beer operating income that bill referenced in his remarks.

Speaker Change: There, you know, obviously will be some favorability in the tax, taxes that I referenced in my remarks as well as some, you know, other favorability on things like, you know, tax rate, or taxes and things of that nature, but are, but those are the primary drivers.

There, obviously will be some favorability in the tax taxes that I referenced in my remarks.

As well as some some other favorability on things like.

The tax rate they are taxes and things of that nature, but are.

But those are those are those are the primary drivers.

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

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

Fippo Forlorning: Hey, good morning guys, and I'm new here. I wanted to go back to the on-premise channels for the beer business. I think Dr. Manchurmi grew about 1% in the quarter. I was wondering if there's any more to recover from the CAG issue that you guys had.

Hey, good morning, guys and happy new year.

Wanted to go back to the on premise channel sort of beer business.

Got you mentioned grew about 1% in the Florida I was wondering if theres any more.

To recover from the CAD issue that you guys had and then if you think about next fiscal year, we talked a lot about the opportunity to gain share in off premise, but can you comment on your ability to gain tap handles and gain more distribution in the on premise channel as well. Thank you.

Fippo Forlorning: And then if you think about next fiscal year, we talked a lot about the opportunity to gain share in off-premise, but can you comment on your ability to gain tap handles and gain more distribution in on-premise channel as well? Thank you.

Speaker Change: Yeah, you bet. You know, as we said, we had some temporary impact around kegs, which was largely in Q2 of this year. But I think it is important to point out that last year both Madelo, especially on Pacifico, were the number one and number two shared gainers in draft despite some of those temporary issues.

Yes, you bet.

As we said we had some temporary impact around kegs, which was largely in Q2 of this year, but I think it is important to point out that last year, both modelo especial and Pacific go. We're the number one and number two share gainers in draft. Despite some of those temporary issues.

Speaker Change: It remains a great opportunity for us when you think about it. I mean, let's use an example. Modelo Especial is number five on draft, but is the number one beer by dollars in this country. But it's certainly, it's not number one in the on-premise at this point. Again, a great opportunity.

<unk> is a great opportunity for us when you think about it I mean, let's let's use an example, modelo especial <unk> is number five on draft, but as the number one beer bike dollars in this country, but it's certainly not number one in the on premise at this point again, a great opportunity.

Speaker Change: So, interestingly, Corona Extra is the number one packaged beer on premise.

No.

Interestingly Corona extra is the number one packaged beer on premise, but again still having opportunity in the draft side. So we continue to think the draft is going to be an opportunity for us as one of the growth drivers for us going forward.

Speaker Change: But again, still having opportunity in the draft side. So we continue to think the draft is going to be an opportunity for us as one of the growth drivers for us going forward. And, you know, Pacifico is a great example, even though it was the number two gainer. When you see just the real acceleration you have in that brand, I think there remains opportunities for both. But Delos Especial and Pacifico in particular in the on-premise. And I certainly would hope to see both of those brands maintaining their number one share gainer status as we get into this calendar year.

<unk> is a great example, even though it was the number two gainer when you see the just the real acceleration you have in that brand I think they are there remains opportunities for both modelo especial <unk> in particular and the on premise and I certainly would hope to see both of those brands maintained.

Their number one share gainer status as we get into this calendar year.

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

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

Great. Thanks, very much for your question.

Gerald Pasteli: I just had a question on your measured versus non-measured channels within BEIRD. So, if we look at Nielsen, your price mix is moderated at retail. It looks to be currently running right in line with the midpoint of your 1 to 2% target. So, if we compare this to non-measured channels, just curious if you've seen any near-term moderation in pricing. And if not, you know, would you maybe expect trends to become a little more aligned as we look out over the near-term? Thank you.

I just had a question on your measured versus non measured channels within beer. So if we look at Nielsen Your price mix was moderated at retail it looks to be currently.

Currently running right in line with the midpoint.

Of your 1% to 2% target. So if we compare this to non measured channels. Just curious if you've seen any near term moderation in pricing and if not would.

Or would you maybe you expect trends to become a little more aligned as we look out over the near term. Thank you.

Speaker Change: I think, by and large, the answer to your question is yes, that those are usually reflective. We don't see a lot of variation amongst channels on that particular thing, although, you know, you do have some very big markets that are not generally covered by some of those track channels, New York being an interesting one, so, you know, you do see some variation from time to time, but we don't expect that to be significant.

