Q4 2025 Constellation Brands Inc Earnings Call
Speaker Change: Greetings and welcome to the Constellation Brands Q4 Fiscal Year 2025 Earnings Call. At this time I'll participate in Sunilist Sunil Modi mode. If anyone should require operator assistance please press star zero on your telephone keypad. A question and answer session will follow the formal presentation.
Speaker Change: You may be placed into question, queued anytime by pressing star one, and we ask you please let me yourself to one question then return to the queue. As a reminder, this conference is being recorded. It's not my pleasure, turn the call over to your host, Joseph Suarez, Vice President and Vest Relations. Please go ahead sir.
Joseph Suarez: Thank you Kevin, good morning all and welcome to Constellation Brands Q4 and Full-Year Physical 25 Conference Call. I'm here this morning with Bill Newlands RCO and Garth Hankinson RCFO.
Joseph Suarez: We trust that you have the opportunity to review the news release, CO and CFO commentary and a company signing slides made available yesterday evening in the Investors section of our company's website.
Joseph Suarez: As we have received a couple of questions regarding certain figures contained in our slides, please note that we expect our beer net sales growth rate for Fiscal 26 to be between 0 to 3% and for Fiscal 27 and 28 to be 2 to 4%
Joseph Suarez: and our operating income growth rate for fiscal 26 is expected to be between 0-2% and for fiscal 27-28, we expect operating margins to be approximately 39-40%
Joseph Suarez: On that note, as a reminder, reconciliation between the most directly comparable GAAP measures and non-GAAP financial measures discussed on this call are included in the news release and website
Joseph Suarez: And we encourage you to also refer to the news release and consolation's SEC violence for risk factors that may impact forward-looking statements made on this call.
Joseph Suarez: Before turning the call over to Bill and Garth, please keep in mind that as usual answers provided today will be referencing comparable results, unless otherwise specified.
Joseph Suarez: and that any references to expectations for fiscal 26 to fiscal 28
Joseph Suarez: Reflect the anticipated impact of the tariffs announced by the U.S. government on April 2nd and the Canadian government on March 4th of this year Inclusive of the delay in the effectiveness of certain tariffs announced by the U.S. government yesterday, which will particularly impact the wine spirits business. The U.S. government, the U.S. government, the U.S. government.
Joseph Suarez: Thanks, Joe, and welcome everyone to our Q4 and Full Year Fiscal 25 call.
Joseph Suarez: As usual, I will outline a few overarching highlights where we will then move immediately to Q&A as our broader commentary was provided to you yesterday
Joseph Suarez: So let's get going. In a tough socio-economic environment, we are taking decisive actions designed to continue to support our industry leading beer business, reset our cost base and redefine our portfolio.
More specifically, first.
Joseph Suarez: In Fiscal 25, despite a softer consumer demand backdrop largely driven by what we believe to be non-structural socio-economic factors
Joseph Suarez: We continue to deliver enterprise net sales growth, realize substantial comparable operating margin improvement and achieved double digit comparable EPS growth.
Second.
Joseph Suarez: Looking ahead, while we expect these non-structural socioeconomic factors affecting consumer demand to gradually stabilize and subside, we remain focused on driving distribution gains, on launching disciplined innovation
Joseph Suarez: and I'm deploying incremental marketing investments to support the growth of our beer business all while continuing to deliver best in class operating margins.
Joseph Suarez: Third, in addition, we expect significant improvements in the performance of our
Joseph Suarez: Following the anticipated closing of the 2025 wine de festitures transaction that is primarily centered around the sale of the remaining mainstream wine brands in that portfolio.
Joseph Suarez: as well as the implementation of associated restructuring actions expected to yield over 200 million and net annualized cross-savings across the enterprise by Fiscal 28.
Joseph Suarez: 4. If you have a question, please post it in the chat. We will be happy to answer anything. 4.
Joseph Suarez: Against that backdrop, we are targeting to deliver approximately $9 billion in operating cash flow from fiscal 26th
Joseph Suarez: to 28 and approximately 6 billion in free cash flow as we continue to infest primarily in the modular development of our third brewery in Veracruz and modular additions in our existing facilities in Mexico.
and Seth.
Joseph Suarez: In line with this strong cash flow generation and having achieved our comparable net leverage ratio target in fiscal 25, we remain committed to a disciplined and balanced capital deployment framework
Joseph Suarez: including our 30% dividend payout ratio and executing share repurchases against our new three-year four-billion-dollar authorization. And with that, Garth and I will be happy to take your questions.
Speaker Change: Thank you and now we're conducting a question and answer session. If you'd like to be placing the question cue, please press star one on your telephone keypad and as a reminder, please ask one question then return to the cue.
Joseph Suarez: Our first question is coming from Lauren Lieberman, from Barclays Realises, now live.
Lauren Lieberman: Hi, great. Good morning, and thanks a lot for the question.
Speaker Change: I wanted to know if you could comment more specifically on tariffs. Are the Bureau of Business currently the U.S. N.C.A. Certifieds? We can get some visibility.
Speaker Change: on what is baked in in terms of tariffs with regard to Mexico, and also what else is baked in in terms of aluminum cans?
Speaker Change: and so on, so more visibility there would be really helpful. And then it was also just curious on the longer-term forecast around beer and the notion of socioeconomic, non-structural dynamics. But how are you thinking about beer industry growth? [inaudible]
over this projection timeline, thanks.
