Q1 2026 Constellation Brands Inc Earnings Call
Operator: Greetings and welcome to the Constellation Brands Q1 Fiscal Year 2026 Earnings Conference Call and Webcast. At this time all participants are in a listen-only mode. A question and answer session will follow the formal presentation. You may be placed into the question queue at any time by pressing star 1 on your telephone keypad. And we ask you, please limit yourselves to one question, then return to the queue. If anyone should require operator assistance, please press star zero. As a reminder, this conference is being recorded.
Greetings and welcome to the constellation brands Q1 fiscal year 'twenty 'twenty six earnings conference call and webcast at this time, all participants certainly listen only mode.
A question and answer session will follow the formal presentation you may be placed into question queue at any time by pressing star one on your telephone keypad. We ask you. Please limit yourselves to one question and return to the queue.
If anyone should require operator assistance, please press star zero.
A reminder, this conference is being recorded.
Joseph Suarez: It's now my pleasure to introduce your host, Joseph Suarez, Vice President, Investor Relations. Please go ahead. Thank you, Kevin.
Speaker Change: My pleasure to introduce your host Joseph Suarez, Vice President of Investor Relations. Please go ahead Sir.
Joseph Suarez: Thank you Kevin Good morning, all and welcome to constellation Brands' Q1 fiscal 'twenty six conference call I'm here. This morning, with our CEO Garth Hankinson, our CFO and Blair been among our new Vice President of Investor Relations, who will assume leadership of the function after today.
Joseph Suarez: Good morning, all, and welcome to Constellation Brands Q1 Fiscal 26 conference call.
Joseph Suarez: I'm here this morning with Bill Newlands, our CEO, Garth Hankinson, our CFO, and Blair Venema, our new Vice President of Investor Relations, who will assume leadership of the function after today. Blair brings great expertise to the role. He began his career as a buy side equity analyst and has worked across our corporate development, treasury, and beer commercial finance teams for the last 10 years. I will work closely with Blair over the coming weeks to ensure a seamless transition of the function.
Speaker Change: Blair brings great expertise the role he began his career as a buy side equity analyst and has worked across our corporate development and Treasury and beer commercial finance teams for the last 10 years I will work closely with layer over the coming weeks to ensure a seamless transition of the function.
Joseph Suarez: We trust you had the opportunity to review the news release, CEO and CFO commentary, accompanying quarterly slides, and a recently updated annual brand appendix slides made available in the investor section of our company's website, www.cbrands.com. On that note, as a reminder, reconciliations between the most directly comparable gap measures and any non-gap financial measures discussed on today's call are included in the news release and website, and we encourage you to also refer to the news release and Constellation's SEC filings for risk factors that may impact forward-looking statements made on this call. 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.
Speaker Change: We trust you have the opportunity to review the news release C. O N CFO commentary accompanying quarterly slides and our recently updated annual brand appendix slides made available in the investors section of our company's website.
Speaker Change: W. W Dot <unk> dot com.
Joseph Suarez: On that note as a reminder, reconciliations between the most directly comparable GAAP measures and any non-GAAP financial measures discussed on today's call are included in the news release and website and.
Joseph Suarez: And we encourage you to also refer to the news release and constellations SEC filings for risk factors that may impact forward looking statements made on this call before turning the call over to Bill and Garth. Please keep in mind that as usual answers provided today, we'll be referencing comparable results unless otherwise specified.
Joseph Suarez: Lastly, in line with prior quarters, I would ask that you limit yourselves to one question per person, which will help us and our call on time. Thanks in advance and over to you for questions.
Last week in line with prior quarters I would ask that you limit yourselves to one question per person, which will help US end our call on time, thanks in advance and over to you for questions.
Operator: Thank you. We'll now be conducting a question and answer session. If you'd like to be placed into question queue, please press star 1 on your telephone keypad. As a reminder, please limit yourselves to one question, then return to the queue.
Speaker Change: Thank you will not be conducting a question and answer session if you'd like to be placed into the question queue. Please press star one on your telephone keypad as a reminder, please limit yourself to one question and then return to the queue. Our first question today is coming from Dara <unk> from Morgan Stanley. Your line is now live.
Dara Mohsenian: Our first question today is coming from Dara Mohsenian from Morgan Stanley. Your line is now live. Hey, good morning. Hey, Dara. So, just wanted to discuss your confidence in the unchanged full-year beer revenue growth outlook, as well as margin guidance. So, we've obviously seen some industry weakness ramp up in May and June. You know, your depletion decline in fiscal Q1 was similar to Q4, if you strip out one last day. I understand that, but presumably, some of this industry pressure ramped up towards the end of the quarter in June, at least in the track channel data.
Speaker Change: Okay.
Dara: Hey, good morning.
Dara: Hey, Dara.
Dara: So just wanted to discuss your confidence in the unchanged full year beer revenue growth outlook as well as margin guidance. So we've obviously seen some industry. We just ramp up in May and June.