I think by and large the answer to your question is yes that those are usually reflective.

We don't see a lot of variation amongst channels on that particular thing although.

What you do have some very big markets that are not generally covered by.

Some of those tracked channels, New York being an interesting one so yes, you do see some variation from time to time, but we don't expect that to be significant moving forward about what the track versus what the non tracked channels look like.

Speaker Change: moving forward about what the track versus what the non-track channels look like. And the moderation that you referenced is really just attributable to the lapping of the incremental pricing that we took control of last year.

Iteration that you referenced is really just attributable to the lapping of the incremental pricing that we took control of last year absolutely.

Speaker Change: Thank you. Our next question comes from the line of Peter Graham with UBS. Please proceed with your question. Thanks operator and good morning.

Thank you. Our next question comes from the line of Peter Grom with UBS. Please proceed with your question.

Thanks, operator, and good morning, everyone hope you're doing well so far if.

Peter Grham: I may have missed this, but is the expectation still for beer depletions and shipments to be roughly equal for the year? And then I think it was mentioned that shipments in the fourth quarter would be around, you know, 20 to 21 percent of full year shipments.

I may have missed this.

Excellent occasion, silver beer depletions and shipments can be roughly equal for the year and then I think it was mentioned that shipments in the fourth quarter would be around 20% and 21% of full year shipments.

Peter Grham: Is that quarterly mix similar for depletions as well? Just, you know, we've seen a lot of changes in quarterly mix.

Is that quarterly mix similar for completions as well just we've seen a lot of changes in quarterly mix over the past few years that have resulted in differences in growth rates between depletions and shipments. So I'm just trying to understand how we should think about it specifically for the fourth quarter.

Peter Grham: over the past few years that have resulted in different things in growth rates.

Peter Grham: you know, between depletions and shipments. So just trying to understand how we should think about it specifically for the fourth quarter. Thanks.

Speaker Change: Yeah, so on shipments and depletions, yes, those should be largely in line with one another for a full year. That's consistent with how we operate the business every year. And from a Q4 timing as it relates to shipments and depletions, yes, both of those are in that 20 to 21 percent range that Bill referenced earlier.

Yes, so so I'd shipments and Depletions, yes, those should be largely in line with one another for a full year, that's consistent with how we operate the business every year.

And from a from a Q4 timing as it relates to shipments and Depletions, yes. Both of those are in that $20 to 21% range that bill referenced earlier.

Oh.

Speaker Change: Thank you. Our next question comes from the line of Andrew Strzok with BMO. Please proceed with your question.

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

Andrew Slaick: Great. Thanks for taking the question. Mine's about the competitive and promotional environment in beer. You've talked about your expectations on shelf space gains in the spring, the wider spread between light and premium beer and even some of the pricing dynamics in wine. So just curious, then, what you're seeing across the competitive set now, how you're expecting that to evolve as the year progresses next year, and maybe any plans or programs or levers should the environment intensify? Thanks.

Great. Thanks for taking the question.

Mine is about the competitive and promotional environment in beer, you've talked about your expectations on shelf space gains in the spring the wider spread between light and premium beer and even some of the pricing dynamics in wine. So just curious.

Then what youre seeing across the competitive set now and how you're expecting that to evolve.

As the year progresses next year, and maybe any plans or programs or levers should the environment intensify.

Speaker Change: Certainly. We expect the promotional environment to be fairly consistent with what usually is. We don't think there's going to be any radical changes around that topic. I think a lot of it goes back to what we've often said, which is the velocities that we have on our brand.

Certainly.

We expect the promotional environment to be fairly consistent with what usually is we don't think theres going to be any radical changes around that topic I think a lot of it goes back to what we've often said which is the velocities that we have on our brands are superb and obviously at the end of.

Speaker Change: are superb. And obviously, at the end of the day, the retail environment is very interested in having brands focused on those that deliver outstanding velocities and sales per point of distribution. We shared at our investor day that our sales per point of distribution is radically better than the competition, and I think that's going to continue to serve us well, especially when you consider the strong brand loyalty that we have with consumers.

Of the day.