Speaker Change: Sure, why don't I start with the first part of the question. We have been USMCA compliant since it was implemented several years ago and remain USMCA compliant today.
Joseph Suarez: In addition to that, Lauren, the guidance that we provided does include the impact for all tariffs announced by the US government on April 2nd.
Joseph Suarez: and by the Canadian Government on March 4th. For a beer business, this includes the impact on our aluminum cans. And for a wine business, this includes the impact for our brands coming out of New Zealand and Italy into the US and for our brands from the US into Canada.
Joseph Suarez: Relentim to the longer-range perspective on beer. There's been obviously a lot of what we see as near-term headwinds, but we think that those over time particularly is the Hispanic consumer who's been particularly challenged, gets back to more sort of normal operating procedure. .
Nick Modi: Bacon, next question is coming from Nick Modi, from RBC Capital Market, Treline, is not live
Nick Modi: Thank you. Good morning, everyone. Bill, maybe you'd like to just kind of peek back up Lauren's question on the long-term beer outlook.
Speaker Change: You know, I get the fact that things are really kind of choppy right now, but the cut in the guide just kind of over the next couple of years seemed a bit extreme relative to what you guys have been doing even with the slowing down that we've been seeing.
Speaker Change: That I think we can all agree some of it is very temporary so you know when I speak to the trade it's pretty clear nothing has really changed an underlying basis with the
Speaker Change: The Brands, the Momentum, kind of how retailers are looking to space your portfolio in a bigger sense, greater manner. So just wanted to kind of get your flop beyond on the range of being down, you know, this up to the four. Thank you very much.
Speaker Change: which is, you know, versus the seven to nine and kind of, how you're thinking about that? I mean, are you just kind of assuming things to stay the way they are? And, you know, if there's upside great, so any context on that would be really, really helpful. [inaudible]
Joseph Suarez: Sure, well let's start with the most important thing Nick and today's Nick's birthday, so happy birthday Nick!
Speaker Change: Now getting on to the main point, the most important thing as we look at it relative to the medium term is our brand health.
Speaker Change: and fortunately all of our brand health metrics remained extremely strong.
Speaker Change: We're very focused on what we can control, and that's distribution, it's focused innovation, it's making sure that our execution is top notch. You noted we gained over 10%
Speaker Change: and Chair of Space in the research that occurred last year, so that remains a positive factor.
Speaker Change: It's still very difficult to know exactly how long some of these socioeconomic issues are going to continue. Certainly, we know that the Hispanic consumer is particularly concerned about a number of issues.
Speaker Change: and we would certainly expect some improvement as those consumers become more comfortable and less concerned about the many issues that follow them.
We don't have an exact answer [inaudible]
to when that is going to moderate. [inaudible]
and I think it's important to note that...
Speaker Change: The guidance that we have provided reflects the fact that there are a lot of unknowns today, including things like tariffs.
Speaker Change: but also the impact that we're seeing with the Hispanic consumer until we get a more definitive
Speaker Change: answered to some of those questions. It's a tough answer to give. Fortunately, that consumer, the Hispanic consumer, continues to show extraordinarily loyalty to our brands. And over the long term, that will moderate and continue to allow us to gain shares we have for the last several years.
Speaker Change: Nick, let me just add a couple of the actual... [inaudible]
Brand Health Stats that Bill Reffers. [inaudible]
Speaker Change: We've actually seen some pretty significant increases in aided awareness and consideration from Adele Corona and Pacifico, which is in line with what we would expect from the media investment that we put in place this last year. All brands are holding a steady on measures of popularity across all adults.
Speaker Change: Hispanic and Gen Z, Pacifico is statistically significantly in California, and all our brands are holding steady on the other metrics that we track, including is this a brand I love, is that a brand everyone likes, is it a good value, is it a brand with heritage, and net favorability.
Speaker Change: Thank you. Next question is coming from Bonnie Herzog, from Goldman Sachre line is now live.
Bonnie Herzog: All right, thank you. Good morning. I just wanted to ask a quick follow-up on, you know, in the context of your cut to your medium-term algo, what are you assuming for the beer category growth or August declines over the next few years? And then I wanted to ask about margins, beer margins, you know, could you maybe walk through the different puts and takes that are going to allow you to deliver your best in class beer margins of 39 to 40 percent over the next few years despite, I guess, a considerable expectation. Bye bye.
Effective Flowdown in Volume and some Terriferous. I mean, you mentioned some cost cutting, so could you give us some more color on that and possibly quantify? Thank you.
Bonnie Herzog: I think slide 18 is going to help you on some of those broad answers, but our view is over the course of the medium term. The beer industry overall will likely go back to what it has done over the last several years, which is roughly flat to down two. Somewhere in that range?
Bonnie Herzog: and as we've said on prior calls, we've seen a significant delta between whatever the beer industry is and our performance against it, where we have gained significant share.
Bonnie Herzog: We expect that that overall approach is going to continue and it will get back to a more normal I'll call it normal trajectory into the medium term as I spoke on a couple of the prior questions.
Bonnie Herzog: How quickly that comes around will largely depend on what consumer sentiment is as we move forward.
Bonnie Herzog: Yeah, and then, you know, Bonnie on margins, I apologize, this is probably a bit of a boring story because I think we've said it, you know, a few times before, nothing's really changed First of all, we're going to manage our footprint in the modular fashion that we've referenced previously, so we're going to limit the impact of depreciation and overhead absorption issues
In addition to that, we'll have incremental volume growth.