Dara: Depletion decline in fiscal Q1 was similar to Q4, if you if you strip out the one less day I understand that but presumably some of this industry pressure ramped up towards the end of the quarter in June.
Dara: At least in the tracked channel data.
Dara Mohsenian: So, can you just discuss confidence in your beer volume growth outlook? And at some point, it implies you move back to depletion growth.
Speaker Change: Can you just discuss confidence.
Speaker Change: In your beer volume growth outlook and at some point. It implies you move back to depletion growth, maybe just give us some more context on a quarterly basis. When we should start to see that and then also just on the margin side with incremental aluminum pressure with the higher tariffs can you talk about what's sort of the offer.
Dara Mohsenian: Maybe just give us some more context on a quarterly basis when we should start to see that. And then also, just on the margin side, with incremental aluminum pressure with the higher tariffs, can you talk about what sort of the offset is to allow you to still deliver profitability on a full-year basis in the beer side, in line with what you were expecting previously? Thanks.
Dara: That is to allow you to still deliver a profitability on a full year basis in the beer side in line with what you were expecting previously.
Bill Newlands: Sure, Dara, why don't I start and Garth will come in with the margin question. I think it's important to point out that the quarter was as we expected. We saw a significant amount of consumer concern that has continued from the past quarters into this quarter. But this quarter was as we expected. Recall, this is going against the strongest quarter that we had last year. Q1 was what I would describe as a normal quarter for us. And as you pointed out, there was one less selling day in the quarter. I think the important thing to point out is sequential improvement is required for us to accomplish our guidance, but it's not predicated on significant consumer change.
Speaker Change: Sure Derek why don't I start and guards will commence with the margin question.
Dara: I think it's important to point out that the quarter was as we expected.
Dara: We saw a significant amount of consumer concern that has continued from the past quarters into this quarter, but this quarter was as we expected recall this is going against the strongest quarter that we had last year Q1 was what I would describe as a normal quarter for us and as you pointed out.
Dara: There was one less selling day in the quarter I think the important thing to point out is sequential improvement is required for us to to accomplish.
Dara: Our guidance, but it's not not predicated on significant consumer change.
Bill Newlands: We are going against much easier comps as we head into the summer in scanner data. You may recall that in July of last year was when things started to decelerate, both for us and for the overall industry. So we're going against easier comps as we progress into the summer months.
Dara: We are we're going against much easier comps as we head into the summer in scanner data you may recall that in.
Dara: In July of last year was when things started to decelerate both for us and for the overall industry. So we are going against easier comps as we progress into the summer months got you want to touch on the margin point I'll touch on the March.
Garth Hankinson: Garth, do you want to touch on the margin point? Yeah, I'll touch on the margin point, but before I touch on the margin point, you know, again, as Bill said, you know, we feel confident with our outlook for the year, which is why we affirm guidance, and we haven't seen any changes in consumer behavior. That being said, there are still some macroeconomic factors, if you will, that we continue to monitor, and there continues to be some uncertainty in the macro backdrop. You know, we've seen from our banking partners and from the Fed some reductions in expectations around GDP growth, as well as some softening in expectations with inflation, unemployment, and interest rates.
Speaker Change: Before I touch on the margin point again as Bill said.
Speaker Change: We feel confident with our on our outlook for the year, which is why we reaffirmed guidance and we haven't seen any changes in consumer behavior that being said there are still some macroeconomic.
Dara: Factors, if you will that we continue to monitor and there continues to be some uncertainty in the macro backdrop.
Dara: We have seen from our banking partners and from from the fed some reductions and expectations around GDP growth as.
Dara: As well as some softening in expectations with inflation unemployment.
Dara: And interest rates that being said, there's a lot of guesswork I think more so in this year's forecast as it relates to things like the impact of potential tariffs or potential impact of tariffs.
Garth Hankinson: That being said, there's a lot of guesswork, I think, more so in this year's forecast as it relates to things like the impact of potential tariffs or the potential impact of tariffs. And the potential impact of unemployment, of government-related layoffs. So again, just a fair amount of uncertainty as we go through the year. On the margin front, we feel good about our ability to deliver margins in line with what we laid out in April, specifically to the incremental tariff that went into effect in June. To be clear, that did not impact our Q1 going forward.
Dara: The potential impact of.
Dara: On unemployment.
Dara: <unk> related.
Dara: Layoffs, so again, just a fair amount of uncertainty as we go through the year.
Dara: On the margin front, we feel good about our ability to deliver margins in line.
Dara: Skus me with what we laid out in April specifically to the incremental tariffs that went into effect in June.
Dara: To be clear that did not impact our Q1.
Dara: Going forward, we think that the impact of that is going to be roughly $20 million as a reminder.
Garth Hankinson: We think that the impact of that is going to be roughly $20 million. As a reminder, what was announced earlier in the year was an impact of about $30 million. It's obviously less for us given that it's one quarter into the year, or the incremental is less for us because we're one quarter into the year. And from a seasonality perspective, the first quarter is the highest quarter. Volume-wise, we don't expect that we're going to be able to fully offset this incremental tariff. So that'll be about a 20 basis point hit, but we still believe that we can deliver margins in line with what we outlined in April.