The retail environment is very interested in having brands focused on those that deliver outstanding velocities and sales per point of distribution, we shared at our Investor day that our sales per point of distribution is radically better than the competition and I think that's going to continue to.

Serve us well, especially when you consider the strong brand loyalty that we have with consumers.

Speaker Change: As we've also said on numerous occasions, our judicious one to two percent pricing actions, we don't pull back on our pricing in the marketplace, which I think is important also. So when we make those commitments of one to two, that's what we deliver.

As we've also said on numerous occasions, our judicious, 1% to 2% pricing actions, we don't we don't pull back on our pricing.

In the marketplace, which I think is important also so when we make those commitments. So one to two that's what we deliver.

Speaker Change: Thank you. Our next question comes from the line of Bill Kirk with Roth. Please proceed with your question.

Thank you. Our next question comes from the line of Bill Kirk with Roth. Please proceed with your question.

Bill Kirk: Hey, just one for me, maybe for Garth. I heard the comment about $17 million higher in packaging and material costs for beer. I think that's the lowest.

Hey, just one for me maybe for Gary I heard the comment about $17 million higher than packaging in material costs for beer.

That's the lowest year over year increase in some time, so is that the low level of inflation you'd expect you're expecting there going forward or is deflation on those items, even possible in calendar 2024, and I guess separately it will probably be in the 10-Q later so it was the transportation cost line for beer was that differ.

Bill Kirk: year-over-year increase in some time. So is that the low level of inflation you'd be expecting there going forward? Or is deflation on those items even possible in calendar 2024? And I guess separately, it'll probably be in the 10-Q later, but with the transportation cost line for beer, was that deflationary year-over-year in the period?

<unk> year over year in the period.

Yes so.

Bill Kirk: As we said all year long, we would start to see benefits from easing inflation as we move through the year, and obviously we saw that in Q3.

As we as we as we said all year long, we would start to see benefits from from from easing inflation as we move through the year and obviously we saw that.

In Q3.

Bill Kirk: You know, going forward, you know, you asked the question around whether this is, you know, a low point or inflationary in nature. What I would say on that is we laid out a pretty good detail at our investor day around what the drivers are that we're expecting over the medium term that are going to result in us getting back in our 39 to 40 percent operating margin.

Going going forward.

You asked a question around whether this is the low point of our inflationary in nature, but I would say on that is as we laid out a pretty good detail at our investor day around what the drivers are that we're expecting over the medium term that are going to result in us getting back in our 39% to 40% operating margins and that includes in low low.

Bill Kirk: And that includes low single-digit inflation net of our cost-savings initiatives, and obviously there's some other offsets I can say, like...

Single digit inflation net of our cost savings initiatives.

And obviously there is some other offsets that can sound like.

Bill Kirk: depreciation, but those really are the drivers moving forward.

Depreciation, but those really are the drivers moving forward.

Bill Kirk: And then logistics was a bit favorable in Q3 as well.

Yes.

And then logistics.

<unk> was a bit favorable in Q3 as well.

Speaker Change: Thank you. Our final question will come from the line of Bill Chappell with the Truist Securities. Please proceed with your

Thank you our final question will come from the line of Bill Chappell with <unk> Securities. Please proceed with your question.

Bill Chapel: Hey, thanks for taking my question. Hey, just one follow-up on the acceleration of the beer.

Hey, Thanks for taking my question just one follow up on the acceleration of the beer.

Bill Chapel: In November and into December , I think I'm right in saying a year ago, you had started to see a slowdown due to weather in California and the price increases had just taken, there was some elasticity.

November and into December.

I think I'm right in saying a year ago, you had started to see a slowdown due to weather in California, and the price increases are just taking there was some elasticity. So was it more than than I guess more favorable comps that you saw that drove the acceleration or is that a key part of it were where the comps maybe maybe not.

Bill Chapel: So, was there more than, I guess, more favorable comps that you saw that drove the acceleration, or is that a key part of it, or were the comps maybe not as affected by weather and price increases last year as we had assumed?

As affected us by this by weather and price increases last year as we had assumed.

Speaker Change: Well, as you often know, lots of things go into why you see acceleration. I think you've pointed out some. I think whether in California was better than it was a prior year. You saw Thanksgiving being slightly earlier than it was a prior year. I think all those things are true. What I would emphasize, though, is that the takeout around our business, around Thanksgiving, was particularly strong. And our share gains that occurred.