Bonnie Herzog: We'll maintain our 1-2% pricing algorithm and certainly we'll continue to on with our cost savings initiatives. Obviously those tailwinds will be offset on a year-to-year basis by inflation and tariffs, but net net- [inaudible]
Bonnie Herzog: We know when we put all that together, we think we can continue to deliver best in class margins at 39 to 40 percent [inaudible]
Speaker Change: Thank you. Next question is coming from Rob Mottenstein from Evercore, ISI Your Line is No Line Thank you very much.
Rob Ottenstein: Great, thank you very much. I just want to make sure, you know, why I get this as crystal clear as possible. I'm wondering if you can just kind of go through again how you're thinking about free cash flow deployment and, you know, given the fact that
Rob Ottenstein: You know, you've shrunk the wine in spirits business or repositioned it and given the fact that at least over the next couple of years you expect less growth from the beer side of the business, you're reducing cat backs.
Rob Ottenstein: Larger acquisitions, you're spending more time on acquisitions, giving the increased cash flow. So, I love to get your thoughts on that. I know you've re-upped the authorization on the share-buyback.
Rob Ottenstein: You know, is tied to that, is that, you know, a strong commitment that you will buy back, I think it was $4 billion worth of stock over the next three years just trying to get a sense
Rob Ottenstein: of the priorities there and what is kind of guidance versus actual commitments along those lines. Thank you.
Thank you.
Speaker Change: Well, thanks for the question, Robert. And, you know, on the one hand, this will not be another boring answer, because I think it's a lot of consistent to see what we've said in the past. But actually, I think it's pretty exciting what we're going to be doing here. I mean, as we outlined,
Speaker Change: Through FY28, we're going to generate $9 billion of operating cash flow and $6 billion of free cash flow.
Our capital allocation priorities don't change. We're committed to being...
Speaker Change: We're committed to achieving three times leverage. We're there now, we're actually a little bit below there now. We're committed to returning.
Speaker Change: Capital to shareholders through dividends and will maintain our approximately 30% dividend payout as we go forward. And then you reference the new authorization
Speaker Change: for $4 billion in share of purchases that we received from our board yesterday. This is actually I think very exciting, I mean, not only is the $4 billion share a purchase.
Authorization Reflective of Art Discipline.
Speaker Change: around capital allocation and share of purchases more specifically. But it's also reflective of the fact that, you know, we think that we're undervalued. Our share of price is undervalued, remains undervalued.
Speaker Change: and we're going to execute on that share authorization as we have.
Speaker Change: This past fiscal year, where we'll be disciplined on a quarter to quarter basis, but we will also have the ability to be opportunistic as we see dislocations in our share price.
Speaker Change: Thank you. Next question is coming from Chris Carrier from Wells Fargo Securities. Your line is not live [inaudible]
Hi, good morning everyone.
Hey, Chris. So,
Speaker Change: Garth, can you just talk about the main drivers and considerations?
Speaker Change: for Gross margins, going into fiscal 26. I fully appreciate that you had a lot of detail in the slides, but I'm really trying to parse out.
The impact of your tariffs on this model, whether that's just...
The aluminum cans relative to everything else
Speaker Change: You also perhaps have a quite a notable currency tailwind in fiscal 26 that may not help you in go forward years.
Speaker Change: and layer this in, you're going into fiscal 27 and fiscal 28.
Yeah, so look, let me do my best there, Kristen [inaudible]
Speaker Change: and if we need to follow up, we can follow up. But as the guidance that we provided yesterday, as we said, includes the impact of tariffs for our beer business, that is the impact.
on Aluminum Cans. As it relates to currency, as you know, we've talked about this multiple times that we have a multi-year layered approach to how we manage our currency as we entered in FY26.
We're above 70% hatched and we've seen some actually dislocations. [inaudible]
Speaker Change: in the U.S. peso right here, should see some dislocations but some weakness and we've taken opportunities for later and some incremental hedges for this year and future years. So, as always, we look to have a sort of...
Speaker Change: Thank you. Next question today is coming from Nadine Sarwat, from Bernstein. Your line is not lies.
Speaker Change: Thank you guys and appreciate all the incremental color that was provided in the prepared remarks in the presentation. Two questions for me, you called out a tough socioeconomic environment in your prepared remarks.
Speaker Change: Can you explain exactly what you're assuming in terms of that socioeconomic environment for the next three years? Are you assuming the current situation remains status quo? Or are you baking in some improvement in the back of that?
Speaker Change: And then secondly, on the week depletion numbers, and especially Madello, appreciate the commentary that you provided
Speaker Change: Could you pull apart the factors onto what's driving that? Maybe what has changed in a little more detail? I don't know if a rank order of magnitude or trying to quantify these in any way possible? And maybe you have any incremental consumer insight on consumer type, pack type, channel, any incremental color would be helpful. Thank you.
Speaker Change: Sure, so let's talk first about the Hispanic consumer because I think this is an important element, as you would expect, we do a fair amount of research around this consumer given that they represent roughly 50% of our overall beer business.
Speaker Change: And the fact is, a lot of consumers in the Hispanic community are concerned right now. Two-thirds of them are concerned about higher prices on things like food, gas, and other centuries.