Dara: What was announced earlier in the year with an.
Dara: An impact of about $30 million.
Dara: It's obviously less for us given that it's one quarter into the year or the incremental list lifestyles, because we're one quarter into the year and from a seasonality perspective.
Dara: First quarter is the highest quarter.
Dara: Volume wise.
Dara: We don't expect we're going to be able to fully offset this incremental tariffs.
Dara: So that'll be about a 20 basis point hit, but we still believe that we can deliver margins in line with what we are.
Dara: Outlined in April.
Operator: Thank you.
Nik Modi: Thank you. Our next question today is coming from Nik Modi from RBC. Your line is now live.
Nick Modi: Our next question today is coming from Nick Modi from RBC. Your line is now live. Yeah, thank you.
Nik Modi: Yes. Thank you good morning, everyone.
Nick Modi: Good morning, everyone. Bill, I know this might be a hard question to answer, but this, I know you guys are doing a lot of work regarding the Hispanic consumer. It almost feels like it's getting a bit worse in terms of, you know, just at least from the headlines of the raids and, you know, kind of where they're targeting consumers, you know, in normal places of shopping. I'm just curious, like, There's got to be a breaking point at some point. And obviously, this is a big driver that is weighing on your business. I'm curious if you have any perspective on, like, how long you think this might go on?
Nik Modi: I know this might be a hard question to answer, but yes. I know you guys are doing a lot of work regarding the Hispanic consumer it almost feels like it's getting a bit worse in terms of you know just at least from the headlines of the raids and you know kind of where they're targeting consumers you know in normal places of shopping.
Nik Modi: Just curious like.
Speaker Change: There's going to be a breaking point at some point and obviously this is a big driver that is weighing on your business I'm curious if you have any perspective on.
Nik Modi: Like how long you think this might go on and again I know this is a hard question to answer.
Nick Modi: And again, I know this is a hard question to answer. Do you have any perspective from the administration in terms of when some of these raids will start to calm down? Like, any perspective around that, I think, would be helpful.
Nik Modi: Do you have any perspective from the administration in terms of when some of these rates will start to calm down like any perspective around that I think would be helpful.
Bill Newlands: Sure. Thanks, Nick. As you know, you're right. This is very hard to call as to what the consumer reaction is going to be going forward. I think the important part that we continue to look at is, first of all, our loyalty is very strong and remains very strong with a Hispanic consumer base. Our loyalty is increasing in the general market, and we are continuing to invest against our to support the consumer as they progress down this path. Importantly, our brand health measures remain as strong as they ever have. We'd be hard-pressed to tell you when you see a fair amount of change.
Nik Modi: Sure. Thanks, Nik as you know Youre right. This is very hard to call as to.
Nik Modi: What the consumer reaction is going to be going forward I think the important part that we continue to look at.
Nik Modi: First of all our loyalty is very strong and remains very strong with a Hispanic.
Nik Modi: Consumer base, our loyalty is increasing and the general market and we are continuing to invest against our business to support the consumer as they progress down this path.
Nik Modi: Importantly, our brand health measures remain as strong as they ever have.
Nik Modi: We'd be tough we'd be hard pressed to tell you when you see a fair amount of change.
Bill Newlands: Both Hispanic and non-Hispanic consumers are concerned about inflation and about cost structure. But I also would point out that the percentage of alcohol in the basket has remained constant, even though the basket has gotten smaller relative to what consumers are doing with consumer goods. So our focus has been on control the controllables. We have seen high single-digit share gains in the shelf. Our buy rates, while visits are down, spend is up when people visit and when they actually go to the stores. NPD continues to be an important part of what we do. We're pleased with the development of Sunbrook.
Nik Modi: Both Hispanic and non Hispanic consumers are concerned about inflation and about cost structure, but I also would point out that the percentage of alcohol in the basket has remained constant even though the basket has got smaller relative to what consumers are doing with consumer goods. So our focus is.
Speaker Change: Ben on control the controllable.
Nik Modi: We have seen high single digit share gains.
Nik Modi: And in the shelf.
Nik Modi: Our buy rates well visits are down spend is up when people visit and when they.
Nik Modi: Actually go to the stores.
Nik Modi: NPD continues to be.
Nik Modi: Part of what we do we're pleased with the development of Sungroup. It's ahead of what we had expected and as I said earlier, we continue to invest against the business. So our focus continues to be monitored carefully where the consumer is and control. The controllable do everything we can possibly do so as the consumer.
Bill Newlands: It's ahead of what we had expected. And as I said earlier, we continue to invest against the business. So our focus continues to be monitored carefully where the consumer is and control the controllables, do everything we can possibly do so as the consumer hopefully returns in the near term to more normal behavior. We're there and ready to take advantage of just that.
Dara: I'll hopefully returns in the near term to more normal behavior.