Well.

I know lots of things go into why you see acceleration I think you've pointed out some I think weather in California was better than it was the prior year.

You saw Thanksgiving being slightly earlier than it was in prior year I think all those things are true what I would emphasize though is that at the takeout around our business around Thanksgiving was particularly strong and our share gains that occurred.

During that period were as good as we saw during the entire year, which again just speaks to the strength of the brands. There's gives and takes all the way along in the year as you know from various factors that occur, but when you see that kind of share acceleration that we've been seeing in the sort of the two point range on the overall category and.

<unk> three point range in the high end that just speaks to the continuing strength of our beer business irrespective of the potential gives and takes that occur naturally over the course of the year.

Bill Newuance: of the potential gives and takes that occur naturally over the course of the year. Thank you. We have reached the end of our question and answer session. I'd like to turn the floor back over to Bill Newland for closing remarks. Thanks very much and thank you all for joining today's call. Again, we're very pleased that our beer business delivered strong performance in Q3 and is on track to achieve the higher end of our initial net sales and operating income guidance for the fiscal year. Our beer portfolio continues to deliver.

Bill Newuance: Thank you. We have reached the end of our question and answer session. I'd like to turn the floor back over to Bill Newland for closing remarks.

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

Bill Newuance: Thanks very much, and thank you all for joining today's call. Again, we're very pleased that our beer business delivered strong performance in Q3 and is on track to achieve the higher end of our initial net sales and operating income guidance for the fiscal year. Our beer portfolio continues to deliver industry leading performance, and we see a run-away of opportunities to continue to drive strong growth.

Thanks, very much and thank you all for joining today's call again, we're very pleased that our beer business delivered strong performance in Q3 and is on track to achieve the higher end of our initial net sales and operating income guidance for the fiscal year, our beer portfolio continues to deliver industry, leading performance and we see a long.

Runway of opportunities to continue to drive strong growth in our wine and spirits business. We are fully committed to realizing net sales growth and improving our operating margins in line with our medium term outlook for that business as we leverage reshaped higher end leaning portfolio and enhanced DTC and international.

Bill Newuance: In our wine and spirits business, we're fully committed to realizing net sales growth and improving our operating margins in line with our medium-term outlook for that business.

Bill Newuance: as we leverage its reshaped higher-end leaning portfolio and enhanced DTC and international footprint.

Bill Newuance: And from a capital allocation perspective, we continue to consistently execute against our balanced and disciplined priorities.

Print and from a capital allocation perspective, we continue to consistently execute against our balanced and disciplined priorities, which are maintaining our investment grade balance sheet consistently returning cash to our shareholders through our dividend and executing opportunistic opportunistic share repurchases.

Bill Newuance: which are maintaining our investment-grade balance sheet, consistently returning cash to our shareholders through our dividend, and executing opportunistic share repurchases beyond those needed to cover dilutions.

And those needed to cover dilution, while advancing our organic investments to support additional production capacity for our beer business and deploying excess cash to smaller acquisitions that fill portfolio gaps, but with a thoughtful and prudent approach altogether, we remain confident in our outlook for the <unk>.

Bill Newuance: while advancing our organic investments to support additional production capacity for our beer business and deploying excess cash to smaller acquisitions that fill portfolio gaps, but with a thoughtful and prudent approach.

Bill Newuance: All together, we remain confident in our outlet for the full year and continue to expect our enterprise comparable EPS guidance for fiscal 24x, excluding canopy to remain within our previously stated range of 12 to 1220.

Full year and continue to expect our enterprise comparable EPS guidance for fiscal 'twenty four excluding canopy to remain within our previously stated range of 12% to 12 'twenty and over the medium term, we continue to expect low double digit EPS growth as we outlined.

Bill Newuance: And over the medium term, we continue to expect low double-digit EPS growth as we outlined in our investor day.

In our Investor day. So thanks again, everyone for joining the call and I wish you all a safe happy and prosperous new year. Thank you again for joining us.

Speaker Change: So thanks again everyone for joining the call, and I wish you all a safe, happy, and prosperous New Year. Thank you again for joining.

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

Thank you. This does conclude today's teleconference. We appreciate your participation you may disconnect your lines at this time.

Have a great day.

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