Speaker Change: Overhand are concerned relative to immigration issues and how those impact a number of them are concerned about job losses and industries that have a high Latino employment base.
Speaker Change: And what does that do? That has tended to mean that the consumer has pulled back on spending on a number of categories. The single biggest one, interestingly, is restaurants. All right.
but a lot of other consumer goods. [inaudible]
clothing.
Home Choice Things To Do
traveled.
Speaker Change: Beer's quite a ways down the list but it's certainly on the list. [inaudible]
because things like social gatherings. [inaudible]
An area where their Hispanic consumer often consumes beer.
Art Declining
Efforts to go to restaurants .
Speaker Change: to have social gatherings, things that are very much bureaucracations have softened.
in the more recent term.
Speaker Change: and it's going to be key to watch as to how that...
Impact
continues or doesn't continue as we go forward. [inaudible]
Yep, yep.
It's non-structural [inaudible]
Speaker Change: Our Brands and our Brand Health continues to be top-notch. We continue to focus on what we can win at, winning the shelf.
Speaker Change: Winning Execution, continuing to bring interesting innovation to the table that allows us to continue to outperform the overall category. But like as you would expect, we're going to need to want to see some improvement in the consumer brand health.
Speaker Change: Before we're able to correctly project how long some of these challenges are going to last? Are there anything you want to add? Yeah, just on some of the macro data points and I'll give you a sort of how we're thinking about that for the forecast period that we provided details on last night.
Speaker Change: You know, we're not expecting any material improvement over this forecast period, you know, some of the macro trends that we're seeing and that we're tracking are unemployment and obviously unemployment has started to stabilize. Thank you guys.
you know across the board but we have seen weakness. [inaudible]
Speaker Change: and those 4,000 calorie job sectors that have a higher impact on beer consumption.
O. .
Speaker Change: Year over year, real disposable personal income, reached a two year low in January and state low in February , consumer settlement.
Speaker Change: Sentiment, rather, that reached a two and a half year low in March, and allowed from our expectations from consumers.
Speaker Change: We've seen inflation rather, the expectations for inflation, to not get as ...
Speaker Change: To not rebound quite as quickly as we had expected and the outlook for GDP growth now so that more muted than it was.
Speaker Change: So we're not expecting any big improvements in that. As we go through calendar year 25 we may see some of that moderate a bit and into 26 so maybe some marginal improvement but for the forecast period we're not expecting any material improvement in the macroeconomic conditions.
Speaker Change: That your next question today is coming from Peter Grom from UBS. Your line is now live.
Thanks operator, good morning everyone so I was hoping to [inaudible]
Speaker Change: Currently, you know, obviously a challenging, you know, exit rate and the guidance does seem to apply some improvement from that exit rate. So can you maybe just help us frame how we should be thinking about the guidance from here, any considerations that we should consider as a relates to one queue. And then just any thoughts on what we should anticipate prices volume. Thanks. Thank you.
Speaker Change: Well, I think if you recall from last year the strongest quarter that we had and frankly that the industry had was our fiscal Q1.
Speaker Change: So, well, we don't make any habit as you know of giving quarterly guidance.
Speaker Change: Certainly the biggest overlap that we have is in this very first quarter, as the business started to soften for the industry as well as for us as you progressed through the back half of last year.
Speaker Change: So, you know, that went when you combine that with some of the socio-economic climate issues that I've already referred to, I think you're going to see some volatility as the year goes on. You know, again
Speaker Change: The key thing for us, I know I'm repeating myself, but I think it's important to recognize. Our brand health remains best to class. And in the longer run, that will continue to pay dividends for us as consumers get back to a normalized behavioral pattern.
Speaker Change: Bacon, next question is coming from Bill Kirk from Rotten, Kaumil Gajrawala, is that live?
Bill Kirk: Good morning, so some people including the teamsters and maybe one of the mega brewers.
Speaker Change: They seem to be trying to drive a wedge between American beer and imported beer.
Speaker Change: Are they having any success with that in the eyes of consumers? And how much influence do you think those type of groups have over alcohol, tariff policies?
Bill: That's an interesting question Bill. Tough to answer some of that question. What I would say is...
Speaker Change: You know, one of the things that we're proud of as a company.
Speaker Change: It's our 80 years as an American company As you know, our ownership is entirely in this country, although we make most of our beer in Mexico because we have Mexican heritage brands [inaudible]
Speaker Change: But we spend roughly a billion dollars a year in the United States market supporting our Brands. We have many of our grains and our barley and our corn grown in the Mountain West of the United States for inputs.
Speaker Change: I think when the overall teamsters take a very hard look, we are very supportive of the teamsters.
Speaker Change: I think we have brought more jobs to this marketplace than any other competitor has because of the growth of our business over time through our distributor network.
So, I think as people take a real hard look...
Speaker Change: at what our company is and how we have performed in the marketplace. They will recognize that we have done an exceptional job of building US jobs as we've also built our business in Mexico to support those US jobs.
Speaker Change: Thank you, and next question is coming from Andrew Stelsick from BMO Capital Market, true line is not live.
Andrew Strzok: Thank you. Good morning. Thanks for taking the questions. You know, appreciate all the detail on the guidance. Obviously, it's a very...
Andrew Strzok: fluid environment. I guess when you just think through all the assumptions that you've made here over the next in recasting kind of the next three years, where do you think there's the biggest risks to your assumptions and the biggest maybe where we might look back and say, hey, you know, that turned out to be a little bit conservative? [inaudible]
Andrew Strzok: I think the single biggest risk that we have is where the consumer is and how long their concerns last.