Dara: They are ready to.
Dara: Take advantage of just that.
Speaker Change: Thank you. Our next question is coming from Lauren Lieberman from Barclays. Your line is now live.
Lauren Lieberman: Your next question is coming from Lauren Lieberman from Barclays, your line is now live. Great. Thanks.
Lauren Lieberman: Great. Thanks, Good morning, and extra talk a little bit about marketing it was interesting to see stronger marketing in the quarter. So I was curious if you could talk a little bit about marketing cadence. This year versus last and then also in that standpoint, it feels like not so much from a pricing standpoint my mark.
Lauren Lieberman: Good morning. I just want to talk a little bit about marketing. It was interesting to see stronger marketing in the quarter, so I was curious if you could talk a little bit about marketing cadence this year versus last, and then also, in that standpoint, it feels like, not so much from a pricing standpoint, but from a marketing standpoint, the competitive landscape has picked up, and you've got MicUltra that's been, you know, a fast-growing brand for some time. The only other fast-growing brand alongside Modelo has really picked up its activity, and I think picked up, it seems, sort of the target market they're going after, so I just was curious if you could talk a little bit about kind of brand competitiveness, your marketing efforts, not just quantum and timing, but also kind of thoughts around, you know, any changes or differences in targeting and what you're seeing in the competitive landscape.
Dara: Getting standpoint, the competitive landscape has picked up and you've got Nick Ultra that's been you know a SaaS growing brand for some time the only other fast growing brand alongside a delo has really picked up its activity and I think picked up it seems sort of the target market there going after so I. Just was curious if you could talk a little bit about kind of brand <unk>.
Dara: Passiveness your marketing efforts, not just quantum and timing, but also.
Dara: Kind of thoughts around.
Dara: Any changes or differences in in in targeting and what youre seeing in the competitive landscape. Thanks.
Bill Newlands: Thanks.
Dara: Yeah, you bet. So I think it's important to point out that because of seasonality heading into the summer Q1 is always slightly higher in terms of our marketing investment versus the rest of the quarters, but I think it's also important to point out Modelo Modelo and Corona are the number one and number two share of voice within.
Dara: The beer sector for marketing, we continue to invest.
Dara: Against our brands to build long term success for those brands and we're investing in places that we think are high impact football Soccer Major League baseball things that are alive things that our action oriented and things that tend to be beer occasions. So we're going to continue to invest against our business our.
Bill Newlands: And we're investing in places that we think are high-impact, football, soccer, Major League Baseball, things that are live, things that are action-oriented, and things that tend to be beer occasions. So, we're going to continue to invest against our business. Our fundamental belief is, as I said on the prior question, our brand health metrics are very strong. Our intent is to keep those metrics as strong as they are, if not to improve those, and part of the way we will do that is to continue to invest against the consumer, so as the consumer begins to revert to more normal behavior, whenever that occurs, we're going to be in a position to win.
Dara: It'll belief as I said on the.
Dara: Prior question our brand health metrics are very strong our intent is to keep those metrics as <unk>.
Dara: Strong as they are if not to improve those and part of the way. We will do that is to continue to invest against the consumer so as the consumer begins to revert to more normal behaviour whenever that occurs we're going to be in a position to win.
Dara: Okay.
Speaker Change: Thank you. Our next question today is coming from Chris Carey from Wells Fargo Securities. Your line is now live.
Operator: Thank you.
Chris Carey: Our next question today is coming from Chris Carey from Wells Fargo Securities. Your line is now live. Hey, guys, thanks a lot for the question. So I was thinking about the investor presentation. You know, at the Investor Day, and there's a lot of pride in the fact that the portfolio is so focused, and you're gaining share in the category behind such a focused portfolio. And I think, you know, when you look across from your peer set, there's actually been an attempt to continue to diversify the portfolio to perhaps hedge against some of these situations. If, you know, the poor sees slowing growth or market share loss, it's offset by something else, right?
Chris Carey: Hey, guys. Thanks, a lot for the question.
Chris Carey: So I was thinking about the investor presentation.
Dara:
Dara: At the Investor day, and Theres a lot of pride in the fact that the portfolio is so focused and youre gaining share in the category behind such a focus portfolio and I think when you look across some of your peer set there has actually been an attempt to continue to diversify the portfolio to perhaps hedge against.
Dara: Some of these situations if the floor is slowing growth or market share losses, it's offset by something else right you've seen that with some of your competitors does this.
Chris Carey: You've seen that with some of your competitors. Does this, you know, moment in time...
Dara: A moment in time.
Chris Carey: give you a bit more, you know, credence to Think about maybe investing or diversifying the portfolio, you know, however significant that may be in the coming years. to give yourself a bit more diversification against, you know, such events.
Dara: Give you a bit more.
Dara: You know credence to.
Dara: Think about maybe investing are diversifying the portfolio. However, significant that may be in the coming years.
Dara: Just to give yourself a bit more diversification against such such events and then within that could you just talk about.
Bill Newlands: And then within that, can you just talk about how elevated maybe Pacifico will become now because it's been such a reliable growth driver, you know, can you accelerate that growth even more? So just some thoughts there would be helpful. Thanks. Yeah, you bet. Well, first of all, I think it's important if you think about what has changed versus the investor day, a lot of things have. Non-alcoholic, non-alcoholic didn't exist back at that point in time. Today it's the number two share gainer in a growth category in the non-alcoholic sector. Oral didn't exist. You've probably heard that we are adjusting our oral pricing to go after high-end light beer where we see competitive opportunity for us to succeed.
Speaker Change: Elevated maybe <unk> will become now because it's been such a reliable growth driver can you accelerate that growth even more so just some thoughts there would be helpful. Thanks, Yeah, you bet.
Speaker Change: Well first of all I think it's important if you think about what has changed versus.
Speaker Change: The Investor day, a lot of things have non alcoholic non out didn't exist at that point in time today. It's the number two share gainer in a growth category. The non op sector. Laurel didn't exist you probably heard that we are adjusting our oral pricing to go after high end light beer.
Speaker Change: Where we see competitive opportunity for us to succeed we introduced <unk>. This year, which is ahead of our plan goes to after a consumer who is interested in flavor.
Bill Newlands: We introduced Sunbrew this year, which is ahead of our plan, goes after a consumer who's interested in flavor. I've said on prior calls, we're very pleased with the fact that our share of sales in LDA 21 to 25-year-old consumers is twice the average of the sector. So we're continuing to bring in new younger consumers into the equation. Limani Sal, one of the best, single best chalatas that we have, did not exist when we had investor day. So all of those things, I would argue, are part of our innovation agenda. As we've said, we can see between 20 and 40 percent of our growth profile in any year reflecting from new products, and we would expect this year not to be any different along that line.
Speaker Change: <unk> said on prior calls we're very pleased with the fact that.
Speaker Change: Our share of sales in LDA, 21% to 25 year old consumers is twice the average of the sector. So we're continuing to bring in new younger consumers into the equation Lamont sell one of the best single Best <unk> that we have did not exist when we had investor day.
Speaker Change: So all of those things that I would argue are part of our innovation agenda. As we've said, we can see between 20 and 40% of our growth profile in any year, reflecting from new products and we would expect this year not to be any different along that line, but we're continuing to be focused on how we can win more consumer.
Bill Newlands: But we're continuing to be focused on how we can win more consumers on more occasions. Relative to your question on Pacifico, obviously Pacifico continues to be very, very strong. But what's exciting to us is, despite the fact that Pacifico is the number two brand now in L.A., where it's obviously a huge brand, 50 percent of the growth profile that's occurring on Pacifico is coming from outside of California. So you're starting to see significant increase and growth of that brand around the country. And we expect to put some fuel on the fire, if you will, around that brand.
Speaker Change: On more occasions relative to your question on Pacific Go obviously Pacific all contingent continues to be very very strong, but what's exciting to us is despite the fact that <unk> is the number two brand now in L. A where it's obviously a huge brand 50% of the growth profile it's occurring.
Speaker Change: Pacific <unk> is coming from outside of California, So youre, starting to see significant increase in that and growth.
Bill Newlands: That brand around the country and we expect to put some fuel on the fire. If you will around that brand. We think it's a great opportunity its demographic profile is somewhat different from our other brands.
Operator: We think it's a great opportunity. Its demographic profile is somewhat different from our other brands. And we think that's going to be an important growth driver and an important share gainer in terms of shelf positions for us as we move forward. Thank you. As a reminder, that's star one to be placed in the question queue. When we ask you, please ask one question, then return to the queue.
Speaker Change: We think thats going to be an important growth driver and then.
Speaker Change: And an important share gainer in terms of shelf positions for us as we move forward.
Speaker Change: Thank you as a reminder, that star one to be placed in the question queue and we ask you. Please ask one question and return to the queue. Our next question is coming from common controller from Jefferies. Your line is now live.
Kaumil Gajrawala: Our next question is coming from Kaumil Gajrawala from Jeffrey's, your line is now live. Hey, everybody. Good morning.
Speaker Change: Hey, everybody. Good morning, I guess I was going to follow <unk> lead with a tough question, which is.
Kaumil Gajrawala: I guess I'm going to follow Nick's lead with a tough question, which is, you know, let's just assume things get, you know, better from a, you know, socioeconomic perspective. How do we know that behavior will go back to where it was? And I, and I kind of ask in the context of, it does seem we're learning now, and, you know, that COVID really changed the way the consumer is behaving in general across a series of things, but especially across beer. And could this be sort of the equivalent of a COVID moment that, you know, even if things start to open up a bit, that maybe the behavior doesn't go back to where it was?
Speaker Change: Let's just assume things get better from a socio economic perspective, how do we know that behavior will go back to where it was kind of asking the context of it does seem we're learning now.