Andrew Strzok: You know, if we had a crystal ball on that, it would be a lot easier to make some projections because, you know, as the consumer feels better about things that will help not only our business, but the overall category. Believe me, we'd like to see a healthy category. That would be to everyone in our industry's benefit. Thank you very much.
Andrew Strzok: and we certainly always like to see the industry succeed as we succeed.
Andrew Strzok: So that's the biggest variable that I think is out there is...
Andrew Strzok: You know, when, when does the consumer come around? We're going to stay crystal clear focused.
Andrew Strzok: on the variables that we can control, as I've talked to earlier today.
Andrew Strzok: But the consumer sentiment and the consumer's desire to get back out and shop and be comfortable in the socio-economic environment is probably the single biggest variable it's tough to predict.
Andrew Strzok: Thank you. Next question, today is coming from Gerald Pascarelli from Needleman Company, your line is now live.
Gerald Pasquarelli: Thanks very much for the question. I just had a housekeeping item on the wine business. So the $41 million impact that you called out in your commentary.
Gerald Pascarelli: Can you provide some detail on when you expect that to hit the operating income? Is that going to be in the first quarter?
Speaker Change: Up 2026, I guess that's my first question, just any color on the cadence. And then as we think about the cost savings, I think 100 of the 200 million is coming out of wine.
Speaker Change: Is that going to be more pronounced benefit to the operating income booking? Like if we had a look to 2027 or 2028, is that going to be more of a benefit when we get to 2027? So again, any color on the cadence there, I think would be helpful. Thank you.
Speaker Change: Yeah, so the $41 million that you referenced that was called out in the beginning.
Unknown Executive, William Newlands, Joseph Suarez, Unknown Executive, William Newlands,
We're expecting about $55 million in Q are in fiscal 26.
So the majority of the actions that we will take...
to achieve that $100 million savings.
Speaker Change: Will occur in FY26. You won't get the full run rate of that until you move into FY27 and then maybe a little bit in FY28.
Speaker Change: The next question is coming from Dara Mohsenian from Morgan Stanley , your line is not live [inaudible]
Take good morning.
So um...
Speaker Change: Clearly a pretty big revision in long-term beer sales growth from the 7-9 range to 2-4 in fiscal 27-28. So can you just give us a little more detail on...
Speaker Change: How much of that is just related to the external environment and more conservatism on macros? How much of it is?
Speaker Change: Pressure points, maybe that are more durable on the beer category, health and wildest demographics, etc.
Speaker Change: and then a third bucket of market share opportunity for STZ. Just give us a sense of conceptually.
How much of that falls into each bucket? [inaudible]
Speaker Change: and I realize this is like the each version of this question you've got on the call, but I guess the point is...
Speaker Change: We're kind of hearing from you guys, your tone is that...
Speaker Change: The beer depetion slowdown, it's more driven by short-term factors. Obviously we understand the difficult macro environment, but at the same time, you're making pretty large revisions, the beer sales growth post.
Speaker Change: Fiscal 26, which should be significantly macro-depressed based on what we're seeing. So I'm just trying to sort of bridge those two points and how you guys think about that conceptually. That makes sense.
Yes, it totally does, Dara.
Dara Moskinyan: Our points are we have a near-term issue as it relates to consumer sentiment.
Dara Moskinyan: very difficult to predict how long that will last or not and so as we as we look at the fiscal year that we're in we [inaudible]
Dara Moskinyan: I expect that the very well could be a significant factor throughout this fiscal year. I think the question is when does the when does the consumer sentiment turn around? That's the one that's very difficult to project. But again, this is where we go back to
Dara Moskinyan: You have a shorter term issue, you have a near term issue, you don't have a brand health issue, I mean, I look at...
Speaker Change: Brand, we don't always talk about in every single call, but Pacifico [inaudible]
Dara Moskinyan: Pacifico was up 16% last year. It continues to grow and get consumer demand.
Dara Moskinyan: It's, it's a, and I'm called it on in years past, you know, an early stage Madelo because it's shown a similar growth profile to what Madelo did sort of a decade ago [inaudible]
Dara Moskinyan: The punchline to that is, we have strength within our Brands.
Dara Moskinyan: We have new innovation agenda items that will open up new consumer occasions and new consumers to our franchises and we're going to continue to work on the controllables.
Dara Moskinyan: It's very difficult for us to project some of the socioeconomic elements that are very impacted and it was our belief that
Dara Moskinyan: It could be longer than we'd all anticipate. It's simply an area we can't answer and that, therefore, is all reflected in the guidance we provided.
Speaker Change: Thank you. Next question is coming from Kaumil Gajrawala from Jeffries, your life is that life?
Speaker Change: It feels like maybe some of the destructural that could be law of large numbers, you know, is there maybe a revision in expectations for Hispanic population growth in the United States? Yes, there's anything maybe bigger in there that we should be aware of that's part of the calculus?
No, no, I don't think so. I think that-
You know, when you look at...
Lots of factors, you know, when you look at our-
Speaker Change: Awareness Levels, Versus some of the competition. When you look at our shelf
Speaker Change: Positions versus some of the larger competition. We still have a lot of runway to grow.