Speaker Change: Yes that COVID-19 really changed the way the consumer is behaving in general across a series of things, but especially across beer and could this be sort of the equivalent of a COVID-19 moment that.
Speaker Change: Even if things start to open up a bit that maybe the behavior doesn't go back to where it was.
Bill Newlands: Yeah, that's an interesting question. I think the important part of that for us to all keep in mind is, especially with our Hispanic consumer, which reflects roughly half our business, that consumer is very interested in beer. What has occurred is that occasions on which beer is consumed have decreased because of concerns of the socioeconomic area that you mentioned. When you look at the fact that consumers are not going out to eat as much as they had, they're having less social occasions at home, it doesn't change their interest in consumption of beer. It simply has been that those occasions have been decreased when that occurs.
Speaker Change: Yes, that's an interesting question I think the important part of that for us to all keep in mind is especially with our Hispanic consumer which reflects roughly half of our business.
Speaker Change: That consumer is very interested in beer. What has occurred is occasions on which Bayer is consumed have decreased because of concerns of the socioeconomic area that you mentioned so.
Speaker Change: When you look at the.
Speaker Change: The fact that consumers are not going out to eat as much as they had they're having less social occasions at home. It doesn't change their interest and consumption of beer is simply has been that those occasions.
Speaker Change: Have been decreased.
Speaker Change: And that occurs so I think youre going to easily see it revert to more normal scenario as the macroeconomic scenario comes back too.
Bill Newlands: I think you're going to easily see it revert to a more normal scenario as the macroeconomic scenario comes back to a more normal environment.
Speaker Change: To a more normal environment.
Speaker Change: Okay.
Speaker Change: Thank you next question today is coming from Peter Galbo from Bank of America. Your line is now live.
Peter Galbel: Your next question today is coming from Peter Galbel from Bank of America, your line is now live. Hey, good morning, Bill and Garth. Thanks for the question. Good morning. Morning.
Peter Galbo: Hey, good morning, Bill and Corey Thanks for the question.
Speaker Change: Good morning, good morning, good morning.
Garth Hankinson: I wanted to go back to maybe Dara's question on just the beer gross margins, and actually there was probably some favorability or upside to what we thought in the quarter. Garth, I think in your prepared remarks, you talked about kind of a $40 million tailwind on kind of operational improvements. I'm just wondering, you know, how much of that as well is maybe some favorability on the peso, you know, that you guys locked in kind of at a more favorable value? Maybe how we should think about that on the go forward in the back half of this year or even into early next year as, you know, the dollar is weakening and peso's gotten stronger relative.
Speaker Change: I wanted to go back to maybe <unk> question on just the beer gross margins and actually there was probably some favorability or upside to what we thought in the quarter. Garth I think in your prepared remarks, you talked about kind of a $40 million tailwind.
Speaker Change: I kind of operational improvements I'm just wondering.
Speaker Change: How much of that as well as maybe some favorability on on the peso you know that you guys locked in kind of that at a more favorable value and.
Speaker Change: Maybe how we should think about that on a go forward in the back half of this year or even into early next year. As you know the dollar has weakened peso has gotten stronger relative and any context, there would be helpful. Thanks very much.
Garth Hankinson: Any context there would be helpful. Thanks very much. No, no, thanks for the question, right. So just, I mean, as you know, you know, we have a pretty robust hedging policy. It's a hedging policy that starts sort of three years in advance of any one fiscal year. So, you know, we're pretty, we're pretty good at this point to be able to manage the impact and smooth the impact of any currency, and for that matter, commodity risk from year to year. As we entered this year, on the peso front, we were hedged in the low 70% range, which is a little bit higher than what we normally target to start the fiscal year.
Speaker Change: No. Thanks for the question right. So it just.
Speaker Change: As you know we have a pretty robust hedging policy. It's a hedging policy that starts sort of three years in advance of any one fiscal year. So we're pretty we're pretty good at this point, if you're able to manage the impact and smooth the impact of any currency and for that matter of commodity risk from from year to year. As we entered this year on the peso front we were hedged.
Speaker Change: In the low 70% range, which is a little bit higher than what we normally target to start to fiscal year as we saw some some favorability earlier in the year.
Garth Hankinson: As we saw some favorability earlier in the year with the peso, we did layer in incremental hedges for this year. And for this year, now we're up hedged for the peso over 80-ish percent. And then we later incremental hedges for that matter, for FY27 and FY28 to take advantage of that favorability. So as we sit here looking at the balance of the year, you know, there's still potential a little bit of opportunity across the whole basket of currency and commodities. But specific to the peso, you know, we feel the peso is probably a little bit overvalued right now due to the de-dollarization.
Speaker Change: With the peso, we did layer in incremental hedges for this year and for this year now we're up hedged for the peso over 80 ish percent.
Speaker Change: And then related incremental hedges for that matter for FY 'twenty seven in FY 'twenty eight to take advantage of that favorability.
Speaker Change: We sit here looking at the balance of the year.
Speaker Change: There is still potential a little bit of opportunity across the whole basket of currency and commodities.
Speaker Change: But specific to the peso.
Speaker Change: We feel the peso is probably a little bit over valued right now due to the de dollarization, we'll continue to look for opportunities to take advantage of any changes that go in our favor there, but the impact is certainly not as material as it was earlier in the year.
Garth Hankinson: We'll continue to look for opportunities to take advantage of any changes that go in our favor there. But the impact is certainly not as material as it was earlier in the year, largely due to the hedging, the incremental hedging we did through the quarter. Thank you.
Speaker Change: Largely due to the hedging of the incremental hedging we did through the quarter.
Speaker Change: Thank you. Your next question is coming from Andrea to share from JP Morgan. Your line is now live.
Andrea Teixeira: Next question is coming from Andrea Teixeira from J.P. Morgan. Your line is now live. Hi, good morning, everyone. Thank you for the question.
Speaker Change: Yeah.
Andrea: Hi, Good morning, everyone and thank you for the question I was hoping to see I mean, I think the important questions were asked but just in terms of like your new distribution I believe you quoted.
Andrea Teixeira: I was hoping to see, I mean, I think the important questions were asked, but just in terms of like your new distribution, I believe you quoted a good amount of high single digits into the summer. So I was hoping to see if there is any, obviously, with the conditions that the industry is in right now, but just to understand how the velocity has been so far and the level of incrementality you're seeing within a baseline. Of course, we know what the industry has been facing and the depletion is on the negative front, but just thinking how you are positioning as we go into the summer season and how does that, you know, velocity is behaving from now.
Andrea: A good amount of high single digits into the summer. So I was hoping to see if there is any obviously with the conditions that are industry easy right now, but just.
Andrea: Just to understand how this velocity has been so far.
Andrea: And the level of incremental duty you were seeing with.
Andrea: We've seen a baseline of course, we know what the industry has been facing into the patients on the negative side, but just thinking how you are positioning.
Andrea: As we go into the summer season, and how does that philosophy is behaving.
Andrea: For now.
Bill Newlands: Sure. So, distribution is going to continue to be a critical part for us. And fortunately, as the number one share gainer in the category, we are in position to continue to gain distribution and shelf positions. I think that's important for us as you see strong growth profiles for things like Pacifico, which we talked about a moment ago, and Sunbrew, and things that really are more shelf position because of their strong start in the marketplace. So, we believe that that's going to continue to be an important part of our growth profile as we go forward, is broadening that distribution.
Andrea: Sure so.
Andrea: Distribution is going to continue to be a critical part for us. Unfortunately, as the number one share gainer in the category.
Andrea: We are in position to continue to gain distribution and shelf positions I think that's important for us as you see strong growth profiles for things like Pacific <unk>, which we talked about a moment ago and Sun brew and things that really are demanding more shelf position because of their strong start in the marketplace.
Andrea: We believe that that's going to continue to be.
Andrea: An important part of our growth profile as we go forward is broadening that distribution.
Bill Newlands: And our team is very focused on that. It goes right back to what I said before, which is control the controllables. Our loyalty remains strong. We are seeing continuing improvement in the loyalty that we see with our Hispanic consumer and it's growing in the general market. That speaks to the long-term benefit against your velocity question. And I think that will be an important part.
Andrea: And our team is very focused on that it goes right back to what I said before which is control the controllable.
Andrea: Our loyalty remains strong we are seeing continuing improvement and.
Andrea: The loyalty that we see with our Hispanic consumer and it's growing in the general market that speaks to the long term benefit against your velocity question and.
Andrea: And I think that would be an important part another thing that I would point out where we're spending a lot of time as in price pack architecture.
Bill Newlands: Another thing that I would point out where we're spending a lot of time is in price pack architecture. It's an area where, as the consumer may be more concerned about inflationary trends, it would be important to have the right pack set at the right price points so that no matter what the consumer has available to them to spend, we have a product available to them for that quantum that they have available to them. So all of those things are critical elements about what we call the controllables that we're going to be focusing on as the year progresses.
Andrea: It's an area where as the consumer may be more concerned about inflationary trends it would be important to have the right pack set at the right price points. So that no matter what the consumer has available to them to spend we have a product available to them to ask for that quantum that they have available to them.
Andrea: Is that all of those things are critical elements about what we call the controllable.
Andrea: We're going to be focusing on as the year progresses.
Operator: Thank you.
Speaker Change: Thank you. Your next question is coming from Filippo for learning from Citi. Your line is now live.
Filippo Falorni: Next question is coming from Filippo Falorni from Citi, your line is now live. Hi, good morning, everyone. I wanted to get your perspective on the pricing environment in beer. Obviously, the category is under a lot of pressure across the board. Are you seeing, how are you seeing the pricing implemented this year being taken in the market? And are you seeing any competitors maybe relying a little bit more on promotions to try to accelerate the volume in the category? Thank you. I think there is some additional price promotion that's gone on the marketplace. I'll use our example.