Speaker Change: We have a lot of expansion capability of reaching, using Madelo as an example, into the non-Hispanic community. We have only been investing against the non-Hispanic community for the last several years.
Speaker Change: We have increased our amount of marketing spend. As you know in the back half of last year we increased our spend even though the consumer was pulling back. And we're seeing that as providing great returns to our business.
Speaker Change: So, we believe there's still a lot of opportunity for our business going forward that most of what is going on is socio-economic issues that we believe will moderate over time. The question is what's that time arise? That's a bit of a difficult one to answer.
Speaker Change: Thank you. Next question is coming from Andrea Tasharoff from JP Morgan. Your line is now live.
Hi, good morning everyone. So
Andrea Tasharoff: Bill Garf seems that you have collected hard data to inform you on the new guidance so I think it will be helpful if you can comment on what has happened with beer volumes in the more Hispanic lip codes against the general public.
Speaker Change: And then I definitely understand the loyalty and the demographic bonus of this cohort like from covering group model when it was public exporting decades ago and that that's trans of course kind of carried over to you as an importer. Can you can you also tell us like.
How?
Speaker Change: Should we be thinking, given one you have already gained a lot of distribution, of course you're going to gain additional 10%, and how you're going to be I think shifting, given that you become a more general public as we go, how we should be thinking about all these dynamics. Thank you. Thank you.
Speaker Change: Sure, so let's try to take that in some order here, relative to Hispanic consumer behavior.
Speaker Change: One of the things we've seen both factually and anecdotally is that there has been some channel shifts in what that consumer is doing.
Speaker Change: So, historically you saw overweating to his stores that were largely Hispanic consumer base and sea stores.
Speaker Change: Both of those we have seen some shifting into broader chain-based accounts that are larger accounts.
Speaker Change: that the Hispanic consumer is seeing across their broader life and lifestyle. Relative to the eight and a half percent, you know, we continue, keep in mind that with the growth profile that we have every year, that continues to be an increase.
Speaker Change: in the amount of spend that we have put against our business, and because of the very strong cost of genders that we have, we continue to put more fuel on that fire we're appropriate to continue to support our business.
We are going to continue to do exactly that.
Speaker Change: Our cost agenda, as you saw, we are expecting $200 million over the next...
two and a half fiscal years.
Speaker Change: based on a strong cost agenda, and we believe that some of that will get reinvested against our business to help drive future success along those lines but
Speaker Change: We test and we review our marketing approach as you would expect on a quarter by quarter basis but we're quite pleased that we continue to see very strong returns for the spend that we put against our bare business.
Speaker Change: Bill, if you don't mind, I'll just wait in a couple more just on the market and he's been right. I mean, as Bill just noted, we don't compromise on our marketing spend, it's a very disciplined approach. You know, you've heard us say this before, we've got a lot of efficiencies with our media agencies in terms of the effectiveness and spend. [inaudible]
Speaker Change: And we will continue target being the number one and number two sheriff voice with Madalo and Corona.
Speaker Change: and we've increased our sponsorship for our spend with March Madness, with Soccer, with Major League Baseball, and with College football. So we're not short-changing by any means the marketing investment behind our beer brands.
Speaker Change: Thank you. Next question is coming from Carlos Laboy from HSPC. Your line is now live.
Carlos Laboy: Yes, hello. One interpretation of your three-year guidance and its long-term implication.
is that Krona Extra is the Bud Light of 2008.
Carlos Laboy: Can you make the case for corona extras you see it evolving? And I remember that in 2008 you were able to re-stabilize corona actually where Bud Light couldn't How are you planning to stabilize it now and return that to growth and might that be one of the structural structurals?
Speaker Change: and kind of hurdles that you need to clear here that Kaumil was maybe alluding to an earlier question. [inaudible]
Speaker Change: So, a couple of things as it relates to Corona. First of all, I think it's important to think about Corona about the brand family.
Speaker Change: Corona familiar is one of our strong growth players in today's market.
Speaker Change: We have introduced Corona Sunbrue this year, which were very encouraged about in its early days. We feel that's going to reach a different consumer and provide the opportunity for improvement in that particular piece.
Speaker Change: Remember, it's got strong brand equity and awareness. It's the number one
Speaker Change: Brand in the mind of consumers in the most loved brand in the mind of consumers in the United States.
So Karata still has a very strong...
Consumer Basin, Consumer Franchise
Speaker Change: Interestingly enough, it is one of our best returns against our advertising.
Approached, very very strong.
Hello.
Speaker Change: and we expect that that's going to continue to be an important part of our brand flowed on forward.
Speaker Change: Bacon, this question is coming from Filippo Falorni, from City of Lyme, is that life?
Filippo Filoni: Hi, good morning, everyone. I wanted to go back to the beer margin questions that were asked before, just the courtifications on Friday 14th.
Filippo Filoni: You just show that you're expecting COGS inflation of a lot of mid-single digit.
Filippo Filoni: The appreciation, even though you're mitigating some of the incremental additional capacity addition is still going up.
Filippo Filoni: and the volume environment is also softer, so I assume there's a little bit less.
Filippo Filoni: fixed cost leverage, although still positive. So can you help me understand what are the offset to all these headwinds on beer margins that allow you to maintain the beer margin on change? Thank you.
Filippo Filoni: No, I mean, look, as we said earlier, there will be volume increases which will help. There will be pricing in that one to 2% which will help.
Filippo Filoni: Those cost initiatives will keep our inflation, you know, or will help mitigate that cost inflation and will manage depreciation so that's where we feel comfortable, say it will be 39 to 40% operating margins.
It's all of that put together. Thank you.
Speaker Change: Thank you. Next question is coming from Bryan Spillane, from Vancouver, America, your line is now live.
Speaker Change: Hey, thanks operator, and good morning everyone. First, you know Bill Garth, thank you for, you know, putting a stake in the ground. This is not an easy environment to try to, you know, forget about, you know, forecasting next month, let alone the next few years and so
Speaker Change: you know whether it's accurate or not it's just that you put a stake in the ground you gave us some detail it's really helpful so thank you.
Speaker Change: You know, my question is more around, you know, as we're thinking about margins in beer and for the whole enterprise actually, just structurally.
Speaker Change: The $200 million in savings that we talked about yesterday is most of that just a
Speaker Change: is most of that related to the divestiture of the parts of the line business and
Speaker Change: You know, kind of reducing some of the stranded overhead. And I guess what's really underneath my question is, is things evolve? You know, should we expect there could be some opportunities to drive more efficiency, and especially as, you know, hopefully the...
The landscape becomes more clear. The landscape becomes more clear.
Speaker Change: Yep, Bryan, thanks for the question and I think I understood it so let me let me try to answer it. You know as we said that the...
Speaker Change: Over 200 million of annualized savings of that, about 100 million of that is associated with wine business.
You know, that comes out after the, that comes out after the divesture.
Speaker Change: The remainder of that really is across our corporate functions as well as some in beer. So it is a reset as we try to make sure that we've got the most...
Speaker Change: Capable organization with the best skills and resources and investments behind it to deliver on our strategic priorities going forward.
Speaker Change: I think we've got a pretty good history around discipline of cost management and so to the extent we identify areas over and above what we shared yesterday we absolutely would execute on those.
Speaker Change: But it's a pretty, the amount of costs we're taking out is, I think it's a pretty aggressive yet very achievable amount and most in which we execute on this year so
So let me prow on you for once, how's that? Um...
Speaker Change: Bryan, I think one of the things that Garth was just touching on is important. First of all, we have a superb supply chain.
Capability Within Our Business
Speaker Change: and we have already shown our colours around that as we create more efficiencies.
Speaker Change: Over time, we invest that money behind our business to help grow the future [inaudible]
that's that's that's
Speaker Change: and approach we have taken for many, many years now and it's one that we're going to continue to take. So as our ability to improve the efficiencies in our business continues to grow, we will continue to invest that money on the future of our business.
Speaker Change: Thank you. Next question is coming from Steve Powers from Georgia Bankrow Line, is not live
Speaker Change: Good morning, Bill Garth. Thanks for the question. Maybe a quick one for each of you actually. You know, um.
Speaker Change: Bill, similar to how you've discussed a couple of times the factors influencing demand on beer, I'd love any analogous comments you might have
Speaker Change: on the wanted spirit side, and just how you see the various factors stacking up to inform the...
Speaker Change: The flat to 3% outlook that you have on the portfolio, you are planning to retain it.
Speaker Change: You know, how you're approaching to build out in Veracruz or any of the modular dishes at the existing, the other, you know, other facilities, just any changes that are maybe worth highlighting. Thank you.
Speaker Change: Sure, starting with wine will let Garth answer the second half of the question.
Speaker Change: You know, our thinking around the wine business relates very similar to what we've done in beer which is this creates a wine and spirits business going forward. That's the place at the higher end of the business.
Speaker Change: and that ties in with the long-term premiumization trend that you see across all alcohol beverage.
So, we've finally gotten our portfolio sort of…
where we want it? [inaudible]
to give you a perspective. [inaudible]
Speaker Change: That business has continued to be much stronger than what we've seen in other sectors.
Speaker Change: of the Wine Business, which is why we're going to spend our time and energy on that sub-segment of the overall wine category.
Speaker Change: Yeah, and just in terms of the modular approach and changes in how we're thinking about capacity. I mean, there's really nothing more to share than what was in the materials we had earlier today, or last night I should say.
Speaker Change: You know, we're going to continue to manage our footprint responsibly and in line with what our volume expectations are [inaudible]
Speaker Change: As you've seen, we've reduced our expectations for capacity through FY28 [inaudible]
Speaker Change: and the materials we shared last night. We're on pace specifically to Veracruz, we're on pace to open that. That will be an important group for us as we think about the contribution that has to the overall portfolio. But we'll be really mindful and bring out capacity when it's needed. Thank you very much.
Speaker Change: Thank you. Next question today is coming from Kevin Runny from B&P Power by Your Line Is Now Live.
Kevin Grundy: Great. Thank you, morning guys. I wanted to come back to the investment levels in the beer business. I want to ask you from a little bit of a different angle. Garth, I think you mentioned satisfactory levels. I think looking back, the eight and a half percent is below the 10 percent levels where the company was in fiscal 20 and 2021 and you typically are in this 9 to 10 percent sort of range. Thank you very much. Thank you very much.
Speaker Change: So I want to ask everyone on the call is sympathetic to the volatility in the environment. Number one was was there any thought to kind of leaning in here albeit weighing on margins a bit to try to accelerate top line growth not an uncommon tact as you guys are well aware in CPG to see companies do that when the top line is waning as it clearly is. [inaudible]
and then two for both of you. [inaudible]
Speaker Change: Should investors perceive this as kind of a philosophical reorientation if you will at Constellation where there's kind of less of a bias towards top line growth?
Speaker Change: and more of a bias towards margin preservation and cash flow, just kind of given what you're experiencing in the business which would also not be uncommon either. And you might push and say it's not an either or that's kind of a false choice, but I'm just would like to hear more about how you're thinking about that balance. Thank you both.
So, just on the marketing investment. Thank you.
Speaker Change: So, we feel, as I said earlier, as Bill said is what we feel really comfortable around our marketing investment as we laid out at our investor there. Our target was to be about 9%. And you know, that's where we were in FY25, and we're going to be a little bit below that in FY26 in terms of the forecast.
Thank you.
Speaker Change: But we don't limit that. When we talk to our marketing teams, we ask them what they need and they tell us what they need. And so this is reflective of what our team thinks it needs to drive the type of performance that is included in our outlook.
Speaker Change: That being said, and Bill referenced this earlier around our cost savings agenda, how we take savings from our cost savings agenda and reinvest that in high return opportunities within the business.
Speaker Change: We did that last year, we're in Q3 and Q4, we invested significantly more money in marketing to drive.
and to support our brands.
Speaker Change: So that's the discipline that we have on a year to year basis or a quarter to quarter basis. That won't change. And the last piece, I'll just say on that before I turn it over to Bill as well, is again, well the percentage is coming down. We've gotten significantly more efficient in the way that we buy media and the way that we manage our marketing spend.
Speaker Change: and relative to your comment about Hazar Approach to Things Changed
Speaker Change: The answer is no. Look, six out of the last eight years, we have been the number one certain kind of large company, CBG company in terms of growth. It included last calendar year. Despite the challenges that we saw both within our industry and to some degree, within our brands as part of that industry. The answer is no. Look, six out of the last eight years, we have been the number one certain kind of large company in terms of growth.
Speaker Change: But it didn't change the fact that we were the number one large.
Company
Surcanic, growth company last year [inaudible]
Speaker Change: We expect to continue to see both top-lying growth and maintaining a strong margin structure of 39-40 as Garth Outlight. Our expectation around that hasn't changed. We think both are important, and we're going to do our damnedest to do both of those.
Robert Moskow: Thank you. Next question is coming from Robert Moskow from TD Calendar line, is that live?
Robert Moskow: Hey, thanks. Yeah, we're all kind of trying to fish around to figure out what the exact tariff impact is on your can costs.
Robert Moskow: And it sounds like it's pre-sensitive information so I understand, but I'm just trying to figure out if I have the building blocks right?
Robert Moskow: If you spend like $900 million a year on aluminum cans and it's a 25% tariff, do I just put those two numbers together or am I just way too high on that number?
Robert Moskow: I would say take a look at the information that we provided in the guidance that we issued last night. I think that if you look at the top and bottom line growth rates, you can figure out what the impact is.
Robert Moskow: While there's a lot of other assumptions in those impacts, so what are the other assumptions? Would it be productivity? productivity?
Speaker Change: Robert, yeah, on an absolute basis as we disclose to all the materials, it includes productivity, it includes cost savings, it includes inflationary pressures and so forth, but again.
Robert Moskow: That is all baked into the margin assumption. Cara Starr as well, so all disclosures have been made available as made available [inaudible]
Speaker Change: Thank you. Next question is coming from Michael Lavery, from Pepper Sandler, your line is now live
Michael Lavery: Thank you, the morning. I just wanted to come back to...
just the capacity approach and I recognize you. Thank you.
Michael Lavery: I tried to adjust to match what you expect to need, but maybe to help us understand the mix a little bit, it sounds like you're still adding modules. Besides Veracruz, I guess maybe first, are we right to.
Michael Lavery: assume that the flexibility you have to ship by sea from Barracruz.
Michael Lavery: It should at least allow for some potential savings and if so, what's the thinking to add at all your locations as opposed to just push there, maybe just left to understand that a little bit better? [inaudible]
Michael Lavery: When we look at our very footprint, there's a number of things we take into consideration.
Michael Lavery: One is the size and scale of the brewery. Another is one of the capabilities of that brewery in terms of
Michael Lavery: You know, is the brewery capable of producing the entirety of the portfolio and have the complexity to service the entire portfolio? Or is it a brewery that's going to be a bit more specialized and in large packaging lines? [inaudible]
and then to your point.
We also look at how do we optimize?
Michael Lavery: Logistics Costs in terms of getting a product into the market most cost-efficiently.
Michael Lavery: So those are the things that kind of go into it specifically to bear a cruise
Michael Lavery: You know, while that is further south, and I know that there's been questions around...
What the impact that will have on logistics going forward? [inaudible]
Michael Lavery: Keep in mind that in the overall footprint that will be about 3 million, you know, hectolaters of the overall 55 million hectolaters so it's a relatively small piece of the total footprint.
Michael Lavery: We're still reviewing what options we have from a logistics standpoint to make that as cost effective as possible, but we're also from a capability standpoint, treating Veracruz as a brutal run.
Michael Lavery: along production lines of high volume skews and therefore minimize the costs there and try to offset any incremental logistics costs.
Speaker Change: Thank you. We reach out to our question and answer session and ladies and gentlemen, that does conclude today's telecomference and webcast. You may disconnect your mind at this time and have a wonderful day. We thank you for your participation today.