Filippo: Hi, Good morning, everyone I wanted to get your perspective on the pricing environment in beer.
Andrea: Obviously the categories.
Andrea: Sort of pressure.
Andrea: Across the board are you seeing and how you're seeing the pricing implemented this year.
Andrea: Taking into market and are you seeing any competitors, maybe relying a little bit more on promotions to try to accelerate the volume in the category. Thank you.
Andrea: I think there is some additional price promotion that's gone on in the marketplace I'll use. Our example, we have addressed our oral pricing.
Bill Newlands: We have addressed our oral pricing starting this past month, going after the high-end light beer consumer, where we feel there's a great opportunity. We have made that adjustment in our own business in the interest of building additional share in the high-end light sector of the business. I think you're always going to see a bit more promotional activity at a time when there's economic concerns. That doesn't surprise us, but again, this goes right back to what we started with, which is our brands are strong and the loyalty is strong, and that, at the end of the day, is going to win the day.
Andrea: Starting this past month are going after the high end light beer consumer where we feel there is theres a great opportunity. So we have made that adjustment in our in our own business in.
Andrea: In the interest of building additional share.
Andrea: In the high end light sector of the business. So I think you're always going to see a bit more promotional activity at a time when there's economic concerns so that doesn't surprise us but again. This goes right back to what we started with which is our brands are strong and the loyalty strong and that at the end of the day is going to win the day.
Operator: Thank you.
Speaker Change: Thank you. Your next question today is coming from Bonnie Herzog from Goldman Sachs. Your line is now live.
Bonnie Herzog: Next question today is coming from Bonnie Herzog from Goldman Sachs. Your line is now live. All right. Thank you. Good morning.
Bonnie Herzog: Alright, Thank you and good morning, So I actually wanted to ask about the California wildfires that happened last year and I guess the expected rebound could you give us some color on.
Bonnie Herzog: So I actually wanted to ask about the California wildfires that happened last year and I guess the expected rebuild. Could you give us some color on, you know, what is happening with the rebuild and, you know, what type of growth or upside you might be expecting from this considering, you know, how important this market is for you? And then maybe clarify for us if the rebuild, you know, potential upside is factored into your guidance. Thanks. Sure. As many people know, and we've seen this at various, what I will call external factors, hurricanes in the East or fires in the West, anytime you see that sort of thing, there's a short-term hit and a somewhat long-term upside because as you, A, clean up and then rebuild, you're creating great job opportunities that tend to include interesting beer moments.
Speaker Change: What is happening with the rebuild and you know what type of growth or upside you might be expecting from this considering how important. This market is for you and then maybe clarify for us if the rebuilds.
Speaker Change: Potential upside is factored into your guidance. Thanks.
Speaker Change: Sure.
Speaker Change: As many people know and we've seen this at various.
Bonnie Herzog: What I will call external factors hurricanes in the east are fires in the west.
Speaker Change: Any time, you see that sort of thing there is a short term hit in a somewhat long term upside because.
Speaker Change: As you ate clean up and then rebuild youre, creating great job opportunities.
Speaker Change: Tend to include interesting beer moments so.
Bill Newlands: So, I think as we are starting into that process, and as you know, it takes a while to start the process of rebuilding with permits and so forth, that will likely be a bit of a tailwind. The amount of that tailwind remains to be seen as a lot of it depends on permits and development and how much construction capability exists in the marketplace. But you are correct, that ultimately will be a bit of a tailwind. And yes, that is built into our expectations of our guidance going forward. You know, that being said, Bobby, you know, I think it's important to point out that California, you know, has experienced some consumer challenges from the macro environment as it relates to things like, you know, unemployment, particularly for the Hispanic consumer, and even construction.
Speaker Change: Thank <unk>.
Speaker Change: We are starting into that process and as you know it takes a while to start the process of rebuilding with permits and so forth.
Speaker Change: That will likely be a bit of a tailwind the amount of that tailwind remains remains to be seen as a lot of it depends on permits and development and how much construction capability exists in the marketplace, but but you are correct that ultimately will be a bit of a tailwind and yes that is built into <unk>.
Speaker Change: Our expectations of our guidance going forward that being said body I think it's important to point out that California has experienced some some consumer challenges from the macro environment as it relates to things like.
Speaker Change: Unemployment, particularly for the Hispanic consumer and even construction there while we expect that there'll be some benefits as bill just noted before.
Garth Hankinson: And while we expect that there will be some benefits, as Bill just noted before, construction employment remains down year over year in California. So, again, you know, should be some benefit longer term, but short term, still some macro headwinds in the state. Thank you.
Speaker Change: Construction play remains down year over year in California, So so again right.
Speaker Change: Should be some benefit longer term, but short term still some macro headwinds in the stake.
Speaker Change: Thank you we've reached the end of our question and answer session and ladies and gentlemen that does conclude today's teleconference and webcast. You may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.
Operator: We've reached the end of our question and answer session. And ladies and gentlemen, that does conclude today's teleconference webcast. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation.